<PAGE>
 
                                 EXHIBIT 10.39
                                     LEASE

     THIS LEASE (this "Lease") dated as of June 29, 1998, is entered into by and
                       -----                                                    
between LA CANADA PROPERTIES, INC., a California corporation ("Landlord") and
                                                               --------      
SPORT CHALET, INC., a Delaware corporation ("Tenant").
                                             ------   

                            BASIC LEASE PROVISIONS

Shopping Center:    To be developed at the northeast corner of Angeles Crest
                    Highway and Foothill Boulevard in the City of La Canada
                    Flintridge, County of Los Angeles, State of California



Lease Term:         An initial term of Fifteen (15) Lease Years (the "Initial
                                                                      -------
                    Term"), plus three (3) separate "Option Terms") (as
                    ----                             ------------      
                    hereinafter defined) of five (5) Lease Years each.


Minimum Rent:            Initial Term                    $10,850.00 per month
                         First Option Term               $11,935.00 per month
                         Second Option Term              $13,128.50 per month
                         Third Option Term               $14,441.35 per month
                         
Permitted Use:           General office use.

Approximate Floor
Area of the Premises:    20,000 square feet

Address of Landlord:     For Deliveries by Mail:
                         La Canada Properties, Inc.    
                         c/o La Canada Enterprises, Inc.
                         P.O. Box 376
                         La Canada Flintridge, CA 91012-0376
                         Attn:  Mr. Norbert Olberz

                         For Deliveries Other than by Mail:
                         La Canada Properties, Inc.
                         c/o La Canada Enterprises, Inc.
                         920 Foothill Boulevard
                         La Canada Flintridge, CA 91011
                         Attn:  Mr. Norbert Olberz

Address of Tenant:       Sport Chalet, Inc.
                         920 Foothill Blvd.
                         La Canada Flintridge, CA 91011

Tenant's Trade Name:     Sport Chalet

Exhibits:

A    Site Plan
B    Intentionally omitted
C    Construction of the Premises

     This summary of Basic Lease Provisions is intended to supplement and/or
summarize the provisions set forth in the balance of this Lease.  If there is
any conflict between any provisions contained in this summary of Basic Lease
Provisions and the balance of this Lease, the balance of this Lease shall
control.

     1.   Premises.
          --------
  
          (a)  Landlord leases to Tenant and Tenant leases from Landlord certain
premises (the "Premises") being the second floor of a two (2) level building
               --------
(the "Building") to be constructed by Landlord within that certain area shown as
      --------
cross-hatched on Exhibit A attached hereto and incorporated herein by this
                 ---------
reference, which second floor shall contain approximately twenty thousand
(20,000) square feet of "Floor Area" (as hereinafter defined), together with
                         ----------
certain improvements (the "Improvements") to be constructed therein by Landlord.
                           ------------
The Premises shall be a part of a larger "Shopping Center" located in the City
                                          ---------------
of La Canada Flintridge, County of Los Angeles, State of California, to be
constructed approximately as shown on the Exhibit A attached hereto and
                                          ---------
incorporated herein by this reference, subject to such modifications as Landlord
may reasonably desire. As used herein, the term "Floor Area" shall mean all
                                                 ----------
areas available, or held for the exclusive use and occupancy of occupants or
future occupants of the Shopping Center (including, without limitation,
mezzanines used for the sale of goods and services, provided that mezzanines
used for storage or general offices shall not be included in Floor Area),
measured from the interior surface of exterior walls (and from extensions
thereof in the case of openings) and from the center of interior demising
partitions. The parties acknowledge that the Premises is not a mezzanine for
purposes of computation of 
<PAGE>
 
Floor Area. 

          (b)  The Floor Area of the Premises shall be the estimated Floor Area
stated in Section 1(a) above, unless and until adjusted pursuant hereto. If
          ------------
either party determines that the actual Floor Area of the Premises varies from
that set forth in Section 1(a), such party (the "Recalculating Party" shall give
                  ------------                   -------------------
notice to the other party of the Recalculating Party's determination of the
actual Floor Area of the Premises, together with reasonably detailed supporting
documentation for the making of such determination. In the event the party
receiving such determination of actual Floor Area in the Premises shall in good
faith dispute such determination, such party shall have the right, within thirty
(30) days of receipt of such determination, to deliver written notice (the
"Floor Area Dispute Notice") to the Recalculating Party, stating in reasonable
 -------------------------
detail the nature of such dispute, and in the event of such dispute, Landlord
and Tenant shall meet within fifteen (15) days following the receipt by the
Recalculating Party of the Floor Area Dispute Notice to in good faith endeavor
to reach agreement upon the amount of the actual Floor Area of the Premises. In
the event Landlord and Tenant are unable, despite the exercise of reasonable
good faith efforts, to so reach agreement upon the actual amount of Floor Area
within the Premises within thirty (30) days following the receipt by the
Recalculating Party of the Floor Area Dispute Notice, either party shall have
the right to institute a reference proceeding pursuant to Section 39 below, to
                                                          ----------
resolve such dispute. In the event the actual amount of Floor Area within the
Premises is agreed upon by the parties to be other than the amount set forth in
Section 1(a) above, by mutual agreement of the parties, a failure of the non-
-----------
Recalculating Party to dispute a determination of Floor Area in accordance
herewith by delivery of the Floor Area Dispute Notice within the thirty (30) day
period provided above, or by determination pursuant to reference proceeding,
then such agreed upon amount of Floor Area shall be the Floor Area of the
Premises for all purposes of this Lease and all calculations under this Lease of
Tenant's Share of Common Area Expenses, Tenant's Share of Taxes and Tenant's
Share of insurance costs pursuant to Section 12(a) below), shall be
                                     -------------
appropriately retroactively and prospectively adjusted, and any appropriate
adjustment payment from one party to the other based upon such Floor Area
(together with interest on the amount of such payment, at the "Interest Rate"
                                                               -------------
(as hereinafter defined), from the time such payment would have been due until
the time such payment is made) shall be made within thirty (30) days of such
agreement upon such Floor Area. As used herein, the term "Interest Rate" means a
                                                          -------------
per annum rate of interest equal to the lesser of (1) two percent (2%) over the
then "prime rate " most recently published in the Wall Street Journal (or in the
                                                  -------------------
event the Wall Street Journal ceases to publish a "prime rate", the "prime rate"
          -------------------
of a comparable source reasonably agreed upon by the parties), or (2) the
maximum rate permitted by applicable law. Notwithstanding anything to the
contrary contained in the foregoing, in no event shall any such deviation in the
amount of actual Floor Area from the amount of Floor Area set forth in Section
                                                                       -------
1(a) result in any adjustment of the monthly Minimum Rent payable pursuant to
----
this Lease.

          (c)  Any calculation of Floor Area of all or any portion of the
Shopping Center made by Landlord pursuant to this Lease shall be delivered to
Tenant together with reasonably detailed supporting documentation therefor. In
the event Tenant shall in good faith dispute such determination, Tenant shall
have the right, within thirty (30) days of receipt of such determination, to
deliver written notice (the "Floor Area Dispute Notice") to Landlord, stating in
                             -------------------------
reasonable detail the nature of such dispute, and in the event of such dispute,
Landlord and Tenant shall meet within fifteen (15) days following the receipt by
Landlord of the Floor Area Dispute Notice to in good faith endeavor to reach
agreement upon the amount of the actual Floor Area within the applicable portion
of the Shopping Center. In the event Landlord and Tenant are unable, despite the
exercise of reasonable good faith efforts, to so reach agreement upon the actual
amount of such Floor Area within thirty (30) days following the receipt by
Landlord of the Floor Area Dispute Notice, either party shall have the right to
institute a reference proceeding pursuant to Section 39 below, to resolve such
                                             ----------
dispute. In the event the actual amount of Floor Area within the applicable
portion of the Shopping Center is agreed upon by the parties to be other than
the amount calculated by Landlord, by mutual agreement of the parties or by
determination pursuant to reference proceeding, then such agreed upon amount of
Floor Area shall be the Floor Area of the applicable portion of the Shopping
Center for applicable purposes of this Lease and applicable calculations under
this Lease which vary depending upon the amount of such Floor Area shall be
appropriately retroactively and prospectively adjusted, and any appropriate
adjustment payment from one party to the other based upon such Floor Area
(together with interest on the amount of such payment, at the Interest Rate,
from the time such payment would have been due until the time such payment is
made) shall be made within thirty (30) days of such agreement upon such Floor
Area.

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

          (b)  Landlord hereby represents and warrants, to Landlord's actual
knowledge, that as of the "Substantial Completion Date" (as defined in Exhibit
                           ---------------------------                 -------
C), neither the Premises nor any other part of the Shopping Center shall contain
-
any "Hazardous Substances" (as hereinafter defined) in such quantity as would
     --------------------
constitute a violation of applicable federal, state or local governmental laws,
statutes, rules, regulations, ordinances, codes, orders or other requirements
(collectively, any "Laws") or would adversely affect Tenant's use or occupancy
                    ----
of, or operation of business from, the Premises. Landlord agrees and represents
and warrants that it shall not incorporate or permit or suffer to be
incorporated, knowingly or

                                      -2-
<PAGE>
 
unknowingly, any material containing any Hazardous Substances into the Premises.
Landlord shall prevent any action by any Person other than Tenant and/or any of
Tenant's employees, agents and/or invitees that will cause the Premises to be in
violation of, or will subject the Premises to, any remedial obligations under
federal, state or local Laws relating to Hazardous Substances. In the event
Hazardous Substances are, or become, located in, upon, under or about the
Premises and/or any other portion of the Shopping Center in such quantity as
would constitute a violation of applicable Laws or would adversely affect
Tenant's use or occupancy of, or operation of business from, the Premises, other
than as a result of the acts or omissions of Tenant and/or any of Tenant's
employees and/or agents, Landlord shall promptly remediate such contamination,
at no cost to Tenant (and without inclusion thereof as a "Common Area Expense"
                                                          -------------------
(as hereinafter defined)), upon discovery of such contamination. Landlord agrees
to immediately notify Tenant in reasonable detail of any existing, pending or
threatened regulatory action, third party claims, and/or contamination of the
Shopping Center, relating to the presence of Hazardous Substances within the
Shopping Center resulting from other than the acts or omissions of Tenant and/or
any of Tenant's employees and/or agents. Landlord shall indemnify, defend and
hold harmless Tenant from and against any and all damages, claims, expenses,
costs and liabilities (including, without limitation, reasonable attorneys' fees
and expenses) arising out of or in connection with the presence of Hazardous
Substances in, upon, under or about the Premises and/or any other portion of the
Center at any time during the Term of this Lease, other than as a result of the
acts or omissions of Tenant and/or any of Tenant's employees and/or agents. As
used in this Lease, the term "Hazardous Substance" means any asbestos, petroleum
                              -------------------
product or by-product or hazardous or toxic substance, material or waste which
is or becomes regulated by any local government authority, the State of
California or the United States.

          (c)  Tenant agrees and represents and warrants that it shall not
incorporate or permit or suffer to be incorporated, knowingly or unknowingly,
any material containing any Hazardous Substances into the Premises. Tenant shall
prevent any action by Tenant and/or any of Tenant's employees and/or agents that
will cause the Premises to be in violation of, or will subject the Premises to,
any remedial obligations under federal, state or local Laws relating to
Hazardous Substances. In the event Hazardous Substances are, or become, located
in, upon, under or about the Premises and/or any other portion of the Shopping
Center in such quantity as would constitute a violation of applicable Laws or
would adversely affect the use or occupancy of, or operation of business from,
the Shopping Center by any other Shopping Center occupant, as a result of the
acts or omissions of Tenant and/or any of Tenant's employees and/or agents,
Tenant shall promptly remediate such contamination, at no cost to Landlord, upon
discovery of such contamination. Tenant agrees to immediately notify Landlord in
reasonable detail of any existing, pending or threatened regulatory action,
third party claims, and/or contamination of the Shopping Center, relating to the
presence of Hazardous Substances within the Shopping Center resulting from the
acts or omissions of Tenant and/or any of Tenant's employees and/or agents.
Tenant shall indemnify, defend and hold harmless Landlord from and against any
and all damages, claims, expenses, costs and liabilities (including, without
limitation, reasonable attorneys' fees and expenses) arising out of or in
connection with the presence of Hazardous Substances in, upon, under or about
the Premises and/or any other portion of the Shopping Center at any time during
the Term of this Lease, as a result of the acts or omissions of Tenant and/or
any of Tenant's employees and/or agents.

          (d)  During the pendency of any work of construction which may result
in the imposition of a mechanic's or materialman's lien upon the Premises,
Landlord may post in the Premises in a reasonable manner, file and/or record
notices of non-responsibility in accordance with applicable Laws. The provisions
of this Section 2(d) shall apply to work in the Premises by or on behalf of
        -----------
Tenant during the Term including Tenant's Work.

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

                                      -3-
<PAGE>
 
     3.   Term of this Lease.
          ------------------
  
          (a)  The "Term" of this Lease shall be the period commencing upon the
                    ----                                                       
"Commencement Date" (as hereinafter defined) and, unless sooner terminated or
 -----------------                                                        
extended as herein provided, expiring on the January 31 first following the
expiration of fifteen (15) Full Lease Years following the Commencement Date.
"Full Lease Year" means each successive twelve (12) month period occurring
 ---------------
during the Term commencing with the first day of the month in which the
Commencement Date occurs, or, if the Commencement Date is not the first day of a
month, commencing with the first day of the month following the month during
which the Commencement Date occurs. "Partial Lease Year" means (a) the period
                                     ------------------
between the Commencement Date, if that date is not the first day of a month, and
the day before the beginning of the first Full Lease Year, and (b) if the Term
ends on other than the last day of a Full Lease Year, the period beginning on
the first day following the end of the final Full Lease Year of the Term and
ending on the last day of the Term. "Lease Year" means either a Full Lease Year
                                     ----------
or Partial Lease Year, as the case may be. As used herein, the term
"Commencement Date" shall mean the date of the earlier to occur of (i) the date
 -----------------
Tenant opens to the public for business from the Premises, or (ii) sixty (60)
days after the Substantial Completion Date. If the Commencement Date does not
occur within three (3) years after the date hereof, this Lease shall
automatically terminate and be of no further force or effect, unless otherwise
approved by both parties, in the event of which termination neither party shall
have any further liability or obligation hereunder.

          (b)  Tenant and its authorized agents, contractors, subcontractors and
employees shall have the right, without an obligation to pay rent, additional
rent or other charge, to enter the Premises for the purpose of performance of
Tenant's Work prior to the Commencement Date and no such entry by Tenant shall
be deemed an acceptance of the Premises; provided, however, that any such early
entry shall not unreasonably interfere with Landlord's performance of its
construction obligations with respect to the Premises pursuant to this Lease.
Tenant may use such utilities as are available during the course of such entry
for fixturization purposes prior to the Commencement Date. During the course of
any entry by Tenant for fixturization purposes prior to the Commencement Date,
all terms and conditions of this Lease (but not Tenant's obligation to make
payments in respect of rent or additional rent) shall apply, with specific
reference to indemnity and insurance.

          (c)  Landlord hereby grants Tenant three (3) separate options (the
"Options") to extend the Term of this Lease for three (3) separate consecutive
 -------
terms (the "Option Terms") of five (5) years each, following expiration of the
            ------------
then existing Term, upon all the terms and conditions contained in this Lease,
except for the payment of Minimum Rent which shall be in accordance with the
provisions of Section 5(a) below. Tenant shall give written notice of the
              ------------
exercise of each Option to Landlord at least six (6) months prior to the
expiration of the then applicable Term. Should Tenant neglect to exercise any
Option by the dates specified above, Tenant's right to exercise shall not expire
until thirty (30) days after notice from Landlord of Tenant's failure to
exercise such Option. References in this Lease to the "Term" shall mean the
                                                       ----
initial Term of this Lease, as the same may be extended by any Option Terms, as
applicable. Tenant shall have no other right to extend the Term beyond the
expiration of the third (3rd) Option Term.

     4.   Uses.
          ----
  
          (a)  Tenant shall use the Premises solely for general office use and
for no other use or purpose without the prior written consent of Landlord, which
consent may be granted or withheld in Landlord's sole and absolute discretion.
Landlord hereby represents and warrants to Tenant that, as of the Substantial
Completion Date, the operation for business from the Premises for general office
use will not violate any agreements respecting exclusive use rights or
restrictions on use within the Shopping Center or any portion thereof, and
Landlord shall indemnify, defend and hold harmless Tenant from and against any
and all costs, losses, demands, claims, liabilities and expenses (including,
without limitation, reasonable attorneys' fees and expenses) arising as a result
of any breach of such representation and warranty.

          (b)  Tenant shall not use the Premises for, and Landlord shall not
lease space in the Shopping Center for, any of the following uses: (i) bowling
alley, (ii) arcade (other than the operation of video machines incident to the
operation of an alternate primary use), (iii) tavern or bar (other than a bar
operated incident to a permitted restaurant use), (iv) health club, spa or
gymnasium, (v) night club or discotheque, (vi) any "second hand" or "surplus
store", (vii) any mobile home park, trailer court, labor camp, junkyard, or
stockyard (except that this provision shall not prohibit the temporary use of
construction trailers during periods of construction), (viii) any dumping,
disposing, incineration, or reduction of garbage (exclusive of dumpsters located
in the rear of any building), (ix) any fire sale, bankruptcy sale (unless
pursuant to a court order) or auction house operation, (x) any central laundry,
dry cleaning plant, or laundromat; provided, however, this prohibition shall not
be applicable to on-site service oriented to pickup and delivery by the ultimate
consumer, including nominal supporting facilities, as the same may be found in
retail shopping districts in the metropolitan area where the Shopping Center is
located, (xi) any automobile, truck, trailer or R.V. sales, leasing, display or
repair, (xii) any skating rink, (xiii) any living quarters, sleeping apartments,
or lodging rooms, (xiv) any veterinary hospital, animal raising facilities or
pet shop (except that this prohibition shall not prohibit pet shops unless such
pet shops are adjacent to the Premises), (xv) any mortuary, (xvi) any
establishment selling or exhibiting pornographic materials (other than a
national or regional book or video store operator selling "adult" materials from
less than ten percent (10%) of its Floor Area and not displaying such materials
in its storefront), (xvii) any business selling automobiles, (xviii) any movie
theater, and (xix) any use which is a public or private nuisance, or any use
which creates vibrations or offensive odors which are noticeable outside of any
building in the Shopping Center, or any noise or sound which can be heard

                                      -4-
<PAGE>
 
outside of any building in the Shopping Center and which is offensive due to
intermittency, beat, frequency, shrillness or loudness, provided any usual
paging system shall be allowed.

          (c)  Provided Tenant obtains Landlords's prior written consent, which
consent shall not be unreasonably withheld, conditioned or delayed, Tenant shall
have the right to use a proportionate share of the roof of the Building of which
the Premises is a part (as reasonably designated by Landlord) for Tenant's
separate HVAC rooftop system, if any, any antennae or other communications
equipment or other roof-top mounted equipment as Tenant may deem desirable for
the operation of its business; provided, however, that no roof penetrations
shall be made without obtaining Landlord's consent, which consent shall not be
unreasonably withheld, conditioned or delayed, and Tenant shall, at its own
expense, promptly repair any damage or wear to the roof resulting from such use
or caused by penetrations made during installation of Tenant's equipment or by
vibration of such equipment.

          (d)  Tenant shall not keep anything within the Leased Premises for any
purpose which invalidates any insurance policy carried on the Leased Premises or
on any other improvements located on adjacent properties. All property kept,
stored or maintained within the Leased Premises by Tenant shall be at Tenant's
sole risk. Tenant shall procure at its sole expense any permits and licenses
required for the transaction of its business in the Leased Premises and
otherwise comply with all applicable Laws.

     5.   Rent.
          ----
  
          (a)  Tenant shall pay Landlord "Minimum Rent" during the Term in the
                                          ------------
following amounts: during the Initial Term, Minimum Rent shall equal Ten
Thousand Eight Hundred Fifty Dollars ($10,850.00) per month; during the first
Option Term, Minimum Rent shall equal Eleven Thousand Nine Hundred Thirty-Five
Dollars ($11,935.00) per month; during the second Option Term, Minimum Rent
shall equal Thirteen Thousand One Hundred Twenty-Eight and 50/100ths Dollars
($13,128.50) per month; and during the third Option Term, Minimum Rent shall
equal Fourteen Thousand Four Hundred Forty-One and 35/100ths Dollars
($14,441.35) per month. Minimum Rent for any partial month occurring during the
Term shall be prorated based upon the number of days within such month occurring
during the Term. Minimum Rent shall be paid in monthly installments, in advance,
on the first day of each calendar month, without demand, offset or abatement,
except as specifically otherwise provided in this Lease.

          (b)  All monetary obligations of Tenant to Landlord under this Lease
other than Minimum Rent are collectively referred to herein as "Additional
                                                                ----------
Rent". References in this Lease to "Rent" shall mean, collectively, Minimum Rent
----                                ----
and Additional Rent.

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

          (b)  Tenant shall pay to Landlord "Tenant's Share" (as hereinafter
                                             -------------- 
defined) of the real estate taxes and general assessments (collectively,
"Taxes") levied upon and assessed against the Shopping Center, for each tax year
 -----
of the Term. Such taxes shall be payable by the later to occur of (i) thirty
(30) days following Tenant's receipt from Landlord of the applicable Tax bill
together with a calculation of the amount of such Tax owing by Tenant in
accordance with this Section 6, and (ii) fourteen (14) days prior to
                     ---------
delinquency. Tenant's schedule of payments (annual or semi-annual) shall be
concurrent with and proportionate to Landlord's schedule of payments to the
taxing authority. Landlord shall furnish Tenant with proof of payment of Taxes
within thirty (30) days after the delinquency date thereof. In the event of
assessments which may be paid in installments by reason of bonding or otherwise,
Landlord may elect to make payment under the installment plan. In any event,
Tenant's payment obligations under this Section shall be as if Landlord made
payment over the longest period of time permitted by the assessment and Tenant
shall bear no liability as to installments due following the expiration of the
Term or earlier termination of this Lease.

          (c)  For purposes of this Section 6, "Tenant's Share" is defined as a
                                    ---------   --------------
fraction, the numerator of which is the Floor Area within the Premises and the
denominator of which is the Floor Area within the Shopping Center (provided that
in no event shall such denominator be less than the amount of Floor Area shown
within the building areas of the Shopping Center on the Site Plan); except,
however, that if any owner or occupant of the Shopping Center separately pays
for the Taxes applicable to its parcel, then the Taxes so paid by such owner or
occupant shall be excluded from the Taxes to which Tenant contributes and the
Floor Area within the parcel of such owner or occupant shall not be included in
the denominator for purposes of calculation of Tenant's Share. Such computation
shall be made separately for each tax year.

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

          (e)  There shall be excluded from the tax bill to which Tenant
contributes for the purposes of computing Tenant's Share (i) income, excess
profits, estate, single business, inheritance, 

                                      -5-
<PAGE>
 
succession, transfer, franchise, capital, rental, gross receipts or any other
taxes or assessments upon Landlord or the Rents or other sums payable under thus
Lease; (ii) taxes and assessments, general (other than ad valorem taxes) or
special, relating to the initial construction, acquisition of the Shopping
Center or off-site improvements (including, without limitation, sewer and/or
street improvements) or any one or more subsequent renovations, improvements
and/or alterations thereof; and (iii) any charge, such as a water meter charge
and the sewer rent based thereon, which is measured by the consumption of the
actual user of the item or service on which such charge is made.

          (f)  Any rebates, refunds, or abatements of Taxes received by Landlord
subsequent to payment of the applicable Taxes by Tenant shall be refunded to
Tenant on a pro rata basis within ten (10) days of receipt thereof by Landlord.
Any such rebate, refund or abatement realized by Landlord prior to payment by
Tenant shall result in an immediate reduction in the Taxes upon which Tenant's
Share is calculated.

          (g)  Tenant shall have such rights to contest the validity or amount
of Taxes as are permitted by law, either in its own name or in the name of
Landlord, in either case with Landlord's full cooperation. Any resultant refund,
rebate or reduction shall be used first to repay the expenses of obtaining such
relief. Landlord shall provide Tenant with government notices of assessment (or
reassessment) in time sufficient to reasonably permit Tenant, at Tenant's
election, to make contest; and if Landlord fails to do so, then there shall be
excluded from the Tax bill to which Tenant contributes, any increased Taxes
resulting from such assessment (or reassessment). The term "contest" as used in
                                                            -------
this Section 6(g) means contest, appeal, abatement or other proceeding,
     -----------           
prescribed by applicable law to obtain tax reduction or tax refund, howsoever
denominated.

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

     7.   Utilities. Landlord shall provide to the Premises at all times
          ---------
necessary utilities services including electric, water, gas, telephone and other
necessary utility lines, as well as Common Area refuse collection service and
sewerage lines capable of adequately providing for Tenant's needs, but in no
event of less capacity than as specified in Exhibit C attached hereto. Landlord
                                            ---------
shall cause all such utilities separately serving the Premises to be separately
metered for the Premises. Tenant shall pay applicable use charges for all such
utilities serving the Premises during the Term directly to the applicable
utility provider.

     8.   Tenant's Alterations, Additions or Improvements . Tenant may make non-
          ------------------------------------------------
structural alterations and improvements to the interior of the Premises without
the prior approval of Landlord. Tenant shall not make any alterations to any
structural or exterior portions of the Premises without first obtaining the
prior written approval of Landlord, which approval shall not be unreasonably
withheld, conditioned or delayed, and shall be deemed granted if Tenant is not
notified in writing of a reasonable basis for Landlord's withholding of such
approval within fifteen (15) days of Tenant's request therefor. Upon the
expiration of the Term or sooner termination of this Lease, Tenant may, provided
no structural damage to the Premises will be caused thereby, remove its
furniture, fixtures and equipment. Tenant's alterations and improvements to the
Premises (except Tenant's trade fixtures, equipment and personal property),
shall become Landlord's property upon expiration of the Term or earlier
termination of this Lease, and Landlord will accept the Premises as altered
without any obligation upon Tenant to restore the Premises to its former
condition. Tenant shall be responsible for all damage resulting from any
construction, alterations or additions in or to the Premises during the Term
made by Tenant (collectively, any "Tenant Construction Work"), whether or not
                                   ------------------------
Landlord's consent therefor is necessary or was obtained. All Tenant
Construction Work shall be performed in accordance with all necessary
governmental approvals and permits, which Tenant shall obtain at its sole
expense and all applicable Laws. All Tenant Construction Work shall be performed
in a good and workmanlike manner and diligently prosecuted to completion so the
Premises shall always be a complete unit except during performance of such
Construction Work. Tenant shall perform all Tenant Construction Work so as not
to obstruct access to the Common Areas or the premises of any other occupant of
the Shopping Center.

     9.   Common Areas.
          ------------
  
          (a)  As used in this Lease, the term "Common Areas" shall mean those
                                                ------------
portions of, and facilities within, the Shopping Center which are intended for
the common non-exclusive use of the occupants, their customers, agents and
employees including, without limitation, parking areas, driveways, malls,
walkways, loading zones and landscaping. Prior to the Commencement Date,
Landlord shall construct the Common Areas of the Shopping Center substantially
as shown on Exhibit A attached hereto, subject to such modifications as are
            ---------
desired by Landlord, provided that Tenant's prior written approval thereof is
obtained, which approval shall not be unreasonably withheld, conditioned or
delayed.

          (b)  Tenant, as well as its agents, employees and customers
(collectively, "Customers"), shall have and are granted complete, nonexclusive
                ---------
and undisturbed access to, and use of all Common Areas. Tenant's use of the
Common Areas shall be subject to such reasonable, non-discriminatory rules and
regulations as may be promulgated and thereafter amended and supplemented by
Landlord from time to time as Landlord deems necessary or advisable for proper
and efficient use, operation and maintenance of the Common Areas, provided that
all such rules and regulations shall be subject to the prior written approval of

                                      -6-
<PAGE>
 
Tenant, which approval shall not be unreasonably withheld, conditioned or
delayed and in no event shall such rules and regulations increase the monetary
obligations owing from Tenant to Landlord under this Lease. Except as may be
required by Law, in no event shall there ever be a charge for use of the parking
facilities within the Center. If any such charge is required by applicable Law,
Landlord shall establish systems of validation to enable Tenant to provide
parking without charge for its customers using such parking facilities for a
reasonable period not less than three (3) hours. Landlord may from time to time
establish, as a part of the rules subject to the Tenant's approval as set forth
in the initial sentence of this Section, such employee parking systems (which
shall be free of any charge to Tenant or its employees, unless such a charge is
required by applicable Law, in which event such charge shall be borne by
Landlord) as are not unreasonably burdensome to the operation of Tenant's
business, and provide sufficient means of transportation and security for access
to and use of such employee parking. Without limiting the generality of the
foregoing, Tenant shall use commercially reasonable efforts to cause its
employees to park within the employee parking areas designated by Landlord to
the north, northeast and west of the Premises but not within the portion of the
Shopping Center which is both (x) south of the Premises and (y) east of main
drive aisle into the Shopping Center from Foothill Boulevard (between Pad
building "A" and "C" as shown on Exhibit A). Landlord shall use reasonable
                                 ----------
efforts to prevent use of the Common Areas by other than Shopping Center
occupants and their Customers. Landlord shall cause the Common Areas to be
maintained and operated in a first-class, professional manner and condition as
is customary and appropriate for the operation of first-class retail centers
comparable to the Shopping Center in the vicinity of the Shopping Center. So
long as access, parking and other essential services are reasonably available so
as to avoid any adverse affect upon the operation of Tenant's business from the
Premises, Landlord may at any time (i) close any of the Common Areas to make
repairs or changes or to such extent as may, in Landlord's reasonable opinion,
be necessary to prevent dedication thereof or the accrual of rights to any
person or to the public therein, (ii) close temporarily any or all of the Common
Areas to discourage non-customer parking, and (iii) perform such other acts in
and to the Common Areas as, in Landlord's good business judgment, are advisable
to improve the use thereof by occupants and tenants, their employees and
invitees, so long as the same is effected in a manner to minimize interference
with the operation of business of the occupants of the Shopping Center
including, without limitation, Tenant. Landlord shall maintain the Common Areas
well lighted during Tenant's normal business hours and until 11:00 P.M. every
day.

          (c)  Subject to the provisions of this Section 9(c), Landlord may from
                                                 ------------
time to time add land to or eliminate land from the Shopping Center, or
eliminate or add any improvements, or change or consent to a change in the
shape, size, location, number, height or extent of the improvements to any
portion of the Shopping Center; provided, however, that Tenant's prior written
approval, which approval shall not be unreasonably withheld, conditioned or
delayed, shall be required for any such change which would have an adverse
affect upon Tenant's use or occupancy of or operation from the Premises, parking
areas serving the Premises, or pedestrian or vehicular access to the Premises
from the Common Areas and/or public rights-of-way adjacent thereto. Landlord
shall not change the dimensions or location of the Premises.

     10.  Common Area Expenses.
          --------------------
  
          (a)  As used in this Lease, the term "Common Area Expenses" shall mean
                                                --------------------
all costs incurred by Landlord for the operation, maintenance and repair of the
Common Areas, including, without limitation, maintenance, repair and resurfacing
of the parking areas and maintenance, repair and replacement of Common Area
lighting standards (except that if the cost of such resurfacing or replacement
is not fully chargeable to current account in the year incurred in accordance
with generally accepted accounting principles, such cost shall be amortized over
its useful life and only the yearly amortization included in Common Area
Expenses); cleaning, sweeping, repainting and restriping the parking areas;
maintenance of refuse receptacles, landscaping, common utility lines serving all
tenants of the Shopping Center, directional signs and other markers; Common Area
utility costs; costs of Landlord's policy of commercial general liability
insurance for the Common Areas maintained pursuant to Section 12(b) below, and
                                                      -------------
an All Risk Policy for Common Area improvements in an amount equal to the full
replacement value thereof (subject only to reasonable deductible amounts) which
shall be maintained by Landlord; and a reasonable fee for Landlord's supervision
and administration of such obligations with respect to the Common Areas,
provided that in no event shall such supervision and administration fee exceed
ten percent (10%) of the total Common Area Expenses exclusive of such insurance
costs. Except to the extent specifically otherwise provided in this Lease, in no
event shall "Common Area Expenses" include any expenditures which, in accordance
             --------------------
with generally accepted accounting principles, are not fully chargeable to
current account in the year the expenditure is incurred.

          (b)  Subject to the provisions of Section 9 above, Tenant shall pay
                                            ---------
"Tenant's Share" (as hereinafter defined) of the Common Area Expenses. As used
 --------------
herein, "Tenant's Share" of Common Area Expenses is defined as that fraction of
         --------------
the Common Area Expenses, the numerator of which is the Floor Area within the
Premises and denominator of which is the Floor Area within the Shopping Center
(provided that in no event shall such denominator be less than the amount of
Floor Area shown within the building areas of the Shopping Center on Exhibit A);
                                                                     ---------
except, however, that to the extent any owner or occupant of the Shopping
Center, at its sole cost, separately performs the obligations relating to the
Common Area with respect to its parcel, then items of Common Area Expenses so
paid by such owner or occupant with respect to its parcel shall be excluded from
the Common Area Expenses to which Tenant contributes and the Floor Area within
the parcel of such owner or occupant shall not be included in the denominator
for purposes of calculation of Tenant's Share with respect to such items of
Common Area Expenses. Tenant's payment under the provisions of this Section
                                                                    -------
10(b) shall be due and payable not sooner than thirty (30) days following
-----
receipt by Tenant of an itemized billing from Landlord, which billing shall be
no more frequently than monthly, nor less  

                                      -7-
<PAGE>
 
frequently than annually during the Term; provided, however, that Landlord shall
have the right to estimate Common Area Expenses and Tenant's Share thereof,
based on the previous year's actual expenditures and reasonably anticipated
increases and so inform Tenant in writing along with an itemized breakdown of
the actual expenditures for such previous year. Beginning with the first full
calendar month following thirty (30) days after Tenant's receipt of Landlord's
written estimate, Tenant shall include one-twelfth (1/12th) of its annual
obligation for Tenant's Share of Common Area Expenses based upon such estimate
with each payment of Minimum Rent thereafter until actual expenditures are
thereafter computed by Landlord. As soon as reasonably practicable following the
end of each calendar year (but not later than within one hundred eighty (180)
days thereafter), Landlord shall calculate actual expenditures for Common Area
Expenses for such calendar year and Tenant's Share thereof and provide s such
accounting to Tenant (the "Annual Statement"). If the Annual Statement shows
                           ----------------
that Tenant's payments of estimated Tenant's Share of Common Area Expenses
exceeds actual Tenant's Share of Common Area Expenses for such calendar year,
Landlord shall accompany said Annual Statement with a payment to Tenant of the
amount of such excess. If the Annual Statement shows that Tenant's payments of
estimated Tenant's Share of Common Area Expenses were less than actual Tenant's
Share of Common Area Expenses for such calendar year, Tenant shall pay said
difference to Landlord within thirty (30) days of Tenant's receipt of the Annual
Statement.

          (c)  Landlord shall keep at the Shopping Center or at another location
in Southern California, complete, accurate books of account and records with
respect to the Common Area Expenses, and shall retain such books and records and
reasonable supporting documentation for at least two (2) years from the end of
the period to which they are applicable. Tenant's payment of Tenant's Share of
Common Area Expenses shall be without prejudice to Tenant's examination and
audit rights. Tenant may at any reasonable time during normal business hours,
upon ten (10) days' prior notice to Landlord, cause a complete audit to be made
of such books, records and other materials which Landlord is required to retain
for all or any part of the two (2) years immediately preceding the giving of
such notice. Tenant may require Landlord to produce such information about such
books and records as is necessary for a proper examination and audit thereof and
to make such books and records available to Tenant for examination and audit.
Any such audit shall be conducted in a manner so as to minimize interference
with Landlord's business operations. If such audit discloses any overpayment by
Tenant of Tenant's Share of Common Area Expenses, Landlord shall refund to
Tenant the amount of such overpayment within fifteen (15) days following
Landlord's receipt of such audit. If such audit discloses an overpayment by
Tenant of Tenant's Share of Common Area Expenses by three percent (3%) or more,
Landlord shall pay to Tenant within fifteen (15) days after demand, Tenant's
reasonable cost in conducting such audit (as evidenced by invoices or other
reasonable supporting documents delivered to Landlord). Tenant shall not conduct
such an audit of Landlord's records more than once in any given calendar year
(unless necessitated as a result of any dispute respecting the accuracy of the
initial audit with respect to such calendar year). Failure of Tenant to conduct
such an audit within two (2) years following provision to Tenant of the
applicable Annual Statement shall constitute waiver by Tenant of any right to
audit Common Area Expenses set forth in such Annual Statement.

     11.  Maintenance.
          -----------
  
          (a)  Tenant will at its expense maintain the interior portions of the
Premises (which Landlord is not obligated to repair in accordance with Section
                                                                       -------
11(b) below) in good and tenantable condition and make all needed repairs
-----
thereto, including, without limitation, exposed interior utility lines, meters,
pipes, conduits, fixtures and other equipment and systems serving exclusively
the Premises and equipment and personal property of Tenant within the Premises.
Tenant shall permit no waste, damage or injury to the Premises and Tenant shall
carry out a program of regular maintenance and repair of the Premises. Tenant
shall perform all necessary repairs, alterations and improvements to cause the
Premises to comply with all applicable Laws to the extent that such compliance
is required as a result of Tenant's particular use of, or alterations or
improvements to, the Premises. Tenant will not overload the electrical wiring
serving the Premises, and will install at its expense, but only after obtaining
Landlord's written approval any additional electrical wiring which is required
in connection the operation of Tenant's business, in excess of such electrical
wiring and capacity as is provided pursuant to Exhibit C.
                                               ---------               
          (b)  Landlord will, at its sole cost and expense, keep, maintain,
repair and replace in first-class and professional manner and repair consistent
with the standards of first-class shopping centers comparable to the Shopping
Center located in the vicinity of the Shopping Center, and (subject to Tenant's
obligation to perform necessary repairs, alterations or improvements to the
Premises to comply with applicable Laws where such compliance is required as a
result of Tenant's particular use of the Premises) perform any repairs,
improvements or alterations required by applicable Laws to, the foundation,
footings, roof, roof membrane, exterior walls and structural portions of, the
Premises (excluding front doors, windows, and plate glass), utility lines,
meters, pipes, conduits, fixtures and other equipment and systems (except if
exposed within the Premises and serving exclusively the Premises), sprinkler
systems, gutters and downspouts, plus all Common Areas of the Shopping Center.
Tenant may give Landlord notice of such repairs as may be required under the
terms of this Section, and Landlord shall proceed forthwith to effect the same
with reasonable diligence, but in no event later than thirty (30) days after
having received notice (or such greater period of time as is reasonably
necessary to complete such repairs in the event such repairs are not susceptible
of completion within thirty (30) days, provided Landlord shall, following
receipt of such notice from Tenant, promptly commence such repairs and
diligently prosecute the same to completion). In event of an emergency, Tenant
shall have the right, but not the obligation, to undertake immediate repairs of
such nature as would normally be Landlord's responsibility, and notify Landlord
promptly after such repairs have been undertaken (including, without limitation,
notice by telephone, to the extent reasonably practicable). If Landlord fails to
repair any portion of the Premises which is Landlord's responsibility, within
the thirty (30) day

                                      -8-
<PAGE>
 
period set forth above (or such greater period of time as is reasonably
necessary to complete such repairs in the event such repairs are not susceptible
of completion within thirty (30) days, provided that following receipt of such
notice from Tenant, Landlord promptly commences such repairs and diligently
prosecutes the same to c ompletion), or in the case of any emergency as above
stated, Tenant may perform the repairs or maintenance and Landlord shall
reimburse Tenant for the reasonable cost of such repairs within thirty (30) days
following Landlord's receipt from Tenant of invoices or other reasonable
evidence of the amount of such costs; provided, however, that in the event
Landlord in good faith disputes whether Tenant properly performed an obligation
of Landlord hereunder, Landlord shall have the right to dispute the same by
institution of a reference proceeding in accordance with the provisions of
Section 39 below. If it is determined pursuant to such proceeding that Tenant
----------
did not properly perform an obligation of Landlord in accordance herewith, then
Tenant shall not have any right to reimbursement for the cost of performance as
herein provided. If it is determined pursuant to such proceeding that Tenant
properly performed an obligation of Landlord hereunder, then Landlord shall
within ten (10) days following such determination, reimburse Tenant for the
reasonable cost of such performance as determined pursuant to such action, plus
interest thereon at the Interest Rate from the date of Tenant's expenditure
until Landlord's reimbursement. Should Landlord fail to pay such amount as is
owing in accordance herewith (i) within thirty (30) days of receipt of invoice
(if Landlord does not institute an action within such thirty (30) day period to
in good faith dispute as herein provided), or (ii) within ten (10) days after
such determination by such action, as applicable, Tenant may deduct and offset
such amount (including interest at the Interest Rate from the time such
expenditure was made by Tenant until paid by Landlord) from Rent and other
monetary obligations of Tenant owing to Landlord hereunder.

          (c)  Landlord and its authorized representatives may enter the
Premises during usual business hours, upon not less than twenty-four (24) hours'
prior written notice to Tenant to (i) inspect the same; and (ii) show the same
to prospective mortgagees, buyers and, in the final six (6) months of the Term,
tenants. Landlord may, upon reasonable prior notice to Tenant, enter the
Premises to make additions, alterations or repairs to the Premises as Landlord
is required to make in accordance with this Lease or in order to comply with
applicable Laws, provided, however, that all such additions, alterations and/or
repairs shall be performed in a manner so as to minimize interference with the
operation of Tenant's business from the Premises. In addition, in event of an
emergency, Landlord shall have the right, but not the obligation, to undertake
immediate repairs of such nature as would normally be Tenant's responsibility,
and notify Tenant promptly after such repairs have been undertaken (including,
without limitation, notice by telephone, to the extent reasonably practicable).
If Tenant fails to repair any portion of the Premises which is Tenant's
responsibility, within thirty (30) days after notice from Landlord of the
necessity for such repair (or such greater period of time as is reasonably
necessary to complete such repairs in the event such repairs are not susceptible
of completion within thirty (30) days, provided that following receipt of such
notice from Landlord, Tenant promptly commences such repairs and diligently
prosecutes the same to completion), or in the case of any emergency as above
stated, Landlord may perform the repairs or maintenance and Tenant shall
reimburse Landlord for the reasonable cost of such repairs within thirty (30)
days following Tenant's receipt from Landlord of invoices or other reasonable
evidence of the amount of such costs; provided, however, that in the event
Tenant in good faith disputes whether Landlord properly performed an obligation
of Tenant hereunder, Tenant shall have the right to dispute the same by
institution of a reference proceeding in accordance with the provisions of
Section 39 below. If it is determined pursuant to such proceeding that Landlord
---------- 
did not properly perform an obligation of Tenant in accordance herewith, then
Landlord shall not have any right to reimbursement for the cost of performance
as herein provided. If it is determined pursuant to such proceeding that
Landlord properly performed an obligation of Tenant hereunder, then Tenant shall
within ten (10) days following such determination, reimburse Landlord for the
reasonable cost of such performance as determined pursuant to such action, plus
interest thereon at the Interest Rate from the date of Landlord's expenditure
until Tenant's reimbursement.

     12.  Insurance.
          ---------
  
          (a)  (i)  Landlord shall maintain at all times during the Term an "All
                                                                             ---
Risk Policy" (as hereinafter defined) insuring against damage to any portion of
-----------
the Premises, and appurtenances thereto. Such insurance shall be in the full
amount of replacement value (subject only to reasonable deductible amounts),
without deduction for physical depreciation and shall provide that the proceeds
of any loss shall be payable in the manner provided for in this Lease. Such
policy shall be obtained from an insurer licensed to do business within the
State of California having a policy holder's rating of at least A- and a
financial rating of not less than VIII in the most recently published Best's
Insurance Reports. Landlord shall, at least ten (10) days prior to the
Commencement Date, and thereafter annually provide Tenant with a certification
of such insurance coverage, which certificate shall indicate, among other
things, that Tenant is a named insured along with Landlord and that the Premises
and all the improvements and Landlord's fixtures appurtenant thereto, have been
insured to their full replacement value, without deduction for physical
depreciation. As used herein, the term "All Risk Policy" shall mean a policy of
                                        ---------------
fire and other property insurance in the form commonly referred to in the
industry as "all risk" with extended endorsement (false arrest, libel, slander,
assault, battery, invasion of privacy, theft, vandalism and malicious mischief
coverage) and including broad form water damage, or if such policy is no longer
issued, such other policy as would cover the same risks and perils; provided
that although Landlord may elect to obtain coverage for flood and earthquake in
addition to such policy, Tenant shall not be required to pay any part of the
premium allocable to such coverages.

               (ii) Tenant shall reimburse Landlord for "Tenant's Share" (as
                                                         --------------
hereinafter defined) of the premium costs of the insurance described in Section
                                                                        -------
12(a)(i) above. Tenant's schedule of payments for reimbursement shall be
-------
established in the same manner as described in Section 6 above, for 
                                               ---------

                                      -9-
<PAGE>
 
Tenant's Share of Taxes. "Tenant's Share" for purposes of this Section 12(a)(ii)
                          --------------                       -----------------
shall be a fraction, the numerator of which is the Floor Area within the
Premises and the denominator of which is the Floor Area within the entire
Shopping Center or portion thereof or improved structures, covered by the
insurance policy which is the subject of the premium; provided, however, at
Tenant's election, Tenant's Share shall depend on the size and value of the
Premises and other improvements insured by the policy of insurance and the rate
basis applicable to each.

               (iii) In lieu of Landlord assuming the obligation specified in
Section 12(a)(i) above, subject to Tenant's reimbursement as described in
----------------
Section 12(a)(ii) above, Tenant may, at its option, elect to carry such
-----------------
insurance on the Premises including such other endorsements as the Tenant in its
judgment deems prudent under the circumstances, all at Tenant's sole cost and
expense, in which event Tenant shall not be responsible for reimbursement under
Section 12(a)(ii) and Tenant's Share of insurance costs pursuant to this Section
-----------------                                                        -------
12(a) for purposes of this Lease shall equal the amount of Tenant's cost for
-----
such insurance.

               (iv)  As used herein, the term "Lender" means the holder of
                                               ------
indebtedness secured by a first lien upon the real property including the
Premises, whether the interest creating such lien is denominated as a mortgage,
deed of trust or other security instrument, but only if Lender (1) is a
financial institution, such as a bank, savings and loan, insurance company, or
other entity regularly engaged in making loans secured by real property, and (2)
has Fifty Million Dollars ($50,000,000.00) of such loans outstanding. Insurance
proceeds for damage or destruction to the Premises ("Proceeds"), if under One
                                                     --------
Dollar ($1.00) per square foot of Floor Area in the Premises shall be paid
directly to Landlord. If in excess of such amount, upon Tenant's request, the
Proceeds shall be deposited with Lender provided Lender agrees to apply the
Proceeds in the manner described herein. If Lender does not so agree, or there
is no Lender, then, upon Tenant's request, the Proceeds shall be deposited with
a bank, trust company, or title insurance company (collectively, with Lender,
referred to herein as "Stakeholder") designated by Tenant and reasonably
                       -----------
approved by Landlord, for use as provided in Section 14 below. The Stakeholder
                                             ----------
shall disburse the Proceeds to the party performing restoration upon
certification by the architect in charge of restoration that the amounts
requested shall be paid in accordance with standard construction disbursement
procedures in connection with such restoration to the contractor,
subcontractors, materialmen, architects or other persons who have rendered
services or have furnished materials for such restoration, and upon the
completion of such restoration the remaining balance of any of such Proceeds
shall be paid to Landlord upon demand.

          (b)  (i)   From the date of delivery of the Premises to Tenant, Tenant
will carry at its sole cost commercial general liability insurance covering the
Premises and Tenant's use thereof against claims from personal injury, bodily
injury, death and property damage occurring in or about the Premises, such
insurance in each case to afford protection to a combined single limit of at
least Three Million Dollars ($3,000,000.00) (such insurance extending to any
liability of Tenant arising out of the indemnities provided for in Section 13
                                                                   ----------
below), and naming Landlord as an additional insured thereunder.

               (ii)  From the date of delivery of the Premises to Tenant,
Landlord will carry, as a Common Area Expense, commercial general liability
insurance covering the Common Areas against claims from personal injury, bodily
injury, death and property damage occurring in or about the Premises, such
insurance in each case to afford protection to a combined single limit of at
least Three Million Dollars ($3,000,000.00) (such insurance extending to any
liability of Landlord arising out of the indemnities provided for in Section 13
                                                                     ----------
below), and naming Tenant as an additional insured thereunder.

               (iii) The policies maintained by Landlord and Tenant pursuant to
this Section 12(b) shall each (1) include a cross-liability endorsement
     -------------
providing that and Tenant, although insureds, may recover on account of the
negligence of the other, (2) be obtained from an insurer with a policy holder's
rating of at least A- and a financial rating of not less than VIII in the most
recently published Best's Insurance Reports, (3) shall provide that such
insurance is not contributory with the coverage which the other party may carry
and is primary insurance coverage and not excess insurance coverage or overage
insurance coverage, and (4) shall provide that the insurance provider will give
at least thirty (30) days' written notice of any cancellation, reduction in
 .coverage, lapse or failure to renew, to the party designated on the insurance
certificate as the holder thereof.

               (iv)  Landlord and Tenant agree to deliver to the other
certificates of insurance evidencing the existence in force of the policies of
insurance described in this Section 12(b). Each of such certificates shall
                            -------------
provide that such insurance shall not be canceled, reduced in coverage, lapse or
materially amended unless thirty (30) days' prior written notice of such
cancellation, reduction in coverage, lapse or amendment is given to the party
designated on such certificate as the holder thereof.

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

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

                                      -10-
<PAGE>
 
obtain such waiver.

     13.  Indemnity. Tenant shall indemnify, hold harmles s and defend Landlord
          ---------
from and against any and all claims, actions, demands, expenses and liability
whatsoever, including reasonable attorneys' fees, on account of any such real or
claimed damage or liability and from all liens, claims, demands, expenses and
liability whatsoever arising out of the negligence or wilful misconduct of
Tenant and/or any of Tenant's employees, agents, representatives and/or
contractors, to the extent the same is not covered by the insurance required to
be maintained by Landlord pursuant to this Lease. Landlord shall indemnify, hold
harmless and defend Tenant from and against any and all claims, actions,
demands, expenses and liability whatsoever, including reasonable attorneys'
fees, on account of any such real or claimed damage or liability and from all
liens, claims, demands, expenses and liability whatsoever arising out of the
negligence or wilful misconduct of any of Landlord and/or any of Landlord's
employees, agents, representatives and/or contractors, to the extent the same is
not covered by the insurance required to be maintained by Tenant pursuant to
this Lease.

     14.  Damage and Destruction.
          ---------------------- 
 
          (a)  If the Premises and/or any portion of the Common Areas which if
not available for use would have an adverse affect upon the operation of
Tenant's business from the Premises is damaged or destroyed by any risk covered
by an All Risk Policy, Landlord shall (subject to being able to obtain all
necessary permits and approvals) promptly (but not later than one (100) days
after such damage or destruction (unless either party terminates this Lease
pursuant to Section 14(b)), commence to repair and/or reconstruct the Premises
            --------------
and such Common Areas to substantially the same condition as the Premises were
originally delivered to Tenant pursuant to Landlord's obligations under Exhibit
                                                                        -------
C (the parties hereby agreeing that Landlord shall not be obligated for the
-
repair and/or restoration of any items of Tenant's Work or alterations and
improvements made by Tenant not covered by the insurance maintained by Landlord
pursuant to this Lease). Landlord shall prosecute all such work diligently to
completion in a good and workmanlike manner.

          (b)  Landlord may terminate this Lease by notice to Tenant within
sixty (60) days after the occurrence of damage to or destruction of the Premises
if the Premises is damaged or destroyed as a result of any risk not covered by
an All Risk Policy and the cost of such repair and/or restoration exceeds ten
percent (10%) of the replacement value of the Premises; provided that Tenant may
nullify such an election by Landlord to terminate by agreeing by written notice
to Landlord within ten (10) days following receipt of Landlord's termination
notice to agree to be solely responsible for the cost of repair not covered by
an All Risk Policy and which is actually not covered by the insurance maintained
by Landlord, to the extent in excess of ten percent (10%) of the replacement
value of the Premises. In addition, following any casualty to the Premises
and/or the Shopping Center which materially and adversely affects the operation
of Tenant's business from the Premises, the parties shall meet and reasonably
agree upon an estimate of the time necessary to complete the repair and/or
restoration necessitated by such casualty, and in the event it is so determined
that such repair shall not be completed within one hundred eighty (180) days
following the occurrence of such casualty and/or in the event such repair in
fact is not completed within such one hundred eighty (180) day period (or such
longer period as Tenant may approve in writing prior to the commencement of the
repair and/or restoration), Tenant shall have the right to terminate this Lease
by written notice to Landlord delivered within thirty (30) days following the
making of such determination and/or the expiration of such one hundred eighty
(180) day (or longer, as applicable) period, as the case may be. In addition to
the foregoing, in the event of any casualty to the Premises or a material
portion of the Common Areas occurring during the final two (2) Lease Years of
the Term, requiring in excess of ninety (90) days to repair, either party may
terminate this Lease by written notice to the other within sixty (60) days of
the occurrence of the casualty unless Tenant exercises or has exercised its next
available Option, if any, to extend the Term within such thirty (30) day period,
and in the event of the exercise of such Option to extend the Term, such
casualty shall be treated in the manner of casualties occurring other than
during the final two (2) Lease Years of the Term. Unless this Lease is so
terminated in accordance with this Section 14(b), this Lease shall continue in
                                   -------------
full force, and Landlord shall perform its repair obligation under Section
                                                                   -------
14(a). Upon any termination of this Lease under this Section 14(b), the Rent
-----                                                -------------
shall be adjusted as of the date of such termination and the parties shall be
released without further obligation to the other coincident with the surrender
of possession of the Premises to Landlord, except for items which have accrued
and are unpaid.

          (c)  If neither party terminates this Lease pursuant to Section 14(b)
                                                                  -------------
above, and if the operation of Tenant's business from the Premises is materially
interfered with as a result of such damage or destruction, Tenant's obligation
for the payment of Rent pursuant to this Lease during the period the Premises
are so rendered unfit shall be equitably abated based upon the extent of the
interference with Tenant's business resulting from such casualty.

          (d)  The parties waive such rights of Lease termination as are granted
to them under the laws of the state of California, it being their agreement that
the rights of termination in the event of casualty, as set forth herein, shall
be exclusive.

                                      -11-
<PAGE>
 
     15.  Condemnation
          ------------
  
          (a)  If during the Term, all or any portion of the Premises is taken
by right of eminent domain or condemnation by a competent governmental authority
or by conveyance in lieu thereof (collectively, any "Taking") other than in a
                                                     ------
"Temporary Taking" (as hereinafter defined), or if such a portion of the Common
 ----------------
Areas is so Taken (other than in a Temporary Taking) as Tenant reasonably
determines shall have an adverse affect upon the operation of Tenant's business
from the Premises, within thirty (30) days following the date of such Taking,
Tenant may terminate this Lease upon written notice to the Landlord. In the
event Tenant does not so terminate this Lease, Landlord shall promptly and
diligently restore the Premises, Common Areas and/or other portions of the
Shopping Center as are so Taken, as the case may be, to as near their condition
as existed prior to such Taking as is reasonably possible. In the event of a
Taking which does not result in the termination of this Lease, Tenant's
obligations for Rent under this Lease shall be equitably abated following such
Taking based upon the extent of the interference with the operation of Tenant's
business from the Premises. In the event of a "Temporary Taking" (which for
                                               ----------------
purposes hereof shall mean a Taking not extended beyond the Term) which
adversely affects Tenant's operation from its Premises, Tenant shall have the
right to elect either to terminate this Lease in accordance herewith or to not
terminate this Lease and receive all compensation awarded by the condemning
authority with respect to such temporary Taking of the Premises (provided that
if such Temporary Taking shall adversely affect Tenant's operation from its
Premises for a period of less than six (6) months, Tenant shall not have any
such right to terminate this Lease as a result thereof, but Tenant shall be
entitled to receive all compensation awarded by the condemning authority with
respect to such temporary Taking).


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

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

          16.  Assignment and Subletting
               -------------------------
  
          (a)  Except as otherwise specifically provided herein, Tenant shall
not assign Tenant's interest in this Lease or sublet any portion of the Premises
(collectively, "Transfer") without obtaining in each instance the prior consent
                --------
of Landlord, which consent shall not be unreasonably withheld, conditioned or
delayed. No acceptance of Rent by Landlord from any Person shall be deemed
Landlord's consent to any Transfer. Landlord's consent to any Transfer shall not
constitute a waiver of the necessity for such consent to any subsequent
Transfer. Notwithstanding a permitted Transfer, Tenant shall remain fully liable
for the full performance of every obligation under this Lease to be performed by
Tenant. Any permitted assignee or subtenant pursuant to this Section 16 may
                                                             ---------- 
change the trade name under which the business operating from the Premises is
operated and/or the use of the Premises in accordance with the provisions of
Section 4(b) above.
------------

          (b)  Notwithstanding anything to the contrary contained in Section
                                                                     -------
16(a) above, Tenant may, without Landlord's consent, (but upon reasonable prior
-----
notice to Landlord) at any time (i) assign this Lease or sublease the whole or
any part of the Premises to any entity controlled by, controlling or under
common control with Tenant or to any entity resulting from the consolidation or
merger of Tenant into or with such other entity or the acquisition of all or
substantially all of the assets of Tenant by such entity, or (ii) license, grant
a concession of or otherwise permit the use of one or more portions of the
Premises which are not separately demised to licensees, concessionaires or users
consistent with Tenant's permitted use of the Premises.

          (c)  If Tenant is a corporation, unincorporated association or
partnership, Tenant shall not transfer, assign or hypothecate (or permit the
transfer, assignment or hypothecation) of all or substantially all of the assets
of such corporation, association or partnership, or all or substantially all of
any stock or interest in such corporation, association or partnership so as to
result in a change in the control thereof by the Person(s) owning a majority
interest therein on the date of this Lease. This Section 16(c) shall not apply
                                                 -------------
to Tenant if such transaction involves an assignment or subletting permitted
under Section 16(b), nor shall this Section 16(c) prohibit the transfer of stock
      -------------                 -------------      
in a corporation whose voting stock is listed on a national securities exchange.

                                      -12-
<PAGE>
 
    17.   Subordination and Attornment.
          ----------------------------
  
          (a)  Upon notice by Landlord, Tenant shall subordinate its rights
under this Lease to any lease(s) wherein Landlord is the lessee and to the lien
of any mortgage(s) or deed(s) of trust (collectively, "Instrument"), regardless
                                                       ---------- 
of whether such Instrument now exists or is hereafter created, to all advances
thereunder, to any interest thereon, and to all modifications, consolidations,
renewals, replacements and extensions thereof, provided the lessors, mortgagees
or trustees agree to provide Tenant with an agreement of non-disturbance in a
form reasonably acceptable to Tenant, agreeing to recognize this Lease and
Tenant's rights hereunder in the event of termination or foreclosure under the
Instrument. Tenant agrees to execute any agreement evidencing such subordination
and non-disturbance in a form reasonably acceptable to Tenant, at Landlord's
request. Any such lessor, mortgagee or trustee may elect to have this Lease
prior to its instrument, and in the event of such election and upon notification
by such lease, mortgagee or trustee to Tenant, this Lease shall be deemed prior
to said Instrument, whether this Lease is dated prior or subsequent to said
Instrument. Notwithstanding anything to the contrary contained in this Lease, it
shall be a condition precedent to the performance of each of Tenant's
obligations under this Lease (including, without limitation, Tenant's obligation
for the payment of Rent), that Tenant obtain from each lessor, mortgagee or
trustee under an Instrument presently encumbering the Premises, an agreement of
non-disturbance in a form reasonably acceptable to Tenant.

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

     18.  Tenant Defaults.
          ---------------
  
          (a)  The occurrence of either of the following shall constitute a
default by Tenant pursuant to this Lease: (i) Tenant's failure to pay Rent when
due under this Lease, where such failure continues for ten (10) days after
notice that such payment is due (which notice shall be lieu of and not in
addition to any notice required under applicable law); and (ii) Tenant's failure
to observe or perform any covenant, term or condition of this Lease (other than
the payment of Rent) where such failure continues for thirty (30) days after
notice thereof from Landlord to Tenant (which notice shall be lieu of and not in
addition to any notice required under applicable law); provided that if such
failure cannot reasonably be cured within such thirty (30) day period, Tenant
shall not be in default hereunder so long as Tenant commences such cure within
such thirty (30) day period and thereafter diligently prosecutes such cure to
completion.

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

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

              (ii)  The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss Tenant proves could have been
reasonably avoided; plus

             (iii)  The worth at the time of award of the amount by which the
unpaid rent for the balance of the Term after the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided; plus

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

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

          (c)  In the event of any default by Tenant pursuant to Section 18(a)
                                                                 -------------
above and Tenant's abandonment of the Premises, Landlord shall also have the
right to reenter the Premises and remove all persons and property therefrom by
summary proceedings or otherwise; such property may be removed and stored in a
public warehouse or elsewhere at the cost of and for the account of Tenant or
disposed of in a reasonable manner by Landlord.

          (d)  In the event Landlord shall elect to reenter as provided in
Section 18(c) above, or 
-------------

                                      -13-
<PAGE>
 
shall take possession of the Premises pursuant to legal proceedings or pursuant
to any notice provided by law, and if Landlord does not elect to terminate this
Lease, then Landlord may from time to time, without terminating this Lease,
either recover all rental as it becomes due or relet the Premises or any part
thereof for such term or terms and at such rental or rentals and upon such other
terms and conditions as Landlord in its reasonable discretion may deem
advisable, with the right to make alterations and repairs to the Premises. In
the event that Landlord shall elect to relet, then rentals received by Landlord
from such reletting shall be applied first, to the payment of any indebtedness,
other than Minimum Rent due hereunder, owed by Tenant to Landlord; second, to
the payment of any reasonable cost actually incurred in such reletting; third,
to the payment of the reasonable cost actually incurred in making any
alterations and repairs to the Premises; fourth, to the payment of Minimum Rent
due and unpaid hereunder; and the residue, if any, shall be held by Landlord and
applied in payment of future rent as the same may become due and payable
hereunder. Should that portion of such rentals received from such reletting
during any month, which is applied to the payment of rent hereunder, be less
than the rent payable during that month by Tenant hereunder, then Tenant shall
pay such deficiency to Landlord. Such deficiency shall be calculated and paid
monthly. Tenant shall also pay to Landlord, as soon as ascertained, any costs
and expenses reasonably incurred by Landlord in such reletting, including but
not limited to brokerage commissions, or in making alterations and repairs not
covered by the rentals received from such reletting. No reentry or taking
possession of the Premises by Landlord pursuant to this Section 18, shall be
                                                        ----------
construed as an election to terminate this Lease unless a written notice of such
intention be given by Landlord to Tenant or unless the termination thereof be
decreed by a court of competent jurisdiction. Landlord may at any time after
such reletting elect to terminate this Lease for any such default by Tenant.

          (e)  All rights, options and remedies of Landlord contained in this
Lease shall be construed and held to be cumulative, and no one of them shall be
exclusive of the other, and Landlord shall have the right to pursue any one or
all of such remedies or any other remedy or relief which may be provided by law,
whether or not stated in this Lease.

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

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

                                      -14-
<PAGE>
 
          20.  Tenant's Property; Surrender; Holding Over.
               ------------------------------------------

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

          (b)  Tenant shall surrender possession of the Premises upon the
expiration of the Term or earlier termination of this Lease, broom clean, free
of debris, in good order and state of repair (excepting Landlord's obligations
under this Lease and ordinary wear and tear), and deliver the keys as Landlord
designates. In the event Tenant holds over in the Premises following the
expiration of the Term or earlier termination of this Lease, and Tenant's
occupancy shall be considered a tenancy from month to month (terminable upon
thirty (30) days' notice by either party) on all terms and conditions of this
Lease, except that Tenant's obligation for monthly Minimum Rent during such
holdover shall equal one hundred ten percent (110%) of the monthly Minimum Rent
in effect immediately preceding the expiration of the Term or earlier
termination of the Lease.

     21.  Limitation of Liability. In consideration of the benefits accruing
          -----------------------
under the Lease, and notwithstanding anything contained in this Lease to the
contrary, Tenant and all successors and assigns covenant and agree that, in the
event of any actual or alleged failure, breach or default under the Lease by
Landlord, their sole and exclusive remedy shall be against Landlord's interest
in the Premises. Tenant and all such successors and assigns agree that the
obligations of Landlord under the Lease do not constitute personal obligations
of the individual partners, whether general or limited, directors, officers or
shareholders of Landlord, and Tenant shall not seek recourse against the
individual partners, directors, officers or shareholders of Landlord or any of
their personal assets for satisfaction of any liability with respect to the
Lease.

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

     23.  Estoppel Statements. Within twenty (20) days after each written
          -------------------
request from either party in connection with a sale, financing or other transfer
of such party's interest in this Lease, the non-requesting party shall execute
and deliver to the requesting party or its designee (and the requesting party
and each designee may rely thereon) an estoppel certificate in form reasonably
satisfactory to the requesting party certifying as to such matters as may be
reasonably requested by the requesting party.

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

     25.  Signs.  Tenant shall be entitled to directional signage upon or
          -----
 adjacent to the Building identifying Tenant and the location of the Premises as
 reasonably designated by Landlord, subject to compliance with applicable Laws.

     26.  Real Estate Brokers. Tenant warrants that it has not dealt with a
          -------------------  
broker regarding this Lease, and shall indemnify, defend and hold harmless
Landlord from and against any and all claims, actions, damages, expenses and
liability whatsoever, including reasonable attorneys' fees, arising from any
claim for commission or finder's fee regarding this Lease by reason of dealings
with Tenant. Landlord warrants that it has not dealt with a broker regarding
this Lease, and shall indemnify, defend and hold harmless Tenant from and
against any and all claims, actions, damages, expenses and liability whatsoever,
including reasonable attorneys' fees, arising from any claim for commission or
finder's fee regarding this Lease by reason of dealings with Landlord.

     27.  Memorandum of Lease. Neither this Lease nor any memorandum of this
          ------------------- 
Lease shall be recorded.

     28.  Notices.  Any notice, demand, request, approval, consent or other
          -------
instrument which is, or is required to be, given under this Lease shall be in
writing and shall be deemed to have been given two (2) days after when mailed by
United States registered or certified mail return receipt requested, postage

                                      -15-
<PAGE>
 
prepaid, or when received, if sent by overnight courier or delivery service,
addressed to Landlord or Tenant at the respective addresses set forth in the
Basic Lease Provisions or such other address or addresses as either party may
designate by notice to the other in accordance with this Section 28.
                                                         ---------- 

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

     30.  Waiver. No waiver of any breach of any of the terms, covenants,
          ------
agreements, restrictions or conditions of this Lease shall be construed as a
waiver of any succeeding breach of any of the same or other covenants,
agreements, restrictions, or conditions hereof.

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

     32.  Topical Headings.  Captions of the sections or parts of this Lease are
          ----------------
for convenience only and shall not be considered or referred to in resolving
questions of interpretation or construction.

     33.  Language.  The words "Landlord" and "Tenant" when used herein shall be
          --------              --------       ------
applicable to one or more persons as the case may be, and the singular shall
include the plural, and the neuter shall include the masculine and feminine, and
if there be more than one, the obligations hereof shall be joint and several.
The word "persons" wherever used shall include individuals, firms, associations
          -------
and corporations. The language in all parts of this Lease shall in all cases be
construed as a whole and in accordance with its fair meaning and shall not be
construed strictly for or against Landlord or Tenant.

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

     35.  Time of the Essence. Time is expressly declared to be "of the essence"
          -------------------
in this Lease and in each and every provision hereof wherein time for
performance is a factor.

     36.  Governing Law.  This Lease shall be governed by, and construed in
          -------------
accordance with, the laws of the State of California .

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

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

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

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

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

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

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

                                      -16-
<PAGE>
 
          (e)  The referee's decision under California Code of Civil Procedure
Section 644, shall stand as the judgment of the court, subject to appellate
review as provided by the laws of the State of California.

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

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


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

     IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and year written next to their respective signatures.

LANDLORD:                                   TENANT:

LA CANADA PROPERTIES, INC.,                 SPORT CHALET, INC.,
a California corporation           a Delaware corporation

By: /s/ Norbert J. Olberz          By: /s/ Dennis D. Trausch
   ---------------------------        ----------------------------

Print Name: Norbert J. Olberz      Print Name: Dennis D. Trausch
           -------------------                --------------------

Its: President                     Its: Executive Vice President
    --------------------------         ---------------------------

                                      -17-
<PAGE>
 
                                   EXHIBIT A
                                   ---------

                                   SITE PLAN


Landlord and Tenant hereby agree and acknowledge that they have approved an
interim Site Plan for the Shopping Center and that promptly following the date
hereof, the parties shall work together to reach agreement upon a final site
plan for the Shopping Center (depicting, without limitation, the Premises
building area (shown as cross-hatched thereon), the "Market", "Shops #1", "Shops
#2" and "Pad" buildings and Tenant employee parking areas), mutually, reasonably
acceptable to Landlord and Tenant, subject to approval thereof by applicable
governmental authorities.

                              EXHIBIT A - PAGE 1
<PAGE>
 
                                   EXHIBIT B
                                   ---------

                             INTENTIONALLY OMITTED




                              EXHIBIT B - PAGE 1
<PAGE>
 
                                   EXHIBIT C
                                   ---------

                           CONSTRUCTION OF PREMISES

1.   Landlord's Work.
     --------------- 

     (a)  Landlord shall cause the Premises to be improved upon the Substantial
Completion Date in accordance with certain specifications therefor to be
mutually, reasonably approved by Landlord and Tenant promptly following the
execution of this Lease (collectively, "Landlord's Work").
                                        ---------------

     (b)  Landlord's Work shall be performed in accordance with detailed plans
and specifications therefor, prepared by a qualified and experienced design
professional reasonably approved by Tenant, at Landlord's sole cost and expense,
which shall have been previously approved in writing by Tenant in accordance
with the following. Promptly following the execution of this Lease, Landlord
shall submit to Tenant for Tenant's approval, three (3) complete sets of the
"Preliminary Drawings" showing the schematic design of Landlord's Work. Tenant
 --------------------
shall return to Landlord the Preliminary Drawings, marked "approved" or
"disapproved", within fifteen (15) days of receipt. If no response from Tenant
is received within such fifteen (15) day period, such Preliminary Drawings shall
be deemed disapproved. If such Preliminary Drawings are so disapproved or deemed
disapproved, the parties shall promptly meet to resolve any objections of Tenant
and Landlord shall thereafter promptly submit revised Preliminary Drawings to
Tenant for reevaluation in accordance herewith. Upon return by Tenant of
approved Preliminary Drawings, Landlord shall prepare for submittal to Tenant
for Tenant's approval three (3) complete sets of the Final Working Drawings (the
"Final Working Drawings") which shall include architectural, structural,
 ----------------------
mechanical, electrical, and plumbing drawings for Landlord's Work. The Final
Working Drawings shall be prepared strictly in accordance with the Preliminary
Drawings approved by Tenant. Tenant will return to Landlord the Final Working
Drawings, marked either "approved" or "disapproved", within fifteen (15) days of
receipt. If no response from Tenant is received within such fifteen (15) day
period, such Final Working Drawings shall be deemed disapproved. If such Final
Working Drawings are so disapproved or deemed disapproved, the parties shall
promptly meet to resolve any objections of Tenant and Landlord shall thereafter
promptly submit revised Final Working Drawings to Tenant for reevaluation in
accordance herewith. Tenant shall have the right to reasonably approve the
general contractor and the subcontractors for performance of all major trades
for the performance of Landlord's Work. All contractors and subcontractors for
the performance of Landlord's Work shall be duly qualified, licensed and
experienced in the construction of comparable improvements.

     (c)  For all purposes of this Exhibit C and the Lease of which this Exhibit
                                   ---------                             -------
C is a part, the "Substantial Completion Date" shall be deemed to occur upon the
-                 ---------------------------
latest to occur of (i) receipt by Tenant of factually correct certification from
Landlord's architect for the performance of Landlord's Work of the completion of
all of Landlord's Work in accordance with the provisions of this Exhibit C,
                                                                 ---------
other than such customary "punch-list" items which do not adversely affect
Tenant's performance of Tenant's Work or Tenant's use or occupancy of, or
operation of business from, the Premises and/or such items, if any, as cannot be
completed prior to the completion of Tenant's Work, (ii) the completion of such
portions of the Common Areas and off-site improvements benefitting the Project
as are necessary for Tenant's unimpaired use and operation of business from the
Premises, and (iii) the receipt by Tenant of all "Tenant's Permits" (as
                                                  ----------------
hereinafter defined). As used herein, "Tenant's Permits" shall mean (1) all
                                       ----------------
zoning approvals and other governmental permits and approvals, if any, required
as a condition to Tenant's operation of its business from the Premises (except
for such permits or approvals which require the completion of Tenant's Work
prior to issuance) (collectively, "Tenant's Use Permits"), and (2) building
                                   --------------------
permits for the performance of Tenant's Work ("Tenant's Building Permits").
                                               -------------------------
Tenant shall use commercially reasonable efforts to obtain Tenant's Use Permits
as soon as reasonably possible following the execution of this Lease subject to
the provisions of this Exhibit C. Landlord shall deliver to Tenant not less than
                       ---------
sixty (60) days' prior written notice of Landlord's good faith estimate of the
occurrence of the Substantial Completion Date and thereafter provide Tenant with
progress reports and other information reasonably necessary to inform Tenant of
the Substantial Completion Date. All such "punch-list" items and such other
unperformed items of Landlord's Work not completed upon the Substantial
Completion Date shall be completed by Landlord as soon as possible following
such Substantial Completion Date but in no event later than thirty (30) days
thereafter. In addition, at any time following the Substantial Completion Date,
Tenant shall have the right to notify Landlord of incomplete or defective items
of Landlord's Work and Landlord shall promptly complete or repair, as the case
may be, such items of work.

2.   Tenant's Work. Tenant shall, at Tenant's sole cost and expense, perform all
     -------------
work in the Premises (other than Landlord's Work) and install such furniture,
trade fixtures and equipment as Tenant deems necessary for the operation of
Tenant's business from the Premises (collectively, "Tenant's Work"). To the
                                                    -------------  
extent Tenant's Work constitutes alterations which would require the consent of
Landlord pursuant to the Lease, such Tenant's Work shall be performed in
accordance with plans and specifications therefor which shall be subject to
Landlord's prior written approval (which approval shall not be unreasonably
withheld or delayed). All Tenant's Work shall be performed in a good and
workmanlike manner and in accordance with all applicable Laws. Tenant shall use
commercially reasonable efforts to obtain Tenant's Building Permits for the
performance of Tenant's Work to the extent required for such work as soon as
possible following approval of the plans and specifications therefor, and,
following receipt thereof, shall deliver copies of such permits to Landlord upon
request. Tenant shall commence the performance of Tenant's Work promptly
following the Substantial Completion Date, and thereafter diligently prosecute
the same to completion.

                              EXHIBIT C - PAGE 1
<PAGE>
 
                                     LEASE


                                    between

                          LA CANADA PROPERTIES, INC.,

                           a California corporation

                                  AS LANDLORD

                                      and

                              SPORT CHALET, INC.,

                            a Delaware corporation,

                                   AS TENANT

                       La Canada Flintridge, California
<PAGE>
 
                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<CAPTION>
                                                        Page
                                                        ----
<C>  <S>                                                <C>
 1.  Premises.........................................   1
 2.  Improvements.....................................   2
 3.  Term of this Lease...............................   3
 4.  Uses.............................................   4
 5.  Rent.............................................   5
 6.  Taxes and Assessments............................   5
 7.  Utilities........................................   6
 8.  Tenant's Alterations, Additions or Improvements..   6
 9.  Common Areas.....................................   6
10.  Common Area Expenses.............................   7
11.  Maintenance......................................   8
12.  Insurance........................................  10
13.  Indemnity........................................  11
14.  Damage and Destruction...........................  11
15.  Condemnation.....................................  12
16.  Assignment and Subletting........................  13
17.  Subordination and Attornment.....................  13
18.  Tenant Defaults..................................  14
19.  Landlord Defaults................................  15
20.  Tenant's Property; Surrender; Holding Over.......  15
21.  Limitation of Liability..........................  16
22.  Quiet Enjoyment..................................  16
23.  Estoppel Statements..............................  16
24.  Force Majeure....................................  16
25.  Signs............................................  16
26.  Real Estate Brokers..............................  16
27.  Memorandum of Lease..............................  16
28.  Notices..........................................  16
29.  Attorneys' Fees..................................  16
30.  Waiver...........................................  16
31.  Lease Binding Upon Successors....................  16
32.  Topical Headings.................................  17
33.  Language.........................................  17
34.  Invalidity.......................................  17
35.  Time of the Essence..............................  17
36.  Governing Law....................................  17
37.  Approvals........................................  17
38.  Counterparts.....................................  17
39.  Reference........................................  17
40.  Entire Agreement.................................  17
 
</TABLE>

Exhibit A - Site Plan
Exhibit B - Intentionally Omitted
Exhibit C - Construction of Premises

                                      (i)