<PAGE>
 
                                                                 Exhibit 10.26


                          COMMERCIAL REAL ESTATE LEASE

                                    BETWEEN
                                        

                                        
                          BATTLE BORN DEVELOPMENT, LLC
                                  AS LANDLORD
                                        

                                        
                                      AND
                                        

                                        
                             SILICON GAMING, INC.;
                                   AS TENANT
                                        

                                        
<PAGE>
 
                               TABLE OF CONTENTS
 
ARTICLE ONE
     DEFINITIONS......................................   1
     Section 1.01     DEFINITIONS.....................   1
     Section 1.02     BASE RENT.......................   5
     Section 1.03     RIDERS..........................   5
     Section 1.04.    PARKING.........................   5
 
ARTICLE TWO
     LEASE TERM AND COMMON BUILDING AREAS.............   5
     Section 2.01     LEASE OF PROPERTY FOR LEASE 
                      TERM............................   5
     Section 2.02     DELIVERY OF POSSESSION..........   5
     Section 2.03     TENANT IMPROVEMENT ALLOWANCE....   6
     Section 2.04     COMMON AREAS....................   7
     Section 2.05     LANDLORD'S RIGHT IN COMMON AREAS   7
     Section 2.06     HOLDING OVER....................   7
 
ARTICLE THREE
     BASE RENT........................................   8
     Section 3.01.    TIME AND MANNER OF PAYMENT......   8
     Section 3.02     ANNUAL INCREASES................   8
 
ARTICLE FOUR
     OTHER CHARGES PAYABLE BY TENANT..................   8
     Section 4.01     ADDITIONAL RENT.................   8
     Section 4.02     OPERATING COSTS.................   8
     Section 4.03     REAL PROPERTY TAXES.............   9
     Section 4.04     PERSONAL PROPERTY TAXES.........  10
     Section 4.05     REPAIRS AND UTILITIES...........  10
     Section 4.06     INSURANCE.......................  10
     Section 4.07     WAIVER OF SUBROGATION...........  11
     Section 4.08     LATE CHARGES....................  11
     Section 4.09     INTEREST ON PAST DUE OBLIGATIONS  11
     Section 4.10     RETURN OF CHECK.................  12
     Section 4.11     SECURITY DEPOSIT INCREASES......  12
     Section 4.12     TERMINATION; ADVANCE PAYMENTS...  12
<PAGE>
 
ARTICLE FIVE
     USE OF PROPERTY..................................  13
     Section 5.01     PERMITTED USES..................  13
     Section 5.02     MANNER OF USE...................  13
     Section 5.03     HAZARDOUS SUBSTANCES............  13
     Section 5.04     SIGNS AND AUCTIONS..............  15
     Section 5.05     INDEMNITY.......................  15
     Section 5.06     LANDLORD'S ACCESS...............  16
 
 
ARTICLE SIX
     CONDITION OF PROPERTY; MAINTENANCE, REPAIRS 
     AND ALTERATIONS..................................  16
     Section 6.01     EXISTING CONDITIONS.............  16
     Section 6.02     EXEMPTION OF LANDLORD FROM 
                      LIABILITY.......................  16
     Section 6.03     LANDLORD'S OBLIGATIONS..........  17
     Section 6.04     TENANT'S OBLIGATIONS............  17
     Section 6.05     ALTERATIONS, ADDITIONS, AND 
                      IMPROVEMENTS....................  18
     Section 6.06     CONDITION UPON TERMINATION......  19
 
ARTICLE SEVEN
     DAMAGE OR DESTRUCTION............................  19
     Section 7.01     PROPERTY DAMAGE.................  19
     Section 7.02     ABATEMENT OR REDUCTION OF RENT..  20
     Section 7.03     WAIVER..........................  21
 
ARTICLE EIGHT
     CONDEMNATION.....................................  21
     Section 8.01     CONDEMNATION....................  21
 
ARTICLE NINE
     ASSIGNMENT AND SUBLETTING........................  21
     Section 9.01     LANDLORD'S CONSENT REQUIRED.....  21
     Section 9.02     LANDLORD'S ELECTION.............  21
     Section 9.03     NO RELEASE OF TENANT............  22
     Section 9.04     NO MERGER.......................  22
 
ARTICLE TEN
     DEFAULTS;        REMEDIES........................  22
     Section 10.01    COVENANTS AND CONDITIONS........  22
     Section 10.02    DEFAULTS........................  22
     Section 10.03    REMEDIES........................  23
     Section 10.04    CUMULATIVE REMEDIES.............  24


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ARTICLE ELEVEN
     PROTECTION OF LENDERS............................  24
     Section 11.01    SUBORDINATION...................  24
     Section 11.02    ATTORNMENT......................  25
     Section 11.03    SIGNING OF DOCUMENTS............  25
     Section 11.04    ESTOPPEL CERTIFICATES...........  25
     Section 11.05    TENANT'S FINANCIAL CONDITION....  26
 
ARTICLE TWELVE
     LEGAL COSTS......................................  26
     Section 12.01 LEGAL PROCEEDINGS..................  26
     Section 12.02 LANDLORD'S CONSENT.................  27
 
ARTICLE THIRTEEN
     MISCELLANEOUS PROVISIONS.........................  27
     Section 13.01    NON-DISCRIMINATION..............  27
     Section 13.02    LANDLORD'S LIABILITY............  27
     Section 13.03    SEVERABILITY....................  27
     Section 13.04    INTERPRETATION..................  27
     Section 13.05    INCORPORATION OF PRIOR AGREEMENT 
                      MODIFICATIONS...................  28
     Section 13.06    NOTICES.........................  28
     Section 13.07    WAIVERS.........................  28
     Section 13.08    NO RECORDATION..................  28
     Section 13.09    BINDING EFFECT; CHOICE OF LAW...  28
     Section 13.10    CORPORATE AUTHORITY; PARTNERSHIP 
                      AUTHORITY.......................  28
     Section 13.11    JOINT AND SEVERAL LIABILITY.....  29
     Section 13.12    FORCE MAJEURE...................  29
     Section 13.13    EXECUTION OF LEASE..............  29
     Section 13.14    BROKERS AND LEASING AGENTS......  29
     Section 13.15    RULES AND REGULATIONS...........  29
     Section 13.16    LIENS...........................  30


                                    iii
<PAGE>
 
                          COMMERCIAL REAL ESTATE LEASE
                                        

     THIS COMMERCIAL REAL ESTATE LEASE (this "Lease") is made as of the    day
of       1997, by and between BATTLE BORN DEVELOPMENT, LLC, a Nevada limited
liability company ("Landlord") and SILICON GAMING, INC., a California
corporation ("Tenant").

                                  ARTICLE ONE
                                  DEFINITIONS
                                        
     Section 1.01    DEFINITIONS. For purposes of this Lease, the following
terms shall have the following meanings:

          (a)  [Intentionally Omitted].

          (b) Building: The structure and related improvements constructed on
the Premises containing approximately Twenty-six Thousand, Nine Hundred Seventy-
seven (26,977) rentable square feet, including Eleven Thousand One Hundred
Eighty-eight (11,088) square feet of office space, 2,500 square feet of "tech
area" and Thirteen Thousand Three Hundred Eighty-nine (13,389) square feet of
evaporative cooled warehouse space. The Building is stipulated for all purposes
to contain said rentable square feet in the Building.

          (c) Commencement Date: The earlier of (i) the date Tenant actually
occupies the Premises (other than for the purposes set forth in Section 2.02(d),
below), (ii) the date the Work (as defined in RIDER NO.1 attached hereto) is
substantially completed in accordance with Section 2.02(c) below, or (iii)
February 15, 1998, except as delayed pursuant to Section 2.02(c) of this Lease.

          (d) Common Areas: All areas and facilities outside the Building and
within the exterior boundary line of the Premises that are provided and
designated by the Landlord from time to time for the general non-exclusive use
of Landlord, Tenant and their respective employees, suppliers, shippers,
customers, contractors and invitees, including, without limitation, trash areas,
roadways, sidewalks, walkways, landscaped areas, irrigation systems, lighting
facilities, fences, gates, and the parking facilities for the Building. Landlord
has the right to change the Common Areas and to take other actions respecting
these areas in accordance with Section 2.05 below.

          (e) Declaration: That certain Declaration of Restrictions and Grant of
Easements dated November 1, 1985 and filed for record with the County Recorder
of Clark County, Nevada ("County Recorder as Document No.2175093, as
supplemented by the Supplement to Declaration of Restrictions and Grant of
Easements dated June 1, 1988, filed with the County Recorder in Book 880602,
Instrument No.00517, as amended from time to time. The
<PAGE>
 
Declaration is filed on the Premises and a larger real estate development, of
which the Premises are a part, known as Hughes Airport Center.

          (f) Initial Security Deposit: Twenty-four Thousand Four Hundred
Thirty-five and 00/100 Dollars ($24,435.00).  The Initial Security Deposit shall
be paid to Landlord contemporaneously with Tenant's execution hereof.

          (g) Laws: All applicable statutes, regulations, requirements,
ordinances and orders promulgated by any federal, state, local or regional
governmental authority whether prior to or following the Commencement Date of
this Lease.

          (h) Landlord's Address: Baffle Born Development, LLC, 6680 Amelia
Earhart Court, Las Vegas, Nevada, 89119, Attention: W. Mark Stewart, Manager.

          (i) Landlord's Broker: The Industrial Property Group, Inc., 4495 South
Pecos Road, Las Vegas, Nevada, 89121, Attention: Dean P. Willmore.

          (j) Lease Interest Rate: The lesser of (i) two percentage points (2%)
over that fluctuating rate of interest announced from time to time by the Bank
of America National Trust and Savings Association as its prime or reference
commercial lending rate of interest (or in the event such bank is no longer
announcing such rate, by such other federally regulated banking institution of
comparable stature as Landlord shall determine), or (ii) the maximum interest
rate permitted by law.

          (k) Lease Term: Five (5) years beginning on the Commencement Date and
continuing until sixty (60) months after the first day of the first full month
following the Commencement Date, unless extended pursuant to Rider No.2 -
Extension Option attached to this Lease and incorporated herein by this
reference.

          (1) Leased Premises Address: 6685 Amelia Earhart Court, Las Vegas,
Nevada 89119.

          (m) Mortgagee: The mortgagee under a mortgage or beneficiary under a
deed of trust holding a lien encumbering the Building or any holder of a ground
leasehold interest in the Building or any part thereof.

          (n) Operating Costs: All costs of any kind paid or incurred by
Landlord because of or in connection with the ownership, management,
maintenance, repair, replacement, restoration or operation of the Premises
(including all Common Areas), including by way of illustration but not
limitation, all of the following: (i) all amounts charged to the Premises
pursuant to the Declaration or the Special Use Restrictions; (ii) all costs,
charges and surcharges for utilities, water, sewage, janitorial, waste disposal
and refuse removal and all other utilities

                                      2
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and services provided to the Premises which are not separately metered or billed
directly to Tenant; (iii) any insurance costs for which Landlord is responsible
under this Lease or which Landlord or any Mortgagee deems necessary or prudent;
(iv) any costs levied, assessed or imposed pursuant to any applicable Laws; (v)
the cost (amortized over such period as Landlord reasonably determines, together
with interest at the Lease Interest Rate on the unamortized balance) of any
capital improvements to the Common Areas or equipment replacements made by
Landlord after the Commencement Date that are intended to reduce other Operating
Costs or are required by any laws or are necessary in order to operate the
Common Areas at the same quality level as prior to such replacement; (vi)
utilities surcharges or any other costs levied, assessed or imposed by, or at
the direction of, or resulting from statutes or regulations or interpretations
thereof, promulgated by any federal, state, regional, municipal or local
government authority in connection with the use of the Premises (including,
without limitation, energy conservation charges or surcharges); (vii) all costs
incurred in the management and operation of the Common Areas including, without
limitation, gardening and landscaping, maintenance, maintenance of signs, window
washing, resurfacing and repaving, painting, lighting, and general cleaning;
(viii) management fees, wages, salaries and other labor costs incurred in the
operation or maintenance of the Premises; (ix) depreciation on personal property
owned by Landlord which is consumed in the operation or maintenance of the
Common Areas; (x) rental or lease payments paid by Landlord for rented or leased
personal property used in the operation or maintenance of the Common Areas; (xi)
Real Property Taxes attributable to the Premises and insurance premiums for
policies of insurance insuring loss or damage to the Premises; (xii) fees for
required licenses and permits; (xiii) reasonable and appropriate reserves for
repair and replacement; and (xiv) any other expenses which would reasonably or
customarily be included in the cost of managing, operating, maintaining and
repairing the Common Areas. Operating Costs shall not include any amounts paid
by Landlord for the Work.

          (o) Permitted Uses:  General office, warehousing, assembly, repair and
distribution activities of a gaming equipment company.

          (p) Premises: That certain parcel of real estate described in EXHIBIT
"A" attached hereto and incorporated herein by this reference and the building
and other improvements located thereon, all of which is commonly known as 6685
Amelia Earhart Court, Las Vegas, Nevada 89119.

          (q) Real Property Taxes: Any form of tax, assessment, license fee,
license tax, business license fee, commercial rental tax, levy, charge, penalty,
tax or similar imposition, imposed by any authority having the direct power to
tax (including any city, county, state or federal government, or any school,
agricultural, lighting, drainage, transportation, air pollution, environmental
or other improvement or special assessment district) as against any legal or
equitable interest of Landlord in the Building and/or the Premises, including,
but not limited to, the following:

               (i) any tax on a landlord's "right" to rent or "right" to other
     income from the Premises or against Landlord's business of leasing the
     Premises;

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<PAGE>
 
               (ii) any assessment, tax, fee, levy or charge in substitution,
     partially or totally, of any assessment, tax, fee, levy or charge
     previously including within the definition of Real Property Taxes (it is
     the intention of Tenant and Landlord that all such new and increased
     assessments, taxes, fees, levies and charges be included within the
     definition of "Real Property Taxes" for the purposes of this Lease);

               (iii)    any assessment, tax, fee, levy or charge allocable to or
     measured by the area of the Premises or the rent payable hereunder,
     including, without limitation, any gross income tax or excise tax levied by
     the state, county, city or federal government, or any political subdivision
     thereof, with respect to the receipt of such rent, or upon or with respect
     to the possession, leasing, operating, management and maintenance,
     alteration, repair, use or occupancy of, the Building, or any portion
     thereof;

               (iv) any assessment, tax, fee, levy or charge upon this
     transaction creating or transferring an interest or an estate in the
     Premises;

               (v) any assessment, tax, fee, levy or charge based upon the
     number of people employed, working at, or using the Premises or the
     Building, or utilizing public or private transportation to commute to the
     Premises or the Building; and

               (vi) reasonable legal and other professional fees, costs and
     disbursements incurred in connection with proceedings to contest, determine
     or reduce Real Property Taxes. Real Property Taxes shall not include
     federal or state income, franchise, inheritance or estate taxes of Landlord
     or any of the parties which comprise Landlord.

          (r) Special Use Restrictions: The covenants and restrictions contained
in that certain Declaration of Special Land Use Restrictions, Mortgage Lien,
Option to Purchase and Right of First Refusal executed by Landlord in favor of
Howard Hughes Properties Limited Partnership, a Delaware limited partnership,
dated June 18, 1996 and recorded in the records of the Clark County Recorder at
book 960619, instrument number 01656.

          (s) Tenant's Address: Silicon Gaming, Inc., 3070 W. Post Road, Las
Vegas, Nevada 89118, Attention: Paul D. Matthews, Vice President

          (t) Tenant's Broker: Stuart Mixer Commercial, 3800 Howard Hughes
Parkway, Suite 1220, Las Vegas, Nevada 89109, Attention: John D. McKeown.

          (u)  Tenant's Guarantor: None.

          (v) Tenant Improvement Allowance: An allowance to Tenant in the amount
of Four Hundred Seventy-five Thousand and 00/100 Dollars ($475,000.00) for the
design, engineering and construction of those improvements to the Premises
identified as the Work in RIDER NO.1.

                                      4
<PAGE>
 
          (w) Tenant Early Access Date: The date which is four (4) weeks prior
to the Commencement Date.

     Section 1.02    BASE RENT. The "Base Rent" shall be Twenty-four Thousand
Four Hundred Thirty-five and 00/100 Dollars ($24,435.00) per month with
adjustments, if any, made pursuant to Rider No.1.

     Section 1.03    RIDERS. The following Riders are attached to and made a
part of this Lease: RIDER NO. 1 - Tenant Work Letter and RIDER NO.2 - Extension
Option.

     Section 1.04.   PARKING. Tenant shall be entitled to use up to fifty-six
(56) unreserved uncovered parking spaces, as farther specified in Section 2.05
below.

                          ARTICLE TWO

             LEASE TERM AND COMMON BUILDING AREAS

     Section 2.01    LEASE OP PROPERTY FOR LEASE TERM. Landlord hereby leases
the Premises to Tenant and Tenant leases the Premises from Landlord for the
Lease Term. The Lease Term is for the period stated in Section 1.01 (k) above
and shall begin and end on the dates specified in Section 1.01(k) above. The
"Commencement Date" shall be the date specified in Section 1.01(c) above for the
beginning of the Lease Term. Tenant fully understands and acknowledges that this
Lease is subject to certain approvals required under the Special Use
Restrictions, and that the obtaining of such approvals is a condition precedent
to the obligations of Landlord and Tenant under this Lease.

     Section 2.02    DELIVERY OF POSSESSION.

          (a) Landlord will be deemed to have delivered possession of the
Premises to Tenant on the Commencement Date, as it may be adjusted pursuant to
Section 2.02(c) below. Landlord shall construct or install the office and
warehouse improvements consisting of the Work as defined in Rider No.1. Tenant
may provide Landlord with a list of Tenant's preferred contractors and
subcontractors to perform the Work, provided that Landlord shall, in Landlord's
discretion, have the final authority in the selection of all contractors,
subcontractors, architects and engineers to perform the Work. Landlord shall be
responsible in all respects for the implementation and management of the Work.
Tenant acknowledges that neither Landlord nor its agents or employees have made
any representations or warranties as to the suitability or fitness of the
Premises for the conduct of Tenant's business or for any other purpose, nor has
Landlord or its agents or employees agreed to undertake any alterations or
construct any Tenant improvements to the Premises except as expressly provided
in this Lease and RIDER NO.1. If for any reason, Landlord cannot deliver
possession of the Premises to Tenant on or before the fixed date component of
the Commencement Date, this Lease will not be void or voidable, and Landlord
will not be liable to Tenant for any resultant loss or damage.


                                      5
<PAGE>
 
          (b) If, by the fixed date component of the Commencement Date specified
in Section 1.01 (c)(iii), the Premises have not been substantially completed (as
defined below) due to any cause other than Landlord's default or "Force Majeure
Delays" (as defined below), Landlord shall have no liability, and the
obligations of this Lease (including, without limitation, the obligation to pay
rent) shall nonetheless commence as of said fixed date component of the
Commencement Date.

          (c) If, however, the Work is not substantially completed by the fixed
date specified in Section 1.0l(c)(iii) due to default on the part of Landlord or
Force Majeure Delays, then as Tenant's sole remedy for the delay in tenant's
occupancy of the Premises, the fixed date component of the definition of the
Commencement Date shall be delayed for the period of delay in substantial
completion of the Work resulting therefrom. The Work shall be deemed
"substantially completed" when (i) Landlord has provided reasonable access to
the Premises to Tenant, (ii) Landlord has completed the Work other than details
of construction which do not materially interfere with Tenant's use of the
Premises, and (iii) Landlord has obtained a permanent or temporary certificate
of occupancy for the Premises (or its equivalent). For purposes of this Section
2.02, "Force Majeure Delays" shall mean and refer to a period of delay or delays
encountered by Landlord affecting the Work because of delays due to excess time
in obtaining governmental permits or approvals beyond the time period normally
required to obtain such permits or approvals for similar space; fire, earthquake
or other acts of God; acts of the public enemy; riot; insurrection; public
unrest; governmental regulations of the sales of materials or supplies or the
transportation thereof; strikes or boycotts; shortage of material or labor or
any cause beyond the reasonable control of Landlord.

          (d) Landlord shall permit Tenant to access the Premises on the Tenant
Early Access Date for the purpose of installing Tenant's furnishings, fixtures
and equipment, provided that Tenant shall not obstruct or hinder the performance
of the Work. This Lease shall apply in all respects from and after the Tenant
Early Access Date, except that Tenant shall have no obligation to pay Rent until
the Commencement Date.

     Section 2.03   TENANT IMPROVEMENT ALLOWANCE. Landlord agrees to provide to
Tenant a Tenant Improvement Allowance in the amount set forth in Section
1.01(v), for the performance and completion of the Work. In the event the actual
amount required to complete the Work is less than the Tenant Improvement
Allowance, the amount of the Tenant Improvement Allowance which exceeds the
actual cost of the Work shall be credited to Tenant and shall, at Tenant's
option, either be paid to Tenant as a cash payment or be credited to Tenant
toward the payment of Rent by Tenant to Landlord. In the event the actual cost
of the Work shall exceed the Tenant Improvement Allowance, Tenant shall pay to
Landlord, in cash or its equivalent, all amounts by which the actual cost of the
Work exceeds the Tenant Improvement Allowance. Tenant shall be required to pay
any and all such sums prior to, and as a condition precedent to the taking of
possession of the Premises.

                                      6
<PAGE>
 
     Section 2.04   COMMON AREAS. Tenant shall have the nonexclusive right to
the use the Common Areas, subject to the Rules and Regulations referred to in
Section 13.16 below.

     Section 2.05   LANDLORD'S RIGHT IN COMMON AREAS. Landlord hereby reserves
the right from time to time to do the following provided it is done without
unreasonable interference with Tenant's business or Tenant's use of the
Premises:

          (a) To install, use, maintain, repair and replace pipes, conduits,
wires and appurtenant meters, pipe ducts, equipment and landscaping located in
the Common Areas;

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

          (c) To close temporarily any of the Common Areas for maintenance
purposes or to prevent prescriptive easements so long as access to the Building
remains available.

          (d) To add additional improvements to the Common Areas, including,
without limitation, the construction of parking structures or surface parking
areas;

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

     Section 2.06   HOLDING OVER. Tenant shall vacate the Premises upon the
expiration or earlier termination of this Lease. Tenant shall reimburse Landlord
for and indemnify and hold Landlord harmless against all damages, claims,
losses, penalties, charges, and expenses (including reasonable attorney's fees)
incurred by Landlord resulting from any delay by Tenant in vacating the
Premises. If Tenant does not vacate the Premises upon the expiration or earlier
termination of this Lease, Tenant's occupancy of the Premises shall be a tenancy
at sufferance, subject to all of the terms of this Lease applicable to a tenancy
at sufferance, except that the Base Rent then in effect shall be equal to one
hundred fifty percent (150%) of the Base Rent in effect immediately prior to the
expiration or earlier termination of this Lease. Nothing contained in this
Section 2.03 shall be construed as consent by Landlord to any holding over of
the Premises by Tenant, and Landlord expressly reserves the right to require
Tenant to surrender possession of the Premises to Landlord upon the expiration
or earlier termination of this Lease.



                                      7
<PAGE>
 
                                 ARTICLE THREE
                                   BASE RENT
                                        

     Section 3.01.   TIME AND MANNER OF PAYMENT. Upon execution of this Lease,
Tenant shall pay Landlord the Base Rent in the amount stated in Section 1.02
above for the first full month of the Lease Term. The Base Rent for the first
month of the Lease term shall be prorated on the basis of the actual number of
days in such month, if such month is a fractional month. If such month is a
fractional month, then the Base Rent for such fractional month shall be due and
payable on the Commencement Date. Thereafter, on the first day of the second
month of the Lease Term (or, if the first full month of the Lease Term is the
second month, then the third month of the Lease Term) and each month thereafter,
Tenant shall pay Landlord the Base Rent, in advance, without offset, deduction
or prior demand. The Base Rent shall be payable at Landlord's Address or at such
other place as Landlord may designate in writing. Base Rent is due on or before
the first (1st) day of each month.

     Section 3.02   ANNUAL INCREASES. The Base Rent shall be increased on the
first day of the thirteenth (13th) month of the Lease Term and on each annual
anniversary thereof during the Lease Term (the "Adjustment Month") in an amount
equal to three percent (3%) of the Base Rent immediately preceding such
Adjustment Month.

                                 ARTICLE FOUR
                        OTHER CHARGES PAYABLE BY TENANT

     Section 4.01   ADDITIONAL RENT. All charges payable by Tenant hereunder
other than Base Rent are called "Additional Rent." Unless this Lease provides
otherwise, all Additional Rent shall be paid with the next monthly installment
of Base Rent. The term "Rent" shall mean Base Rent and Additional Rent.

     Section 4.02   OPERATING COSTS.

          (a) Tenant shall during the Lease Term pay as Additional Rent Tenant's
Share of the Operating Costs. The inclusion of the improvements, facilities and
services described in the definition of Operating Costs set forth in Section
1.01(n) above, shall not be deemed to impose an obligation upon Landlord to
either have said improvements or facilities or to provide any of said services
unless Landlord has agreed elsewhere in this Lease to provide the specific
improvement, facility or service.

          (b) Tenant shall pay Tenant's Share of Operating Costs, in advance, in
monthly installments with the Base Rent based on Landlord's good faith estimate
of the Operating Costs. Landlord may adjust such estimates from time to time as
Landlord determines, which adjustment will be effective as of the next rent
payment date after notice to Tenant. After the end of each calendar year,
Landlord shall deliver to Tenant a statement ("Actual Statement"), in reasonable
detail, of the actual Operating Costs incurred by Landlord during the preceding

                                      8
<PAGE>
 
calendar year and Tenant's Share of such Operating Costs. Upon receipt of such
statement, there shall be an adjustment between Landlord and Tenant, with
payment to Landlord or credit given to Tenant, as the case may be, to reflect
the actual Operating Costs.

          (c) In the event of any dispute as to the amount of Tenant's Share of
Operating Costs as set forth in the Operating Costs statement, Tenant shall have
the right, after reasonable notice and at reasonable times, to inspect and
photocopy Landlord's Operating Costs records at Landlord's offices. If, after
such inspection and photocopy, Tenant continues to dispute the amount of
Tenant's Share of Operating Costs as set forth in the Operating Costs statement,
Tenant shall be entitled to retain a national, independent, certified public
accountant mutually acceptable to Landlord and Tenant to audit Landlord's
Operating Costs records to determine the proper amount of Tenant's Share of
Operating Costs. Landlord shall be entitled to review the results of such audit
promptly after completion of same. If such audit proves that Landlord has
overcharged Tenant, then within fifteen (15) days after the results of the audit
are made available to Landlord, Landlord shall credit Tenant the amount of such
overcharge toward the payments of Base Rent and Additional Rent next coming due
under this Lease. If such audit proves that Landlord has undercharged Tenant,
then within fifteen (15) days after the results of the audit are made available
to Tenant, Tenant shall pay to Landlord the amount of any such undercharge.
Tenant agrees to pay the cost of such audit, provided that Landlord shall
reimburse Tenant the amount of such cost if the audit proves that Landlord's
determination of Tenant's Share of Operating Costs (as set forth in the
Operating Costs statement) was in error by more than six percent (6%). Landlord
shall be required to maintain records of all Operating Costs for three (3) years
following the issuance of the Operating Costs statement for such Operating
Costs. The payment by Tenant of any amounts pursuant to this Section shall not
preclude Tenant from questioning the correctness of any Operating Costs
statement.

     Section 4.03    REAL PROPERTY TAXES. Tenant shall pay to Landlord, as part
of the Operating Costs, all Real Property Taxes and any increases thereof on the
Premises during the Lease Term. Tenant may initiate proceedings with the
appropriate taxing authorities to attempt to have the assessed valuation of the
Premises reduced or may initiate proceedings to contest the Real Property Taxes.
If required by law, Landlord shall join in the proceedings brought by Tenant.
However, Tenant shall pay all costs of the proceedings, including any costs or
fees incurred by Landlord. During the pendency of any such proceedings, Tenant
may instruct Landlord to remit the Real Property Taxes under protest if Tenant
reasonably concludes that such action is necessary to preserve Tenant's right to
seek a reassessment or contest the Real Property Taxes. In no event, however,
shall Tenant be relieved from its obligation to pay the Real Property Taxes to
Landlord as part of the Operating Costs, nor shall Tenant be entitled to reduce
the amount of the Real Property Taxes, as assessed, unless and until a final
order binding upon the taxing authority is entered authorizing such a reduction,
and all appeals or opportunities to appeal such order have been exhausted.



                                      9
<PAGE>
 
     Section 4.04    PERSONAL PROPERTY TAXES. Tenant shall pay all taxes charged
against trade fixtures, utility installations, furnishings, equipment or any
other personal property belonging to Tenant. Tenant shall use its best efforts
to have personal property taxed separately from the Premises. If Tenant fails to
pay when due any taxes on personal property which are assessed against the
Premises, Landlord may, in Landlord's discretion, pay such taxes and Tenant
shall reimburse Landlord for the amount of such taxes as Additional Rent.

     Section 4.05    REPAIRS AND UTILITIES. The parties acknowledge that this
Lease is intended to be a fully net lease and that, except as expressly provided
in this Lease, Tenant shall be responsible for all repairs required to the
Premises and for the provision of all utilities at the Premises, including but
not limited to water, sewage, trash removal, waste disposal, janitorial,
electricity, telephone, security, and cleaning of the Premises, together with
any taxes thereon. If any such utilities or services are not able to be
separately metered or separately billed to the Premises, Tenant shall pay to
Landlord a reasonable proportion to be determined by Landlord of all such
charges jointly metered or billed to Landlord, together with a reasonable
administrative fee, immediately upon receipt of Landlord's bill therefor.

     Section 4.06    INSURANCE.

          (a) Landlord shall maintain, at Tenant's expense, and shall obtain and
keep in force at all times during the Lease Term, a policy of insurance covering
loss or damage to the Premises, including the Building and all of the
improvements, betterments, and installations, located within the Premises
(including all Work constructed in accordance with RIDER NO.1) in the amount of
one hundred percent (100%) of the full replacement value thereof as reasonably
ascertained by Landlord, insuring against risks of direct physical loss or
damage, normally covered in an "all risk" policy (including the perils of flood
and surface waters), as such term is used in the insurance industry; provided,
however, that neither Landlord nor Tenant shall have no obligation to insure
against earthquake. All premiums for such insurance shall be included as part of
the Operating Costs. The proceeds of the insurance shall be payable solely to
Landlord or the Mortgagees, as their respective interests shall appear.

          (b) Tenant shall, at Tenant's expense, maintain a policy of Commercial
General Liability insurance insuring Tenant and as additional insureds, Landlord
and any Mortgagees, against liability arising out of the ownership, use,
occupancy or maintenance of the Premises. Such insurance shall be on an
occurrence basis providing single-limit coverage in an amount not less than One
Million Dollars ($1,000,000) per occurrence. The initial amount of such
insurance shall be subject to periodic increase upon reasonable demand by
Landlord based upon inflation, increased liability awards, recommendation of
professional insurance advisers, and other relevant factors. However, the limits
of such insurance shall not limit Tenant's liability nor relieve Tenant of any
obligation hereunder. Such policy shall contain the following provision: "Such
insurance as afforded by this policy for the benefit of Landlord shall be
primary

                                      10
<PAGE>
 
as respects any claims, losses or liabilities arising out of the use of the
Premises by the Tenant or by Tenant's operation and any insurance carried by the
Landlord shall be excess and noncontributing." The policy shall insure Tenant's
performance of the indemnity provisions of Section 5.05.

          (c) Tenant shall, from time to time, at Tenant's sole expense, obtain
and maintain other types of insurance as Tenant, Landlord or the Mortgagees of
Landlord may reasonably require in form, in amounts and for insurance risks
against which a prudent tenant would protect itself.

          (d) Insurance required to be maintained hereunder shall be in
companies holding a "General Policyholders' Rating" of B-plus or better and a
"financial rating" of 10 or better, as set forth in the most current issue of
"Best's Insurance Guide," or such comparable ratings as Landlord shall approve,
in its sole discretion. Tenant shall promptly deliver to Landlord, within thirty
(30) days of the Commencement Date, original certificates evidencing the
existence and amounts of all insurance required to be maintained by Tenant. No
such policy shall be cancelable or subject to reduction of coverage except after
thirty (30) days' prior written notice to Landlord. Tenant shall, within thirty
(30) days prior to the expiration, cancellation or reduction of such policies,
furnish Landlord with renewals of "binders" thereof. Tenant shall not do or
permit to be done anything which shall invalidate the insurance policies
required under this Lease.

     Section 4.07    WAIVER OF SUBROGATION. Tenant and/or Landlord shall obtain
the issuers of the insurance policies referred to in this Article Four a mutual
waiver of subrogation provision in said policies and Tenant and Landlord each
hereby release and relieve the other, and waive any and all rights of recovery
against the other, or against the employees, officers, agents and
representatives of the other, for loss or damage arising out of or incident to
the perils required to be insured against under this Section 4 which perils
occur in, on or about the Premises, whether due to the negligence of Landlord or
Tenant or their agents, employees, contractors or invitees.

     Section 4.08   LATE CHARGES. Tenant acknowledges that Tenant's failure to
pay Base Rent or Additional Rent promptly may cause Landlord to incur
unanticipated costs. The exact amount of such costs are impractical or extremely
difficult to ascertain. Such costs may include, but are not limited to,
processing and accounting charges and late charges which may be imposed on
Landlord by any ground lease, mortgage or trust deed encumbering the Premises.
Therefore, if Landlord does not receive any Rent payment within five (5) days
after it becomes due, Tenant shall pay Landlord a late charge equal to ten
percent (10%) of the overdue amount. The parties agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of such late payment. In the event that a late charge is payable
hereunder, whether or not collected, for three (3) consecutive installments of
Rent, the Rent shall automatically become due and payable quarterly in advance,
rather than monthly, notwithstanding Section 3.01 above.

     Section 4.09 INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by Tenant to
Landlord which is not paid when due shall bear interest at the rate of (i)
fifteen percent (15%) 


                                      11
<PAGE>
 
per annum, or (ii) the Lease Interest Rate, whichever is greater, from the due
date of such amount. However, interest shall not be payable on late charges to
be paid by Tenant under this Lease. The payment of interest on such amounts
shall not excuse or cure any default by Tenant under this Lease. If the
interest rate specified in this Section 4.08 is higher than the rate permitted
by law, the interest rate shall be decreased to the maximum legal interest
rate permitted by law.

     Section 4.10    RETURN OF CHECK. If Base Rent or Additional Rent is paid by
check and the check is returned to Landlord without payment for any reason
whatsoever, Tenant shall be assessed a late charge and interest on past due
amount pursuant to Sections 4.07 and 4.08 as well as a Fifty Dollar ($50.00)
fee. If payment is returned for insufficient funds, Landlord has the right to
demand that such payment be in the form of a cashiers or certified check. If
Tenant has two (2) or more insufficient funds' payments in a twelve (12) month
period, Landlord may demand that all subsequent payments be in the form of a
cashiers or certified check.

     Section 4.11    SECURITY DEPOSIT INCREASES.

          (a) Upon the execution of this Lease, Tenant shall deposit with
Landlord a cash security deposit (the "Security Deposit") in the amount of the
Initial Security Deposit set forth in Section 1.01(f) above. On the first day of
the thirty-first (31st) full month of the Lease Term, if Tenant is not then in
default, the Security Deposit required hereunder shall be reduced from the
Initial Security Deposit amount to the sum of Ten Thousand and No/100 Dollars
($10,000.00) (the "Reduced Security Deposit"). Any Security Deposit amount held
by Landlord at that time which is in excess of the Reduced Security Deposit
shall be credited to Tenant toward the payment of rent for the thirty-first
(31st) full month of the Lease Term. If Tenant is in default on the first day of
the thirty-first (31st) full month of the Lease Term, then the Initial Security
Deposit amount shall continue to be required until such time as Tenant's default
shall have been cured, at which time the Reduced Security Deposit shall apply
and Tenant shall be credited toward Tenant's next payment of Rent an amount
equal to the excess of the Security Deposit then held by Landlord over the
Reduced Security Deposit amount.

          (b) Landlord may apply all or part of the Security Deposit to any
unpaid Rent or other charges due from Tenant or to cure any other defaults of
Tenant. If Landlord uses any part of the Security Deposit, Tenant shall restore
the Security Deposit to the full amount required under subparagraph (a) of this
Section within ten (10) days after Landlord's written request. Tenant's failure
to do so shall be a material default under this Lease. No interest shall be paid
on the Security Deposit. Landlord shall not be required to keep the Security
Deposit separate from its other accounts and no trust relationship is created
with respect to the Security Deposit.

     Section 4.12    TERMINATION: ADVANCE PAYMENTS. Upon expiration of this
Lease or other termination of this Lease not resulting from Tenant's default,
and after Tenant has vacated the Premises in the manner required by this Lease,
an equitable adjustment shall be made concerning advance rent and other advance
payments made by Tenant to Landlord, and Landlord

                                      12
<PAGE>
 
shall refund any unused portion of the Security Deposit to Tenant, or, at
Landlord's option, to Tenant's assignee or sublessee.

                          ARTICLE FIVE
                         USE OF PROPERTY

     Section 5.01    PERMITTED USES. Tenant may use the Premises only for the
Permitted Uses set forth in Section 1.01(0) above.

     Section 5.02    MANNER OF USE. Tenant shall not cause or permit the
Premises to be used in any way (i) which constitutes (or would constitute) a
violation of any Laws, occupancy certificate, the requirements of any board of
fire underwriters or similar body, as any of the same now or in the future may
exist, or (ii) which constitutes a nuisance or waste, or (iii) which is
prohibited by the Declaration or the Special Use Restrictions. Tenant, at its
sole cost and expense, shall comply with all Laws now in force or which may
hereafter be in force regulating the use, occupancy or alterations by Tenant of
the Premises. Landlord makes no representation or warranty as to the suitability
of the Premises for Tenant's intended use or whether such use complies with all
such Laws.

     Section 5.03    HAZARDOUS SUBSTANCES.

          (a) Reportable Uses Require Consent. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Landlord to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Tenant
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Landlord and compliance in a timely manner (at
Tenant's sole cost and expense) with all Applicable Requirements (as defined in
Section 5.03(d)). "Reportable Use" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with any governmental authority, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Requirements require that a notice be given to persons entering or
occupying the Premises or neighboring properties. Notwithstanding the foregoing,
Tenant may, without Landlord's prior consent, but upon notice to Landlord and in
compliance with all Applicable Requirements, use any ordinary and customary
materials reasonably required to be used by Tenant in the normal course of the
Permitted Uses,

                                      13
<PAGE>
 
so long as such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Landlord to any liability therefor. In addition, Landlord may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Tenant upon Tenant's giving Landlord such additional
assurances as Landlord, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Landlord's option, removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit.

          (b) Duty to Inform Lessor. If Tenant knows, or has reasonable cause to
about the Premises or the Building, other than as previously consented to by
Landlord, Tenant shall immediately give Landlord written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private patty concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including but not limited to all such documents as may be involved in any
Reportable Use involving the Premises. Tenant shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).

          (c) Indemnification. Tenant shall indemnify, protect, defend and hold
Landlord, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Tenant or by anyone under Tenant's control. Tenant's
obligations under this Section 5.03(c) shall include, but not be limited to, the
effects of any contamination or injury to person, property or the environment
created or suffered by Tenant, and the cost of investigation (including
consultants' and attorneys' fees and testing), removal, remediation, restoration
and/or abatement thereof, or of any contamination therein involved, and shall
survive the expiration or earlier termination of this Lease. No termination,
cancellation or release agreement entered into by Landlord and Tenant shall
release Tenant from its obligations under this Lease with respect to Hazardous
Substances, unless specifically so agreed by Landlord in writing at the time of
such agreement.

          (d) Tenant's Compliance with Requirements. Tenant shall, at Tenant's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Landlord's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about

                                      14
<PAGE>
 
the Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill, or release of any Hazardous Substance), now in
effect or which may hereafter come into effect. Tenant shall, within five (5)
days after receipt of Landlord's written request, provide Landlord with copies
of all documents and information, including but not limited to permits,
registrations, manifests, applications, reports and certificates, evidencing
Tenant's compliance with any Applicable Requirements specified by Landlord, and
shall immediately upon receipt, notify Landlord in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Tenant or the
Premises to comply with any Applicable Requirements.

          (e) Inspection: Compliance with Law. Landlord, Landlord's agents,
employees, contractors and designated representatives, and any Mortgagees, shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the condition
of the Premises and for verifying compliance by Tenant with this Lease and all
Applicable Requirements, and Landlord shall be entitled to employ experts and/or
consultants in connection therewith to advise Landlord with respect to Tenant's
activities, including but not limited to Tenant's installation, operation, use,
monitoring, maintenance, or removal of any Hazardous Substance on or from the
Premises. The costs and expenses of any such inspections shall be paid by the
party requesting the same, unless a default of this Lease by Tenant or a
violation of Applicable Requirements or a contamination, caused or materially
contributed to by Tenant, is found to exist or to be imminent, or unless the
inspection is requested or ordered by a governmental authority as the result of
any such existing or imminent violation or contamination. In such case, Tenant
shall upon request reimburse Landlord or Landlord's Mortgagee, as the case may
be, for the costs and expenses of such inspections.

     Section 5.04   SIGNS AND AUCTIONS. Tenant shall not place any signs on the
Premises without Landlord's prior written consent. All signage shall be in
conformance with the Declaration and the Special Use Restrictions. Tenant shall
not conduct or permit any auctions or sheriff's sales at the Premises.

     Section 5.05   INDEMNITY. Tenant shall indemnify and hold harmless Landlord
and all agents, servants and employees of Landlord from and against all claims,
losses, damages, expenses (including reasonable attorneys' fees), penalties and
charges arising from or in connection with (i) Tenant's use of the Premises
during the Lease Term, or (ii) the conduct of Tenant's business, or (iii) any
activity, work or things done, permitted or suffered by Tenant in or about the
Premises during the Lease Term. Tenant shall farther indemnify and hold harmless
Landlord from and against any and all claims, loss, damage, expense (including
reasonable attorneys' fees), penalty or charge arising from any default in the
performance of any obligation on Tenant's part to be performed under the terms
of this Lease, or arising from any negligence of Tenant, or any of Tenant's
agents, contractors, or employees, and from and against all costs, attorneys'
fees, expenses and liability incurred in the defense of any such claim or any
action or proceeding brought thereon. If any action or proceeding be brought
against Landlord by reason

                                      15
<PAGE>
 
of any such claim, Tenant, upon notice from Landlord; shall defend the same at
Tenant's expense by legal counsel reasonably satisfactory to Landlord. Tenant,
as a material part of its consideration to Landlord, hereby assumes all risk of
damage to property or injury to persons in or upon the Premises arising from any
cause and Tenant hereby waives all claims in respect thereof against Landlord.
Notwithstanding the foregoing, Tenant shall not be required to defend, save
harmless or indemnify Landlord from any liability for injury, loss, accident or
damage to any person or property resulting from Landlord's negligence or willful
acts or omissions, or those of Landlord's officers, agents, contractors or
employees. Tenant's indemnity is not intended to nor shall it relieve any
insurance carrier of its obligations under policies required to be carried by
Tenant pursuant to the provisions of this Lease to the extent that such policies
cover the results of negligent acts or omissions of Landlord, its officers,
agents, contractors or employees, or the failure of Landlord to perform any of
its obligations under this Lease.

     Section 5.06    LANDLORD'S ACCESS. Landlord or its agents may enter the
Premises at all reasonable times to inspect the condition of the Premises and
verity Tenant's compliance with the terms of this Lease. Landlord may also enter
the Premises at reasonable times to show the Premises to potential buyers,
investors or tenants or other parties, or for any other purpose Landlord deems
necessary. Landlord shall give Tenant prior notice of Landlord's entry, except
in the case of an emergency. Landlord may place customary "For Sale" or "For
Lease" signs on the Premises.

                                  ARTICLE SIX
          CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS

     Section 6.01    EXISTING CONDITIONS. Except as is set forth in RIDER NO.1,
Tenant accepts the Premises in its condition "AS IS" as of the date of execution
of this Lease, subject to all recorded mailers and Laws. Tenant acknowledges
that neither Landlord nor any employee or agent of Landlord has made any
representation as to the condition of the Premises or the suitability of the
Premises for Tenant's intended use.

     Section 6.02    EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not be
liable for and Tenant shall indemnify and hold Landlord harmless from and
against all claims, losses, damages, expenses, penalties and charges arising
from or in connection with any damage or injury to the person, business (or any
loss of income therefrom), goods, wares, merchandise or other property of
Tenant, Tenant's employees, invitees, customers or any other person in or about
the Premises, whether such damage or injury is caused by or results from: (a)
fire, steam, electricity, water, gas or rain; (b) the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures or any other cause; (c) the failure, delay
or diminution in the quality or quantity of any utilities or services supplied
to the Premises or the Building; or (d) any conditions arising in or about the
Premises, or from other sources or places, nor shall any of the same be
construed as an eviction of Tenant, nor, unless otherwise permitted under this
Lease, work an abatement of Rent, nor relieve Tenant from any obligation under
this Lease. Landlord shall not be liable for any such damage or injury even
though the cause of or the means of repairing such damage or injury are not
accessible to Tenant.

                                      16
<PAGE>
 
The provisions of this Section 6.02 shall not, however, exempt Landlord from
liability for Landlord's gross negligence or willful misconduct.

     Section 6.03    LANDLORD'S OBLIGATIONS. Landlord shall keep the Common
Areas in good order, condition and repair. Landlord shall have no other
obligation, in any manner whatsoever, to repair or maintain the Premises, the
improvement thereon or equipment therein, it being intended that all such
obligations shall be the obligations of Tenant. Landlord shall, however,
cooperate with Tenant to assist Tenant in taking advantage of any manufacturer's
or installer's warranties which may be in effect with regard to the Building or
any of its components, or with regard to any other aspect of the Premises to
which a warranty may apply. Tenant expressly waives the benefit of any statute,
whether now or hereinafter in effect, which affords Tenant the right to make
repairs at the expense of Landlord or to terminate this Lease by reason of any
needed repairs.

     Section 6.04    TENANT'S OBLIGATIONS.

          (a) Tenant shall, at Tenant's sole cost and expense, keep all portions
of the Premises (other than the Common Areas) in good order, condition and
repair, including, without limitation, the roof and structure, walls and
foundation, doors and windows, and all components of the electrical, mechanical,
plumbing, heating, air conditioning and ventilation systems which serve the
Premises. If any portion of the Premises or any system or equipment in the
Premises which Tenant is obligated to repair cannot be filly repaired, Tenant
shall promptly replace such portion of or system or equipment in the Premises,
regardless of whether the benefit of such replacement extends beyond the Lease
Term.

          (b)    Either Landlord or Tenant, at Tenant's option and at Tenant's
sole expense, shall enter into a preventative maintenance contract ("Maintenance
Contract") with a licensed heating and air conditioning contractor providing for
the regular inspection and maintenance of the heating, air conditioning and
ventilation system utilized for the Premises. Landlord shall have the right to
approve the contractor and the Maintenance Contract prior to Tenant's execution
thereof. Thirty (30) days prior to the Commencement Date, Tenant shall inform
Landlord whether Tenant will obtain the Maintenance Contract or whether Tenant
wants Landlord to obtain the Maintenance Contract. In the event Tenant elects to
obtain the Maintenance Contract, Tenant shall provide Landlord with a copy of
such Maintenance Contract at least fifteen (15) days prior to the Commencement
Date: the Maintenance Contract cannot be canceled without providing Landlord
with thirty (30) days' prior written notice. If Tenant elects not to obtain a
Maintenance Contract or if Tenant fails to provide landlord with a copy of the
Maintenance Contract fifteen (15) days prior to the Commencement Date, Landlord
shall obtain the Maintenance Contract for Tenant's benefit and Tenant shall be
obligated to pay Landlord, as Additional Rent, monthly, without demand, one
twelfth (1/12th) of the annual cost of the Maintenance Contract. Regardless if
Landlord or Tenant obtains the Maintenance Contract,

                                      17
<PAGE>
 
Landlord shall have the right to enter Tenant's Premises to inspect any and all
aspects of the Premises including, without limitation, the air condition,
heating and ventilation system utilized for the Building.

          (c) Tenant shall, at Tenant's sole expense, enter into a sewer and
trash removal contract ("Trash Removal Contract") with a contractor providing
for regular sewer and trash removal services for the Premises. Landlord shall
have the right to approve the contractor and the Trash Removal Contract prior to
Tenant's execution thereof. Tenant shall provide Landlord with a copy of such
Trash Removal Contract at least fifteen (15) days prior to the Commencement
Date: the Trash Removal Contract cannot be canceled without providing Landlord
with thirty (30) days' prior written notice. If Tenant fails to provide Landlord
with a copy of the Trash Removal Contract fifteen (15) days prior to the
Commencement Date, Landlord shall have the right to obtain the Trash Removal
Contract for Tenant's benefit and Tenant shall be obligated to pay Landlord, as
Additional Rent, monthly, without demand, one-twelfth (1/12th) of the annual
cost of the Trash Removal Contract.

          (d) If Tenant fails to maintain or repair the Premises as required by
this Section 6.04, Landlord may, upon ten (10) days' prior notice to Tenant
(except that no notice shall be required in the case of an emergency), enter the
Premises and perform such maintenance or repair on behalf of Tenant. In such
case, Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair, including twenty percent (20%) of such costs for
Landlord's supervision, immediately upon demand.

     Section 6.05   ALTERATIONS. ADDITIONS. AND IMPROVEMENTS.

          (a) Tenant shall not make any alterations, additions, or improvements
to the Premises without Landlord's prior written consent. Tenant shall deliver
to Landlord, for Landlord's approval prior to any construction, a complete set
of plans and specifications for the proposed alterations, additions or
improvement, copies of contracts with general contractors, evidence of
contractor's insurance and bonds, and all necessary permits for such
construction. Landlord may require Tenant to provide demolition and/or lien and
completion bonds in form and amount satisfactory to Landlord. Tenant shall
promptly remove any alterations, additions, or improvements constructed in
violation of this Section 6.05(a) upon Landlord's written request. All
alterations, additions, and improvements will be accomplished in a good and
workmanlike manner, in conformity with all applicable Laws, and by a contractor
approved by Landlord. Landlord's approval of the plans, specifications and
working drawings for Tenant's alterations shall create no responsibility or
liability on the part of Landlord for their completeness, design, sufficiency,
or compliance with all laws, rules and regulations of governmental agencies or
authorities. Upon completion of any such work, Tenant shall provide Landlord
with "as built" plans, copies of all construction contracts, and proof of
payment for all labor and materials.

                                      18
<PAGE>
 
          (b)    Tenant shall pay when due all claims for labor and material
furnished to the Premises. Tenant shall give Landlord at least ten (10) days'
prior written notice of the commencement of any work on the Premises. Landlord
may elect to record and post notices of non-responsibility on the Premises.

          (c) Notwithstanding the foregoing, Tenant shall be permitted to make
minor improvements to the interior of the Building without obtaining Landlord's
prior written consent, provided that the cost of any such improvements completed
during any consecutive six (6) month period shall not exceed, in the aggregate,
the sum of Ten Thousand and 00/100 Dollars ($10,000.00). Tenant shall be
permitted to make minor improvements to the interior of the Building under this
Section 6.05(c) only to the extent Tenant's improvements (i) do not affect the
Building's structural integrity; (ii) do not affect the appearance of the
exterior of the Building; (iii) are in compliance with the Laws, the Declaration
and the Special Use Restrictions; and (iv) are in compliance with all other
provisions of this Lease, including the requirements of Sections 6.05(a) and
6.05(b) (other than the requirement of obtaining Landlord's prior written
consent).

     Section 6.06   CONDITION UPON TERMINATION. Upon the termination of this
Lease, Tenant shall surrender the Premises to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. In
addition, Landlord may require Tenant to remove, at Tenant's expense, any
alterations, additions or improvements by providing written notice to Tenant
within thirty (30) days after the termination of this Lease. Landlord shall not,
however, require Tenant to remove any portions of the Work, as set forth in
Rider 1, nor shall Landlord require Tenant to remove any alterations made with
Landlord's approval under Section 6.05(a) to the extent that, at the time such
approval is granted, Landlord affirms in writing that Tenant will not be
required to remove such addition or improvement. All alterations, additions and
improvements which Landlord has not required Tenant to remove shall become
Landlord's property and shall be surrendered to Landlord upon the termination of
the Lease, except that Tenant may remove any of Tenant's machinery or equipment
which can be removed without material damage to the Premises. Tenant shall
repair, at Tenant's expense, any damage to the Premises caused by the removal of
any such machinery or equipment. In no event, however, shall Tenant remove any
of the following materials or equipment without Landlord's prior written
consent: any power wiring or power panels; lighting or lighting fixtures; wall
coverings; drapes, blinds or other window coverings; carpets or other floor
coverings; heaters, air conditioners or any other heating or air conditioning
equipment; fencing or security gates; or other similar building operating
equipment and decorations.

                                 ARTICLE SEVEN
                             DAMAGE OR DESTRUCTION

     Section 7.01    PROPERTY DAMAGE.  If the Premises or any part thereof shall
be damaged by fire or other peril, Tenant shall given prompt written notice
thereof to Landlord. In case the Premises shall be so damaged that fifty percent
(50%) or more of the square footage of the Premises shall be unusable for its
intended purpose or the time required to restore the

                                      19
<PAGE>
 
Premises shall exceed one hundred eighty (180) days, or in the event any
Mortgagee shall require that the insurance proceeds payable as a result of a
peril be applied to the payment of the mortgage debt, or in the event of any
material uninsured loss to the Premises, either Landlord or Tenant may, at its
option, terminate this Lease by notifying the other party in writing of such
termination within ninety (90) days after the date of such casualty. If the
casualty to the Premises shall occur during the final year of the Lease Term and
the Premises shall be so damaged that the time required to restore the Premises
shall exceed ninety (90) days, either Landlord or Tenant may, at its option,
terminate this Lease by providing written notice as set forth in the previous
sentence. If neither Landlord nor Tenant elects to terminate this Lease,
Landlord shall, as Landlord's sole obligation, commence and proceed with
reasonable diligence to restore the Premises to substantially the same condition
in which it was immediately prior to the occurrence of the peril, including all
improvements constructed pursuant to RIDER NO.1. Any shortfall between the
amount of insurance proceeds and the actual costs of such reconstruction shall
be deposited by Tenant prior to the commencement of such reconstruction and, if
additional costs occur, immediately upon demand therefor. Landlord shall not be
liable for any inconvenience or annoyance to Tenant or injury to the business of
Tenant resulting in any way from such damage or the repair thereof, except as
set forth in Section 7.02 below.

     Section 7.02    ABATEMENT OR REDUCTION OF RENT.

          (a) If the Premises are destroyed or damaged as the result of a
casualty or peril which is covered by insurance, and neither Landlord nor Tenant
terminates this Lease pursuant to the provisions of this Article Seven, Tenant
shall not be required to pay Base Rent during the period commencing as of the
date of the casualty and continuing for the period of time required for Landlord
to repair or restore the Premises.

          (b)    If the Premises are destroyed or damaged as the result of a
casualty or peril which is not covered by insurance, and neither Landlord nor
Tenant terminates this Lease pursuant to the provisions of this Article Seven,
the Base Rent payable during the period commencing as of the date of the
casualty and continuing for the period of time required for Landlord to complete
the repairs described in this Article Seven, due to such damage, repair and/or
restoration shall be reduced according to the degree, if any, to which Tenant's
use of the Premises is impaired as of the date of the casualty as determined by
Landlord. If any casualty is the result of the fault or negligence of Tenant or
any of Tenant's agents, employees or invitees, the Base Rent hereunder shall not
be diminished during the repair of such damage.

          (c) Except for such possible reduction in Base Rent, Tenant shall not
be entitled to any abatement, compensation, reduction, or reimbursement from
Landlord as a result of any damage, destruction, repair, or restoration of or to
the Premises. In the event this Lease is terminated pursuant to this Article
Seven, such termination shall be effective as of the date of the casualty.




                                      20
<PAGE>
 
     Section 7 03    WAIVER  Tenant waives the protection of any statute, code
or judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial destruction of the leased property. Tenant agrees that
the provisions of this Article Seven above shall govern the rights and
obligations of Landlord and Tenant in the event of any casualty to the Premises.

                                 ARTICLE EIGHT
                                  CONDEMNATION

     Section 8.01   CONDEMNATION. If the whole or substantially the whole of the
Premises shall be taken for any public or quasi-public use, by right of eminent
domain or otherwise or shall be sold in lieu of condemnation, then this Lease
shall terminate as of the date when physical possession of the Premises is taken
by the condemning authority. If less than the whole or substantially the whole
of the Premises is thus taken or sold, Landlord may terminate this Lease by
giving written notice thereof to Tenant; in which event this Lease shall
terminate as of the date when physical possession of such portion of the
Premises is taken by the condemning authority. If the Lease is not so terminated
upon any such taking or sale, the Rent payable hereunder shall be diminished by
an equitable amount, and Landlord shall, to the extent Landlord deems feasible,
restore the Premises to substantially their former condition, but such work
shall not exceed the scope of the work done by Landlord in originally
constructing the building and installing improvements in the Premises, nor shall
Landlord in any event be required to spend for such work an amount in excess of
the amount received by Landlord as compensation for such taking. All amounts
awarded upon a taking of any part or all of the Premises shall belong to
Landlord, and Tenant shall not be entitled to and expressly waives all claims to
any such compensation.

                                  ARTICLE NINE
                           ASSIGNMENT AND SUBLETTING
                                        
     Section 9.01   LANDLORD'S CONSENT REQUIRED. No portion of the Premises or
of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by assignment, mortgage, sublease, transfer, operation of law,
or act of Tenant, without Landlord's prior written consent, which consent shall
not be unreasonably withheld. Any attempted transfer without consent shall be
void and shall constitute a non-curable breach of this Lease. Tenant shall have
the right, without Landlord's consent, to assign this Lease to a corporation
with which it may merge or consolidate, to any controlling parent or controlled
subsidiary of Tenant or controlled subsidiary of Tenant's parent, or to a
purchaser of substantially all of Tenant's assets, if the assignee executes an
agreement required by Landlord assuming all Tenant's obligations under this
Lease. Notwithstanding any other provision of this Lease, Tenant expressly
acknowledges and agrees that no assignment, transfer or sublease shall be
permitted it and to the extent, such assignment, transfer or sublease shall be
in violation of the Special Use Restrictions.

     Section 9.02    LANDLORD'S ELECTION. Tenant's request for consent to any
transfer described in Section 9.01 above shall be accompanied by a written
statement setting forth the details of the proposed transfer, including the
name, business and financial condition of the

                                      21
<PAGE>
 
prospective transferee, financial details of the proposed transfer (e.g., the
term of and rent and security deposit payable under any assignment or sublease),
and any other information Landlord deems relevant. Landlord shall have the right
in Landlord's sole discretion to (a) withhold consent; (b) grant consent; or (c)
if the transfer is a sublease of the Premises or an assignment of this Lease, to
terminate this Lease as of the effective date of such sublease or assignment, in
which case Landlord may elect to enter into a direct lease with the proposed
assignee or subtenant. If Landlord consents to any assignment or sublease and
Tenant receives rent or other consideration, either initially or over the term
of the assignment or sublease, in excess of the Rent called for hereunder, or,
in case of the sublease of a portion of the Premises, in excess of such Rent
fairly allocable to such portion ("Profits"), then Tenant shall pay Landlord, as
Additional Rent hereunder, promptly after its receipt, fifty percent (50%) of
such Profits. For purposes of this section, Tenant's Profits shall be net of
Tenant's reasonable expenses incurred in subleasing the Premises, including
advertising costs, leasing commissions and costs of tenant improvements which
Tenant is required to incur.

     Section 9.03   NO RELEASE OF TENANT. No transfer consented to by Landlord,
shall release Tenant or change Tenant's primary liability to pay the Rent and to
perform all other obligations of Tenant under this Lease. Upon the occurrence of
any default under this Lease, Landlord may proceed directly against Tenant
without the necessity of exhausting any remedies against any subtenant or
assignee. Upon termination of this Lease, any permitted subtenant shall, at
Landlord's option, attorn to Landlord and shall pay all Rent directly to
Landlord. Landlord's acceptance of Rent from any other person shall not
constitute a waiver of any provision of this Article Nine. Consent to one
transfer shall not constitute a consent to any subsequent transfer. Landlord may
consent to subsequent assignments or modifications of this Lease by Tenant's
transferee, without notifying Tenant or obtaining its consent. Such action shall
not relieve Tenant of its liability under this Lease.

     Section 9.04   NO MERGER.  No merger shall result from Tenant's sublease of
the Premises under this Article Nine, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord thereunder.

                                  ARTICLE TEN
                               DEFAULTS; REMEDIES

     Section 10.01   COVENANTS AND CONDITIONS.  Tenant's performance of each of
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Premises is conditioned upon
such performance. Time is of the essence in the performance of all covenants and
conditions.

     Section 10.02   DEFAULTS. Tenant shall be in material default under this
Lease:


                                      22
<PAGE>
 
          (a) If Tenant abandons the Premises or if Tenant vacates the Premises
for thirty (30) consecutive days;

          (b) If Tenant fails to pay Rent or any other charge required to be
paid by Tenant within five (5) days from the due date thereof;

          (c) If tenant fails to perform any of Tenant's nonmonetary obligations
under this Lease for a period often (10) days after written notice from
Landlord; provided that if more than then (10) days are required to complete
such performance, Tenant shall not be in default if Tenant commences such
performance within such ten (10) day period and thereafter diligently pursues
its completion;

          (d) (i)   If Tenant makes a general assignment or general arrangement
for the benefit of creditors; (ii) if a petition for adjudication of bankruptcy
or for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is not
discharged within thirty (30) days. If a court of competent jurisdiction
determines that any of the acts described in this Section (d) is not a default
under this Lease, and a trustee is appointed to take possession (or if Tenant
remains a debtor in possession) and such trustee or Tenant transfers Tenant's
interest hereunder, then Landlord shall receive, as Additional Rent, the
difference between the rent (or any other consideration) paid in connection with
such assignment or sublease and the rent payable by Tenant hereunder;

          (e) If any representation or warranty made by Tenant or by a subtenant
or assignee in connection with this Lease shall have been false or misleading as
of the date such representation or warranty was made; or

          (f) If Tenant fails to take substantial occupancy of the Premises
within a reasonable time after the Commencement Date.

     Section 10.03   REMEDIES. On the occurrence of any default by Tenant,
Landlord may, at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right of remedy which Landlord
may have:

          (a) Terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event,
Landlord shall be entitled to recover from tenant all damages incurred by
Landlord by reason of Tenant's default, including without limitation (i) the
worth at the time of the award of the unpaid Base Rent, Additional Rent and
other charges which had been earned at the time of the termination; (ii) the
worth at the time of the award of the amount by which the unpaid Base Rent,
Additional Rent and other charges

                                      23
<PAGE>
 
which would have been earned after termination until the time of the award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; (iii) the worth at the time of the award of the amount by
which the unpaid Base Rent, Additional Rent and other charges which would have
been paid for the balance of the Lease Term after the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided; and (iv) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under the Lease or which in the ordinary course of things would be likely to
result therefrom, including, but not limited to, any costs or expenses incurred
by Landlord in maintaining or preserving the Premises after such default, the
cost of recovering possession of the Premises, expenses of reletting, including
necessary renovation or alteration of the Premises, Landlord's reasonable
attorneys' fees incurred in connection therewith, and any real estate commission
paid or payable. As used in subparts (i) and (ii) above, the "worth at the time
of the award" is computed by allowing interest on unpaid amounts at the rate of
fifteen percent (15%), or such lesser amount as may then be the maximum lawful
rate, accruing the date such payments are due until paid. As used m subpart
(iii) above, the "worth at the time of the award" is computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San Francisco at
the time of the award, plus one percent (1%);

          (b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant shall have abandoned the
Premises. In such event, Landlord shall be entitled to enforce all of Landlord's
rights and remedies under this Lease, including the right to recover Rent as it
becomes due hereunder. Landlord's election to maintain Tenant's right to
possession shall not prejudice Landlord's right, at any time thereafter to
terminate Tenant's right to possession and proceed in accordance with Section
10.03(a) above; or

          (c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the State of Nevada.

     Section 10.04   CUMULATIVE REMEDIES. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.

                                 ARTICLE ELEVEN
                             PROTECTION OF LENDERS
                                        
     Section 11.01   SUBORDINATION. Landlord shall have the right to subordinate
this Lease to any ground lease, deed of trust or mortgage encumbering the
Premises, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. However, Tenant's right to quiet possession of the Premises during
the Lease Term shall not be disturbed if Tenant pays the Rent and performs all
of Tenant's obligations under this lease and is not otherwise in default.
Landlord agrees to use best efforts to obtain a nondisturbance agreement from
the holder of any ground lease, deed of trust or mortgage to which this Lease is
subordinate, providing in substance that as long as

                                      24
<PAGE>
 
Tenant performs its obligations under? this Lease and is not in default, no
foreclosure, deed in lieu of foreclosure, or sale under the encumbrance shall
affect Tenant's rights under this Lease. If any ground lessor, beneficiary or
mortgagee elects to have this lease prior to the lien of its ground lease, deed
of trust or mortgage and gives written notice thereof to Tenant, this Lease
shall be deemed prior to such ground lease, deed of trust or mortgage where this
Lease is dated prior or subsequent to the date of said ground lease, deed of
trust or mortgage or the date of recording thereof. If in connection with
obtaining construction, interim or permanent financing for the Building, the
lender shall request modifications to this Lease as a condition to such
financing, Tenant will not withhold or delay its consent thereto, provided that
such modifications do not increase the obligations of Tenant hereunder and do
not otherwise materially adversely affect Tenant's rights hereunder. In the
event that Tenant should fail to execute any instrument described in this
Article Eleven promptly as requested, Tenant hereby irrevocably constitutes
Landlord as its attorney-in-fact to execute such instrument in Tenant's name,
place and stead, it being agreed that such power is one coupled with an
interest.

     Section 11.02   ATTORNMENT. If Landlord's interest in the Premises is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Premises and recognize such transferee
or successor as Landlord under this lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Premises upon the transfer
of Landlord's interest.

     Section 11.03   SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instruments or documents reasonably necessary or appropriate to evidence any
such attornment or subordination or agreement to do so. Such subordination and
attornment documents may contain such provisions as are customarily required by
any ground lessor, beneficiary under a deed of trust or mortgagee. If Tenant
fails to do so within ten (10) days after written request, Tenant hereby makes,
constitutes and irrevocably appoints Landlord, or any transferee or successor of
Landlord, the attorney-in-fact of Tenant to execute and deliver any such
instrument or document.

     Section 11.04   ESTOPPEL CERTIFICATES.

          (a) Upon Landlord's written request, Tenant shall execute, acknowledge
and deliver to Landlord a written statement certifying: (i) that none of the
terms or provisions of this Lease have been changed (or if they have been
changed, stating how they have been changed); (ii) that this Lease has not been
canceled or terminated; (iii) the last date of payment of the Base Rent and
other charges and the time period covered by such payment; (iv) that Landlord is
not in default under this Lease (or, if Landlord is claimed to be in default,
stating why); and (v) such other matters as may be reasonably required by
Landlord or the holder a mortgage, deed of trust or lien to which the Premises
is or becomes subject. Tenant shall deliver such statement to Landlord within
ten (10) days after Landlord's request. Any such statement by Tenant may be

                                      25
<PAGE>
 
given by Landlord to any prospective purchaser or encumbrancer of the Premises.
Such purchaser or encumbrancer may rely conclusively upon such statement as true
and correct.

          (b)    If Tenant does not deliver such statement to Landlord within
such ten (10) day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts: (i)
that the terms and provisions of this Lease have not been changed except as
otherwise represented by Landlord; (ii) that this Lease has not been canceled or
terminated except as otherwise represented by Landlord; (iii) that not more than
one month's Base Rent or other charges have been paid in advance; and (iv) that
Landlord is not in default under the Lease. In such event, Tenant shall be
esteemed from denying the truth of such facts.

     Section 11.05   TENANT'S FINANCIAL CONDITION. Within ten (10) days after
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as are reasonably required by Landlord to verify the net worth of
Tenant, or any assignee, subtenant, or guarantor of Tenant. In addition, Tenant
shall deliver to any lender designated by Landlord any financial statements
required by such lender to facilitate the financing or refinancing of the
Premises. Tenant represents and warrants to Landlord that each such financial
statement is a true and accurate statement as of the date of such statement. All
financial statements shall be confidential and shall be used only for the
purposes set forth herein.

                                 ARTICLE TWELVE
                                  LEGAL COSTS

          Section 12.01   LEGAL PROCEEDINGS. Tenants shall reimburse Landlord,
upon demand, for any costs or expenses incurred by Landlord in connection with
any breach or default of Tenant under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the provisions
of this Lease is commenced, the court in such action shall award to the party in
whose favor a judgment is entered, a reasonable sum as attorneys' fees and
costs. Such attorneys' fees and costs shall be paid by the losing party in such
action and Tenant shall also indemnify Landlord against and hold Landlord
harmless from all costs, expenses, demands and liability incurred by Landlord if
Landlord becomes or is made a party to any claim or action (a) instituted by
Tenant, or by any third party against Tenant, or by or against any person
holding any interest under or using the Premises by license of or agreement with
Tenant; (b) for foreclosure of any lien for labor or material furnished to or
for Tenant or such other person; (c) otherwise arising out of or resulting from
any act or transaction of Tenant or such other person; or (d) necessary to
protect Landlord's interest under this Lease in a bankruptcy proceeding, or
other proceeding under Title 11 of the United States Code, as amended. Tenant
shall defend Landlord against any such claim or action at Tenant's expenses with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs incurred by Landlord in any
such claim or action.


                                      26
<PAGE>
 
     Section 12.02   LANDLORD'S CONSENT.   Tenant shall pay Landlord's
reasonable attorneys' fees incurred in connection with Tenant's request for
Landlord's consent under Article Nine (Assignment and Subletting), or in
connection with any other act which Tenant proposes to do and which requires
Landlord's consent.

                                ARTICLE THIRTEEN
                            MISCELLANEOUS PROVISIONS
                                        
     Section 13.01   NON-DISCRIMINATION. Tenant promises, and it is a condition
to the continuance of this Lease, that there will be no discrimination against,
or segregation of; any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Premises or any portion thereof.

     Section 13.02   LANDLORD'S LIABILITY. As used in this Lease, the term
"Landlord" means only the current owner or owners of the fee title to the
Premises or the leasehold estate under a ground lease of the Premises at the
time in question. Each Landlord is obligated to perform the obligations of
Landlord under this Lease only during the time such Landlord owns such interest
or title. Any Landlord who transfers its title or interest is relieved of all
liability with respect to the obligations of Landlord under this Lease to be
performed on or after the date of transfer. However, each Landlord shall deliver
to its transferee all finds previously paid by Tenant if such finds have not yet
been applied under the terms of this Lease. The liability of Landlord to Tenant
for any default by Landlord under the terms of this Lease shall be limited to
the lesser of (i) the interest of Landlord in the Premises, or (ii) the interest
Landlord would have in the Premises if the Premises were encumbered by third
party debt in an amount equal to eight percent (80%) of the value of the
Premises (as such value is determined by Landlord) and Tenant agrees to look
solely to such amount for recovery of any judgment from Landlord, it being
intended that Landlord shall not be personally liable for any judgment or
deficiency.

     Section 13.03   SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.

     Section 13.04   INTERPRETATION. The captions of the Articles and Sections
of this Lease are to assist the parties in reading this Lease and are not a part
of the terms or provisions of this Lease. Whenever required by the context of
this Lease, the singular shall include the plural and the plural shall include
the singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include tenant's agents, employees, contractors,
invitees, successors or others using the Premises with Tenant's expressed or
implied permission. The provisions of this Lease shall be construed as a whole
according to their fair meaning and not strictly for or against any party. The
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Lease or any of its exhibits or amendments.


                                      27
<PAGE>
 
     Section 13.05   INCORPORATION OF PRIOR AGREEMENT: MODIFICATIONS. This Lease
is the only agreement between the patties pertaining to the lease of the
Premises and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.

     Section 13.06   NOTICES. All notices required or permitted under this Lease
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to Tenant's Address specified in Section 1.01(s) above, except that upon
Tenant's taking possession of the Premises, the Premises shall be Tenant's
address for notice purposes. Notices to Landlord shall be delivered to
Landlord's Address specified in Section 1.01(h) above. Notices deposited in the
mail in the manner hereinabove described shall be effective from and after the
expiration of three (3) calendar days after it is so deposited. All other
notices shall be effective upon delivery or attempted delivery in accordance
with this Section 13.06. Either party may change its notice address upon written
notice to the other party.

     Section 13.07   WAIVERS. All waivers must be in writing and signed by the
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord, and Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.

     Section 13.08   NO RECORDATION.  Tenant shall not record this Lease without
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "short form" memorandum of this Lease executed by both parties be
recorded; provided that, in such event, Tenant hereby covenants and agrees that,
upon the expiration or earlier termination of the Lease Term, Tenant will
execute and deliver a quitclaim deed to Landlord in form reasonably satisfactory
to Landlord, in favor of Landlord, or Landlord's successor in interest releasing
and conveying any and all right, title, or interest of Tenant in the Premises.

     Section 13.09   BINDING EFFECT: CHOICE OF LAW. This lease binds any party
who legally acquires any rights or interest in this lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. This Lease shall be governed by and construed in
accordance with the laws of the State of Nevada.

     Section 13.10   CORPORATE AUTHORITY: PARTNERSHIP AUTHORITY. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person signing this Lease for Tenant represents and warrants that he is a
general partner of the partnership, that he

                                      28
<PAGE>
 
has fill authority to sign for the partnership and that this Lease binds the
partnership and all general partners 0f the partnership. Tenant shall give
written notice to Landlord of any general partner's withdrawal or addition.
Within thirty (30) days after this Lease is signed, tenant shall deliver to
Landlord a copy of Tenant's recorded statement of partnership or certificate of
limited partnership.

     Section 13.11   JOINT AND SEVERAL LIABILITY.  All parties signing this
Lease as Tenant shall be jointly and severally liable for all obligations of
Tenant.

     Section 13.12   FORCE MAJEURE. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, governmental regulation
or restriction and weather conditions.

     Section 13.13   EXECUTION OF LEASE. This Lease may be executed in
counterparts, and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. The delivery of this Lease by
Landlord to Tenant shall not be deemed to be an offer and shall not be binding
upon either party until executed and delivered by both parties.

     Section 13.14   BROKERS AND LEASING AGENTS. Landlord represents and
warrants to Tenant, and Tenant represents and warrants to Landlord, that no
broker, leasing agent or finder has been engaged by it other than Landlord's
Broker (if any) specified in Section 1.01(i) and Tenant's Broker (if any)
specified in Section 1.01(t), respectively, in connection with any of the
transactions contemplated by this Lease, or to its knowledge is in any way
connected with any of such transactions. Subject to the terms and conditions of
a commission agreement ("Commission Agreement") between Landlord and Landlord's
Broker or Tenant's Broker, Landlord shall be responsible for the payment of a
commission to Landlord's Broker or Tenant's Broker in accordance with the
Commission Agreement. Landlord and Tenant acknowledge that the Commission
Agreement contains no provision for the payment of additional brokers
commissions arising from any extension of this Lease beyond the initial Lease
Term. In the event of any claims for brokers' or finders' fees or commissions in
connection with the negotiation, execution or consummation of this Lease other
than by the Tenant's Broker (if any) or Landlord's Broker (if any), Tenant shall
indemnify, save harmless and defend Landlord from and against such claims if
they shall be based upon any statement or representation or agreement made by
Tenant, and Landlord shall indemnify, save harmless and defend Tenant if such
claims shall be based upon any statement, representation or agreement made by
Landlord.

     Section 13.15   RULES AND REGULATIONS. Tenant shall faithfully observe and
comply with the "Rules and Regulations," as set forth in EXHIBIT "B" attached
hereto and incorporated herein by this reference and all reasonable
modifications thereof and additions

                                      29
<PAGE>
 
thereto from time to time put into effect by Landlord. Tenant shall be
responsible for the observance of all the foregoing rules by Tenant's employees,
agents, clients, customers, invitees and guests.

     Section 13.16   LIENS. Tenant shall not permit any mechanic's,
materialmen's or other liens to be filed against the real property of which the
Premises form a part nor against the Tenant's leasehold interest in the
Premises. Landlord shall have the right at all reasonable times to post and keep
posted on the Premises any notices which it deems necessary for protection from
such liens. If any such liens are filed and are not discharged by Tenant by bond
or otherwise within ten (10) days after the filing thereof, Landlord may,
without waiving its rights and remedies based on such breach of Tenant and
without releasing Tenant from any of its obligations, cause such liens to be
released by any means it shall deem proper, including payment in satisfaction of
the claim giving rise to such lien. Tenant shall pay to Landlord at once, upon
notice by Landlord, any sum paid by Landlord to remove such liens, together with
interest at the maximum rate per annum permitted by law from the date of such
payment by Landlord.

     IN WITNESS WHEREOF, Landlord and Tenant have signed this Lease in the State
of Nevada on the day and year first above written and have initialed all Riders
which are attached to or incorporated by reference in this Lease.


LANDLORD:                               TENANT:



BATTLE BORN DEVELOPMENT, LLC, a         SILICON GAMING INC a California
Nevada limited liability company        corporation



By                                      By:



                                      30
<PAGE>
 
                                  EXHIBIT "A"

                        (Legal Description of Premises)

That Portion of Lot 3 of "Hughes Airport Center Phase III - Unit No.2" as shown
by map thereof on file in Book 46, Page 23 of Plats in the Clark County
Recorder's Office, Clark County, Nevada, lying within the North Half (N 1/2) of
the Northeast Quarter (NE 1/4) of Section 4, Township 22 South, Range 61 East
M.D.M., Clark County, Nevada and described as follows:

Commencing at the most Easterly corner of said Lot 3, said corner being the
intersection of the Southwesterly right-of-way line of Pilot Road (75.00 feet
wide) with the North 1/16th line of said Section 4; thence Westerly along said
right-of-way line, the following five (5) courses: from a tangent bearing North
69052'04" West, curving to the right along the arc of a 375.00 foot radius
curve, concave Northeasterly, through a central angle of 23 057'38", an arc
length of 156.82 feet; thence North 45054'26" West, 615.00 feet; thence curving
to the left along the arc of a 555.00 foot radius curve, concave Southwesterly,
through a central angle of 39057'51", an arc length of 387.12 feet; thence North
85052'17" West, 228.50 feet; thence curving to the right along the arc of a
350.00 foot radius curve, concave Northeasterly, through a central angle of 070
12'40", an arc length of 44.05 feet to a point on the Westerly right-of-way line
of Amelia Earhart Court (varying width), a radial line to said point bears South
11020'23" West; thence Southerly along said right-of-way line, the following
three (3) courses: along the Southwesterly prolongation of said radial line,
South 11020'23" West, 5.00 feet; thence from a tangent bearing South 78039'37"
East, curving to the right along the arc of a 20.00 foot radius curve, concave
Southwesterly, through a central angle of 77045'11", an arc length of 27.14
feet; thence South 0005412611 East, 336.31 feet to the Point of Beginning;
thence departing said right-of-way line South 89005'34" West, 229.88 feet;
thence South 00054'26" East, 316.05 feet to a Point on the Northerly right-of-
way line of Martin Avenue (30.00 feet wide); thence along said right-of-way
line, North 89005'34" East, 259.88 feet; thence North 00054'26" West, 152.34
feet to a point on the aforementioned Westerly right-of-way line of Amelia
Earhart Court; thence along said right-of-way line, the following three (3)
courses: from a tangent bearing South 89005'34" West, curving to the right along
the arc of a 50.00 foot radius curve, concave Northeasterly, through a central
angle of 132050'00", an arc length of 115.92 feet to a point of reverse
curvature through which a radial line bears North 48004'26" West; thence curving
to the left along the arc of a 25.00 foot radius curve, concave Northwesterly,
through a central angle of 42050'00", an arc length of 18.69 feet; thence North
00054'26" West, 62.72 feet to the Point of Beginning.

     Containing 76,186 square feet or 1.7490 acres.


                              Page 1 of Exhibit A
<PAGE>
 
                                  EXHIBIT "B"
                                        
                             RULES AND REGULATIONS
                                        

     1.  No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the Premises without the prior written
consent of Landlord. Tenant shall not do any painting or marking on the exterior
of the Building or the Common Areas, including without limitation, marking of
parking areas. Landlord shall have the right to remove, at Tenant's expense and
without notice, any sign installed or displayed in violation of this rule. All
approved signs or lettering on doors, windows and walls shall be printed,
painted, affixed or inscribed at the expense of Tenant, using materials and in a
style and format approved by Landlord.

     2.  Window coverings must be approved by Landlord which approval shall not
be unreasonably withheld. 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.  Landlord will furnish Tenant, free of charge, with two keys to each
outside door lock in the Building, provided, however, that Landlord shall not be
entitled to possess keys to any safes, files; vaults, or safe deposit boxes.
Unless Landlord otherwise agrees, Tenant shall not alter any lock or install a
new additional lock or bolt on any outside door of the Building. Tenant, upon
the termination of its tenancy, shall deliver to Landlord all keys which have
been furnished to Tenant, and in the event of loss of any keys furnished shall
pay Landlord therefor.

     4.  Tenant shall comply with all applicable regulations, laws, and
standards, including, but not limited to, OSHA rules and regulations, if the
Premises contains 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 offensive or objectionable to
Landlord by reason of noise, odors or vibrations, nor shall Tenant bring into or
keep in or about the Premises any birds or animals.

     5  Without the consent of Landlord, Tenant shall not use any method of
heating or air-conditioning other than that supplied by Landlord.

     6.      Tenant shall not waste electricity, water or air-conditioning and
agrees to cooperate fully with Landlord to assure the most effective operation
of the Building's heating and air-conditioning and to comply with any
governmental energy-saving rules, laws or regulations of which Tenant has actual
notice, and shall refrain from attempting to adjust controls other than room
thermostats installed for Tenant's use.

                              Page 1 of Exhibit B
<PAGE>
 
     7.  The toilet rooms, toilet 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 thrown therein.

     8.      Unless otherwise approved by Landlord, Tenant shall not sell, or
permit the sale of newspapers, magazines, periodicals, theater tickets or any
other goods or merchandise to the general public in or on the Premises. Tenant
shall not use the Premises for any business or activity other than that
specifically provided for in Tenant's Lease.

     9.  Unless approved by Landlord, Tenant shall not install any radio or
television antenna, microwave dishes, loudspeaker or other device on the roof or
exterior walls of the Building.

     10.     Tenant shall store all its trash and garbage within its designated
trash 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. All garbage and refuse disposal shall be made in accordance
with directions issued from time to time by Landlord.

     11.     The Premises shall not be used for the storage of merchandise held
for sale to the general public except to the extent incidental to Tenant's use
of the Premises, or for lodging, nor shall the Premises be used for any
improper, immoral or objectionable purpose. No cooking shall be done or
permitted by any tenant on the Premises (except as permitted in these Rules and
Regulations as to operating an employee cafeteria). Use by Tenant of equipment
for brewing coffee, tea, hot chocolate and similar beverages shall be permitted,
and the use of a microwave shall be permitted, provided that such equipment and
use is in accordance with all applicable federal, state, county and city laws,
codes, ordinances and regulations.

     12.  Without the written consent of Landlord, 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.

     13.  Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.

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

     15.  Tenant shall comply with the system reasonably established by Landlord
from time to time for Tenant to report cleaning, maintenance and repair, or
other work which is required under this Lease.

                              Page 2 of Exhibit B
<PAGE>
 
     16.  Tenant shall not park any vehicles in the Building parking areas other
than automobiles, motorcycles, motor driven or non-motor driven bicycles or
four-wheeled trucks. Landlord may, in its sole discretion, designate separate
areas for bicycles and motorcycles.

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

     18.     Landlord reserves the right to make such other and 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 Premises and for the preservation
of good order therein. Tenant agrees to abide by all such Rules and Regulations
hereinabove stated and any additional rules and regulations which are adopted.

     19.  Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees and agents.

     20.  Tenant shall maintain exterior loading docks and bay areas in a neat
and clean manner. Permanent outside storage of pallets, packing crates, barrels,
etc. is prohibited. Tenant shall dispose of refuse in a manner which prevents
littering and dispersing of refuse by wind.

     21.  Landlord reserves the right, exercisable without liability to Tenant,
to change the name and street address of the Premises and/or the Building.

     22.  Landlord reserves the right to modify and/or adopt such other
reasonable and nondiscriminatory rules and regulations for the parking areas as
it deems necessary for the operation of the parking area. Landlord may refuse to
permit any person who violates the within rules to park in the parking area, and
any violation of the rules shall subject the car to removal.

     23.  All directional signs and arrows must be observed. The speed limit
shall be 5 miles per hour. Parking is prohibited: (a) in areas not striped for
parking, (b) in aisles, (c) where "no parking" signs are posted, (d) on ramps,
(e) in cross hatched areas, and (f) in such other areas as may be designated by
Landlord as reserved for the exclusive use of others. Washing, waxing, cleaning
or servicing of any vehicle in the Building parking areas by anyone is
prohibited. Tenant shall inform all persons to whom Tenant assigns parking
spaces of these Rules and Regulations.


                              Page 3 of Exhibit B
<PAGE>
 
                          RIDER NO.2- EXTENSION OPTION

     THIS RIDER NO. 2 is attached to and made a part of that certain lease dated
                                   1997, between BATTLE BORN DEVELOPMENT, LLC,
a Nevada limited liability company, as Landlord, and SILICON GAMING, INC., a
California corporation, as Tenant (the "Lease"). The terms used in this Rider
shall have the same definitions as set forth in the Lease. The provisions of
this Rider shall prevail over any inconsistent or conflicting provisions of
the Lease.

     R-1.  Option. Provided that Tenant is not in default of this Lease at the
time of the exercise of an Extension Option (as defined below) or at the
expiration of the initial Lease Term or the First Renewal Term (as defined
below), as the case may be, the Tenant may renew and extend this Lease (referred
to singularly as the "Extension Option" and collectively as the "Extension
Options") for two (2) additional terms of five (5) years each (referred to
singularly as the "Renewal Term" and collectively as the "Renewal Terms"), upon
written notice to the Landlord delivered not more than eighteen (18) months and
not less than twelve (12) months before the expiration of the initial Lease Term
or the First Renewal Term, as the case may be. Upon the delivery of such notice
by Tenant and subject to the conditions set forth in the preceding sentence,
this Lease shall be extended without the necessity of the execution of any
farther instrument or document; provided, however, that each party agrees to
execute and deliver such further instruments or documents as the other party may
reasonably request to memorialize or acknowledge the exercise of the Extension
Options. If Tenant makes a valid exercise of the Extension Option prior to the
expiration of the initial Lease Term, the Renewal Term resulting therefrom
(referred to as the "First Renewal Term") shall commence upon the expiration of
the initial Lease Term and shall expire upon the anniversary of such date five
(5) years thereafter. If Tenant makes a valid exercise of the Extension Option
prior to the expiration of the First Renewal Term, the additional Renewal Term
resulting therefrom shall commence on the expiration of the First Renewal Term
and shall expire upon the anniversary of such date five (5) years thereafter.
The Renewal Terms shall be upon the same terms, covenants and conditions as
provided in this Lease, except that the Base Rent shall be as provided for in
Section R-2. Tenant shall only be able to exercise the Extension Options as to
all of the Premises. If Tenant fails to exercise the Extension Option after the
initial Lease Term, Tenant shall have no farther rights as to any subsequent
Extension Option.

     R-2.  Rent. The monthly Base Rent during the first twelve (12) months of
the First Renewal Term shall be the greater of (i) the monthly Base Rent in
effect as of the end of the initial Lease Term, increased by three percent (3%);
or (ii) fair market rent for similar properties in similar locations.
Thereafter, during the First Renewal Term and any subsequent Renewal Term, the
Base Rent shall be adjusted annually in accordance with Section R-3, below. For
purposes of this section, fair market rent shall be as agreed upon by Landlord
and Tenant or, upon the failure of Landlord and Tenant to agree, as determined
by the concurrence of three (3) MAI appraisers, one (1) of whom shall be
selected by Landlord, one (1) of whom shall be selected by Tenant, and one of
whom shall be selected by the unanimous vote of the two (2)

                             Page 1 of Rider No. 2
<PAGE>
 
appraisers selected by Landlord and Tenant, respectively. In the event the three
(3) appraisers fail to reach a concurrence as to what constitutes fair market
rent, then fair market rent shall be determined by averaging the two (2) closest
appraisals.

     R-3.  Adjustments to Base Rent. The Base Rent shall be increased on the
first day of the thirteenth (13th) month of the First Renewal Term and on each
annual anniversary thereafter during the Renewal Terms (the "Adjustment Month")
in proportion to the increase in the Index (as defined below) which has occurred
between the month ("Comparison Month") which is three (3) months prior to such
Adjustment Month as compared to the Index for the month which is twelve (12)
months prior to the Comparison Month. In no event shall any increase in Base
Rent exceed an amount equal to six percent (6%) or be less than an amount equal
to three percent (3%) of the Base Rent immediately preceding such Adjustment
Month. Landlord shall notify Tenant of each increase by delivering a written
statement setting forth the Indices, and the new amount of the Base Rent. The
Base Rent shall not be reduced from the last previous adjusted Base Rent by
reason of any decrease in the Index. Tenant shall pay the new Base Rent from its
effective date until the next periodic increase. If the Index for the Comparison
Month is not available at the time the Base Rent for the Adjustment Month is
payable, the most recently available Index shall be used as the basis for an
estimate and when the Index for such month becomes available, the parties shall
adjust for any variation between the estimated and actual Base Rent for such
month. For purposes of this Section R-3, "Index" shall mean the Consumer Price
Index, Urban Wage Earners and Clerical Workers for Los Angeles, Anaheim and
Riverside Area, all items (1982-1984=100), as published by the Bureau of Labor
Statistics of the United States Department of Labor. In the event that the Index
is discontinued or is revised to substantially alter the calculations under this
Section R-3, Landlord shall select such other government index which provides
substantially the same result as would have been obtained if the Index had not
been so discontinued or revised.



                             Page 2 of Rider No. 2 
<PAGE>
 
               RIDER NO. 1 - TENANT IMPROVEMENTS (THE "WORKS")




                            Page 1 of Rider No. 1
<PAGE>
 
                                   ADDENDUM
                                       TO
                          COMMERCIAL REAL ESTATE LEASE

                                        
          THIS ADDENDUM TO COMMERCIAL REAL ESTATE LEASE (this "Addendum") is
made as of the   day of November, 1997, by and between BATTLE BORN DEVELOPMENT.
LLC, a Nevada limited liability company ("Landlord") and SILICON GAMING, INC., a
California corporation ("Tenant") with reference to that certain Commercial Real
Estate Lease (the "Lease") entered into between Landlord and Tenant on October
7, 1997.

          WHEREAS, Section 1.01 (v) of the Lease provides for a Tenant
Improvement Allowance to Tenant in the amount of Four Hundred Seventy-five
Thousand and No/100 Dollars ($475,000.00);

          WHEREAS, Tenant desires that the Tenant Improvement Allowance from
Four Hundred Seventy-five Thousand and No/100 Dollars ($50,000.00); and

          WHEREAS, Landlord is willing to increase the Tenant Improvement
Allowance from Four Hundred Seventy-five Thousand and No/100 Dollars
($475,000.00) to Five Hundred Twenty-five Thousand and No/100 Dollars
($525,000.00) in exchange for an increase in the Base Rent set forth at Section
1.02 of the Lease.

          NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, Landlord and Tenant hereby agree as follows;

     A. Increase in Tenant Improvement Allowance.  Landlord and Tenant agree to,
and do hereby increase the Tenant Improvement Allowance set forth in Section
1.01 (v) of the Lease from the original sum of Four Hundred Seventy-five
Thousand and No/100 Dollars ($475,000.00) to the increase sum of Five Hundred
Twenty-five Thousand and No/100 Dollars ($525,000.00).

     B. Increase in Base Rent. Landlord and Tenant agree to and do hereby
increase the Base Rent set forth in Section 1.02 of the Lease from the
original sum of Twenty-four Thousand Four Hundred Thirty-five and No/100
($24,435.00) per month to the increase sum of Twenty-five Thousand Eight
Hundred Twenty-four and No/100 Dollars ($25,824.00).

     C. Costs and Expenses of Addendum. Landlord and Tenant acknowledge and
agree that any and all costs and expenses incurred by Landlord arising from or
in any way connected with the preparation, execution of performance of this
Addendum, including without limitation, attorney's fees, broker's commissions,
finder's fees, recording fees, and any other cost or expense whatsoever, shall
be included as an expense of the Work as defined n Rider No. 1 of the Lease,
and shall be appropriately applied against the Tenant Improvement Allowance.
<PAGE>
 
     D.  Miscellaneous.

         1. The validity, construction, interpretation and enforceability of
this Addendum shall be determined and governed by the laws of the State of
Nevada.

         2. In addition to any rights the parties may have under the Lease and
applicable law, in any action brought to enforce the obligations imposed by this
Addendum or to redress any violation of this Addendum, the prevailing party
shall be entitled to recover as damages from the non-prevailing party its
attorney's fees and costs incurred, whether or not the action is reduced to
judgement.  For the purposes of this Addendum, the "prevailing party" shall be
that party who has been successful with regard to the main issue, even if that
party does not prevail on all the issues.

         3. Headings in this Addendum are included herein for the convenience
of reference only and shall nor define, limit, or otherwise constitute a part
of this Addendum for any other purpose. Whenever required by the context of
this Addendum, the singular shall include the plural and the plural shall
include the singular. The masculine feminine, or neuter genders shall each
include the others. All references to a period of days, months or years herein
shall refer to calendar days, months or years, respectively, unless otherwise
specifically stated.

         4. The terms and conditions of this addendum shall be construed as a
whole according to their fair meaning and not strictly for or against any
party. The parties acknowledge that each of them has reviewed this Addendum
and has had the opportunity of having their attorneys review this Addendum.
The normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the
interpretation of this Addendum or of any of its exhibits or amendments.

         5. All parties represent and agree that each has had the full and
fair opportunity to discuss all aspects of this Addendum with an attorney of
their choice and that they carefully have read and understand the terms hereof
and that they are voluntarily executing into this Addendum.

                                      2
<PAGE>
 
         6. Landlord and Tenant acknowledge and agree that, as amended by this
Addendum, the Lease continues in full force and effect as a binding agreement
between the parties. Landlord and Tenant each acknowledge and affirm their
respective rights and obligations under the Lease.

     IN WITNESS WHEREOF, Landlord and Tenant have signed this Addendum on the
day and year first above written.



LANDLORD:                               TENANT:



BATTLE BORN DEVELOPMENT, LLC, a         SILICON GAMING INC a California
Nevada limited liability company        corporation



By                                      By:




                                      3