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                                                                     EXHIBIT 4.1

                                     BYLAWS

                                       OF

                             RBC CENTURA BANKS, INC.

                                  1.   OFFICES

     1.   Registered Office. The registered office shall be located in Raleigh,
          -----------------
North Carolina.

     2.   Other Offices. The corporation may also have offices at such other
          -------------
places both within and without the State of North Carolina as the board of
directors may from time to time determine or the business of the corporation may
require.

                      2.   ANNUAL MEETINGS OF SHAREHOLDERS

     1.   Place of Meetings. All annual meetings of shareholders for the
          -----------------
election of directors shall be held within or without the State of North
Carolina at such date, time and place as may be designated by the board of
directors.

     2.   Annual Meetings. At annual meetings of shareholders, shareholders
          ---------------
shall elect, pursuant to law, a board of directors, and transact such other
business as may properly be brought before the meeting.

     3.   Notice of Meetings. Written or printed notice of the annual meeting
          ------------------
stating the date, time, and place of the meeting, shall be delivered not less
than ten (10) days nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the president, the
secretary, or the officer or persons calling the meeting, to each shareholder of
record entitled to vote at such meeting.

     4.   Organization. Annual meetings of shareholders shall be presided over
          ------------
by the chairman of the board, if any, or in the absence of the chairman of the
board by the vice chairman of the board, if any, or in the absence of the vice
chairman of the board by the president, or in the absence of the president by a
vice president, or in the absence of the foregoing persons by a chairman
designated by the board of directors, or in the absence of such designation by a
chairman chosen at the meeting. The secretary, or in the absence of the
secretary an assistant secretary, shall act as secretary of the meeting, but in
the absence of the secretary and any assistant secretary, the chairman of the
meeting may appoint any person to act as secretary of the meeting.

                     3.   SPECIAL MEETINGS OF SHAREHOLDERS

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     1.   Place of Meetings. Special meetings of shareholders for any purpose
          -----------------
other than the election of directors may be held at such time and place within
or without the State of North Carolina as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.

     2.   Special Meetings. Special meetings of the shareholders, for any
          ----------------
purpose or purposes, may be called by the president, the board of directors, or
upon written demand of at least ten percent (10%) of all of the votes entitled
to be cast on any issue proposed to be considered.

     3.   Notice of Meetings. Written or printed notice of a special meeting
          ------------------
stating the date, time, and place of the meeting and the purpose or purposes for
which the meeting is called, shall be delivered not less than ten (10) days nor
more than sixty (60) days before the date of the meeting, either personally or
by mail, by or at the direction of the president, the secretary, or the officer
or persons calling the meeting, to each shareholder of record entitled to vote
at such meeting.

     4.   Business. The business transacted at any special meeting of
          --------
shareholders shall be limited to the purposes stated in the notice.

     5.   Organization. Special meetings of shareholders shall be presided over
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by the chairman of the board, if any, or in the absence of the chairman of the
board by the vice chairman of the board, if any, or in the absence of the vice
chairman of the board by the president, or in the absence of the president by a
vice president, or in the absence of the foregoing persons by a chairman
designated by the board of directors, or in the absence of such designation by a
chairman chosen at the meeting. The secretary, or in the absence of the
secretary an assistant secretary, shall act as secretary of the meeting, but in
the absence of the secretary and any assistant secretary, the chairman of the
meeting may appoint any person to act as secretary of the meeting.

                        4.   QUORUM AND VOTING OF STOCK

     Section 1. Adjournments. Any meeting of shareholders, annual or special,
                ------------
may be adjourned from time to time, to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record entitled to vote at the meeting.

     Section 2. Quorum. Except as hereinafter provided with respect to separate
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voting groups, holders of a majority of the outstanding shares entitled to vote
on a matter, present in person or represented by proxy, constitutes a quorum for
action on that matter, except as otherwise provided by statute or by the
articles of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders present in
person or represented by proxy shall have the power, by majority vote of the
shares present in person or represented by proxy, to adjourn the meeting from
time to time, without notice other than

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announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.

     Shares entitled to vote as a separate voting group upon a particular matter
may take action on that matter at a meeting only if a quorum of the voting group
is represented in person or by proxy, except that, in the absence of a quorum at
the opening of any meeting of shareholders, the meeting may be adjourned from
time to time by the vote of a majority of the votes cast on the motion to
adjourn.

     Section 3. Voting. If a quorum is present, action on a matter, except for
                ------
the election of directors, is approved upon the affirmative vote of the holders
of a majority of the shares present in person or represented by proxy at the
meeting and entitled to vote on the matter. If shareholders are entitled to vote
as a separate voting group, action on a matter is approved if the votes cast
within the voting group favoring the action exceed the votes cast opposing the
action. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Each outstanding share, regardless of class, shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders unless the articles of incorporation provide otherwise. A
shareholder may vote either in person or by proxy executed in writing by the
shareholder or by his or her duly authorized attorney-in-fact. Absent special
circumstances, shares of the corporation are not entitled to vote if they are
owned, directly or indirectly, by another corporation in which the corporation
owns, directly or indirectly, a majority of the shares entitled to vote for
directors of the second corporation; provided that this provision does not limit
the power of the corporation to vote its own shares held in a fiduciary
capacity.

     Section 4. Action Without a Meeting. Any action required or permitted to be
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taken at a meeting of the shareholders may be taken without a meeting, if one or
more written consents setting forth the action so taken shall be signed, either
manually or in facsimile, by all of the shareholders entitled to vote with
respect to the subject matter thereof.

                                 5.   DIRECTORS

     1.   Number; Election; Term. The number of directors shall be between one
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to fifteen, determined from time to time by the board of directors. Directors
need not be residents of the State of North Carolina nor shareholders of the
corporation. The directors, other than the first board of directors, shall be
elected at the annual meeting of the shareholders, and each director elected
shall serve until the next succeeding annual meeting and until his or her
successor shall have been elected and qualified or until such director's earlier
resignation or removal. The first board of directors shall hold office until the
first meeting of shareholders. Any director may resign at any time upon written
notice to the board of directors or to the president or the secretary of the
corporation. Such and unless otherwise specified therein no acceptance of such
resignation shall be necessary to make it effective. Any director or the entire
board of directors may be removed, with or without cause, at a meeting of
shareholders or by written consent at any time, by the holders of a majority of
the shares then entitled to vote at an election of directors.

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     2.   Vacancies. Any vacancy occurring in the board of directors, including
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a vacancy resulting from an increase in the number of directors, may be filled
by the shareholders, the board of directors, or if the directors remaining in
office constitute fewer than a quorum of the board, the vacancy may be filled by
the affirmative vote of a majority of the directors remaining in office.

     3.   Powers. The business affairs of the corporation shall be managed by
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its board of directors, which may exercise all such powers of the corporation
and do all lawful acts.

     4.   Books. The directors may keep the books of the corporation, except
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such as are required by law to be kept within the state, outside of the State of
North Carolina, at such place or places as they may from time to time determine.

     5.   Compensation. The board of directors, by the affirmative vote of a
          ------------
majority of the directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the corporation as directors,
officers or otherwise.

                    6.   MEETINGS OF THE BOARD OF DIRECTORS

     1.   Place of Meetings. Meetings of the board of directors, regular or
          -----------------
special, may be held either within or without the State of North Carolina, as
determined from time to time by the board of directors. Unless otherwise
restricted by the articles of incorporation or these bylaws, members of the
board of directors, or any committee designated by the board, may participate in
a meeting of the board or of such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this bylaw shall constitute presence in person at such
meeting.

     2.   Regular Meetings. Regular meetings of the board of directors may be
          ----------------
held upon such notice, or without notice, and at such time and at such place as
shall from time to time be determined by the board.

     3.   Special Meetings. Special meetings of the board of directors may be
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called on reasonable notice to each director, either personally or by mail,
facsimile or electronic mail.

     4.   Quorum; Vote Required. One-half of the directors shall constitute a
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quorum for the transaction of business, unless a greater number is required by
law or by the articles of incorporation. The act of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
board of directors, unless the act of a greater number is required by statute or
by the articles of incorporation. If a quorum shall not be present at any
meeting of directors, the directors present at the meeting may adjourn the
meeting from time to time until a quorum shall be present.

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     5.   Action Without a Meeting. Any action required or permitted to be taken
          ------------------------
at a meeting of the directors or any committee thereof may be taken without a
meeting if one or more written consents, setting forth the action so taken,
shall be signed, either manually or in facsimile, by all of the directors
entitled to vote with respect to the subject matter thereof.

     6.   Organization. Meetings of the board of directors shall be presided
          ------------
over by the chairman of the board, if any, or in the absence of the chairman of
the board by the vice chairman of the board, if any, or in the absence of the
vice chairman of the board by the president, or in their absence by a chairman
chosen at the meeting. The secretary, or in the absence of the secretary an
assistant secretary, shall act as secretary of the meeting, but in the absence
of the secretary and any assistant secretary the chairman of the meeting may
appoint any person to act as secretary of the meeting.

                                7.   COMMITTEES

     1.   Committees. The board of directors, by resolution adopted by a
          ----------
majority of the number of directors fixed by the bylaws or otherwise, may
designate two or more directors to constitute one or more committees, which
committee or committees, to the extent provided in such resolution, shall have
and exercise all of the authority of the board of directors in the management of
the corporation, except as otherwise required by law, the articles of
incorporation or these bylaws. Vacancies in the membership of any committee
shall be filled by the board of directors at a regular or special meeting of the
board of directors. Any committee shall keep regular minutes of its proceedings
and report the same to the board when required.

     2.   Limitations on Powers of Committees. No such committee shall have the
          -----------------------------------
power or authority in reference to the following matters: (i) authorizing
Distributions, (ii) approving or proposing to shareholders action that the law
requires be approved by shareholders, (iii) filling vacancies on the board of
directors or on any of its committee, (iv) amending the articles of
incorporation, (v) adopting, amending or repealing bylaws, (vi) approving a plan
of merger not requiring shareholder approval, (vii) authorizing or approving
reaquisition of shares, except according to a formula or method prescribed by
the board of directors, (viii) authorizing or approving the issuance or sale or
contract for sale of shares, or determining the designation and relative rights,
preferences, and limitations of a class or series of shares, except that the
board of directors may authorize a committee (or a senior executive officer of
the corporation) to do so within limits specifically prescribed by the board of
directors, or (ix) removing or indemnifying directors. For the purposes of these
bylaws, the term "Distribution" shall mean any direct or indirect transfer of
money or other property (except the corporation's own shares) or incurrence of
indebtedness by the corporation to or for the benefit of its shareholders in
respect of any of its shares, which Distribution may be in the form of a
declaration or payment of a dividend, a purchase, redemption, or other
acquisition of shares, a distribution of indebtedness, or otherwise.

                                  8.   NOTICES

     1.   Method of Notice. Whenever notice is required to be given to any
          ----------------
director or shareholder under the provisions of any statute, the articles of
incorporation or these bylaws, it

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shall be construed to mean written notice, which may be by mail, addressed to
such director or shareholder, at his or her address as it appears on the records
of the corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time it is deposited in the United States mail or as
otherwise provided by law. Notice to directors may also be given by facsimile or
by electronic mail.

     2.   Waiver. Whenever notice is required to be given under the provisions
          ------
of any statute, the articles of incorporation or these bylaws, a waiver thereof,
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the shareholders, directors or members of a
committee of directors need be specified in any written waiver of notice unless
so required by the articles of incorporation or these bylaws.

                                 9.   OFFICERS

     Section 1. Election of Officers. As soon as practicable after the annual
                --------------------
meeting of shareholders in each year, the board of directors shall elect a
president and a secretary, and it may, if it so determines, elect from among its
members a chairman of the board and a vice chairman of the board. The board may
also elect one or more vice presidents, one or more assistant vice presidents,
one or more assistant secretaries, a treasurer and one or more assistant
treasurers and such other officers as the board may deem desirable or
appropriate and may give any of them such further designations or alternate
titles as it considers desirable. Any number of offices may be held by the same
person unless the articles of incorporation or these bylaws otherwise provide.

     Section 2. Term of Office; Resignation; Removal; Vacancies. Unless
                -----------------------------------------------
otherwise provided in the resolution of the board of directors electing any
officer, each officer shall hold office until his or her successor is elected
and qualified or until his or her earlier resignation or removal. Any officer
may resign at any time upon written notice to the board or to the president or
the secretary of the corporation. Such resignation shall take effect at the time
specified therein, and unless otherwise specified therein no acceptance of such
resignation shall be necessary to make it effective. The board may remove any
officer with or without cause at any time. Any such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
corporation, but the election of an officer shall not of itself create
contractual rights. Any vacancy occurring in any office of the corporation by
death, resignation, removal or otherwise may be filled by the board at any
regular or special meeting.

     Section 3. Salaries. The salaries of all officers and agents of the
                --------
corporation shall be fixed by the board of directors.

     Section 4. Powers and Duties. The officers of the corporation shall have
                -----------------
such powers and duties in the management of the corporation as shall be stated
in these bylaws or in a

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resolution of the board of directors which is not inconsistent with these bylaws
and, to the extent not so stated, as generally pertain to their respective
offices, subject to the control of the board. The board may require any officer,
agent or employee to give security for the faithful performance of his or her
duties.

     Section 5. Chairman of the Board. The chairman of the board shall, if one
                ---------------------
be elected and present, preside at all meetings of the shareholders and
directors and shall have such other powers and duties as may from time to time
be assigned to him or her by the board. The chairman of the board may, with the
secretary or the treasurer or an assistant secretary or an assistant treasurer,
sign certificates for shares of the capital stock of the corporation.

     Section 6. President. The president shall be the chief executive officer of
                ---------
the corporation and shall have general supervision over the business of the
corporation subject, however, to the control of the board and of any duly
authorized committee of directors. The president shall, if present and in the
absence or nonelection of the chairman of the board, preside at all meetings of
the shareholders and at all meetings of the board. He or she may, with the
secretary or the treasurer or an assistant secretary or an assistant treasurer,
sign certificates for shares of capital stock of the corporation. He or she may,
with any other officer of the corporation, sign and execute in the name of the
corporation deeds, mortgages, bonds, contracts, and other instruments, except in
cases where the signing and execution thereof shall be expressly delegated by
the board or by these bylaws to some other officer or agent of the corporation,
or shall be required by law otherwise to be signed or executed; and in general,
he or she shall perform all duties incident to the office of president and such
other duties as from time to time may be assigned to him or her by the board.

     Section 7. Vice President(s). At the request of the president or in his or
                -----------------
her absence, at the request of the board of directors, the vice president(s), if
such officers are elected or appointed by the board, shall (in such order as may
be designated by the board or, in the absence of any such designation, in order
of seniority based on age) perform all of the duties of the president and so
acting shall have all the powers of and be subject to all restrictions upon the
president. Any vice president may also, with the secretary, or the treasurer, or
an assistant secretary or an assistant treasurer, sign certificates for shares
of capital stock of the corporation; may, with any other officer of the
corporation, sign and execute in the name of the corporation deeds, mortgages,
bonds, contracts or other instruments authorized by the board, except in cases
where signing and execution thereof shall be expressly delegated by the board or
by the bylaws to some other officer or agent of the corporation, or shall be
required by law otherwise to be signed or executed; and shall perform such other
duties as from time to time may be assigned to him or her by the board or by the
president.

     Section 8. Secretary. The secretary, if present, shall act as secretary of
                ---------
all meetings of the shareholders and of the board of directors, and shall keep
the minutes thereof in the proper book or books to be provided for that purpose;
shall see that all notices required to be given by the corporation are duly
given and served; may, with the president or a vice president, sign certificates
for shares of capital stock of the corporation, shall be custodian of the seal
of the corporation and may seal with the seal of the corporation or facsimile
thereof, all certificates for shares of capital

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stock of the corporation and all documents, the execution of which on behalf of
the corporation under its corporate seal is authorized in accordance with the
provisions of these bylaws, shall have charge of the stock ledger and also of
the other books, records and papers of the corporation relating to its
organization and management as a corporation, and shall see that the reports,
statements and other documents required by law are properly kept and filed; and
shall in general, perform all the duties incident to the office of secretary and
such other duties as from time to time may be assigned to the secretary by the
board or by the president.

     Section 9. Treasurer. The treasurer shall have charge and custody of, and
                ---------
be responsible for, all funds, securities and notes of the corporation; receive
and give receipts for moneys due and payable to the corporation from any sources
whatsoever; deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these bylaws against proper vouchers, cause such funds to be disbursed by
checks or drafts on the authorized depositories of the corporation signed in
such manner as shall be determined in accordance with any provisions of bylaws,
and be responsible for the accuracy of the amounts of all moneys so disbursed;
regularly enter or cause to be entered in books to be kept by or under direction
of the treasurer full and adequate account of all moneys received or paid by the
treasurer for the account of the corporation; have the right to require, from
time to time, reports or statements giving such information as the treasurer may
desire with respect to any and all financial transactions of the corporation
from the officers and agents transacting the same; render to the president or
the board, whenever the president or the board of directors, respectively, shall
require, an account of the financial condition of the corporation and of all
transactions made by the treasurer; exhibit at all reasonable times the books of
account and other records of the corporation to any of the directors upon
application at the office of the corporation where such books and records are
kept; and in general perform all the duties incident to the office of treasurer
and such other duties as from time to time may be assigned by the board or by
the president; and may sign with the president or a vice president certificates
for shares of capital stock of the corporation.

     Section 10. Assistant Secretaries and Assistant Treasurers. Assistant
                 ----------------------------------------------
secretaries and assistant treasurers shall perform such duties as shall be
assigned to them by the secretary or by the treasurer, respectively, or by the
board of directors or by the president. Assistant secretaries and assistant
treasurers may, with the president or a vice president, sign certificates for
shares of capital stock of the corporation.

                         10.   CERTIFICATES FOR SHARES

     1.   Certificates. The shares of the corporation shall be represented by
          ------------
certificates signed by the chairman or vice chairman of the board of directors,
if any, or the president or a vice president, and by the treasurer or an
assistant treasurer, or the secretary or an assistant secretary, of the
corporation, and may be sealed with the seal of the corporation or a facsimile
thereof.

     2.   Classes of Shares. When the corporation is authorized to issue
          -----------------
different classes of shares or different series within a class, there shall be
set forth upon the face or back of the certificate, or the certificate shall
have a statement that the corporation will furnish to any shareholder upon
request and without charge, a full statement of the designations, preferences,
limitations, and relative rights, applicable to each class, and the variations
in the relative rights,

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preferences, and limitations determined for each series and the authority of the
board of directors to determine variations for future series.

     3.   Lost, Stolen or Destroyed Certificates. The board of directors may
          --------------------------------------
direct a new certificate to be issued in place of any certificate theretofore
issued by the corporation, which is alleged to have been lost, stolen or
destroyed. When authorizing such issue of a new certificate, the board of
directors, in its discretion and as a condition precedent to the issuance
thereof, may prescribe such terms and conditions as it deems expedient, and may
require such indemnities as it deems adequate, to protect the corporation from
any claim that may be made against it with respect to any such certificate
alleged to have been lost or destroyed.

     4.   Transfers of Shares. Upon surrender, to the corporation or the
          -------------------
transfer agent of the corporation, of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, a new certificate shall be issued to the person entitled
thereto, and the old certificate shall be canceled and the transaction recorded
upon the books of the corporation.

     5.   Closing of Transfer Books. For the purpose of determining shareholders
          -------------------------
entitled to notice of, or to vote at, any meeting of shareholders, or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purpose, the board
of directors may fix a record date, in advance, that may not be more than
seventy (70) days before the meeting or action requiring a determination of
shareholders.

     6.   Registered Shareholders. The corporation shall be entitled to
          -----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote with respect to the shares shown to
be owned, and to hold liable for calls and assessments a person registered on
its books as the owner of shares and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the law.

     7.   Shareholder Lists. A list of shareholders as of the record date,
          -----------------
certified by the corporate officer responsible for its preparation or the
transfer agent, shall be open for inspection at any meeting of shareholders.

                            11.   GENERAL PROVISIONS

     1.   Dividends. Subject to law and any applicable provisions of the
          ---------
articles of incorporation, dividends may be declared by the board of directors
at any regular or special meeting, and may be paid in cash, in property or in
shares of the corporation. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends, such sum or
sums as the directors from time to time, in their absolute discretion, think
proper, as a reserve fund to meet contingencies, for equalizing dividends, for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the

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interest of the corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.

     Section 2. Execution of Contracts. The board of directors may authorize any
                ----------------------
officer, employee or agent, in the name and on behalf of the corporation, to
enter into any contract or execute and satisfy any instrument, and any such
authority may be general or confined to specific instances, or otherwise
limited.

     Section 3. Loans. As authorized by these bylaws or by the board of
                -----
directors, the president or any other officer, employee or agent may effect
loans and advances at any time for the corporation from any bank, trust company
or other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other certificates or evidences of indebtedness of the corporation, and when
authorized so to do may pledge and hypothecate or transfer any securities or
other property of the corporation as security for any such loans or advances.
Such authority conferred by the board may be general or confined to specific
instances or otherwise limited.

     Section 4. Checks, Drafts, Etc. All checks, drafts and other orders for the
                -------------------
payment of money out of the funds of the corporation and all notes or other
evidences of indebtedness of the corporation shall be signed on behalf of the
corporation in such manner as shall from time to time be determined by
resolution of the board of directors.

     Section 5. Deposits. The funds of the corporation not otherwise employed
                --------
shall be deposited from time to time to the order of the corporation in such
banks, trust companies or other depositories as the board of directors may
select or as may be selected by an officer, employee or agent of the corporation
to whom such power may from time to time be delegated by the board.

     Section 6. Fiscal Year. The fiscal year of the corporation shall be fixed
                -----------
by resolution of the board of directors.

     Section 7. Seal. The corporate seal shall have inscribed thereon the name
                ----
of the corporation, the year of its organization and the words "Corporate Seal,
North Carolina". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.

     Section 8. Indemnification.
                ---------------

     (a)  Any person who at any time serves or has served as a director or
officer of the corporation, or at the request of the corporation is or was
serving as an officer, director, agent, partner, trustee, administrator, member,
manager or employee for any other foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, limited liability company or other
enterprise, shall be indemnified by the corporation to the fullest extent from
time to time permitted by law in the event he is made, or is threatened to be
made, a party to any threatened, pending or completed civil, criminal,
administrative, investigative or arbitrative action, suit or proceeding and any
appeal therein (and any inquiry or investigation that could lead to such action,
suit or proceeding), whether or not brought by or on behalf of the corporation,
seeking to hold him

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liable by reason of the fact that he is or was acting in such capacity. In
addition, the board may provide such indemnification for the employees and
agents of the corporation as it deems appropriate.

     (b)  The rights of those receiving indemnification hereunder shall, to the
fullest extent from time to time permitted by law, cover (i) reasonable
expenses, including without limitation all attorney's fees actually and
necessarily incurred by him in connection with any such action, suit or
proceeding; (ii) all reasonable payments made by him in satisfaction of any
judgment, money decree, fine (including an excise tax assessed with respect to
an employee benefit plan), penalty, or settlement for which he may have become
liable in such action, suit or proceeding; and (iii) all reasonable expenses
incurred in enforcing the indemnification rights provided herein.

     (c)  Expenses incurred by anyone entitled to receive indemnification under
this section in defending a proceeding may be paid by the corporation in advance
of the final disposition of such proceeding as authorized by the board of
directors in the specific case or as authorized or required under any provisions
in the bylaws or by any applicable resolution or contract upon receipt of an
undertaking by or on behalf of the director to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation against such expenses.

     (d)  The board of directors of the corporation shall take all such action
as may be necessary and appropriate to authorize the corporation to pay the
indemnification required by this bylaw, including without limitation, to the
extent needed, making a good faith evaluation of the manner in which the
claimant for indemnity acted and of the reasonable amount of indemnity due him.

     (e)  Any person who at any time serves or has served in any of the
aforesaid capacities for or on behalf of the corporation shall be deemed to be
doing or to have done so in reliance upon, and as consideration for, the right
of indemnification provided herein. Any repeal or modification of these
indemnification provisions shall not affect any rights or obligations existing
at the time of such repeal or modification. The rights provided for herein shall
inure to the benefit of the legal representatives of any such person and shall
not be exclusive of any other rights to which such person may be entitled apart
from the provisions of this bylaw.

     (f)  The rights granted herein shall not be limited by any provisions
contained in any statute, unless such limitations are required by law.

     Section 9. Amendments. These bylaws may be amended or repealed, and new
                ----------
bylaws adopted, by the affirmative vote of a majority of the holders of shares
entitled to vote on the election of directors. These bylaws may also be altered,
amended, supplemented or repealed by the board of directors, provided that the
vote of a majority of the entire board shall be required to change the number of
authorized directors. Any bylaws adopted, altered, amended, supplemented or
repealed by the board may be altered, amended, supplemented or repealed by the
shareholders entitled to vote thereon.

                                      -11-
<PAGE>

     Section 10. Severability. Should any provision of these bylaws become
                 ------------
ineffective or be declared to be invalid for any reason, such provision shall be
severable from the remainder of these bylaws and all other provisions of these
bylaws shall continue to be in full force and effect.

                                      -12-<PAGE>

                                LEASE AGREEMENT

                                 By and Between

              ===================================================

              COLONNADE DEVELOPMENT LLC,

                                                        Landlord,

                                     - by -

              SPECTRUM PROPERTIES
              MANAGEMENT COMPANY,

                                                  Managing Agent,

                                    - and -

              SALIX PHARMACEUTICALS, INC.

                                                          Tenant.

              ===================================================

                                 The Colonnade

                        8501 Colonnade Drive, Suite 500
                         Raleigh, North Carolina 27615

                               Dated:____________
<PAGE>

DATE OF EXECUTION:______________________

                          ARTICLE I - REFERENCE DATA

     1.1  References.  Each reference in this Lease to any of the following
          ----------
subjects shall be construed to incorporate the data stated for that subject in
this Section 1.1:
     -----------

LANDLORD:                     Colonnade Development LLC

MANAGING AGENT:               Spectrum Properties Management Company

LANDLORD'S &                  150 Fayetteville Street Mall
MANAGING AGENT'S              Suite 1300
ADDRESS:                      Raleigh, North Carolina 27601

LANDLORD'S
REPRESENTATIVE:               Spectrum Properties Management Company

TENANT'S SPACE:               Suite 500, being that area(s) outlined by broad
                              lines on Exhibit B attached, and the entire
                              rentable area of the fifth floor of the Building

BUILDING:                     That certain office building located at the
                              Building Address set forth below and commonly
                              known as The Colonnade -Building One

BUILDING ADDRESS:             8501 Colonnade Drive
                              Raleigh, North Carolina 27615

PROJECT:                      Those certain office buildings, together with all
                              entrance drives, parking areas, landscaping
                              improvements and other improvements located on
                              that certain tract of land described on Exhibit
                              A-1 attached hereto (the "Project Tract")

NAME & ADDRESS FOR            John Boylan
rental remittance:            c/o Spectrum Properties
                              150 Fayetteville Street Mall
                              Suite 1300
                              Raleigh, North Carolina 27601

TENANT:                       Salix Pharmaceuticals, Inc.
                              a California corporation

TENANT'S ADDRESS              At the Premises
<PAGE>

(for notice and billing):

TENANT'S REPRESENTATIVE:      Robert P. Ruscher

RENTABLE FLOOR AREA
OF TENANT'S SPACE:            Approximately 26,363 SF

TOTAL RENTABLE FLOOR
AREA OF THE BUILDING:         126,925 SF

SCHEDULED
COMMENCEMENT DATE:            APRIL 1, 2001

SCHEDULED
EXPIRATION DATE:              MARCH 31, 2011

RENT:                         Base Rent (to be adjusted for actual area of
                              Tenant's Space and Commencement Date ):

<TABLE>
<CAPTION>
   YEAR               TERM               SQUARE FEET          RATE        MONTHLY MINIMUM     MINIMUM ANNUAL
------------------------------------------------------------------------------------------------------------
<S>             <C>                      <C>               <C>            <C>                 <C>
     1          4/1/01 - 8/31/01            21,385         $       0      $           0       $            0
                9/1/01 - 3/31/02            21,385         $   21.50      $   38,314.79       $   459,777.48
------------------------------------------------------------------------------------------------------------
     2          4/1/02 - 3/31/03            26,363         $   21.98      $   48,288.23       $   579,458.76
------------------------------------------------------------------------------------------------------------
     3          4/1/03 - 3/31/04            26,363         $   22.48      $   49,386.69       $   592,640.28
------------------------------------------------------------------------------------------------------------
     4          4/1/04 - 3/31/05            26,363         $   22.99      $   50,507.11       $   606,085.32
------------------------------------------------------------------------------------------------------------
     5          4/1/05 - 3/31/06            26,363         $   23.52      $   51,671.48       $   620,057.76
------------------------------------------------------------------------------------------------------------
     6          4/1/06 - 3/31/07            26,363         $   24.06      $   52,857.82       $   634,293.84
------------------------------------------------------------------------------------------------------------
     7          4/1/07 - 3/31/08            26,363         $   24.62      $   54,088.09       $   649,057.08
------------------------------------------------------------------------------------------------------------
     8          4/1/08 - 3/31/09            26,363         $   25.20      $   55,362.30       $   664,347.60
------------------------------------------------------------------------------------------------------------
     9          4/1/09 - 3/31/10            26,363         $   25.79      $   56,658.48       $   679,901.76
------------------------------------------------------------------------------------------------------------
    10          4/1/10 - 3/31/11            26,363         $   26.40      $   57,998.60       $   695,983.20
                4/1/11 - 8/31/11            26,363         $   27.03      $   59,382.66              N/A
------------------------------------------------------------------------------------------------------------
</TABLE>

                              Additional Rent: Operating Cost Escalation
                              pursuant to Section 4.2 and other amounts
                                          -----------
                              designated in this Lease as Additional Rent.

OPERATING COSTS               Five and 40/100 Dollars ($5.40) multiplied by
EXPENSE STOP:                 the Total Rentable Floor Area of the Building.

                                       2
<PAGE>

SECURITY DEPOSIT:             $47,233.71 (at Tenant's option, Landlord will
                              accept a letter of credit issued by an FDIC-
                              insured financial institution with a branch
                              located in Raleigh, NC in lieu of a security
                              deposit)

GUARANTOR(S):                 Not Applicable

PERMITTED USES:               General Office Use

TENANT'S PUBLIC               Commercial General Liability insurance policies or
LIABILITY INSURANCE:          Comprehensive General Liability insurance policies
                              with a Broad Form Comprehensive Liability
                              Endorsement including Contractual Insurance and
                              with a combined single limit of at least
                              $1,000,000.00 per occurrence on a per location
                              basis and including:

                              Bodily Injury:    $1,000,000.00
                              Property Damage:  $1,000,000.00

     1.2  Exhibits.  The following exhibits are attached to this Lease and made
          --------
a part hereof:

          EXHIBIT A           Legal Description of the Lot

          EXHIBIT A-1         Legal Description of the Project Tract

          EXHIBIT B           Plan Showing Tenant's Space

          EXHIBIT C           Landlord/Tenant Work Letter

          EXHIBIT D           Landlord's Services

          EXHIBIT E           Rules and Regulations

          EXHIBIT F           Commencement/Expiration Date Agreement

          EXHIBIT G           Architect's Certificate

     1.3  Special Provisions. Any special terms or provisions of this Lease are
          ------------------
attached immediately following this page as pages 3-A to 3-C. To the extent that
the Special Provisions conflict with any other terms of this Lease, the Special
Provisions shall control.

                                       3
<PAGE>

                        ARTICLE II - PREMISES AND TERM

     2.1  Premises.  Landlord hereby leases to Tenant, and Tenant leases from
          --------
Landlord, Tenant's Space in the Building, excluding exterior faces of exterior
walls. Tenant's Space, with such exclusion, is hereinafter referred to as the
"Premises". Landlord and Tenant acknowledge and agree that the rentable square
footage of the Premises has been determined, and the rentable square footage of
any additional space added to the Premises shall be determined, by calculating
the usable square feet of space in the Premises in accordance with the "Standard
Method of Measuring Floor Area in Office Buildings," provided by the
Secretariat, Buildings Owners and Managers Association International (ANSI
Z65.1-1980), approved July 31, 1980. The rentable square footage of the Premises
shall be determined by multiplying the usable square footage of the Premises, as
determined above, by a load factor determined by Landlord.

     Tenant shall have, as an appurtenance to the Premises, the nonexclusive
right to use in common with others entitled thereto: (a) the common facilities
included in the Building or on the real property on which the Building is
located (the "Lot"), said Lot being described more particularly in Exhibit A
hereto, to the extent from time to time designated by Landlord; (b) any entrance
drives or other private access drives located on the Project Tract which are
necessary for ingress and egress to and from the Building; and (c) the building
service fixtures and equipment serving the Premises.

     Landlord reserves the right from time to time (a) to install, repair,
replace, use, maintain and relocate for service to the Premises and to other
parts of the Building, or either, building service fixtures and equipment
wherever located in the Building and (b) to alter or relocate any other common
facility provided that substitutions are substantially equivalent or better.
Landlord shall use commercially reasonable efforts to exercise its rights under
this subparagraph without unreasonable interference with or interruption of
Tenant's business activities within the Premises.

     Landlord and Tenant reserve the right to remeasure the Premises after the
construction of the Premises and adjust the amount of rentable square feet of
space contained therein for purposes of this Lease, including calculation of
Rent.

     2.2  Term.  To have and to hold for a period (the "Term") commencing upon
          ----
the earlier of (i) Tenant's occupancy of the Premises or (ii) the date that
Landlord delivers the Premises to Tenant in "Ready for Occupancy" condition,
subject to Force Majeure Matters and Tenant Delay Factors as outlined in Section
                                                                         -------
3.2 below (whichever of said dates is appropriate being hereafter referred to as
---
the "Commencement Date") and continuing until ten (10) years and five (5) months
after the Commencement Date (the "Expiration Date"). For purposes of this Lease,
"Ready for Occupancy" shall mean that Landlord's Work (as defined in Exhibit C)
has been substantially completed in a good and workmanlike manner in accordance
with the Plans (as defined in Exhibit C), and "substantial completion" shall
mean completion of Landlord's Work, as evidenced by a certificate of occupancy
obtained by Landlord, except for minor "punch

                                       4
<PAGE>

list" items as reasonably determined by Tenant and Landlord. In the event that
the Commencement Date and Expiration Date are different than, respectively, the
Scheduled Commencement Date and the Scheduled Expiration Date, Landlord and
Tenant agree to execute an agreement in the form of the Commencement/Expiration
Date Agreement which is attached hereto as Exhibit F and by this reference made
a part hereof certifying the Commencement Date and the Expiration Date.

                          ARTICLE III - CONSTRUCTION

     3.1  Tenant's Interior Construction.  Landlord has agreed to perform
          ------------------------------
Landlord's Work in the Premises described in the "Landlord/Tenant Work Letter"
attached hereto as Exhibit C and made a part hereof.

     Tenant's interior furnishings, (i.e., specification, coordination, supply
                                     ----
and installation of furniture, furnishings, telephones and movable equipment)
will be the responsibility of Tenant.  All of Tenant's construction,
installation of furnishings, and later changes or additions shall be coordinated
with any work being performed by Landlord in such manner as to maintain
harmonious labor relations and not damage the Building or Lot or interfere with
Building operations.  Except for installation of furnishings and the
installation of telephones which must be performed by the local telephone
company at Tenant's direction and expense, all such work shall be performed at
Tenant's expense by a general contractor approved by Landlord.  Tenant shall
obtain Landlord's prior written approval of construction, alterations, or
additions requiring unusual expense to readapt the Premises to normal office use
on lease termination or increasing the cost of construction, insurance or taxes
on the Building or of Landlord's services called for by Section 5.1.  Such
                                                        -----------
readaptation will be made by Tenant prior to such termination without expense to
Landlord.  Tenant shall also obtain Landlord's prior written approval of any
alterations or additions requested by Tenant which will delay completion of the
Premises and Landlord shall not be held accountable in any manner for the
delay(s). All changes and additions affixed to the Premises shall be deemed part
of the Building and the property of Landlord, except such items designated by
Landlord for removal at the time of approval or otherwise designated by Landlord
for removal upon termination of this Lease, which items shall be removed by
Tenant upon termination of this Lease.

     3.2  Preparation of Premises for Occupancy. If Landlord has agreed to make
          -------------------------------------
any improvement to the Premises, the provisions governing the planning,
construction, scope of work and terms of payment shall be set forth in the
Landlord/Tenant Work Letter attached hereto as Exhibit C and incorporated herein
by this reference. Subject to delays resulting from Force Majeure Matters (as
defined in Section 10.21 of this Lease) or delays caused by Tenant or Tenant's
           -------------
agents, employees, contractors, subcontractors or licensees, including, without
limitation, change orders to the Plans as defined in Exhibit C ("Tenant Delay
Factors"), Landlord will deliver the Premises to Tenant in Ready for Occupancy
condition not later than the Scheduled Commencement Date. If requested by
Tenant, Landlord shall provide a certificate of substantial completion issued by
Landlord's architect or other designated engineering representative. If Landlord
for any reason whatsoever cannot deliver possession of the Premises

                                       5
<PAGE>

to Tenant in Ready for Occupancy condition not later than the Scheduled
Commencement Date, this Lease shall not be void or voidable nor shall Landlord
be liable to Tenant for any loss or damage resulting therefrom; but in that
event, Landlord shall act diligently and in good faith to complete the work that
is necessary to allow Landlord to deliver the Premises to Tenant as specified
above. In such case, (a) if Landlord's failure to deliver possession of the
Premises to Tenant (with all improvements substantially completed in accordance
with the Plans) by the Scheduled Commencement Date is not the result of one or
more Tenant Delay Factors, the Commencement Date shall be adjusted to be the
date when Landlord does in fact deliver possession of the Premises to Tenant as
described above or (b) if Landlord's failure to deliver possession of the
Premises to Tenant (with all improvements substantially completed in accordance
with the Plans) by the Scheduled Commencement Date is the result of one or more
Tenant Delay Factors, the Commencement Date shall be the later of (i) the
Scheduled Commencement Date or (ii) the date the Premises would have been
delivered in the absence of such Tenant Delay Factors(s). Notwithstanding any
term or provision herein to the contrary, if, for any reason other than Tenant
Delay Factors or Force Majeure Matters, Landlord cannot deliver possession of
the Premises (with all improvements substantially completed in accordance with
the Plans) to Tenant by the Scheduled Commencement Date, Tenant shall be
entitled to a period of "free" Rent equal to two (2) days for every one (1) day
after the Scheduled Commencement Date until Landlord delivers the Premises to
Tenant as contemplated above, excluding any portion of such period of delay
attributable to Force Majeure Matters or Tenant Delay Factors, during which time
no Base Rent or Additional Rent shall be due and payable under this Lease.
Additionally, if, for any reason other than Tenant Delay Factors or Force
Majeure Matters, Landlord cannot deliver possession of the Premises (with all
improvements substantially completed in accordance with the Plans) to Tenant by
June 1, 2001, Tenant shall be entitled to terminate this Lease by so notifying
Landlord in writing on or before June 10, 2001, in which case all money
previously delivered to Landlord by Tenant pursuant to the terms of this Lease
shall be refunded to Tenant. Time is of the essence relative to Tenant's right
to terminate this Lease pursuant to this Section 3.2.
                                         -----------

     Upon delivery of the Premises in Ready for Occupancy condition by Landlord,
Tenant shall be deemed to have accepted the Premises in the then-existing
condition except for any "punch list" items (as that term is used in the
construction industry) noted by Tenant in writing to Landlord within ten (10)
business days after delivery.  Landlord shall complete the punch list items
within a reasonable period following receipt of Tenant's written punch list.
The existence of such punch list items shall not postpone the Commencement Date
of this Lease nor the obligation of Tenant to pay Rent or any other charges due
under this Lease.  Notwithstanding the foregoing, for a period of one (1) year
after the Commencement Date, Landlord shall repair, at no cost to Tenant, any
latent or hidden defects not reasonably discoverable by Tenant within five (5)
business days after delivery of the Premises.  In addition, Landlord shall use
commercially reasonable efforts to cause any parties giving contractor's or
manufacturer's warranties in connection with Landlord's Work or the Building to
correct any materially defective or  nonconforming work covered by any such
warranty during the applicable warranty period.

                                       6
<PAGE>

     Landlord shall permit Tenant access for installing equipment and
furnishings in the Premises prior to the Term when it can be done without
material interference with remaining work by Landlord.

     3.3  General Provisions Applicable to Construction.  All construction work
          ---------------------------------------------
required or permitted by this Lease, whether by Landlord or by Tenant, shall be
done in a good and workmanlike manner and in compliance with all applicable laws
and all lawful ordinances, regulations and orders of governmental authorities
and insurers of the Building. Either party may inspect the work of the other at
reasonable times and shall promptly give written notice of observed defects.

     3.4  Representatives.  Each party authorizes the other to rely in
          ---------------
connection with their respective rights and obligations under this Article III
upon approval and other actions on the party's behalf by Landlord's
Representative in the case of Landlord or Tenant's Representative in the case of
Tenant or by any person designated in substitution thereof or addition thereto
by notice to the party so relying.

                               ARTICLE IV - RENT

     4.1  Rent.  Tenant agrees to pay, without any notice, demand, offset or
          ----
reduction whatsoever, to Landlord, the Rent in equal monthly installments as set
out in Section 1.1 in advance on the first day of each calendar month included
       -----------
in the Term; and for any portion of a calendar month at the beginning or end of
the Term, at the rate payable for such portion, in advance. Rent shall consist
of: (a) Base Rent (as it may increase pursuant to Section 1.1) and (b) any
                                                  -----------
Additional Rent identified in this Lease, including but not limited to Operating
Cost Escalation as set forth in Section 4.2 and charges for additional services
                                -----------
under Section 5.1.
      -----------

     4.2  Operating Cost Escalation.
          -------------------------

          4.2.1  Definition of Landlord's Operating Costs - "Landlord's
                 ----------------------------------------
Operating Costs" shall exclude costs incurred in connection with the original
construction of the Building, interest and amortization on mortgages for the
Building and Lot, the cost of special services rendered to tenants (including
Tenant) for which a special charge is made, any items for which Landlord is
reimbursed by insurance, reserves for anticipated future expenses, leasing
commissions, any rent loss, the cost of providing improvements solely to another
tenant, and all interest and penalties incurred as a result of Landlord's
failure to pay any bill or charge as it shall become due (unless the bill or
charge was contested by Landlord), but shall include, without limitation: real
                                   -----------------
estate taxes on the Building and Lot; installments and interest on assessments
for public betterments or public improvements; reasonable expenses of any
proceedings for abatement of taxes and assessments with respect to any fiscal
year or fraction of a fiscal year; premiums for insurance; compensation and all
fringe benefits, worker's compensation insurance premiums and payroll taxes paid
by Landlord to, for or with respect to all persons engaged in the operating,
maintaining, or cleaning of the Building and Lot; steam, water, sewer, electric,
gas, telephone, and other utility charges for the Building and Lot not billed
directly to tenants by Landlord or the

                                       7
<PAGE>

utility; reasonable costs of building and cleaning supplies and equipment
(including rental); reasonable cost of maintenance, cleaning and repairs; cost
of snow plowing or removal, or both, and care of landscaping; reasonable
payments to independent contractors under service contracts for cleaning,
operating, managing, maintaining and repairing the Building and Lot (which
payments may be to affiliates of Landlord or to Landlord's representatives
provided the same are at reasonable rates consistent with the type of occupancy
and the services rendered); reasonable rental costs associated with providing
the managing agent space for an office in the Building or in another building
owned by Landlord or managed by Landlord's representative, which costs shall be
prorated accordingly if such office services building(s) in addition to the
Building; the reasonable cost of operating, maintaining and repairing the common
areas and facilities of the Building (such as, but not limited to, snow plowing,
landscaping, common area and street lighting, repaving parking areas, security
and management); the Building's proportionate share, as reasonably determined by
Landlord, of Landlord's costs and expenses (as determined consistent with the
provisions of this Section 4.2.1) related to the operation, maintenance, repair
                   -------------
and replacement of any entrance drives, access drives, landscaping improvements
and other common area improvements on the Project Tract which do not exclusively
serve a particular Building; and all other reasonable and necessary expenses
paid in connection with the operation, cleaning, maintenance and repair of the
Building and Lot, or either, which are customarily passed through to tenants in
the Raleigh, NC market for Class A office space and properly chargeable against
income rather than capitalized under generally accepted accounting principles,
it being agreed that if Landlord installs a new or replacement capital item for
the purpose of reducing Landlord's Operating Costs, the cost thereof as
reasonably amortized by Landlord with reasonable interest on the unamortized
amount shall be included in Landlord's Operating Costs.

          In the event the average occupancy level of the Building for the
applicable calendar year was not ninety-five (95%) or more of full occupancy,
then the Landlord's Operating Costs for such year shall be adjusted and
apportioned among the tenants by the Landlord to reflect those costs which would
have occurred had the Building been ninety-five percent (95%) occupied during
such year.

          The term "real estate taxes" as used above shall mean all taxes of
every kind and nature assessed by any governmental authority on the Lot, the
Building and related improvements, or both, which the Landlord shall become
obligated to pay because of or in connection with the ownership, leasing and
operation of the Lot, the Building and related improvements, or both, subject to
the following: There shall be excluded from such taxes all income taxes, excess
profits taxes, excise taxes, franchise taxes, estate, succession, inheritance
and transfer taxes, provided, however, that if at any time during the Term the
present system of ad valorem taxation of real property shall be changed so that
in lieu of the whole or any part of the ad valorem tax on real property there
shall be assessed on Landlord a capital levy or other tax on the gross rents
received with respect to the Lot, Building and related improvements, or both, or
a federal, state, county, municipal or other local income, franchise, excise or
similar tax, assessment, levy or charge (distinct from any now in effect)
measured by or based, in whole or in part, upon any such gross rents, then any
and all of such taxes, assessments, levies or charges, to the extent so measured
or based, shall be deemed to be included within the term "real estate taxes".

                                       8
<PAGE>

          4.2.2  Statement of Landlord's Operating Costs - As soon as
                 ---------------------------------------
practicable after the end of each calendar year ending during the Term and after
Lease termination, Landlord shall render a statement ("Landlord's Statement") in
reasonable detail and according to generally accepted accounting principles
certified by Landlord's Representative showing for the preceding calendar year
or fraction thereof, as the case may be, Landlord's Operating Costs.

          4.2.3  Calculation of Operating Cost Escalation - "Operating Cost
                 ----------------------------------------
Escalation" shall be calculated as follows:

          [(Landlord's Operating Costs for a particular calendar year - the
Operating Costs Expense Stop) x Rentable Floor Area of Tenant's Space] /
Rentable Floor Area of the Building, with all such amounts prorated accordingly
if any applicable period is a fraction of a calendar year = Operating Cost
Escalation.  The Operating Cost Escalation shall be prorated accordingly if the
applicable period is a fraction of a calendar year. In no event shall the
Operating Cost Escalation be less than zero.  Tenant shall not be responsible
for any part of Landlord's Operating Costs attributable to an increase in
controllable expenses of more than five percent (5%) from the preceding calendar
year; provided, however, that Landlord may carry over the difference between the
actual percentage increase and a five percent (5%) increase for any applicable
calendar year to the next calendar year and each calendar year thereafter,
thereby requiring Tenant to pay increases in controllable expenses that are
greater than five percent (5%) of the cost of controllable expenses from the
preceding calendar year but less than the cumulative total of five percent (5%)
per year over the Term of the Lease.

          In case of special services which are not rendered to all areas on a
comparable basis, the proportion allocable to the Premises shall be the same
proportion which the Rentable Floor Area of Tenant's Space bears to the total
rentable floor area to which such service is so rendered (such latter area to be
determined in the same manner as the Total Rentable Floor Area of the Building).

          4.2.4  Payment of Operating Cost Escalation - Tenant shall pay as
                 ------------------------------------
Additional Rent the Operating Cost Escalation, if any, for each calendar year or
fraction thereof throughout the Term within thirty (30) days of receipt of
Landlord's Statement reflecting the amount due.

          If during the Term, Landlord estimates that Tenant will be obligated
to pay Operating Cost Escalation with respect to any calendar year, or fraction
thereof, then Tenant shall pay, as Additional Rent, on the first day of each
month of each such calendar year and each ensuing calendar year thereafter,
unless and until Landlord's Statement for an ensuing calendar year reflects that
Tenant is not obligated to pay Operating Cost Escalation, monthly payments equal
to 1/12th of the annualized Operating Cost Escalation for the ensuing calendar
year as such cost is reasonably estimated by Landlord. In the event Landlord, in
any calendar year, does not estimate the amount of Tenant's monthly Operating
Cost Escalation payments until after one or more installments of such payments
are due, Tenant, pending receipt of Landlord's estimates, shall pay to Landlord
each month the monthly Operating Cost Escalation payment due during the previous
calendar year, and at such time as Tenant is advised in writing of Landlord's
estimated

                                       9
<PAGE>

Operating Cost Escalation for the then current calendar year Tenant shall pay to
Landlord, or Landlord shall credit to Tenant (as the case may be), a sum equal
to the difference between the total of the monthly Operating Cost Escalation
payments paid based on the rate for the preceding calendar year and the
estimated monthly Operating Cost Escalation payments actually due during the
then current calendar year. In addition, all subsequent payments of monthly
Operating Cost Escalation during the then current calendar year shall be paid
using Landlord's estimate of monthly Operating Cost Escalation payments for the
then current calendar year. When Landlord's Statement for each calendar year
becomes available the Operating Cost Escalation, if any, paid for that calendar
year or fraction thereof shall be adjusted retroactively such that within thirty
(30) days after Landlord's Statement is received by Tenant, Tenant will pay to
Landlord, or Landlord will credit to Tenant, the difference between the
Operating Cost Escalation which, according to Landlord's Statement, Tenant owed
to Landlord for the preceding calendar year or fraction thereof and the monthly
Operating Cost Escalation payments made for and during that year or fraction
thereof.

          Notwithstanding any other provision of this Section 4.2, if the Term
                                                      -----------
expires or is terminated as of a date other than the last day of a calendar
year, then for such fraction of a calendar year at the end of the Term, Tenant's
last payment to Landlord under this Section 4.2 shall be made on the basis of
Landlord's best estimate of the items which are includable in Landlord's
Statement and shall be made on or before the later of (a) ten (10) days after
Landlord delivers such estimate to Tenant or (b) the last day of the Term, with
an appropriate payment or refund to be made upon submission of Landlord's
Statement.

          4.2.5  Accounting Period - Landlord shall have the right from time to
                 -----------------
time to change the periods of accounting under this Section 4.2 to any annual
period other than a calendar year, and upon any such change all items referred
to in this Section shall be appropriately apportioned. In all Landlord's
Statements rendered under this Section, amounts for periods partially within and
partially without the accounting periods shall be appropriately apportioned, and
any items which are not determinable at the time of a Landlord's Statement shall
be included therein on the basis of Landlord's reasonable estimate, and with
respect thereto Landlord shall render promptly after determination a
supplemental Landlord's Statement, and appropriate adjustment shall be made
according thereto. All Landlord's Statements shall be prepared on an accrual
basis of accounting.

          Notwithstanding any other provision of this Section 4.2, if the Term
expires or is terminated as of a date other than the last day of a calendar
year, then for such fraction of a calendar year at the end of the Term, Tenant's
last payment to Landlord under this Section 4.2 shall be made on the basis of
Landlord's best estimate of the items which are includable in Landlord's
Statement and shall be made on or before the later of (a) ten (10) days after
Landlord delivers such estimate to Tenant or (b) the last day of the Term, with
an appropriate payment or refund to be made upon submission of Landlord's
Statement.

          4.2.6  Inspection of Books and Records. - In the event Tenant is
                 -------------------------------
required to pay the Operating Cost Escalation, Tenant shall have the right, at
Tenant's expense and no more frequently than once per calendar year, to inspect
Landlord's books and records showing

                                       10
<PAGE>

Landlord's Operating Costs for the calendar year in question; provided, however,
Tenant shall not have the right to withhold any payments of the Operating Cost
Escalation which may be in dispute, and Tenant must pay the entire amount due
and payable hereunder prior to reviewing Landlord's books and records. In the
event Tenant's inspection of Landlord's books and records reveals a verifiable
error in Landlord's computation of Landlord's Operating Costs resulting in an
overpayment by Tenant of the Operating Cost Escalation, Landlord shall promptly
reimburse the amount of such overpayment to Tenant. In the event that Tenant's
overpayment is greater than five percent (5%) of the actual Operating Cost
Escalation, Landlord shall pay on demand Tenant's verifiable expenses in
connection with Tenant's inspection of Landlord's books and records. In no event
shall Tenant engage an auditor on a contingency fee basis to conduct an
inspection of Landlord's books and records, and all information made available
to Tenant in connection with such inspection shall be kept strictly confidential
by Tenant.

     4.3  Payments.  All payments of Rent and other sums due hereunder shall be
          --------
made to Managing Agent at its address, or to such other person as Landlord may
from time to time designate. Since late payment of Rent or other sums due
hereunder from Tenant to Landlord will result in administrative expense to
Landlord, the extent of which would be extremely difficult and economically
impractical to ascertain, Tenant agrees that if Rent or any other payment due
hereunder from Tenant remains unpaid for more than five (5) days after said
amount is due, such payment shall be increased by a late charge payable by
Tenant equal to five percent (5 %) of the amount of the delinquent payment. The
amount of the late charges for any month shall be computed on the aggregate
amount of all delinquent payments, including all accrued late charges, then
outstanding. The provisions of this Section in no way relieve Tenant of the
obligation to make all required payments when due, nor do such provisions in any
way affect Landlord's remedies under this Lease.

                       ARTICLE V - LANDLORD'S COVENANTS

     5.1  Landlord's Covenants During the Term.  Landlord covenants during the
          ------------------------------------
Term:

          5.1.1  Building Services - To furnish, through Managing Agent or other
                 -----------------
independent contractors, the services listed in Exhibit D;

          5.1.2  Additional Building Services - To furnish, through Managing
                 ----------------------------
Agent or other independent contractors, reasonable additional Building operation
services upon reasonable advance request of Tenant at equitable rates from time
to time established by Landlord to be paid by Tenant;

          5.1.3  Repairs - Except as otherwise provided in Article VII, to make
                 -------
such repairs to the roof, exterior walls, floor slabs and common facilities of
the Building and the Premises (excluding Tenant's personal property and fixtures
installed in the Premises after the Commencement Date) as may be necessary to
keep them in good and serviceable condition; such repairs to be made by Landlord
within a reasonable time from Landlord's receiving written notice from Tenant of
the need for such repairs;

                                       11
<PAGE>

          5.1.4  Quiet Enjoyment - That Landlord has the right to enter into
                 ---------------
this Lease and that Tenant on paying the Rent and performing its obligations
hereunder shall peacefully and quietly have, hold and enjoy the Premises
throughout the Term without any manner of hindrance or molestation from Landlord
or anyone claiming under Landlord, subject however to all the terms and
provisions hereof; and

          5.1.5  Indemnity - To defend, indemnify and hold harmless Tenant, its
                 ---------
agents, employees, officers, directors, partners and shareholders from and
against any and all liabilities, judgments, demands, causes of action, claims,
losses, damages, costs and expenses, including reasonable attorneys' fees and
costs, arising out of the willful misconduct or negligence of Landlord, its
officers, contractors, agents, servants or employees in or about the Building or
Premises. This indemnification shall survive termination of this Lease. This
provision shall not be construed to make Landlord responsible for loss, damage,
liability or expense resulting from injuries to third parties to the extent
caused by the negligence or willful misconduct of Tenant, or its officers,
contractors, licensees, agents, employees, or invitees.

          5.1.6  Parking - To provide Tenant with a pro rata share of parking on
                 --------
an equal basis with other tenants of the Building in the event that Landlord
shall ever grant reserved spaces to all tenants of the Building (whether located
in surface lots or structural or covered parking decks).

     5.2  Interruptions.  Landlord shall not be liable to Tenant for any
          -------------
compensation or reduction of Rent by reason of inconvenience or annoyance or for
loss of business arising from power losses or shortages or from the necessity of
Landlord's entering the Premises for any of the purposes authorized in this
Lease, or for repairing the Premises or any portion of the Building or Lot,
provided, however, that Landlord shall use commercially reasonable efforts to
avoid unreasonable interference with or interruption of Tenant's business
activities within the Premises. In case Landlord is prevented or delayed from
making any repairs, alterations or improvements, or furnishing any service or
performing any other covenant or duty to be performed on Landlord's part, by
reason of any cause reasonably beyond Landlord's control, Landlord shall not be
liable to Tenant therefor, nor, except as expressly otherwise provided in
Article VII, shall Tenant be entitled to any abatement or reduction of Rent by
reason thereof, nor shall the same give rise to a claim in Tenant's favor that
such failure constitutes actual or constructive, or total or partial, eviction
from the Premises.

     Landlord reserves the right to stop any service or utility system when
necessary by reason of accident or emergency or until necessary repairs have
been completed. Except in case of emergency repairs, Landlord will give Tenant
reasonable advance notice of any contemplated stoppage and will use reasonable
efforts to avoid unnecessary inconvenience to Tenant by reason thereof.

                                       12
<PAGE>

                        ARTICLE VI - TENANT'S COVENANTS

     6.1  Tenant's Covenants During Term.  Tenant covenants during the Term and
          ------------------------------
such further time as Tenant occupies any part of the Premises:

          6.1.1  Tenant's Payments - To pay when due (a) all Rent, late charges
                 -----------------
and other sums due hereunder, (b) all taxes which may be imposed on Tenant's
personal property in the Premises (including without limitation, Tenant's
fixtures and equipment), regardless to whomever assessed, (c) all charges by
public utilities for telephone and other utility services (including service
inspections therefor) rendered to the Premises not otherwise required hereunder
to be furnished by Landlord without charge and not consumed in connection with
any services required to be furnished by Landlord without charge, and (d) as
Additional Rent, all charges of Landlord for services-rendered pursuant to
Section 5.1.2 hereof;
-------------

          6.1.2  Repairs and Surrender of Premises - Except as otherwise
                 ---------------------------------
provided in Article VII and Section 5.1.3, to keep the Premises in good order,
                            -------------
repair and condition, reasonable wear and tear and damage by insured casualty
only excepted; and at the expiration or termination of this Lease peaceably to
surrender the Premises and all changes and additions therein in as good order,
repair and condition as they were when received, reasonable wear and tear and
damage by insured casualty only excepted, first removing all goods and effects
of Tenant and any items, the removal of which is required by agreement or
specified herein to be removed at Landlord's election, and repairing all damage
caused by such removal and restoring the Premises and leaving them clean and
neat;

          6.1.3  Occupancy and Use - Continuously from the Commencement Date, to
                 -----------------
use and occupy the Premises only for the Permitted Uses; and not to injure or
deface the Premises, Building, or Lot; and not to permit in the Premises or
common facilities (insofar as use of the common facilities is in control of
Tenant) any auction sale, nuisance, or the emission from the Premises (or common
facilities) of any objectionable noise or odor; nor any use thereof which is
improper, offensive, contrary to law or ordinances, or liable to invalidate or
increase the premiums for any insurance on the Building or its contents or
liable to render necessary any alteration or addition to the Building;

          6.1.4  Rules and Regulations - To comply with the Rules and
                 ---------------------
Regulations set forth in Exhibit E, as the same may be amended by Landlord from
time to time, and all other reasonable Rules and Regulations hereafter made by
Landlord, of which Tenant has been given notice, for the care and use of the
Building and Lot and their facilities and approaches, it being understood that
Landlord shall not be liable to Tenant for the failure of other tenants of the
Building to conform to such Rules and Regulations;

          6.1.5  Safety Appliances - To keep the Premises equipped with all
                 -----------------
safety appliances required by law or ordinance or any other regulation of any
public or private authority having jurisdiction over the Premises (including
insurance underwriters or rating bureaus), to the extent not installed by
Landlord prior to the Commencement Date as required to obtain a certificate of
occupancy, because of any use made by Tenant and to procure all licenses and
permits so required because of such use and, if requested by Landlord, to do any
work so

                                       13
<PAGE>

required because of such use, it being understood that the foregoing provisions
shall not be construed to broaden in any way Tenant's Permitted Uses;

          6.1.6  Assignment and Subletting - Not to assign this Lease, or
                 -------------------------
sublease all or any part of the Premises, or permit the use of the Premises by
any party other than Tenant, without the prior written consent of Landlord,
which consent shall not be unreasonably withheld or delayed.

          Notwithstanding the foregoing, the prohibition against assignment
without Landlord's consent shall not apply to assignments to (i) a corporation
into or with which Tenant is merged or consolidated or to which substantially
all of Tenant's assets or stock are transferred, provided such merger or
transfer of assets or stock is for a good business purpose and not principally
for the purpose of transferring the leasehold estate created by this Lease, and
provided further that the assignee shall have a net worth of not less than
Tenant's net worth on the date immediately preceding the transaction, or (ii) an
entity that controls Tenant or is controlled by Tenant or is under common
control with Tenant and Tenant remains primarily liable after such assignment
(either of (i) or (ii) being referred to herein as a "Related Assignee").
Tenant shall notify Landlord before any such transaction is consummated and
furnish to Landlord documentation that such assignee qualifies as a Related
Transferee hereunder.  The term "control" as used in this paragraph shall mean
(1) in the case of a corporation, ownership of more than 50% of the outstanding
capital stock of that corporation and control over the management of such
corporation, (2) in the case of a general partnership, ownership of more than
50% of the general partnership interests of the partnership and control over the
management of such partnership, (3) in the case of a limited partnership,
ownership of more than 50% of the general partnership interests of such limited
partnership, and control over the management of such limited partnership, and
(4) in the case of a limited liability company, ownership of more than 50% of
the membership interests of such limited liability company and control over the
management of such limited liability company.

          Further, notwithstanding the provisions of this Section 6.1.6, the
                                                          -------------
transfer of the outstanding capital stock of any corporate tenant as part of an
initial public offering of stock registered under the Securities Act of 1933, as
amended, and the increase in the amount of issued and/or outstanding capital
stock of any corporate tenant as part of a registered initial public offering of
such capital stock, shall not be deemed an assignment of this Lease.  Tenant
shall notify Landlord that such transaction is contemplated promptly after the
registration statement with respect to such transaction is filed, and thereafter
Tenant shall notify Landlord prior to the actual consummation of such
transaction.  Tenant shall furnish documentation to Landlord indicating that
such transaction meets the above criteria.

          Any assignment or sublease in violation of this Section 6.1.6 shall be
                                                          -------------
null and void, and Landlord shall have the option of declaring Tenant in default
under the Lease. When Tenant requests Landlord's consent to an assignment or
sublease, it shall notify Landlord in writing of (i) the name and address of the
proposed assignee or subtenant; (ii) the nature and character of the business of
the proposed assignee or subtenant; (iii) financial information including
financial statements of the proposed assignee or subtenant; and (iv) a copy of
the

                                       14
<PAGE>

proposed sublet or assignment agreement. Tenant shall thereafter immediately
provide to Landlord any and all other information and documents reasonably
requested by Landlord in order to assist Landlord with its consideration of
Tenant's request hereunder. Landlord shall have the option (to be exercised
within thirty (30) days from the submission of Tenant's request and receipt of
all other information requested hereunder) to cancel this Lease as it affects
the portion of the Premises to be subleased or assigned as of the commencement
date stated in the proposed sublease or assignment unless Tenant thereafter
withdraws its proposed assignment or sublease within three (3) business days.

          If Landlord approves an assignment or sublease as herein provided,
Tenant shall pay to Landlord, as Additional Rent due under this Lease, as
applicable, (i) in the case of a sublease, an overage amount equal to the
difference, if any, between the Rent allocable to that part of the Premises
affected by such sublease pursuant to this Lease and 50% of the rent paid by the
subtenant to Tenant, less any reasonable and customary expenses incurred by the
Tenant in connection with the sublease which are approved by the Landlord in its
sole and absolute discretion (provided that reasonable leasing commissions and
tenant upfit improvements need not be approved by Landlord), and (ii) in the
case of an assignment, an overage amount equal to 50% of the consideration, if
any, received by Tenant for such assignment. Such overage amounts shall be due
and payable by Tenant to Landlord within five (5) days of Tenant's receipt of
payment from the subtenant or assignee. Overage amounts in the case of a
sublease shall be calculated and adjusted (if necessary) on a lease year (or
partial lease year) basis, and there shall be no cumulative adjustment for the
Term. No consent to any assignment or sublease shall constitute a further waiver
of the provisions of this Section, and all subsequent assignments or subleases
may be made only with the prior written consent of Landlord. An assignee of
Tenant, at the option of Landlord, shall become directly liable to Landlord for
all obligations of Tenant hereunder and shall assume all such obligations in
writing in a form satisfactory to Landlord in its sole and absolute discretion,
but no sublease or assignment by Tenant shall relieve Tenant of any liability
hereunder. Any assignment or sublease without Landlord's consent shall be void,
and shall, at the option of the Landlord, constitute a default under this Lease.
In the event that Tenant requests that Landlord consider a sublease or
assignment hereunder (including to a Related Assignee), Tenant shall pay
Landlord's reasonable costs and expenses, including all attorneys' fees and
costs incurred by Landlord in connection with the consideration of such request
or such sublease or assignment, not to exceed One Thousand and 00/100 Dollars
($1,000.00) per transaction.

     Notwithstanding any term or provision herein to the contrary, Tenant shall
not publish or display any advertisement to the general public offering all or
any part of the Premises for assignment, subletting or other transfer at a
rental rate lower than the rental schedule established from time to time by
Landlord for comparable space for a comparable term in the Building or in any
other building (a "Colonnade Building") owned by Landlord in The Colonnade
development (the "Park").  Further, no assignment, subletting or other transfer
shall be made: (i) to any person or entity which shall at that time be a tenant,
subtenant or other occupant of any part of the Building or another Colonnade
Building if Landlord then has other comparable space in the Building or in
another Colonnade Building available for leasing by Landlord; (ii) to any person
or entity to which Landlord or Landlord's agent (directly or through a broker)
has submitted a

                                       15
<PAGE>

written proposal with respect to space in the Building or in another Colonnade
Building during the six (6) months immediately preceding Tenant's request for
Landlord's consent to such transaction; (iii) to any person or entity for the
conduct of business which is not in keeping with the standards and general
character of the Building; or (iv) which would require the demolition or
reconfiguration of any portion of the Premises other than in connection with
typical Tenant upfit. All rights and options of Tenant hereunder, if any, to
expand the Premises, contract the Premises, extend or renew the Term, and/or
shorten the Term, and any right(s) of first refusal, first offer or first option
hereunder in favor of Tenant shall automatically terminate upon the assignment
of this Lease or upon the subletting of all or any part of the Premises, unless
Landlord specifically agrees in writing that such rights and options shall
continue. Tenant acknowledges that the restrictions on assignments and subleases
described herein are a material inducement for Landlord entering into this Lease
and shall be enforceable by Landlord against Tenant and against any assignee or
subtenant or any other party acquiring an interest in this Lease.

          6.1.7  Indemnity - To defend, indemnify and hold harmless Landlord,
                 ---------
its agents, employees, officers, directors, partners and shareholders from and
against any and all liabilities, judgments, demands, causes of action, claims,
losses, damages, costs and expenses, including reasonable attorneys' fees and
costs, arising out of the use, occupancy, conduct, operation, or management of
the Premises by, or the willful misconduct or negligence of Tenant, its
officers, contractors, licensees, agents, servants, employees, guests, invitees,
or visitors in or about the Building or Premises or arising from any breach or
default under this Lease by Tenant, or arising from any accident, injury, or
damage, howsoever and by whomsoever caused, to any person or property, occurring
in or about the Building or Premises. This indemnification shall survive
termination of this Lease. This provision shall not be construed to make Tenant
responsible for loss, damage, liability or expense resulting from injuries to
third parties to the extent caused by the negligence or willful misconduct of
Landlord, or its officers, contractors, licensees, agents, employees, or
invitees;

          6.1.8  Tenant's Liability, Property and Business Interruption
                 ------------------------------------------------------
Insurance - To maintain with insurance companies reasonably satisfactory to
---------
Landlord:

          (a) Commercial general liability insurance on the Premises in amounts
which shall, at the beginning of the Term, be at least equal to the limits set
forth in Section 1.1 and from time to time during the Term, shall be for such
         -----------
higher limits, if any, as are customarily carried in the area in which the
Premises are located on property similar to the Premises and used for similar
purposes and to furnish Landlord with the certificates thereof. Fire and
casualty insurance with extended coverage in an amount of not less than Fifty
Thousand and 00/100 Dollars ($50,000.00) shall also be obtained and kept in
force during the Term of this Lease at Tenant's expense. The limit of any of
such insurance shall not limit the liability of Tenant hereunder. If Tenant
fails to procure and maintain such insurance, Landlord may, but shall not be
required to, procure and maintain the same, at Tenant's expense to be reimbursed
by Tenant as additional rent within ten (10) days of written demand. All
insurance required to be obtained by Tenant hereunder shall be issued by
companies reasonably acceptable to Landlord. Thirty (30) days prior to the
Commencement Date, Tenant shall deliver to Landlord certificates of liability
insurance required herein with loss payable clauses satisfactory to Landlord.
Any deductible

                                       16
<PAGE>

under such insurance policy in excess of One Thousand and 00/100 Dollars
($1,000.00) must be approved by Landlord in writing prior to issuance of such
policy. No policy shall be cancelable, allowed to lapse and/or expire and/or be
subject to reduction of coverage except upon thirty (30) days prior written
notice to Landlord. All such policies shall name Landlord and Landlord's
Representative as additional insureds and shall be written as primary policies
not contributing with and not in excess of coverage which Landlord may carry.
The policy limits set forth herein shall be subject to periodic review, and
Landlord reserves the right to require that Tenant increase the liability
coverage limits if, in the reasonable opinion of Landlord, the coverage becomes
inadequate and is less than commonly maintained by tenants making similar uses
in similar buildings. Tenant shall obtain any revised or increased coverage
required by Landlord within thirty (30) days of any such notification from
Landlord;

                 (b) Property insurance on all Tenant's trade fixtures,
equipment and personal property on the Premises, being a policy of all risk
property insurance covering the full replacement value of such property. During
the Term of this Lease, the proceeds from any such policy of insurance shall be
used for the repair or replacement of the fixtures and equipment so insured.
Landlord shall have no interest in the insurance upon Tenant's equipment and
fixtures and will sign all documents reasonably necessary or proper in
connection with the settlement of any claim or loss by Tenant. Landlord will not
carry insurance on Tenant's possessions. Tenant shall furnish Landlord with a
certificate of insurance evidencing that the requirements set forth herein are
in full force and effect. Any deductible in excess of Two Thousand Five Hundred
and 00/100 Dollars ($2,500.00) under such insurance must be approved in writing
by Landlord prior to issuance of such policy. Upon demand, Tenant shall provide
Landlord, at Tenant's expense, with such increased amount of existing insurance,
and such other insurance as Landlord or Landlord's lender may reasonably
require, to afford Landlord and Landlord's lender adequate protection. Tenant
shall provide Landlord with notice of loss or damage to property immediately
after such loss or damage occurs; and

                 (c) Business interruption and/or loss of rental insurance in an
amount equivalent to six (6) months Rent which shall not contain a deductible
greater than One Thousand Dollars ($1,000.00). Tenant shall furnish Landlord
with certificates of insurance naming Landlord as an additional insured. No
policy shall be cancelable, allowed to lapse and/or expire and/or be subject to
reduction of coverage except upon thirty (30) days prior written notice to
Landlord.

          6.1.9  Employer's Liability Insurance - To purchase and maintain
                 ------------------------------
employer's liability insurance with minimum liability limits of $100,000.00 per
accident for bodily injury, $100,000.00 per employee for bodily injury due to
disease with a $500,000.00 policy limit. Tenant shall provide Landlord with a
certificate of insurance for insurance required herein;

          6.1.10  Tenant's Workers' Compensation Insurance - To keep all
                  ----------------------------------------
Tenant's employees working in the Premises covered by worker's compensation
insurance in amounts required by and otherwise in accordance with all applicable
legal requirements, and to furnish Landlord with the certificates thereof upon
request;

                                       17
<PAGE>

          6.1.11  Landlord's Right of Entry - To permit Landlord and Landlord's
                  -------------------------
agents entry:  to examine the Premises at reasonable times and, if Landlord
shall so elect, to make repairs or replacements; to remove, at Tenant's expense,
any changes, additions, signs, curtains, blinds, shades, awnings, aerials,
flagpoles, or the like not consented to in writing by Landlord; and to show the
Premises to prospective tenants during the six months preceding expiration of
the Term and to show the Premises to prospective purchasers and mortgagees at
all reasonable times;

          6.1.12  Loading - Not to place any extreme or unusual load upon the
                  -------
Premises without Landlord's prior written consent; and not to move any safe,
vault or other heavy equipment in, about or out of the Premises except in such
manner and at such times as Landlord shall in each instance approve. Tenant's
business machines and mechanical equipment which cause vibration or noise that
may be transmitted to the Building structure or to any other leased space in the
Building shall be placed and maintained by Tenant in settings of cork, rubber,
spring, or other types of vibration and/or noise eliminators sufficient to
eliminate such vibration or noise;

          6.1.13  Landlord's Costs - In case Landlord shall, without any fault
                  ----------------
on its part, be made party to any litigation commenced by or against Tenant or
by or against any parties in possession of the Premises or any part thereof
claiming under Tenant, to pay, as Additional Rent, all costs, including, without
limitation, reasonable counsel fees incurred by or imposed upon Landlord, in
connection with such litigation and, as Additional Rent, also to pay all such
costs and reasonable counsel fees incurred by Landlord in connection with the
successful enforcement by Landlord of any obligations of Tenant under this
Lease;

          6.1.14  Tenant's Property - That all the furnishings, fixtures,
                  -----------------
equipment, effects and property of every kind, nature and description of Tenant
and of all persons claiming by, through or under Tenant which, during the
continuance of this Lease or any occupancy of the Premises by Tenant or anyone
claiming under Tenant, may be on the Premises or elsewhere in the Building or on
the Lot shall be at the sole risk and hazard of Tenant, and if the whole or any
part thereof shall be destroyed or damaged by fire, water or otherwise, or by
the leakage or bursting of water pipes, steam pipes or other pipes, by theft, or
from any other cause, no part of said loss or damage is to be charged to or to
be borne by Landlord unless due to the gross negligence or willful misconduct of
Landlord;

          6.1.15  Liens - To keep the Premises and the Building free from any
                  -----
liens arising out of any work performed, materials ordered or obligations
incurred by or on behalf of Tenant, and Tenant hereby agrees to indemnify and
hold Landlord, its agents, employees, independent contractors, officers,
directors, partners, and shareholders harmless from any liability, cost or
expense for such liens. Tenant shall cause any such lien imposed to be released
of record by payment or posting of the proper bond acceptable to Landlord within
fifteen (15) days after the earlier of Tenant's knowledge of the imposition of
the lien or written request by Landlord.  Tenant shall give Landlord written
notice of Tenant's intention to perform work on the Premises which might result
in any claim of lien at least ten (10) days prior to the commencement of such
work to enable Landlord to post and record a Notice of Nonresponsibility or
other notice deemed

                                       18
<PAGE>

proper before commencement of any such work. If Tenant fails to remove any lien
within the prescribed ten (10) day period, then Landlord may do so at Tenant's
expense and Tenant's reimbursement to Landlord for such amount, including
attorneys' fees and costs, shall be deemed Additional Rent;

          6.1.16  Changes or Additions - Not to make any changes or additions to
                  --------------------
the Premises without Landlord's prior written consent (which consent shall not
be unreasonably withheld, conditioned or delayed), provided that Tenant shall
reimburse Landlord for all reasonable costs incurred by Landlord in reviewing
Tenant's proposed changes or additions, and provided further that, in order to
protect the functional integrity of the Building, all such changes and additions
shall be performed by contractors selected from a list of approved contractors
prepared by Landlord from time to time;

          6.1.17  Holdover - To pay to Landlord 150% of the total of the Rent
                  --------
then applicable for each month or portion thereof Tenant shall retain possession
of the Premises or any part thereof after the termination of this Lease, whether
by lapse of time or otherwise, and also to pay all damages sustained by Landlord
on account thereof. In the event the Tenant remains in possession of the
Premises after the termination or expiration of this Lease, it shall be deemed
to be occupying the Premises on a month-to-month basis and subject to all of the
provisions, conditions and obligations of said Lease. The provisions of this
subsection shall not operate as a waiver by Landlord of any rights or remedies
provided in this Lease; and

          6.1.18  Environmental Matters -
                  ---------------------

                  (a) As used in this Lease, the term "Hazardous Materials"
shall mean and include any substance that is or contains petroleum, asbestos,
polychlorinated biphenyls, lead, or any other substance, material or waste which
is now or is hereafter classified or considered to be hazardous or toxic under
any federal, state or local law, rule, regulation or ordinance relating to
pollution or the protection or regulation of human health, natural resources or
the environment (collectively "Environmental Laws") or poses or threatens to
pose a hazard to the health or safety of persons on the Premises or any adjacent
property.

                  (b) Tenant agrees that during its use and occupancy of the
Premises it will not permit Hazardous Materials to be present on or about the
Premises except in a manner and quantity necessary for the ordinary performance
of Tenant's business and that it will comply with all Environmental Laws
relating to the use, storage or disposal of any such Hazardous Materials.

                  (c) If Tenant's use of Hazardous Materials on or about the
Premises results in a release, discharge or disposal of Hazardous Materials on,
in, at, under, or emanating from, the Premises or the property in which the
Premises are located, Tenant agrees to investigate, clean up, remove or
remediate such Hazardous Materials in full compliance with the requirements of
(i) all Environmental Laws and (ii) any governmental agency or authority
responsible for the enforcement of any Environmental Laws. Landlord shall also
have the right, but not the obligation, to take whatever action with respect to
any such Hazardous Materials that

                                       19
<PAGE>

it deems reasonably necessary to protect the value of the Premises or the
property in which the Premises are located. All costs and expenses paid or
incurred by Landlord in the exercise of such right shall be payable by Tenant
upon demand.

                 (d) Upon reasonable notice to Tenant, Landlord may inspect the
Premises for the purpose of determining whether there exists on the Premises any
Hazardous Materials or other condition or activity that is in violation of the
requirements of this Lease or of any Environmental Laws. The right granted to
Landlord herein to perform inspections shall not create a duty on Landlord's
part to inspect the Premises, or liability on the part of Landlord for Tenant's
use, storage or disposal of Hazardous Materials, it being understood that Tenant
shall be solely responsible for all liability in connection therewith.

                 (e) Tenant shall surrender the Premises to Landlord upon the
expiration or earlier termination of this Lease free of debris, waste or
Hazardous Materials placed on or about the Premises by Tenant or its agents,
employees, contractors or invitees, and in a condition which complies with all
Environmental Laws.

                 (f) Tenant agrees to indemnify and hold harmless Landlord from
and against any and all claims, losses (including, without limitation, loss in
value of the Premises or the property in which the Premises are located),
liabilities and expenses (including reasonable attorney's fees) sustained by
Landlord to the extent attributable to (i) any Hazardous Materials placed on or
about the Premises by Tenant or its agents, employees, contractors or invitees
or (ii) Tenant's breach of any provision of this Section 6.1.18, but in no event
shall Tenant be liable hereunder with respect to Hazardous Materials placed on
or about the Premises by third parties other than Tenant, its agents, employees,
contractors or invitees (including other tenants or Landlord, or Landlord's
agents, employees, contractors or invitees).

                 (g) The provisions of this Section 6.1.18 shall survive the
                                            --------------
expiration or earlier termination of this Lease.

                       ARTICLE VII - CASUALTY AND TAKING

     7.1  Casualty to Premises.
          --------------------

          7.1.1  Damage Repair - If the Premises shall be destroyed or rendered
                 -------------
untenantable, either wholly or in part, by fire or other casualty, Landlord may,
at its option, (i) terminate this Lease effective as of the date of such damage
or destruction, or (ii) restore the Premises to their previous condition within
one hundred eighty (180) days after insurance proceeds have been made available
for such restoration, and in the meantime the Base Rent shall be abated in the
same proportion as the untenantable portion of the Premises bears to the whole
thereof, and this Lease shall continue in full force and effect. If the damage
is due, directly or indirectly, to the fault or neglect of Tenant, or its
officers, contractors, licensees, agents, servants, employees, guests, invitees
or visitors, there shall be no abatement of Base Rent, except to the extent
Landlord receives proceeds from any applicable insurance policy of Tenant to
compensate

                                       20
<PAGE>

Landlord for loss of Base Rent. Unless the damage is due, directly or
indirectly, to the fault or neglect of Tenant, or its officers, contractors,
licensees, agents, servants, employees, guests, invitees or visitors, and
provided Tenant is not otherwise in default under this Lease, Tenant may
terminate this Lease if the Premises are not restored to their previous
condition within one hundred eighty (180) days after insurance proceeds have
been made available for such restoration by delivering written notice to
Landlord within ten (10) days thereafter.

          7.1.2  Termination for Material or Uninsured Damages - If the Building
                 ---------------------------------------------
shall be destroyed or damaged by fire or other casualty insured against under
Landlord's fire and extended coverage insurance policy to the extent that more
than fifty percent (50%) thereof is rendered untenantable, or if the Building
shall be materially destroyed or damaged by any other casualty other than those
covered by such insurance policy, notwithstanding that the Premises may be
unaffected directly by such destruction or damage, Landlord may, at its
election, terminate this Lease by notice in writing to Tenant within sixty (60)
days after such destruction or damage. Such notice shall be effective thirty
(30) days after receipt thereof by Tenant.

          7.1.3  Business Interruption - Other than rental abatement provided in
                 ---------------------
Section 7.1.1, no damages, compensation or claim shall be payable by Landlord
-------------
for inconvenience or loss of business arising from the interruption of business
or the repair or restoration of the Building or Premises.

          7.1.4  Repairs - Landlord's obligations, should it elect to repair,
                 -------
shall be limited to the base Building, common areas and the interior
improvements (if any) initially installed by Landlord as part of Landlord's work
(as described in Exhibit C). Anything herein to the contrary notwithstanding, if
the Premises are destroyed or damaged during the last twelve (12) months of the
term of this Lease, then Landlord may, at its option, cancel and terminate this
Lease as of the date of the occurrence of such damage.

     7.2  Condemnation.  If twenty percent (20%) or more of the Premises, or of
          ------------
such portions of the Building as may be required for the reasonable use of the
Premises, are taken by eminent domain or sale under threat of condemnation by
eminent domain, this Lease shall automatically terminate as of the date title
vests in the condemning authority, and all Rent and other charges or sums shall
be paid to that date. Landlord reserves all rights to damages to the Premises
for any partial or entire taking by eminent domain, and Tenant hereby assigns to
Landlord any right Tenant may have to such damages or award, and Tenant shall
make no claim against Landlord or the condemning authority for damages for
termination of the leasehold interest or interference with Tenant's business;
provided, however, that Tenant shall have the right to claim and recover from
the condemning authority compensation for any loss which Tenant may incur for
Tenant's moving expenses, business interruption or taking of Tenant's personal
property (not including Tenant's leasehold interest).

                      ARTICLE VIII - RIGHTS OF MORTGAGEE

     8.1  Rights of Mortgage Holders; Limitation of Mortgagee's Liability.  The
          ---------------------------------------------------------------
word "mortgage" as used herein includes mortgages, deeds of trust or
other similar instruments

                                       21
<PAGE>

evidencing other voluntary liens or encumbrances, and modifications,
consolidations, extensions, renewals, replacements and substitutions thereof.
The word "holder" shall mean a mortgagee, and any subsequent holder or holders
of a mortgage. Until the holder of a mortgage shall enter and take possession of
the Premises for the purpose of foreclosure, such holder shall have only such
rights of Landlord as are necessary to preserve the integrity of this Lease as
security, the condition and value of the Building and Lot. Upon entry and taking
possession of the Premises for the purpose of foreclosure, such holder shall
have all the rights of Landlord. Notwithstanding any other provision of this
Lease to the contrary, including without limitation Section 10.5, no such holder
                                                    ------------
of a mortgage shall be liable, either as mortgagee or as assignee, to perform,
or be liable in damages for failure to perform, any of the obligations of
Landlord unless and until such holder shall enter and take possession of the
Premises for the purpose of foreclosure, and such holder shall not in any event
be liable to perform or for failure to perform the obligations of Landlord under
Section 3.1. Upon entry for the purpose of foreclosure, such holder shall be
-----------
liable to perform all of the obligations of Landlord (except for the obligations
under Section 3.1), subject to and with the benefit of the provisions of Section
      -----------                                                        -------
10.5, provided that a discontinuance of any foreclosure proceeding shall be
----
deemed a conveyance under said provisions to the owner of the equity of
redemption in the mortgaged premises.

     8.2  No Prepayment or Modification.  Tenant shall not pay Rent or any other
          -----------------------------
charge more than thirty (30) days prior to the due dates thereof. No prepayment
of Rent or other charge, no assignment of this Lease and no agreement to modify
so as to reduce the Rent, change the Term, or otherwise materially change the
rights of Landlord under this Lease, or to relieve Tenant of any obligations or
liability under this Lease, shall be valid unless consented to in writing by
Landlord's mortgagees of record, if any.

     8.3  Subordination.  This Lease, and all rights of Tenant hereunder, are
          -------------
subject and subordinate to any mortgage or mortgages, blanket or otherwise,
which affect the Lot or Building as of the date of execution of this Lease, and
to any and all renewals, modifications, consolidations, replacements and
extensions thereof. It is the intention of the parties that this provision be
self-operative, and that no further instrument shall be required to effect such
subordination of this Lease; provided, however, that Landlord shall use
commercially reasonable efforts to obtain a subordination, non-disturbance and
attornment agreement from any lender holding a mortgage or deed of trust on the
Lot or Building as of the date of this Lease. Tenant shall within ten (10) days
of demand, at any time or times, execute, acknowledge and deliver to Landlord,
without expense to Landlord, any and all instruments that may be necessary or
proper to subordinate this Lease, and all rights of Tenant hereunto, to any such
future mortgage or mortgages, provided that Tenant's obligation of execution,
acknowledgement and delivery shall be conditioned upon such instrument
containing an agreement by Landlord's mortgagee that Tenant's peaceful and quiet
possession of the Premises shall not be disturbed by reason of foreclosure or
other default proceedings so long as Tenant is not in default under the terms of
this Lease beyond any applicable cure period. Should Tenant refuse to execute
the required documents hereunder, or those required under Section 10.12
                                                          -------------
hereinafter, upon demand by Landlord, then, in addition to the Tenant's being
responsible for any other damages incurred as a result thereof (including
interest), the Tenant's refusal shall constitute a default under Article IX
herein. If any mortgagee or other party shall at any time succeed to the
interest of the Landlord in

                                       22
<PAGE>

the Premises, whether by foreclosure, sale, or otherwise, the Tenant, at such
mortgagee's or successor's request shall attorn to and recognize such mortgagee
or successor as landlord hereunder.

     8.4  Mortgagee Protection.  Tenant agrees to give any mortgagee(s) and/or
          --------------------
trust deed holder(s), by registered mail, a copy of any notice of default served
upon the Landlord, provided that prior to such notice Tenant has been notified
in writing (by way of notice of assignment of rents and leases, or otherwise) of
the addresses of such mortgagee(s) and/or trust deed holder(s). Tenant further
agrees that if Landlord shall have failed to cure such default within the time
provided for in this Lease, then the mortgagee(s) and/or trust deed holder(s)
shall have an additional thirty (30) days within which to cure such default or
if such default cannot be cured within that time, then such additional time as
may be necessary if within such thirty (30) days any mortgagee and/or trust deed
holder(s) has commenced and is diligently pursuing the remedies necessary to
cure such default, in which event this Lease shall not be terminated while such
remedies are being so diligently pursued.

                             ARTICLE IX - DEFAULT

     9.1  Events of Default.  The occurrence of any of the following events if
          -----------------
not remedied within the allotted time period, if any, hereinafter provided shall
constitute an Event of Default by Tenant under this Lease: (1) Failure of Tenant
to pay Rent on the due date for payment or any other charge or sum to be paid to
Landlord by Tenant when invoiced therefor (except that one time per calendar
year, Tenant shall have five (5) days after receipt of written notice from
Landlord to cure a default under this subsection (1)); (2) Failure by Tenant to
comply with any of the rules, regulations, agreements, covenants, terms and
conditions contained or referred to herein (other than the failure to pay Rent
and other sums of money), if not remedied for a period of fifteen (15) days
following receipt of written notice thereof; provided, that in the event a
default or breach is not susceptible of being remedied within such fifteen (15)
day period the time permitted Tenant to remedy the default or breach shall be
extended for as long as shall be reasonably necessary to remedy same if Tenant
commences promptly and proceeds diligently until successful to remedy such
default or breach, except that the period for remedying a default or breach
shall not be so extended if the extension in Landlord's reasonable judgment may
jeopardize the value of the Lot or Building or the interest of the Landlord in
the Lot or Building or may subject Landlord to civil or criminal liabilities;
(3) Filing by or against Tenant in any court pursuant to any statute, either of
the United States or of any state, of a petition for bankruptcy or insolvency,
or for reorganization, or for any arrangement or for appointment of a receiver
or trustee of all or a portion of Tenant's property; provided, that if the
action or proceeding be against Tenant, the same shall not become an Event of
Default if the petition shall be dismissed within sixty (60) days after the
commencement thereof; (4) Dissolution or liquidation of Tenant, whether
voluntary or involuntary, or the taking of possession of any of Tenant's
property by execution and levy or attachment; and (5) Abandonment of the
Premises by Tenant for more than ten (10) consecutive business days.

                                       23
<PAGE>

     9.2  Landlord's Rights After Default.
          -------------------------------

          9.2.1  Upon the occurrence of any Event of Default, Landlord shall
have all rights and remedies allowed at law, in equity, by statute and otherwise
and in addition the Landlord may give notice to Tenant at any time after said
Event of Default stating that Tenant's right to possession of the Premises shall
expire on the date specified in such notice and upon the date specified in such
notice all right of Tenant to possession of the Premises hereunder shall
terminate, but Tenant shall remain liable as hereinafter provided.

          9.2.2  At any time after the expiration of Tenant's possessory right
to the Premises, Landlord may relet the Premises or any part thereof in the name
of Landlord or otherwise for such term (which may be greater or less than the
period which would otherwise have constituted the balance of the term of this
Lease) and on such conditions (which may include concessions or free rent) as
Landlord, in its reasonable discretion, may determine, and may collect and
receive the rent therefrom. Landlord shall in no way be responsible or liable to
Tenant for any failure to relet the Premises or any part thereof, or for any
failure to collect any rent due upon any such reletting and Tenant's liability
shall not be affected or diminished in any respect by such failure so long as
Landlord has made a reasonable, good faith effort to mitigate its damages as
required by law. In the event Landlord relets said Premises at a rental higher
than that due from Tenant under the provisions hereof, Tenant shall not be
entitled to share in any excess. Landlord, at its option, may make such
alterations, repairs and changes in the Premises as Landlord in its sole
judgment considers advisable or necessary for the purpose of reletting the
Premises, and the making of such alterations, repairs and changes shall not
operate or be construed to release Tenant from any liability.

          9.2.3  At any time after any expiration of Tenant's possessory right
to the Premises, Landlord at its option and as an alternative and in lieu of
collection of damages as set forth in Section 9.3.2, below, may demand as and
                                      -------------
for liquidated and agreed final damages for Tenant's default(s), and Tenant
shall pay to Landlord, an amount equal to the difference between the Rent
(including Additional Rent reasonably projected by Landlord) payable hereunder
for the unexpired portion of the Term and the then fair and reasonable rental
value of the Premises for the same period, discounted at the rate of four
percent (4%) per annum from the date of expiration of Tenant's possessory right
to the end of the Term of the Lease.  Tenant shall also pay to Landlord all of
Landlord's reasonable expenses incurred in connection with any reletting,
including without limitation all repossession costs, brokerage commissions,
legal expenses, reasonable attorney's fees, alteration and repair costs, and
expenses of preparation for reletting (which shall be limited to building
standard materials). If the Premises, or any part thereof, are relet by Landlord
for the unexpired Term of this Lease or any part thereof, the amount of rent
payable upon such reletting shall be deemed to be the fair and reasonable rental
value for the part or the whole of the Premises so relet during the term of the
reletting.

          9.2.4  If Tenant shall default in the performance of any of Tenant's
covenants or agreements herein contained beyond any express cure period as
provided herein, Landlord may cure said default(s) on behalf of Tenant. Any
amount paid, or expense or liability incurred by, Landlord in the performance of
any such matter for the account of Tenant shall be deemed to be Additional Rent
and the same, together with the greater of interest thereon at the rate of
eighteen percent (18%) per annum, or the maximum interest rate allowed by law
from the date upon

                                       24
<PAGE>

which any such expense shall have been incurred, may be added, at the option of
Landlord, to any Rent then due or thereafter falling due hereunder. Nothing
contained herein shall be construed to prevent Landlord from immediately
collecting from Tenant by suit or otherwise, any such sums with interest.

     9.3  Tenant's Obligations After Default.
          ----------------------------------

          9.3.1  Upon the expiration of Tenant's possessory right pursuant to
Section 9.2.1, above, Tenant shall quit and peacefully surrender the Premises to
-------------
Landlord, and Landlord, upon or at any time after any such expiration, may re-
enter the Premises without further notice and repossess Tenant by force, summary
proceedings, ejectment, or otherwise and may dispossess and remove Tenant and
all other persons and property from the Premises and shall have, hold and enjoy
the Premises and the right to receive all rental income therefrom.

          9.3.2  The expiration of Tenant's right to possession of the Premises
shall not relieve Tenant of its liabilities hereunder and the obligations
created hereby shall survive any such expiration. In the event of such
expiration, whether or not the Premises or any part thereof shall have been
relet, Tenant shall pay to Landlord the Rent required to be paid by Tenant up to
the time of such expiration, and thereafter Tenant, until the end of the Term of
this Lease, shall be liable to Landlord, and shall pay to Landlord, as and for
liquidated and agreed current damages for Tenant's default(s): the equivalent of
the amount of the Rent which would be payable under this Lease by Tenant if
Tenant were still in possession, less the net proceeds of any reletting effected
pursuant to the provisions of Section 9.2.2, after deducting all of Landlord's
                              -------------
expenses in connection with such reletting, including without limitation all
repossession costs, brokerage commissions, legal expenses, reasonable attorney's
fees, alteration and repair costs and expenses of preparation for such
reletting. Tenant shall pay such current damages, herein called "deficiency," to
Landlord monthly on the days on which the Rent is payable under the terms of
this Lease, and Landlord shall be entitled to recover from Tenant each monthly
deficiency as such deficiency shall arise.

          9.3.3  If Landlord shall elect to exercise the rights and remedies
afforded to Landlord under the provisions of Section 9.2.3 above, Tenant shall
                                             -------------
pay to Landlord the liquidated and final damages.

     9.4  General Provisions.
          ------------------

          9.4.1  Nothing herein contained shall limit or prejudice the right of
Landlord to provide and obtain as damages by reason of such default an amount
equal to the maximum allowed by any statute or rule of law in effect at the time
when such damages are to be proved.

          9.4.2  Any suit brought to collect the amount of the deficiency for
any month shall not prejudice the right of Landlord to collect the deficiency
for any subsequent month by a similar action.

                                       25
<PAGE>

          9.4.3  Landlord shall be required to give only that notice or service
of any notice of intention to re-enter, or of the institution of legal
proceedings required by law.  Tenant, for and on behalf of itself and all
persons claiming through or under Tenant, also waives any right of redemption or
re-entry or repossession or restoration of Tenant's possessory rights hereunder
in the event Tenant shall be dispossessed by a judgment or by action of any
court or judge or in case of re-entry or repossession by Landlord as a result of
Tenant's default. Landlord and Tenant, so far as permitted by law, waive trial
by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other on any matter arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the Premises, or any claim of injury or damage.

          9.4.4  Any action taken by Landlord under this Article IX shall not
                                                         ----------
operate as a waiver of any right Landlord would otherwise have against Tenant
for breach of this Lease and Tenant shall remain liable to Landlord for any
damages suffered by Landlord by reason of Tenant's default or breach.

          9.4.5  Landlord and Tenant shall be entitled to enjoin any breach or
threatened breach by the other of any of the agreements, covenants, terms and
conditions contained in this Lease, and in the event of such breach shall have
all rights and remedies allowed at law, in equity, by statute, or otherwise. Any
and all remedies referred to herein are considered cumulative and not exclusive.
Mention of particular remedies herein shall not prevent the parties from
pursuing other remedies in law or equity in the event of breach or default,
except as otherwise set forth herein.

          9.4.6  The Terms "enter," "re-enter," "entry," or "re-entry," as used
in this Lease are not restricted to their technical legal meaning.

                           ARTICLE X - MISCELLANEOUS

     10.1 Titles. The titles of the Articles are for convenience and are not to
          ------
be considered in construing this Lease.

     10.2 Notice of Lease. Upon request of the other party, Landlord or Tenant
          ---------------
shall execute and deliver, after the Term begins, a short form of this Lease in
form mutually acceptable to the parties hereto and appropriate for recording or
registration, and if this Lease is terminated before the Term expires, an
instrument in such form acknowledging the fact and date of termination. This
Lease shall not be recorded.

     10.3 Relocation.  [INTENTIONALLY DELETED]
          ----------

     10.4 Notice.  No notice, approval, consent requested or election required
          ------
or permitted to be given or made pursuant to this Lease shall be effective
unless the same is in writing. Communications shall be addressed, if to
Landlord, at Landlord's Address or at such other address as may have been
specified by prior notice to Tenant and, if to Tenant, at Tenant's Address or at
such other place as may have been specified by prior notice to Landlord. Tenant

                                       26
<PAGE>

hereby acknowledges that the following address is also an acceptable address for
notices hereunder: 3600 West Bay Shore Road, Suite 205, Palo Alto, California
                   ----------------------------------------------------------
94303. Any communication so addressed shall be deemed duly served if mailed by
-----
registered or certified mail, return receipt requested, or delivered by
nationally recognized overnight courier service, or if hand delivered, at the
time received (or delivery is refused, or attempted during normal weekday
business hours, so long as written notice of the attempted delivery is delivered
thereafter by one of the alternative methods listed above).

     10.5  Bind and Inure. The obligations of this Lease shall run with the
           --------------
land, and this Lease shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. Whenever the
Premises are owned by a trustee or trustees, the obligations of Landlord shall
be binding upon Landlord's trust estate, but not upon any trustee, beneficiary
or shareholder of the trust individually or corporately.

     10.6  No Surrender. The delivery of keys or other such tender of possession
           ------------
of the Premises to Managing Agent, or to an employee of Managing Agent or to
Landlord's agent or any employee thereof, shall not operate as a termination of
this Lease or a surrender of the Premises.

     10.7  No Waiver, Etc. The failure of Landlord or of Tenant to seek redress
           --------------
for violation of, or to insist upon the strict performance of any covenant or
condition of this Lease or, with respect to such failure of Landlord, any of the
Rules and Regulations referred to in Section 6.1.4, whether heretofore or
hereafter adopted by Landlord, shall not be deemed a waiver of such violation
nor prevent a subsequent act, which would have originally constituted a
violation, from having all the force and effect of an original violation, nor
shall the failure of Landlord to enforce any of said Rules and Regulations
against any other tenant in the Building be deemed a waiver of any such Rules or
Regulations. The receipt by Landlord of Rent or any other sums with knowledge of
the breach of any covenant of this Lease shall not be deemed a waiver of such
breach by Landlord, unless such waiver be in writing signed by Landlord or an
executive officer of Landlord. No consent or waiver, express or implied, by
Landlord or Tenant to or of any breach of any agreement or duty shall be
construed as a waiver or consent to or of any other breach of the same or any
other agreement or duty.

     10.8  No Accord and Satisfaction. No acceptance by Landlord of a lesser sum
           --------------------------
than the Rent, late charges and other sums then due shall be deemed to be other
than on account of the earliest installment of such payments due, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment be deemed as accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance of such
installment or pursue any other remedy in this Lease provided.

     10.9  Cumulative Remedies. The specific remedies to which Landlord may
           -------------------
resort under the terms of this Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which it may be lawfully
entitled in case of any breach or threatened breach by Tenant of any provisions
of this Lease. In addition to the other remedies provided in this Lease,
Landlord shall be entitled to the restraint by injunction of the violation or
attempted or

                                       27
<PAGE>

threatened violation of any of the covenants, conditions or provisions of this
Lease or to a decree compelling specific performance of any such covenants,
conditions or provisions.

     10.10 Partial Invalidity. If any term of this Lease, or the application
           ------------------
thereof to any person or circumstances shall to any extent be invalid or
unenforceable, the remainder of this Lease, or the application of such term to
persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each term of this Lease shall
be valid and enforceable to the fullest extent permitted by law.

     10.11 Landlord's Right to Cure. If Tenant shall at any time default in the
           ------------------------
performance of any obligation under this Lease and such default is not remedied
for a period of fifteen (15) days following receipt of written notice thereof
(provided, that in the event a default or breach is not susceptible of being
remedied within such fifteen (15) day period the time permitted Tenant to remedy
the default or breach shall be extended for as long as shall be reasonably
necessary to remedy same if Tenant commences promptly and proceeds diligently
until successful to remedy such default or breach, except that the period for
remedying a default or breach shall not be so extended if the extension in
Landlord's reasonable judgment may jeopardize the value of the Lot or Building
or the interest of the Landlord in the Lot or Building or may subject Landlord
to civil or criminal liabilities), Landlord shall have the right, but shall not
be obligated, to enter upon the Premises and to perform such obligation,
notwithstanding the fact that no specific provision for such substituted
performance by Landlord is made in this Lease with respect to such default . In
performing such obligation, Landlord may make any payment of money or perform
any other act. All sums so paid by Landlord (together with interest at the
maximum rate set by statute), and all necessary incidental costs and expenses in
connection with the performance of any such act by Landlord, shall be deemed to
be Additional Rent under this Lease and shall be payable to Landlord immediately
on demand. Landlord may exercise the foregoing rights without waiving any other
of its rights or releasing Tenant from any of its obligations under this Lease.

                                       28
<PAGE>

     10.12 Estoppel Certificates. Tenant agrees on the Commencement Date, and
           ---------------------
from time to time thereafter upon not less than ten (10) days prior written
request by Landlord, to execute, acknowledge and deliver to Landlord a statement
in writing, certifying that this Lease is unmodified and in full force and
effect; that Tenant is in possession of the Premises and has no defenses,
offsets or counterclaims against its obligations to pay Rent and to perform its
other covenants under this Lease; that there are no incurred defaults of
Landlord or Tenant under this Lease (or, if there have been any modifications,
that this Lease is in full force and effect as modified and stating the
modifications, and if there are any defenses, offsets, counterclaims, or
defaults, setting them forth in reasonable detail); the dates to which the Rent
and other charges have been paid; and certifying to such other information as
Landlord's mortgagee or prospective purchaser of the Lot and Building may
reasonably request. If Tenant fails to respond within ten (10) days of receipt
by Tenant of a written request by Landlord as herein provided, Tenant shall be
deemed to have given such certificate as above provided without modification and
shall be deemed to have admitted the accuracy of any information supplied by
Landlord to a prospective purchaser or mortgagee. Any such statement delivered
pursuant to this Section 10.12 may be relied upon by any prospective purchaser
or mortgagee of premises which include the Premises or any prospective assignee
of any such mortgagee.

     10.13 Waiver of Subrogation. Any property insurance carried by either party
           ---------------------
shall, if the other party so requests and it can be so written without
additional premium or with an additional premium which the other party agrees to
pay, include a clause or endorsement denying to the insurer rights of
subrogation against the other party to the extent rights have been waived by the
insured prior to occurrence of loss. Each party, notwithstanding any provisions
of this Lease to the contrary, hereby waives any rights of recovery against the
other for loss due to hazards covered by property insurance containing such
clause or endorsement to the extent of the indemnification received thereunder.

     10.14 Brokerage. Pursuant to separate agreements, Landlord shall pay
           ---------
brokerage commissions to Grubb & Ellis for Tenant and Spectrum Properties for
Landlord in connection with this Lease. Tenant and Landlord each represent and
warrant to the other that neither it nor its officers or agents nor anyone
acting on its behalf has dealt with any other real estate broker, and Tenant and
Landlord each agree to defend, indemnify and hold each other, its agents,
employees, partners, directors, shareholders and independent contractors
harmless from and against any and all liabilities, costs, demands, judgments,
settlements, claims, and losses, including reasonable attorneys fees and costs,
incurred by Landlord or Tenant in conjunction with any such claim or claims of
any other broker or brokers claiming to have interested Tenant in the Building
or Premises or claiming to have caused Tenant to enter into this Lease.

                                       29
<PAGE>

     10.15 Evidence of Authority. If requested by Landlord, Tenant shall furnish
           ---------------------
appropriate legal documentation evidencing the valid existence and good standing
of Tenant and the authority of any parties signing this Lease to act for Tenant.
If Tenant signs as a corporation, each of the persons executing this Lease on
behalf of Tenant does hereby covenant and warrant that Tenant is a duly
authorized and existing corporation, that Tenant has and is qualified to do
business in North Carolina, that the corporation has full right and authority to
enter into this Lease and that each of the persons signing on behalf of the
corporation is authorized to do so.

     10.16 Lease Review; Date of Execution. The submission of this Lease to
           -------------------------------
Tenant for review does not constitute a reservation of or option for the
Premises, and this Lease shall become effective as a contract only upon
execution and delivery by both Landlord and Tenant. The date of execution shall
be inserted on the top of the first page of this Lease by Landlord, and shall be
the date on which the last party signed the Lease, or as otherwise may be
specifically agreed by both parties. Such date, once inserted, shall be
established as the final date of ratification by all parties to this Lease, and
shall be the date for use throughout this Lease as the "date of execution" or
"execution date".

     10.17 Choice of Law. This Lease shall be governed by and construed in
           -------------
accordance with the laws of the State in which the Premises are located.

     10.18 Time is of the Essence. Time is of the essence with respect to this
           ----------------------
Lease.

     10.19 Limitation of Liability. Anything in this Lease to the contrary
           -----------------------
notwithstanding, the liability of Landlord to Tenant for any default by Landlord
under the terms of this Lease shall be limited to the equity of Landlord in the
Building and the Lot, and Tenant agrees to look solely to Landlord's equity in
the Building and the Lot for recovery of any judgment from Landlord, it being
intended that neither Landlord nor the shareholders, parents, affiliates,
partners, members, or owners of Landlord shall be personally liable for any
judgment or deficiency.

     Landlord shall not be liable for any damage or injury which may be
sustained by Tenant or any other person from water by reason of the breakage,
leakage or obstruction of the roof, roof drains, sprinkler systems, water or
soil pipes or any other leakage in or about the Premises, or resulting from the
sole negligence or willful misconduct on the part of any of Landlord's other
tenants, their agents or employees. Landlord shall not be liable for any loss of
property from any cause whatsoever, including not by way of limitation, theft,
vandalism or burglary from the Premises, and Tenant covenants and agrees to make
no claim for any such loss at any time.

     In the event of any transfer(s) of Landlord's interest in the Premises or
the Building, other than a transfer for security purposes only, the transferor
shall be automatically relieved of any and all obligations and liabilities on
the part of Landlord accruing from and after the date of such transfer, and
Tenant agrees to attorn to the transferee.

     10.20 Landlord's Consent or Approval. With respect to any provision of this
           ------------------------------
Lease which provides that Tenant shall obtain Landlord's prior consent or
approval, Landlord shall not

                                       30
<PAGE>

unreasonably withhold or delay its consent or approval, unless the provision
specifically states that the decision to grant such consent or approval shall be
in Landlord's sole discretion.

     With respect to any provision of this Lease which provides that Landlord
shall not unreasonably withhold or unreasonably delay any consent or any
approval, Tenant, in no event, shall be entitled to make, nor shall Tenant make,
any claim for, and Tenant hereby waives any claim for money damages; nor shall
Tenant claim any money damages by way of setoff, counterclaim or defense
(without limiting Tenant's right to assert a counterclaim or defense absent a
claim for money damages), based upon any claim or assertion by Tenant that
Landlord has unreasonably withheld or unreasonably delayed any consent or
approval; but Tenant's sole remedy shall be an action or proceeding to enforce
any such provision, or for specific performance, injunction or declaratory
judgment.

     10.21 Force Majeure. Whenever a period of time is herein prescribed for
           -------------
the taking of any action by Landlord, Landlord shall not be liable or
responsible for, and there shall be excluded from the computation of such period
of time, any delays due to any condition, matter or circumstance beyond the
reasonable control of Landlord (collectively, "Force Majeure Matters"; each, a
"Force Majeure Matter"), including, without limitation, the following:  strikes;
defaults or failures to perform by contractors or subcontractors; unavailability
of materials; acts of God; governmental restrictions, war or enemy action or
invasion; insurrection; riot; mob violence; malicious mischief or sabotage; fire
or any other casualty; adverse weather conditions or unusual inclement weather;
a condemnation; or failure of a governmental instrumentality to act in a timely
fashion.  Without limiting the generality of the foregoing, in the event a Force
Majeure Matter affects Landlord's construction and delivery obligation(s)
relative to the Premises under this Lease, at Landlord's option, the
Commencement Date shall be extended by the same number of days as the number of
days of delay caused by such Force Majeure Matter on the critical path of
completing such construction and delivery obligation(s).

                         ARTICLE XI - SECURITY DEPOSIT

     11.1  Security Deposit. Landlord acknowledges receipt from Tenant of the
           ----------------
Security Deposit to be held by Landlord, as security, for and during the Term,
which deposit shall be returned to Tenant, at the termination of this Lease
provided there exists no breach of undertaking of Tenant. The Security Deposit
may be held by Landlord in such manner as it shall elect, and Landlord shall be
entitled to any interest which accrues thereon. If all or any part of the
Security Deposit is applied to an obligation of Tenant hereunder, Tenant shall
immediately upon request by Landlord restore the Security Deposit to its
original amount. Tenant shall not have the right to call upon Landlord to apply
all or any part of the Security Deposit to cure any default or fulfill any
obligation of Tenant, but such use shall be solely in the discretion of
Landlord. Upon any conveyance by Landlord of its interest under this Lease, the
Security Deposit may be delivered by Landlord to Landlord's assignee, grantee or
transferee. Upon any such delivery and upon such assignee, grantee or transferee
agreeing to assume the obligations of Landlord hereunder, Landlord shall
thereupon be released of any and all liability with respect to the Security
Deposit, its application and return, and Tenant agrees to look solely to such
assignee,

                                       31
<PAGE>

grantee or transferee. It is further understood that this provision shall also
apply to subsequent assignees, grantees and transferees.

        ARTICLE XII - COVENANT OF QUIET ENJOYMENT/LANDLORD'S WARRANTIES

     Subject to the terms of the Lease, Tenant shall peacefully and quietly hold
and enjoy the Premises free of acts of interference of Landlord during the Term
so long as Tenant does not default in the performance of any of its covenants
and obligations hereunder beyond any express cure period.  Landlord warrants
that (i) it has full right and authority to lease the Premises upon the terms
and conditions herein set forth and (ii) it has good and marketable title to the
Premises.

                                       32
<PAGE>

     EXECUTED as a sealed instrument pursuant to proper authority in two or more
counterparts on the date and year first above written.

                                   LANDLORD:
                                   --------

                                   COLONNADE DEVELOPMENT LLC, a Delaware
                                   limited liability company

                                   By:  G&I Colonnade LLC, a Delaware limited
                                        liability company, its managing member

                                        By:  G&I Investment Colonnade, LLC, a
                                             Delaware limited liability company,
                                             its managing member

                                             By:  G&I Investment Colonnade
                                                  Corporation, a Delaware
                                                  corporation, its managing
                                                  member

                                                  By:  ________________________
                                                        ___________President

                                   TENANT:
                                   ------

                                   SALIX PHARMACEUTICALS, INC.,
                                   a California corporation
[corporate seal]
                                   By:  ________________________________________
                                        Name:___________________________________
                                        Title:__________________________________

                                       33
<PAGE>

                                   EXHIBIT A
                                   ---------

                           Legal Description of Lot

                                      A-1
<PAGE>

                                  EXHIBIT A-1
                                  -----------

                      Legal Description of Project Tract

                                     A-1-1
<PAGE>

                                   EXHIBIT B
                                   ---------

                          Plan Showing Tenant's Space

                                      B-1
<PAGE>

                                   EXHIBIT C
                                   ---------

                          Landlord/Tenant Work Letter

     Landlord shall construct "Landlord's Work" at Landlord's sole cost and
expense, except as expressly stated otherwise herein.  "Landlord's Work"
consists of the "Base Building" improvements described below, and the tenant
improvements set out in the Space Plans and Final Plans (collectively, the
"Plans") as those terms are hereinafter defined.  All changes, modifications,
substitutions or additions to the Plans requested by Tenant after initially
approved by Landlord shall, if such changes are approved by Landlord in writing,
be completed at Tenant's expense.

A.   IMPROVEMENTS TO THE PREMISES.
     ----------------------------

     I.   Base Building.  Landlord shall construct, at Landlord's sole expense,
          -------------
     as a part of the "Base Building" improvements, the following:

          a.  Building Shell.
              --------------

          b.  Building Core Areas.  Including, but not limited to Base Building
              -------------------
mechanical, electrical, plumbing, heating ventilation, air conditioning and life
safety systems as installed, including those required to obtain a Certificate of
Occupancy for the Building Shell.

          c.  Heating Ventilation and Air Conditioning.  Landlord shall equip
              ----------------------------------------
the floor of Tenant's Premises with heating, ventilation and air conditioning
units designed to service the entire floor.  Landlord shall, at the Landlord's
sole expense, furnish and install a pro rata share of VAV boxes, primary air
distribution duct work, and controls (excluding flex duct and interior
diffusers) required to satisfy the Base Building design criteria.

          d.  Electrical.  A pro rata share of existing electrical bus
              ----------
connectors, transformers, panels, circuit breakers, standard light fixtures at 1
per 85 USF but not including installation costs and distribution wiring shall be
included within the Base Building.

          e.  Life Safety System.  As part of the Base Building work, Landlord
              ------------------
shall provide the following for each floor of the Building:  exit signs at
stairways, emergency lights, smoke detectors, fire extinguishers and fire horn
as required by applicable codes.  Tenant shall bear the cost of any of the above
required within Tenant's Premises or in such areas as a corridor extended for
Tenant's use.

          f.  Telephone.  Landlord shall provide Tenant with access from the
              ---------
Tenant's telephone equipment room to the location(s) of incoming telephone
service entering the Building.

                                      C-1
<PAGE>

Tenant shall bear the cost of all cables and conduits, including but not limited
to teflon-coated telephone cable, fiberoptics and associated connections.

          g.   Ceilings.  Landlord shall provide (but not install) throughout
               --------
Tenant's Premises a ceiling suspension grid and shall provide (but not install)
ceiling tile located in sufficient quantities on Tenant's floor(s), for
installation in the ceiling grid.

          h.   Window Treatment.  Landlord shall furnish and install, in all
               ----------------
exterior windows "Building Standard Window Treatment".

               (1)  Building Standard Window Treatment shall consist of one-inch
deep tapeless horizontal window blinds on exterior windows which shall have a
manually operated mechanism.

          i.   Finishes.  Landlord shall furnish and install the following
               --------
finish items:

               (1)  Window-wall heads and sills shall be insulated.

               (2)  Core wall surfaces and elevator lobby walls shall be framed
and covered with gypsum board, taped, bedded and sanded.

               (3)  Base Building toilet rooms shall be fully furnished
including the installation of all ceramic tile and all painting and wall
covering.

               (4)  Base Building mechanical rooms, telephone and electrical
closets shall be covered with gypsum board, taped, bedded and sanded.

          j.   Miscellaneous.  Landlord shall also provide:  (1) public stairs
               -------------
and fire escapes to meet all applicable codes; (2) Base Building elevators; (3)
elevator lobbies on each floor furnished to Building Standard; (4) the Building
Lobby and elevator lobby; and (5) the public areas of the Building.

     II.  Tenant's Improvements: In addition to the above, Landlord shall
          ---------------------
     construct, at Landlord's sole expense, improvements to the Premises based
     upon the Plans, as described below, to install partitions, doors, light
     fixtures, acoustical ceilings, door coverings, electrical outlets,
     telephone outlets, and other tenant specific updating items including, but
     without limitation, the following:

          a.   Sprinkler Heads.  Relocate or add sprinkler heads to accommodate
               ---------------
               Tenant's partitioning layouts and all applicable city and state
               codes.

          b.   HVAC.  Add additional VAV boxes or fan-powered induction boxes
               ----
               including thermostats to match building standards.  Install
               interior diffusers and additional perimeter slot diffusers.
               Install flex duct and

                                      C-2
<PAGE>

               spinins to supply interior diffusers or additional perimeter slot
               diffusers. Install all thermostats.

          c.   Light Fixtures. Install all light fixtures, conduit raceways and
               --------------
               wiring from base building light junction boxes.  Any additional
               conduits, wiring panel boards and transformers required in excess
               of base building standards to accommodate tenant lighting.

          d.   Electrical Wiring.  Install all electrical power outlets devices
               -----------------
               and conduit raceways and wiring from the base building power
               junction boxes.  Install any additional conduits, wiring panels
               and transformers required in excess of base building systems to
               accommodate Tenant's power requirements.

          e.   Plumbing.  All plumbing fixtures, including hot water heaters,
               --------
               trim and piping.

          f.   Install all ceiling tiles and related accessories.
               -------------------------------------------------

          g.   Install all floor covering and base materials.
               ---------------------------------------------

          h.   Paint other partition finishes.
               ------------------------------

          g.   Corridors.  Install gypsum wall board on leased side of multi-
               ---------
               tenant floor corridor, all demising walls and interior
               partitions, including interior Tenant's demising walls.

          i.   Interior Doors.  Install all interior doors, frames and hardware.
               --------------

          j.   Hot Water.  Install hot water systems for ordinary office
               ---------
               purposes, private restrooms and kitchens within the Premises.

          All of the above shall constitute the "Base Building Condition".

B.   PLANS AND SPECIFICATIONS
     ------------------------

     1.   Tenant's plans and specifications shall be in such form and detail as
Landlord may reasonably require in order to determine (a) if the materials to be
used meet the quality standard prescribed by the Landlord for all improvements
in the Building; and (b) the effect of such proposed improvements on the
structural components and service systems and facilities of the Building.

     Tenant's plans and specifications shall include the following:

                                      C-3
<PAGE>

          a.   Space Plans:  The "Space Plans" shall be a schematic plan of the
Premises indicating the location of all partitions and doors, and shall include
the locations and structural, mechanical, electrical or plumbing requirements of
any equipment or usage which may affect the structural components and service
systems of the Building.

          b.   Final Plans:  The "Final Plans" shall consist of all plans and
specifications necessary to construct the work required to put the Premises in
Ready for Occupancy condition, including mechanical and electrical working
drawings, subject to changes, modifications, substitutions or additions to the
Plans requested by Tenant and Tenant's interior furnishings as described in
Section 3.1 of this Lease.
-----------

          The Plans shall be prepared by iS Design, as requested by Tenant, and
shall be submitted to Landlord on or before September 1, 2000 (the "Delivery
Date").  If available at the time of the execution of this Lease, the Plans
shall be attached hereto as Schedule C-1.  The Final Plans shall be in a form in
                            ------------
which building permits can be readily obtained and shall comply with all
applicable local laws, ordinances, codes and regulations.  The architect shall
certify to Landlord and Tenant in the form attached hereto as Exhibit G that the
Plans comply with the ADA, as that term is defined in the Lease, and all other
pertinent City and County, State and Federal rules, laws and regulations.

     2.   The Plans shall be subject to Landlord's prior written approval, which
approval shall not be unreasonably withheld or delayed.  If Landlord disapproves
of any of the Plans, Landlord shall advise Tenant of the detailed reason(s) for
withholding approval.  After being so advised by Landlord, Tenant shall submit
revised Plans incorporating the reasonably required revisions for Landlord's
approval.  All submissions and resubmissions by  Tenant of the Plans shall be
made in accordance with Section C of this Work Letter (the "Schedule").
Approval by Landlord shall not be deemed to be a representation or warranty by
Landlord with respect to the safety, adequacy, correctness, efficiency or
compliance with the law of Tenant's Plans.

     3.   Tenant's Final Plans shall contain all mechanical and electrical
working drawings.

C.   SCHEDULE
     --------

     The Landlord and the Tenant shall diligently pursue the preparation of the
Plans. Tenant, at its expense, shall provide Landlord or Landlord's architect
with instructions sufficient for preparation of the Plans so that the Space
Plans and the Final Plans shall be prepared and submitted to the Landlord, at
Landlord's sole cost and expense, on or before the Delivery Date as defined in
Paragraph B1 above. Landlord agrees to return any comments on any preliminary
plans or schematic diagrams delivered to the Landlord within ten (10) days of
receipt by Landlord of such plans or drawings.

     All such plans or drawings shall be subject to final approval by the Wake
County Building Standards Department.  Any delay in completing the Landlord's
work because the Plans

                                      C-4
<PAGE>

are not approved by the Wake County Building Standards Department shall
constitute a Force Majeure Matter in accordance with Section 10.21 of this
                                                     -------------
Lease.

D.   TENANT'S WORK
     -------------

     All work not within the scope of Landlord's Work, including, but not
limited to furnishing and installation of telephones, furniture and office
equipment, shall be furnished and installed by the Tenant at Tenant's expense.
Furthermore, any work to make the Premises Ready for Occupancy and not otherwise
required to be provided by the Landlord as described above shall be the
responsibility of the Tenant at Tenant's sole cost and expense.

E.   CERTIFICATE OF OCCUPANCY
     ------------------------

     Landlord and Tenant shall cooperate with each other in the construction of
the improvements to the Premises and shall endeavor to have a Certificate of
Occupancy issued by the appropriate municipality.

F.   APPROVAL
     --------

     The effectiveness of the Lease is contingent upon Landlord and Tenant
agreeing in good faith on the Plans.

                                      C-5
<PAGE>

                                   EXHIBIT D
                                   ---------

                              Landlord's Services

I.   CLEANING.

     A.   General.

          1.   All cleaning work will be performed between 8:00 am and 12:00
               midnight, Monday through Friday, unless otherwise necessary for
               stripping, waxing, etc.

          2.   Abnormal waste removal (e.g., computer installation paper, bulk
               packaging, wood or cardboard crates, refuse from cafeteria
               operation, etc.) shall be Tenant's responsibility.

          3.   On the days the building is closed due to national holidays as
               they are observed by national banks in North Carolina, building
               services are provided on an emergency basis only.

     B.   Daily Operating (5 times per week).

          1.   Tenant Areas.

               a.   Empty and clean all waste receptacles; wash receptacles as
                    necessary.

               b.   Vacuum all rugs and carpeted areas.

               c.   Empty, damp-wipe and dry all ashtrays.

          2.   Lavatories.

               a.   Sweep and wash floors with disinfectant.

               b.   Wash both sides of toilet seats with disinfectant.

               c.   Wash all mirrors, basins, bowls and urinals.

               d.   Spot clean toilet partitions.

               e.   Empty and disinfect sanitary napkin disposal receptacles.

               f.   Refill toilet tissue, towel, soap and sanitary napkin
                    dispensers.

          3.   Public Areas.

               a.   Wipe down entrance doors and clean glass (interior and
                    exterior).

               b.   Vacuum elevator carpets and wipe down doors and walls.

               c.   Clean water coolers.

     C.   Operations as Needed (but not less than every other day).

                                      D-1
<PAGE>

          1.   Tenant and Public Areas.

               a.   Buff all resilient floor areas.

     D.   Weekly Operations.

          1.   Tenant Areas, Lavatories, Public Areas.

               a.   Hand-dust and wipe clean all horizontal surfaces with
                    treated cloths to include furniture, office equipment,
                    windowsills, door ledges, chair rails, baseboards, connector
                    tops, etc., within normal reach.

               b.   Remove finger marks from private entrance doors, light
                    switches and doorways.

               c.   Sweep all stairways.

     E.   Monthly Operations.

          1.   Tenant and Public Areas.

               a.   Thoroughly vacuum seat cushions on chairs, sofas, etc.

               b.   Vacuum and dust grillwork.

          2.   Lavatories.

               a.   Wash down interior walls and toilet partitions.

     F.   As Required and Weather Permitting.

          1.   Entire Building.

               a.   Clean inside of all windows.

               b.   Clean outside of all windows.

     G.   Yearly.

          1.   Tenant and Public Areas.

               a.   Strip and wax all resilient tile floor areas.

II.  HEATING, VENTILATING AND AIR CONDITIONING.

     A.   Heating, ventilating and air conditioning as required to provide
          reasonably comfortable temperatures for normal business day occupancy
          (except holidays); Monday through Friday from 8:00 a.m. to 6:00 p.m.
          and Saturday from 8:00 a.m. to 1:00 p.m. The cost of electricity for
          heating, ventilating and air conditioning shall be paid by Tenant as
          part of Tenant's reimbursement to Landlord for electrical costs under
          Section 4.2 of the Lease.
          -----------

     B.   Maintenance of any additional or special air conditioning equipment
          and the associated operating cost will be at Tenant's expense.

                                      D-2
<PAGE>

III.   WATER.

       A.   Hot water for lavatory purposes and cold water for drinking,
            lavatory and toilet purposes.

IV.    ELEVATORS (if Building is Elevatored).

       A.   Elevators for the use of all tenants and the general public for
            access to and from all floors of the Building. Programming of
            elevators (including, but not limited to service elevators) shall be
            as Landlord from time to time determines best for the Building as a
            whole.

V.     RELAMPING OF LIGHT FIXTURES.

       A.   The cost of lamps, ballasts and starters and the cost of replacing
            same within the Premises shall be treated as an operating expense.

VI.    CAFETERIA AND VENDING INSTALLATIONS.

       A.   Any space to be used primarily for lunchroom or cafeteria operation
            shall be Tenant's responsibility to keep clean and sanitary, it
            being understood Landlord's approval of such use must be first
            obtained in writing.

       B.   Vending machines or refreshments service installations by Tenant
            must be approved by Landlord in writing and shall be restricted in
            use to employees and business callers. All cleaning necessitated by
            such installations shall be at Tenant's expense.

VII.   ADDITIONAL SERVICES.

       A.   Any additional services provided to any tenant which are not
            provided in like manner or quantities to all tenants shall be at the
            sole cost of those receiving such service or services.

       B.   Cost to Tenant for such additional, miscellaneous/incidental work or
            service requested by Tenant will be billed on a cost plus twelve
            percent (12%) basis.

VIII.  ELECTRICITY.

       A.   Landlord, at Landlord's expense, shall furnish electrical energy
            required for lighting, electrical facilities, equipment, machinery,
            fixtures and appliances used in or for the benefit of Tenant's
            Space, in accordance with the provisions of the Lease of which this
            Exhibit is a part.

       B.   Tenant shall not, without prior written notice to Landlord in each
            instance, connect to the Building electric distribution system any
            fixtures, appliances or equipment other than normal office machines
            such as copiers, personal computers, servers, desk-top calculators
            and typewriters, or any fixtures, appliances or equipment which
            Tenant on a regular basis operates beyond normal building operating
            hours. In the event of any such connection, Tenant agrees to an
            increase in the Rent by an amount which will reflect the cost to
            Landlord of the additional electrical service to be furnished by
            Landlord, such increase to be effective as of

                                      D-3
<PAGE>

            the date of any such installation. If Landlord and Tenant cannot
            agree thereon, such amount shall be conclusively determined by a
            reputable independent electrical engineer or consulting firm to be
            selected by Landlord and paid equally by both parties, and the cost
            to Landlord will be included in Landlord's Operating Costs provided
            in Section 4.2 hereof.

       C.   Tenant's use of electrical energy in Tenant's Space shall not at any
            time exceed the capacity of any of the electrical conductors or
            equipment in or otherwise serving Tenant's Space. In order to insure
            that such capacity is not exceeded and to avert possible adverse
            effect upon the Building electric service, Tenant shall not, without
            prior written notice to Landlord in each instance, connect to the
            Building electric distribution system any fixtures, appliances or
            equipment which operate on a voltage in excess of 120 volts nominal
            or make any alteration or addition to the electric system of
            Tenant's Space. Unless Landlord shall reasonably object to the
            connection of any such fixtures, appliances or equipment, all
            additional risers or other equipment required therefor shall be
            provided by Landlord, and the cost thereof shall be paid by Tenant
            upon Landlord's demand. In the event of any such connection, Tenant
            agrees to an increase in the Rent by an amount which will reflect
            the cost to Landlord of the additional service to be furnished by
            Landlord, such increase to be effective as of the date of any such
            connection. If Landlord and Tenant cannot agree thereon, such amount
            shall be conclusively determined by a reputable independent
            electrical engineer or consulting firm to be selected by Landlord
            and paid equally by both parties, and the cost to the Landlord will
            be included in Landlord's Operating Costs as described in Section
            4.2 hereof.

       D.   Landlord may, at any time, elect to discontinue the furnishing of
            electrical energy. In the event of any such election by Landlord:
            (1) Landlord agrees to give reasonable advance notice of any such
            discontinuance to Tenant; (2) Landlord agrees to permit Tenant to
            receive electrical services directly from the public utility
            supplying service to the Building and to permit the existing
            feeders, risers, wiring and other electrical facilities serving
            Tenant's Space to be used by Tenant and/or such public utility for
            such purpose to the extent they are suitable and safely capable; (3)
            Landlord agrees to pay such charges and costs, if any, as such
            public utility may impose in connection with the installation of
            Tenant's meters and to make or, at such public utility's election,
            to pay for such other installations as such public utility may
            require, as a condition of providing comparable electrical service
            to Tenant; (4) the Rent shall be equitably decreased to reflect such
            discontinuance; and (5) Tenant shall thereafter pay, directly to the
            utility furnishing the same, all charges for electrical services to
            the Premises.

       E.   Whenever the Rent is increased or decreased pursuant to any of the
            foregoing paragraphs of this Article, the parties agree, upon
            request of either, to execute and deliver each to the other an
            amendment to this Lease confirming such increase or decrease.

                                      D-4
<PAGE>

                                   EXHIBIT E
                                   ---------

                             Rules and Regulations

1.   The entrance, lobbies, passages, corridors, elevators and stairways shall
     not be encumbered or obstructed by Tenant, Tenant's agents, servants,
     employees, licensees or visitors or be used by them for any purpose other
     than for ingress and egress to and from the Premises. The moving in or out
     of all safes, freight, furniture or bulky matter of any description must
     take place during the hours which Landlord may determine from time to time.
     Landlord reserves the right to inspect all freight and bulky matter to be
     brought into the Building and to exclude from the Building all freight and
     bulky matter which violates any of these Rules and Regulations or the Lease
     of which these Rules and Regulations are a part.

2.   No curtains, blinds, shades, screens or signs other than those furnished by
     Landlord shall be attached to, hung in or used in connection with any
     window or door of the Premises without the prior written consent of
     Landlord. Interior signs on doors shall be painted or affixed for Tenant by
     Landlord or by sign painters first approved by Landlord at the expense of
     Tenant and shall be of a size, color and style acceptable to Landlord.

3.   No additional locks or bolts of any kind shall be placed upon any of the
     doors or windows by Tenant, nor shall any changes be made in existing locks
     or the mechanism thereof without the prior written consent of Landlord.
     Tenant must, upon the termination of its tenancy, restore to Landlord all
     keys of stores, shops, booths, stands, offices and toilet rooms, either
     furnished to or otherwise procured by Tenant, and in the event of the loss
     of any keys so furnished, Tenant shall pay to Landlord the cost thereof.

4.   Reserved and handicap parking spaces should be honored.

5.   Canvassing, soliciting and peddling in the Building are prohibited and
     Tenant shall cooperate to prevent the same.

6.   Tenant may request heating and/or air conditioning during other periods in
     addition to normal working hours by submitting its request in writing to
     the Managing Agent's office not later than 2:00 p.m. the preceding workday
     (Monday through Friday) on forms available from the Managing Agent. The
     request shall clearly state the start and stop hours of the "off-hour"
     service. Tenant shall submit to the Managing Agent a list of personnel who
     are authorized to make such requests. Charges are to be determined from
     time to time by the Managing Agent on the additional hours of operations
     and shall be fair and reasonable and reflect the additional fixed and
     operating costs involved.

7.   Tenant shall comply with all security measures from time to time
     established by Landlord for the Building.

                                      E-1
<PAGE>

                                   EXHIBIT F
                                   ---------

                    Commencement/Expiration Date Agreement

     Landlord and Tenant hereby agree upon the following dates pertinent to the
Lease Agreement:

1.   The date upon which the Premises were "ready for occupancy" as such term is
     described in Section 3.2 was April 23, 2001.
                                  --------------

2.   The Commencement Date of the Term is April 23, 2001.
                                          --------------

3.   The Expiration Date of the Term is April 22, 2011, unless the Lease is
                                        --------------
     terminated sooner pursuant to the provisions set forth in the Lease.

     In the event of a conflict between the Lease and this
Commencement/Expiration Date Agreement, this Agreement shall govern.

                           [SIGNATURE PAGE FOLLOWS]

                                      F-1
<PAGE>

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have executed this Commencement/Expiration Date Agreement as of this _______ day
of June, 2001.

                         LANDLORD:
                         --------

                         COLONNADE DEVELOPMENT LLC, a Delaware
                         limited liability company

                         By:  G&I Colonnade LLC, a Delaware limited
                              liability company, its managing member

                              By:  G&I Investment Colonnade, LLC, a
                                   Delaware limited liability company, its
                                   managing member

                                   By:  G&I Investment Colonnade
                                        Corporation, a Delaware corporation,
                                        its managing member

                                        By:  ________________________
                                             ___________President

                         TENANT:
                         ------

                         SALIX PHARMACEUTICALS, INC.,
                         a California corporation
[corporate seal]

                         By:  _______________________________________
                              Name:__________________________________
                              Title:_________________________________

                                      F-2
<PAGE>

                                   EXHIBIT G
                                   ---------

                            Architect's Certificate

     The undersigned, _______________________________________, does hereby
certify to ______________________________ ("Owner") and
__________________________ ("Tenant") that the plans and specifications it has
drawn and established for the Premises located _______________________________
______________________________________________, Raleigh, North Carolina
__________, comply with all applicable federal, state and local laws, codes,
ordinances and regulations including, without limitation, The Americans with
Disabilities Act of 1990 and the prevailing practice of the agencies having
jurisdiction thereof.

     The undersigned certifies that to the best of its knowledge and belief and
on true basis of the information gathered during site visits and from the
information furnished by the contractor, that construction of the improvements
including with respect to the Premises have been completed in a good and
workmanlike manner substantially in accordance with the plans and specifications
approved by Owner and Tenant.

     This certificate may be relied on by Owner and Tenant. No other parties may
rely on this certificate without the undersigned's written approval.

     Certification and other statements made herein and given to the best of the
undersigned's knowledge, information and belief, based upon professional
services provided in accordance with generally accepted standards of
professional practices.

                                    ______________________________________
                                    (Architect)

                                    By:___________________________________

                                    Its:__________________________________

                                    Date:_________________________________

                                      G-1
<PAGE>

                                   EXHIBIT H
                                   ---------

                            Form of Lease Guaranty

                               (not applicable)

                                      H-1
<PAGE>

                              SPECIAL PROVISIONS

     These Special Provisions are hereby incorporated into this Lease and in the
event that they conflict with any provision of this Lease, these Special
Provisions shall control.

1.   Occupancy of the Premises.  As of the Commencement Date, Tenant shall be
     -------------------------
     obligated to occupy a minimum of 21,285 rentable square feet within the
     Premises.  As of April 1, 2002, Tenant shall be obligated to occupy the
     entire Premises.  However, Tenant shall have the right to occupy additional
     space within the Premises in excess of the minimum thresholds stated above
     at a date earlier than required above, provided that Base Rent shall be
     adjusted upwards on a pro rata basis upon occupancy of such additional
     space within the Premises.

2.   After-Hours HVAC.  Heating, ventilating and air conditioning may be made
     ----------------
     available outside of the normal business hours stated in Article II of
                                                              ----------
     Exhibit D ("Landlord's Services") by prior arrangement with Landlord, and
     ---------
     Tenant shall be billed at an overtime rate of $10.00 per hour, subject to
     increase after one (1) year to reflect increases in Landlord's actual costs
     not to exceed five (5) percent per year as described in Section 4.2.3 of
                                                             -------------
     this Lease.

3.   Acceleration of Expiration Date. Tenant shall have the option to accelerate
     -------------------------------
     the Expiration Date of the Term to either (i) midnight on the day
     immediately preceding the fifth (5th) anniversary of the Commencement Date
     or (ii) 11:59 p.m. on the last day of the full calendar month that is seven
     (7) years and six (6) months after the Commencement Date (either such date
     being referred to as the "Right of Termination Date"), subject to the
     following terms and limitations:

     (a)  In the event Tenant desires to exercise its option to accelerate the
          Expiration Date of the Term pursuant to this Paragraph 3, Tenant shall
                                                       -----------
          so notify Landlord by delivering in writing an unconditional
          termination notice, subject only to the obligations set forth in this

          Paragraph 3, not later than the date that is nine (9) months prior to
          -----------
          the next following Right of Termination Date.  Lessee's option to
          accelerate the Expiration Date of the Term under this Paragraph 3 may
                                                                -----------
          not be exercised at any time other than the specific times set forth
          in this Paragraph 3(a).  If Tenant fails to exercise its option to
                  --------------
          accelerate the expiration date of the Term under this Paragraph 3 by
                                                                -----------
          giving Landlord unconditional written notice of such exercise not
          later than the date that is nine (9) months prior to next following
          Right of Termination Date, Tenant's option to accelerate the
          Expiration Date as of such Right of Termination Date shall
          automatically expire and terminate and shall be of no further force
          and effect.  If Tenant properly exercises its option to accelerate the
          Expiration Date of the Term pursuant to this Paragraph 3, the
                                                       -----------
          effective accelerated Expiration Date shall be the next following
          Right of Termination Date; and as of such date and time, (x) the Term
          and all possessory rights of Tenant relative to the Premises shall be
          deemed to have expired and (y) Landlord may reenter and take
          possession of the Premises free and clear of the Lease and all rights
          of Tenant thereunder.

     (b)  In the event Tenant exercises its right to accelerate the Expiration
          Date of the Term pursuant to this Paragraph 3 and as a condition to
                                            -----------
          the effectiveness of such accelerated expiration of the Term, Tenant
          shall pay and deliver to Landlord in immediately available funds an
          acceleration fee in the amount of the unamortized tenant improvements
          and leasing commissions as reasonably determined by Landlord (using
          straight line amortization over the original Term) as of the
          applicable Right of Termination Date ("Acceleraton Fee").  The
          Acceleration Fee must be delivered to

                                      3-A
<PAGE>

          Landlord by Tenant in immediately available funds not later than the
          Right of Termination Date.

     (c)  In no event shall Tenant be entitled to exercise its option to
          accelerate the Expiration Date of the Term pursuant to this Paragraph
                                                                      ---------
          3 if Tenant is then in default under the terms of the Lease or if any
          -
          event or circumstance has occurred (and is then continuing) which
          event or circumstance will constitute a default of Tenant under the
          terms of the Lease if not cured or corrected prior to the lapse of any
          applicable grace or cure period (if any) afforded to Tenant by the
          terms of the Lease.

     (d)  In no event shall Tenant be entitled to exercise its option to
          accelerate the Expiration Date of the Term pursuant to this Paragraph
                                                                      ---------
          3 if, within thirty (30) days of receipt of Tenant's written notice
          -
          exercising its termination rights as set forth in Paragraph 3(a)
          above, Landlord does the following: (i) as to Right of Termination
          Date (i) as defined above, Landlord offers to lease to Tenant 6,300
          rentable square feet of additional space in the Building or the Park
          (less any additional space which Tenant may have leased in the
          Building or the Park after the Commencement Date) or (ii) as to Right
          of Termination Date (ii) as defined above, Landlord offers to lease to
          Tenant additional space in the Building or Park equal in size to
          twenty-five percent (25%) of the Premises (as measured as of the sixth
          (6/th/) anniversary of the Commencement Date), but in no event shall
          Landlord be required to offer more than 8,100 rentable square feet.
          Such offer shall be on the same terms and conditions as this Lease
          (excluding the Special Provisions of this Lease) at the then-
          applicable rental rate under the Lease, except that as to tenant
          upfit, so long as there are at least five (5) years remaining in the
          Term of this Lease, Tenant shall receive a tenant improvement
          allowance of $17.50 per square foot, valued as of the Commencement
          Date, such that the actual allowance will be adjusted downward to
          account for the portion of the Term that has expired as of the Right
          of Termination Date . Upon such offer by Landlord, Tenant's option to
          accelerate the Expiration Date of the Term shall automatically expire
          and terminate and shall be of no further force and effect.

4.   Signs.  So long as Tenant is not in default under the terms of this Lease
     -----
     beyond any express cure period, Tenant may be listed on any monument sign
     erected listing tenants of the Building, such placard to be of a standard
     size, color and design to be determined by Landlord in Landlord's sole
     discretion.  The cost of providing such placard shall be borne solely by
     Tenant, and shall be paid upon demand by Landlord as Additional Rent
     hereunder.

5.   Tenant Improvements.  Landlord will provide a turnkey buildout based upon
     -------------------
     mutually agreed-upon plans using building standard materials as provided in
     Exhibit C hereto.

                                      3-B
<PAGE>

6.   Right of First Offer.
     --------------------

     (a)  Beginning on the third (3/rd/) anniversary of the Commencement Date,
          so long as Tenant is not in default under the Lease, Tenant may
          require Landlord, by delivering written notice to Landlord, to grant
          Tenant a continuing Right of First Offer to lease additional space in
          the Building during the Term of this Lease, should any such space
          become available for leasing, such right to be governed by the
          following provisions:

     (b)  Terms of Right.
          --------------

          (i)    Landlord and Tenant hereby acknowledge that the rentable
     space in the Building will be subdivided into separate suites (each a
     "Suite") and leased to multiple tenants.

          (ii)   Tenant may exercise this Right of First Offer with respect
     to a Suite only if the leasehold rights of the tenant occupying such Suite
     shall have expired or terminated.

          (iii)  Landlord shall notify Tenant as outlined in Section 6 (a),
     one hundred fifty (150) days in advance.  Tenant then shall have ten (10)
     business days to notify Landlord that Tenant wishes to lease the Suite on
     substantially the same terms and conditions as this Lease, except that rent
     shall be determined by Landlord by reference to the market for space in the
     Building and also for space in comparable first-class office buildings in
     the Raleigh-Durham area.  Thereafter, the parties shall enter into an
     amendment of this Lease to include the Suite as part of the Premises, which
     shall be conditioned in all respects upon the vacation of the Suite by its
     initial tenant.  Tenant shall be conclusively deemed to have declined to
     lease the Suite if Tenant shall fail to notify Landlord of its intention to
     lease or decline the Suite within ten (10) business days after Landlord's
     notice of the availability of the Suite, whereupon Tenant's Right of First
     Offer shall be terminated with respect to such Suite without prejudice to
     any other Suite in the Building.

7.   Renewal Option. Landlord agrees that, provided no event of default by
     --------------
     Tenant shall exist at the time of exercise, Tenant shall have the right to
     renew this Lease for an additional period of five (5) years following the
     Term upon the same terms and conditions, except as hereinafter set forth,
     provided Tenant shall have given Landlord at least twelve (12) months prior
     written notice of exercise of this renewal option in advance of the end of
     the Term.  Rent during the renewal period shall be fair market rent
     determined by Landlord and Tenant by reference to the market for space in
     the Building and also for space in comparable first-class office buildings
     in the Raleigh-Durham area, and adjusted annually during the renewal term
     but in no event shall the Rent be less than the Rent paid during the last
     12 months of the Term.  Tenant shall have the right to rescind its renewal
     if Landlord and Tenant have not agreed on fair market rent within thirty
     (30) days after Tenant's written notice.

8.   Operating Cost Escalation.  Notwithstanding anything to the contrary
     -------------------------
     contained in this Lease, Tenant shall not be obligated to pay the Operating
     Cost Escalation, as defined in Section 4.2. hereof, during calendar year
     2001.

                                      3-C

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