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                                                                   EXHIBIT 10.27

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                  AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION

           STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- NET
                (DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)

1.      BASIC PROVISIONS ("BASIC PROVISIONS").

        1.1     PARTIES: This Lease ("LEASE"), dated for reference purposes only
April 28, 2000, is made by and between MANHATTAN CORNERS, LLC, A California
Limited Liability Company ("LESSOR") and SKECHERS U.S.A., INC., A Delaware
Corporation ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").

        1.2     PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 1100 Highland Avenue, Manhattan Beach, located in the County of
Los Angeles, State of California, and generally described as (describe briefly
the nature of the property and, if applicable, the "PROJECT", if the property is
located within a Project) 3200 square foot office building ("PREMISES").
(See also Paragraph 2)

        1.3     TERM: Five (5) years and 0 months ("ORIGINAL TERM") commencing
See Addendum Paragraph 51 ("COMMENCEMENT DATE") and ending _________
("EXPIRATION DATE"). (See also Paragraph 3) Subject to one (1) option to extend
- See Addendum Paragraph 66

        1.4     EARLY POSSESSION: See Addendum Paragraph 51 ("EARLY POSSESSION
DATE"). (See also Paragraphs 3.2 and 3.3)

        1.5     BASE RENT: $9,600.00 per month ("BASE RENT"), payable on the
1st day  of each month commencing __________________________________________.
(See also Paragraph 4)

[x] If this box is checked, there are provisions in this Lease for the Base Rent
    to be adjusted.

        1.6     BASE RENT PAID UPON EXECUTION: $None as Base Rent for the
period ___________________________________________________.

        1.7     SECURITY DEPOSIT: $5,000.00 payable upon execution of this Lease
("SECURITY DEPOSIT"). (See also Paragraph 5)

        1.8     AGREED USE: general office and no other use or purpose
(See also Paragraph 6)

        1.9     INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See also Paragraph 8)

        1.10    REAL ESTATE BROKERS: (See also Paragraph 15)

                (a) REPRESENTATION: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction (check applicable boxes):

[ ] Not Applicable represents Lessor exclusively ("LESSOR'S BROKER");

[ ] Not Applicable represents Lessee exclusively ("LESSEE'S BROKER"); or

[ ] Not Applicable represents both Lessor and Lessee ("DUAL AGENCY").

        1.12    ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 69 and Exhibits ____________________
_________________________________, all of which constitute a part of this Lease.

2.      PREMISES.

        2.1     LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may have
been used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.

        2.2     CONDITION. Lessor shall deliver the Premises to Lessee broom
clean and free of debris on the Commencement Date or the Early Possession Date,
whichever first occurs ("START DATE"), and, so long as the required service
contracts described in Paragraph 7.1(b) below are obtained by

                                                                Initials________

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 Lessee within thirty (30) days following the Start Date, warrants that the
existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating
and air conditioning systems ("HVAC"), loading doors, if any, and all other such
elements in the Premises, other than those constructed by Lessee, shall be in
good operating condition on said date and that the structural elements of the
roof, bearing walls and foundation of any buildings on the Premises (the
"BUILDING") shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, Lessor shall, as Lessor's sole obligation
with respect to such matter, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If, after the Start Date, Lessee does not give Lessor written
notice of any non-compliance with this warranty within: (i) one year as to the
surface of the roof and the structural portions of the roof, foundations and
bearing walls, (ii) six (6) months as to the HVAC systems, (iii) (6) months as
to the remaining systems and other elements of the Building, correction of such
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.

        2.3     COMPLIANCE. Lessor warrants that the improvements on the
Premises comply with all applicable laws, covenants or restrictions of record,
building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect
on the Start Date. Said warranty does not apply to the use to which Lessee will
put the Premises or to any Alterations or Utility Installations (as defined in
Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for
determining whether or not the zoning is appropriate for Lessee's intended use,
and acknowledges that past uses of the Premises may no longer be allowed. If the
Premises do not comply with said warranty, Lessor shall, except as otherwise
provided, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify the same
at Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within six (6) months following the Start
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense. If the Applicable Requirements are hereafter
changed (as opposed to being in existence at the Start Date, which is addressed
in Paragraph 6.2(e) below) so as to require during the term of this Lease the
construction of an addition to or an alteration of the Building, the remediation
of any Hazardous Substance, or the reinforcement or other physical modification
of the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the
cost of such work as follows:

               (a) Subject to Paragraph 2.3(c) below, if such Capital
Expenditures are required as a result of the specific and unique use of the
Premises by Lessee as compared with uses by tenants in general, Lessee shall be
fully responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last two (2) years of this Lease and the cost
thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this
Lease unless Lessor notifies Lessee, in writing, within ten (10) days after
receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six (6)
months' Base Rent. If Lessee elects termination, Lessee shall immediately cease
the use of the Premises which requires such Capital Expenditure and deliver to
Lessor written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however, in no event be earlier than
the last day that Lessee could legally utilize the Premises without commencing
such Capital Expenditure.

               (b) If such Capital Expenditure is not the result of the specific
and unique use of the Premises by Lessee (such as, governmentally mandated
seismic modifications), then Lessor and Lessee shall allocate the obligation to
pay for such costs pursuant to the provisions of Paragraph 7.1(c); provided,
however, that if such Capital Expenditure is required during the last two years
of this Lease or if Lessor reasonably determines that it is not economically
feasible to pay its share thereof, Lessor shall have the option to terminate
this Lease upon ninety (90) days prior written notice to Lessee unless Lessee
notifies Lessor, in writing, within ten (10) days after receipt of Lessor's
termination notice that Lessee will pay for such Capital Expenditure. If Lessor
does not elect to terminate, and fails to tender its share of any such Capital
Expenditure, Lessee may advance such funds and deduct same, with Interest, from
Rent until Lessor's share of such costs have been fully paid. If Lessee is
unable to finance Lessor's share, or if the balance of the Rent due and payable
for the remainder of this Lease is not sufficient to fully reimburse Lessee on
an offset basis, Lessee shall have the right to terminate this Lease upon thirty
(30) days written notice to Lessor.

               (c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.

        2.4     ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been
advised by Lessor to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical, HVAC and fire
sprinkler systems, security, environmental aspects, and compliance with
Applicable Requirements), and their suitability for Lessee's intended use; (b)
Lessee has made such investigation as it deems necessary with reference to such
matters and assumes all responsibility therefor as the same relate to its
occupancy of the Premises; and (c) neither Lessor, Lessor's agents, nor any
Broker has made any oral or written representations or warranties with respect
to said matters other than as set forth in this Lease. In addition, Lessor
acknowledges that: (a) Broker has made no representations, promises or
warranties concerning Lessee's ability to honor the Lease or suitability to
occupy the Premises; and (b) it is Lessor's sole responsibility to investigate
the financial capability and/or suitability of all proposed tenants.

3.      TERM.

        3.1     TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.

        3.2     EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this Lease
shall, however, be in effect during such period. Any such early possession shall
not affect the Expiration Date.

        3.3     DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within sixty (60)
days after the Commencement Date, Lessee may, at its option, by notice in
writing within ten (10) days after the end of such sixty (60) day period, cancel
this Lease, in which event the Parties shall be discharged from all obligations
hereunder. If such written notice is not received by Lessor within said ten (10)
day period, Lessee's right to cancel shall terminate. Except as otherwise
provided, if possession is not tendered to Lessee by the Start Date and Lessee
does not terminate this Lease, as aforesaid, any period of rent abatement that
Lessee would otherwise have

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enjoyed shall run from the date of delivery of possession and continue for a
period equal to what Lessee would otherwise have enjoyed under the terms hereof,
but minus any days of delay caused by the acts or omissions of Lessee. If
possession of the Premises is not delivered by November 1, 2000, this Lease
shall terminate unless other agreements are reached between Lessor and Lessee,
in writing.

        3.4     LESSEE COMPLIANCE. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its obligation
to provide evidence of insurance (Paragraph 8.5). Pending delivery of such
evidence, Lessee shall be required to perform all of its obligations under this
Lease from and after the Start Date, including the payment of Rent,
notwithstanding Lessor's election to withhold possession pending receipt of such
evidence of insurance. Further, if Lessee is required to perform any other
conditions prior to or concurrent with the Start Date, the Start Date shall
occur but Lessor may elect to withhold possession until such conditions are
satisfied.

4.      RENT.

        4.1.    RENT DEFINED. All monetary obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to be rent
("RENT").

        4.2     PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction (except
as specifically permitted in this Lease), on or before the day on which it is
due. Rent for any period during the term hereof which is for less than one (1)
full calendar month shall be prorated based upon the actual number of days of
said month. Payment of Rent shall be made to Lessor at its address stated herein
or to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating.

5.      SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefor deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. Should the Agreed Use be
amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessor's reasonable
judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on said change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within fourteen (14) days after the expiration or termination
of this Lease, if Lessor elects to apply the Security Deposit only to unpaid
Rent, and otherwise within thirty (30) days after the Premises have been vacated
pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the
Security Deposit not used or applied by Lessor. No part of the Security Deposit
shall be considered to be held in trust, to bear interest or to be prepayment
for any monies to be paid by Lessee under this Lease.

6.      USE.

        6.1     USE. Lessee shall use and occupy the Premises only for the
Agreed Use and for no other purpose. Lessee shall not use or permit the use of
the Premises in a manner that is unlawful, creates damage, waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to neighboring
properties.

        6.2     HAZARDOUS SUBSTANCES.

                (a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release, either
by itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.

               (b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises, other than as previously consented to by Lessor,
Lessee shall immediately give written notice of such fact to Lessor, and provide
Lessor with a copy of any report, notice, claim or other documentation which it
has concerning the presence of such Hazardous Substance.

               (c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous

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Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party.

               (d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless
from and against any and all loss of rents and/or damages, liabilities,
judgments, claims, expenses, penalties, and attorneys' and consultants' fees
arising out of or involving any Hazardous Substance brought onto the Premises by
or for Lessee, or any third party (provided, however, that Lessee shall have no
liability under this Lease with respect to underground migration of any
Hazardous Substance under the Premises from adjacent properties). Lessee's
obligations shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of
this Lease. NO TERMINATION, CANCELLATION OR RELEASE AGREEMENT ENTERED INTO BY
LESSOR AND LESSEE SHALL RELEASE LESSEE FROM ITS OBLIGATIONS UNDER THIS LEASE
WITH RESPECT TO HAZARDOUS SUBSTANCES, UNLESS SPECIFICALLY SO AGREED BY LESSOR IN
WRITING AT THE TIME OF SUCH AGREEMENT.

               (e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages, including the cost
of remediation, which existed as a result of Hazardous Substances on the
Premises prior to the Start Date or which are caused by the gross negligence or
willful misconduct of Lessor, its agents or employees. Lessor's obligations, as
and when required by the Applicable Requirements, shall include, but not be
limited to, the cost of investigation, removal, remediation, restoration and/or
abatement, and shall survive the expiration or termination of this Lease.

               (f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
"Alterations", as defined in Paragraph 7.3(a) below) of the Premises, in which
event Lessee shall be responsible for such payment. Lessee shall cooperate fully
in any such activities at the request of Lessor, including allowing Lessor and
Lessor's agents to have reasonable access to the Premises at reasonable times in
order to carry out Lessor's investigative and remedial responsibilities.

               (g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) if the estimated cost to remediate such condition
exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is
greater, give written notice to Lessee, within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of
Lessor's desire to terminate this Lease as of the date sixty (60) days following
the date of such notice. In the event Lessor elects to give a termination
notice, Lessee may, within ten (10) days thereafter, give written notice to
Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessor's notice of termination.

        6.3     LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within ten (10) days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other information
evidencing Lessee's compliance with any Applicable Requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving the failure of
Lessee or the Premises to comply with any Applicable Requirements.

        6.4     INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined
in Paragraph 30 below) and consultants shall have the right to enter into
Premises at any time, in the case of an emergency, and otherwise at reasonable
times, for the purpose of inspecting the condition of the Premises and for
verifying compliance by Lessee with this Lease. The cost of any such inspections
shall be paid by Lessor, unless a violation of Applicable Requirements, or a
contamination is found to exist or be imminent, or the inspection is requested
or ordered by a governmental authority. In such case, Lessee shall upon request
reimburse Lessor for the cost of such inspections, so long as such inspection is
reasonably related to the violation or contamination.

7.      MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
        ALTERATIONS.

        7.1     LESSEE'S OBLIGATIONS. See Addendum Paragraph 67

                (a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations, and Alterations in good order, condition and repair
(whether or not the portion of the Premises requiring repairs, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises), including, but
not limited to, all equipment or facilities, such as plumbing, heating,
ventilating, air-conditioning, electrical, lighting facilities, boilers,
pressure vessels, fire protection system, fixtures, walls (interior ceilings,
roofs, floors, windows, doors, plate glass, skylights, landscaping, driveways,
parking lots, fences, retaining walls, signs, sidewalks and parkways located in,
on, or adjacent to the Premises. Lessee, in keeping the Premises in good order,
condition and repair, shall exercise and perform good maintenance practices,
specifically including the procurement and maintenance of the service contracts
required by Paragraph 7.1(b) below. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair. Lessee shall, during the term of this Lease, keep the exterior
appearance of the Building in a first-class condition consistent with the
exterior appearance of other similar facilities of comparable age and size in
the vicinity, including, when necessary, the exterior repainting of the
Building.

               (b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, if any, if and when
installed on the Premises: (i) HVAC equipment, (ii), (iii) fire extinguishing
systems, including fire alarm and/or smoke detection, (iv) landscaping and
irrigation systems, (v) roof covering and drains, (vi) driveways and parking
lots, (vii) clarifiers (viii) basic utility feed to the perimeter of the
Building, and (ix) any other equipment, if reasonably required by Lessor.

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               (c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as
set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing
such Basic Elements, then such Basic Elements shall be replaced by Lessor, and
the cost thereof shall be prorated between the Parties and Lessee shall only be
obligated to pay, each month during the remainder of the term of this Lease, on
the date on which Base Rent is due, an amount equal to the product of
multiplying the cost of such replacement by a fraction, the numerator of which
is one, and the denominator of which is the number of months of the useful life
of such replacement as such useful life is specified pursuant to Federal income
tax regulations or guidelines for depreciation thereof (including interest on
the unamortized balance as is then commercially reasonable in the judgment of
Lessor's accountants), with Lessee reserving the right to prepay its obligation
at any time.

        7.2    LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance), 9 (Damage or Destruction) 14 (Condemnation), and
67 (Maintenance by Lessor) it is intended by the Parties hereto that Lessor have
no obligation, in any manner whatsoever, to repair and maintain the Premises, or
the equipment therein, all of which obligations are intended to be that of the
Lessee. It is the intention of the Parties that the terms of this Lease govern
the respective obligations of the Parties as to maintenance and repair of the
Premises, and they expressly waive the benefit of any statute now or hereafter
in effect to the extent it is inconsistent with the terms of this Lease.

        7.3    UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.

               (a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" refers to all floor and window coverings, air lines, power
panels, electrical distribution, security and fire protection systems,
communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing
in or on the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery
and equipment that can be removed without doing material damage to the Premises.
The term "ALTERATIONS" shall mean any modification of the improvements, other
than Utility Installations or Trade Fixtures, whether by addition or deletion.
"LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or
Utility Installations to the Premises without Lessor's prior written consent.
Lessee may, however, make non-structural Utility Installations to the interior
of the Premises (excluding the roof) without such consent but upon notice to
Lessor, as long as they are not visible from the outside, do not involve
puncturing, relocating or removing the roof or any existing walls, and the
cumulative cost thereof during this Lease as extended does not exceed $50,000 in
the aggregate or $10,000 in any one year.

               (b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be deemed
conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
For work which costs an amount equal to the greater of one month's Base Rent, or
$10,000.

               (c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non-responsibility. If Lessee shall contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof. If Lessor shall require, Lessee shall furnish a
surety bond in an amount equal to one and one-half times the amount of such
contested lien, claim or demand, indemnifying Lessor against liability for the
same. If Lessor elects to participate in any such action, Lessee shall pay
Lessor's attorneys' fees and costs.

        7.4    OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.

               (a) OWNERSHIP. Subject to Lessor's right to require removal or
elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered a
part of the Premises. Lessor may, at any time, elect in writing to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
termination of this Lease, become the property of Lessor and be surrendered by
Lessee with the Premises.

               (b) REMOVAL. By delivery to Lessee of written notice from Lessor
not earlier than ninety (90) and not later than thirty (30) days prior to the
end of the term of this Lease, Lessor may require that any or all Lessee Owned
Alterations or Utility Installations be removed by the expiration or termination
of this Lease. Lessor may require the removal at any time of all or any part of
any Lessee Owned Alterations or Utility Installations made without the required
consent.

               (c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris, and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice. Lessee shall repair
any damage occasioned by the installation, maintenance or removal of Trade
Fixtures, Lessee Owned Alterations and/or Utility Installations, furnishings,
and equipment as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
groundwater contaminated by Lessee. Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate
the Premises pursuant to this Paragraph 7.4(c) without the express written
consent of Lessor shall constitute a holdover under the provisions of Paragraph
26 below.

8.      INSURANCE; INDEMNITY.

        8.1    PAYMENT FOR INSURANCE. Lessee shall pay for all insurance
required under Paragraph 8 except to the extent of the cost attributable to
liability insurance carried by Lessor under Paragraph 8.2(b) in excess of
$2,000,000 per occurrence. Premiums for policy periods commencing prior to or
extending beyond the Lease term shall be prorated to correspond to the Lease
term. Payment shall be made by Lessee to Lessor within ten (10) days following
receipt of an invoice.

        8.2    LIABILITY INSURANCE.

               (a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and

                                  Page 5 of 15
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Lessor against claims for bodily injury, personal injury and property damage
based upon or arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be on an
occurrence basis providing single limit coverage in an amount not less than
$2,000,000 per occurrence with an "ADDITIONAL INSURED -- MANAGERS OR LESSORS OF
PREMISES ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION
ENDORSEMENT" for damage caused by heat, smoke or fumes from a hostile fire. The
Policy shall not contain any intra-insured exclusions as between insured persons
or organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance shall not, however,
limit the liability of Lessee nor relieve Lessee of any obligation hereunder.
All insurance carried by Lessee shall be primary to and not contributory with
any similar insurance carried by Lessor, whose insurance shall be considered
excess insurance only.

                (b) CARRIED BY LESSOR. Lessor shall maintain liability insurance
as described in Paragraph 8.2(a), in addition to, and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.

        8.3     PROPERTY INSURANCE -- BUILDING, IMPROVEMENTS AND RENTAL VALUE.

                (a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force a policy or policies in the name of Lessor, with loss payable
to Lessor, any ground lessor, and to any Lender(s) insuring loss or damage to
the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by any Lenders, but in no event more than the commercially
reasonable and available insurable value thereof. If Lessor is the Insuring
Party, however, Lessee Owned Alterations and Utility Installations, Trade
Fixtures, and Lessee's personal property shall be insured by Lessee under
Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or
earthquake), including coverage for debris removal and the enforcement of any
Applicable Requirements requiring the upgrading, demolition, reconstruction or
replacement of any portion of the Premises as the result of a covered loss. Said
policy or policies shall also contain an agreed valuation provision in lieu of
any coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located. If
such insurance coverage has a deductible clause, the deductible amount shall not
exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount in the event of an Insured Loss.

                (b) RENTAL VALUE. The Insuring Party shall obtain and keep in
force a policy or policies in the name of Lessor, with loss payable to Lessor
and any Lender, insuring the loss of the full Rent for one (1) year. Said
insurance shall provide that in the event the Lease is terminated by reason of
an insured loss, the period of indemnity for such coverage shall be extended
beyond the date of the completion of repairs or replacement of the Premises, to
provide for one full year's loss of Rent from the date of any such loss. Said
insurance shall contain an agreed valuation provision in lieu of any coinsurance
clause, and the amount of coverage shall be adjusted annually to reflect the
projected Rent otherwise payable by Lessee, for the next twelve (12) month
period. Lessee shall be liable for any deductible amount in the event of such
loss.

                (c) ADJACENT PREMISES. If the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are adjacent to the
Premises, the Lessee shall pay for any increase in the premiums for the property
insurance of such building or buildings if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.

        8.4     LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.

                (a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.

                (b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss
of income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.

                (c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.

        8.5     INSURANCE POLICIES. Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where the
Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, V, as set forth in the most current issue
of "Best's Insurance Guide", or such other rating as may be required by a
Lender. Lessee shall not do or permit to be done anything which invalidates the
required insurance policies. Lessee shall, prior to the Start Date, deliver to
Lessor certified copies of policies of such insurance or certificates evidencing
the existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.

        8.6     WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages against the other, for loss of or damage
to its property arising out of or incident to the perils required to be insured
against herein. The effect of such releases and waivers is not limited by the
amount of insurance carried or required, or by any deductibles applicable
hereto. The Parties agree to have their respective property damage insurance
carriers waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.

     8.7     INDEMNITY. Except for Lessor's gross negligence or willful
misconduct, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the use and/or
occupancy of the Premises by Lessee. If any action or proceeding is brought
against Lessor by reason of any of the foregoing matters, Lessee shall upon
notice defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be defended or indemnified.
Notwithstanding anything to the contrary in this Lease, Lessor shall indemnify,
protect, defend and hold harmless Lessee and Lessee's employees, officers,
agents, directors, and shareholders, and the

                                  Page 6 of 15
<PAGE>
successors and assigns of each of the foregoing, against and from any and
all claims, demands, losses, liabilities, damages, costs, and expenses
(including, without limitation, attorneys' and consultants' fees and the costs
and expenses of defense) arising or resulting from (i) Lessor's breach of any
covenant, representation or warranty under this Lease; or (ii) Lessor's or
Lessor's agents' or employees' active negligence or wilful misconduct. The
mutual indemnity obligations of Lessor and Lessee under this Lease shall not,
however, release the respective insurers of Lessor and Lessee from such
insurers' obligations under any policies covering their respective insureds.

        8.8     EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.

9.      DAMAGE OR DESTRUCTION.

        9.1     DEFINITIONS.

                (a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, which can reasonably be repaired in six (6) months or
less from the date of the damage or destruction. Lessor shall notify Lessee in
writing within thirty (30) days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.

                (b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in six (6)
months or less from the date of the damage or destruction. Lessor shall notify
Lessee in writing within thirty (30) days from the date of the damage or
destruction as to whether or not the damage is Partial or Total.

                (c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.

                (d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of Applicable Requirements, and
without deduction for depreciation.

                (e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.

        9.2     PARTIAL DAMAGE -- INSURED LOSS. If a Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect; provided, however, that Lessee shall, at
Lessor's election, make the repair of any damage or destruction the total cost
to repair of which is $10,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds (except as to
the deductible which is Lessee's responsibility) as and when required to
complete said repairs. In the event, however, such shortage was due to the fact
that, by reason of the unique nature of the improvements, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, the party responsible for making the repairs shall complete them as
soon as reasonably possible and this Lease shall remain in full force and
effect. If such funds or assurance are not received, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to: (i) make
such restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect, or have this Lease terminate thirty (30) days thereafter. Lessee shall
not be entitled to reimbursement of any funds contributed by Lessee to repair
any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be
some insurance coverage, but the net proceeds of any such insurance shall be
made available for the repairs if made by either Party.

        9.3     PARTIAL DAMAGE -- UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixty (60) days following the date
of such notice. In the event Lessor elects to terminate this Lease, Lessee shall
have the right within ten (10) days after receipt of the termination notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage without reimbursement from Lessor. Lessee shall provide Lessor with
said funds or satisfactory assurance thereof within thirty (30) days after
making such commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in the
termination notice.

        9.4     TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs, this Lease shall terminate sixty (60)
days following such Destruction. If the damage or destruction was caused by the
gross negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.

        9.5     DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee
at that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the

                                                         Initials
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                                  Page 7 of 15
<PAGE>

date upon which such option expires. If Lessee duly exercises such option during
such period and provides Lessor with funds (or adequate assurance thereof) to
cover any shortage in insurance proceeds, Lessor shall, at Lessor's commercially
reasonable expense, repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during such period, then this Lease
shall terminate on the date specified in the termination notice and Lessee's
option shall be extinguished.

        9.6     ABATEMENT OF RENT; LESSEE'S REMEDIES.

                (a) ABATEMENT. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which Lessee
is not responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired, but not to exceed the proceeds received from the Rental Value
insurance. All other obligations of Lessee hereunder shall be performed by
Lessee, and Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.

                (b) REMEDIES. If Lessor shall be obligated to repair or restore
the Premises and does not commence, in a substantial and meaningful way, such
repair or restoration within ninety (90) days after such obligation shall
accrue, Lessee may, at any time prior to the commencement of such repair or
restoration, give written notice to Lessor and to any Lenders of which Lessee
has actual notice, of Lessee's election to terminate this Lease on a date not
less than sixty (60) days following the giving of such notice. If Lessee gives
such notice and such repair or restoration is not commenced within thirty (30)
days thereafter, this Lease shall terminate as of the date specified in said
notice. If the repair or restoration is commenced within said thirty (30) days,
this Lease shall continue in full force and effect. "COMMENCE" shall mean either
the unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.

        9.7     TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.

        9.8     WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.

10.     REAL PROPERTY TAXES.

        10.1    DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. The
term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring during
the term of this Lease, including but not limited to, a change in the ownership
of the Premises.

        10.2

                (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to Paragraph
10.2(b), all such payments shall be made at least ten (10) days prior to any
delinquency date. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes shall cover any
period of time prior to or after the expiration or termination of this Lease,
Lessee's share of such taxes shall be prorated to cover only that portion of the
tax bill applicable to the period that this Lease is in effect, and Lessor shall
reimburse Lessee for any overpayment. If Lessee shall fail to pay any required
Real Property Taxes, Lessor shall have the right to pay the same, and Lessee
shall reimburse Lessor therefor upon demand.

                (b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on
any Rent payment, Lessor may, at Lessor's option, estimate the current Real
Property Taxes, and require that such taxes be paid in advance to Lessor by
Lessee, either: (i) in a lump sum amount equal to the installment due, at least
twenty (20) days prior to the applicable delinquency date, or (ii) monthly in
advance with the payment of the Base Rent. If Lessor elects to require payment
monthly in advance, the monthly payment shall be an amount equal to the amount
of the estimated installment of taxes divided by the number of months remaining
before the month in which said installment becomes delinquent. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payments shall be adjusted as required to provide the funds needed to
pay the applicable taxes. If the amount collected by Lessor is insufficient to
pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand,
such additional sums as are necessary to pay such obligations. All monies paid
to Lessor under this Paragraph may be intermingled with other monies of Lessor
and shall not bear interest. In the event of a Breach by Lessee in the
performance of its obligations under this Lease, then any balance of funds paid
to Lessor under the provisions of this Paragraph may, at the option of Lessor,
be treated as an additional Security Deposit.

        10.3    JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.

        10.4    PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency,
all taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee. When possible, Lessee shall cause such property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessor's real property, Lessee shall
pay Lessor the taxes attributable to Lessee's property within ten (10) days
after receipt of a written statement.

11.     UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered. Notwithstanding anything
to the contrary contained in Paragraph 11 of this Lease, in the event of an
interruption of building utilities or essential services provided to the
building, or if the Lessee's occupancy is otherwise prevented for a period of
excess of five (5) days, Lessee's Rent shall be abated from the date of
interruption to the extent covered by any Rental Loss insurance coverage
maintained by Lessor.

12.     ASSIGNMENT AND SUBLETTING.

        12.1    LESSOR'S CONSENT REQUIRED.

                (a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or

                                  Page 8 of 15
<PAGE>

sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent, which shall not be reasonable withheld.

                (b) A change in the control of Lessee shall constitute an
assignment requiring consent.

                (c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee by an amount greater than
twenty-five percent (25%) of such Net Worth as it was represented at the time of
the execution of this Lease or at the time of the most recent assignment to
which Lessor has consented, or as it exists immediately prior to said
transaction or transactions constituting such reduction, whichever was or is
greater, shall be considered an assignment of this Lease to which Lessor may
withhold its consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles.

                (d) An assignment or subletting without consent shall,
be a Default curable after notice per Paragraph 13.1(c).

                (e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.

        12.2    TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.

                (a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease; (ii)
release Lessee of any obligations hereunder; or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.

                (b) Lessor may accept Rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for Lessee's Default or Breach.

                (c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.

                (d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any assignee
or sublessee, without first exhausting Lessor's remedies against any other
person or entity responsible therefore to Lessor, or any security held by
Lessor.

                (e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a fee of $1,000 or ten percent (10%) of the current monthly Base
Rent applicable to the portion of the Premises which is the subject of the
proposed assignment or sublease, whichever is greater, as consideration for
Lessor's considering and processing said request. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested.

                (f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed to
have assumed and agreed to conform and comply with each and every term,
covenant, condition and obligation herein to be observed or performed by Lessee
during the term of said assignment or sublease, other than such obligations as
are contrary to or inconsistent with provisions of an assignment or sublease to
which Lessor has specifically consented to in writing.

        12.3    ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:

                (a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all Rent payable on any sublease, and Lessor may collect
such Rent and apply same toward Lessee's obligations under this Lease; provided,
however, that until a Breach shall occur in the performance of Lessee's
obligations, Lessee may collect said Rent. Lessor shall not, by reason of the
foregoing or any assignment of such sublease, nor by reason of the collection of
Rent, be deemed liable to the sublessee for any failure of Lessee to perform and
comply with any of Lessee's obligations to such sublessee. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a written
notice from Lessor stating that a Breach exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor all Rent due and to become due
under the sublease. Sublessee shall rely upon any such notice from Lessor and
shall pay all Rents to Lessor without any obligation or right to inquire as to
whether such Breach exists, notwithstanding any claim from Lessee to the
contrary.

                (b) In the event of a Breach by Lessee, Lessor may, at its
option, require sublessee to attorn to Lessor, in which event Lessor shall
undertake the obligations of the sublessor under such sublease from the time of
the exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any prior Defaults or Breaches
of such sublessor.

                (c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.

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

                (e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.

13.     DEFAULT; BREACH; REMEDIES.

        13.1    DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the
Lessee to comply with or perform any of the terms, covenants, conditions or
rules under this Lease. A "BREACH" is defined as the occurrence of one or more
of the following Defaults, and the failure of Lessee to cure such Default within
any applicable grace period:

                (a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, or where
the coverage of the property insurance described in Paragraph 8.3 is jeopardized
as a result thereof, or without providing reasonable assurances to

                                  Page 9 of 15
<PAGE>

minimize potential vandalism.

                (b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor or
to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of ten
(10) days following written notice to Lessee.

                (c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service contracts,
(iii) the rescission of an unauthorized assignment or subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) any document requested under Paragraph 42 (easements),
or (viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice to Lessee.

                (d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then it shall not be
deemed to be a Breach if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.

                (e) The occurrence of any of the following events: (i) the
making of any general arrangement or assignment for the benefit of creditors;
(ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph 13.1 (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.

                (f) The discovery that any financial statement of Lessee or of
any Guarantor given to Lessor was materially false.

        13.2    REMEDIES. If Lessee fails to perform any of its affirmative
duties or obligations, within ten (10) days after written notice (or in case of
an emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee upon receipt of invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:

                (a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent (1%). Efforts by Lessor to mitigate
damages caused by Lessee's Breach of this Lease shall not waive Lessor's right
to recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.

                (b) Continue the Lease and Lessee's right to possession and
recover the Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance, efforts to relet,
and/or the appointment of a receiver to protect the Lessor's interests, shall
not constitute a termination of the Lessee's right to possession.

                (c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability under any indemnity
provisions.

                                 Page 10 of 15
<PAGE>

        13.4    LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within ten (10) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to six percent (6%) of each such overdue
amount. The Parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of such late
payment. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder.

        13.5    INTEREST. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor, when due as to scheduled payments (such as
Base Rent) or within thirty (30) days following the date on which it was due for
non-scheduled payment, shall bear interest from the date when due, as to
scheduled payments, or the thirty-first (31st) day after it was due as to
non-scheduled payments. The interest ("Interest") charged shall be equal to the
prime rate reported in the Wall Street Journal as published closest prior to the
date when due plus four percent (4%), but shall not exceed the maximum rate
allowed by law. Interest is payable in addition to the potential late charge
provided for in Paragraph 13.4.

        13.6    BREACH BY LESSOR.

                (a) NOTICE OF BREACH. Lessor shall not be deemed in breach of
this Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and any Lender whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days are reasonably
required for its performance, then Lessor shall not be in breach if performance
is commenced within such thirty (30) day period and thereafter diligently
pursued to completion.

                (b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said notice, or if having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent an amount equal to the greater of one month's Base
Rent or the Security Deposit, and to pay an excess of such expense under
protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall
document the cost of said cure and supply said documentation to Lessor.

14.     CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(collectively "CONDEMNATION"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. If more than ten percent (10%) of any building portion of the
Premises, or more than twenty-five percent (25%) of the land area portion of the
Premises not occupied by any building, is taken by Condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in proportion
to the reduction in utility of the Premises caused by such Condemnation.
Condemnation awards and/or payments shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold, the value of the part taken, or for severance damages; provided,
however, that Lessee shall be entitled to any compensation for Lessee's
relocation expenses, loss of business goodwill and/or Trade Fixtures, without
regard to whether or not this Lease is terminated pursuant to the provisions of
this Paragraph. All Alterations and Utility Installations made to the Premises
by Lessee, for purposes of Condemnation only, shall be considered the property
of the Lessee and Lessee shall be entitled to any and all compensation which is
payable therefor. In the event that this Lease is not terminated by reason of
the Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.

15.

16.     ESTOPPEL CERTIFICATES.

                (a) Each Party (as "RESPONDING PARTY") shall within ten (10)
days after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "ESTOPPEL CERTIFICATE" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.

                (b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting

                                 Page 11 of 15
<PAGE>

Party, (ii) there are no uncured defaults in the Requesting Party's performance,
and (iii) if Lessor is the Requesting Party, not more than one month's Rent has
been paid in advance. Prospective purchasers and encumbrancers may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.

                (c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee and all Guarantors shall deliver to any
potential lender or purchaser designated by Lessor such financial statements as
may be reasonably required by such lender or purchaser, including, but not
limited to, Lessee's financial statements for the past three (3) years. All such
financial statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.

17.     DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined. Notwithstanding the above, and subject to the provisions of Paragraph
20 below, the original Lessor under this Lease, and all subsequent holders of
the Lessor's interest in this Lease shall remain liable and responsible with
regard to the potential duties and liabilities of Lessor pertaining to Hazardous
Substances as outlined in Paragraph 6 above.

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

19.     DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.

20.     LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17
above, the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.

21.     TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.

22.     NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises.

23.     NOTICES.

                23.1    NOTICE REQUIREMENTS. All notices required or permitted
by this Lease shall be in writing and may be delivered in person (by hand or by
courier) or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notices. Either Party
may by written notice to the other specify a different address for notice,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.

                23.2    DATE OF NOTICE. Any notice sent by registered or
certified mail, return receipt requested, shall be deemed given on the date of
delivery shown on the receipt card, or if no delivery date is shown, the
postmark thereon. If sent by regular mail the notice shall be deemed given
forty-eight (48) hours after the same is addressed as required herein and mailed
with postage prepaid. Notices delivered by United States Express Mail or
overnight courier that guarantee next day delivery shall be deemed given
twenty-four (24) hours after delivery of the same to the Postal Service or
courier. Notices transmitted by facsimile transmission or similar means shall be
deemed delivered upon telephone confirmation of receipt, provided a copy is also
delivered via delivery or mail. If notice is received on a Saturday, Sunday or
legal holiday, it shall be deemed received on the next business day.

24.     WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of monies or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.

26.     NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
one hundred fifty percent (150%) of the Base Rent applicable during the month
immediately preceding the expiration or termination. Nothing contained herein
shall be construed as consent by Lessor to any holding over by Lessee.

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

28.     COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
Parties, but rather according to its fair meaning as a whole, as if both Parties
had prepared it.

29.     BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be

                                 Page 12 of 15
<PAGE>

governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be initiated
in the county in which the Premises are located.

30.     SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.

        30.1    SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "Lessor's Lender") shall have no liability or obligation to
perform any of the obligations of Lessor under this Lease. Any Lender may elect
to have this Lease and/or any Option granted hereby superior to the lien of its
Security Device by giving written notice thereof to Lessee, whereupon this Lease
and such Options shall be deemed prior to such Security Device, notwithstanding
the relative dates of the documentation or recordation thereof.

        30.2    ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not: (i)
be liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership; (ii) be subject to any offsets or
defenses which Lessee might have against any prior lessor; or (iii) be bound by
prepayment of more than one (1) month's rent.

        30.3    NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within sixty (60) days after the execution of this Lease,
Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured
by the Premises. In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at
Lessee's option, directly contact Lessor's lender and attempt to negotiate for
the execution and delivery of a Non-Disturbance Agreement.

        30.4    SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31.     ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such
fees may be awarded in the same suit or recovered in a separate suit, whether or
not such action or proceeding is pursued to decision or judgment. The term,
"PREVAILING PARTY" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be, whether
by compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The attorneys' fees award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be
entitled to attorneys' fees, costs and expenses incurred in the preparation and
service of notices of Default and consultations in connection therewith, whether
or not a legal action is subsequently commenced in connection with such Default
or resulting Breach.

32.     LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises as Lessor may deem necessary.
All such activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and
Lessor may during the last six (6) months of the term hereof place on the
Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or
about the Premises any ordinary "FOR SUBLEASE" sign. In the event of an
emergency, the determination of which shall require Lessor to be reasonable,
Lessor shall use good faith efforts to provide Lessee with reasonable notice in
such situation. In the event of any entry by Lessor onto the Premises, Lessor
shall use in good faith efforts not to interfere with the conduct of Lessee's
business.

33.     AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.

34.     SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent, which shall
not be unreasonably withheld. All signs must comply with all Applicable
Requirements. See Addendum Section 68.

35.     TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.

36.     CONSENTS. Except as otherwise provided herein, wherever in this Lease
the consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including, but not limited to, architects',
attorneys', engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including, but not limited to, consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt
of an invoice and supporting documentation therefor. Lessor's consent to any
act, assignment or subletting shall not constitute an acknowledgment that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
The failure to specify herein any particular condition to Lessor's consent shall
not preclude the imposition by Lessor at the time of consent of such further or
other conditions as are then reasonable with reference to the particular matter
for which consent is being given. In the event that either Party disagrees with
any determination made by the other hereunder and reasonably requests the
reasons for such determination, the determining party shall furnish its reasons
in writing and in reasonable detail within ten (10) business days following such
request.

                                 Page 13 of 15
<PAGE>
38.     QUIET POSSESSION. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's part
to be observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term hereof.

39.     OPTIONS.

        39.1    DEFINITION. "OPTION" shall mean: (a) the right to extend the
term of or renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.

        39.2    OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee, and cannot be assigned
or exercised by anyone other than said original Lessee and only while the
original Lessee is in full possession of the Premises and, if requested by
Lessor, with Lessee certifying that Lessee has no intention of thereafter
assigning or subletting.

        39.3    MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later Option cannot be exercised unless
the prior Options have been validly exercised.

        39.4    EFFECT OF DEFAULT ON OPTIONS.

                (a) Lessee shall have no right to exercise an Option: (i) during
the period commencing with the giving of any notice of Default and continuing
until said Default is cured, (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee), (iii) during the
time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has
been given three (3) or more notices of separate Default, whether or not the
Defaults are cured, during the twelve (12) month period immediately preceding
the exercise of the Option.

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

                (c) An Option shall terminate and be of no further force or
effect, notwithstanding Lessee's due and timely exercise of the Option, if,
after such exercise and prior to the commencement of the extended term, (i)
Lessee fails to pay Rent for a period of thirty (30) days after such Rent
becomes due (without any necessity of Lessor to give notice thereof), (ii)
Lessor gives to Lessee three (3) or more notices of separate Default during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.

40.     MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of the
grounds and including the parking, loading and unloading of vehicles, and that
Lessee will pay its fair share of common expenses incurred in connection
therewith.

41.     SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.

42.     RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.

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

44.     AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each Party
shall, within thirty (30) days after request, deliver to the other Party
satisfactory evidence of such authority.

45.     CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.

46.     OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.

47.     AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.

48.     MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.

49.     MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease [ ] IS  [X] IS NOT attached to this Lease.

50.     See Addendum 50.

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

                                 Page 14 of 15
<PAGE>

________________________________________________________________________________

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:

1.   SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2.   RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.

WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
________________________________________________________________________________

The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.

Executed at: Manhattan Beach,            Executed at: Manhattan Beach,
             California                               California
            -------------------------                ---------------------------

on:                                      on:
   ----------------------------------       ------------------------------------

By LESSOR:                               By LESSEE:

MANHATTAN CORNERS, LLC                   SKECHERS U.S.A., INC.
-------------------------------------    ---------------------------------------

-------------------------------------    ---------------------------------------

By:       /s/ Kenneth R. Ziegler         By:       /s/ Michael Greenberg
   ----------------------------------       ------------------------------------

Name Printed: Kenneth R. Ziegler         Name Printed: Michael Greenberg
             ------------------------                 --------------------------

Title:        General Manager            Title:        President
      -------------------------------          ---------------------------------

By:                                      By:       /s/ Michael Greenberg
   ----------------------------------       ------------------------------------

Name Printed:                            Name Printed: Michael Greenberg
             ------------------------                 --------------------------
Title:                                   Title:        President
      -------------------------------          ---------------------------------

Address: 1104 Highland Avenue            Address: 228 Manhattan Beach Boulevard
        -----------------------------            -------------------------------
         Suite K                                  Suite 200
        -----------------------------            -------------------------------
         Manhattan Beach, CA  90266               Manhattan Beach, CA  90266
        -----------------------------            -------------------------------

Telephone: (310) 798-7192                Telephone: (310) 318-3100
            ---  --------------------                ---  ----------------------
Facsimile: (   )                         Facsimile: (   )
            ---  --------------------                ---  ----------------------

Federal ID No.                           Federal ID No.
              -----------------------                  -------------------------

NOTE: These forms are often modified to meet the changing requirements of law
      and industry needs. Always write or call to make sure you are utilizing
      the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700
      So. Flower Street, Suite 600, Los Angeles, California 90017. (213)
      687-8777. Fax No. (213) 687-8616

                                 Page 15 of 15
<PAGE>

                   ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL
                             SINGLE-TENANT LEASE-NET
                                 By and Between
                      MANHATTAN CORNERS, LLC ("LESSOR") and
                        SKECHERS U.S.A., INC. ("LESSEE")

This Addendum is attached to and made a part of the STANDARD
INDUSTRIAL/COMMERCIAL SINGLE TENANT LEASE-NET dated April 28, 2000, by and
between the above-named Lessor and Lessee (the "Lease"). In the event of a
conflict between any provision(s) contained in the Lease and any provision(s)
contained in this Addendum, the provisions of this Addendum shall control.

50. PREMISES. Lessee acknowledges that it is familiar with the condition of the
Premises, and, subject to the provisions of Sections 2.2 and 2.3, covenants and
agrees to accept the Premises in its condition and state of repair "as is". This
Lease confers upon Lessee no right either with regard to the subsurface of the
land situated below the Premises or with regard to airspace above the top of the
roof of the Premises. Within thirty (30) days following the delivery of
possession of the Premises to Lessee, Lessee, at its sole cost and expense, may
cause Lessee's floor area to be measured by a licensed architect using B.O.M.A.
standards. In the event that such calculation reflects a deviation from the
square footage set forth herein, and Lessor does not dispute the calculation,
the parties shall amend the Lease to reflect the recalculated floor area and to
proportionally adjust the Base Rent to Three Dollars ($3.00) per square foot
(subject to adjustments as provided herein). If Lessor disputes Lessee's
recalculation by a licensed architect, then Lessor's architect and Lessee's
architect shall appoint a third duly-licensed architect to measure the floor
area in dispute. If the third architect's recalculation does not agree with
either of the two prior calculations, then the floor area shall be determined to
be the average of the middle measurement and the measurement closest to it. The
cost of the third architect will be paid one-half (1/2) by Lessor and one-half
(1/2) by Lessee.

51. COMMENCEMENT DATE/EARLY POSSESSION.

        (a) COMMENCEMENT DATE. The term of this Lease shall commence on the date
("Commencement Date") which is seven (7) days after the date on which Lessor has
delivered the Premises to Lessee substantially complete in accordance with the
terms and provisions of Lessor's approved plans and specifications and for which
Lessor shall have received all necessary building inspection approvals. The
Premises shall be delivered to Lessee in "vanilla shell" condition, subject to
the following: (i) not less than one ton of HVAC per 350 square feet of floor
area; (ii) not less than 200 amp electrical panel with 42 breakers; and (iii)
walls to be unpainted masonry or drywall over stud, taped, sanded and ready for
paint. Lessor agrees to give Lessee a rent credit for the cost of purchase and
installation of floor covering and light fixtures equal to $7,500.00. Lessor
agrees to proceed with the completion of construction in a diligent manner, and
to keep Lessee reasonably informed of its progress. If Lessor's work has not
been substantially completed prior to November 1, 2000, then Lessee shall be
entitled to terminate this Lease upon ten (10) days written notice and the
opportunity to cure to Lessor, and to receive a refund of any and all amounts
previously paid by Lessee to Lessor. Lessee shall have a period of thirty (30)
days after receipt of possession to provide Lessor with a list ("punch-list") of
any defective or incomplete items with respect to Lessor's work. Lessor will
cure any items of defective or incomplete construction on the punch-list in a
diligent manner, and if Lessor fails to do so, then following ten (10) days'
written notice and the opportunity to cure, Lessee shall be entitled to complete
the punch-list items at Lessor's expense.

        (b) EARLY POSSESSION. Lessor will not unreasonably withhold consent to a
request by Lessee for entry upon the Premises for purposes of inspections or
tests or completing Lessee's approved alterations and improvements to the
Premises, provided that Lessee's activities do not interfere with Lessor's
construction activity. Any early possession by Lessee shall be subject to the
provisions of Section 3.2 of the

                                       1
<PAGE>

Lease, and before being granted possession, Lessee shall furnish Lessor with a
Certificate of Insurance as called for herein.

52.     INSURANCE.

        (a) INCREASES IN PREMIUMS. Lessee agrees that it will not keep, use,
sell or offer for sale in or upon the Premises any article which may be
prohibited by any insurance policy in force at any time during the term hereof
covering the Premises. If Lessee's occupancy or conduct of business in the
Premises, whether or not Lessor has consented to the same, results in any
increase in premiums for the insurance carried from time to time by Lessor
hereunder, Lessee shall pay any such increase in premiums within ten (10) days
after being billed therefor by Lessor. In determining whether increased premiums
are a result of Lessee's use or occupancy of the Premises, a schedule issued by
the organization computing the insurance rate on the Premises showing the
various components of such rate shall be conclusive evidence of the several
items and charges which make up the rate. Lessee shall promptly comply with all
reasonable requirements of the insurance authority or of any insurer now or
hereafter in effect relating to the Premises.

        (b) CANCELLATION. If any insurance policy carried by Lessor hereunder
shall be canceled or cancellation shall be threatened or the coverage thereunder
reduced or threatened to be reduced in any way by reason of Lessee's use
or occupation of any portion of the Premises, or by any assignee or sublessee of
Lessee or by anyone permitted by Lessee to be upon the premises, and if Lessee
fails to remedy the condition giving rise to such cancellation, threatened
cancellation or reduction of coverage within 48 hours after notice thereof,
Lessor may, at its option either terminate this Lease or enter upon the Premises
and attempt to remedy such conditions and Lessee shall forthwith pay the cost
thereof to the Lessor as additional rent. Lessor shall not be liable for any
damage or injury caused to Lessee's personal property or any other property
located in the Premises as a result of such entry. Whether or not Lessor shall
be able to remedy such condition, it shall nonetheless constitute the event of a
Default by Lessee. Notwithstanding the foregoing, Lessor shall have no
obligation to remedy such Default.

        (c) LIABILITY INSURANCE. The liability insurance policy limits and
coverages set forth in paragraph 8 of this Lease may be increased by Lessor from
time to time in such amounts as Lessor shall reasonably determine.

53. EXCESSIVE DAMAGE OR DESTRUCTION. If there is either "Premises Total
Destruction" as defined in paragraph 9.1 (b) or if Lessor determines that it
cannot, with reasonable diligence, fully repair or restore any partial damage to
the Premises within two hundred seventy (270) days after the date of the damage
or destruction, notwithstanding Lessee's exercise of any right to repair, Lessor
may terminate this Lease. Lessor shall reasonable determine whether there is
Premises Total Destruction or whether full repair or restoration can be made
within the 270-day period, and Lessor's good faith determination shall be
binding upon Lessee. Lessor shall notify Lessee of its determination, in
writing, within forty-five (45) days after the date of the damage or
destruction. If Lessor determines that the Premises can be fully repaired or
restored within the 270-day period, or if it is determined that such repair or
restoration cannot be made within said period or there is Premises Total
Destruction but Lessor does not elect to terminate within forty-five (45) days
from the date of said determination, this Lease shall remain in full force and
effect and Lessor shall repair and restore the damage as soon as reasonably
possible, subject to the provisions of Section 9. Provided that Lessee was not a
cause of the destruction, in the event that there occurs Premises Total
Destruction, Lessee may terminate the Lease upon written notice to Lessor no
later than thirty (30) days after such Premises Total Destruction.

                                       2
<PAGE>

54.     ASSIGNMENT AND SUBLETTING.

        (a) BONUS RENTAL. If for any assignment or sublease, Lessee receives
rent or other consideration, either initially or over the term of the assignment
or sublease, in excess of the Base Rent called for hereunder, or in the event of
the sublease or a portion of the Premises, in excess of such Base Rent fairly
allocable to such portion (and actual out-of-pocket brokerage fees expended by
Lessee in obtaining such assignment or sublease), Lessee shall pay to Lessor,
monthly as additional rent hereunder, fifty percent (50%) of the excess of each
such payment of rent or other consideration received by Lessee within ten
(10) days after its receipt. For purposes of this paragraph 54, the term "rent
or other consideration" shall include, without limitation, all monies or other
consideration of any kind, if such sums are related to Lessee's interest in the
Lease or in the Premises, including but not limited to bonus money, key money
and similar payments.

        (b) SCOPE. Unless Lessor requires an attornment in the event of a
sublease pursuant to paragraph 12.3(b), at Lessor's option, any sublease shall
terminate upon termination of the Lease due to Lessee's Breach and such
subtenant shall immediately vacate the Premises upon such termination. If
Lessee's obligations under this Lease have been guaranteed by third parties,
then at Lessor's option, a sublease, and Lessor's consent thereto, shall not be
effective unless and until said guarantors give their written consent to such
sublease and the terms thereof. Lessee immediately and irrevocably assigns to
Lessor, as security for Lessee's obligations under this Lease, all rent from any
subletting of all or part of the Premises as permitted by this Lease, and
Lessor, as assignee and as attorney-in-fact for Lessee, or a receiver for Lessee
appointed on Lessor's application, may collect such rent and apply it toward
Lessee's obligations under this Lease; provided that, until the occurrence of an
act of a Default by Lessee, Lessee shall have the right to collect such rent;
and provided further that no such collection shall be construed to constitute a
novation or release of Lessee from the further performance of Lessee's
obligations hereunder.

55. LIABILITY OF LESSOR. Neither Lessor, Lessor's members, managers, employees,
agents, any persons or entities comprising Lessor, nor any successor in interest
to Lessor (or to such persons or entities) shall have any personal liability for
any failure by Lessor to perform any term, covenant or condition of this Lease.
If Lessor shall fail to perform any covenant, term or condition of this Lease
upon Lessor's part to be performed, and if as a consequence of such default
Lessee shall recover a money judgment against Lessor, such judgment shall be
satisfied only out of the proceeds of sale received upon execution of such
judgment and levied thereon against the right, title and interest of Lessor in
the Building or out of the consideration received by Lessor from the sale or
other disposition of all or any part of Lessor's right, title and interest in
the Building, subject, nevertheless, to the rights of Lessor's mortgagee, and
neither Lessor nor any of the parties or entities comprising Lessor herein shall
be liable for any deficiency. The foregoing limitation of liability shall be
noted in any judgment secured against Lessor and in the judgment index.

56. TRIPLE NET. This Lease is a triple net (net, net, net) Lease. In addition to
Base Rent, as additional rent, Lessee shall also be responsible for and shall
pay the insurance, maintenance and repair costs, property taxes, utilities and
other costs associated with the Building, all as more fully set forth in this
Lease.

57. PLATE GLASS INSURANCE. The property insurance required to be maintained by
Lessee pursuant to paragraph 8.4 of this Lease shall include all-risk coverage
of all plate glass on the Premises, with a deductible amount of no more than
$250.00 per incident or loss. Lessee, at its own risk, may self-insure for such
plate glass coverage.

58. ADDITIONAL RENT/PAYMENTS DUE. In addition to the monthly Base Rent, Lessee
shall also pay as additional rent, without deduction or offset, all other
charges, fees, costs, taxes, impositions, expenses and other sums required to be
paid by Lessee under this Lease whether or not the same is designated as
additional rent. Unless otherwise set forth in this Lease, any and all amounts
required to be paid by Lessee

                                       3
<PAGE>

to Lessor, whether or not defined as additional rent, shall be due no later than
the date that is ten (10) days following the date Lessor gives written notice to
Lessee of the amount due. In the event of nonpayment of any additional rent or
other sums when due, Lessor shall have all of the rights and remedies provided
hereunder or by law for the nonpayment of Base Rent.

59.     RENTAL ADJUSTMENT.

        (a) On each anniversary of the Commencement Date of this Lease (the
"Adjustment Date"), the monthly Base Rent payable by Lessee to Lessor for each
of the succeeding twelve (12) months shall be increased, subject to subparagraph
(e) below, by an amount equal to the increase, if any, of the Consumer Price
Index of the Bureau of Labor Statistics of the U.S. Department of Labor for All
Urban Consumers-All Items, Los Angeles-Anaheim-Riverside, California (1982-1984
= 100) (hereinafter referred to as "CPI") which occurred over the twelve (12)
consecutive month period ending two (2) months prior to the respective
Adjustment Date (the "CPI Period").

        (b) The CPI increase, if applicable, shall be determined by multiplying
the Base Rent amount for the month preceding the respective Adjustment Date by a
fraction the numerator of which shall be the CPI for the calendar month two (2)
months prior to the Adjustment Date and the denominator of which shall be the
CPI for the same calendar month of the immediately preceding calendar year.

        (c) In the event the compilation and/or publication of the CPI shall be
transferred to any other governmental department or bureau or agency or shall be
discontinued, then such conversion factor, formula or table selected by Lessor
in good faith as may be published by any other nationally recognized publisher
of similar statistical information shall be used.

        (d) Lessor shall, as promptly as practical following publication of the
relevant month's CPI each year, given notice to Lessee of the adjustment and
increase in the monthly Base Rent as determined by Lessor pursuant to the
provisions of this paragraph 59, and Lessor's computation thereof (absent
mathematical error) shall be conclusive and binding.

        (e) Notwithstanding the above provisions of this paragraph 59, the
minimum increase in Base Rent on each Adjustment Date will be three percent
(3%), and the maximum increase will be seven percent (7%).

        (f) In the event that Lessee exercises its option to extend the term of
the Lease, then the Base Rent during the first year of the Option Period will be
determined according to the provisions of paragraph 66. Thereafter, each
subsequent anniversary of the Commencement Date shall be an Adjustment Date, and
the Base Rent shall be increased according to the same provisions as set forth
in subparagraphs (a) through (e) above.

60. INTERRUPTION OF LESSEE'S BUSINESS. Lessor shall not be liable in any manner
for the interruption of, or damage or injury to, Lessee or any of its
sublessees, or its or their respective businesses on the Premises arising from,
indirectly or directly relating to, or because of any construction, repair or
maintenance work by Lessor.

61. NO BROKERS. Each party warrants and represents that there was no broker or
agent representing it who was instrumental in consummating this Lease. Each
party agrees to indemnify and hold the other party harmless against any claims
for brokerage or other commissions arising by reason of a breach by the
indemnifying party of this representation and warranty.

                                       4
<PAGE>

62. TRANSFER BY LESSOR. Lessor hereunder shall have the right to freely assign
this Lease without the consent of Lessee.

63. NO PARTNERSHIP. Notwithstanding anything else to the contrary, Lessor shall
not be deemed to be a partner of Lessee or a joint venturer with Lessee.

64. WAIVER OF COUNTERCLAIMS. Lessee shall not impose any counterclaim or
counterclaims in a summary proceeding or other action based on termination or
holdover, it being the intent of the parties hereto that Lessee be strictly
limited in such instance to bringing a separate action in the court of
appropriate jurisdiction. The foregoing waiver is a material inducement to
Lessor making, executing and delivering this Lease and Lessee's waiver of its
right to counterclaim in any summary proceeding or other action based on
termination or holdover is done so knowingly, intelligently and voluntarily.

65. WAIVER OF JURY TRIAL. Lessor and Lessee hereby waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other on, or in respect of, any matter whatsoever arising out of or
in any way connected with this Lease, the relationship of Lessor and Lessee
hereunder, Lessee's use or occupancy of the Premises and/or any claim of injury
or damage.

66. OPTION TO EXTEND. Lessor hereby grants to Lessee the option to extend the
term of this Lease for one (1) additional five (5) year period (the "Option
Term"), commencing when the initial term of the Lease expires, upon each and all
of the following terms and conditions:

        (a) In order to exercise an option to extend, Lessee must give written
notice by personal delivery or certified mail, return receipt requested, of such
election to Lessor at least four (4) but not more than six (6) months prior to
the date that the option period would commence, time being of the essence. If
proper notification of the exercise of an option is not given and/or received,
such option shall automatically expire.

        (b) The provisions of paragraph 39, including those relating to Lessee's
Default set forth in paragraph 39.4 of this Lease, are conditions of this
option.

        (c) Except for the provisions of this Lease granting an option or
options to extend the term, all of the terms and conditions of this Lease except
where specifically modified by this option shall apply.

        (d) This option is personal to the original Lessee, and cannot be
assigned or exercised by anyone other than said original Lessee and only while
the original Lessee is in full possession of the Premises and without the
intention of thereafter assigning or subletting.

        (e) On the date that the Option Term commences (the "Market Rental Value
Adjustment Date"), the Base Rent shall be adjusted to the "Market Rental Value"
("MRV") of the Premises as follows:

            (i) In determining Market Rental Value, the parties will seek to
establish the fair market rental value for the Premises, without consideration
of new tenant inducements, broker commissions, or construction allowances.

            (ii) Four (4) months prior to the Market Rental Value Adjustment
Date, the parties shall attempt to agree upon what the new MRV will be on the
adjustment date. If agreement cannot be reached within thirty (30) days, then
Lessor and Lessee shall immediately appoint a mutually acceptable appraiser or
broker to establish the new MRV within the next thirty (30) days. Any associated
costs will be split equally between the parties. If the parties are unable to
agree upon either the MRV or on a single appraiser, then

                                       5
<PAGE>

Lessor and Lessee shall each immediately make a reasonable determination of the
MRV and submit such determination, in writing, to arbitration in accordance with
the following provisions:

                    a) Within fifteen (15) days thereafter, Lessor and Lessee
shall each select a licensed appraiser or real estate broker actively engaged in
business and with substantial experience in the Manhattan Beach commercial
market ("Consultant") of their choice to act as an arbitrator. The two
arbitrators so appointed shall immediately select a third mutually acceptable
Consultant to act as a third arbitrator.

                    b) The three arbitrators shall within thirty (30) days of
the appointment of the third arbitrator reach a decision as to what the actual
MRV for the Premises is, and whether Lessor's or Lessee's submitted MRV is the
closest thereto. The decision of a majority of the arbitrators shall be binding
on the parties. The submitted MRV which is determined to be the closest to the
actual MRV shall thereafter be used by the parties.

                    c) If either of the parties fails to appoint an arbitrator
within the specified fifteen (15) days, the arbitrator timely appointed by one
of them shall reach a decision on his/her own, and said decision shall be
binding on the parties.

                    d) The entire cost of such arbitration shall be paid by the
party whose submitted MRV is not selected, i.e., the one that is NOT the closest
to the actual MRV.

                (iii) Notwithstanding the foregoing, the new MRV shall not be
less than the rent payable for the month immediately preceding the rent
adjustment.

67. Maintenance by Lessor. Except for damage caused by Lessee, its agents,
employees or contractors (which shall be Lessee's sole responsibility), Lessor
shall, at Lessor's sole expense, keep the exterior walls, (excluding
storefronts, windows, doors, plate glass, window casements, and glazing)
foundations and structural components of the roof in good order, condition and
repair.

68. Signage. Subject to Lessee's obtaining all necessary governmental approvals
therefor, Lessor will not unreasonably withhold its consent to Lessee's
installation and maintenance of all signage permitted by the City of Manhattan
Beach on the Premises. All such signage shall be installed and maintained at
Lessee's sole cost and expense, and shall be designed, constructed and installed
in a professional manner. Lessee shall have no right to place any signage upon
the roof of the Premises.

69. General Rules of Construction.

        (a) This Lease may be executed in several counterparts and the
counterparts shall constitute one and the same instrument.

        (b) Lessor may act under this Lease by its attorney or agent.

        (c) Wherever a requirement is imposed on Lessee hereunder, Lessee shall
be required to perform such requirement at its sole cost and expense unless it
is specifically otherwise provided herein.

        (d) (i) Wherever appropriate herein, the singular includes the plural
and the plural includes the singular (ii) whenever the word "including" is used
herein, it shall be deemed to mean "including, but not limited to"; (iii) the
words "re-enter" and "re-entry" as used herein shall not be restricted to their
technical legal meaning.

        (e) Anything in this Lease to the contrary notwithstanding: (i) any
provision hereof which permits or requires a party to take any particular action
shall be deemed to permit or require, as the case may be,

                                       6
<PAGE>

such party to cause such action to be taken; and (ii) any provision hereof which
requires any party not to take any particular action shall be deemed to require
such party to prevent such action to be taken by any person or by operation of
law.

The parties hereto have executed this Addendum as of the date of execution of
the Lease.

By LESSOR:                                   By LESSEE:

MANHATTAN CORNERS, LLC                       SKECHERS U.S.A., INC.

By:  /s/ KENNETH R. ZIEGLER                  By:  /s/ [SIGNATURE UNINTELLIGIBLE]
    ----------------------------                 -------------------------------
         KENNETH R. ZIEGLER,
         Managing Member                     Its:     President
                                                 -------------------------------

                                             By:  /s/ [SIGNATURE UNINTELLIGIBLE]
                                                 -------------------------------
                                             Its:     President
                                                 -------------------------------

f.j.a.Manhattan Comers Sketchers Lease Addendum

                                       7<PAGE>
                                                                   EXHIBIT 10.28

                                                          [California Net Lease]

                                 LEASE AGREEMENT

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

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

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

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

PROJECT:                        Milliken Distribution Center #1

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

TENANT'S PROPORTIONATE
SHARE OF PROJECT:               100.000%

TENANT'S PROPORTIONATE
SHARE OF BUILDING:              100.000%

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

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

INITIAL MONTHLY BASE RENT:                                        See Addendum 1

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

                                5. Others:      Mgmt Fee $3,816.00

INITIAL ESTIMATED MONTHLY
  OPERATING EXPENSE PAYMENTS:                                         $37,017.00

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

SECURITY DEPOSIT:               $250,000.00

BROKER:                         CB Richard Ellis, Lee & Associates

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

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

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

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

<PAGE>

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

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

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

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

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

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

                                      -2-
<PAGE>

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

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

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

                                      -3-
<PAGE>

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

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

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

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

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

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

                                      -4-
<PAGE>

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

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

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

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

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

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

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

                                      -5-
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                      -7-
<PAGE>

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

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

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

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

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

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

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

                                      -8-
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                      -9-
<PAGE>

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

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

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

        26.    Intentionally deleted.

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

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

                                      -10-
<PAGE>

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

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

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

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

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

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

                                      -11-
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

                                      -12-
<PAGE>

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

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

        (e)    Intentionally deleted.

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

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

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

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

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

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

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

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

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

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

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

                                      -13-
<PAGE>

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

                                      -14-
<PAGE>

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

TENANT:                                  LANDLORD:

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

                                         BY: PROLOGIS TRUST, ITS MANAGING MEMBER

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

                                         Address:

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

Address:

228 Manhattan Beach Blvd.
Manhattan Beach, CA  90266

                                      -15-
<PAGE>

                              Rules and Regulations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                      -16-
<PAGE>

                                   ADDENDUM 1

                              BASE RENT ADJUSTMENTS

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

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

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

        Month 61 through Month 90                         $236,601.00

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

                                      -17-
<PAGE>

                                   ADDENDUM 2

                                  CONSTRUCTION
                                   (ALLOWANCE)

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

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

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

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

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

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

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

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

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

                                      -18-
<PAGE>

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

                                      -19-
<PAGE>

                                   ADDENDUM 3

                               TWO RENEWAL OPTIONS
                             (BASEBALL ARBITRATION)

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

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

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

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

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

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

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

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

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

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

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

                                      -20-
<PAGE>

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

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

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

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

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

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

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

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

                                      -21-
<PAGE>

                                   ADDENDUM 4

                            MISCELLANEOUS PROVISIONS

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

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

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

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

                                      -22-
<PAGE>

                                    EXHIBIT A

                                    SITE PLAN

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

                                 [ILLUSTRATION]

<PAGE>

                                    EXHIBIT B

                               FRONT ENTRANCE SIGN

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

                                 [ILLUSTRATION]

<PAGE>

                                    EXHIBIT C

                                  MONUMENT SIGN

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

                                 [ILLUSTRATION]

<PAGE>

                                    EXHIBIT D

                                    NAME SIGN

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

                                 [ILLUSTRATION]

<PAGE>

                                    EXHIBIT E

   STIPULATION REGARDING REJECTION OF ONTARIO LEASE, INCLUDING MUTUAL RELEASES

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

                STIPULATION REGARDING REJECTION OF ONTARIO LEASE,
                            INCLUDING MUTUAL RELEASES

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

                                       I.

                                    RECITALS

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

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

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

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

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

<PAGE>

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

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

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

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

                                       2
<PAGE>

                                       II.

                                   STIPULATION

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

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

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

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

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

                                       3
<PAGE>

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

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

                                      III.

                      RELEASE AND DISCHARGE OF GUARANTY AND

                               ALL RELATED CLAIMS

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

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

                                       4
<PAGE>

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

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

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

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

                                       5
<PAGE>

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

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

                                       IV.

                           CONDITIONS TO EFFECTIVENESS

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

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

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

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

                                       V.

                         REPRESENTATIONS AND WARRANTIES

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

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

                                       6
<PAGE>

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

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

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

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

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

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

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

                                       VI.

                                  MISCELLANEOUS

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

                                       7

<PAGE>

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

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

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

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

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

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

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

                                       8

<PAGE>

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

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

                                         ETOYS DISTRIBUTION L.L.C.

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

Approved as to form and content:

MAYER, BROWN & PLATT
KIMBERLY S. WINICK

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

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

IRELL & MANELLA
HOWARD J. STEINBERG

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

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

                                       9

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