<PAGE>
 
                                                                     EXHIBIT 4.7


                                                                     Page 1 of 4

BI, INCORPORATED, TERRENCE J. O'CONNOR, POINT I, LLC AND POINT II, LLC AGREEMENT
OF UNDERSTANDING
OCTOBER 10, 1996


This is a written memorandum of the agreement by which BI, INCORPORATED, a
Colorado corporation ("BI"), TERRENCE J. O'CONNOR ("O'Connor"), POINT I, LLC
("Point I") and POINT II, LLC ("Point II") agree as follows:


I.   Establish Maintenance Control Committee (per paragraph 1 of attached
     Exhibit A).

II.  BI to receive a 25% of O'Connor membership free and clear of all liens and
     encumbrances in the Point I, LLC on or before November 1, 1996.

     A.   After the merging of the Point I, LLC into the Point II, LLC, BI's 25
          % membership in the Point I, LLC will be converted to a 15 %
          membership in the Point II, LLC.

     B.   BI's membership and participation and the cash flow will be after all
          debt service, excluding the outstanding tenant improvement loan from
          BI to O'Connor, which shall remain a personal obligation of O'Connor
          per paragraph 10 of attached Exhibit A.

     C.   It is understood and agreed that prior to BI occupying all of Point II
          in the year 2001, BI will receive a preferred return of cash flow
          after all debt service ("Net Cash Flow") equal to 25 % of the Net Cash
          Flow from the Point I building.  It is also understood that at such
          time, if 15 % of the Point II, LLC Net Cash Flow exceeds 25 % of the
          Point I Net Cash Flow, such preferred participation will be
          terminated.

III. At such time as BI occupies all of Point II building, they will receive a
     15 % interest in the Point II building, which increases their membership in
     the Point II, LLC from 15 % to 21.5 %.

     A.   The operating agreement will be amended to give O'Connor a priority
          distribution of cash available from refinancing or sale of the asset,
          sufficient to reimburse him for his unreimbursed investment in the
          Point II building.

IV.  Effective with signing of this agreement, any significant decisions, as
     defined in paragraph 9(a) of attached Exhibit A will require 100%
     membership approval.

V.   Appropriate language that specifies criteria and timing for acquisition of
     land and obtaining approvals needed for development of campus in accordance
     with paragraph 11 of Exhibit A.
<PAGE>
 
BI, INCORPORATED and TERRENCE J. O'CONNOR                              Pg 2 of 4
AGREEMENT OF UNDERSTANDING
OCTOBER 10, 1996


VI.    Appropriate language detailing timing, for approval process and
       development of breezeway between buildings in accordance with paragraph
       12- of Exhibit A.
       
VII.   November 15 occupancy date for Point II with $5,000/day liquidating
       damages in accordance with paragraph 3 of Exhibit A.

VIII.  Within ten days, BI will pay POINT I, LLC $5,000 for the relocation of
       SportStar and, when incurred, up to $3,000, as determined and paid to the
       moving company by BI, in moving expenses to move SportStar from Point I
       to Point II.

IX.    Within ten days, O'Connor will pay up to $5,000 of BI's attorney's fees
       incurred in the documentation of this outline and subsequent agreement.
    
X.     Starting in December of 1997, BI or its assigns will have the option to
       purchase a 10% membership in the Point II LLC (as merged, including Point
       I LLC and Point II LLC), and this annual option will last for six (6)
       years. BI's or its assigns' option to purchase membership units will cap
       at a cumulative 60% inclusive of the 21.5% referred to in POINT II above.
       BI's or its assigns' options will be cumulative; that is, if they do not
       exercise the year one option, it will carry forward and be included in
       the next year's option. (E.G. 10% not exercised in 1997, would give them
       the option to exercise 20 % in 1998 and so on). In addition, it is
       understood that BI or its assigns will give O'Connor a 6-month
       notification of its intent to exercise such option.
    
XI.    Addendum to Lease dated April 1, 1996 and May 18, 1990 are hereby
       terminated.

XII.   BI will sign future building leases (i.e., commencing on the option
       dates) for spaces currently under option in the Point II building, which
       options BI hereby exercises. Note, the option lease spaces must be
       contiguous to BI's current space in the Point II building.

XIII.  O'Connor's outstanding obligation for selling membership units in
       accordance with paragraph X above and for the tenant improvements will be
       secured by a pledge of 35 membership units in Point I (and/or 45
       membership units in Point II following the merger). O'Connor will
       immediately cause unencumbered membership units representing 60% of Point
       I and Point II to be placed in escrow for the benefit of BI. Said
       membership units may not be pledged, sold or otherwise encumbered for any
       purpose. O'Connor also agrees to execute such additional security
       agreements as BI may reasonably require to assure security of the
       additional membership units for BI's benefit.

XIV.   BI's option to acquire additional membership units (paragraph X) and its
       preferred distribution rights under paragraph II.C. are conditioned upon
       the leases to BI not having been terminated as a result of default by BI
       thereunder.
<PAGE>
 
BI, INCORPORATED and TERRENCE J. O'CONNOR                              Pg 3 of 4
AGREEMENT OF UNDERSTANDING
OCTOBER 10, 1996


XV.    The parties agree to execute additional documents as reasonably required
       to effectuate the terms of this Agreement.

XVI.   The representations and warranties of O'Connor as set forth in paragraph
       4 of Exhibit A are specifically incorporated herein.

XVII.  Arbitration.  Except as provided below, any and all disputes arising
       under or related to this Agreement which cannot be resolved through
       negotiations between the parties shall be submitted to binding
       arbitration. If the parties fail to reach a settlement of their dispute
       within fifteen (15) days after the earliest date upon which one of the
       parties notified the other(s) of its desire to attempt to resolve the
       dispute, then the dispute shall be promptly submitted to arbitration by a
       single arbiter through the Judicial Arbiter Group ("JAG"), any successor
       of the Judicial Arbiter Group, or any similar arbitration provider who
       can provide a former judge to conduct such arbitration if JAG is no
       longer in existence, or an arbiter appointed by the court. The arbiter
       shall be selected by JAG
    
       or the court on the basis, if possible, of his or her expertise in the
       subject matter(s) of the dispute. The decision of the arbiter shall be
       final, nonappealable and binding, upon the parties, and it may be entered
       in any court of competent jurisdiction. The arbitration shall take place
       in Boulder, Colorado. The arbitrator shall be bound by the laws of the
       State of Colorado applicable to the issues involved in the arbitration
       and all Colorado rules relating to the admissibility of evidence,
       including, without limitation, all relevant privileges and the attorney
       work product doctrine. All such discovery shall be completed in
       accordance with the time limitations prescribed in the Colorado Rules of
       Civil Procedure, unless otherwise agreed by the parties or ordered by the
       arbitrator on the basis of strict necessity adequately demonstrated by
       the party requesting an extension or reduction of time. The arbitrator
       shall have the power to grant equitable relief where applicable under
       Colorado law. The arbitrator shall issue a written opinion setting forth
       her or his decision and the reasons therefor within thirty (30) days
       after the arbitration proceeding is concluded. The obligation of the
       parties to submit any dispute arising under or related to this Agreement
       to arbitration as provided in this Section shall survive the expiration
       or earlier termination of this Agreement. Notwithstanding the foregoing,
       either party may seek and obtain an injunction or other appropriate
       relief from a court to preserve or protect the status quo with respect to
       any matter pending conclusion of the arbitration proceeding, but no such
       application to a court shall in any way be permitted to stay or otherwise
       impede the progress of the arbitration proceeding.
<PAGE>
 
BI, INCORPORATED and TERRENCE J. O'CONNOR                              Pg 4 of 4
AGREEMENT OF UNDERSTANDING
OCTOBER 10, 1996


XVII.  Attorneys' Fees and Costs.  In the event of any arbitration or litigation
       -------------------------                                                
       being, filed or instituted between the parties concerning- this
       Agreement, the prevailing party will be entitled to receive from the
       other party or parties its attorneys' fees, experts' fees, costs and
       expenses, whether or not such controversy, claim or action is prosecuted
       to judgment or other form of relief. The "prevailing party" is that party
       which is awarded judgement or other legal or equitable relief as a result
       of trial or arbitration, or who receives a payment of money from the
       other party in settlement of claims asserted by such party. If both par-
       ties receive a judgment or other award of relief, the court or the
       arbitrator shall determine which party is the prevailing party, taking
       into consideration the merits of the claims asserted by each party, the
       relative values of the judgments or other forms of relief received by
       each party, and the relative equities between the parties.

BI, INCORPORATED                       TERRENCE J. O'CONNOR



By:_____________________________       ________________________________________
     Robert Clevenger, Director          Terrence J. Connor, Personally and as 
     Internal Operations                 Manager of Point I LLC and Point II
                                         LLC
<PAGE>
 
                          ADDENDUM TO LEASE AGREEMENT
                                        



Addendum Agreement is made and entered into on February 9th, 1996, between
Terrence J. O'Connor (Landlord) and BI Incorporated, a Colorado Corporation
whose address is 6400 Lookout Road, Boulder, CO 80301 hereinafter referred to as
Tenant.  This Addendum amends the Lease entered into between the aforementioned
pates on the 15th day of May 1990 for the rental of the premises described in
said Lease Addendum at. the Point as follows:

1 -  Primary Term: The term of the Lease shall be extended to September 30,
     2O1O.

2 -  Premises: As of April 1, 1996 Tenant will occupy the entire building.
     Tenant agrees to add an additional Nine Thousand fourteen square feet to
     the Fifty-One Thousand One Hundred Twenty -Six Thousand square feet
     currently leased.  The total square footage leased shall be Sixty Thousand
     One Hundred Forty square feet.

3 -  Base Rent:  The addition of 9014 square feet at Nine dollars and Twenty-
     Nine cents ($9.29) shall result in a base monthly rent of Forty-Two
     Thousand Six Hundred Fifty-Eight dollars per month.  The additional space
     will result in the following allocation: 36,510 square feet at $300,842/yr.
     and 23,630 at $219,581/yr.

4 -  Annual Rate Increases:  On the anniversary date of the Lease (October 1)
     each year the Lease Rate shall be increased by Five (5) percent for the
     entire term of the lease,

5 -  Condition of Premises: Tenant has agreed to take possession of space in the
     condition it is in at the time of possession.

6 -  Tenant agrees to contribute toward the cost to move McCrea Advertising and
     SportStar to another premises.  Tenant's share of said expense shall not
     exceed $8,000 and Tenant agrees to move the moving parties' furniture and
     equipment on a Saturday and Sunday.

7 -  O'Connor Development is presently the Manager of the Premises.  Tenant may
     replace O'Connor Development as Manager with another third party management
<PAGE>
 
     company acceptable to Landlord and Tenant if Tenant is unsatisfied with
     O'Connor. Tenant must give O'Connor notice of unsatisfaction in writing and
     allow 90 days to correct whatever was unsatisfactory to Tenant.

8 -  In the event Premises is not available for occupancy on May 1, 1996,
     Landlord agrees to pay the difference between what Tenant would pay to Land
     lord and what Tenant has to pay for temporary space in another Premises.

9 -  Except as supplemental hereto all provisions of the Lease Agreement between
     the parties shall remain the same and in full force and effect.


In Witness whereof., parities have executed this agreement the day and month
fast written above.



Landlord                           Tenant



________________________           _________________________________ 
Terrence J. O'Connor               David J. Hunter, President and
                                   Chief Executive Officer



                                   _________________________________
                                   Jacqueline A. Chamberlin.
                                   Chief Financial Officer
<PAGE>
 
May 14, 1990



Mr. Jeffrey Hiller
Vice President of Finance
BI Incorporated
6175 Longbow Dr.
Boulder, CO 80301

Dear Jeffrey:

This letter is confirmation of our agreement today, and will become a part of
our Lease agreement dated May 15, 1990.  We should both attach this letter to
our copies of the Lease.  Landlord and Tenant have agreed that:

1.   Tenant has agreed that if the need arises for additional cash to fund the
     construction costs of the project it will lend up to $100,000 to Landlord.

     Landlord shall pay twelve percent interest on this loan and sign a note for
     the total amount which shall be paid prior to January 1, 1991.  If Landlord
     has not repaid said note by January 1, 1991, Tenant may collect on note as
     written or choose to convert said loan to equity in a Limited Partnership
     Ownership interest in project.  This ownership shall be proportionate to
     their debt in that for every ten thousand dollars in debt, Landlord will
     award one percent ownership to tenant.

2.   Landlord and Tenant have agreed that Landlord will not make any significant
     changes in the design of the building without first consulting with Tenant
     and getting approval.

3.   Landlord agrees to design common areas in the remainder of the building
     similar to tenant's common area.
<PAGE>
 
There are no additional changes to the Lease as if May 15, 1990.
LANDLORD:


________________________________________ 
Terrence J. O'Connor

TENANT:
BI INCORPORATED

By:_____________________________________
   Jeffrey J. Hiller
   Vice President of Finance

By:_____________________________________
   David J. Hunter, President
<PAGE>
 
                                     LEASE

     THIS LEASE made this 15th day of May 1990, between BI INCORPORATED, a
Colorado corporation ("Tenant"), and TERRENCE J. O'CONNOR ("Landlord").

                             W I T N E S S E T H:

                                    DEMISE
                                    ------
                                        
     Landlord does hereby lease to Tenant and Tenant hereby hires from Landlord
an approximately 30,000 square feet (the "Premises," or, alternatively, the
"Leased Premises") in a building (the "Building") to be constructed as depicted
on the maps attached to and incorporated in this Lease as Exhibit "A," which
Building is situated on land described as 6400 Lookout Road, Boulder, Colorado
80301 (the "Property"), together with a non-exclusive right, subject to the
provisions of this Lease, to use all appurtenances thereto, including, but not
limited to, any plazas, common areas, walks, ways or other areas in the Building
or on the Property designated by Landlord for the exclusive or non-exclusive use
of the tenants of the Building.

     This Lease is upon and subject to the terms, conditions, and covenants set
forth below, and Landlord and Tenant covenant as a material part of the
consideration for this Lease to keep and perform each and all of the terms,
conditions, and covenants by each of them to be kept and performed and that this
Lease is made upon the condition of such performance.

                                   SECTION 1

                                    PURPOSE
                                    -------
                                        
     1.01  Use of Premises.  The Premises are to be used for light
           ---------------                                        
manufacturing, warehousing, and related office functions, provided that such
uses comply with all zoning and use restrictions, and for no other purpose
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld.

                                   SECTION 2

                                     TERM
                                     ----
                                        
     2.01  Primary Term.  Except as provided to the contrary in Appendix C, the
           ------------                                                        
"Work Agreement" (also referred to as the "Work

                                       1
<PAGE>
 
Letter") and the plans developed and approved pursuant to the Work Letter, the
Term of this Lease shall be for a period of eighty-four (84) months, commencing
at 12:01 a.m. on the Commencement Date, October 1, 1990 or another date
acceptable to Landlord and Tenant, agreed upon in writing, and ending at 12:00
a.m., Denver time, September 30, 1009 (the "Primary Lease Term").  Changes in
the Commencement Date due to construction variables are specifically provided
for in the Work Letter.

                                   SECTION 3

                          COMPLETION OF THE PREMISES
                          --------------------------
                                        
     3.01 Landlord's Work.  Landlord, subject to delays beyond its control,
          ---------------                                                  
agrees to perform its obligations with respect to the Premises as provided for
in this Lease and the Work Letter.

                                   SECTION 4

                                     RENT
                                     ----

     4.01  Ease Rent.  Tenant agrees to pay Landlord during the full Primary
           ---------                                                        
Lease Term the sum of $1,574,048.oo payable in advance in equal monthly
installments as follows, (the "Base Rent") for the Premises:

                    Year  1    $17,133.00
                    Year  2     17,990.00
                    Year  3     18,890.00
                    Year  4     19,835.00
                    Year  5     20,827.00
                    Year  6     21,868.00
                    Year  7     22,962.00

The first full monthly installment of Base Rent shall be payable on the
Commencement Date and each succeeding monthly installment shall be due and
payable on or before the first day of each and every successive calendar month
thereafter during the Primary Lease Term.  (See appendix C respecting partial
payments of Base Rent).

     4.02 No Offsets.  The Base Rent and all other sums or charges required by
          ----------                                                          
this Lease to be paid by Tenant to Landlord, (all of which are sometimes
collectively referred to as "Rent") shall be paid to Landlord without deduction
or offset, in lawful money of the United States of America, in care of Terry
O'Connor, 1600 38th Street, Boulder, CO  80301, or to such other person or at
such other place as Landlord may from time to time designate in writing,
provided Landlord is not in default hereunder.

                                       2
<PAGE>
 
     4.03  Interest on Late Payments.   Any Rent or other amount due from Tenant
           -------------------------                                           
to Landlord under this Lease not paid within ten (10) days of when due shall
bear interest from the date due, computed on a daily basis, until the date paid,
at the rate of one and one-half percent (1-1/2%) per month until paid, but the
payment of the interest shall not excuse nor cure any default by Tenant under
this Lease.

     4.04  Late Payment Charge.  Further, and notwithstanding the interest
           -------------------                                            
charges provided for in the preceding subsection 4.03, if any Rent or other
amounts owing hereunder are not paid within five (5) days of when due, Landlord
and Tenant agree that Landlord will incur additional administrative and
financial expenses and inconveniences the amount of which will be difficult if
not impossible to determine.  Accordingly, Tenant shall pay to Landlord an
additional one-time late charge for any late monthly payment in the amount of
five percent (5%) of the amount of the late payment.


                                   SECTION 5

                  TAXES AND OPERATING COST ADJUSTMENT FORMULA
                  -------------------------------------------

     5.01  Additional Rent.  In addition to Base Rent, Tenant shall reimburse
           ---------------                                                   
Landlord for the Taxes and Operating Costs of the Building in the manner, at the
times, and in the amounts set forth in this Section 5.

     5.02(a)  Taxes.  The Rent payable by Tenant shall be increased by the
              -----                                                       
amount of "Tenant's Proportional Share" of the Taxes on the Property.  Tenant's
Proportional Share shall be ____% based upon Tenant's occupancy of 30,000 square
feet out of a total building rental space of _______ square feet.  In
determining the amount of Taxes for any calendar year, the amount of special
assessments to be included shall be limited to the amount of the installment
(excluding any interest payable thereon) of such special assessment which would
have been required to have been paid during such calendar year if Landlord had
elected to have the special assessment paid over the maximum period of time
permitted by law, if the election is available to Landlord.  Landlord shall make
all payments in such fashion to keep Tenant costs to the minimum.  All reference
to Taxes "for" and "billed for" a particular calendar year shall be deemed to
refer to Taxes levied, assessed, billed or otherwise imposed for such calendar
year, without regard to the dates when any such Taxes are due and payable.

     (b) Definition.  As used in this Lease, the term "Taxes" means any and all
         ----------                                                            
general and special taxes and impositions of every kind and nature whatsoever
levied, assessed, or imposed upon, or with respect to, the Premises, any
leasehold improvements,

                                       3
<PAGE>
 
fixtures, installations, additions, and equipment, whether owned by Landlord or
Tenant, or either because of or in connection with Landlord's ownership,
leasing, and operation of the Building and the Property, including, without
limitation, real estate taxes, personal property taxes, general or special
assessments, and duties or levies charged or levied upon or assessed against the
Building and the Property and personal property, or any tax or excise on rent or
any other tax (however described) on account of rental received for use and
occupancy of any or all of the Building and the Property, whether any such taxes
are imposed by the United States, the State of Colorado, the County of Boulder,
or any local governmental municipality, authority, agency or any political
subdivision.  Taxes shall not include taxes on any net income, capital stock,
succession, transfer, franchise, gift, estate, or inheritance taxes.

     (c) Payment.  Commencing with the first calendar month of this Lease,
         -------                                                          
Tenant shall pay to Landlord on the first day of each calendar month until the
next upward adjustment date (which period between adjustment dates is herein
called a "Tax Deposit Year") one-twelfth of the estimated amount of the Taxes.
Amounts paid under this subsection 5.02(c) in any Tax Deposit Year shall be
reconciled with amounts actually billed to Landlord for the same Tax Deposit
Year, and provided there is any surplus remaining after the credit to Tenant and
provided Tenant shall not then be in default under any of the provisions of this
Lease, Landlord shall either refund the amount of the surplus to Tenant within
thirty (30) days following the end of the Tax Deposit Year or apply the surplus
amount against any other amounts then due from Tenant to Landlord.  If upon the
reconciliation there is any deficiency in the amount of Taxes paid by Tenant,
Landlord shall bill Tenant and Tenant shall pay the additional amount within
thirty (30) days.  Tenant shall pay escrow monthly if it is a requirement of
Lender to do so, or will pay within 30 days of notification by Landlord of
payment amount.

     5.03(a)  Inclusion in Operating Costs.  Tenant shall pay its Proportional
              ----------------------------                                      
Share of the Operating Costs for the Property. As used in this Lease, the term
"Operating Costs" means any and all reasonable expenses, costs, and
disbursements (other than Taxes) of every kind and nature whatsoever, which are
paid or accrued by Landlord in connection with the leasing, management,
maintenance, operation, or repair of the Building, including, without
limitation:

       (i)  Costs of supplies;

       (ii) Costs incurred in connection with obtaining and providing energy for
the Building, including, but not limited to, costs of propane, butane, natural
gas, steam, electricity, fuel

                                       4
<PAGE>
 
oils, coal or any other energy sources, except if separately metered to the
Leased Premises, in which case Tenant shall pay 100% of its metered amount;

       (iii)  Costs of water and sanitary sewer and storm drainage services;

       (iv)   Costs of general maintenance and repairs, including costs of
heating, ventilation and air conditioning systems and the cost of exterior
building and roof maintenance and repairs;

       (v)    Cost of insurance;

       (vi)   Costs of maintenance and replacement of landscaping;

       (vii)  Labor costs associated with operation and maintenance of the
Building and management fees.

     (b) Exclusion from Operating Costs.  "Operating Costs" shall not include:
         ------------------------------                                       

       (i)    Costs of repairs or other work occasioned by fire, windstorm or
other insured casualty to the extent of insurance proceeds received;

       (ii)   Leasing commissions, advertising expenses, and other costs
incurred in leasing space in the Building;

       (iii)  Costs of repairs or rebuilding necessitated by condemnation;

       (iv)   Any interest on borrowed money or debt amortization, except as
specifically set forth above;

       (v)    Depreciation on the Building;

       (vi)   Any settlement, payment or judgment incurred by Landlord or the
Building manager due to their willful misconduct or gross negligence, as
established by a court of law, which is not covered by insurance proceeds;

       (vii)  Cost of any damage to the Building caused directly by Landlord's
willful misconduct or gross negligence, as established by a court of law, which
is not covered by insurance proceeds.

       (viii) Cost of structural repairs or reconstruction of any portion of
the Building.

                                       5
<PAGE>
 
       (ix) Costs of providing utility lines to the Building or repairing such
lines if they break (but not if they are plugged by Tenant's usage).

     (c) Warranties.  Tenant shall be entitled to a reimbursement for any
         ----------                                                      
amounts collected by Landlord under any manufacturer's warranty on any systems
or machinery used in the Building; provided that Tenant has previously paid to
Landlord the repair expense relating to Landlord's warranty claim.

     (d) Payment.  Beginning on the Commencement Date, Landlord shall supply
         -------                                                            
Tenant with written notice of Landlord's estimate of the Operating Expenses that
will be incurred or accrued during the current calendar year (the "Deposit
Year").  On or before the first day of each month during such Deposit Year,
Tenant shall pay to Landlord one-twelfth of Tenant's Proportionate share of the
estimated amount.  If the monthly deposit amount is not determined in time for
Tenant to make the first payment on January 1 of the Deposit Year, then the
first monthly payment shall be due on the first day of the month immediately
following the date Landlord supplies Tenant with notice of the amount and the
first monthly payment(s) shall also include a payment equal to one-twelfth of
such additional sum multiplied by the number of calendar months which have
elapsed during the Deposit Year prior to the date Tenant makes its first
payment.  If the total of the estimated payments made by Tenant during the
Deposit Year are less than Tenant's obligation under this Lease for Operating
Costs for the Deposit Year, then Tenant, within thirty (30) days of the billing
therefor, shall pay the deficiency to Landlord.  If the total of the Tenant's
estimated payments for the Deposit Year exceed Tenant's obligation for excess
Operating Costs for such year, then the surplus shall be handled in the manner
provided in the last sentence of Section 5.02(c).

     5.04  Audit and Adjustment Procedures.
           ------------------------------- 

       (a) The annual determination and statement of Taxes and Operating Costs
shall be prepared in accordance with generally accepted accounting principles.
In the event of any dispute as to any Rent due under this Lease, Tenant shall
have the right to inspect Landlord's accounting records relative to Taxes and
Operating Costs at the office in which Landlord maintains its records during
normal business hours at any time.  Any errors shall be adjusted accordingly.

       (b) If the Term of this Lease commences on any day other than the first
day of January, or if the Term of this Lease ends on any day other than the last
day of December, any payment due to Landlord by reason of an increase in Taxes
or Operating Costs shall

                                       6
<PAGE>
 
be prorated on the basis by which the number of days in such partial year bears
to 365.

     (c)   All sums which Tenant is required to pay or discharge pursuant to
Section 5 of this Lease in addition to Base Rent, together with any interest or
other sums which may be added for late payment, shall constitute "Rent."

                                   SECTION 6
     
                                 HOLDING OVER
                                 ------------
                                        
     6.01  Rent Increase.  Should Tenant hold over after the termination of this
           -------------                                                        
Lease, whether the termination occurs by lapse of time or otherwise, Tenant
shall become a tenant from day-to-day upon each and all of the terms herein
provided as may be applicable to such a tenancy, and any such tenancy shall not
constitute an extension of this Lease; provided, however, during the period as a
tenant from day-to-day, Tenant shall pay its pro rata Base Rent at 140% the rate
payable for the month immediately preceding the date termination of this Lease
and, in addition, Tenant shall reimburse Landlord for all direct damages
sustained by it by reason of Tenant's occupying the Premises past the
termination date.  Alternatively, at the election of Landlord and expressed in a
written notice to Tenant and not otherwise, the retention of possession past the
termination date shall constitute a month-to-month tenancy upon each and all of
the terms of this Lease as may be applicable to a month-to-month tenancy.  The
provisions of this paragraph shall not exclude nor waive Landlord's right of re-
entry or any other right hereunder.


                                   SECTION 7

                               BUILDING SERVICES
                               -----------------

     7.01  Interruption of Standard Services.  Tenant agrees that Landlord shall
           ---------------------------------                                    
not be liable for failure to supply any heating, air conditioning, janitorial
services, electric current, or any other utility during any period when Landlord
uses reasonable diligence to restore or to supply such services or utility.
Landlord reserves the right to temporarily discontinue such services at times as
may be necessary by reason of accident, repairs, alterations, or improvements,
or whenever by reason of strikes, lockouts, riots, acts of God, or any other
happening or occurrence beyond the reasonable control of Landlord, provided such
discontinuance does not substantially interfere with Tenant's business
operations.

                                       7
<PAGE>
 
     7.02  Telephone.  Tenant shall separately arrange with the applicable local
           ---------                                                            
public authorities or utilities, as the case may be, for the furnishing of and
payment for all telephone services as may be required by Tenant in the use of
the Premises.  Tenant shall directly pay for such telephone services, including
the establishment and connection thereof, at the rates charged for the services
by the authority or utility, and the failure of Tenant to obtain or to continue
to receive the services for any reason whatsoever shall not relieve Tenant of
any of its obligations under this Lease.  Landlord shall supply sufficient
telephone lines to the Building for Tenant's connection.

     7.03  Above-Standard Service Requirements.  If heat-generating machines or
           -----------------------------------                                 
any equipment cause the temperature in the Premises, or any part, to exceed the
temperatures that the Building's air conditioning and other cooling systems
would be able to maintain in the Premises were it not for the heat generating
equipment then Landlord reserves the right to install supplementary air
conditioning units in the Premises, and the cost, including the cost of
installation and the cost of operation and maintenance thereof, shall be paid by
Tenant to Landlord upon demand by Landlord.  If Tenant requires electric
current, water, or any other energy in excess of that which is reasonably
obtainable from existing electrical outlets or water pipes, and which is, in
Landlord's reasonable opinion, above normal for use of the Premises, Tenant
shall first procure the consent of Landlord, which Landlord may not unreasonably
refuse.  If Landlord consents to such excess electric, water, or other energy
requirements, Tenant shall, on demand, pay all costs of meter service and
installation of facilities necessary to measure and/or furnish such excess
capacity.  Tenant shall also pay the entire cost of such additional electricity,
water, or other energy used.  If this occurs and Tenant subsequently vacates the
Premises, Tenant may remove excess equipment, but must also remove all
additional gas, water and electrical lines serving this equipment and return
Premises to its original condition.


                                   SECTION 8

                             CONDITION OF PREMISES
                             ---------------------

     8.01  Acceptance Upon Possession.  Subject to the provisions of Appendix C
           --------------------------                                          
respecting Landlord's obligation to complete "punch list" items, Tenant, by
taking possession of the Premises, shall be deemed to have agreed that the
Premises were, as of the date of taking possession, in good order, repair, and
condition and satisfactorily completed in accordance with Landlord's obligations
under this Lease, except for hidden defects that would not be identified upon
reasonable inspection.  No promise of Landlord to

                                       8
<PAGE>
 
alter, remodel, decorate, clean, or improve the Premises, the Building, or the
Property and no representation or warranty, express or implied, respecting the
condition of the Premises, the Building, or the Property has been made by
Landlord to Tenant, unless the same is contained in this Lease, the Work
Agreement, the Plans or some other written agreement.  This Lease does not grant
any rights to light or air over the Premises or the Property.

     8.02  Landlord's Warranty.  Landlord represents and warrants that the
           -------------------                                            
structural integrity of the building is in good and tenantable structural
condition and meets the requirements of all applicable building and safety codes
and of any and all other governmental agencies having jurisdiction thereof, and
Landlord hereby assumes full responsibility for and shall make or have made any
repairs or reconstruction which may be required on account of any structural
defect or defective workmanship for the entire term of the lease.


                                   SECTION 9

                            USE OF LEASED PREMISES
                            ----------------------

 9.01     Use. The Leased Premises shall not be used other than for the purpose
          ---
set forth in Section 1 of this Lease. Tenant's use shall at all times comply
with all applicable laws, ordinances, regulations, or other governmental
ordinances in existence.

     9.02  Hazardous Use.  Tenant agrees that it will not keep, use, sell, or
           -------------                                                     
offer for sale in or upon the Leased Premises any article which may be
prohibited by any insurance policy in force from time to time covering the
Building.  In the event Tenant's occupancy or conduct of business in or on the
Leased Premises, whether or not Landlord has consented to the same, results in
any increase in premiums for the insurance carried from time to time by Landlord
with respect to the Building, Tenant shall pay any such increase in premiums as
Rent within ten (10) days after bills for such additional premiums shall be
rendered by Landlord.  Tenant shall promptly comply with all reasonable
requirements of the insurance authority or of any insurer now or hereafter in
effect relating to the Leased Premises.

     9.03  No Waste.  Tenant shall not commit, suffer, nor permit any waste,
           --------                                                         
damage, disfiguration, or injury to the Leased Premises or the Building's common
areas or the fixtures and equipment located in or on the Building, or permit or
suffer any overloading of the floors and shall not place any safes, -heavy
business machinery, or other heavy things in the Premises other than as
specifically provided for in the Work Agreement and Plans, without first
obtaining the written consent of Landlord and, if required by

                                       9
<PAGE>
 
Landlord, of Landlord's architect, and shall not use or permit to be used by any
part of the Leased Premises for any dangerous, noxious, or offensive trade or
business, and shall not cause or permit any nuisance, noise, or action in, at,
or on the Leased Premises.

     9.04  Protection Against Insurance Cancellation.  If any insurance policy
           -----------------------------------------                          
on the Building or any part thereof shall be cancelled or if cancellation shall
be threatened, or if the coverage shall be reduced or be threatened to be
reduced, in any way by reason of the use or occupation of the Leased Premises or
any part thereof by Tenant, any assignee or subtenant of Tenant, or by anyone
permitted by Tenant to be upon the Leased Premises, and if Tenant fails to take
reasonable efforts to remedy the condition giving rise to the cancellation,
threatened cancellation, reduction, or threatened reduction of coverage within
forty-eight (48) hours after notice or to complete the remedy within ten (10)
days after notice, Landlord may, at its option, enter upon the Leased Premises
and attempt to remedy the condition, and Tenant shall forthwith pay the cost to
Landlord as additional Rent.


                                  SECTION 10

                              COMPLIANCE WITH LAW
                              -------------------

     10.01 Compliance.  Tenant shall not use the Premises or permit anything to
           ----------                                                          
be done in or about the Premises which will in any way conflict with any law,
statute, ordinance, or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated.  Tenant shall, at its sole cost and
expense, promptly comply with all laws, statutes, ordinances, and governmental
rules, regulations, or requirements now in force or which may hereafter be in
force, and with the requirements of any board of fire underwriters or other
similar body now or hereafter constituted relating to or affecting the
condition, use, or occupancy of the Premises, excluding structural changes not
related to or affected by Tenant's improvements or acts.


                                  SECTION 11

                            ALTERATIONS AND REPAIRS
                            -----------------------

     11.01 Tenant to Maintain.  Tenant shall, at its sole expense, keep the
           ------------------                                              
Premises in good repair and tenantable condition during the Term of this Lease.
Tenant shall not, without the prior written consent of Landlord which shall not
be unreasonably withheld so long as Tenant demonstrates financial assurance of
its ability to restore the Premises to original condition, make any

                                      10
<PAGE>
 
alterations, improvements, or additions to the Premises, including, but not
limited to, partitions, wall coverings, floor coverings, and special lighting or
equipment installations.  If Tenant desires to make any alterations,
improvements, or additions, Tenant shall first submit to Landlord plans and
specifications and obtain Landlord's written approval prior to commencing any
work at which time Landlord will advise tenant how it will leave said
improvements or additions upon termination of Lease.  All alterations,
improvements, or additions, whether temporary or permanent in character, made by
Landlord or Tenant in or upon the Premises shall become Landlord's property and
shall remain upon the Premises at the termination of this Lease by lapse of time
or otherwise, without compensation to Tenant (excepting only Tenant's movable
office furniture, trade fixtures, and office and professional equipment).
Landlord shall have the right to require Tenant to remove the alterations,
improvements, or additions at Tenant's cost upon the termination of this Lease,
and the repair of any damage caused to the Premises or the Building as a result
of any removal shall be paid for by Tenant.  Tenant shall promptly pay to
Tenant's contractors, when due ' the cost of all work and of all decorating, and
upon completion, deliver to Landlord, if payment is made directly to Tenant's
contractors, evidence of payment and waivers of all liens for labor, services,
or materials.  Tenant shall defend and hold Landlord, the Premises, the
Building, and the Property harmless from all costs, damages, liens for labor,
services, or materials relating to the work, and shall defend and hold Landlord
harmless from all costs, damages, liens, and expenses related to the work.  If
Landlord incurs any expenses in the removal of trash or cleaning as a result of
Tenant's contractors' work then Tenant agrees it shall reimburse Landlord within
seven (7) days of billing.

     11.02 Protection Against Liens.  At least five (5) days prior to the
           ------------------------                                      
commencement of any material work on the Leased Premises Tenant shall notify
Landlord of the names and addresses of the persons supplying labor and materials
for the proposed work so that Landlord may avail itself of the provisions of
statutes such as Section 38-22-105(2) of the Colorado Revised Statutes (1973).
During the progress of any work on the Leased Premises, Landlord or its
representatives shall have the right to go upon and inspect the Leased Premises
at all reasonable times, and shall have the right to post and keep posted
thereon notices such as those provided for by Section 38-22-105(2) (C.R.S. 1973)
or to take any further action, which Landlord may deem to be proper for the
protection of Landlord's interest in the Leased Premises.

                                       11
<PAGE>
 
     11.03 Condition on Surrender.  Tenant shall, at the termination of this
           ----------------------                                           
Lease, surrender the Premises to Landlord in as good condition and repair as
reasonable and proper use will permit, loss by ordinary wear and tear, fire, and
other insured against casualty excepted, and in the state of broom cleanliness.

     11.04 Damage by Tenant.  If any part of the Building or other improvements
           ----------------                                                    
become damaged or are destroyed through the negligence, carelessness, or misuse
of Tenant, its servants, agents, employees, or anyone permitted by Tenant to be
in the Building, or through Tenant or such parties, then the cost of necessary
repairs, replacements, or alterations shall be borne by Tenant, who shall, on
demand, forthwith pay the same to Landlord as Rent.

                                  SECTION 12

                                  ABANDONMENT
                                  -----------

     12.01 Disposition of Personal Property.  Tenant shall not vacate or
           --------------------------------                             
abandon the Premises at any time during the Lease Term, and if Tenant shall
abandon, vacate, or surrender (whether at the end of the stated Term or
otherwise) the Premises, or shall be dispossessed by process of law or
otherwise, then any personal property belonging to Tenant left on the Premises
shall be deemed abandoned and may be sold or otherwise disposed of by Landlord
without any liability to Tenant whatsoever.  Tenant shall not at any time remove
Landlord's property or any fixtures constituting property of Landlord from the
premises.  Any removal of Landlord's property from the Premises by Tenant shall
constitute a material breach of this Lease and Landlord shall have the right to
take all reasonable steps to stop or prevent such breach without such actions
constituting a constructive eviction of Tenant.


                                  SECTION 13

                           ASSIGNMENT AND SUBLETTING
                           -------------------------

     13.01 Limitation on Assignment or Subletting.  Tenant shall not assign
           --------------------------------------                          
this Lease, or any interest therein, and shall not sublet the Premises, or any
part thereof, or any right or privilege appurtenant thereto, or shall not suffer
any other person to occupy or use the Premises or any portion thereof, without
the written consent of Landlord, which consent may not be unreasonably withheld.
Neither this Lease nor any interest therein shall be assignable as to the
interest of Tenant by operation of law without the written consent of Landlord,
which consent may not be unreasonably withheld.

                                      12
<PAGE>
 
     13.02 Acceptance of Performance; No Waiver.  If this Lease is assigned, or
           ------------------------------------                                
if the Premises or any part are sublet or occupied by anybody other than Tenant,
Landlord may, upon default by Tenant, collect the rent from the assignee,
subtenant, or occupant and apply the net amount collected to the Rent.  Upon
assignment pursuant to the terms of this section, Tenant shall be relieved of
further liability under this Lease as to the assigned premises.  Consent by
Landlord to any one assignment or subletting shall not in any way be construed
as relieving Tenant from obtaining the Landlord's express written consent to any
further assignment or subletting.

     13.03 Landlord to Approve Documents.  All documents utilized by Tenant to
           -----------------------------                                      
evidence any subletting or assignment to which Landlord has consented shall be
subject to prior approval by Landlord or its attorney.  Tenant shall pay on
demand all Landlord's costs and expenses, including reasonable attorneys' fees,
incurred in determining whether or not to consent to any requested subletting or
assignment and in reviewing and approving such documentation.


                                  SECTION 14

                             SIGNS AND ADVERTISING
                             ---------------------

     Tenant shall not install, paint, display, inscribe, place, or affix any
sign, picture, advertisement, notice, lettering, or direction in the interior of
the Leased Premises which is visible from the outside of the Building or on the
exterior of the Building without the prior written consent of Landlord unless
provided for in the Plans.

                                  SECTION 15
                     DAMAGE TO PROPERTY, INJURY TO PERSONS
                     -------------------------------------

     15.01 Damage by Tenant.  Tenant agrees to pay for all damage to the
           ----------------                                             
Building or the Premises, as well as all damage to tenants or occupants thereof
caused by Tenant's misuse or neglect of the Premises, its apparatus or
appurtenances, or caused by any licensee, contractor, agent, or employee of
Tenant.  Notwithstanding the foregoing provisions, neither Landlord nor Tenant
shall be liable to one another for any loss, damage, or injury caused by its act
or neglect to the extent that the other party has recovered the amount of such
loss, damage, or injury from an insurer and the insurance company is bound by
this waiver of liability.

                                      13
<PAGE>
 
     15.02 Tenant's Property.  Particularly, but not in limitation of the
           -----------------                                             
foregoing paragraph, all property belonging to Tenant, or any occupant of the
Premises, that is in the Building or the Premises, shall be there at the risk of
Tenant or other person only, and Landlord or its agents or employees (except in
the case of negligence or willful misconduct of Landlord or its agents or
employees) shall not be liable for: (i) damage to or theft or misappropriation
of such property; (ii) any damage to property entrusted to Landlord, its agents,
or employees, if any; (iii) loss of or damage to any property by theft or
otherwise, by any means whatsoever; (iv) any injury or damage to persons or
property resulting from fire, explosion, falling plaster, steam, gas,
electricity, snow, water, or rain which may leak from any part of the Building
or from the pipes, appliances, or plumbing works therein or from the roof,
street, subsurface, or from any other place, or resulting from dampness or any
other cause whatsoever; or (v) interference with the light, air, or other
incorporeal hereditaments.  Tenant shall give prompt notice to Landlord in case
of fire or accidents in the Premises or in the Building or of observed defects
in the Building, its fixtures or equipment.


                                  SECTION 16

                              TENANT'S INSURANCE
                              ------------------

     16.01 Insurance.  Tenant shall, during the entire Term of this Lease, at
           ---------                                                         
its sole cost and expense, obtain, maintain, and keep in full force and effect
the following types of insurance:

     (a)   Fire and extended coverage insurance, including endorsements for
vandalism, malicious mischief, theft, sprinkler leakage, covering all of
                                                         ---------------
Tenant's property, including, but not limited to, furniture, fittings,
-----------------                                                     
equipment, installations, alterations, additions, partitions, fixtures, and
anything in the nature of a leasehold improvement in an amount equal to the full
replacement cost of such property without deduction for depreciation.  If there
is a dispute as to the amount which comprises full replacement cost, the
decision of Landlord shall be conclusive;

     (b)   Public liability insurance, including bodily injury and property
damage, personal injury, contractual liability with respect to all claims,
demands, or actions by any person, firm, or corporation, in any way arising
from, related to, or connected with the conduct and operation of Tenant's
business in the Premises or Tenant's use of the Premises. Such policies shall be
written on a comprehensive basis, with limits not less than $1,000,000.00, and
such higher limits as Landlord or the mortgagees of Landlord may require from
time to time;

                                      14
<PAGE>
 
     (c)   Any other form or forms of insurance as the mortgagees of Landlord
may reasonably require from time to time in form, in amounts and for insurance
risks against which a prudent tenant would protect itself; and

     (d)   Business interruption insurance in such amounts as will reimburse the
Tenant for direct or indirect loss of earnings attributable to all perils
commonly insured against by prudent tenants or attributable to prevention of
access to the Premises or to the Building as a result of such perils.

     16.02 Evidence.  All policies shall be taken out with insurers acceptable
           --------                                                           
to Landlord and in form satisfactory from time to time to Landlord.  Tenant
agrees that certificates of insurance or, if required by Landlord or the
mortgagees of Landlord, copies of each such insurance policy will be delivered
to Landlord as soon as practicable after the placing of the required insurance,
but in no event later than five (5) days after Tenant takes possession of all or
any part of the Leased Premises.  All policies shall require that at least
thirty (30) days' prior written notice be delivered to Landlord by the insurer
prior to termination, cancellation, or material change in such insurance.

     16.03 Proceeds.  Tenant agrees that in the event of damage or destruction
to the leasehold improvements in the Leased Premises covered by insurance
required to be taken out by Tenant pursuant to this Section, Tenant shall use
the proceeds of the insurance for the purpose of building leasehold improvements
as mutually agreed upon between Landlord and Tenant.  If Landlord and Tenant
cannot agree as to the new improvements within thirty (30) days, then Tenant
shall replace the identical improvements that were destroyed.  In the event of
damage or destruction of the Building entitling the Landlord to terminate this
Lease pursuant to Section 17, then, if the Leased Premises have also been
damaged, Tenant will pay to Landlord all of its insurance proceeds relating to
the leasehold improvements in the Leased Premises, and if the Leased Premises
have not been damaged, Tenant will deliver to Landlord, in accordance with the
provisions of this Lease, the leasehold improvements and the Leased Premises.


                                  SECTION 17

                             DAMAGE OR DESTRUCTION
                             ---------------------

     17.01 Right to Terminate.  If the Premises or the Building are damaged by
           ------------------                                                 
fire or other insured casualty, and the insurance proceeds have been made
available by the holder or holders of any mortgages or deeds of trust covering
the Building, the damage shall be repaired by and at the expense of Landlord to
the extent of such

                                      15
<PAGE>
 
insurance proceeds available, provided such repairs can, in Landlord's
reasonable discretion, be completed within one hundred twenty (120) days after
                          ----------------------------------------------      
the occurrence of such damage, without the payment of overtime or other
premiums.  Until the repairs are completed, the Rent shall be abated in
proportion to the part of the Premises which is unusable by Tenant in the
conduct of its business; provided, however, if the damage is due to the fault or
neglect of Tenant or its employees, agents, or invitees, there shall be no
abatement of Rent.  If repairs cannot, in Landlord's reasonable discretion, be
made within said one hundred twenty (120) day period, Landlord shall notify
Tenant within sixty (60) days of the date of occurrence of the damage as to
       ----------------------                                              
whether or no an- or elects to make the repairs.  If Landlord elects not to make
the repairs, then either party may, by written notice to the other, cancel this
Lease as of the date of the occurrence of the damage.  Except as provided in
this Section 17, there shall be no abatement of Rent and no liability of
Landlord by reason of any inconvenience, temporary limitation of access or
interference to or with Tenant's business or property arising from the making of
any necessary repairs, or any alterations or improvements in or to any portion
of the Building or the Premises, or in or to fixtures, appurtenances, and
equipment therein necessitated by the damage.  Tenant understands that Landlord
will not carry insurance of any kind on Tenant's furniture and furnishings or on
any fixtures or equipment removable by Tenant under the provisions of this
Lease, and that Landlord shall not be required to repair any injury or damage
caused by fire or other cause, or to make any repairs or replacements to or of
improvements installed in the Premises by or for Tenant at Tenant's cost.

     17.02  Landlord's Insurance.  Landlord covenants and agrees that,
            --------------------                                      
throughout the Lease Term, it will insure the Building (excluding foundations,
excavations and other non-insurable items) and the machinery, boilers, and
equipment contained therein owned by Landlord (excluding any property with
respect to which Tenant is obliged to insure pursuant to the provisions of
Section 16 hereof) against damage by fire and extended perils coverage in such
reasonable amounts as would be carried by a prudent owner of a similar property
in the same locale.  Landlord will also, throughout the Term, carry public
liability, property damage and loss of rent insurance with respect to the
operation of the Premises in reasonable amounts as would be carried by a prudent
owner of a similar property in the same locale.  Landlord may, but shall not be
obligated to, take out and carry any other form or forms of insurance as it or
the mortgagees of Landlord may reasonably determine to be advisable.  Tenant
shall pay its pro rata costs for all such insurance carried by Landlord as an
Operating Cost, provided that such insurance is not duplicative of the insurance
obtained pursuant to Section 16.01.  Notwithstanding any contribution by Tenant
to the cost of insurance premiums,

                                      16
<PAGE>
 
Tenant acknowledges that it has no right to receive any proceeds from the
insurance policies carried by Landlord, and that the insurance will be for the
sole benefit of Landlord, with no coverage for Tenant for any risk insured
against.



                                   SECTION 18

                               ENTRY BY LANDLORD
                               -----------------

     Landlord and its agents, upon giving 24 hours notice, shall have the right
                              --------------------
to enter the Premises during normal business hours for the purpose of examining
or inspecting the same, to supply any services to be provided by Landlord to
Tenant hereunder, to show same to prospective purchasers or tenants of the
Premises, and to make such alterations, repairs, improvements, or additions,
whether structural or otherwise, to the Premises or to the Building as Landlord
may deem necessary or desirable.  Landlord may enter the Premises at any time in
the case of an emergency by means of a master key, without liability to Tenant
except for any failure to exercise due care for Tenant's property, and without
affecting this Lease. Landlord shall use reasonable efforts on any such entry
not to unreasonably interrupt or interfere with Tenant's use and occupancy of
the Premises.

                                  SECTION 19

                               DEFAULT BY TENANT
                               -----------------


     19.01  Events of Default.  Each one of the following events if referred to
            -----------------                                                  
as an "Event of Default":

     (a)    Tenant shall fail to make due and punctual payment of Rent or an
other amounts payable hereunder, and such failure shall continue for fifteen
(15) days after receipt of written notice from Landlord.

     (b)    Tenant shall vacate or abandon the Premises, or remove leasehold
improvements or fixtures constituting property of Landlord;

     (c)    This Lease shall be transferred to or shall pass to or devolve upon
any other person or party except in the manner set forth in Section 13;

     (d)    This Lease or the Premises or any part thereof shall be taken upon
execution or by other process of law directed against Tenant, or shall be taken
upon or subject to any attachment at the instance of any creditor of or claimant
against Tenant, and said

                                      17
<PAGE>
 
attachment shall not be discharged or disposed of within thirty (30) days after
the levy;

     (e)  The filing of any petition or the commencement of any case or
proceeding by the Tenant under any provision or chapter of the Federal
Bankruptcy Act, the Federal Bankruptcy Code or any other federal or state law
relating to insolvency, bankruptcy or reorganization; or the adjudication that
the Tenant is insolvent or bankrupt, or the entry of an order for relief under
the Federal Bankruptcy Code with respect to Tenant;

     (f)  The filing of any petition or the commencement of any case or
proceeding described in Subsection (e) above against the Tenant, unless the
petition and all proceedings initiated thereby are dismissed within sixty (60)
days from the date of the filing; the filing of an answer by Tenant admitting
the allegations of any such petition; or the appointment of or taking possession
by a custodian, trustee or receiver for all or any assets of the Tenant, unless
such appointment is vacated or dismissed within sixty (60) days from the date of
such appointment or taking of such possession.

     (g)  Tenant shall fail to take possession of the Premises thirty (30) days
following the earlier of the date the Premises are Ready for Occupancy or the
Commencement date; or

     (h)  Tenant shall fail to perform any of the other agreements, terms,
covenants or conditions of this Lease on Tenant's part to be performed, and such
non-performance shall continue for a period of thirty (30) days after written
notice by Landlord to Tenant, or if such performance cannot be reasonably had
within such thirty (30) day period, Tenant shall not in good faith have
commenced such performance within such thirty (30) day period and shall not
thereafter diligently proceed to completion.

     19.02  Remedies of Landlord.  If any one or more events of default shall
            --------------------                                             
happen, then Landlord shall have the right at Landlord's election, then or at
any time thereafter while in default, upon ten days notice, to reenter and take
possession of the Premises or any part thereof and repossess the same as
Landlord's former estate and expel Tenant and those claiming through or under
Tenant, and remove the effects of both or either, without being deemed guilty of
any manner of trespass, and without prejudice to any remedies for arrears of
rent or breach of covenants or prior conditions and without terminating this
Lease. Should Landlord elect to reenter as provided in this Subsection, or
should Landlord take possession pursuant to legal proceedings or pursuant to any
notice provided for by law including a proceeding for possession pursuant to
Colorado's Forcible Entry and unlawful Detainer Statutes, Landlord may, from
time to time, without terminating this Lease either;

                                      18
<PAGE>
 
     (a)  (i) Relet the Premises or any part thereof in Landlord's or Tenant's
name, but for the account of Tenant, for a term or terms (which may be greater
or less than the period which would otherwise have constituted the balance of
the term of this Lease) and on conditions and upon other terms (which may
include concessions of free rent and alteration and repair of the Premises) as
Landlord, in its sole discretion, may determine, and Landlord may collect and
receive the rents.  Landlord shall use reasonable efforts to relet the Premises
and maximize the income generated by the Premises.  No reentry or taking
possession of the Premises by Landlord shall be construed as an election on
Landlord's part to terminate this Lease unless a written notice of such
intention be given to Tenant.  No notice from Landlord hereunder or under a
forcible entry and unlawful detainer statute or similar law shall constitute an
election by Landlord to terminate this Lease unless such notice specifically so
states.  Landlord reserves the right following any reentry and/or reletting to
exercise its right to terminate this Lease by giving Tenant written notice, in
which event the Lease will terminate as specific in the notice.

       (ii)  If Landlord elects to take possession of the Premises as provided
in this Subsection (a) without terminating the Lease, Tenant shall pay to
Landlord (1) the Rent and other sums due under this Lease which would be payable
if repossession had not occurred, less (2) the net proceeds, if any, of any
reletting of the Premises after deducting all Landlord's expenses in connection
with the reletting, including, but without limitation, all repossession costs,
brokerage commissions, legal expenses, attorneys' fees, expenses of employees,
alteration, remodeling and repair costs and expenses of preparation of the
reletting. If, in connection with any reletting, the new lease term extends
beyond the existing term, or the premises covered include other premises not
part of the Premises, a fair apportionment of the rent received from the
reletting and the expenses incurred in connection with the reletting will be
made in determining the net proceeds received from reletting. In addition, in
determining the net proceeds from reletting, any rent concession will be
apportioned over the term of the new Lease; or

     (b)  To give Tenant written notice of intention to terminate this Lease on
the date of the notice, or on any later date specified in the notice.  Tenant's
right to possession of the Premises shall cease and the Lease shall thereupon be
terminated, except as to Tenant's liability under this Lease, as if the
expiration of the term fixed in the notice were the end of the term originally
demised, including as extended by the exercise of any options granted to Tenant.
If this Lease is terminated pursuant to the provisions of this Subsection (b),
or terminated pursuant to a proceeding for possession under the Colorado
Forcible Entry and Unlawful Detainer Statutes, Tenant shall remain liable to
Landlord

                                      19
<PAGE>
 
for damages in an amount equal to the Rent and other sums which would have been
owing by Tenant under this Lease for the balance of the Term had this Lease not
been terminated, less the net proceeds, if any, of any reletting of the Premises
by Landlord subsequent to the termination, after deducting all Landlord's
expenses in connection with such reletting, including, but without limitation,
the expenses enumerated in Subsection (a) above. Landlord shall be entitled to
collect damages from Tenant monthly on the days on which the Rent and other
amounts would have been payable if this Lease had not been terminated.

     19.03  Cumulative Remedies.  Suit or suits for the recovery of the Rent and
            -------------------                                                 
other amounts and damages may be brought by Landlord, from time to time, at
Landlord's election, and nothing in this Lease shall be deemed to require
Landlord to await the date when this Lease or its Term would have expired by
limitation had there been no default by Tenant, or no termination, as the case
may be.  Each right and remedy provided for in this Lease shall be cumulative
and shall be in addition to every other right or remedy provided for in this
Lease or now or hereafter existing at law or in equity or by statute or
otherwise including but not limited to suits for injunctive relief and specific
performance.  The exercise or beginning of the exercise by Landlord of any one
or more of the rights or remedies provided for in this Lease or now or hereafter
existing at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by Landlord of any or all other rights or
remedies provided for in this Lease or now or hereafter existing at law or in
equity or by statute or otherwise. All such rights and remedies shall be
considered cumulative and non-exclusive. All costs incurred by Landlord in
connection with collecting any Rent or other amounts and damages owing by Tenant
pursuant to the provisions of this Lease, or to enforce any provision of this
Lease, including reasonable attorney's fees from the date such matter is turned
over to an attorney, whether or not one or more actions are commenced by
Landlord, shall also be paid by Tenant to Landlord.

     19.04  No Waiver.  No failure by Landlord to insist upon the strict
            ---------                                                   
performance of any agreement, term, covenant or condition of this Lease or to
exercise any right or remedy consequent upon a breach, and no acceptance of full
or partial payment of Rent during the continuance of any breach, shall
constitute a waiver of any breach or of the agreement to be performed or
complied with by Tenant, and no breach shall be waived, altered or modified
except by written instrument executed by Landlord.  No waiver of any breach
shall affect or alter this Lease, but each and every agreement, term, covenant
and condition shall continue in full force and effect with respect to any other
then existing or subsequent breach.  Notwithstanding any termination of this
Lease, the same shall continue in force and effect as to any provisions

                                      20
<PAGE>
 
which require observance or performance by Landlord or Tenant subsequent to such
termination.

     19.05  Bankruptcy.  Nothing contained in this Section 19 shall limit or
            ----------                                                      
prejudice the right of Landlord to prove and obtain as liquidated damages in any
bankruptcy, insolvency, receivership, reorganization or dissolution proceeding,
an amount equal to the maximum allowed by any statute or rule of law governing
such a proceeding, and in effect at the time when such damages are to be proved,
whether or not the amount is greater, equal to or less than the amounts
recoverable, either as damages or Rent, referred to in any of the preceding
provisions of this Section. Notwithstanding anything contained in this Section
to the contrary, any such proceeding or action involving bankruptcy, insolvency,
reorganization, arrangement, assignment for the benefit of creditors, or
appointment of a receiver or trustee, as set forth above, shall be considered to
be an event of default only when the proceeding, action or remedy shall be taken
or brought by or against the then holder of the leasehold estate under this
Lease.

                                   SECTION 20

                                     TAXES
                                     -----

     During the Term hereof, Tenant shall pay, prior to delinquency, all
business and other taxes, charges, notes, duties and assessments levied, and
rates or fees imposed, charged, or assessed against or in respect of Tenant's
occupancy of the Leased Premises or in respect of the personal property, trade
fixtures, furnishings, equipment, and all other personal property of Tenant
contained in the Premises, and shall hold Landlord harmless from and against all
payment of such taxes, charges, notes, duties, assessments, rates, and fees, and
against all loss, costs, charges, and expenses occasioned by or arising from any
and all such taxes, charges, notes, duties, assessments, rates, and fees, any
and all taxes.  Tenant shall cause the fixtures, furnishings, equipment and
other personal property to be assessed and billed separately from the real and
personal property of Landlord.  If any or all of Tenant's fixtures, furnishings,
equipment, and other personal property shall be assessed and taxes with
Landlord's real property, Tenant shall pay to Landlord Tenant's share of such
taxes within ten (10) days after delivery to Tenant by Landlord of a statement
in writing setting forth the amount of such taxes applicable to Tenant's
property.  Tenant will allow Landlord to audit their records, upon written
request, of all personal property, self-employment, sales, use and unemployment
tax returns within thirty (30) days after they are filed with the appropriate
government offices, together with any correspondence or tax bill pertaining to
any tax that is not paid when due according to the taxing

                                      21
<PAGE>
 
authority, and if reasonably related to Tenant's occupation of the Premises. All
of the above documents shall be considered confidential and only disclosed or
used for Landlord's appropriate business purposes. Tenant's shall provide 
Landlord access to records of payment.

                                   SECTION 21

                                 EMINENT DOMAIN
                                 --------------

     If the Building, or a substantial part thereof, or a substantial part of
the Premises, shall be lawfully taken or condemned (or conveyed under threat of
such taking or condemnation) for any public or quasi-public use or purpose, the
Term of this Lease shall end upon, and not before, the date of the taking of
possession by the condemning authority.  Tenant hereby assigns to Landlord
Tenant's interest if any, in the award.  Current Rent shall be apportioned as of
the date of termination.  If any part of the Building, other than the Premises
or not constituting a substantial part of the Premises, shall be so taken or
condemned (or conveyed under threat of such taking or condemnation), or if the
grade of any street adjacent to the Building is changed by any competent
authority and such taking or change of grade makes it necessary or desirable to
substantially remodel or restore the Building, Landlord shall have the right to
cancel this Lease upon not less than sixty (60) days' notice prior to the date
of cancellation designated in the notice.  No money or other consideration shall
be payable by Landlord to Tenant for the right of cancellation, and Tenant shall
have no right to share in any condemnation award, or in any judgment for
damages, or in any proceeds of any sale made under any threat of condemnation of
taking.  @Nothing in this Section shall prevent Tenant from making and pursuing
a claim against the condemning authority in its own right for termination of its
leasehold interest. If this Lease is not cancelled, the Lease shall continue in
full force and effect, without abatement or reduction of Rent.

                                   SECTION 22

                 SUBORDINATION TO MORTGAGES AND DEEDS OF TRUST
                 ---------------------------------------------

     22.01  Lease Subordinate to Mortgages.
            ------------------------------ 

     (a)    This Lease and the rights of Tenant shall be and are hereby made
subject and subordinate to the lien of any mortgages or deeds of trust now or
hereafter existing against the Building, the Property or both, and to all
renewals, modifications, consolidations, replacements and extensions thereof and
to all advances made now or in the future.  Although the subordination shall be
self-operating, Tenant, or its successors in interest,

                                      22
<PAGE>
 
shall upon Landlord's request, execute and deliver upon the demand of Landlord
any and all instruments desired by landlord, subordinating, in the manner
reasonably requested by Landlord, this Lease to any mortgage or deed of trust.
Landlord is hereby irrevocably appointed and authorized as agent and
attorney-in-fact of Tenant to execute all subordination instruments if Tenant
fails to execute the instruments within ten (10) days after notice from Landlord
demanding their execution. The notice may be given in the manner provided for
giving notice below.

     (b)  Should any mortgage or deed of trust affecting the Building, the
Property or both be foreclosed, then; (i) the liability of the mortgagee,
beneficiary or purchaser at the foreclosure sale to Tenant shall exist only so
long as the mortgagee, beneficiary, or purchaser is the owner of the Building
and/or Property and the liability shall not continue or survive after further
transfer of ownership; and (ii) Tenant shall be deemed to have attorned, as
Tenant under this Lease, to the purchaser at any foreclosure sale and this Lease
shall continue in force and effect as a direct lease between and binding upon
Tenant and the purchaser at any foreclosure sale. As used in this Section 22,
"mortgagee" and "beneficiary" shall include successors and assigns of any such
party, whether immediate or remote, the purchaser of any mortgage or deed of
trust, whether at foreclosure or otherwise, and the successors, assigns and
mortgagees and beneficiaries of such purchaser, whether immediate or remote.


     22.02  Tenant's Notices.  In the event of any act or omission by Landlord
            ----------------                                                  
under this Lease which would give Tenant the right to terminate this Lease or to
claim a partial or total eviction, Tenant will not exercise any such right
until:

     (a) it has given thirty days written notice (by United States certified or
registered mail, postage prepaid or by delivery) of such act or omission to the
holder of any mortgage or deed of trust on the Property (whose names and
addresses Landlord agrees will be furnished to Tenant on request) with a copy to
Joel C. Davis, Dietze & Davis and Porter, P.C., P.O. Box 1530, Boulder, Colorado
80306; and

     (b) any holder of any mortgage or deed of trust on the Property shall,
following the giving of such notice, have failed with reasonable diligence to
commence and to pursue reasonable action to remedy the act or omission.


                                      23
<PAGE>
 
                                   SECTION 23

                                     WAIVER
                                     ------

     The waiver by Landlord of any breach of any term, covenant, or condition in
this Lease shall not be deemed to be a waiver of the term, covenant, or
condition, or any subsequent breach of the same or any other term, covenant or
conditions.  The acceptance of Rent hereunder shall not be construed to be a
waiver of any breach by Tenant of any term, covenant, or condition of this
Lease, it being understood and agreed that the remedies given to Landlord shall
be cumulative, and the exercise of any one remedy by Landlord shall not be to
the exclusion of any other remedy.



                                   SECTION 24

                                  SUBROGATION
                                  -----------

     The parties to this Lease agree that any and all fire and extended coverage
insurance which is required to be carried by either shall be endorsed with a
subrogation clause, substantially as follows: "This insurance shall not be
invalidated should the insured waive, in writing, prior to a loss, any and all
right of recovery against any party for loss occurring to the property described
herein." Each party waives all claims for recovery from the other party, its
officers, agents or employees for any loss or damage (whether or not such loss
or damage is caused by negligence of the other party, and notwithstanding any
provisions contained in this Lease to the contrary) to any of its real or
personal property insured under valid and collectible insurance policies to the
extent of the collectible recovery under the insurance.

                                   SECTION 25

                                PLATS AND RIDERS
                                ----------------

     Appendices, clauses, plats, and riders, if any, referred to in this Lease
and signed or initialed by Landlord and Tenant and are fixed to this Lease are
hereby incorporated in and made a part of this Lease.


                                   SECTION 26

                                SALE BY LANDLORD
                                ----------------

    In the event of a sale or conveyance or transfer by Landlord of its interest
in the Property and/or in the Building containing the Premises, and/or in this
Lease, the same shall operate to

                                      24
<PAGE>
 
release Landlord from any future liability upon any of the covenants or
conditions, expressed or implied, contained in favor of Tenant, and in that
event, Tenant agrees to look solely to the responsibility of the successor in
interest of Landlord in and to this Lease. This Lease shall not be affected by
any such conveyance or transfer, and Tenant agrees to attorn to such purchaser
or transferee.



                                   SECTION 27

                          RIGHT OF LANDLORD TO PERFORM
                          ----------------------------

     All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense, and without any abatement of Rent.  If Tenant shall fail to pay any sum
of money, other than Rent, required to be paid by it, or shall fail to perform
any other act on its part to be performed, and the failure shall continue for
thirty (30) days after written notice by Landlord, Landlord may, but shall not
be obligated to do so, and without waiving or releasing Tenant from any
obligations of Tenant, make any payment or perform any other act on Tenant's
part to be made or performed as in this Lease provided. All sums so paid by
Landlord and all necessary incidental costs, together with interest at the rate
of one and one-half percent (1-1/2%) per month from the date of a payment by
Landlord, shall be payable to Landlord on demand, and Tenant covenants to pay
any such sums, and Landlord shall have (in addition to any other right or remedy
of Landlord) the same rights and remedies in the event of the non-payment
thereof by Tenant, as in the case of default by Tenant in the payment of Rent.

                                   SECTION 28

                                ATTORNEY'S FEES
                                ---------------

     In the event of any litigation or arbitration between Tenant and Landlord
to enforce any provision of this Lease or any right of either party, the
unsuccessful party to such litigation or arbitration shall pay to the successful
party all costs and expenses, including reasonable attorney's fees, incurred.


                                   SECTION 29

                              ESTOPPEL CERTIFICATE
                              --------------------

     Tenant shall, at any time and from time to time, upon not less than ten
(10) days prior written notice from Landlord, execute,

                                      25
<PAGE>
 
acknowledge, and deliver to Landlord a statement in writing certifying that this
Lease is unmodified and in full force and effect (or if modified, stating the
nature of such modification and certifying that this Lease, as so modified, is
in full force and effect) and the dates to which the Rent and other charges are
paid, and acknowledging that Tenant is paying Rent on a current basis with no
offsets or claims, and there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder (or specifying the offsets, claims,
or defaults, if any are claimed). It is expressly understood and agreed that any
such statement may be relied upon by any prospective purchaser or encumbrancer
of all or any portion of the Building or by any other person to whom it is
delivered. Tenant's failure to deliver the statement within the required time
shall be conclusive upon Tenant that this Lease is in full force and effect,
without modification except as may be represented by Landlord, that there are no
uncured defaults in Landlord's performance, and that not more than two (2)
months rental has been paid in advance.


                                   SECTION 30

                                     NOTICE
                                     ------

     Any notice from Landlord to Tenant or from Tenant to Landlord shall be in
writing and may be served personally or by mail.  If served by mail, it shall be
mailed by registered or certified mail, return receipt requested, addressed to
Tenant at the Premises or to Landlord at the place from time to time established
for the payment of Rent.  Notices shall be effective when delivered, if served
personally, or three (3) days after mailing, if mailed.  If no one at the
Premises is available to accept the notice, then it shall be deemed effective
upon the second refusal or uncompleted mail delivery attempt.


                                   SECTION 31

                                RIGHTS RESERVED
                                ---------------

     Landlord reserves the following rights, exercisable with approval of 
Tenant, which will not be unreasonably withheld and without liability to Tenant
for damage or injury to property, person, or business, and without effecting an
eviction, constructive or actual, or disturbance of Tenant's use or possession,
or giving rise to any claim for set-off or abatement of rent:

     (a) To change the Building's name or street address;

                                      26
<PAGE>
 
     (b) To install, affix, and maintain any and all signs on the exterior and
interior of the Building;

     (c) To retain at all times, and to use in appropriate instances, keys to
all doors within and into the Premises. No locks or bolts shall be altered,
changed, or added without the prior written consent of Landlord;

     (d) To have and retain a paramount title to the Premises, free and clear of
any act of Tenant; subject to rights of Tenant hereunder.


                                   SECTION 32

                               REAL ESTATE BROKER
                               ------------------

     Tenant represents that Tenant has dealt directly with Landlord in
connection with this Lease, and that insofar as Tenant knows, no other broker
negotiated or participated in the negotiations of this Lease, or submitted or
showed the Premises, or is entitled to any commission in connection herewith.


                                   SECTION 33

                                      N/A
                                      ---


                                  SECTION 34

                            MISCELLANEOUS PROVISIONS
                            ------------------------

     (a) The words "re-enter", or "re-entry", as used in this Lease, are not
restricted to their technical legal meaning. The term "Landlord", as used in
this Lease, means only the landlord from time to time, and upon conveying or
transferring its interest, Landlord shall be relieved from any further
obligation or liability pursuant to Section 27.

     (b)  Time is of the essence of this Lease and of each and all of its
provisions.

     (c) Submission of this instrument for examination or signature by Tenant
does not constitute a reservation of or an option for lease, and it is not
effective as a lease or otherwise until execution by both Landlord and Tenant.

     (d) The invalidity or unenforceability of any provision in this Lease shall
not affect or impair any other provisions.


                                      27
<PAGE>
 
     (e)  This Lease shall be governed by and construed pursuant to the laws of
the State of Colorado.

     (f)  Should any mortgagee or beneficiary under a deed of trust require a
modification of this Lease, which modification will not bring about any
increased cost or expense to Tenant or will not in any other way substantially
change the rights and obligations or Tenant hereunder, then and in such event,
Tenant agrees that this Lease may be so modified with Tenant's written approval;
such approval shall not be unreasonably withheld.

     (g)  All rights and remedies of Landlord under this Lease, or those which
may be provided by law, may be exercised by Landlord in its own name
individually, or in its name by its agent, and all legal proceedings for the
enforcement of any rights or remedies, including distress for rent, unlawful
detainer, and any other legal or equitable proceedings, may be commenced and
prosecuted to final judgment and be executed by Landlord in its own name
individually or in its name by its agent. Landlord and Tenant each represent to
the other that each has full power and authority to execute this Lease and to
make and perform the agreements herein contained, and Tenant expressly
stipulates that any rights or remedies available to Landlord, either by the
provisions of this Lease or otherwise, may be enforced by Landlord in its own
name individually or in its name by its agent or principal.

      (h) The marginal headings and titles to the paragraphs of this Lease are
not a part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.

     (i)  Tenant acknowledges that there are no covenants, representations,
warranties, agreements, or conditions, expressed or implied, collateral or
otherwise, forming part of or in any way effecting or relating to this Lease
except as expressly set out in this Lease and the attachments and exhibits to
this Lease, and that the terms and provisions of this Lease may not be modified
or amended except by written instrument signed by both Landlord and Tenant.

                                   SECTION 35

                            SUCCESSORS AND ASSIGNS
                            ----------------------

     Subject to the terms and provisions of Section 28, the covenants and
conditions contained in this Lease shall apply to and bind the respective heirs,
successors, executors, administrators, and assigns of the parties hereto, and
the terms "Landlord" and "Tenant" shall include the successors and assigns of
either such party, whether immediate or remote.

                                      28
<PAGE>
 
                                  SECTION 36

                                QUIET ENJOYMENT
                                ---------------

     Subject to the terms and provisions of this Lease, Landlord covenants and
agrees that Tenant, upon complying with all of the obligations of Tenant under
this Lease shall peaceably and quietly enjoy the Premises and Tenant's rights
under this Lease during its Term, without hindrance by Landlord or any persons
claiming under Landlord.

                                   SECTION 37

                                   RECORDING
                                   ---------

     This Lease shall not be recorded by Landlord or Tenant.

                                   SECTION 38

                       RIGHT OF FIRST REFUSAL AND OPTION
                       ---------------------------------

     39.01  Any time that additional space in the Building becomes available for
rent, Landlord shall provide Tenant with a written notice stating the terms and
conditions upon which Landlord is willing to lease the additional space.  Tenant
shall then have forty-five (45) days to exercise this option to lease the space
identified in the notice pursuant to the terms and conditions set forth in the
notice.  If Tenant does not notify Landlord within the 45 day period of its
intention to exercise this option and lease ,the available space, Landlord may
freely market the Property on those terms and conditions and lease the available
space at those terms and conditions for a period of six months following the
expiration of Tenant's option.  If the terms and conditions change during the
course of Landlord's attempts to lease the space, Landlord shall reoffer the
available space to Tenant for an additional thirty (30) day option period based
upon the changed terms and conditions.  Tenant shall then have thirty (30) days
after receipt of the revised terms and conditions to lease the available space
pursuant to the terms set forth in the notice.  The intent of this paragraph is
that Landlord shall offer to Tenant the most favorable terms and conditions that
he is willing to accept from any tenant to occupy any available space in the
Building.

     39.02  Tenant shall have an option to lease an additional contiguous ten
thousand square feet two years from commencement of this Lease and still another
ten thousand contiguous square feet

                                       29
<PAGE>
 
four years from commencement of this Lease, with the same terms and conditions
contained herein.  The lease rate will be that which is in effect at the time of
exercise of this option.

Upon commencement of Lease, tenant finish mix is 40 percent office, 40 percent
manufacturing and 20 percent warehouse, and Lease Rate was determined using this
mix.  It is agreed that costs of tenant finish will differ from original costs
and Landlord and Tenant shall agree at the time of expansion to the affect of
the costs upon the Lease Rate.


                                   SECTION 40

                              RELIANCE BY LANDLORD
                              --------------------

     As of the date of executing this Lease, the Premises consist of unimproved
real property.  Landlord intends to proceed with construction of the Premises in
reliance upon Tenant's covenants, obligations and representations contained in
this Lease.  Tenant hereby acknowledges and accepts Landlord's reliance in this
regard.  As additional consideration from Tenant to Landlord, Tenant hereby
agrees to provide updated business financial statements and tax returns not less
frequently than annually.

     LANDLORD:
                             __________________________ 
                             Terrence J. O'Connor

     TENANT:                 B I INCORPORATED

     By:
                             __________________________ 
                             Jeffrey J. Hiller
                             Vice President of Finance



     By:
                             __________________________ 
                             David J. Hunter, President


                                       30