<PAGE>
 
                                                                   Exhibit 10.10

                       * * * * * * * * * * * * * * * * *

                                LEASE AGREEMENT

                       * * * * * * * * * * * * * * * * *

                                    Between

                                ICOS Corporation
                                    (Tenant)

                                      and

                         CarrAmerica Realty Corporation

                                   (Landlord)

                            Dated:  January 7, 1999

                                                                          PAGE i

<PAGE>
 
                                   CONTENTS
<TABLE>
<C>  <S>                                                       <C>  
1.   Lease Agreement ...........................................................    3

2.   Rent ......................................................................    3

     A.   Types of Rent...........................................................  3
          (1)  Base Rent..........................................................  3
          (2)  Operating Cost Share Rent..........................................  3
          (3)  Tax Share Rent.....................................................  3
          (4)  Additional Rent....................................................  3
          (5)  Rent...............................................................  4
     B.   Payment of Operating Cost Share Rent and Tax Share Rent.................  4
          (1)  Payment of Estimated Operating Cost Share Rent and Tax Share Rent..  4
          (2)  Correction of Operating Cost Share Rent............................  4
          (3)  Correction of Tax Share Rent.......................................  4
     C.   Definitions.............................................................  5
          (1)  Included Operating Costs...........................................  5
          (2)  Excluded Operating Costs...........................................  5
          (3)  Taxes..............................................................  7
          (4)  Lease Year.........................................................  7
          (5)  Fiscal Year........................................................  7
     D.   Computation of Base Rent and Rent Adjustments...........................  7
          (1)  Prorations.........................................................  8
          (2)  Default Interest...................................................  8
          (3)  Rent Adjustments...................................................  8
          (4)  Books and Records..................................................  8
          (5)  Miscellaneous......................................................  8

3.   Preparation and Condition of Premises; Maintenance; Possession and
     Surrender of Premises........................................................  9
     A.    Condition of Premises..................................................  9
     B.    Tenant's Possession....................................................  9
     C.    Tenant's Maintenance...................................................  9
     D.    Landlord's Maintenance ................................................  9

4.   Project Services............................................................. 10
     A.    Heating and Air Conditioning........................................... 10
     B.    Electricity............................................................ 10
     C.    Water.................................................................. 10
     D.    Janitorial Service..................................................... 10
     E.    Interruption of Services............................................... 10

5.   Alterations and Repairs...................................................... 10
     A.    Landlord's Consent and Conditions...................................... 10
</TABLE> 

                                                                         PAGE ii
<PAGE>
 
<TABLE> 
<C>        <S>                                                                    <C> 
     B.    Damage to Systems...................................................... 12
     C.    No Liens............................................................... 12
     D.    Ownership of Improvements.............................................. 12
     E.    Removal at Termination................................................. 13

6.   Use of Premises.............................................................. 13
7.   Governmental Requirements and Building Rules................................. 13
8.   Waiver of Claims; Indemnification; Insurance................................. 14
     A.    Indemnification........................................................ 14
     B.    Tenant's Insurance..................................................... 15
     C.    Insurance Certificates................................................. 16
     D.    Landlord's Insurance................................................... 16
     E.    ....................................................................... 16

9.   Fire and other Casualty...................................................... 17
     A.    Termination............................................................ 17
     B.    Restoration............................................................ 17
10.  Eminent Domain............................................................... 17
11.  Rights Reserved to Landlord.................................................. 18
     A.    Name................................................................... 18
     B.    Signs.................................................................. 18
     C.    Window Treatments...................................................... 18
     D.    Keys................................................................... 18
     E.    Access................................................................. 18
     F.    Preparation for Reoccupancy............................................ 18
     G.    Heavy Articles......................................................... 18
     H.    Show Premises.......................................................... 19
     I.    Relocation of Tenant................................................... 19
     J.    Use of Lockbox......................................................... 19
     K.    Repairs................................................................ 19
     L.    Landlord's Agents...................................................... 19
     M.    Building Services...................................................... 19
     N.    Other Actions.......................................................... 19
12.  Tenant's Default............................................................. 20
     A.    Rent Default........................................................... 20
     B.    Other Performance Default.............................................. 20
     C.    Credit Default......................................................... 20
     D.    Abandonment Default.................................................... 20
13.  Landlord Remedies............................................................ 20
     A.    Termination of Lease or Possession..................................... 20
     B.    Lease Termination Damages.............................................. 20 
</TABLE> 

                                                                        PAGE iii
<PAGE>
 
<TABLE> 
<C>                <S>                                                            <C> 
     C.    Possession Termination Damages......................................... 21
     D.    Landlord's Remedies Cumulative......................................... 21
     E.    Litigation Costs....................................................... 21
14.  Surrender.................................................................... 21
15.  Holdover..................................................................... 22
16.  Subordination to Ground Leases and Mortgages................................. 22
     A.    Subordination.......................................................... 22
     B.    Security Deposit....................................................... 22
     C.    Notice and Right to Cure............................................... 22
     D.    Definitions............................................................ 23
17.  Assignment and Sublease...................................................... 23
     A.    In General............................................................. 23
     B.    Landlord's Consent..................................................... 23
     C.    Procedure.............................................................. 23
     D.    Change of Management or Ownership...................................... 24
     E.    Tenant Affiliate....................................................... 24
     F.    Recapture.............................................................. 24
     G.    Sublease to Seattle Genetics........................................... 24
18.  Conveyance by Landlord....................................................... 24
19.  Estoppel Certificate......................................................... 25
20.  Security Deposit............................................................. 25
21.  Force Majeure................................................................ 25
22.  Landlord's Default........................................................... 26
23.  Notices...................................................................... 26
     A.    Landlord............................................................... 26
     B.    Tenant................................................................. 27
24.  Quiet Possession............................................................. 27
25.  Real Estate Broker........................................................... 27
26.  Miscellaneous................................................................ 27
     A.    Successors and Assigns................................................. 27
     B.    Date Payments Are Due.................................................. 27
     C.    Meaning of "Landlord", "Re-Entry, "including" and "Control"............ 28
     D.    Time of the Essence.................................................... 28
     E.    No Option.............................................................. 28
     F.    Severability........................................................... 28
     G.    Governing Law.......................................................... 28
</TABLE> 

                                                                         PAGE iv
<PAGE>
 
<TABLE> 
<C>        <S>                                                                     <C> 
     H.    Attorneys' Fees........................................................ 28
     I.    No Oral Modification................................................... 28
     J.    Landlord's Right to Cure............................................... 28
     K.    Captions............................................................... 28
     L.    Authority.............................................................. 28
     M.    Landlord's Enforcement of Remedies..................................... 28
     N.    Entire Agreement....................................................... 29
     O.    Landlord's Title....................................................... 29
     P.    Light and Air Rights................................................... 29
     Q.    Singular and Plural.................................................... 29
     R.    No Recording by Tenant; Memorandum of Lease............................ 29
     S.    Exclusivity............................................................ 29
     T.    No Construction Against Drafting Party................................. 29
     U.    Survival............................................................... 29
     V.    Rent Not Based on Income............................................... 29
     W.    Building Manager and Service Providers................................. 29
     X.    Late Charge and Interest on Late Payments.............................. 30
     Y.    Tenant's Financial Statements.......................................... 30
     Z.    Parking................................................................ 30
27.  Unrelated Business Income.................................................... 30
28.  Hazardous Substances......................................................... 30
29.  Exculpation.................................................................. 31
30   Attachments.................................................................. 31
 
                   APPENDIX A - Plan of the Premises and the Project
                   APPENDIX B - Rules and Regulations
                   APPENDIX C - Tenant Improvement Agreement
                   APPENDIX D - Mortgages Currently Affecting the Project
                   APPENDIX E - Commencement Date Confirmation
                   APPENDIX F - Legal Description
                   ADDENDUM 1 - Extension Option
</TABLE>

                                                                          PAGE v
<PAGE>
 
                                     LEASE

     THIS LEASE (the "Lease") is made as of January 7, 1999 between CARRAMERICA
REALTY CORPORATION, a Maryland corporation (the "Landlord") and the Tenant as
named in the Schedule below.  The term "Project" means the building (the
"Building") known as Canyon Park East Building D and the land (the "Land")
located at 22215 26th Avenue SE, Bothell, Washington on which the Building is
located.  The Project is legally described on Appendix F hereto.  "Premises"
means that part of the Project leased to Tenant described in the Schedule and
outlined on Appendix A.

     The following schedule (the "Schedule") is an integral part of this Lease.
Terms defined in this Schedule shall have the same meaning throughout the Lease.


                                    SCHEDULE

     1.   Tenant:  ICOS Corporation

     2.   Premises:  Canyon Park East, Building D

          On the Commencement Date, Landlord shall deliver to Tenant possession
          of the entire Premises consisting of 89,786 square feet; provided,
          however, that Tenant's occupancy of 8,913 square feet of Premises area
          depicted on the attached Appendix A (the "Expansion Space") and
          Tenant's obligation to pay Base Rent for the same shall be delayed
          until December 31, 1999, unless Tenant, upon not less than fifteen
          (15) days' prior written notice to Landlord, elects to occupy the
          Expansion Space before December 31, 1999. Tenant's notice shall
          specifically set forth the date of Tenant's intended occupancy of the
          Expansion Space. Upon Tenant's occupancy of the Expansion Space,
          Tenant's obligation for Base Rent shall increase to the amounts
          payable for months 13-36 in Section 12 of the Schedule.

     3.   Rentable Square Feet of the Premises:  89,786, inclusive of 8,913
          square feet of Expansion Space.

     4.   Tenant's Proportionate Share:  From and after the Commencement Date,
          regardless of when Tenant takes possession of the Expansion Space, (a)
          100.00% (based upon a total of approximately 89,786 square feet in the
          Building), as to all Operating Costs as defined in Section 2B, 2C and
          2D relating specifically to Building D including, without limitation,
          HVAC maintenance and repairs, building management fee (not to exceed
          3% of Base Rent, Operating Cost Share Rent and Tax Share Rent),
          supplies, window cleaning, property insurance, landscape costs,
          parking lot repair and 

                                                                          PAGE 1
<PAGE>
 
          maintenance, Landlord's liability insurance costs, and Taxes, and (b)
          an amount fairly and equitably apportioned by Landlord, of Landlord's
          administration and overhead costs, based on the square feet in the
          Premises and the total square feet in the remainder of the buildings
          in the Landlord's portfolio.

     5.   Security Deposit:  $100,000.00.

     6.   Tenant's Real Estate Broker for this Lease:  None.

     7.   Landlord's Real Estate Broker for this Lease:  None.

     8.   Tenant Improvements, if any: Landlord shall provide the Building Shell
          and Tenant Improvement in an "As Is" condition and Landlord makes no
          representations or warranties as to the suitability for Tenant's use.

     9.   Commencement Date:  January 7, 1999.

     10.  Termination Date/Term:  Five (5) years after the Commencement Date, or
          if the Commencement Date is not the first day of a month, then five
          (5) years after the first day of the month following the month in
          which the Commencement Date occurs.

     11.  Guarantor:  None.

     12.  Base Rent:
<TABLE>
<CAPTION>
                                                                     Annual              Monthly
        Period             Square Footage         Rate             Base Rent            Base Rent
-----------------------  ------------------  ---------------  --------------------  ------------------
<S>                      <C>                 <C>              <C>                   <C>
Partial Month
January 1999                   80,873            $0.00          $        0.00          $      0.00
Month 1                        80,873            $0.00          $        0.00          $      0.00
Month 2                        80,873           $16.00/nnn      $1,216,435.70          $ 98,639.77*
Months 3-12                    80,873           $16.00/nnn      $1,293,968.04          $107,830.67
Months 13-36                   89,786           $16.00/nnn      $1,436,576.00          $119,714.67
Months 37-60                   89,786           $17.76/nnn      $1,594,599.36          $132,883.28
</TABLE>

* subject to Section 2 of the Schedule

                                                                          PAGE 2
<PAGE>
 
     1.  LEASE AGREEMENT.  On the terms stated in this Lease, Landlord leases
the Premises to Tenant, and Tenant leases the Premises from Landlord, for the
Term beginning on the Commencement Date and ending on the Termination Date
unless extended or sooner terminated pursuant to this Lease.

     2.  RENT.

     A.  Types of Rent.  Tenant shall pay the following Rent in the form of a
check to Landlord at the following address:

         CarrAmerica Realty Corporation
         t/a Canyon Park East
         P.O. Box 100267
         Atlanta, GA 30384-0566

     or, at Tenant's option, by wire transfer as follows:

         NationsBank, N.A. (South)
         ABA Number 061-000-052
         Account Number 00 325 580 8067

     or to such other address as Landlord may notify Tenant:

         (1) Base Rent in monthly installments in advance, the first monthly
     installment payable within ten (10) days after approval by the Bankruptcy
     Court of the Lease Termination Agreement and thereafter, on or before the
     first day of each month of the Term in the amount set forth on the
     Schedule.

         (2) Operating Cost Share Rent in an amount equal to the Tenant's
     Proportionate Share of the Operating Costs for that portion of the
     applicable fiscal year of the Lease that falls within the Lease Term, paid
     monthly in advance in an estimated amount.  Definitions of Operating Costs
     and Tenant's Proportionate Share, and the method for billing and payment of
     Operating Cost Share Rent are set forth in Sections 2B, 2C and 2D.

         (3) Tax Share Rent in an amount equal to the Tenant's Proportionate
     Share of the Taxes for that portion of the applicable fiscal year of this
     Lease that falls within the Lease Term, paid monthly in advance in an
     estimated amount.  A definition of Taxes and the method for billing and
     payment of Tax Share Rent are set forth in Sections 2B, 2C and 2D.

         (4) Additional Rent in the amount of all costs, expenses, liabilities,
     and amounts which Tenant is required to pay under this Lease, excluding
     Base Rent, 

                                                                          PAGE 3
<PAGE>
 
     Operating Cost Share Rent, and Tax Share Rent, but including any interest
     for late payment of any item of Rent.

         (5) Rent as used in this Lease means Base Rent, Operating Cost Share
     Rent, Tax Share Rent and Additional Rent.  Tenant's agreement to pay Rent
     is an independent covenant, with no right of setoff or deduction of any
     kind, except as may be otherwise expressly provided in this Lease.

     B.  Payment of Operating Cost Share Rent and Tax Share Rent.

         (1) Payment of Estimated Operating Cost Share Rent and Tax Share Rent.
     Landlord shall estimate the Operating Costs and Taxes of the Project by
     April 1 of each fiscal year, or as soon as reasonably possible thereafter.
     Landlord may revise these estimates whenever it obtains more accurate
     information, such as the final real estate tax assessment or tax rate for
     the Project, and shall use reasonable efforts to do so when and if it
     becomes apparent to Landlord that Operating Costs and Taxes of the Project
     shall substantially vary from Landlord's previous estimate.

         Within thirty (30) days after receiving the original or revised
     estimate from Landlord, Tenant shall pay Landlord one-twelfth (1/12th) of
     Tenant's Proportionate Share of this estimate, multiplied by the number of
     months that have elapsed in the applicable fiscal year to the date of such
     payment including the current month, minus payments previously made by
     Tenant for the months elapsed.  On the first day of each month thereafter,
     Tenant shall pay Landlord one-twelfth (1/12th) of Tenant's Proportionate
     Share of this estimate, until a new estimate becomes applicable.
     Commencing on the Commencement Date, and until a new estimate becomes
     applicable, Tenant shall pay Landlord Tenant's Proportionate Share of
     estimated Operating Costs and Taxes for the Project.

         (2) Correction of Operating Cost Share Rent.  Landlord shall deliver
     to Tenant a report for the previous fiscal year (the "Operating Cost
     Report") by May 15 of each year, or as soon as reasonably possible
     thereafter, setting forth (a) the actual Operating Costs incurred, (b) the
     amount of Operating Cost Share Rent due from Tenant for the previous fiscal
     year or portion thereof, and (c) the amount of Operating Cost Share Rent
     paid by Tenant for the previous fiscal year or portion thereof. Within
     thirty (30) days after such delivery, Tenant shall pay to Landlord the
     amount due minus the amount paid. If the amount paid exceeds the amount
     due, Landlord shall apply the excess to Tenant's payments of Rent next
     coming due.

         (3) Correction of Tax Share Rent.  Landlord shall deliver to Tenant a
     report for the previous fiscal year (the "Tax Report") by May 15 of each
     year, or as soon as reasonably possible thereafter, setting forth (a) the
     actual Taxes, (b) the amount of Tax Share Rent due from Tenant for the
     previous fiscal year or portion thereof, and (c) the amount of Tax Share
     Rent paid by Tenant for the previous fiscal 

                                                                          PAGE 4
<PAGE>
 
     year or portion thereof. Within thirty (30) days after such delivery,
     Tenant shall pay to Landlord the amount due from Tenant minus the amount
     paid by Tenant. If the amount paid exceeds the amount due, Landlord shall
     apply the excess to Tenant's payments of Rent next coming due.

     C.  Definitions.

         (1) Included Operating Costs.  "Operating Costs" means the reasonable
     expenses, costs and disbursements of any kind other than Taxes, paid or
     incurred by Landlord in connection with the management, maintenance,
     operation, insurance, repair and other related activities in connection
     with any part of the Project and of the personal property, fixtures,
     machinery, equipment, systems and apparatus used in connection therewith,
     including the reasonable cost of providing those services required to be
     furnished by Landlord under this Lease.  Operating Costs shall also include
     the costs of any capital improvements which are intended to reduce
     Operating Costs or improve safety, and those made to keep the Project in
     compliance with governmental requirements applicable from time to time
     (collectively, "Included Capital Items"); provided, that the costs of any
     Included Capital Item shall be amortized by Landlord, together with an
     amount equal to interest at two percent (2%) above SeaFirst's prime rate of
     interest per annum, over the estimated useful life of such item and such
     amortized costs are only included in Operating Costs for that portion of
     the useful life of the Included Capital Item which falls within the Term.

          (2)  Excluded Operating Costs.  Operating Costs shall not include:

          (a)  costs of alterations of tenant premises;

          (b)  costs of capital improvements other than Included Capital Items;

          (c)  interest and principal payments on mortgages or any other debt
               costs, or rental payments on any ground lease of the Project;

          (d)  real estate brokers' leasing commissions;

          (e)  legal fees, space planner fees and advertising expenses incurred
               with regard to leasing the Building or portions thereof;

          (f)  any cost or expenditure for which Landlord is reimbursed, by
               insurance proceeds or otherwise, except by Operating Cost Share
               Rent;

          (g)  the cost of any service furnished to any office tenant of the
               Project which Landlord does not make available to Tenant;

          (h)  depreciation (except on any Included Capital Items);

                                                                          PAGE 5
<PAGE>
 
          (i)  estate, inheritance, franchise or income taxes imposed upon
               Landlord, except to the extent imposed in lieu of all or any part
               of Taxes;

          (j)  costs of correcting defects in construction of the Building (as
               opposed to the cost of normal repair, maintenance and replacement
               expected with the construction materials and equipment installed
               in the Building in light of their specifications);

          (k)  legal and auditing fees which are for the benefit of Landlord,
               such as collecting delinquent rents, preparing tax returns and
               other financial statements, and audits other than those incurred
               in connection with the preparation of reports required pursuant
               to Section 2B above;

          (l)  the wages of any employee for services not related directly to
               the management, maintenance, operation and repair of the
               Building;

          (m)  more than $100,000 per year, in cost of repairs or other work
               occasioned by fire, windstorm, earthquake, flood or other
               casualty or loss in excess of any insurance proceeds therefor
               (or, if greater, the proceeds that would have been available had
               Landlord maintained the insurance required to be maintained by
               Landlord pursuant to this Lease), or by the exercise of eminent
               domain;

          (n)  wages, salaries and other compensation paid to employees of the
               Landlord at the Building who are above the level of property
               manager, subject, however, to Section 4(b) of the Schedule;

          (o)  the cost of defending against claims in regard to the existence
               or release of hazardous substances or materials at the Building
               and costs of any clean-up of any such hazardous substances or
               materials (except with respect to those costs for which Tenant is
               otherwise responsible pursuant to the express terms of this
               Lease);

          (p)  costs and expenses incurred in connection with compliance with or
               the contesting or settlement of any claimed violation of law or
               requirements of law, except for any claimed violation of law or
               requirements of law caused by Tenant.  Nothing in this Section
               2.C.(2)(p) shall preclude Landlord from including in Operating
               Expenses any costs or expenses made to keep the Project in
               compliance with governmental requirements in effect from time to
               time;

          (q)  interest, fines, penalties or damages incurred by Landlord for
               late payment of taxes or assessments or under any agreement to
               which Landlord is a party by reason of the breach or default of
               Landlord;

                                                                          PAGE 6
<PAGE>
 
          (r)  amounts received by Landlord through proceeds of insurance to the
               extent the proceeds are compensation for expenses which were
               previously included in Building operating costs charged to
               tenants; and

          (s)  all other items for which Tenant or any other tenant, occupant or
               other party compensates Landlord, so that no duplication of
               payments by Tenant or to Landlord shall occur.

          (3)  Taxes.  "Taxes" means any and all taxes, assessments and charges
     of any kind, general or special, ordinary or extraordinary, levied against
     the Project, which Landlord shall pay or become obligated to pay in
     connection with the ownership, leasing, renting, management, use,
     occupancy, control or operation of the Project or of the personal property,
     fixtures, machinery, equipment, systems and apparatus used in connection
     therewith.  Taxes shall include real estate taxes, personal property taxes,
     sewer rents, water rents, special or general assessments, transit taxes, ad
     valorem taxes, and any tax levied on the rents hereunder or the interest of
     Landlord under this Lease (the "Rent Tax").  Taxes shall also include all
     fees and other costs and expenses paid by Landlord in reviewing any tax and
     in seeking a refund or reduction of any Taxes, whether or not the Landlord
     is ultimately successful.

          For any fiscal year, the amount to be included in Taxes (a) from taxes
     or assessments payable in installments, shall be the amount of the
     installments (with any interest) due and payable during such fiscal year,
     and (b) from all other Taxes, shall be the amount due and payable in such
     year.  Any refund or other adjustment to any Taxes by the taxing authority
     shall apply during the year in which the adjustment is made.

          Taxes shall not include any income (except Rent Tax), capital, stock,
     succession, transfer, franchise, gift, estate or inheritance tax, except to
     the extent that such tax shall be imposed in lieu of any portion of Taxes.

          (4) Lease Year.  "Lease Year" means each consecutive twelve-month
     period beginning with the Commencement Date, except that if the
     Commencement Date is not the first day of a calendar month, then the first
     Lease Year shall be the period from the Commencement Date through the final
     day of the twelve months after the first day of the month following the
     month in which the Commencement Date occurs, and each subsequent Lease Year
     shall be the twelve months following the prior Lease Year.

          (5) Fiscal Year.  "Fiscal Year" means the calendar year, except that
     the first fiscal year and the last fiscal year of the Term may be a partial
     calendar year.

     D.  Computation of Base Rent and Rent Adjustments.

                                                                          PAGE 7
<PAGE>
 
          (1)  Prorations.  If this Lease begins on a day other than the first
     day of a month, the Base Rent, Operating Cost Share Rent and Tax Share Rent
     shall be prorated for such partial month based on the actual number of days
     in such month.  If this Lease begins on a day other than the first day, or
     ends on a day other than the last day, of the fiscal year, Operating Cost
     Share Rent and Tax Share Rent shall be prorated for the applicable fiscal
     year.

          (2)  Default Interest.  Any Base Rent due from Tenant to Landlord and
     any other amounts due and payable with such Base Rent payments, including
     Operating Cost Share Rent and Tax Share Rent not paid within fifteen (15)
     days after the date due shall bear interest from the date due until paid at
     twelve percent (12%) per annum.

          (3)  Rent Adjustments.  If any Operating Cost paid in one fiscal year
     relates to more than one fiscal year, Landlord shall proportionately
     allocate such Operating Cost among the related fiscal years.

          (4)  Books and Records.  Landlord shall maintain books and records
     reflecting the Operating Costs and Taxes in accordance with sound
     accounting and management practices.  Tenant and its certified public
     accountant shall have the right to inspect Landlord's records at Landlord's
     office upon at least seventy-two (72) hours' prior notice during normal
     business hours during the one hundred twenty (120) days following the
     respective delivery of the Operating Cost Report or the Tax Report.  The
     results of any such inspection shall be kept strictly confidential by
     Tenant and its agents, and Tenant and its certified public accountant must
     agree, in their contract for such services, to such confidentiality
     restrictions and shall specifically agree that the results shall not be
     made available to any other tenant of the Building.  Unless Tenant sends to
     Landlord any written exception to either such report within said one
     hundred twenty (120) day period, such report shall be deemed final and
     accepted by Tenant.  Tenant shall pay the amount shown on both reports in
     the manner prescribed in this Lease, whether or not Tenant takes any such
     written exception, without any prejudice to such exception.  If Tenant
     makes a timely exception, Landlord shall cause an independent certified
     public accountant to issue a final and conclusive resolution of Tenant's
     exception.  Tenant shall pay the reasonable cost of such certification
     unless Landlord's original determination of annual Operating Costs or Taxes
     overstated the amounts thereof by more than five percent (5%).  Landlord
     shall refund any overpayment made by Tenant promptly.

          (5)  Miscellaneous.  So long as Tenant is in Default of any obligation
     under this Lease, Tenant shall not be entitled to any refund of any amount
     from Landlord.  If the Term expires, or if this Lease is terminated for any
     reason, prior to the annual determination of Operating Cost Share Rent or
     Tax Share Rent, either party shall pay the full amount due to the other
     within fifteen (15) days after
                                                                          PAGE 8
<PAGE>
 
     Landlord's notice to Tenant of the amount when it is determined. Landlord
     may commingle any payments made with respect to Operating Cost Share Rent
     or Tax Share Rent, without payment of interest.

     3.  PREPARATION AND CONDITION OF PREMISES; MAINTENANCE; POSSESSION AND
         SURRENDER OF PREMISES.

     A.  Condition of Premises.  Landlord is leasing the Premises to Tenant "as
is", without any obligation to alter, remodel, improve, repair or decorate any
part of the Premises, except to the extent of Landlord's maintenance obligations
under Section 3D below.

     B.  Tenant's Possession.  Tenant's taking possession of any portion of the
Premises on or after the Commencement Date shall be conclusive evidence that the
Premises was in good order, repair and condition.  If Landlord authorizes Tenant
to take possession of any part of the Premises prior to the Commencement Date
for purposes of doing business, all terms of this Lease shall apply to such pre-
Term possession, excluding Base Rent, Operating Cost Share Rent and Tax Share
Rent.

     C.  Tenant's Maintenance.  Throughout the Term, subject to Landlord's
maintenance obligations under Section 3D below, and pursuant to Section 5B,
Tenant shall maintain the Premises in good condition, loss or damage caused by
the elements, ordinary wear and tear, and fire and other casualty excepted.
Tenant's obligations shall include maintenance and repair of the electrical,
plumbing and sewage systems, the heating, ventilating and air conditioning
systems, elevators, alarm monitoring systems, lobbies, stairwells, and
restrooms.  At the termination of this Lease, or Tenant's right to possession,
Tenant shall return the Premises to Landlord in good broom-clean condition, loss
or damage caused by the elements, ordinary wear and tear, and fire and other
casualty excepted.  To the extent Tenant fails to perform its obligations,
Landlord may, but need not, restore the Premises to such condition and Tenant
shall pay the cost thereof.

     D.  Landlord's Maintenance.  Subject to Tenant's reimbursement as part of
Operating Cost Share Rent, to the extent permitted in this Lease, Landlord shall
maintain in good condition (ordinary wear and tear and damage caused by fire and
other casualty excepted) the structural and exterior components of the Building
including, without limitation, the foundations, bearing and exterior walls,
subflooring, roof, and unexposed (below grade) electrical, plumbing and sewage
systems.  Landlord shall also maintain in good condition and repair the exterior
common areas (including light bulbs attached to the outside of the Building and
located in the parking lots), parking areas, and outdoor landscaping.  Landlord
shall not be obligated to repair or replace any fixtures or equipment installed
by or for Tenant and Landlord shall not be obligated to make any repair or
replacement occasioned by any act or omission of Tenant, its employees, agents,
contractors, invitees, or licensees.

                                                                          PAGE 9
<PAGE>
 
     4.   PROJECT SERVICES.

     A.   Heating and Air Conditioning.  Landlord shall provide heating and air
conditioning equipment sufficient to provide a comfortable temperature for
normal business operations, except to the extent Tenant installs equipment which
adversely affects the temperature maintained by the air conditioning system.  If
Tenant installs such equipment, Landlord may install supplementary air
conditioning units in the Premises, and Tenant shall pay to Landlord upon demand
as Additional Rent the cost of installation, operation and maintenance thereof.

     B.   Electricity.  Landlord shall provide sufficient electricity to operate
office lighting and the equipment located in the Premises on the Commencement
Date.  If additional electrical capacity is needed by Tenant, Landlord will
reasonably cooperate with Tenant in providing, at Tenant's expense, such
additional capacity.

     C.   Water.  Landlord shall furnish hot and cold tap water for laboratory,
drinking and toilet purposes.

     D.   Janitorial Service.  Tenant shall furnish its own janitorial service.

     E.   Interruption of Services.  If any of the Building equipment or
machinery for which Landlord is responsible, ceases to function properly for any
cause Landlord shall use reasonable diligence to repair the same promptly.
Landlord's inability to furnish, to any extent, the Project services for which
Landlord is responsible, as set forth in this Section 4, or any cessation
thereof resulting from any causes, including, without limitation, any entry for
repairs pursuant to this Lease, and any renovation, redecoration or
rehabilitation of any area of the Building shall not render Landlord liable for
damages to either person or property or for interruption or loss to Tenant's
business, nor be construed as an eviction of Tenant, nor work an abatement of
any portion of Rent, nor relieve Tenant from fulfillment of any covenant or
agreement hereof.  However, in the event that an interruption of the Project
services set forth in this Section 4 causes the Premises to be untenantable for
Tenant's intended use for more than three (3) consecutive business days, and
such interruption was not caused by Tenant, its agents, employees, contractors,
or invitees, Rent shall abate for the period of time thereafter that the
Premises are untenantable.

     5.   ALTERATIONS AND REPAIRS.

     A.   Landlord's Consent and Conditions.

     Tenant shall not make any improvements or alterations to the Premises (the
"Work") without in each instance submitting in advance plans and specifications
for the Work to Landlord, and without obtaining Landlord's prior written consent
which shall not be unreasonably withheld or delayed, except that Landlord's
consent shall not be required for interior, nonstructural alterations that do
not exceed Fifty Thousand Dollars ($50,000) in cost 

                                                                         PAGE 10
<PAGE>
 
per project so long as (a) such Work does not impact the base structural
components or systems of the Building (provided, however, that Tenant may make
minor modifications to the Building systems without the Landlord's consent), and
(b) such Work is not visible from outside the Premises. Notwithstanding the
foregoing, Landlord may withhold its consent in its sole discretion for any Work
which (a) impacts the base structural components, or, except as permitted above,
the Building systems, (b) is visible from outside the Premises, or (c) would
require penetration of the roof of the Building; provided, however, that
Landlord shall not unreasonably withhold, condition or delay its consent to
installation of additional equipment to support Building systems and services or
to roof penetrations related to the same or to existing equipment installations.
Notwithstanding any provision to the contrary, Tenant shall, at Tenant's cost,
on or before the expiration or sooner termination of the Lease, upon Landlord's
request, return to the condition existing as of the date hereof, any portion of
the Building systems modified by Tenant pursuant to the terms of this Section,
and, as to any improvements or alterations for which Tenant shall have otherwise
obtained Landlord's consent, upon Landlord's request given at the time of its
consent to the Work.

     Tenant shall reimburse Landlord for Landlord's reasonable out-of-pocket
costs incurred for review of the plans and all other items submitted by Tenant.
Tenant shall pay for the cost of all Work.  All Work shall become the property
of Landlord upon its installation, except for Tenant's trade fixtures and
equipment that does not affect the functionality of Building systems
(collectively, "Trade Fixtures") and for items which Tenant is required
hereunder to remove at Tenant's cost at the termination of the Lease.

     The following requirements shall apply to all Work:

          (1) Prior to commencement, Tenant shall furnish to Landlord building
     permits, certificates of insurance reasonably satisfactory to Landlord.

          (2) Tenant shall perform all Work so as to maintain peace and harmony
     among other contractors serving the Project and shall avoid interference
     with other work to be performed or services to be rendered in the Project.

          (3) The Work shall be performed in a good and workmanlike manner,
     meeting the standard for construction and quality of materials in the
     Building, and shall comply with all insurance requirements and all
     applicable governmental laws, ordinances and regulations ("Governmental
     Requirements").

          (4) Tenant shall perform all Work so as to minimize or prevent
     disruption to other tenants of the Project, and Tenant shall comply with
     all reasonable requests of Landlord in response to complaints from other
     tenants of the Project.

          (5) Tenant shall perform all Work in compliance with Tenant's
     Contractor Information Program dated January 22, 1997, as the same may be
     modified from time to time with Landlord's reasonable approval and with any
     additional reasonable 

                                                                         PAGE 11
<PAGE>
 
     policies, rules and regulations of Landlord governing contractor conduct in
     effect at the time the Work is performed.

          (6) Tenant shall permit Landlord to participate in the construction
     process, which shall include inviting the Landlord to attend construction
     meetings and permitting the Landlord to have a representative at the job
     site.  If Landlord's employees or contractors perform the Work, Landlord
     may charge a supervisory fee not to exceed fifteen percent (15%) of labor,
     material, and all other costs of the Work.

          (7) Upon completion, Tenant shall furnish Landlord with contractor's
     affidavits and full and final statutory waivers of liens, as-built plans
     and specifications, and receipted bills covering all labor and materials,
     and all other reasonable close-out documentation required by Landlord.

     B.   Damage to Systems.  If any part of the mechanical, electrical or other
systems in the Premises shall be damaged, Tenant shall promptly notify Landlord,
and Landlord shall repair such damage.  Landlord may also at any reasonable time
make any repairs or alterations which Landlord deems necessary for the safety or
protection of the Project, or which Landlord is required to make by any court or
pursuant to any Governmental Requirement.  Tenant shall at its expense make all
other repairs necessary to keep the Premises in good order, condition and
repair; to the extent Tenant fails to do so, Landlord may make such repairs
itself.  The cost of any repairs made by Landlord on account of Tenant's
Default, or on account of the mis-use or neglect by Tenant or its invitees,
contractors or agents anywhere in the Project, shall become Additional Rent
payable by Tenant on demand.

     C.   No Liens.  Tenant has no authority to cause or permit any lien or
encumbrance of any kind to affect Landlord's interest in the Project; any such
lien or encumbrance shall attach to Tenant's interest only.  If any mechanic's
lien shall be filed or claim of lien made for work or materials furnished to
Tenant, then Tenant shall at its expense within ten (10) days thereafter either
discharge or contest the lien or claim.  If Tenant contests the lien or claim,
then Tenant shall (i) within such ten (10) day period, provide Landlord adequate
security for the lien or claim, (ii) contest the lien or claim in good faith by
appropriate proceedings that operate to stay its enforcement, and (iii) pay
promptly any final adverse judgment entered in any such proceeding.  If Tenant
does not comply with these requirements, Landlord may discharge the lien or
claim, and the amount paid, as well as attorney's fees and other expenses
incurred by Landlord, shall become Additional Rent payable by Tenant on demand.

     D.   Ownership of Improvements.  All Work as defined in this Section 5,
partitions, hardware, equipment, machinery and all other improvements and all
fixtures except Trade Fixtures, constructed in the Premises by either Landlord
or Tenant, (i) shall become Landlord's property upon termination or expiration
of the Term without compensation to Tenant, unless Landlord consents otherwise
in writing, and (ii) shall at

                                                                         PAGE 12
<PAGE>
 
Landlord's option either (a) be surrendered to Landlord with the Premises at
the termination of the Lease or of Tenant's right to possession, or (b),
provided Landlord gives notice to Tenant at the time that its approval of the
Work is granted, be removed in accordance with Subsection 5E below.

     E.   Removal at Termination.  Upon the termination of this Lease or
Tenant's right of possession Tenant shall remove from the Project its Trade
Fixtures, furniture, moveable equipment and other personal property, and any
improvements which Landlord has elected to require Tenant to remove in the
manner prescribed by this Section 5.  The term "Trade Fixtures" shall include,
but not be limited to, casework (including shelves, gas valve outlets and
mounted electrical raceways), deionized water systems (including tanks, filter,
pumps and UV light), emergency generator and equipment related switch gear, gas
safety control system and fume hoods (free-standing and mounted), integrated
audio-visual system installed by Tenant, and shall not include such items that
were a part of the Premises prior to the Commencement Date.  Tenant shall repair
all damage caused by the removal of any of the foregoing items.  If Tenant does
not timely remove such property, then Tenant shall be conclusively presumed to
have, at Landlord's election (i) conveyed such property to Landlord without
compensation or (ii) abandoned such property, and Landlord may dispose of or
store any part thereof in any manner at Tenant's sole cost, without waiving
Landlord's right to claim from Tenant all expenses arising out of Tenant's
failure to remove the property, and without liability to Tenant or any other
person.  Landlord shall have no duty to be a bailee of any such personal
property.  If Landlord elects abandonment, Tenant shall pay to Landlord, upon
demand, any expenses incurred for disposition.

     6.   USE OF PREMISES.  Tenant shall use the Premises only for general
office, laboratory, research, process and product development and related uses,
including light manufacturing and storage, and, subject to Section 5 hereof and
all applicable zoning codes, incidentally for daycare for employees' children
and employee-related food service.  Tenant shall not allow any use of the
Premises which will negatively affect the cost of coverage of Landlord's
insurance on the Project.  Tenant shall not allow any use of the Premises which
would cause the value of any part of the Premises to diminish or would interfere
with any other Tenant or with the operation of the Project by Landlord.  Tenant
shall not permit any nuisance or waste upon the Premises, or allow any offensive
noise or odor in or around the Premises.

     If any governmental authority shall deem the Premises to be a "place of
public accommodation" under the Americans with Disabilities Act or any other
comparable law as a result of Tenant's use, Tenant shall either modify its use
to cause such authority to rescind its designation or be responsible for any
alterations, structural or otherwise, required to be made to the Building or the
Premises under such laws.

     7.   GOVERNMENTAL REQUIREMENTS AND BUILDING RULES.  Tenant shall comply
with all Governmental Requirements applying to its use of the Premises.  

                                                                         PAGE 13
<PAGE>
 
Tenant shall also comply with all reasonable rules established for the Project
from time to time by Landlord. The present rules and regulations are contained
in Appendix B. In the event of any conflict between this Lease and any future
rules of Landlord, the terms of this Lease shall control. Failure by another
tenant to comply with the rules or failure by Landlord to enforce them shall not
relieve Tenant of its obligation to comply with the rules or make Landlord
responsible to Tenant in any way. Landlord shall use reasonable efforts to apply
the rules and regulations uniformly with respect to Tenant and tenants in the
Building under leases containing rules and regulations similar to this Lease. In
the event of alterations and repairs performed by Tenant, Tenant shall comply
with the provisions of Section 5 of this Lease and also Tenant's Contractor
Information Program dated January 22, 1997, as the same may be modified from
time to time with Landlord's reasonable approval, and with any additional
reasonable policies, rules and regulations of the Landlord governing contractor
conduct.

     8.   WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE.

     A.   Indemnification.  Tenant shall indemnify, defend and hold harmless
Landlord and its officers, directors, employees and agents against any claim by
any third party for injury to any person or damage to or loss of any property
occurring in the Project and arising from the use of the Premises or from any
other act or omission or negligence of Tenant or any of Tenant's employees or
agents, or from Tenant's breach of its obligations under this Lease.  Tenant's
obligations under this section shall include reasonable attorney's fees and
litigation expenses, and shall survive the termination of this Lease.  Without
limitation of the foregoing, Tenant agrees that the foregoing indemnity
specifically covers actions brought by its own employees.

     Landlord shall indemnify, defend and hold harmless Tenant and its officers,
directors, employees and agents against any claim by any third party for injury
to any person or damage to or loss of any property arising out of damage to
person or Premises or from any other act or omission or negligence of Landlord
or any of Landlord's employees or agents, or from Landlord's breach of its
obligations under this Lease.  Landlord's obligations under this section shall
include reasonable attorney's fees and litigation expenses, and shall survive
the termination of this Lease.  Without limitation of the foregoing, Landlord
agrees that the foregoing indemnity specifically covers actions brought by its
own employees.

     TENANT HEREBY WAIVES ITS IMMUNITY WITH RESPECT TO LANDLORD UNDER THE
INDUSTRIAL INSURANCE ACT (RCW TITLE 51) AND/OR THE LONGSHOREMAN'S AND
HARBORWORKER'S ACT AND/OR ANY EQUIVALENT ACTS AND TENANT EXPRESSLY AGREES TO
ASSUME POTENTIAL LIABILITY FOR ACTIONS BROUGHT AGAINST LANDLORD BY TENANT'S
EMPLOYEES.  THIS WAIVER HAS BEEN SPECIFICALLY NEGOTIATED BY THE PARTIES TO THIS
LEASE AND TENANT HAS HAD THE 

                                                                         PAGE 14
<PAGE>
 
OPPORTUNITY TO, AND HAS BEEN ENCOURAGED, TO CONSULT WITH INDEPENDENT COUNSEL
REGARDING THIS WAIVER.

     LANDLORD HEREBY WAIVES ITS IMMUNITY WITH RESPECT TO TENANT UNDER THE
INDUSTRIAL INSURANCE ACT (RCW TITLE 51) AND/OR THE LONGSHOREMAN'S AND
HARBORWORKER'S ACT AND/OR ANY EQUIVALENT ACTS AND LANDLORD EXPRESSLY AGREES TO
ASSUME POTENTIAL LIABILITY FOR ACTIONS BROUGHT AGAINST TENANT BY LANDLORD'S
EMPLOYEES.  THIS WAIVER HAS BEEN SPECIFICALLY NEGOTIATED BY THE PARTIES TO THIS
LEASE AND LANDLORD HAS HAD THE OPPORTUNITY TO, AND HAS BEEN ENCOURAGED, TO
CONSULT WITH INDEPENDENT COUNSEL REGARDING THIS WAIVER.

     B.   Tenant's Insurance.  Tenant shall maintain the following insurance,
with such higher policy limits as Landlord may reasonably require from time to
time in keeping with industry practices for similar commercial property:

          (1) Commercial General Liability Insurance, with (a) Contractual
     Liability including the indemnification provisions contained in this Lease,
     (b) a severability of interest endorsement, (c) limits of not less than Two
     Million Dollars ($2,000,000) combined single limit per occurrence and not
     less than Two Million Dollars ($2,000,000) in the aggregate for bodily
     injury, sickness or death, and property damage.

          (2) Property Insurance against "All Risks" of physical loss covering
     the replacement cost of all improvements, fixtures and personal property.

          (3) Workers' compensation or similar insurance in form and amounts
     required by law, and Employer's Liability with not less than the following
     limits:

          Each Accident                                 $500,000
          Disease--Policy Limit                         $500,000
          Disease--Each Employee                        $500,000

     Tenant's insurance shall be primary and not contributory to that carried by
Landlord, its agents, or mortgagee.  Landlord, and if any, Landlord's building
manager or agent shall be named as additional insureds as respects to insurance
required of the Tenant in Section 8C(1).  The company or companies writing any
insurance which Tenant is required to maintain under this Lease, as well as the
form of such insurance, shall be subject to Landlord's reasonable approval, and
any such company shall be licensed to do business in the state in which the
Building is located.  Such insurance companies shall have a A.M. Best rating of
A VI or better.

                                                                         PAGE 15
<PAGE>
 
     Tenant shall cause any contractor of Tenant performing work on the Premises
to maintain the following insurance, with such higher policy limits as Landlord
may reasonably require from time to time in keeping with industry practices for
similar commercial property:

          (1) Commercial General Liability Insurance, including contractor's
     liability coverage, contractual liability coverage, completed operations
     coverage, broad form property damage endorsement, and contractor's
     protective liability coverage, to afford protection with limits, for each
     occurrence, of not less than One Million Dollars ($1,000,000) with respect
     to personal injury, death or property damage.

          (2) Workers' compensation or similar insurance in form and amounts
     required by law, and Employer's Liability with not less than the following
     limits:

          Each Accident                                 $500,000
          Disease--Policy Limit                         $500,000
          Disease--Each Employee                        $500,000

     Tenant's contractor's insurance shall be primary and not contributory to
that carried by Tenant, Landlord, their agents or mortgagees.  Tenant and
Landlord, and if any, Landlord's building manager or agent, or mortgagee shall
be named as additional insured on Tenant's contractor's insurance policies.

     C.   Insurance Certificates.  Tenant shall deliver to Landlord certificates
evidencing all required insurance no later than five (5) days prior to the
Commencement Date and each renewal date.  Each certificate will provide for
thirty (30) days' prior written notice of cancellation to Landlord and Tenant.

     D.   Landlord's Insurance.  Landlord shall maintain "All-Risk" property
insurance at one hundred percent (100%) of replacement cost, including loss of
rents, on the Building and on all improvements and fixtures owned by Landlord,
and Commercial General Liability insurance policies covering Landlord's
liability with respect to the common areas of the Project, each with such terms,
coverages and conditions as are normally carried by reasonably prudent owners of
properties similar to the Project.

     E.   Notwithstanding any other provision hereof, neither Landlord nor
Tenant shall be liable to the other or to any insurance company (by way of
subrogation or otherwise) insuring the other party for any loss or damage to any
building, structure or tangible personal property of the other or of any third
party occurring in or about the Premises or Building, even though such loss or
damage might have been occasioned by the negligence of such party, its agents or
employees, if such loss or damage would fall within the scope of the party's
fire and extended coverage (all risk) policy of insurance carried or required
herein to be carried.  Each party shall obtain from its respective insurer under
each insurance policy it maintains a waiver of all rights of subrogation which
the insurer of one party may have 

                                                                         PAGE 16
<PAGE>
 
against the other party, and Landlord and Tenant shall each indemnify the other
against any loss or expense, including reasonable attorneys' fees, resulting
from the failure to obtain such a waiver.

     9.   FIRE AND OTHER CASUALTY.

     A.   Termination.  If a fire or other casualty causes substantial damage to
the Building or the Premises, Landlord shall engage a registered architect to
certify within one (1) month of the casualty to both Landlord and Tenant the
amount of time needed to restore the Building and the Premises to tenantability,
using standard working methods.  If the time needed exceeds twelve (12) months
from the beginning of the restoration, or two (2) months therefrom if the
restoration would begin during the last twelve (12) months of the Lease, then,
either Landlord or Tenant may terminate this Lease by notice to the other party
given within fifteen (15) days after the notifying party's receipt of the
architect's certificate; provided, however, that as to restoration that would
commence during the last twelve (12) months of the Lease term and require at
least two (2) months but less than twelve (12) months to complete, Landlord's
notice to terminate shall be ineffective if Tenant has timely exercised any
available Extension Option, or if Tenant, within ten (10) days following
Landlord's termination notice, provides Landlord with notice of exercise of any
then available Extension Option.  Notwithstanding the foregoing, if flood,
earthquake or other peril for which Landlord is not required by this Lease to
carry, and does not in fact carry, insurance causes damage to the Building or
the Premises for which Landlord's repair costs are reasonably estimated to
exceed $300,000, Landlord may also terminate this Lease by notice to Tenant
given within thirty (30) days from the date of the casualty.  The termination
under this paragraph shall be effective thirty (30) days from the date of the
notice and Rent shall be paid by Tenant to that date, with an abatement for any
portion of the Premises which has been untenantable after the casualty.

     B.   Restoration.  If a casualty causes damage to the Building or the
Premises but this Lease is not terminated for any reason, then Landlord shall
diligently restore the Building and the Premises subject to current Governmental
Requirements.  Tenant shall replace its damaged improvements, personal property
and fixtures.  Rent shall be abated on a per diem basis during the restoration
for any portion of the Premises which is untenantable.

     10.  EMINENT DOMAIN.  If a part of the Project is taken by eminent domain
or deed in lieu thereof which is so substantial that the Premises cannot
reasonably be used by Tenant for the operation of its business in Tenant's
reasonable business judgment, or if any substantial portion of the parking shall
be so taken such that the Premises cannot reasonably be used for the operation
of Tenant's business, then either party may terminate this Lease effective as of
the date of the taking.  If any substantial portion of the Project is taken
without affecting the Premises, then Landlord may terminate this Lease as of the
date of such taking.  Rent shall abate from the date of the taking in proportion
to any part of the Premises taken.  The entire award for a taking of any kind
shall be paid to Landlord, and Tenant shall have no 

                                                                         PAGE 17
<PAGE>
 
right to share in the award except that Tenant shall have the right to any
portion of the award for Tenant's moving costs and Tenant's Fixtures and
personal property. All obligations accrued to the date of the taking shall be
performed by the party liable to perform said obligations, as set forth herein.

     11.  RIGHTS RESERVED TO LANDLORD.

     Landlord may exercise at any time any of the following rights respecting
the operation of the Project without liability to the Tenant of any kind:

     A.   Name.  To change the name or street address of the Building or the
suite number(s) of the Premises.

     B.   Signs.  To install and maintain any project or building identification
signs on the exterior of the Building, and to approve at its sole discretion,
prior to installation, any of Tenant's signs in the Premises visible from the
exterior of the Building.  Subject to Landlord's approval and the codes,
ordinances and regulations of the City of Bothell and the Canyon Park Owner's
Association, Tenant shall have the exclusive right to install tenant
identification signage on the existing monument sign (currently identified as
CellPro) which is located on the exterior of the southwest corner of the
building and the right to install tenant identification signage on the Building.

     C.   Window Treatments.  To approve, at its reasonable discretion, prior to
installation, any shades, blinds, ventilators or window treatments of any kind,
as well as any lighting within the Premises that may be visible from the
exterior of the Building.

     D.   Keys.  To retain passkeys for the Premises and all doors within the
Premises.

     E.   Access.  At reasonable times and on reasonable notice to have access
to inspect the Premises, and to perform its obligations, or make repairs,
alterations, additions or improvements, as permitted by this Lease.  Landlord
shall observe Tenant's reasonable safety and security procedures and shall use
its reasonable best efforts to comply with the reasonable requirements of
Tenant's Health and Safety Manual (provided that Tenant shall have provided
Landlord with a copy of the same) when entering any area designated by Tenant as
"restricted" for health or safety reasons.

     F.   Preparation for Reoccupancy.  To decorate, remodel, repair, alter or
otherwise prepare the Premises for reoccupancy at any time after Tenant abandons
the Premises, without relieving Tenant of any obligation to pay Rent.

     G.   Heavy Articles.  To approve the weight, size, placement and time and
manner of movement within the Building of any safe, central filing system or
other heavy article of Tenant's property.  Tenant shall move its property
entirely at its own risk.

                                                                         PAGE 18
<PAGE>
 
     H.   Show Premises.  At reasonable times and on reasonable notice to show
the Premises to prospective purchasers, brokers, lenders, rating agencies, and
investors, and to others, in connection with Landlord's legitimate business
interests, and, within the last 12 months of the Term, to prospective tenants,
provided that Landlord gives prior notice to Tenant, complies with the
procedures described in E above, and does not materially interfere with Tenant's
use of the Premises.

     I.   Relocation of Tenant.  Deleted.

     J.   Use of Lockbox.  To designate a lockbox collection agent for
collections of amounts due Landlord.  In that case, the date of payment of Rent
or other sums shall be the date of the agent's receipt of such payment or the
date of actual collection if payment is made in the form of a negotiable
instrument thereafter dishonored upon presentment.  However, Landlord may reject
any payment for all purposes as of the date of receipt or actual collection by
mailing to Tenant within 21 days after such receipt or collection the amount
sent by Tenant; provided, however, that the foregoing shall not apply to any
payments timely made in full performance of Tenant's obligations under this
Lease inclusive of any full payments made within any applicable cure period.  It
is the intent of this provision to prevent waiver of claims for payment as the
result of any partial payments or of any full payments made after any applicable
cure period.

     K.   Repairs.  To make repairs otherwise permitted hereunder or to make
alterations related to Landlord's operation and maintenance of the Project, and
in doing so to transport any required material through the Premises, temporarily
close entrances, doors, corridors, elevators and other facilities in the
Project, temporarily open any ceiling in the Premises, or temporarily suspend
services or use of common areas in the Building; provided, however, that
Landlord shall use its best reasonable efforts to minimize interruption of
Tenant's business activities on the Premises and shall not unreasonably
interfere with Tenant's access to the Premises.  Landlord may perform any such
repairs or alterations during ordinary business hours, except that Tenant may
require any Work in the Premises to be done after business hours if Tenant pays
Landlord for overtime and any other expenses incurred.  Landlord may do or
permit any work on any nearby building, land, street, alley or way.

     L.   Landlord's Agents.  If Tenant is in Default under this Lease,
possession of Tenant's funds or negotiation of Tenant's negotiable instrument by
any of Landlord's agents shall not waive any breach by Tenant or any remedies of
Landlord under this Lease.

     M.   Building Services.  To install, use and maintain through the Premises,
above its ceilings and within its walls, pipes, conduits, wires and ducts
serving the Building, provided that such installation, use and maintenance does
not unreasonably interfere with Tenant's use of the Premises or the conduct of
Tenant's business activities on the Premises.

     N.   Other Actions.  To take any other action which Landlord deems
reasonable in connection with the operation, maintenance or preservation of the
Building.

                                                                        PAGE  19
<PAGE>
 
     12.  TENANT'S DEFAULT.

     Any of the following shall constitute a Default by Tenant:

     A.   Rent Default.  Tenant fails to pay any Rent within three (3) days of
written notice that payment has not been received;

     B.   Other Performance Default.  Tenant fails to perform any other
obligation to Landlord under this Lease, and this failure continues for fifteen
(15) days after written notice from Landlord, except that if Tenant begins to
cure its failure within the fifteen (15) day period but cannot reasonably
complete its cure within such period, then, Tenant shall not be in Default so
long as Tenant continues to diligently cure its failure;

     C.   Credit Default.  One of the following credit defaults occurs:

          (1) Tenant commences any proceeding under any law relating to
     bankruptcy, insolvency, reorganization or relief of debts, or seeks
     appointment of a receiver, trustee, custodian or other similar official for
     the Tenant or for any substantial part of its property, or any such
     proceeding is commenced against Tenant and either remains undismissed for a
     period of sixty days or results in the entry of an order for relief against
     Tenant which is not fully stayed within fifteen days after entry;

          (2) Tenant becomes insolvent or bankrupt, does not generally pay its
     debts as they become due, or admits in writing its inability to pay its
     debts, or makes a general assignment for the benefit of creditors;

          (3) Any third party obtains a levy or attachment under process of law
     against Tenant's leasehold interest.

     D.   Abandonment Default.  Tenant abandons the Premises.

     13.  LANDLORD REMEDIES.

     A.   Termination of Lease or Possession.  If Tenant defaults, Landlord may
elect by notice to Tenant either to terminate this Lease or to terminate
Tenant's possession of the Premises without terminating this Lease.  In either
case, Tenant shall immediately vacate the Premises and deliver possession to
Landlord, and Landlord may repossess the Premises and may, at Tenant's sole
cost, remove any of Tenant's signs and any of its other property, without
relinquishing its right to receive Rent or any other right against Tenant.

     B.   Lease Termination Damages.  If Landlord terminates the Lease, Tenant
shall pay to Landlord all Rent due on or before the date of termination, plus
Landlord's reasonable estimate of the aggregate Rent that would have been
payable from the date of termination through the Termination Date, reduced by
the rental value of the Premises calculated as of 

                                                                        PAGE  20
<PAGE>
 
the date of termination for the same period, taking into account anticipated
vacancy prior to reletting, reletting expenses and market concessions, both
discounted to present value at he rate of five percent (5%) per annum. If
Landlord shall relet any part of the Premises for any part of such period before
such present value amount shall have been paid by Tenant or finally determined
by a court, then the amount of Rent payable pursuant to such reletting (taking
into account vacancy prior to reletting and any reletting expenses or
concessions) shall be deemed to be the reasonable rental value for that portion
of the Premises relet during the period of the reletting.

     C.   Possession Termination Damages.  If Landlord terminates Tenant's right
to possession without terminating the Lease and Landlord takes possession of the
Premises itself, Landlord may relet any part of the Premises for such Rent, for
such time, and upon such terms as Landlord in its sole discretion shall
determine, without any obligation to do so prior to renting other vacant areas
in the Building.  Any proceeds from reletting the Premises shall first be
applied to the expenses of reletting, including redecoration, repair,
alteration, advertising, brokerage, legal, and other reasonably necessary
expenses.  If the reletting proceeds after payment of expenses are insufficient
to pay the full amount of Rent under this Lease, Tenant shall pay such
deficiency to Landlord monthly upon demand as it becomes due.  Any excess
proceeds shall be retained by Landlord.

     D.   Landlord's Remedies Cumulative.  All of Landlord's remedies under this
Lease shall be in addition to all other remedies Landlord may have at law or in
equity.  Waiver by Landlord of any breach of any obligation by Tenant shall be
effective only if it is in writing, and shall not be deemed a waiver of any
other breach, or any subsequent breach of the same obligation.  Landlord's
acceptance of payment by Tenant shall not constitute a waiver of any breach by
Tenant, and if the acceptance occurs after Landlord's notice to Tenant, or
termination of the Lease or of Tenant's right to possession, the acceptance
shall not affect such notice or termination.  Acceptance of payment by Landlord
after commencement of a legal proceeding or final judgment shall not affect such
proceeding or judgment.  Landlord may advance such monies and take such other
actions for Tenant's account as reasonably may be required to cure or mitigate
any Default by Tenant.  Tenant shall immediately reimburse Landlord for any such
advance, and such sums shall bear interest at the default interest rate until
paid.

     E.   Litigation Costs.  Tenant shall pay Landlord's reasonable attorneys'
fees and other costs in enforcing this Lease, whether or not suit is filed.

     14.  SURRENDER.  Upon termination of this Lease or Tenant's right to
possession, Tenant shall return the Premises to Landlord in good order and
condition, ordinary wear and tear and casualty and condemnation damage excepted.
If this Lease requires Tenant to remove any alterations, then Tenant shall
remove the alterations in a good and workmanlike manner and repair any damage to
the Premises resulting from that removal.

                                                                         PAGE 21
<PAGE>
 
     15.  HOLDOVER.  Tenant shall have no right to holdover possession of the
Premises after the expiration or termination of this Lease without Landlord's
prior written consent, which consent may be withheld in Landlord's sole and
absolute discretion.  If Tenant retains possession of any part of the Premises
after the Term, Tenant shall become a month-to-month tenant for the entire
Premises upon all of the terms of this Lease as might be applicable to such
month-to-month tenancy, except that Tenant shall pay all of Base Rent, Operating
Cost Share Rent and Tax Share Rent at 150% the rate in effect immediately prior
to such holdover, computed on a monthly basis for each full or partial month
Tenant remains in possession.  If Tenant holds over without the Landlord's prior
written consent, Tenant shall also pay Landlord all of Landlord's direct and
consequential damages.  No acceptance of Rent or other payments by Landlord
under these holdover provisions shall operate as a waiver of Landlord's right to
regain possession or any other of Landlord's remedies.

     16.  SUBORDINATION TO MORTGAGES.

     A.   Subordination.  The Lease is and shall be prior to any mortgage
recorded after the date of the Lease affecting the Building.  If, however, a
lender requires that this Lease be subordinate to any mortgage, this Lease shall
be subordinate to that mortgage only if Landlord first obtains from the lender a
written nondisturbance agreement in commercially reasonable form that provides
substantially that as long as Tenant performs its obligations under this Lease,
no foreclosure of, deed given in lieu of foreclosure of, or sale under the
mortgage, and no steps or procedures taken under the mortgage, shall affect
Tenant's rights under this Lease.

     Tenant shall attorn to any purchaser at any foreclosure sale, or to any
grantee or transferee designated in any deed given in lieu of foreclosure.
Within twenty (20) days following Landlord's or the mortgagee's request
therefor, Tenant shall execute a written agreement reasonably required by any
lender to accomplish the purposes of this Section.

     B.   Security Deposit.  Any mortgagee shall be responsible for the return
of any security deposit by Tenant only to the extent the security deposit is
received by such ground lessor or mortgagee.

     C.   Notice and Right to Cure.  The Project is subject to any mortgage
identified with name and address of mortgagee in Appendix D to this Lease (as
the same may be amended from time to time by written notice to Tenant).  Tenant
agrees to send by registered or certified mail to any mortgagee identified
either in such Appendix or in any later notice from Landlord to Tenant a copy of
any notice of Default sent by Tenant to Landlord.  If Landlord fails to cure
such Default within the required time period under this Lease, but mortgagee
begins to cure within ten (10) days after such period and proceeds diligently to
complete such cure, then mortgagee shall have such additional time as is
necessary to complete such cure, including up to forty-five (45) days to obtain
possession if possession is 

                                                                         PAGE 22
<PAGE>
 
necessary to cure, and Tenant shall not begin to enforce its remedies so long as
the cure is being diligently pursued.

     D.   Definitions.  As used in this Section 16, "mortgage" shall include
"deed of trust" and/or "trust deed" and "mortgagee" shall include "beneficiary"
and/or "trustee", and "mortgagee" and "purchaser at a foreclosure sale" shall
include, in each case, all of its successors and assigns, however remote.

     17.  ASSIGNMENT AND SUBLEASE.

     A.   In General.  Tenant shall not, without the prior consent of Landlord
in each case, (i) make or allow any assignment or transfer, by operation of law
or otherwise, of any part of Tenant's interest in this Lease, (ii) grant or
allow any lien or encumbrance, by operation of law or otherwise, upon any part
of Tenant's interest in this Lease, (iii) sublet any part of the Premises, or
(iv) permit anyone other than Tenant and its employees to occupy any part of the
Premises. Tenant shall remain primarily liable for all of its obligations under
this Lease, notwithstanding any assignment or transfer.  No consent granted by
Landlord shall be deemed to be a consent to any subsequent assignment or
transfer, lien or encumbrance, sublease or occupancy.  Tenant shall pay all of
Landlord's attorneys' fees and other expenses incurred in connection with any
consent requested by Tenant or in reviewing any proposed assignment or
subletting, not to exceed $1,000.  Any assignment or transfer, grant of lien or
encumbrance, or sublease or occupancy without Landlord's prior written consent
shall be void.

     B.   Landlord's Consent.  Landlord will not unreasonably withhold,
condition or delay its consent to any proposed assignment or subletting.  It
shall be reasonable for Landlord to withhold its consent to any assignment or
sublease if (i) Tenant is in Default under this Lease, (ii) the financial
responsibility, nature of business, and character of the proposed assignee or
subtenant are not all reasonably satisfactory to Landlord, (iii) in the
reasonable judgment of Landlord the purpose for which the assignee or subtenant
intends to use the Premises (or a portion thereof) is not in keeping with
Landlord's standards for the Building or are in violation of the terms of this
Lease or any other leases in the Project, (iv) the proposed assignee or
subtenant is a government entity, or (v) a proposed assignment is for less than
the entire Premises or for less than the remaining Term of the Lease.  The
foregoing shall not exclude any other reasonable basis for Landlord to withhold
its consent.

     C.   Procedure.  Tenant shall notify Landlord of any proposed assignment or
sublease at least thirty (30) days prior to its proposed effective date.  The
notice shall include the name and address of the proposed assignee or subtenant,
its corporate affiliates in the case of a corporation and its partners in a case
of a partnership, and sufficient information to permit Landlord to determine the
financial responsibility and character of the proposed assignee or subtenant.
As a condition to any effective assignment of this Lease, the assignee shall
execute and deliver in form reasonably satisfactory to Landlord at least fifteen
(15) days 

                                                                         PAGE 23
<PAGE>
 
prior to the effective date of the assignment, an assumption of all of the
obligations of Tenant under this Lease, as well as an execution copy of the
proposed assignment as soon as possible prior to the effective date. As a
condition to any effective sublease, subtenant shall execute and deliver in form
reasonably satisfactory to Landlord at least fifteen (15) days prior to the
effective date of the sublease, an agreement to comply with all of Tenant's
obligations under this Lease, and, at Landlord's option, an agreement (except
for the economic obligations which subtenant will undertake directly to Tenant)
to attorn to Landlord under the terms of the sublease in the event this Lease
terminates before the sublease expires, as well as an execution copy of the
proposed sublease as soon as possible prior to the effective date.

     D.   Change of Management or Ownership.  Any transfer of the direct or
indirect power to affect the management or policies of Tenant or direct or
indirect change in 25% or more of the ownership interest in Tenant shall
constitute an assignment of this Lease.

     E.   Tenant Affiliate.  Notwithstanding anything in this Section 17 to the
contrary, Tenant may assign this Lease, or sublease all or any part of the
Premises, without Landlord's consent, to any corporation or other entity that
controls, is controlled by or is under common control with Tenant, or to any
corporation or other entity resulting from the reorganization, merger of or
consolidation with Tenant, or to any corporation or entity controlled by any of
the foregoing (collectively, Tenant's Affiliates").  In that case, the Tenant
Affiliate[s] shall assume in writing all of Tenant's obligations under the
Leases.  As used in this Paragraph E, and notwithstanding the provisions of
Section 26.C., the term "controlled by" means owned 51% or more by the
controlling entity.  Tenant shall provide Landlord with a final execution copy
of the assignment or sublease as soon as practicable.

     If Tenant shall assign this Lease or sublet the Premises to a full building
user for consideration in excess of the Rent applicable to the Premises, then
Tenant shall pay to Landlord as Additional Rent 50% of any such excess.

     F.   Recapture.  In the case of an assignment or sublease to a full
building user, other than a Tenant Affiliate or a purchaser of Tenant's business
operations in the Premises, Landlord may, by giving written notice to Tenant
within thirty (30) days after receipt of Tenant's notice of assignment or
subletting, terminate this Lease as of the effective date of the proposed
assignment or sublease and all obligations under this Lease as to such space
shall expire except as to any obligations that expressly survive any termination
of this Lease.

     G.   Sublease to Seattle Genetics.  Landlord consents to a sublease of a
portion of the Premises to Seattle Genetics.

     18.  CONVEYANCE BY LANDLORD.  If Landlord shall at any time transfer its
interest in the Project or this Lease, then to the extent the transferee shall
assume and agree to perform Landlord's obligations under this Lease, Landlord
shall be released of any obligations occurring after such transfer, except the
obligation to return to Tenant any security deposit not delivered to its
transferee, and Tenant shall look solely to Landlord's 

                                                                         PAGE 24
<PAGE>
 
successors for performance of such obligations. This Lease shall not be affected
by any such transfer.

     19.  ESTOPPEL CERTIFICATE.  Each party shall, within twenty (20) days of
receiving a request from the other party, execute, acknowledge in recordable
form, and deliver to the other party or its designee a certificate stating,
subject to a specific statement of any applicable exceptions, that the Lease as
amended to date is in full force and effect, that the Tenant is paying Rent and
other charges on a current basis, and that to the best of the knowledge of the
certifying party, the other party has committed no uncured defaults and has no
offsets or claims.  The certifying party may also be required to state the date
of commencement of payment of Rent, the Commencement Date, the Termination Date,
the Base Rent, the current Operating Cost Share Rent and Tax Share Rent
estimates, the status of any improvements required to be completed by Landlord,
the amount of any security deposit, and such other matters as may be reasonably
requested that relate to the status of this Lease.  Failure to deliver such
statement within the time required shall be conclusive evidence against the non-
certifying party that this Lease, with any amendments identified by the
requesting party, is in full force and effect, that there are no uncured
defaults by the requesting party, that not more than one month's Rent has been
paid in advance, that the non-certifying party has not paid any security
deposit, and that the non-certifying party has no claims or offsets against the
requesting party.

     20.  SECURITY DEPOSIT.  Tenant shall deposit with Landlord on the date of
this Lease, security for the performance of all of its obligations in the amount
set forth on the Schedule.  If Tenant defaults under this Lease, Landlord may
use any part of the Security Deposit to make any defaulted payment, to pay for
Landlord's cure of any defaulted obligation, or to compensate Landlord for any
loss or damage resulting from any Default.  To the extent any portion of the
deposit is used, Tenant shall within five (5) days after demand from Landlord
restore the deposit to its full amount.  Landlord may keep the Security Deposit
in its general funds and shall not be required to pay interest to Tenant on the
deposit amount.  If Tenant shall perform all of its obligations under this Lease
and return the Premises to Landlord at the end of the Term, Landlord shall
return all of the remaining Security Deposit to Tenant within thirty (30) days
after the end of the Term.  The Security Deposit shall not serve as an advance
payment of Rent or a measure of Landlord's damages for any Default under this
Lease.

     If Landlord transfers its interest in the Project or this Lease, Landlord
may transfer the Security Deposit to its transferee.  If the transferee assumes
and agrees to perform Landlord's obligations with respect to the Security
Deposit, then Landlord shall have no further obligation to return the Security
Deposit to Tenant, and Tenant's right to the return of the Security Deposit
shall apply solely against Landlord's transferee.

     21.  FORCE MAJEURE.  Landlord shall not be in default under this Lease to
the extent Landlord is unable to perform any of its obligations on account of
any strike or labor 

                                                                         PAGE 25
<PAGE>
 
problem, energy shortage, governmental pre-emption or
prescription, national emergency, or any other cause of any kind beyond the
reasonable control of Landlord ("Force Majeure").

     22.  LANDLORD'S DEFAULT.  Landlord shall be in default under this Lease if
Landlord fails to perform obligations required of Landlord within a reasonable
time, but in no event less than thirty (30) days after written notice by Tenant
to Landlord and to the holder of any mortgage or deed of trust covering the
Premises whose name and address have been furnished to Tenant in writing.
Tenant's notice shall describe the nature of Landlord's failure to perform.  If
the nature of Landlord's obligation is such that more than thirty (30) days are
required for performance then Landlord shall not be in default if Landlord
commences performance within the thirty (30) day period after Tenant's notice
and thereafter diligently prosecutes the same to completion.  In the event
Landlord fails to cure or commence cure within the periods described in this
Section 22, or Landlord's mortgagee or deed of trust holder fails to cure or to
commence cure within the periods described in Section 16.C., and Landlord's
default materially impairs Tenant's ability to conduct its permitted business in
the Premises, then Tenant may (but shall not be obligated to) perform the
obligation of Landlord, and the reasonable cost of that performance shall be
payable from Landlord to Tenant upon demand.  Notwithstanding anything herein to
the contrary, if Landlord fails to timely pay to Tenant sums that are due to
Tenant under this Section 22, the unpaid amounts may at Tenant's election be
offset against Rent next falling due under the terms of this Lease; provided,
however, that unless Tenant shall have obtained a final judgment against
Landlord for said amounts, Tenant may not offset against Rent more than
$100,000.00 during any calendar year.

     23.  NOTICES.  All notices, consents, approvals and similar communications
to be given by one party to the other under this Lease, shall be given in
writing, mailed, sent by facsimile or personally delivered as follows:

     A.   Landlord.  To Landlord as follows:

          CarrAmerica Realty Corporation
          10785 Willows Road NE, Suite 250
          Redmond, Washington 98052
          Attn: Market Officer
          425.558.2245 phone
          425.558.2246 fax

          with a copy to:

          CarrAmerica Realty Corporation
          1850 K Street, NW, Suite 500
          Washington, D.C. 20006
          Attn:  Lease Administration
                                                                         PAGE 26
<PAGE>
 
or to such other person at such other address as Landlord may designate by
notice to Tenant.

     B.   Tenant.  To Tenant as follows:

          ICOS Corporation
          22021 20th Avenue SE
          Bothell, WA  98021-4406
          Attn:  Glen Bodman
          425.485.1900 ext. 2227 (phone)
          425 481.8305 (fax)

or to such other person at such other address as Tenant may designate by notice
to Landlord.

     Mailed notices shall be sent by United States certified or registered mail,
or by a reputable national overnight courier service, postage prepaid.  Mailed
notices shall be deemed to have been given on the earlier of actual delivery or
three (3) business days after posting in the United States mail in the case of
registered or certified mail, and one business day in the case of overnight
courier.  Notices sent by facsimile shall be deemed to have been given on the
business day next occurring after the day on which receipt of the facsimile has
been confirmed.

     24.  QUIET POSSESSION.  So long as Tenant shall perform all of its
obligations under this Lease, Tenant shall enjoy peaceful and quiet possession
of the Premises against any party claiming through the Landlord.

     25.  REAL ESTATE BROKER.  Tenant represents to Landlord that Tenant has not
dealt with any real estate broker with respect to this Lease, and no broker is
in any way entitled to any broker's fee or other payment in connection with this
Lease.  Tenant shall indemnify and defend Landlord against any claims by any
other broker or third party for any payment of any kind in connection with this
Lease.

     26.  MISCELLANEOUS.

     A.   Successors and Assigns.  Subject to the limits on Tenant's assignment
contained in Section 17 and on Landlord's conveyance contained in Section 18,
the provisions of this Lease shall be binding upon and inure to the benefit of
all successors and assigns of Landlord and Tenant.

     B.   Date Payments Are Due.  Except for payments to be made by Tenant under
this Lease which are due upon demand or are due in advance (such as Base Rent),
Tenant shall pay to Landlord any amount for which Landlord renders a statement
of account within forty-five (45) days of Tenant's receipt of Landlord's
statement.

                                                                         PAGE 27
<PAGE>
 
     C.   Meaning of "Landlord", "Re-Entry, "including" and "Control."  Subject
to Section 18 hereof, the term "Landlord" means only the owner of the Project
and the lessor's interest in this Lease from time to time.  The words "re-entry"
and "re-enter" are not restricted to their technical legal meaning.  The words
"including" and similar words shall mean "without limitation."  "Control" shall
mean the power directly or indirectly, by contract or otherwise, to direct the
management and policies of the applicable entity.

     D.   Time of the Essence.  Time is of the essence of each provision of this
Lease.

     E.   No Option.  This document shall not be effective for any purpose until
it has been executed and delivered by both parties; execution and delivery by
one party shall not create any option or other right in the other party.

     F.   Severability.  The unenforceability of any provision of this Lease
shall not affect any other provision.

     G.   Governing Law.  This Lease shall be governed in all respects by the
laws of the state in which the Project is located, without regard to the
principles of conflicts of laws.

     H.   Attorneys' Fees.  If either party breaches this Lease or defaults in
its obligations to the other, it shall reimburse to the other, upon demand, any
costs or expenses incurred by the nonbreaching party in connection with the
breach or default, whether or not suit is commenced.  Such costs shall include
reasonable legal fees and costs.  If any action for breach of, or to enforce the
provisions of, this Lease is commenced, the court shall award to the prevailing
party a reasonable sum as attorneys' fees and costs.

     I.   No Oral Modification.  No modification of this Lease shall be
effective unless it is a written modification signed by both parties.

     J.   Landlord's Right to Cure.  In the case of an emergency, following such
notice and opportunity to cure, if any, as may be reasonable, and otherwise
following applicable notice and opportunity to cure, Landlord may cure any
default by Tenant.  Any expenses incurred shall become Additional Rent due from
Tenant on demand by Landlord.

     K.   Captions.  The captions used in this Lease shall have no effect on the
construction of this Lease.

     L.   Authority.  Landlord and Tenant each represents to the other that it
has full power and authority to execute and perform this Lease.

     M.   Landlord's Enforcement of Remedies.  Landlord may enforce any of its
remedies under this Lease either in its own name or through an agent.

                                                                         PAGE 28
<PAGE>
 
     N.   Entire Agreement.  This Lease, together with all Appendices,
constitutes the entire agreement between the parties.  No representations or
agreements of any kind have been made by either party which are not contained in
this Lease.

     O.   Landlord's Title.   Landlord's title shall always be paramount to the
interest of the Tenant, and nothing in this Lease shall empower Tenant to do
anything which might in any way impair Landlord's title.

     P.   Light and Air Rights.  Landlord does not grant in this Lease any
rights to light and air in connection with Project.  Landlord reserves to
itself, the Land, the Building below the improved floor of each floor of the
Premises, the Building above the ceiling of each floor of the Premises, the
exterior of the Premises and the areas on the same floor outside the Premises,
along with the areas within the Premises required for the installation and
repair of utility lines and other items required to serve other tenants of the
Building.

     Q.   Singular and Plural.  Wherever appropriate in this Lease, a singular
term shall be construed to mean the plural where necessary, and a plural term
the singular.  For example, if at  any time two parties shall constitute
Landlord or Tenant, then the relevant term shall refer to both parties together.

     R.   No Recording by Tenant; Memorandum of Lease.  Tenant shall not record
in any public records any portion of this Lease.  Upon request of Tenant,
Landlord shall execute, acknowledge and deliver to Tenant a reasonable
memorandum of this Lease in recordable form, which Tenant shall have the right
to record in the public records of King County, Washington.

     S.   Exclusivity.  Landlord does not grant to Tenant in this Lease any
exclusive right except the right to occupy its Premises.

     T.   No Construction Against Drafting Party.  The rule of construction that
 ambiguities are resolved against the drafting party shall not apply to this
Lease.

     U.   Survival.  All obligations of Landlord and Tenant under this Lease
shall survive the termination of this Lease.

     V.   Rent Not Based on Income.  No rent or other payment in respect of the
Premises shall be based in any way upon net income or profits from the Premises.
Tenant may not enter into or permit any sublease or license or other agreement
in connection with the Premises which provides for a rental or other payment
based on net income or profit.

    W.   Building Manager and Service Providers.  Landlord may perform any of
its obligations under this Lease through its employees or third parties hired by
the Landlord.

                                                                         PAGE 29
<PAGE>
 
     X.   Late Charge and Interest on Late Payments. Without limiting the
provisions of Section 12A, if Tenant fails to pay any installment of Rent or
other charge to be paid by Tenant pursuant to this Lease within five (5)
business days after the same becomes due and payable, then Tenant shall pay a
late charge equal to the greater of five percent (5%) of the amount of such
payment or $250. In addition, interest shall be paid by Tenant to Landlord on
any payments of Rent not paid within five (5) business days after the same
becomes due and payable from the date due until paid at the rate provided in
Section 2D(2). Such late charge and interest shall constitute Additional Rent.

     Y.   Tenant's Financial Statements.  Within ten (10) days after Landlord's
written request therefor, Tenant shall deliver to Landlord the current annual
and quarterly financial statements of Tenant, and annual financial statements of
the two (2) years prior to the current year's financial statements, and
including a balance sheet and profit and loss statement.

     Z.   Parking.  Landlord grants to Tenant and Tenant's customers, suppliers,
employees and invitees, a non-exclusive, irrevocable license for the Term of
this Lease to use vehicle parking spaces within the area shown on the attached
Appendix A, at no additional cost, as set forth in Appendix B, Rules and
Regulations, paragraph 28 for use of motor vehicles. Landlord reserves the right
at any time to grant similar non-exclusive use to other tenants of the Project,
to promulgate reasonable rules and regulations relating to the use of such
parking areas, including reasonable restrictions on parking by tenants and
employees, to make changes in the parking layout from time to time, to establish
reasonable time limits on parking, and temporarily to close off parking areas as
may be reasonably necessary perform maintenance and repair of the same, or to
prevent a public dedication of the same.

     27.  UNRELATED BUSINESS INCOME.  If Landlord is advised by its counsel at
any time that any part of the payments by Tenant to Landlord under this Lease
may be characterized as unrelated business income under the United States
Internal Revenue Code and its regulations, then Tenant shall enter into any
amendment proposed by Landlord to avoid such income, so long as the amendment
does not require Tenant to make more payments or accept fewer services from
Landlord, than this Lease provides, or otherwise impose any greater burden on
Tenant or deprive Tenant of any material right under this Lease.

     28.  HAZARDOUS SUBSTANCES.  Except for those Hazardous Substances
reasonably related to Tenant's permitted business operations in the Premises,
Tenant shall not cause or permit any Hazardous Substances to be brought upon,
produced, stored, used, discharged or disposed of in or near the Project. Any
and all such Hazardous Substances shall be produced, stored, used, discharged
and disposed of in full compliance with all applicable laws, rules, regulations,
and requirements of governmental authorities having jurisdiction. "Hazardous
Substances" include those hazardous substances described in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as

                                                                         PAGE 30
<PAGE>
 
amended, 42 U.S.C. Section 6901 et seq., any other applicable federal, state or
local law, and the regulations adopted under these laws. Tenant hereby agrees
that it will be fully liable for all costs and expenses related to its
production, use, storage, discharge or disposal of Hazardous Substances on or
about the Premises or the Project, including any cleanup costs, fines or
penalties. Tenant shall give Landlord immediate notice of any violation of the
requirements of this Section 28, as well as copies of any notices of violation
received by Tenant from any third party. At the request of Landlord, Tenant
shall provide Landlord with the names and approximate amounts of the Hazardous
Substances that Tenant has used and stored on or about the Premises, as well as
copies of governmental reports prepared by or on behalf of Tenant in connection
with such Hazardous Substances and other information as Landlord may reasonably
request from time to time regarding Tenant's use and storage of Hazardous
Substances.

     29.  EXCULPATION.  Landlord shall have no personal liability under this
Lease; its liability shall be limited to its interest in the Project, and shall
not extend to any other property or assets of the Landlord. In no event shall
any officer, director, employee, agent, shareholder, partner, member or
beneficiary of Landlord be personally liable for any of Landlord's obligations
hereunder.

     30.  ATTACHMENTS.  The following attachments to this Lease are incorporated
into and made a part of it by this reference:

<TABLE> 
<S>                                    <C>          
          Appendix A         -          Plan of the Premises
          Appendix B         -          Rules and Regulations
          Appendix C         -          Tenant Improvement Agreement
          Appendix D         -          Mortgages Affecting the Project
          Appendix E         -          Commencement Date Confirmation
          Appendix F         -          Legal Description
          Addendum 1         -          Extension Option
</TABLE>

                                                                         PAGE 31
<PAGE>
 
IN WITNESS WHEREOF, the parties hereto have executed this Lease.

                           Landlord:


                           CARRAMERICA REALTY CORPORATION a Maryland corporation


                           By: /s/ Philip L. Hawkins
                              ----------------------------------------
                              Name: Philip L. Hawkins
                                   -----------------------------------
                              Title: Chief Operating Officer
                                    ----------------------------------      

                           Tenant:


                           ICOS CORPORATION, a Delaware corporation


                           By: /s/ Gary Wilcox
                              -----------------------------------------
                              Name: Gary Wilcox
                                   ------------------------------------
                              Title: EVP, Operations
                                    -----------------------------------

                                                                         PAGE 32
<PAGE>
                                                                   EXHIBIT 10.10
 
DISTRICT OF COLUMBIA )
                     ) ss.
                     )


     On this 12th day of January, 1999, before me, the undersigned, a Notary
Public in and for the District of Columbia, duly commissioned and sworn,
personally appeared Philip L. Hawkins, to me known to be the person who signed
as Chief Operating Officer of CARRAMERICA REALTY CORPORATION, a Maryland
corporation that executed the within and foregoing instrument, and acknowledged
said instrument to be the free and voluntary act and deed of said corporation
for the uses and purposes therein mentioned, and on oath stated that I was duly
elected, qualified and acting as said officer of the corporation, that I was
authorized to execute said instrument and that the seal affixed, if any, is the
corporate seal of said corporation.

     IN WITNESS WHEREOF I have hereunto set my hand and official seal the day
and year first above written.

                              /s/ Alice Anne Arth 
                              ----------------------------------------------
                              (Signature of Notary)

                              Alice Anne Arth 
                              ----------------------------------------------
                              (Print or stamp name of Notary)


                              NOTARY PUBLIC in and for the District of Columbia,
                              residing at Washington, D.C.

                              My appointment expires: April 30, 2003

                                                                         PAGE 33
<PAGE>
 
STATE OF WASHINGTON  )
                     ) ss.
COUNTY OF SNOHOMISH  )


     On this 7th day of January, 1999, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared Gary Wilcox, to me known to be the person who signed as
Executive VP/Operations of ICOS CORPORATION, a Delaware corporation that
executed the within and foregoing instrument, and acknowledged said instrument
to be the free and voluntary act and deed of said corporation for the uses and
purposes therein mentioned, and on oath stated that I was duly elected,
qualified and acting as said officer of the corporation, that I was authorized
to execute said instrument and that the seal affixed, if any, is the corporate
seal of said corporation.

     IN WITNESS WHEREOF I have hereunto set my hand and official seal the day
and year first above written.

                              /s/ Rene J. Gipson
                              ----------------------------------------------
                              (Signature of Notary)

                              Rene J. Gipson
                              ----------------------------------------------
                              (Print or stamp name of Notary)

                              
                              NOTARY PUBLIC in and for the State
                              of Washington, residing at Bothell.

                              My appointment expires: 10-19-00.   
                                                     
                                                                         PAGE 34
<PAGE>
 
                                  APPENDIX  A

                      Plan of the Premises and the Project

                   (attach floor plan depicting the Premises)

                                                                          PAGE 1
<PAGE>
 
                                   APPENDIX B

                             Rules and Regulations

     1.  Tenant shall not place anything, or allow anything to be placed near
the glass of any window, door, partition or wall which may, in Landlord's
reasonable judgment, appear unsightly from outside of the Project.

     2.  The Project directory shall be available to Tenant solely to display
names and their location in the Project, which display shall be as directed by
Landlord.

     3.  The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used by Tenant for any purposes
other than for ingress to and egress from the Premises.  Tenant shall lend its
full cooperation to keep such areas free from all obstruction and in a clean and
sightly condition and shall move all supplies, furniture and equipment as soon
as received directly to the Premises and move all such items and waste being
taken from the Premises (other than waste customarily removed by employees of
the Building) directly to the shipping platform at or about the time arranged
for removal therefrom.  The halls, passages, exits, entrances, elevators,
stairways, balconies and roof are not for the use of the general public and
Landlord shall, in all cases, retain the right to control and prevent access
thereto by all persons whose presence in the judgment of Landlord, reasonably
exercised, shall be prejudicial to the safety, character, reputation and
interests of the Project.  Neither Tenant nor any employee or invitee of Tenant
shall go upon the roof of the Project, except as expressly permitted in the
Lease.

     4.  The toilet rooms, urinals, wash bowls and other apparatuses shall not
be used for any purposes other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein, and to the
extent caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by Tenant.

     5.  Tenant shall not use the Premises for housing, lodging or sleeping
purposes; or permit preparation or warming of food in the Premises (warming of
coffee and individual meals with employees and guests excepted, and except as
permitted in Section 6 of the Lease).

     6.  Tenant shall not bring upon, use or keep in the Premises or the Project
any kerosene, gasoline or inflammable or combustible fluid or material, except
as needed in connection with Tenant's permitted use, or use any portable or
temporary method of heating or air conditioning other than that supplied or
otherwise approved by Landlord.

     7.  Subject to Landlord's reasonable approval, Tenant may install a
unified, electromagnetic locking system in the Premises.  No additional locks or
bolts shall otherwise 

                                                                          PAGE 1
<PAGE>
 
be placed upon any doors, windows or transoms in or to the
Premises without the Landlord's consent.  Tenant shall not change existing locks
or the mechanism thereof.  Upon termination of the lease, Tenant shall deliver
to Landlord all keys and passes for offices, rooms, parking lot and toilet rooms
which shall have been furnished Tenant.

     8.  Without the prior written consent of Landlord, Tenant shall not use the
name of the Project or any picture of the Project in connection with, or in
promoting or advertising the business of, Tenant, except Tenant may use the
address of the Project as the address of its business.

     9.  Tenant shall cooperate fully with Landlord to assure the most effective
operation of the Premises' or the Project's heating and air conditioning.

     10.  Tenant assumes full responsibility for protecting the Premises from
theft, robbery and pilferage, which may arise from a cause other than Landlord's
negligence, which includes keeping doors locked and other means of entry to the
Premises closed and secured.

     11.  Peddlers, solicitors and beggars shall be reported to the office of
the Project or as Landlord otherwise requests.

     12.  Tenant shall not advertise the business, profession or activities of
Tenant conducted in the Project in any manner which violates the letter or
spirit of any code of ethics adopted by any recognized association or
organization pertaining to such business, profession or activities.

     13.  No vehicle and no pets shall be allowed in the Premises, halls,
freight docks, or any other parts of the Building except that blind persons may
be accompanied by "seeing eye" dogs.  Tenant shall not make or permit any noise,
vibration or odor to emanate from the Premises, or do anything therein tending
to create, or maintain, a nuisance, or do any act tending to injure the
reputation of the Building.

     14.  Tenant shall not do or permit the manufacture, sale, purchase, use or
gift of any fermented, intoxicating or alcoholic beverages without obtaining
written consent of Landlord.

     15.  Tenant shall not disturb the quiet enjoyment of any other tenant.

     16.  Landlord may place and keep on the windows and doors of the Premises
during the last twelve (12) months of the Lease term signs advertising the
Premises for Rent.

     17.  No equipment, mechanical ventilators, awnings, special shades or other
forms of window covering shall be permitted either inside or outside the windows
of the Premises without the prior written consent of Landlord, and then only at
the expense and risk of Tenant, and they shall be of such shape, color,
material, quality, design and make as may be approved by Landlord.

                                                                          PAGE 3
<PAGE>
 
     18.  Tenant shall not during the term of this Lease canvas or solicit other
tenants of the Building for any purpose.

     19.  Tenant shall not install or operate any phonograph, musical or sound-
producing instrument or device, radio receiver or transmitter, TV receiver or
transmitter, or similar device in the Building, except in connection with
Tenant's permitted use of the Premises.  Tenant shall not install or operate any
antenna, aerial, wires or other equipment inside or outside the Building, nor
operate any electrical device from which may emanate electrical waves which may
interfere with or impair radio or television broadcasting or reception from or
in the Building or elsewhere, without in each instance the prior written
approval of Landlord.  The use thereof, if permitted, shall be subject to
control by Landlord to the end that others shall not be disturbed.

     20.  Tenant shall promptly remove all rubbish and waste from the Premises.

     21.  Tenant shall not exhibit, sell or offer for sale, rent or exchange in
the Premises or at the Project any article, thing or service, except those
ordinarily embraced within the use of the Premises specified in Section 6 of
this Lease, without the prior written consent of Landlord.

     22.  Tenant shall not overload any floors in the Premises or any public
corridors or elevators in the Building.

     23.  Tenant shall not do any painting in the Premises, or mark, paint, cut
or drill into, drive nails or screws into, or in any way deface the exterior of
the Building, without the prior written consent of Landlord.

     24.  Whenever Landlord's consent, approval or satisfaction is required
under these Rules, then unless otherwise stated, any such consent, approval or
satisfaction must be obtained in advance, such consent or approval may be
granted or withheld in Landlord's sole discretion, and Landlord's satisfaction
shall be determined in its sole judgment.

     25.  Tenant and its employees shall cooperate in all fire drills conducted
by Landlord in the Building.  Landlord shall reasonably coordinate with Tenant
any planned fire drills.

     26.  Tenant and its employees shall cooperate with the following parking
requirements:

          (a) Tenant shall not park or permit the parking of vehicles in any
parking areas designated by Landlord as areas for parking by visitors to the
Project.

          (b) No overnight or extended term storage of vehicles shall be
permitted, except for occasional overnight use in connection with Tenant's
business activities.

                                                                          PAGE 3
<PAGE>
 
          (c) Vehicles must be parked entirely within painted stall lines of a
single parking stall.

          (d) All directional signs and arrows must be observed.

          (e) Parking is prohibited in areas not striped for parking (except as
may be reasonably approved by Landlord), in aisles, where "no parking" signs are
posted, and in such other areas as may be designated by Landlord or Landlord's
Parking Operator.

          (f) Every driver is required to park and lock his own vehicle.  All
responsibility for damage to vehicles is assumed by the driver.

          (g) Washing, waxing, cleaning or servicing of any vehicle in any area
not specifically reserved for such purpose is prohibited.

          (h) Landlord reserves the right to modify and/or adopt such other
reasonable and non-discriminatory rules and regulations for the parking
facilities as it deems necessary for the operation of the parking facilities.
Landlord may refuse to permit any person who violates these rules to park in the
parking facilities, and any violation of the rules shall subject the car to
possible removal.

          (i) Landlord shall not charge parking fees.


                                                                          PAGE 4
<PAGE>
 
                                   APPENDIX C

                          Tenant Improvement Agreement

                                      NONE

                                                                          PAGE 1
<PAGE>
 
                                   APPENDIX D

                   Mortgages Currently Affecting the Project

                                      NONE

                                                                          PAGE 1
<PAGE>
 
                                   APPENDIX E

                        Commencement Date Confirmation

                       (sample only - not for execution)

     Landlord:  CarrAmerica Realty Corporation, a Maryland corporation

     Tenant:  ICOS Corporation, a Delaware corporation

     This Commencement Date Confirmation is made by Landlord and Tenant pursuant
to that certain Lease dated as of _________, 199__ (the "Lease") for certain
premises known as Canyon Park East, Building D (the "Premises").  This
Confirmation is made pursuant to Item 9 of the Schedule to the Lease.

     1.  Lease Commencement Date, Termination Date.  Landlord and Tenant hereby
agree that the Commencement Date of the Lease is January 7, 1999, and the
Termination Date of the Lease is January 31, 2004.

     2.  Acceptance of Premises.  Tenant has inspected the Premises and affirms
that the Premises is acceptable in all respects in its current "as is"
condition.

     3.  Incorporation.  This Confirmation is incorporated into the Lease, and
forms an integral part thereof.  This Confirmation shall be construed and
interpreted in accordance with the terms of the Lease for all purposes.


                           Tenant:

                           ICOS CORPORATION, a Delaware corporation

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

                           CARRAMERICA REALTY CORPORATION a Maryland corporation

                           By:
                              -----------------------------------
                              Name:
                                    -----------------------------
                              Title:
                                    -----------------------------
                                                                          PAGE 1
<PAGE>
 
                                   APPENDIX F

                               Legal Description

                               LEGAL DESCRIPTION
                                   Building D
                             22215  26th Avenue SE
                                  Bothell, WA

That portion of Tract 29 of that Binding Site Plan record of survey record of
survey recorded under Auditor's File No. 8811175001 being in Section 29,
Township 27 North, Range 5 East, W.M., in Snohomish County, Washington,
described as follows:

Commencing at the Northwest corner of said Tract 29;
thence South 89 degrees, 49 minutes, 18 seconds East along the North line
thereof 305.46 feet;
thence South 1 degree, 47 minutes, 30 seconds East 436.83 feet to the point of
curve of a 739.50 foot radius curve to the left;
thence Southerly along said curve, through a central angle of 14 degrees, 40 
minutes, 39 seconds, an arc distance of 189.44 feet to a point of tangency;
thence South 16 degrees, 28 minutes, 09 seconds East 90.33 feet to the True
Point of Beginning;
thence continuing South 16 degrees, 28 minutes, 09 seconds East 127.23 feet to
the point of curve of a 969.50 foot radius curve to the left;
thence Southerly along said 969.50 foot radius curve, through a central angle of
29 degrees, 23 minutes, 44 seconds, an arc distance of 497.40 feet, to a point
of compound curvature with a 50.00 foot radius curve to the left;
thence Southerly and Easterly along said 50.00 foot radius curve, through a
central angel of 94 degrees, 40 minutes, 43 seconds, an arc distance of 54.26
feet to a point of tangency;
thence North 39 degrees, 27 minutes, 26 seconds East 2.53 feet to the Easterly
line of said Tract 29;
thence North 30 degrees, 50 minutes, 37 seconds West, along said Easterly line
18.44 feet;
thence North 27 degrees, 10 minutes, 56 seconds West, along said Easterly line
36.12 feet;
thence North 31 degrees, 42 minutes, 58 seconds East, along said Easterly line
26.57 feet;
thence North 18 degrees, 04 minutes, 52 seconds East, along said Easterly line
66.26 feet;
thence North 15 degrees, 38 minutes, 12 seconds East, along said Easterly line
58.86 feet;
thence North 8 degrees, 51 minutes, 00 seconds East, along said Easterly line
81.17 feet;
thence North 5 degrees, 52 minutes, 00 seconds East, along said Easterly line
89.63 feet;
thence North 24 degrees, 19 minutes, 32 seconds West, along said Easterly line
69.22 feet;
continued Thence North 1 degree, 24 minutes, 18 seconds West, along said
Easterly line 73.34 feet;
thence North 12 degrees, 30 minutes, 15 seconds West, along said Easterly line
87.09 feet to a point which bears North 83 degrees, 03 minutes, 52 seconds East
from the True Point of Beginning;
thence South 83 degrees, 03 minutes, 52 seconds West 365.30 feet to the True
Point of Beginning.

                                                                          PAGE 2
<PAGE>
 
                                   ADDENDUM 1

                                Extension Option

     EXTENSION OPTION.  Subject to Subsection B below, Tenant may at its option
extend the Term of this Lease for three (3) successive periods of five (5) years
each.  Such periods are called "Renewal Terms".  The Renewal Terms shall be upon
the same terms contained in this Lease except for the payment of Base Rent
during the Renewal Terms; and any reference in the Lease to the "Term" of the
Lease shall be deemed to include any Renewal Term and apply thereto, unless it
is expressly provided otherwise.  Tenant shall have no additional extension
options.

     A.   The Base Rent during a Renewal Term shall be the greater of (i) the
Base Rent applicable to the last day of the final Lease Year prior to the
applicable Renewal Term, or (ii) the Market Rate (defined hereinafter) for such
space for a term commencing on the first day of the Renewal Term. "Market Rate"
shall mean the then prevailing market rate for a comparable renewal term (taking
into account whether any commissions will be payable by Landlord to any Tenant
broker or agent) commencing on the first day of the Renewal Term for tenants of
comparable size and creditworthiness for comparable space in the Building and
other first class office buildings in the vicinity of the Building.

     B.   To exercise any option, Tenant must deliver a binding notice to
Landlord not less than nine (9) months prior to the expiration of the initial
Term of this Lease, or the then-current Renewal Term, as the case may be.
Thereafter, the Market Rate for the Renewal Term shall be calculated pursuant to
Subsection C below. If Tenant fails to timely give its notice of exercise,
Tenant will be deemed to have waived its option to extend, time being of the
essence hereof.

     C.   Market Rate shall be determined as follows:

          (i) If Tenant provides Landlord with its binding notice of exercise
pursuant to Subsection B above, then at some point between nine (9) and six (6)
months prior to the commencement of the applicable Renewal Term, Landlord shall
calculate and inform Tenant of the Market Rate.  If Tenant rejects the Market
Rate as calculated by Landlord, Tenant shall inform Landlord of its rejection
within twenty-one (21) days after Tenant's receipt of Landlord's calculation,
and Landlord and Tenant shall commence negotiations to agree upon the Market
Rate.  If Tenant fails to timely reject Landlord's calculation of the Market
Rate it will be deemed to have accepted such calculation.  If Landlord and
Tenant are unable to reach agreement within twenty-one (21) days after
Landlord's receipt of Tenant's notice of rejection, then the Market Rate shall
be determined in accordance with (ii) below.

          (ii) If Landlord and Tenant are unable to reach agreement on the
Market Rate within said twenty-one (21) day period, then within seven (7) days,
Landlord and 

                                                                          PAGE 1
<PAGE>
 
Tenant shall each simultaneously submit to the other in a sealed
envelope its good faith estimate of the Market Rate.  If the higher of such
estimates is not more than one hundred five percent (105%) of the lower, then
the Market Rate shall be the average of the two.  Otherwise, the dispute shall
be resolved by arbitration in accordance with (iii) below.

          (iii) Within seven (7) days after the exchange of estimates, the
parties shall select as an arbitrator an independent MAI appraiser with at least
ten (10) years of experience in appraising office space in the metropolitan area
in which the Project is located (a "Qualified Appraiser"). If the parties cannot
agree on a Qualified Appraiser, then within a second period of seven (7) days,
each shall select a Qualified Appraiser and within ten (10) days thereafter the
two appointed Qualified Appraisers shall select a third Qualified Appraiser and
the third Qualified Appraiser shall be the sole arbitrator. If one party shall
fail to select a Qualified Appraiser within the second seven (7) day period,
then the Qualified Appraiser chosen by the other party shall be the sole
arbitrator.

          (iv) Within twenty-one (21) days after submission of the matter to the
arbitrator, the arbitrator shall determine the Market Rate by choosing whichever
of the estimates submitted by Landlord and Tenant the arbitrator judges to be
more accurate.  The arbitrator shall notify Landlord and Tenant of its decision,
which shall be final and binding.  If the arbitrator believes that expert advice
would materially assist him or her, the arbitrator may retain one or more
qualified persons to provide expert advice. The fees of the arbitrator and the
expenses of the arbitration proceeding, including the fees of any expert
witnesses retained by the arbitrator, shall be paid by the party whose estimate
is not selected.  Each party shall pay the fees of its respective counsel and
the fees of any witness called by that party.

     D.   Tenant's option to extend this Lease is subject to the condition that
on the date that Tenant delivers its binding notice exercising an option to
extend, Tenant is not in Default under this Lease after the expiration of any
applicable notice and cure periods.

                                                                          PAGE 2