<PAGE>
 
                                                                   EXHIBIT 10.23
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                               PROPERTY ADDRESS

                             CYPRESS BUSINESS PARK
                                685 Clyde Avenue
                            Mountain View, CA 94043



                                   INDUSTRIAL

                                     LEASE

                                    BETWEEN



                        THE PRUDENTIAL INSURANCE COMPANY
                                   OF AMERICA

                                    LANDLORD

                                      AND


                              SILICON GAMING, INC.


                                     TENANT

                               January   __, 1997

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                               INDUSTRIAL LEASE
                               ----------------


          THIS LEASE is made as of the __ day of January, 1997, between THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("Landlord"),
and SILICON GAMING, INC.,  a California corporation ("Tenant"), for space in the
building located at  685 Clyde Avenue Mountain View, CA 94043 (such building,
together with the land upon which it is situated, being herein referred to as
the "Building").  The following schedule (the "Schedule") sets forth certain
basic terms of this Lease:


SCHEDULE

1.  Premises                             685 Clyde Avenue, Mountain View, CA

2.  Rentable Square Feet of Premises:    28,800 (Approx.)

3.  Term                                 One Hundred Eight  (108) Months, 
                                         Commencing on the Commencement Date
4.  Base Rent:
 
    Period from/to                       Monthly
    --------------                       ----------
    Months: 1-12                         $27,360.00
           13-108                        $ (See Section 2.c)
 
 
5.  Tenant's Share of CAM Charges:       24.42%

6.  Security Deposit:                    $ (see Section 17)

7.  Broker(s):                           The Galbreath Company (Tenant)
                                         CPS (Landlord)

8.  Commencement Date                    MARCH 1, 1997

9.  Landlord's Notice Address:           The Voit Companies
                                         1111 Broadway, Suite 1510
                                         Oakland, CA 94506
                                         RE:  Cypress Business Park
 

                                       2
<PAGE>
 
    with a copy to:                      The Prudential Insurance
                                         Company of America
                                         2029 Century Park East, Suite 2050
                                         Los Angeles, CA 90067
                                         ATTN: Real Estate Investments, 
                                               Vice President
    
    and                                  The Prudential Insurance
                                         Company of America
                                         4 Embarcadero Center Suite 2700
                                         San Francisco, CA 94111
                                         ATTN: Regional Counsel

10. Tenant's Notice Address:             Silicon Gaming Inc.
                                         2800  West Bayshore road
                                         Palo Alto, CA  94303
                                         Attn: Chief Financial Officer

                                         with a copy to:

                                         Silicon Gaming, Inc.
                                         685 Clyde Avenue
                                         Mountain View, CA  94043
                                         ATTN:  General Manager



11. Exhibits:                            A.   Floor Plan

                                         B.   Tenant Improvements Construction
                                              Agreement

                                         C.   Commencement Memorandum

                                         D.   Rules and Regulations

                                       3
<PAGE>
 
1.        DEMISING CLAUSE

Landlord leases to Tenant and Tenant leases from Landlord the premises (the
"Premises") described in Item 1 of the Schedule and shown on the plan attached
                         -------                                              
hereto as Exhibit A. subject to the covenants and conditions set forth in this
          ---------                                                           
Lease, for a term (the "Term") commencing on the date described in Item 8 of the
                                                                   ------       
Schedule (the "Commencement Date") and expiring on the last day of the Term
specified in the Schedule, subject, however, to paragraph 7 of the  Tenant
Improvement Construction Agreement attached hereto as Exhibit B. (the
                                                      ---------      
"Expiration Date"), unless terminated earlier as otherwise provided in this
Lease.

2.        RENT

a.        Definitions. For purposes of this Lease, the following terms shall
          ------------                                                      
have the following meanings:

i.        "Common Areas"  shall mean the parking, landscaping, sidewalks and
other common areas of the Project.

ii.       "Project" shall mean the project commonly known as Cypress Business
Park.

iii.      "Expenses"  shall mean (1)  all of Landlord's direct costs and
expenses of operation, repair and maintenance of the Common Areas and supporting
facilities and such other matters as are the responsibility of Landlord
hereunder, including, without limitation, reasonable management fees related to
the Project (provided, however, that such fee shall not exceed the management
fees generally charged by comparable managers of properties such as the Premises
and Project in the market area of the Project), all as determined by Landlord in
accordance with generally accepted accounting principles or other recognized
accounting principles, consistently applied; (2) costs, or a portion thereof,
properly allocable to the Common Areas of any capital improvements made to the
Common Areas by Landlord which comprise labor-saving devices or other equipment
intended to improve the operating efficiency of any system within Common Areas
(such as an energy management computer system), subject to amortization, as
provided below; and (3) costs properly allocable to the Building or Common Areas
of any capital improvements made to the Building or Common Areas by Landlord
that are required under any governmental law or regulation that was not
applicable to the Building and Common Areas at the time they were constructed,
or that are reasonably required for the health and safety of tenants in the
Building.  Wherever this Lease authorizes capital expenses to be charged as
Expenses, capital costs shall be amortized over the life of any relevant
improvement, together with interest at the rate of ten percent (10%) on the
unamortized balance.  Any repairs to the foundations or structural areas of the
Building required pursuant to Section 8.b hereof shall not be charged as
                              -----------                               
Expenses unless such repairs result from a legal requirement applicable to the
Building which is required to be paid by Landlord thereunder and that comes into
effect after the Commencement Date of the Lease.  As used herein, the term
"capital improvement" shall mean any replacement, work, improvement, alteration
or repair the cost of which is considered a capital expense under GAAP.

Notwithstanding anything to the contrary in the foregoing paragraph, in no event
shall "Expenses" include any of the following: (i) Repairs or other work
occasioned by fire, windstorm or other casualty or by exercise of the right of
eminent domain;  (ii) Leasing commissions, attorney's fees, costs and
disbursements and expenses incurred in connection with negotiations or disputes
with tenants, other occupants of the Project, or prospective tenants or other
occupants; (iii) Expenses of renovating or otherwise improving or decorating,
painting or redecorating the Premises of  Tenant or any other occupants of
premises within the Project, or vacant tenant space; (iv) Cost of damage and
repairs necessitated by the negligence or willful misconduct of Landlord or of
Landlord's agents, employees, contractors, invitees, or other tenants in the
Project; (v) Depreciation on the Building, Project, Common Areas or any personal
property associated therewith; (vi) Costs of a capital nature except to the
extent expressly permitted to be charged as "Expenses" hereunder, including, but
not limited to, capital improvements, capital repairs, capital equipment, and
capital tools all determined in accordance with generally accepted accounting
principles, except for the yearly amortized portion of said capital costs, as
permitted in this Lease; (vii) Expenses in connection with services or other
benefits of a type which are not provided Tenant but which are provided to
another tenant or occupant of the Building or Project; (viii) Costs incurred due
to violation by Landlord (or any other tenant), of the terms and conditions of
this Lease or any such tenant's lease; (ix) Overhead and profit increment paid
to subsidiaries or affiliates of Landlord for services  rendered in connection
with the Building or Project, to the extent that the cost of such 

                                       4
<PAGE>
 
services exceeds the costs for such services from unrelated third parties
offering such services in the market area of Building or Project; (x) Interest
on debt or amortization payments on any mortgage or mortgages, and rental under
any ground or underlying leases or lease, or rental or lease payments by the
Landlord for the parking portions of the Common Areas; (xi) Landlord's general
corporate overhead and general administrative expenses, excluding however any
components of covered by the management fee charged hereunder; (xii) Any
compensation paid to clerks, attendants or other persons in commercial
concessions operated by Landlord; (xiii), Rentals and other related expenses
incurred in leasing air conditioning systems, elevators or other equipment
ordinarily considered to be of a capital nature; (xiv) All items and services
for which Tenant reimburses Landlord or pays third persons directly; (xv) All
costs and expenses for which Landlord receives full reimbursement from any
tenant in the Project or any third party; (xvi) Advertising and promotional
expenditures, excluding any such expenses covered by the management fee charged
hereunder; and (xvii) other expense which under generally accepted accounting
principles and practice would not be included as normal maintenance or operating
expenses by comparable managers of comparable Projects in the market area of the
Project.

iv.       "Rent" shall mean Base Rent, Adjustment Rent, and any other sums or
charges due from Tenant hereunder.  This Lease is intended to be a triple net
lease, with all costs, expenses and charges (including the Expenses) allocated
to the Premises to be paid by Tenant except as otherwise specifically provided
in this Lease.

v.        "Taxes" shall mean all taxes, assessments and fees levied upon the
Building, the property of Landlord located therein or the rents collected
therefrom, by any governmental entity based upon the ownership, leasing, renting
or operation of the Building, including all costs and expenses of protesting any
such taxes, assessments or fees.  Taxes shall not include any net income,
capital stock, succession, transfer, franchise, gift, estate or inheritance
taxes; provided, however, if at any time during the Term, a tax or excise on
income is levied or assessed by any governmental entity, in lieu of or as a
substitute for, in whole or in part, real estate taxes or other ad valorem
                                                                ----------
taxes, such tax shall constitute and be included in Taxes.  For the purpose of
determining Taxes for any given year, the amount to be included for such year
(a) from special assessments payable in installments shall be the amount of the
installments (and any interest) due and payable during such year, and (b) from
all other Taxes shall be the amount due and payable in such year.

vi.       "Tenant's Share" shall mean the percentage set forth in Item 5 of the
                                                                  ------       
Schedule.

b.        Components of Rent. Tenant agrees to pay the following amounts to
          -------------------                                              
Landlord at the office of the Building or at such other place as Landlord
designates:

i.        Base rent ("Base Rent") to be paid in monthly installments in the
amounts set forth in Item 4 of the Schedule, in advance on or before the first
                     ------                                                   
day of each month of the Term, without demand, except that Tenant shall pay the
first month's Base Rent upon execution of this Lease.

ii.         Adjustment rent ("Adjustment Rent") in an amount equal to Tenant's
Share of Expenses and Taxes for any calendar year (or in the event Tenant shall
occupy the Premises for a portion of a year, any portion of the year during
which Tenant shall occupy the Premises).  Prior to each calendar year, or as
soon as reasonably possible, Landlord shall estimate and notify Tenant of the
amount of Adjustment Rent due for such year, and Tenant shall pay Landlord one-
twelfth of such estimate on the first day of each month during such year.  Such
estimate may be revised by Landlord whenever it obtains information relevant to
making such estimate more accurate. After the end of each calendar year,
Landlord shall deliver to Tenant a statement setting forth the actual Expenses
and Taxes for such calendar year and a statement of the amount of Adjustment
Rent that Tenant has paid and is payable for such year.  Within thirty (30) days
after receipt of such statement, Tenant shall pay to Landlord the amount of
Adjustment Rent due for such calendar year, as shown in said statement,  minus
any payments of estimated Adjustment Rent made by Tenant for such year. If
Tenant's estimated payments of Adjustment Rent exceed the amount due Landlord
for such calendar year, Landlord shall apply such excess as a credit against
Tenant's other obligations under this Lease, unless the Term has expired and
Tenant is not in default hereunder, in which case such amount shall be refunded
to Tenant promptly after determination of said overpayment. In no case shall any
overpayment by Tenant earn interest.

c.        Increase of Rent.   The Base Rent shall be adjusted upward every year
          ------------------                                                   
of the term hereof, based on the increase in the Consumer Price Index ("CPI").
The first increase in Base Rent pursuant to this paragraph shall be effective
beginning with the rent payable on the first (1st) day of the thirteenth (13th)

                                       5
<PAGE>
 
month of the Term, and subsequent increases shall be effective every twelve (12)
months thereafter.  Rent shall be determined based on the increase in the CPI
from the Commencement Date, or the last Rent Determination Date (as defined
herein), as the case may be,  to a date that is thirty (30) days prior to the
effective date of any increase hereunder (the "Rent Determination Date").  "CPI"
shall mean the Consumer Price Index for Urban Wage Earners and Clerical Workers
(Revised Series) (CPI-W), All Items, for the San  Francisco-Oakland-San Jose
area (1982-1984 equals 100) of the United States Department of Labor Bureau of
Labor Statistics, over the relevant period.  If such index is no longer
published at any time, the Consumer Price Index shall mean a comparable index
reasonably selected by Landlord.  Notwithstanding the foregoing, in no event
shall the Base Rent for any twelve month period covered hereby be less than the
Base Rent in effect on any Rent Determination Date, and in no event shall any
increase under this paragraph be less than five percent (5%), nor more than
eight percent (8%) of the rent in effect as of the Rent Determination Date.
Landlord shall notify Tenant as soon as possible following the Rent
Determination Date of the Base Rent applicable for the next twelve month period.

d.        Payment of Rent. The following provisions shall govern the payment of
          ----------------                                                     
Rent: i.  if this Lease commences or ends on a day other than the first day or
last day of a calendar month, respectively, the Rent for such month shall be
prorated accordingly; ii.  all Rent shall be paid to Landlord without offset or
deduction, and the covenant to pay Rent shall be independent of every other
covenant in this Lease; iii.  any sum due from Tenant to Landlord which is not
paid within thirty (30) days of the date due shall bear interest from the date
due until the date paid at the annual rate of ten percent (10%)  from the date
the payment was due (or the first business day thereafter), which rate shall not
exceed the maximum rate permitted by law (the "Default Rate"); and, in addition,
in recognition of the fact that Landlord will incur certain administration costs
and other damages, the amount of which are not readily quantifiable, but of
which the Late Charge (as defined herein) shall be an approximation, Tenant
shall, in addition to interest at the Default Rate, pay Landlord a late charge
for any Rent payment which is paid more than five (5) days after its due date
equal to five percent (5%) of such payment (the "Late Charge");  iv.  Tenant
shall have the right to inspect Landlord's accounting records relative to
Expenses and Taxes during normal business hours at any time within ninety (90)
days following the furnishing to Tenant of the annual statement of Adjustment
Rent; and, unless Tenant shall take written exception to any item in any such
statement within such ninety (90) day period, such statement shall be considered
as final and accepted by Tenant; v.  in the event of the termination of this
Lease prior to the determination of any Adjustment Rent , Tenant's agreement to
pay any such sums and Landlord's obligation to refund any such sums (provided
Tenant is not in default hereunder) shall survive the termination of this Lease;
vi.  no adjustment to the Rent by virtue of the operation of the rent adjustment
provisions in this Lease shall result in the payment by Tenant in any year of
less than the Base Rent shown on the Schedule;  vii. Landlord may at any time
change the fiscal year of the Building; viii.  each amount owed to Landlord
under this Lease for which the date of payment is not expressly fixed shall be
due on the same date as the Rent listed on the statement showing such amount is
due; and ix. if Landlord fails to give Tenant an estimate of Adjustment Rent
prior to the beginning of any calendar year, Tenant shall continue to pay
Adjustment Rent  at the rate for the previous calendar year until Landlord
delivers such estimate, at which time Tenant shall pay retroactively the
increased amount for all previous months of such calendar year.

e.        Allocation of Rent Abatement for Tax Purposes. Landlord and Tenant
          ----------------------------------------------                    
agree that no portion of the Base Rent paid by Tenant during the portion of the
term of this Lease occurring after the expiration of any period during which
such rent was abated shall be allocated, for income tax purposes, nor is such
rent intended by the parties to be allocable, for income tax purposes, to any
abatement period.


3.        USE

a.        Tenant agrees that it shall occupy and use the Premises only for
general office, sales, the testing and review of software products  and the
manufacture and assembly of electronic  or computer equipment and other legal
uses reasonably related to the above, and for no other purposes. Tenant shall
comply with all present and future federal, state and municipal laws, ordinances
and regulations and all covenants, conditions and restrictions of record
applicable to Tenant's use or occupancy of the Premises. Without limiting the
foregoing, Tenant shall not cause, nor permit, any hazardous or toxic substances
to be brought upon, produced, stored, used, discharged or disposed of in, on or
about the Premises other than commercially reasonable amounts of such substances
for general office purposes, without the prior written consent of Landlord and
then only in compliance with all applicable environmental laws, provided nothing
in this Paragraph 3 or elsewhere in this Lease shall  be construed as imposing
        -----------                                                           
on Tenant any obligation to remediate or clean up any hazardous materials or
toxic substances except to the extent 

                                       6
<PAGE>
 
resulting from the willful act or negligence of Tenant or its employees, agents,
contractors or invitees. Further, Landlord, at its sole cost, shall perform all
seismic upgrades to the Building or Project required by applicable laws, unless
the Premises are in compliance with seismic requirements as of the date Tenant
commences its construction and such upgrade is required as a result of a
specific improvement Tenant proposes to make pursuant to the Tenant Improvement
Construction Agreement. If as a result of Tenant's use of the Premises i. the
amount of insurance premiums payable by Landlord for insurance maintained for or
in respect to the Building is increased, ii. any such insurance coverage is
decreased, or iii. cancellation or refusal to renew any such insurance policy is
threatened, Landlord shall so notify Tenant, whereupon Tenant shall immediately
pay any such increased premium or cease any such use, failing which (or in the
event of a threatened cancellation or refusal to renew any such insurance policy
which may not be cured by the payment of an additional premium), Landlord shall
have the right, in addition to Landlord's other rights and remedies hereunder,
to terminate this Lease upon written notice to Tenant, effective on the date set
forth in such notice.

b.        "Hazardous Substance" shall mean the substances including within the
definitions of the term "Hazardous Substance" under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq., and the California Carpenter-Presley-Tanner
                    -------                                             
Hazardous Substance Account Act, California Health & Safety Code Section 25300
                                                                              
et seq., and regulations promulgated thereunder, as amended.  "Hazardous Waste"
-------                                                                        
shall mean (a) any waste listed as or meeting the identified characteristics of
a "Hazardous Waste" under the Resource Conservation and Recovery Act of 1976, 42
U.S.C. Section 6901 et seq., and regulations promulgated pursuant thereto,
                    -------                                               
collectively "RCRA", or (b) any waste meeting the identified characteristics of
"Hazardous Waste" under California Hazardous Waste Control Law, California
Health and Safety Code Section 25100 et. seq., and regulations promulgated
                                     ---------                            
pursuant thereto, collectively "CHWCL".  "Hazardous Waste Facility" shall mean a
hazardous waste facility as defined under CHWCL.

     i.   Tenant covenants that, at its sole cost and expense, it will comply
     with all applicable laws, rules, regulations, orders, permits, licenses and
     operating plans of any governmental authority with respect to the use,
     handling, generation, transportation, storage, treatment and/or disposal of
     hazardous substances or wastes, and Tenant will provide Landlord with
     copies of all permits, registrations or other similar documents that
     authorize Tenant to conduct any such activities in connection with its
     authorized use of the Premises.  Additionally, Tenant agrees to comply with
     the Rules and Regulations attached hereto as Exhibit D, the requirements of
                                                  ---------                     
     the Board of Fire Underwriters or Landlord's insurance carrier, and to
     comply  with covenants,  conditions and restrictions  ("CC&R's") applicable
     to the Building.

     ii.  Tenant agrees that it shall not operate on the Premises any
     facility required to be permitted or licensed as a Hazardous Waste Facility
     or for which interim status as such is required.  Nor shall Tenant store
     any Hazardous Wastes on the Premises for ninety (90) days or more.

     iii. Tenant agrees to comply with all applicable laws, rules,
     regulations, orders, and permits relating to underground storage, tanks
     (including any installation, monitoring, maintenance, closure and/or
     removal of such tanks) as such tanks are defined in California Health and
     Safety Code, Section 25281(u), including, without limitation, complying
     with California Health and Safety Code Sections 25280-25299.6 and the
     regulations promulgated thereunder.  Tenant shall furnish to Landlord
     copies of all registrations and permits for all underground storage tanks.

     iv.  If applicable, Tenant shall provide to Landlord in writing the
     following information and/or documentation at the Commencement Date and
     within sixty (60) days of any change in the required information and/or
     documentation:

          (1)  A list of all hazardous substances and/or wastes that Tenant
          uses, handles, generates, transports, stores, treats or disposes in
          connection with its operations on the Premises.

          (2)  Copies of all Material Safety Data Sheets ("MSDS's")
          required to be completed with respect to operations of Tenant at the
          Premises in accordance with Title 8, California Code of Regulations
          Section 5194 or 42 U.S.C. Section 11021, or any amendments thereto.
          In lieu of this requirement, Tenant may provide a Hazardous Materials
          Inventory Sheet that details the MSDS's.

                                       7
<PAGE>
 
          (3)  Copies of all hazardous waste manifests, as defined in Title
          22, California Code of Regulations Section 66481, that Tenant is
          required to complete in all connections with its operations at the
          Premises.

          (4)  A copy of any Hazardous Materials Management Plans required
          with respect to Tenant's operations.

          (5)  Copies of any Contingency Plans and Emergency Procedures
          required of Tenant due to its operations in accordance with Title 22,
          Chapter 30, Article 20, of the California Code of Regulations, and any
          amendments thereto.

          (6)  Copies of any biennial reports to be furnished to California
          Department of Health Services relating to hazardous substances or
          wastes.

          (7)  Copies of all industrial waste water discharge permits.

     c.   Tenant shall secure Landlord's prior written approval for any
     proposed receipt, storage, possession, use, transfer or disposal of
     "Radioactive Materials" or "Radiation", as such materials are defined in
     Title 17, California Code of Regulations Sections 30100(w) and (z) or
     possessing the characteristics of the materials so defined, which approval
     Landlord may withhold in its sole and absolute discretion.  The Tenant in
     connection with any authorized receipt, storage, possession, use, transfer
     or disposal of radioactive materials or radiation shall:

          i.   Comply with all federal, state and local laws, rules,
          regulations, orders, licenses and permits;

          ii.  Furnish Landlord with a list of all radioactive materials or
          radiation received, stored, possessed, used, transferred or disposed;
          and

          iii. Furnish Landlord with all licenses, registration materials,
          inspection reports, orders and permits in connection with the receipt,
          storage, possession, use, transfer or disposal or radioactive
          materials or radiation.

     d.   Tenant agrees to comply with any and all applicable laws, rules,
     regulations, and orders with respect to the release into the environment of
     any hazardous wastes or substances or radiation or radioactive materials.
     Tenant agrees to notify Landlord in writing of any unauthorized release
     into the environment within twenty-four (24) hours of the time at which
     Tenant becomes aware of such release.

     e.   Tenant shall indemnify, defend, and hold Landlord harmless from any
     and all claims, losses (including, but not limited to, loss of rental
     income and loss due to business interruption), damages, (including
     diminution in value or loss of rental value following expiration or earlier
     termination of the Term) liabilities, costs, legal fees, and expenses of
     any sort arising out of or relating to any unauthorized release by Tenant
     or its employees, agents, contractors or invitees into the environment of
     hazardous substances or wastes or radiation or radioactive materials by
     Tenant or any of Tenant's agents, contractors or invitees, or Tenant's
     failure to comply with Subparagraphs (a)-(h) of this section of the Lease.

     f.   Tenant agrees to cooperate with Landlord in furnishing Landlord
     with complete information regarding Tenant's receipt, handling, use,
     storage, transportation, generation, treatment and/or disposal of hazardous
     substances or wastes or radiation or radioactive materials.  Upon request,
     Tenant agrees to grant Landlord reasonable access at reasonable times to
     the Premises to inspect Tenant's receipt, handling, use, storage,
     transportation, generation, treatment and/or disposal of hazardous
     substances wastes or radiation or radioactive materials without being
     deemed guilty of any disturbance of Tenant's use or possession and without
     being liable to Tenant in any manner.  Additionally, Landlord shall have
     the right at any time during the term if it reasonably suspects that
     hazardous substances or hazardous wastes have been disposed at the Premises
     in a manner or in such amounts as would violate any applicable law, conduct
     an environmental audit of the Premises and Tenant shall reimburse Landlord
     for the cost of such audit within thirty (30) days after billing If such
     audit reveals that Tenant or any of Tenant's 

                                       8
<PAGE>
 
     agents, contractors or invitees has released or caused to be released such
     substances into the Building or Project. Furthermore, if at any time during
     the term of this Lease, Tenant shall store, use, or dispose of hazardous
     substances at the Premises, other than commercially reasonable amounts of
     such substances for normal office uses, Landlord may, at Tenant's expense
     conduct such an environmental review of the Premises at any time during the
     last six (6) months of the Term of this Lease.

     g.   Notwithstanding Landlord's rights of inspection and review under
     this paragraph, Landlord shall have no obligation or duty to so inspect or
     review, and no third party shall be entitled to rely on Landlord to conduct
     any sort of inspection or review by reason of the provisions of this
     paragraph.

     h.   On or before the Commencement Date, Landlord shall provide Tenant
     with copies of any surveys in its possession regarding hazardous materials
     that may be located in, on, about or under the Premises or Common Areas.
     Landlord hereby warrants to Tenant that as of the date of this Lease, it
     has received no written notice that the Premises, Project or Common Areas
     are in violation of any applicable Hazardous Materials Laws.
     Notwithstanding the foregoing, Tenant shall have the right to conduct any
     and all investigations of the Property, subject to Landlord's reasonable
     supervision as it shall deem suitable to assure itself of matters related
     to the environmental condition of the Property and shall rely on its own
     investigations in assessing the environmental condition of the Premises,
     Project and Common Areas.

     i.   This Section 3 of the Lease shall survive termination of the Lease.
               --------- 

4.        CONDITION OF PREMISES

Landlord warrants that the mechanical, electrical, plumbing and other building
systems, foundations, exterior walls truck door,  windows, skylights, and the
roof, roof membranes, sidewalks, parking areas and other structural components
of the Building and the Common Areas are in good operating condition as of the
date of delivery of the Premises to Tenant for the purposes of Tenant's
commencement of its construction.  Landlord further warrants that as of the date
of delivery of the Premises to Tenant for the purposes of Tenant's commencement
of its construction,  it has received no written notice that the buildings or
Common Areas are in violation of any applicable building codes or laws,
including, without limitation, the Americans with Disabilities, Act, Title 24 or
any relevant seismic or structural requirements.   Subject to the foregoing
representations and warranties of Landlord,  Tenant's taking possession of the
Premises shall be conclusive evidence that the Premises were in good order and
satisfactory condition when Tenant took possession, subject to the provisions of
                                                                                
Exhibit B  and Landlord's representations set forth in the preceding sentence.
---------                                                                      
No agreement of Landlord to alter, remodel, decorate, clean or improve the
Premises or the Building (or to provide Tenant with any credit or allowance for
the same), and no representation regarding the condition of the Premises or the
Building or the suitability of the Premises, Building or Project for Tenant's
business, have been made by or on behalf of Landlord or relied upon by Tenant,
except as  set forth above or as provided in Exhibit B
                                             ---------

5.        BUILDING SERVICES

a.        Basic Services.  Landlord shall and shall repair maintain and operate
          ---------------                                                      
the parking areas, landscaping, sidewalks and other Common Areas  associated
with the Project, the cost of which shall be charged as Expenses.

b.        Electricity. The Premises shall be separately metered for electrical
          ------------                                                        
use. Electricity shall be distributed to the Premises by the electric utility
company serving the Building.   Tenant at its cost shall make all necessary
arrangements with the electric utility company for metering and paying for
electric current furnished to the Premises.

c.        Telephones.  Tenant shall arrange for telephone service directly with
          -----------                                                          
one or more of the public telephone companies servicing the Building and shall
be solely responsible for paying for such telephone service. If Landlord
acquires ownership of the telephone cables in the Building at any time, Landlord
shall permit Tenant to connect to such cables on such terms and conditions as
Landlord may prescribe.  In no event does Landlord make any representation or
warranty with respect to telephone service in the Building, and Landlord shall
have no liability with respect thereto.

                                       9
<PAGE>
 
d.        Additional Services.   Tenant shall contract for its own Water, Gas,
          --------------------                                                
Garbage Collection, Janitorial, and maintenance of the equipment serving the
Premises and all other services that are not the responsibility of the Landlord
hereunder.  Notwithstanding the foregoing, Landlord shall have the option to
maintain the HVAC on behalf of Tenant pursuant to Paragraph 8 hereof, and charge
                                                  -----------                   
Tenant for the cost attributable thereto, allocated as appropriate based on the
number of units covered by any applicable service contract.   Landlord shall not
be obligated to furnish any services other than those stated above.

e.        Failure or Delay in Furnishing Services. Tenant agrees that Landlord
          ----------------------------------------                            
shall not be liable for damages for failure or delay in furnishing any service
by any of the public utilities that are required to furnish any such service,
nor shall any such failure or delay be considered to be an eviction or
disturbance of Tenant's use of the Premises, or relieve Tenant from its
obligation to pay any Rent when due or from any other obligations of Tenant
under this Lease.

6.        RULES AND REGULATIONS

Tenant shall observe and comply, and shall cause its subtenants, assignees,
invitees, employees, contractors and agents to observe and comply, with the
Rules and Regulations listed on Exhibit "D" attached hereto and with such
reasonable modifications and additions thereto as Landlord may make from time to
time, provided in the event of a conflict between the Rules and Regulations, as
so amended  and this Lease, the provisions of this Lease shall control. Landlord
shall not be liable for failure of any person to obey the Rules and Regulations.
Landlord shall not be obligated to enforce the Rules and Regulations against any
person, and the failure of Landlord to enforce any such Rules and Regulations
shall not constitute a waiver thereof or relieve Tenant from compliance
therewith, provided, however, that Landlord shall not enforce such Rules and
Regulations in a manner which unreasonably interferes with Tenant's use of the
Premises.


7.        CERTAIN RIGHTS RESERVED TO LANDLORD

Landlord reserves the following rights, each of which Landlord may exercise
without notice to Tenant and without liability to Tenant, and the exercise of
any such rights shall not be deemed to constitute an eviction or disturbance of
Tenant's use or possession of the Premises and shall not give rise to any claim
for set-off or abatement of rent or any other claim:  a. to change the name or
street address of the Building or the suite number of the Premises; b. to
install, affix and maintain any and all signs on the exterior or interior of the
Building; c. to make repairs, decorations, alterations, additions, or
improvements, whether structural or otherwise, in and about the Building, and
for such purposes to enter upon the Premises, temporarily close doors, corridors
and other areas in the Building and interrupt or temporarily suspend services or
use of common areas, and Tenant agrees to pay Landlord for overtime and similar
expenses incurred if such work is done other than during ordinary business hours
at Tenant's request; d. to retain at all times, and to use in appropriate
instances, keys to all doors within and into the Premises; e. to grant to any
person or to reserve unto itself the exclusive right to conduct any business or
render any service in the Building; f. to show or inspect the Premises at
reasonable times and, if vacated, to prepare the Premises for reoccupancy;   g.
to install, use and maintain in and through the Premises pipes, conduits, wires
and ducts serving the Building, provided that such installation, use and
maintenance does not unreasonably interfere with Tenant's use of the Premises;
and  h. to take any other action which Landlord deems reasonable in connection
with the operation, maintenance, marketing, or preservation of the Building.


8.        MAINTENANCE AND REPAIRS

a.        Tenant's Obligation.  Except as provided in subsection b, below, and
          -------------------                                                 
subject to Landlord's representations and warranties as set forth in this Lease,
Tenant, at all times during the Term and at Tenant's sole cost and expense,
shall keep the Premises and every part thereof in good condition and repair,
(excepting ordinary wear and tear, the effect of any latent defects and any
damage Landlord is required to occur or maintain pursuant to any other provision
of this Lease, e.g., Paragraphs 8.b, 11 and 12) excepted, including, without
limitation, the HVAC system serving the Premises, if Landlord shall not elect to
maintain the HVAC system.  Tenant shall, when and if needed, make all repairs to
the Premises, including, but not limited to; painting of the interior ceiling
and floors, painting of the interior, windows, doors, plate glass and all
plumbing electrical and sewage located in the Premises.   Tenant hereby waives

                                       10
<PAGE>
 
all right to make repairs at the expense of Landlord or in lieu thereof to
vacate the Premises as provided in California Civil Code Section 1942 or any
other law, statute or ordinance now or hereafter in effect.

b.        Landlord's Obligations.  Landlord, at Landlord's expense, shall repair
          ----------------------                                                
and maintain the  roof structure, roof membrane, foundations and structural
exterior walls of the Building  except to the extent that the maintenance and
repair are caused in whole or in part by the act, neglect, fault or omission of
any duty of Tenant, its agents, servants, employees or invitees,  and are not
covered by Landlord's insurance, in which case Tenant shall pay to Landlord the
cost of the maintenance and repairs  to the extent caused by Tenant, subject,
however, to the provisions of Paragraph 10.c.  Landlord shall, if it elects to
do so, contract for the maintenance of the HVAC and charge the allocable costs
thereof to Tenant.  There shall be no abatement of Rent and no liability of
Landlord by reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or improvements in or to the
fixtures, appurtenances and equipment therein, provided the foregoing shall not
be deemed to relieve Landlord of liability for failure to make any repairs,
alterations or improvements required under this Lease.  Landlord shall maintain
the Common Areas subject to reimbursement of its expenses pursuant to Section 2.
                                                                      ---------
Notwithstanding the foregoing, Landlord shall not be required to upgrade any
structural component of  the Premises if the Premises are in compliance with
seismic requirements as of the date Tenant commences its construction and such
upgrade is required as a result of a specific improvement Tenant proposes to
make pursuant to the Tenant Improvement Construction Agreement.

9.        ALTERATIONS

a.        Requirements. Tenant shall not make any replacement, alteration,
          -------------                                                   
improvement or addition to or removal from the Premises (collectively an
"Alteration") that shall either (a) cost in excess of $10,000 or (b) affect a
Building system, or the Building structure or external appearance without the
prior written consent of Landlord, which consent shall not be unreasonably
withheld unless such Alteration affects the structure or systems of the Building
or affects the exterior appearance of the Building.   Alterations permitted
hereunder without the consent of Landlord will be referred to as "Permitted
Alterations." In the event Tenant proposes to make any Alteration that is not a
Permitted Alteration,  Tenant shall, prior to commencing such Alteration, submit
to Landlord for prior written approval: i.  detailed plans and specifications;
ii. the names, addresses and copies of contracts for all contractors (other than
subcontractors who shall supply materials or services costing less than $5000 in
connection with said work); iii.  all necessary permits evidencing compliance
with all applicable governmental rules, regulations and requirements; iv.
certificates of insurance in form and amounts required by Landlord, naming
Landlord, its managing agent, and any other parties designated by Landlord as
additional insureds; and v.  all other documents and information as Landlord may
reasonably request in connection with such Alteration. Tenant agrees to pay
Landlord's reasonable charges for review of all such items and supervision of
the Alteration.  Neither approval of the plans and specifications nor
supervision of the Alteration by Landlord shall constitute a representation or
warranty by Landlord as to the accuracy, adequacy, sufficiency or propriety of
such plans and specifications or the quality of workmanship or the compliance of
such Alteration with applicable law. Tenant shall pay the entire cost of the
Alteration and, if requested by Landlord, shall deposit with Landlord, prior to
the commencement of the Alteration, security for the payment and completion of
the Alteration in form and amount reasonably required by Landlord.  Each
Alteration shall be performed in a good and workmanlike manner, in accordance
with the plans and specifications approved by Landlord, and shall meet or exceed
the standards for construction and quality of materials reasonably established
by Landlord for the Building. In addition, each Alteration shall be performed in
compliance with all applicable governmental laws and regulations and insurance
company requirements.  Each Alteration that is not a Permitted Alteration shall
be performed under Landlord's supervision, and in harmony with Landlord's
employees, contractors and other tenants. Each Alteration, whether temporary or
permanent in character, made by Landlord or Tenant in or upon the Premises
(excepting only Tenant's furniture, equipment and trade fixtures) shall become
Landlord's property and shall remain upon the Premises at the expiration or
termination of this Lease without compensation to Tenant; provided, however,
that Landlord shall have the right to require Tenant to remove such Alteration
at Tenant's sole cost and expense in accordance with the provisions of Section
14 of this Lease, which required removal shall be specified by Landlord when
Landlord consents to Tenant's requested Alterations.

b.        Liens.  Upon completion of any alteration, Tenant shall promptly
          ------                                                          
furnish Landlord with sworn owner's and contractors' statements and full and
final waivers of lien covering all labor and materials included in such
alteration.  Tenant shall not permit any mechanic's lien to be filed against the
Building, or any part thereof, arising out of any alteration performed, or
alleged to have been performed, by or on behalf of Tenant. If any such lien is
filed, Tenant shall within ten (10) days thereafter have such lien 

                                       11
<PAGE>
 
released of record or diligently contest and deliver to Landlord a bond in form,
amount, and issued by a surety satisfactory to Landlord, indemnifying Landlord
against all costs and liabilities resulting from such lien and the foreclosure
or attempted foreclosure thereof. If Tenant fails to have such lien so released
or to contest and deliver such bond to Landlord, Landlord, without investigating
the validity of such lien, may pay or discharge the same; and Tenant shall
reimburse Landlord upon demand for the amount so paid by Landlord, including
Landlord's expenses and attorneys' fees.

c.        Americans With Disabilities Act.  Replacements, alterations,
          --------------------------------                            
improvements or additions to or removals from the Premises required to achieve
compliance with the Americans With Disabilities Act ("ADA") shall be completed
at Tenant's expense in accordance with the procedures set forth in paragraphs 9
A. and B. of this Lease. Landlord shall be responsible for the cost of any
improvements required by the ADA to be made to the Building or Common Areas, to
the extent any such requirement does not relate to Tenant's particular use of
the Premises, but would be required for any tenant of the Building.


10.       INSURANCE AND INDEMNIFICATION

In consideration of the leasing of the Premises at the Rent stated herein,
Landlord and Tenant agree to provide insurance and allocate the risks of loss as
follows:

a.        Tenant's Insurance. Tenant, at its sole cost and expense but for the
          -------------------                                                 
mutual benefit of itself and Landlord, agrees to purchase and keep in force and
effect during the Term hereof, insurance which is available at commercially
reasonable rates and otherwise commonly carried by tenants in the area, under
policies issued by insurers licensed to do business in the state in which the
Building is located with a Best's rating of A-, class VIII or higher on all
alterations, additions, and improvements owned by Tenant, and on all personal
property located in the Premises, protecting Landlord and Tenant from damage or
other loss caused by perils covered under an All Risk Property Policy, and
Boiler and Machinery Policy, in amounts not less than the full insurable
replacement value of such property. Such insurance shall provide that it is
specific and not contributory and shall name the Landlord and its management
agent as additional insureds and shall contain an agreed amount endorsement.
Such insurance shall also contain a clause pursuant to which the insurance
carriers waive all rights of subrogation against the Landlord with respect to
losses payable under such policies.

Tenant also agrees to maintain commercial general liability insurance covering
Tenant as the insured party, and naming Landlord and its managing agent as an
additional insured, against claims for bodily injury and death and property
damage occurring in or about the Premises, with limits of not less then Two
Million Dollars ($2,000,000.00) per occurrence and Five Million Dollars
($5,000,000.00) general aggregate.

Tenant shall, prior to commencement of the Term, furnish to Landlord
certificates evidencing such coverage, which certificates shall state that such
insurance coverage may not be changed or canceled without at least thirty (30)
days prior written notice to Landlord and Tenant.  In the event Tenant shall
fail to procure such insurance, Landlord may at its option, after giving Tenant
no less than fourteen (14) days prior written notice of its election to do so,
procure the same for the account of Tenant and the cost thereof shall be paid to
Landlord as additional Rent upon receipt by Tenant of bills therefor.  When used
in this Section 10. A the term "Landlord" shall include Landlord's partners,
beneficiaries, officers, agents, servants and employees and the term "Tenant"
shall include Tenant's partners, beneficiaries, officers, agents, servants and
employees.

b.        Landlord's Insurance.  Landlord agrees to purchase and keep in force
          ---------------------                                               
and effect commercial general liability insurance in an amount not less than
Three Million Dollars ($3,000,000.00) per occurrence and Five Million Dollars
($5,000,000.00) general aggregate, and All Risk property insurance with an
agreed amount endorsement, on the Building and Common Areas, insuring 100% of
replacement value (subject to customary deductibles in the market area of the
property on policies maintained by commercial landlords of properties similar to
the Premises and Project), subject to the reimbursement of the full amount
thereof as Expenses.  Notwithstanding the foregoing, during the time that
Prudential shall own the Premises and Project, Prudential's insurance program
maintained for its equity or separate account properties shall be deemed to
satisfy the foregoing.   Subject to the foregoing sentence, such insurance shall
provide that it is specific and not contributory and shall contain a clause
pursuant to which the 

                                       12
<PAGE>
 
insurance carriers waive all rights of subrogation against the Tenant with
respect to losses payable under such policies.


c.        Risk of Loss.  By this Section 10, Landlord and Tenant intend that the
          -------------                                                         
risk of loss or damage as described above be borne by responsible insurance
carriers to the extent above provided, and Landlord and Tenant hereby agree to
look solely to, and to seek recovery only from, their respective insurance
carriers in the event of a loss of a type described above to the extent that
such coverage is agreed to be provided hereunder.  For this purpose, any
applicable deductible amount shall be treated as though it were recoverable
under such policies.  Landlord and Tenant agree that applicable portions of all
monies collected from such insurance shall be used toward the full compliance
with the obligations of Landlord and Tenant under this Lease in connection with
damage resulting from fire or other casualty.  This Paragraph 10.c shall
                                                    --------------      
supersede any provision of this Lease that shall allocate liability for an
insured event to Landlord or Tenant.

d.        Indemnification of Landlord.  Tenant shall indemnify and defend
          ---------------------------                                    
Landlord, its employees and agents and save them harmless from and against any
and all loss and against all claims, actions, damages, liability and expenses,
in connection with loss of life, bodily and personal injury, or property damage
arising from any occurrence in, upon or at the Premises or any part thereof, or
occasioned wholly or in part by any act or omission of Tenant, its agents,
contractors, employees or invitees or by anyone permitted to be on the Premises
by Tenant, except to the extent caused by the negligence or willful misconduct
of Landlord, its employees or agents.  In case Landlord, its employees or agents
shall be made a party to any litigation commenced by or against Tenant, then
Tenant shall indemnify, defend and hold them harmless and shall pay all costs,
expenses, and reasonable attorneys' fees incurred or paid by them in connection
with such litigation.  The obligations assumed herein shall survive the
expiration or sooner termination of this Lease.

11.       FIRE OR OTHER CASUALTY

a.        Destruction of the Building.  If fifty percent (50%) of the area of
          ----------------------------                                       
the Building should be substantially destroyed by fire or other casualty, either
party hereto may, at its option, terminate this Lease by giving written notice
thereof to the other party within thirty (30) days of such casualty.  In such
event, Rent shall be apportioned to and shall cease as of the date of such
casualty. In the event neither party exercises this option, then the Premises
shall be reconstructed and restored as set forth below.

b.        Destruction of the Premises.  If the Premises should be rendered
          ---------------------------                                     
untenantable for the purpose for which they were leased, by fire or other
casualty, but the Building is not substantially destroyed as provided above,
then the parties hereto shall have the following options:

i.    If, in Landlord's reasonable judgment, the Premises cannot be
reconstructed or restored within one hundred eighty (180) days of such casualty
to substantially the same condition as they were prior to such casualty,
Landlord shall so notify Tenant within thirty (30) days of the casualty and
either Landlord or Tenant may elect, within fifteen (15) days thereafter, to
terminate this Lease.   If Tenant makes no election within such fifteen (15) day
period, Landlord shall then have the right, to be exercised within fifteen (15)
days following the expiration of Tenant's election period, by giving written
notice to Tenant, to reconstruct and restore the Premises to substantially the
same condition as they were prior to the casualty.  In such event this Lease
shall continue in full force and effect to the balance of the term, upon the
same terms, conditions and covenants as are contained herein; provided, however,
that the Rent shall be abated in the proportion which the approximate area of
the damaged portion bears to the total area in the Premises from the date of the
casualty until substantial completion (as defined in Exhibit B) of the
                                                     ---------        
reconstruction of the Premises.  If Landlord fails to exercise such right, this
Lease shall be terminated as of the date of the casualty, to which date Rent
shall be apportioned and shall thereafter cease.

Notwithstanding the above, if the casualty occurs during the last twelve (12)
months of the Term of this Lease, either party hereto shall have the right to
terminate this Lease as of the date of the casualty, which right shall be
exercised by written notice to be given by either party to the other party
within thirty (30) days therefrom. If this right is exercised, Rent shall be
apportioned to and shall cease as of the date of the casualty.  If a casualty
occurs during the last twelve (12) months of the term of the Lease, Tenant may
not exercise any extension options without first obtaining Landlord's written
consent.

ii.    If, in Landlord's reasonable judgment, the Premises are able to be
restored within one hundred eighty (180) days to substantially the same
condition as they were prior to such casualty, Landlord shall so notify 

                                       13
<PAGE>
 
Tenant within fifteen (15) days of the casualty, and Landlord shall then proceed
to reconstruct and restore the damaged portion of the Premises, at Landlord's
expense, to substantially the same condition as it was prior to the casualty;
Rent shall be abated in the proportion which the approximate area of the damaged
portion bears to the total area in the Premises from the date of the casualty
until substantial completion (as defined in Exhibit B) of the reconstruction
                                            ---------
repairs, and this Lease shall continue in full force and effect for the balance
of the Term.

iii.      In the event Landlord undertakes reconstruction or restoration of the
Premises pursuant to subparagraph (i) or (ii) above, Landlord shall use
reasonable diligence in completing such reconstruction repairs, but in the event
Landlord fails to substantially complete the same within two hundred forty (240)
days from the date of the casualty, except as a result of any of the occurrences
set forth in subparagraph 25 (j) below, Tenant may, at its option, terminate
this Lease upon giving Landlord written notice to that effect, whereupon both
parties shall be released from all further obligations and liability hereunder.

12.       CONDEMNATION

If the Premises or the Building is rendered untenantable by reason of a
condemnation (or by a deed given in lieu thereof), then either party may
terminate this Lease by giving written notice of termination to the other party
within thirty (30) days after such condemnation, in which event this Lease shall
terminate effective as of the date that possession of such property is required
to be delivered to the condemning authority.  If this Lease so terminates, Rent
shall be paid through and apportioned as of the date of such condemnation.  If
such condemnation does not render the Premises or the Building untenantable, or
if such condemnation affects the Common Areas but not the Premises, and after
such condemnation Landlord shall have sufficient Common Areas in the Project to
enable it to meet all of its obligations to tenants of the Project, including
Tenant, this Lease shall continue in effect and Landlord shall promptly restore
the portion not condemned to the extent reasonably possible to the condition
existing prior to the condemnation and Tenant shall be entitled to an abatement
of Rent based on the extent of Tenant's impairment of the use of its Premises.
In such event, however, Landlord shall not be required to expend an amount in
excess of the proceeds received by Landlord from the condemning authority.
Landlord reserves all rights to compensation for any condemnation, except for
such amount the condemning authority attributes to the value of Tenant's
leasehold interest in the Premises and relocation expenses, but only to the
extent that any such award to Tenant does not reduce the amount payable to
Landlord on account of such condemnation.   Tenant hereby assigns to Landlord
any right Tenant may have to such compensation, and Tenant shall make no claim
against Landlord or the condemning authority for compensation for termination of
Tenant's leasehold interest under this Lease or interference with Tenant's
business.


13.       ASSIGNMENT AND SUBLETTING

a.        Landlord's Consent.  Tenant shall not, without the prior written
          -------------------                                             
consent of Landlord, which shall not be unreasonably withheld:  i.  assign,
convey, mortgage or otherwise transfer this Lease or any interest hereunder, or
sublease the Premises, or any part thereof, whether voluntarily or by operation
of law; or ii. permit the use of the Premises by any person other than Tenant
and its employees.  Any such transfer, sublease or use described in the
preceding sentence (a "Transfer") occurring without the prior written consent of
Landlord shall be void and of no effect.  Landlord's consent to any Transfer
shall not constitute a waiver of Landlord's right to withhold its consent to any
future Transfer.  Landlord's consent to any Transfer or acceptance of rent from
any party other than Tenant shall not release Tenant from any covenant or
obligation under this Lease.  Landlord may require as a condition to its consent
to any assignment of this Lease that the assignee execute an instrument in which
such assignee assumes the obligations of Tenant hereunder.  For the purposes of
this paragraph, however, the transfer (whether direct or indirect) of all or a
majority of the capital stock in a corporate Tenant (other than the shares of
the capital stock of a corporate Tenant whose stock is publicly traded) or the
merger, consolidation or reorganization of such Tenant and the transfer of all
or any general partnership interest in any partnership Tenant shall not be
considered a Transfer, so long as the transferee of the Lease or any successor
or surviving entity shall have a net worth not less than the net worth of Tenant
as of the date of this Lease and shall otherwise agree in writing to be bound by
this Lease.

b.        Standards for Consent.  If Tenant desires the consent of Landlord to a
          ----------------------                                                
Transfer, Tenant shall submit to Landlord, at least twenty (20) days prior to
the proposed effective date of the Transfer, a written notice which includes
such information as Landlord may reasonably require about the proposed Transfer

                                       14
<PAGE>
 
and the transferee, together with a non-refundable processing fee in the amount
of five hundred dollars ($500.00).  Tenant shall also pay all reasonable
attorneys' or other fees and expenses incurred by Landlord in connection with
any proposed Transfer, whether or not Landlord consents to such Transfer.
Landlord's consent or lack thereof shall be provided within twenty (20) days of
receipt of Tenant's notice.  If Landlord shall not respond within such twenty
(20) day period, it shall be deemed to have consented to the proposed transfer.
Landlord shall not be deemed to have unreasonably withheld its consent if, in
the judgment of Landlord: i.  the transferee is of a character or engaged in a
business which is not in keeping with the standards or criteria used by Landlord
in leasing the Building; ii. the financial condition of the transferee is such
that it may not be able to perform its obligations in connection with this
Lease; iii.  the transferee is a tenant of or negotiating for space in the
Building; iv. the transferee is a governmental unit; v. Tenant is in Default
under this Lease; or vi. in the judgment of Landlord, such a Transfer would
violate any term, condition, covenant, or agreement of the Landlord involving
the Building or any other tenant's lease within it.  If Landlord wrongfully
withholds its consent to any Transfer, Tenant's sole and exclusive remedy
therefor shall be to seek specific performance of Landlord's obligation to
consent to such Transfer.

c.        Recapture.    If Landlord consents to any Transfer, Tenant shall pay
          ----------                                                          
to Landlord fifty percent (50%) of all rent and other consideration received by
Tenant in excess of the Rent paid by Tenant hereunder for the portion of the
Premises so transferred. Such rent shall be paid as and when received by Tenant.
Tenant shall have the right to deduct from such excess rent, on a pro-rata
basis, Tenant's reasonable costs and expenses directly related to the Transfer
including, but not limited to, broker's commissions, tenant improvements, and
legal fees.


14.       SURRENDER

Upon expiration or sooner termination of the Term or Tenant's right to
possession of the Premises, Tenant shall return the Premises to Landlord in
substantially the same order and condition when received, except for, ordinary
wear and damage by fire or other casualty or any other damage that Tenant has no
obligation to repair.   Tenant shall remove any of the initial improvements
required to be removed pursuant to Exhibit B hereof, at its sole costs and
                                   ---------                              
expense, prior to the surrender of the Premises, and restore any areas damaged
by such removal to a reasonably good condition consistent with the required
condition of the balance of the Premises under this paragraph.  If Landlord
requires Tenant to remove any alterations pursuant to Section 9, then such
removal shall be done in a good and workmanlike manner; and upon such removal
Tenant shall restore the Premises to its condition prior to the installation of
such alterations. If Tenant does not remove such alterations after request to do
so by Landlord, Landlord may remove the same and restore the Premises; and
Tenant shall pay the cost of such removal and restoration to Landlord upon
demand.  Tenant shall also remove its furniture, equipment, trade fixtures and
all other items of personal property from the Premises prior to termination of
the Term or Tenant's right to possession of the Premises.  If Tenant does not
remove such items, Tenant shall be conclusively presumed to have conveyed the
same to Landlord without further payment or credit by Landlord to Tenant; or at
Landlord's sole option such items shall be deemed abandoned, in which event
Landlord may cause such items to be removed and disposed of at Tenant's expense,
which shall be 115% of Landlord's actual cost of removal, without notice to
Tenant and without obligation to compensate Tenant.


15.       DEFAULTS AND REMEDIES

          a.   Default.  The occurrence of any of the following shall constitute
               --------                                                         
a default (a "Default") by Tenant under this Lease: (i) Tenant fails to pay any
Rent when due, including, without limitation, Adjustment Rent,  and such failure
is not cured within three (3) business days after notice from Landlord (which
notice may be in the form of a statutory notice to pay rent or quit); (ii)
Tenant fails to perform any other provision of this Lease and such failure is
not cured within thirty (30) days (or immediately if the failure involves a
hazardous condition) after notice from Landlord (unless the nature of the
default is such that it cannot reasonably be cured in thirty (30) days, in which
event Tenant shall not be in Default so long as Tenant commences the cure within
thirty (30) days and thereafter diligently prosecute the cure to completion);
(iii) the leasehold interest of Tenant is levied upon or attached under process
of law; (iv) Tenant abandons the Premises; or (v) any voluntary or involuntary
proceedings are filed by or against Tenant or any guarantor of this Lease under
any bankruptcy, insolvency or similar laws and, in the case of any involuntary
proceedings, are not dismissed within thirty (30) days after any filing by
Tenant or sixty (60) days after any involuntary filing.

                                       15
<PAGE>
 
          b.   Remedies Upon Tenant's Default.  Upon a Default, Landlord shall
               -------------------------------                                
have the following remedies, in addition to all other rights and remedies
provided by law, equity, statute or otherwise provided in this Lease, to which
Landlord may resort cumulatively or in the alternative:

Landlord may continue this Lease in full force and effect, and this Lease shall
continue in full force and effect as long as Landlord does not terminate
Tenant's right to possession, and Landlord shall have the right to collect Rent
when due.  During the period Tenant is in default, Landlord may enter the
Premises and relet it, or any part of it, to third parties for Tenant's account,
provided that any Rent in excess of the Rent due hereunder shall be payable to
Landlord, but shall be applied to Tenant's obligations hereunder.  Tenant shall
be liable immediately to Landlord for all costs Landlord incurs in reletting the
Premises, including, without limitation, brokers' commissions, expenses of
cleaning and redecorating the Premises required by the reletting and like costs.
Reletting may be for a period shorter or longer than the remaining Term of this
Lease.  Tenant shall pay to Landlord the Rent and other sums due under this
Lease on the dates the Rent is due, less the Rent and other sums Landlord
receives from any reletting.  No act by Landlord allowed by this Section 15.b
                                                                 ------------
shall terminate this Lease unless Landlord notifies Tenant in writing that
Landlord elects to terminate this Lease.

     "THE LESSOR HAS THE REMEDY DESCRIBED IN CIVIL CODE SECTION 1951.4
     (LESSOR MAY CONTINUE THE LEASE IN EFFECT AFTER LESSEE'S BREACH OR
     ABANDONMENT AND RECOVER RENT AS IT BECOMES DUE, IF LESSEE HAS THE RIGHT TO
     SUBLET OR ASSIGN SUBJECT ONLY TO REASONABLE LIMITATIONS)."

Landlord may terminate Tenant's right to possession of the Premises at any time
by giving written notice to that effect.  No act by Landlord other than giving
written notice to Tenant shall terminate this Lease.  Acts of maintenance,
efforts to relet the Premises or the appointment of a receiver on Landlord's
initiative to protect Landlord's interest under this Lease shall not constitute
a termination of Tenant's right to possession.  On termination, Landlord shall
have the right to remove all personal property of Tenant and store it at
Tenant's cost and to recover from Tenant as damages: (1) the worth at the time
of award of unpaid Rent and other sums due and payable which had been earned at
the time of termination; plus (2) the worth at the time of award of the amount
by which the unpaid Rent and other sums due and payable which would have been
payable after termination until the time of award exceeds the amount of the Rent
loss that Tenant proves could have been reasonably avoided; plus (3) the worth
at the time of award of the amount by which the unpaid Rent and other sums due
and payable for the balance of the Term after the time of award exceeds the
amount of the Rent loss that Tenant proves could be reasonably avoided; plus (4)
any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform Tenant's obligations under
this Lease, or which, in the ordinary course of things, would be likely to
result therefrom, including, without limitation, any costs or expenses incurred
by Landlord: (a) in retaking possession of the Premises, including reasonable
attorneys' fees and costs therefor; (b) maintaining or preserving the Premises
for reletting to a new tenant, including repairs or alterations to the Premises
for the reletting; (c) leasing commissions attributable to the new lease; (d)
any other costs necessary or appropriate to relet the Premises; and (e) at
Landlord's election, such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by the laws of the State of
California.

The "worth at the time of award" of the amounts referred to in Sections 15.b (1)
                                                               -----------------
and (2) is computed by allowing interest at the lesser of twelve percent (12%)
-------                                                                       
per annum or the maximum rate permitted by law, on the unpaid Rent and other
sums due and payable from the termination date through the date of award.  The
"worth at the time of award" of the amount referred to in Section 15.b.3 is
                                                          --------------   
computed by discounting the amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award, plus one percent (1%).  Tenant
waives redemption or relief from forfeiture under California Code of Civil
Procedure Sections 1174 and 1179, or under any other present or future law, if
Tenant is evicted or Landlord takes possession of the Premises by reason of any
default of Tenant hereunder.

          c.   Other Remedies. Landlord may but shall not be obligated to
               ---------------                                           
perform any obligation of Tenant under this Lease and if Landlord so elects, all
costs and expenses paid by Landlord in performing such obligation, together with
interest at the Default Rate, shall be reimbursed by Tenant to Landlord on
demand. Any and all remedies set forth in this Lease: (i) shall be in addition
to any and all other remedies Landlord may have at law or in equity, (ii) shall
be cumulative, and (iii) may be pursued successively or concurrently as Landlord
may elect. The exercise of any remedy by Landlord shall not be deemed an
election of remedies or preclude Landlord from exercising any other remedies in
the future.

                                       16
<PAGE>
 
          d.   Bankruptcy. If Tenant becomes bankrupt, the bankruptcy trustee
               -----------                                                   
shall not have the right to assume or assign this Lease unless the trustee
complies with all requirements of the United States Bankruptcy Code; and
Landlord expressly reserves all of its rights, claims, and remedies thereunder.

          e.   Waiver of Trial by Jury. Landlord and Tenant waive trial by jury
               ------------------------                                        
in the event of any action, proceeding or counterclaim brought by either
Landlord or Tenant against the other in connection with this Lease.

          f.   Counterclaims.  Tenant hereby waives the right to interpose any
               --------------                                                 
counterclaim in any proceeding instituted by Landlord against Tenant to
terminate the Lease, to obtain possession of the Premises, or to recover Rent.

          g.   Venue. If either Landlord or Tenant desires to bring an action
               ------                                                        
against the other in connection with this Lease, such action shall be brought in
the federal or state courts located in the state in which the Building in
located.  Landlord and Tenant consent to the jurisdiction of such courts and
waive any right to have such action transferred from such courts on the grounds
of improper venue or inconvenient forum.


16.       HOLDING OVER

If Tenant retains possession of the Premises after the expiration or termination
of the Term or Tenant's right to possession of the Premises, Tenant shall pay
Rent during such holding over at one hundred fifty percent (150%) the rate in
effect immediately preceding such holding over computed on a monthly basis for
each month or partial month that Tenant remains in possession. Tenant shall also
pay, indemnify and defend Landlord from and against all claims and damages,
consequential as well as direct, sustained by reason of Tenant's holding over.
The provisions of this Section do not waive Landlord's right of re-entry or
right to regain possession by actions at law or in equity or any other rights
hereunder, and any receipt of payment by Landlord shall not be deemed a consent
by Landlord to Tenant's remaining in possession or be construed as creating or
renewing any lease or right of tenancy between Landlord and Tenant.


17.       SECURITY DEPOSIT

          a.   On or before the Commencement Date, Tenant shall deliver to
Landlord cash or a  letter of credit having a term of at least one year (the
"Letter of Credit") in an amount equal to the amounts expended by Landlord for
leasing commissions and the amount reimbursed to Tenant for Tenant Improvements
to be made pursuant to Exhibit B hereto, which amount is estimated by Landlord
                       ---------                                              
to be approximately $196,762.  Any Letter of Credit shall be reduced by 1/5 on
each anniversary of the Commencement Date, provided when the balance shall be
reduced to $34,848 (the "Minimum Balance") or less, Tenant shall deliver cash in
the amount of the Minimum Balance in lieu of the Letter of Credit and the Letter
of Credit shall be returned to Tenant.  If the Letter of Credit is replaced with
cash in excess of the Minimum Balance and the conditions to a reduction of the
security shall have been met, then the amount of cash security shall be reduced
on each anniversary of the Commencement Date to the amount of the Letter of
Credit that would otherwise be required hereunder, and any excess shall be
promptly refunded to Tenant.   While any Letter of Credit is outstanding: 1.
Tenant shall replace the letter of credit at least thirty (30) days before the
due date thereof, and if Tenant does not do so, Landlord shall be entitled to
draw on the Letter of Credit for the full amount thereof and shall hold the
proceeds thereof until applied as provided herein, or until Tenant delivers to
Landlord a substitute Letter of Credit ; 2. the issuing bank and the form of the
Letter of Credit shall be satisfactory to Landlord in its sole discretion; 3. if
Landlord shall transfer the property, Tenant shall, provided Landlord shall
agree as a condition to Tenant's obligation hereunder to replace such Letter of
Credit, to return any superseded Letter of Credit to Tenant, cause its bank to
issue a replacement letter of credit or amendment to any existing Letter of
Credit naming the new owner as beneficiary, and if it fails to do so within ten
(10) business days after Landlord's request therefor, Landlord is authorized to
cash the Letter of Credit and deliver the proceeds thereof to any successor
owner, to be applied as provided herein; and 4) the Letter of Credit shall be
security for Tenant's timely performance of its obligations hereunder, and if a
default shall occur under the Lease, Landlord may cash the Letter of Credit and
apply the proceeds thereof as described in the next succeeding subsection of
this Paragraph.

                                       17
<PAGE>
 
          b.    The Letter of Credit and any cash held by Landlord pursuant to
the preceding subsection of this Paragraph  (the "Security Deposit") shall be
security for the performance of Tenant's obligations under this Lease. Upon the
occurrence of a Default, Landlord may use all or any part of the Security
Deposit for the payment of any Rent or for the payment of any amount which
Landlord may pay or become obligated to pay by reason of such Default, or to
compensate Landlord for any loss or damage which Landlord may suffer by reason
of such Default. If any portion of the Security Deposit is used, Tenant shall
within five (5) business days after written demand therefor deposit cash with
Landlord in an amount sufficient to restore the Security Deposit to its original
amount. Landlord shall not be required to keep the Security Deposit separate
from its general funds, and Tenant shall not be entitled to interest on the
Security Deposit, except to the extent required by law. In no event shall the
Security Deposit be considered an advanced payment of Rent, and in no event
shall Tenant be entitled to use the Security Deposit for the payment of Rent.
The Security Deposit or any balance thereof after applying said security deposit
to the obligations of Tenant under this Lease, shall be returned to Tenant
within thirty (30) days after the expiration of the Term and vacation of the
Premises by Tenant.  Landlord shall have the right to transfer the Security
Deposit to any purchaser of the Building. Upon transfer of the Security Deposit,
Tenant shall look solely to such purchaser for return of the Security Deposit;
and Landlord shall be relieved of any liability with respect to the Security
Deposit.


18.       [INTENTIONALLY DELETED]

19.       ESTOPPEL CERTIFICATE

a.        Tenant shall within ten (10) business days following written request 
by Landlord:

          1.   Execute and deliver to Landlord any documents, including estoppel
          certificates, in the form prepared by Landlord:

               (i)    certifying that this Lease is unmodified and in full force
               and effect or, if modified, stating the nature of such
               modification and certifying that this Lease, as so modified, is
               in full force and effect, and the date to which the rent and
               other charges are paid in advance, if any; and

               (ii) acknowledging that there are not, to Tenant's knowledge, any
               uncured defaults on the part of Landlord hereunder, or if there
               are uncured defaults on the part of the Landlord, stating the
               nature of such uncured defaults; and

               (iii)  evidencing the status of the Lease as may be required
               either by a lender making a loan to Landlord to be secured by
               deed of trust or mortgage covering the Premises or a purchaser of
               the Property from Landlord.

          Tenant's failure to deliver an estoppel certificate within ten
          (10) business days after delivery of Landlord's written request
          therefor shall be conclusive upon Tenant:

               (x)    that this Lease is in full force and effect, without
                      modification except as may be represented by Landlord;

               (y)    that there are then no uncured defaults in Landlord's
                      performance; and

               (z)    that no rent has been paid in advance.


b.        Landlord shall, within twenty (20) days following written request by
Tenant execute and deliver to Tenant an estoppel certificate in a form
reasonably satisfactory to Landlord certifying (i) that this Lease is unmodified
and in full force and effect or, if modified, stating the nature of such
modification, and (ii) acknowledging that there are not, to Landlord's
knowledge, any uncured defaults on the part of Tenant hereunder, or if there are
uncured defaults on the part of the Landlord, stating the nature of such uncured
defaults.

                                       18
<PAGE>
 

20.       SUBORDINATION

This Lease is and shall be expressly subject and subordinate at all times to (i)
any ground or underlying lease of the Building, now or hereafter existing, and
all amendments, renewals and modifications to any such lease, and (ii) the lien
of any mortgage or trust deed now or hereafter encumbering fee title to the
Building and/or the leasehold estate thereunder, and all amendments, renewals,
modifications and extensions thereof unless such ground lease or ground lessor,
mortgage or mortgagee, or trust deed or trustee or beneficiary, expressly
provides or elects that the Lease shall be superior to such lease, mortgage, or
trust deed.  Without limiting the foregoing, such subordination may be effected
by notice by any ground lessor, mortgagee, trustee or beneficiary to Tenant, or
by a unilateral instrument of subordination executed by such mortgagee, trustee,
or ground lessor and recorded in the records of the county in which the Building
is located, without the necessity of written notice to or further agreement of
Tenant.  If any such mortgage or trust deed is foreclosed, or if any such ground
lease is terminated, upon request of the mortgagee, holder or lessor, as the
case may be and regardless of whether such mortgagee or lessee shall have
subordinated its interest to the interest of Tenant under this Lease, Tenant
will attorn to the purchaser at the foreclosure sale or to the lessor under such
lease, as the case may be on the terms and conditions contained in this Lease,
or shall execute a new lease with such purchaser at the foreclosure sale or to
the lessor under such lease, as the case may be, on all of the terms and
conditions contained in this Lease.  The foregoing provisions are declared to be
self-operative and no further instruments shall be required to effect such
subordination and/or attornment; provided, however, that Tenant agrees upon
request by any such mortgagee, holder, lessor or purchaser at foreclosure, to
execute and deliver such subordination and/or attornment instruments as may be
required by such person to confirm such subordination and/or attornment, or any
other documents required to evidence superiority of the ground lease or
mortgage, should ground lessor or mortgagee elect such superiority, provided it
shall be a condition of Tenant's obligation to execute any such subordination
agreement that the beneficiary of such agreement agree in the same agreement
that in the event of a foreclosure, such beneficiary shall recognize the Lease
and Tenant's right to posses the Premises shall not be disturbed so long as it
shall not be in Default under this Lease.  If Tenant fails to execute and
deliver any instrument or document required under this paragraph, within ten
(10) days after request, Tenant shall be deemed to have irrevocably appointed
Landlord and Landlord's beneficiaries as Tenant's attorneys-in-fact to execute
and deliver such instrument or document in Tenant's name.


21.       QUIET ENJOYMENT

Landlord represents that it has the authority to enter into this Lease.  As long
as no Default exists, Tenant shall peacefully and quietly have and enjoy the
Premises for the Term, free from interference by Landlord, subject, however, to
the provisions of this Lease. The loss or reduction of Tenant's light, air or
view will not be deemed a disturbance of Tenant's occupancy of the Premises nor
will it affect Tenant's obligations under this Lease or create any liability of
Landlord to Tenant.


22.       BROKER

Tenant represents to Landlord that Tenant has dealt only with the broker(s) set
forth in Item 7 of the Schedule (collectively, the "Broker") in connection with
         ------                                                                
this Lease and that, insofar as Tenant knows, no other broker negotiated this
Lease or is entitled to any commission in connection herewith. Tenant agrees to
indemnify, defend and hold Landlord and Landlord's beneficiaries and agents
harmless from and against any claims for a fee or commission made by any broker,
other than the Broker, claiming to have acted on behalf of Tenant in connection
with this Lease. Landlord agrees to pay the Broker a commission in accordance
with a separate agreement between Landlord and the Broker.


23.       NOTICES

All notices and demands to be given by one party to the other party under this
Lease shall be given in writing, mailed or delivered to Landlord or Tenant, as
the case may be, at the address set forth in the Schedule or at such other
address as either party may hereafter designate.  Notices shall be delivered by
hand or by United States certified or registered mail, postage prepaid, return
receipt requested, or by a nationally recognized overnight air courier service.
Notices shall be considered to have been given upon  actual receipt or refusal
of delivery.

                                       19
<PAGE>
 
24.       MISCELLANEOUS

a.        Successors and Assigns. Subject to Section 14 of this Lease, each
          -----------------------                                          
provision of this Lease shall extend to, bind and inure to the benefit of
Landlord and Tenant and their respective legal representatives, successors and
assigns; and all references herein to Landlord and Tenant shall be deemed to
include all such parties.  The term "Landlord" as used in this Lease, so far as
covenants or obligations on the part of Landlord are concerned, shall be limited
to mean only the owner or owners of the Building at the time in question.

b.        Entire Agreement.  This Lease, and the riders and exhibits, if any,
          -----------------                                                  
attached hereto which are hereby made a part of this Lease, represent the
complete agreement between Landlord and Tenant; and Landlord has made no
representations or warranties except as expressly set forth in this Lease. No
modification or amendment of or waiver under this Lease shall be binding upon
Landlord or Tenant unless in writing signed by Landlord and Tenant.

c.        Time of Essence.  Time is of the essence of this Lease and each and
          ----------------                                                   
all of its provisions.

d.        Execution and Delivery. Submission of this instrument for examination
          -----------------------                                              
or signature by Tenant does not constitute a reservation of space or an option
for lease, and it is not effective until execution and delivery by both Landlord
and Tenant. Execution and delivery of this Lease by Tenant to Landlord shall
constitute an irrevocable offer by Tenant to lease the Premises on the terms and
conditions set forth herein, which offer may not be revoked for fifteen (15)
days after such delivery.

e.        Severability. The invalidity or unenforceability of any provision of
          -------------                                                       
this Lease shall not affect or impair any other provisions.

f.        Governing Law. This Lease shall be governed by and construed in
          --------------                                                 
accordance with the laws of the state in which the Building is located.

g.        Attorneys' Fees.  In the event of a litigation arising out of this
          ----------------                                                  
Lease, the prevailing party shall be entitled to be paid all costs and expenses,
including reasonable attorneys' fees, incurred by such party in any such action.

h.        Delay in Possession.  In no event shall Landlord be liable to Tenant
          --------------------                                                
if Landlord is unable to deliver possession of the Premises to Tenant on the
Commencement Date for causes outside Landlord's reasonable control.  If Landlord
is unable to deliver possession of the Premises to Tenant by the Commencement
Date, the Commencement Date shall be deferred until Landlord can deliver
possession to Tenant.  If the Commencement Date is so delayed and as a result
would occur on a day other than the first day of the month; (i) the Commencement
Date shall be further delayed until the first day of the following month, (ii)
Tenant shall be allowed to take occupancy of the Premises prior to the
Commencement Date, subject to all of the terms and conditions of this Lease and
shall pay the pro-rata Rent for such partial month, and (iii) the Expiration
Date shall be extended so that the Term will continue for the full period
contemplated in the Schedule.

i.        Joint and Several Liability.  If Tenant is comprised of more than one
          ----------------------------                                         
party, each such party shall be jointly and severally liable for Tenant's
obligations under this Lease.

j.        Force Majeure. Landlord shall not be in default hereunder and Tenant
          --------------                                                      
shall not be excused from performing any of its obligations hereunder if
Landlord is prevented from performing any of its obligations hereunder due to
any accident, breakage, strike, shortage of materials, acts of God or other
causes beyond Landlord's reasonable control ("Force Majeure").

k.        Captions. The headings and titles in this Lease are for convenience
          ---------                                                          
only and shall have no effect upon the construction or interpretation of this
Lease.

l.        No Waiver. No receipt of money by Landlord from Tenant after
          ----------                                                  
termination of this Lease or after the service of any notice or after the
commencing of any suit or after final judgment for possession of the Premises
shall renew, reinstate, continue or extend the Term or affect any such notice or
suit.  No waiver 

                                       20
<PAGE>
 
of any default of Tenant shall be implied from any omission by Landlord to take
any action on account of such default if such default persists or is repeated,
and no express waiver shall affect any default other than the default specified
in the express waiver and then only for the time and to the extent therein
stated.

m.        Limitation of Liability. Any liability of Landlord under this Lease
          ------------------------                                           
shall be limited solely to its interest in the Project (including sale proceeds,
insurance proceeds and current rents), 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.

25.       PARKING

          Tenant shall have the right to park in the Building's parking
facilities in common with other tenants of the Building upon terms and
conditions, including imposition of a reasonable parking charge, as may from
time to time be established by Landlord, provided Tenant shall have at least 109
spaces allocated to it.  Tenant acknowledges that parking is currently on a
first-come, first-served basis.   Tenant agrees not to use in excess of the
number of spaces allocated to it and agrees to cooperate with Landlord and other
tenants in the use of the parking facilities.  Landlord reserves the right, in
its absolute discretion, to determine whether the parking facilities are
becoming crowded and to allocate and assign parking spaces among Tenant and the
other tenants, so long as the number of spaces allocated to Tenant shall not be
reduced unless Landlord is required by law to do so.  Landlord shall not be
liable to Tenant, nor shall this Lease be affected, if any parking is impaired
by moratorium, initiative, referendum, law, ordinance, regulation or order
passed, issued or made by any governmental or quasi-governmental body.

26.       SIGNAGE

          Tenant shall be entitled to a monument sign identifying its Premises
of a size and configuration consistent with the character of the Project and any
other signs in the Project, provided the sign shall be reasonably visible from
Highway 101 and provided further that the final plans relating to any such
monument sign shall be approved by Landlord in its reasonable discretion.

IN WITNESS WHEREOF, the parties hereto have executed this Lease in manner
sufficient to bind them as of the day and year first above written.


                              LANDLORD:
                              -------- 

                              VOIT MANAGEMENT COMPANY, L.P., Managing
                              Agent for THE PRUDENTIAL INSURANCE COMPANY OF
                              AMERICA, a New Jersey Corporation

 



                              By:  Mary Davis
                                   ----------
                              Title:  Vice President
                                      ----------------



                              TENANT:
                              ------ 

                              SILICON GAMING, INC.  a California corporation

                              By:  Thomas E. Carlson
                                   ------------------

                              Title:  Vice President & CFO
                                      ----------------------

                                       21
<PAGE>
 
                                                                       EXHIBIT A
                                                                  TO LEASE DATED
                                                              January   __, 1997
                                                              Between Prudential
                                                        and Silicon Gaming, Inc.



                                   SITE PLAN



(Site plan shown for the Mountain View, CA facility)

                                       22
<PAGE>
 
                                                                       EXHIBIT B
                                                                  TO LEASE DATED
                                                              January   __, 1997
                                                              Between Prudential
                                                        and Silicon Gaming, Inc.



                   TENANT IMPROVEMENTS CONSTRUCTION AGREEMENT
                   ------------------------------------------
           (Tenant Designs and Constructs with Landlord Supervision)


This Tenant Improvements Construction Agreement("Agreement") is part of the
Lease dated January  __, 1997 between Prudential Insurance Company of America
and Silicon Gaming, Inc. ("Lease") relating to certain premises ("Premises")
which are more particularly described in Exhibit A of this Lease.  Landlord and
                                         ---------                             
Tenant agree as follows with respect to the Tenant Improvements to be installed
in the Premises:

1.   PLANS AND SPECIFICATIONS.  Plans and specifications and Working Drawings
     ------------------------                                                
     sufficient for the construction of the Tenant Improvements to be installed
     in the Premises (the "Drawings") shall be prepared by Tenant's Architect
     ("Architect") and submitted to Landlord.  Within five (5) business days
     after Drawings have been delivered to Landlord,  Landlord shall reasonably
     approve or disapprove the preliminary plans and specifications, provided
     Landlord shall specify in writing any objections it shall have to the
     Drawings.  If Landlord fails to disapprove the Drawings, within five (5)
     business days after delivery thereof to Landlord, the Drawings shall be
     deemed approved.  If Landlord reasonably disapproves the Drawings,
     Landlord  shall, in its notice of disapproval, provide sufficient
     information to Architect so that revised Drawings can be prepared.  If
     Landlord and Tenant shall disagree on any aspect of the  Drawings, Landlord
     and Tenant will meet and promptly attempt to resolve any differences.
     Architect shall revise the Drawings based on Landlord's suggested changes
     or the changes agreed between Landlord and Tenant, and resubmit the revised
     Drawings until the parties are able to agree on the final form of Drawings.
     The parties will agree on the final form of Drawings within twenty (20)
     business days of the date of Architect's initial submittal, provided in any
     and all events Landlord shall have at least three (3) business days to
     review and respond to the final version of the Drawings.    The working
     drawings and specifications which have been approved by Landlord and Tenant
     are hereinafter referred to as the "Approved Working Drawings."  At the
     time of final approval of the Working Drawings, Landlord shall specify
     which of the improvements shown on the Working Drawings shall be required
     to be removed by Tenant at Tenant's sole costs, upon the expiration of the
     Term and/or surrender of the Premises.

2.   CONSTRUCTION OF TENANT IMPROVEMENTS.
     ----------------------------------- 

     A.   Tenant Improvement Allowance.  Tenant shall be granted an allowance
          ----------------------------                                       
          in the amount of $ 72,000.00 ($2.50/rsf)  to be applied for the
          purposes provided in this Agreement (the "Tenant Improvement
          Allowance").

     B.   Construction by Tenant.  Tenant shall cause construction of the
          ----------------------                                         
          Tenant Improvements to be completed in a good and workmanlike manner,
          in compliance with all laws, including, without limitation, the
          Americans with Disabilities Act,  and at Tenant's sole cost and
          expense (except for the items to be completed by Landlord hereunder),
          subject to the payment of the Tenant Improvement Allowance.  Tenant
          shall competitively bid the work to be completed hereunder to at least
          two (2) general contractors reasonably satisfactory to Landlord, and
          shall select the lowest bid, after adjusting the assumptions of each
          bid to provide an "apples to apples" comparison of cost.  The final
          Construction Contract, including, without limitation, the schedule of
          progress payments and the amount of retention provided therein shall
          be subject to the reasonable approval of Landlord.  The Tenant
          Improvements cost ("Tenant Improvements Cost") to be paid by Landlord,
          up to the Tenant  Improvement Allowance shall include, but not be
          limited to:

          (i)    Costs to demolish the existing Tenant Improvements and
                 fixtures on each floor;

                                       23
<PAGE>
 
          (ii)   Costs of any structural or ADA upgrades required as a result
                 of Tenant's construction, but excluding any costs repair of any
                 patent or latent structural defects or of ADA compliance that
                 are the responsibility of Landlord under the Lease;

          (iii)  All costs of preliminary and final architectural and
                 engineering plans, drawings and specifications for the Tenant
                 Improvements, and engineering costs and calculations;

          (iv)   All costs of obtaining building permits and other necessary
                 authorizations from the applicable governmental authority 
                 (e.g., the City in which the Building is located);
                  ----

          (v)    All costs of interior design and finish schedule plans,
                 drawings and specifications including as-built drawings;

          (vi)   All direct and indirect costs of procuring and installing
                 Tenant Improvements in the Premises, including the contractor's
                 fee for overhead and profit, the cost of all of contractor's 
                 on-site supervisory and administrative staff, office, equipment
                 and temporary services provided in connection with construction
                 of the Tenant Improvements;

          (vii)  Costs of installing telecommunications and electrical
                 facilities, equipment and wiring necessary for Tenant's use and
                 costs of reinforcing floors if required in connection with the
                 particular proposed improvements to be constructed by Tenant
                 and not otherwise generally required by code, but not
                 structural seismic improvements, which shall be made by
                 Landlord, unless the Premises are in compliance with seismic
                 requirements as of the date Tenant commences its construction
                 and such upgrade is required as a result of a specific
                 improvement Tenant proposes to make pursuant to the Tenant
                 Improvement Construction Agreement, in which case Tenant shall
                 bear the cost of such upgrade;

          (viii) Sewer connection fees, if any;

          (ix)   A supervision Fee payable to Landlord in the amount of two
                 percent (2%) of the total construction cost;
 
          (x)    Fire and Builder's All-Risk insurance and public liability
                 insurance premiums and fees; and

          (xi)   Tenant's moving costs and the costs to cable the Premises
                 for telephone and electrical service.


 
3.   PAYMENT OF TENANT IMPROVEMENT COSTS.  Tenant shall on or after the date of
     -----------------------------------                                       
     substantial completion of the work, present Landlord with a request for
     payment in an amount not to exceed the Tenant Improvement Allowance.
     Together with such request for payment, Tenant shall provide (a) a
     certificate of the Architect certifying the completion of the Tenant
     Improvements in accordance with the Approved Working Drawings; (b) invoices
     covering all items for which payment is requested; (c) unconditional, final
     waivers of lien from the Contractor and each subcontractor or materials
     supplier to be paid in connection with the work, covering the work
     performed by such contractor subcontractor or materials supplier who shall
     supply in excess of $5,000 of materials and/or services to the Work; (d)
     reasonably detailed working drawings showing the final improvements
     constructed by Tenant and (e) a conditional certificate of occupancy
     authorizing Tenant to occupy the Premises.  If Tenant shall fail to provide
     full and final unconditional waivers of lien for the contractor and all
     subcontractors and material suppliers performing work or supplying
     materials in connection with the work, Landlord may withhold payment of the
     Tenant allowance until such time as the period for the filing of any liens
     in connection with the work has expired.  Otherwise, Landlord shall pay the
     amount requested within twenty (20) days after Tenant's  submittal of its
     request for payment, together with all supporting 

                                       24
<PAGE>
 
     information. If Tenant prepares final "as-built" plans and specifications,
     it shall cause a copy thereof to be prepared for Landlord and shall deliver
     such copy to Landlord promptly after Tenant's receipt thereof. If Tenant
     shall not have requested disbursement of the Tenant Improvement Allowance
     within one hundred twenty (120) days after the execution of the
     Commencement Date Memorandum, Landlord shall have no further obligation to
     fund or credit any remaining Tenant Improvement Allowance to Tenant.

4.   [INTENTIONALLY DELETED]

5.   CHANGE REQUESTS.  No material changes to the Approved Working Drawings
     ---------------                                                       
     shall be made without Landlord's prior approval, which approval shall not
     be unreasonably withheld or delayed beyond five (5) business days;
     provided, however, that no change request shall affect the structure of the
     Building and provided further if such change request is not disapproved by
     Landlord within said five (5) business day period, it will be deemed
     approved .  Any changes to the Approved Working Drawings shall be in
     writing and shall be signed by both Landlord and Tenant prior to the change
     being made.

6.   COOPERATION.  Landlord and Tenant shall cooperate and diligently assist the
     -----------                                                                
     architect, engineer or space planner in completing the Approved Working
     Drawings and specifications and the Contractor in completing construction
     of the Tenant Improvements.  Tenant shall comply with Landlord's reasonable
     requirements in connection with the scheduling and conduct of the work in
     order to minimize an disruption to the operation of the Building.

7.   RENT COMMENCEMENT DATE.  The "Commencement Date" of this Lease shall be the
     ----------------------                                                     
     earlier of (a) March 1, 1997, (b) the date of substantial completion of the
     Premises or (c)  the date that Tenant shall commence its business
     operations from Premises. As used herein (and throughout the lease), the
     term "substantial completion" shall mean  the date on which all of the
     following have occurred: (i) the work contemplated has been completed
     substantially in  accordance with the plans and specifications therefor in
     a good and workmanlike  manner and in compliance with applicable laws and
     (ii) a certificate of occupancy or other governmental approval shall have
     been issued which shall permit the legal occupancy of the Premises.  The
     Commencement Date with respect to any portion of the Premises covered under
     this paragraph shall be deferred for one (1) day for each day of Landlord
     Delay, if any Landlord Delay shall occur.   The parties shall execute a
     Commencement Date Memorandum in the form of Exhibit C to this Lease to
                                                 ---------                 
     confirm the Commencement Date of the Lease.

8.   LANDLORD DELAY.    The term "Landlord Delay" as used in this Lease shall
     --------------                                                          
     mean any delay in the completion of work which is due to any act or
     omission of Landlord (wrongful, negligent or otherwise), its employees,
     agents or contractors (including acts or omissions while acting as agent or
     contractor for Tenant).  The term Landlord Delay shall include, but shall
     not be limited to, any of the following, to the extent that such act or
     omission of Landlord actually delays Tenant in the completion of the Tenant
     Improvements:  (i) delay in the giving of authorizations or approvals by
     Landlord beyond any period specified in the Lease; (ii) delay attributable
     to the acts or failure to act, whether willful, negligent or otherwise, of
     Landlord, its agents or contractors, where such acts or failures to act
     delay the completion of the Tenant Improvements; or (iii) delay
     attributable to the interference of Landlord, its agents or contractors
     with the completion of the Tenant Improvements or the failure or refusal of
     any such part to permit Tenant, its agents or contractors,  access to and
     use of the Building or any Building facilities or services, including
     loading docks, which access and use are required for the orderly and
     continuous performance of the work necessary to complete the Tenant
     Improvements.  Tenant shall give Landlord notice within five (5) days after
     the alleged occurrence of a Landlord Delay, which notice shall reasonably
     describe the nature and duration of the Landlord Delay, as a condition to
     the occurrence of a Landlord Delay, or it shall waive any right to assert a
     Landlord Delay.

9.   [INTENTIONALLY DELETED]

10.  INDEMNITY.  Tenant shall at all times after delivery of the Premises to
     ---------                                                              
     Tenant, during construction and prior to the Commencement Date, comply with
     any and all provisions of the Lease, except the obligation to pay Rent.
     Tenant shall indemnify defend and hold harmless Landlord and its agents,
     managers, employees, affiliates, subsidiaries, successors and assigns from
     and against any and all losses, claims (liquidated or unliquidated),
     damages, or expenses 

                                       25
<PAGE>
 
     (including without limitation, attorney's fees and costs), arising out of
     or in connection with the work contemplated by this Agreement. The
     indemnity of Landlord by Tenant contained herein will survive termination
     of the Lease.

                                       26
<PAGE>
 
                                                                       EXHIBIT C
                                                                  TO LEASE DATED
                                                                January __, 1997
                                                              Between Prudential
                                                        and Silicon Gaming, Inc.
                          COMMENCEMENT DATE MEMORANDUM
                          ----------------------------



Landlord:    THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, 
             a New Jersey corporation

TENANT:      SILICON GAMING  , a California corporation

LEASE DATE:  January __  ,1997

PREMISES:    685 Clyde Ave Mountain View, CA

Pursuant to Exhibit B of the above-referenced Lease, the Commencement Date
            ---------                                                     
hereby is established as ________________, 19__, and the Expiration Date is
hereby established as _______________________, 20__.


                              LANDLORD

                              VOIT MANAGEMENT COMPANY, L.P., 
                              Managing Agent for THE PRUDENTIAL
                              INSURANCE COMPANY OF AMERICA, a New Jersey
                              Corporation

 



                              By: __________________________________

                              Its: _________________________________ 



                              TENANT

                              SILICON GAMING, INC.  , a California corporation

                              By: __________________________________

                                  ______________________ [Print Name]

                              Its: _________________________________
 

                                       27
<PAGE>
 
                                                                       EXHIBIT D
                                                                  TO LEASE DATED
                                                               January  __, 1997
                                                              Between Prudential
                                                      and Silicon Gaming ,  Inc.


                                   EXHIBIT D
                                   ---------


                             RULES AND REGULATIONS
                             ---------------------



1.   No sign, placard, picture, advertisement, name or notice shall be installed
     or displayed on any part of the outside or inside of the Building without
     the prior written consent of Landlord.  Landlord shall have the right to
     remove, at Tenant's expense and with prior notice, any sign installed or
     displayed in violation of this rule.

2.   Except as consented to in writing by Landlord or in accordance with
     Building standard improvements, no draperies, curtains, blinds, shades,
     screens or other devices shall be hung at or used in connection with any
     window or exterior door or doors of the Premises.  No awning shall be
     permitted on any part of the Premises.  Tenant shall not place anything
     against or near glass partitions or doors or windows which may appear
     unsightly from outside the Premises.

3.   Tenant shall not obstruct any sidewalks, halls, lobbies, passages, exits,
     entrances, elevators or stairways of the Building.  No tenant and no
     employee or invitee of any tenant shall go upon the roof of the Building or
     make any roof or terrace penetrations, except for HVAC and maintenance
     personnel.

4.   If Tenant requires a burglar alarm or similar services, it shall first
     obtain, and comply with, Landlord's instructions for their installation.

5.   Tenant shall not place a load upon any floor of the Premises which exceeds
     the maximum load per square foot which the floor was designed to carry (500
     lbs./sq.in.) and which is allowed by law.  Tenant's business machines and
     mechanical equipment which cause noise or vibration which may be
     transmitted to the structure of the Building or to any space therein, and
     which is objectionable to Landlord or to any tenants in the Building, shall
     be placed and maintained by Tenant, at Tenant's expense, on vibration
     eliminators or other devices sufficient to eliminate noise or vibration.

6.   Tenant shall not use or keep in the Premises any kerosene, gasoline or
     inflammable or combustible fluid or material other than those limited
     quantities necessary for the operation or maintenance of office equipment.
     Tenant shall not use or permit to be used in the Premises any foul or
     noxious gas or substance, or permit or allow the Premises to be occupied or
     used in a manner unreasonably offensive or objectionable to Landlord or
     other occupants of the Building by reason of noise, odors or vibrations.
     No animal, except seeing eye dogs when in the company of their masters, may
     be brought into or kept in the Building.

7.   Tenant shall close and lock the doors of its Premises, shut off all water
     faucets or other water apparatus and turn off all lights and other
     equipment which is not required to be continuously run.  Tenant shall be
     responsible for any damage or injuries sustained by other tenants or
     occupants of the Building or Landlord for noncompliance with this Rule.

8.   The toilet rooms, toilets, urinals, wash bowls and other apparatus shall
     not be used for any purpose other than that for which they were
     constructed, and no foreign substance of any kind whatsoever shall be
     placed therein.  The expense of any breakage, stoppage or damage resulting
     from any violation of this rule shall be borne by the tenant who, or whose
     employees or invitees, shall have caused it.

                                       28
<PAGE>
 
9.   Tenant shall not, without the prior written consent of Landlord, install
     any radio or television antenna, loudspeaker or other device on the roof or
     exterior walls of the Building.  Tenant shall not interfere with radio or
     television broadcasting or reception from or in the Building or elsewhere.

10.  Following completion of the initial Tenant Improvements, Tenant shall not
     affix any floor covering to the floor of the Premises in any manner except
     as approved by Landlord unless Landlord's approval is not required under
     the Lease.  Tenant shall repair, or be responsible for the cost of repair
     of any damage resulting from noncompliance with this Rule.

11.  Tenant shall store all its trash and garbage in a separate designated area.
     Tenant shall not place in any trash box or receptacle any material which
     cannot be disposed of in the ordinary and customary manner of trash and
     garbage disposal in a separate designated area.

12.  Use by Tenant of Underwriters' Laboratory approved equipment for brewing
     coffee, tea, hot chocolate and similar beverages and microwaving food shall
     be permitted, provided that the equipment and use is in accordance with all
     applicable federal, state, county and city laws, codes, ordinances, rules
     and regulations.

13.  Tenant shall not use the name of the Building in connection with or in
     promoting or advertising the business of Tenant, except as Tenant's
     address, without the written consent of Landlord.

14.  Tenant shall comply with all safety, fire protection and evacuation
     procedures and regulations established by Landlord or any governmental
     agency.  Tenant shall be responsible for any increased insurance premiums
     attributable to Tenant's use of the Premises, Building or Property.

15.  Tenant assumes any and all responsibility for protecting its Premises from
     theft and robbery, which responsibility includes keeping doors locked  and
     other means of entry to the Premises closed.

16.  Tenant shall not use the Premises, or suffer or permit anything to be done
     on, in or about the Premises, which may result in an increase to Landlord
     in the cost of insurance maintained by Landlord on the Building and Common
     Areas.

17.  Tenant shall not park its vehicles in any parking areas designated by
     Landlord as areas for parking by visitors to the Building or other reserved
     parking spaces.  Tenant shall not leave vehicles in the Building parking
     areas overnight, except for medical vans, nor park any vehicles in the
     Building parking areas other than automobiles, motorcycles, motor driven or
     non-motor driven bicycles or four-wheeled trucks.  Tenant, its agents,
     employees and invitees shall not park any one (1) vehicle in more than one
     (1) parking space.

18.  Landlord may waive any one or more of these Rules and Regulations for the
     benefit of Tenant or any other tenant, but no waiver by Landlord shall be
     construed as a waiver of the Rules and Regulations in favor of Tenant or
     any other tenant, nor prevent Landlord from thereafter enforcing the Rules
     and Regulations against any or all of the tenants of the Building.

19.  These Rules and Regulations are in addition to, and shall not be construed
     to in any way modify or amend, in whole or in part, the terms, covenants,
     agreements and conditions of any lease of premises in the Building.

20.  Landlord reserves the right to make other reasonable Rules and Regulations
     as, in its judgment, may from time to time be needed for safety and
     security, for care and cleanliness of the Building and for the preservation
     of good order therein.  Tenant agrees to abide by all Rules and Regulations
     herein above stated and any additional rules and regulations which are
     adopted, provided that in the event of a conflict between the Rules and
     Regulations, as amended, and the Lease, the provisions of the Lease shall
     control.

21.  Tenant shall be responsible for the observance of all of the foregoing
     rules by Tenant's employees, agents, clients, customers, invitees and
     guests.

                                       29