INDENTURE

Indenture Agreement

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COLEY PHARMACEUTICAL GROUP INC | COLEY PHARMACEUTICAL GROUP LTD | KANATA RESEARCH PARK CORPORATION

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Title: INDENTURE

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LEASE, DATED 6/26/02

EXHIBIT 10.42

THIS INDENTURE made this 26^th day of June, 2002


BETWEEN:

	KANATA RESEARCH PARK CORPORATION

	(Hereinafter called the “Landlord”)

		OF THE FIRST PART

AND:	COLEY PHARMACEUTICAL GROUP LTD.

	(Hereinafter called the “Tenant”)

		OF THE SECOND PART

AND:	COLEY PHARMACEUTICAL GROUP INC.

	(Hereinafter called the “Indemnitor”)

		OF THE THIRD PART

WITNESSETH that in consideration of the rents, covenants, conditions and agreements herein contained, the Landlord and the Tenant covenant and agree as follows:

1.00

LEASED PREMISES

The Landlord hereby leases to the Tenant all those premises consisting of approximately 25,913 rentable square feet of space on part of the first floor and part of the second floor (herein called the “Leased Premises”) of the building known municipally as 340 Terry Fox Drive (herein called the “Building”) in the City of Ottawa (formerly Kanata) which said building is erected on the lands (herein called the “Lands”) described in Schedule “A” annexed hereto. The rentable area of the Leased Premises shall be increased by the amount of rentable area used by the Tenant in the Building other than in the Leased Premises for any special HVAC, ducting, exhaust equipment or other thing serving the Leased Premises (the “Additional Rentable Area”). The Leased Premises are more particularly outlined on the floor plan annexed hereto and marked Schedule “B”. The parties acknowledge that the foregoing calculation of the area of the Leased Premises and Building has been estimated only and that the actual area of the Leased Premises and Building shall be subject to certification by the Landlord’s architect. On or before the date so stipulated for possession of the Leased Premises, or within a reasonable time thereafter, the Landlord shall provide a letter or certificate of measurement from the Landlord’s architect verifying the square footage of the Leased Premises, the Additional Rentable Area and Building in accordance with ANSI BOMA Z65.1-1996. The areas established in the certificate shall be final and binding upon the parties. As represented by Landlord, the Building has an approximate rentable area of Sixty-Seven Thousand Four Hundred Twenty-Eight (67,428) square feet, which may change from time to time as a result of alterations, modifications, deletions or additions made by the Landlord from time to time at which time a new certificate will be issued by the Landlord’s architect and it will be binding on the parties. The Leased Premises shall be delivered to Tenant on an “as is and seen” basis observed on the date of signature by the Tenant of this Lease, including existing leasehold improvements, fixtures and all existing mechanical and electrical improvements. Furthermore, the Leased Premises shall be free and clear of any items of furniture, chattels and other personal property of the previous tenant and shall be in a broom-clean condition.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company’s application requesting confidential treatment under Rule 406 of the Securities Act.

1.01

ADDITIONAL DEFINITIONS

For the purposes of this Lease and any additions or amendments thereto:

(a)

“Improvements” means all improvements located on the Lands, including the Building, the parking lot or structure servicing the Building and other facilities and physical structures which are for the exclusive use of occupants of the Building;

(b)

“Common Areas” means at any time those portions of the Lands and Building not leased or designated for lease to tenants but provided to be used in common by (or by the sublessees, agents, employees, customers or licensees of) the Landlord, Tenant and other tenants of the Building, whether or not they are open to general public and shall include any fixtures, chattels, systems, decor, signs, facilities or landscaping contained in those areas or maintained or used in connection with them, and shall be deemed to include the city sidewalks adjacent to the Lands and any pedestrian walkway system (either above or below ground), park, or other public facility in respect of which the Landlord is from time to time subject to obligations arising from the Lands and Building.

(c)

“Tenant’s Proportionate Share” means Thirty Eight decimal Forty Three percent (38.43%) provided the said percentage may be varied based on the actual area of the Leased Premises and Building as certified by the Landlord.

2.00

TERM

To have and to hold the Leased Premises for and during the term, (hereinafter called the “Term”) of Ten (10) years to be computed from the 15^th day of September, 2002 and from thenceforth next ensuing and fully to be completed and ended on the 14^th day of September, 2012.

2.01

INABILITY TO GIVE OCCUPANCY

It is hereby agreed that if the Landlord is unable to deliver vacant possession of the Leased Premises on July 1, 2002 by reason of the any previous tenant or occupant overholding (but not by reason of circumstances beyond the Landlord’s control or by reason of the failure of the Tenant to complete Tenant’s Work herein or by reason of the Tenant failing on or before the date occurring eight (8) weeks prior to the commencement of the Term herein to supply all necessary approvals and specifications which the Landlord requires in order to complete the Landlord’s Work herein,) the Landlord shall diligently exercise all of its rights to obtain completion and vacant possession of the Leased Premises and the rent payable hereunder shall abate at a rental per day equal to 1/365th of the Annual Rent and Additional Rent payable until such completion or vacant possession is obtained but the Landlord shall not be liable to the Tenant for damages of any nature whatsoever and this Lease shall continue in full force and effect subject only to the abatement of rent as aforesaid. Notwithstanding the foregoing, should the Landlord be unable to deliver vacant possession of the Leased Premises within Thirty (30) days following July 1, 2002, then this Lease shall become null and void and of no further effect. Tenant’s deposit shall be returned to the Tenant without interest or deduction.

2.02

EARLY OCCUPANCY

The Tenant shall be entitled to occupy the Leased Premises from July 15th, 2002 to September 14^th, 2002 (the “Occupancy Period”) solely for the purpose of doing the Tenant’s Work and the Tenant shall not be required to pay Annual Rent or Additional Rent for the Occupancy Period. If the Tenant occupies the Leased Premises for purposes other than doing the Tenant’s Work during the Occupancy Period, then during the period up to the date of commencement the Tenant shall be a tenant of the Landlord subject to all the covenants, conditions and agreements set out in this Lease and at a rental per day equal to 1/365th of the Additional Rent and if not occupying the

entire Leased Premises, based upon the actual square footage occupied as determined by the Landlord’s architect and such rental shall be paid on or before the commencement of the Term.

2.03

OVERHOLDING

If the Tenant shall continue to occupy the Leased Premises after the expiration of this Lease with or without the consent of the Landlord and without any further written agreement, the Tenant shall be a monthly tenant at a rent equivalent to 150% of the Monthly Rent and Additional Rent hereby reserved and subject to all the terms and conditions herein set out except as to length of tenancy.

3.00

RENT - Basic Rent

In each year during the Term of this Lease the Tenant covenants and agrees to pay without any set-off or deduction whatsoever, to the Landlord, as rent for the Leased Premises and the Additional Rentable Area, and for the non-exclusive use of the Common Areas of the Building (which common area allocation shall be 9.8 %, subject to verification by the Landlord’s architect based upon the final areas of the Leased Premises and the Additional Rentable Area and Building), the following:

Year

Rental Rate Per

Sq. Foot Per Annum

For Leased

Premises*

For Common

Area*

Total Per

Annum*

1-10

13.00

306,802.36

30,066.63

336,869.00

herein called “Annual Rent”. The Annual Rent will be adjusted proportionately for any lease year which is other than twelve months.

*	as calculated excludes rent payable for Additional Rentable Area

The Landlord acknowledges and agrees that the Tenant shall not be required to pay Annual Rent for a period commencing September 15th, 2002 and ending October 14^th, 2002 (“Free Rent Period”). The Tenant shall for that period be bound by all provisions of the Lease saving those requiring payment of Annual Rent.

3.01

MONTHLY RENTAL

The Annual Rent shall be payable in equal monthly installments of Twenty Eight Thousand, Seventy Two Dollars and Forty One Cents ($28,072.41) (hereinafter called the “Monthly Rent”) in advance on the first day of each calendar month during the Term. If the Term commences on any day other than the first (1st) or ends on any day other than the last of a calendar month, rent for the fraction of a month at the commencement and at the end of the Term shall be prorated at a rate per day equal to 1/365th of the Annual Rent payable. The Annual Rent and the Monthly Rent may be varied based on the actual area of the Leased Premises, the Additional Leased Premises and Building as certified by the Landlord.

3.02

ADDITIONAL RENT

The Tenant covenants to pay as additional rent all sums to be paid to the Landlord hereunder including, without limiting the generality of the foregoing, all tax on the Tenant’s leasehold improvements, Goods and Services Tax and the Tenant’s Proportionate Share of the Tax, Capital Tax, Landlord’s Business Tax and Operating Costs (herein called “Additional Rent”). Landlord warrants that all charges to Tenant for goods and services controlled by Landlord and for which Tenant has no choice other than to acquire same through Landlord shall be reasonable and competitive.

3.03

ESTIMATED ADDITIONAL RENTALS

During the Term, the Tenant shall pay to the Landlord monthly in advance on the 1st day of each and every month during the Term, one-twelfth (1/12) of the amount of

such annual Additional Rent as reasonably estimated by the Landlord to be due from the Tenant. Such estimates may be adjusted from time to time and re-adjusted by the Landlord and the Tenant shall pay to the Landlord monthly installments of Additional Rent according to such estimates, as so adjusted.

3.04

DEFICIENCY OF ADDITIONAL RENT

If the aggregate amount of such estimated Additional Rent payments made by the Tenant in any year should be less than the Additional Rent due for such year, then the Tenant shall pay to the Landlord as Additional Rent within ten (10) days of receipt of notice thereof from the Landlord the amount of such deficiency.

3.05

EXCESS OF ADDITIONAL RENTAL INSTALLMENTS

If the aggregate amount of such Additional Rent payments made by the Tenant in any year of the Term should be greater than the Additional Rent due for such year, then should the Tenant not be otherwise in default hereunder, the amount of such excess will be applied by the Landlord to the next succeeding installments of such Additional Rent due hereunder; and if there be any such excess for the last year of the Term, the amount thereof will be refunded by the Landlord to the Tenant within thirty (30) days after the completion of the Landlord’s year-end review provided the Tenant is not otherwise in default under the terms of the Lease.

3.06

PRO-RATING OF ADDITIONAL RENT

If only part of any calendar year is included within the Term the amount of the Additional Rent payable by the Tenant for such partial year shall be prorated and shall be based upon the estimates made by the Landlord and upon a final determination of such Additional Rent, the amount remaining unpaid at the termination of this Lease shall, notwithstanding such termination, be adjusted and paid within a reasonable time thereafter.

3.07

PREPAYMENT OF ADDITIONAL RENT

Notwithstanding the foregoing, if the Landlord is required to pay any amount, which it is entitled to collect from the tenants of the Building, more frequently than provided for in this Lease or if the Landlord is required to prepay any such amount, the Tenant shall pay to the Landlord its portion of such amount calculated in accordance with this Lease, forthwith upon demand and in which case the Landlord’s estimate for Additional Rental shall be adjusted accordingly.

3.08

DISPUTE AS TO AMOUNT OF ADDITIONAL RENT

In the event of any dispute by the Tenant as to the amount of any Additional Rent claimed by the Landlord or the amount of the Tenant’s Proportionate Share thereof, the opinion of the Landlord’s independent auditors shall be conclusive and binding as to the amount thereof for any period to which the opinion relates.

3.09

POST-DATED CHEQUES

The Tenant shall, on or before the commencement of each and every Lease Year of the Term, including the first Lease Year, deliver to the Landlord a series of post-dated cheques, one for each month of the Lease Year, drawn for an amount equal to the amount of Monthly Rent and the Additional Rent (as estimated by the Landlord) payable in each month of such Lease Year, provided that the first such payment is to include also any pro-rated Monthly Rent and Additional Rent for the period from the date of the commencement of the Term to the first day of the first full calendar month in the Term, provided further that the obligation in the first Lease Year shall be adjusted to take into account all advance rental paid hereunder.

3.10

ADVANCE RENTAL

The Landlord hereby acknowledges receipt from the Tenant of the sum of One Hundred Twenty Five Thousand Three Hundred Seventy One Dollars and Eighty Three Cents ($125,371.83) inclusive of G.S.T. to be held without interest and applied against the first and last months’ installments of Annual Rent and Additional Rent.

3.11

MANNER AND PLACE OF PAYMENT OF RENT

All rent shall, until further written notice is received from the Landlord, be paid by the Tenant without any prior demand therefor to Kanata Research Park Corporation, at par in the City of Kanata at the principal office of, Kanata Research Park Corporation, 555 Legget Drive, Suite 206, Kanata, Ontario, Canada K2K 2X3, or at such other place in Canada as Kanata Research Park Corporation may designate in writing from time to time and shall be payable in lawful money of Canada. The Landlord agrees that payments made to Kanata Research Park Corporation pursuant to this Lease shall be deemed to be payments made to the Landlord and the Tenant shall not be required to see to the application thereof.

3.12

DEFAULT

Any sums received by the Landlord from or for the account of the Tenant when the Tenant is in default hereunder may be applied at the Landlord’s option to the satisfaction, in whole or part, of any of the obligations of the Tenant then due hereunder in such manner as the Landlord sees fit, and regardless of any designation or instructions of the Tenant to the contrary.

3.13

ACCRUAL OF RENT

Rent shall be considered as annual and accruing from day to day, and where it becomes necessary for any reason to calculate such rent for an irregular period of less than one (1) year an appropriate apportionment and adjustment shall be made. Where the calculation of any Additional Rent is not made until after the termination of this Lease, the obligation of the Tenant to pay such Additional Rent shall survive the termination of this Lease and such amounts shall be payable by the Tenant upon demand by the Landlord.

3.14

NET LEASE

The Tenant acknowledges and agrees that it is intended that this Lease shall be a completely carefree net lease for the Landlord and that the Landlord shall not be responsible during the Term for any costs, charges, expenses or outlays of any nature whatsoever arising from or relating to the Leased Premises, whether foreseen or unforeseen and whether or not within the contemplation of the parties at the commencement of the Term except as shall be otherwise expressly provided for in this Lease and other than Income Tax due by the Landlord, the Tenant shall be responsible for any business transfer tax, value added tax, multi-stage sales tax, goods and services tax or any other tax or levy on rental income that may be charged, levied or assessed by any government or other applicable taxing authority against the Landlord whether known as a goods and services tax or any other name (“Goods and Services Tax”).

3.15

LETTER OF CREDIT

The Tenant shall concurrently with the delivery of this Lease executed by the Tenant provide the Landlord with an irrevocable, stand-by letter of credit in the amount of $1,034,317.72 naming the Landlord as beneficiary, which letter of credit shall have a term expiring December 16^th, 2003.

The letter of credit shall provide that the Landlord may draw on it by certifying to the issuer in writing that the Tenant is in default under the Lease or that the Lease has been terminated before its expiry date or that the Landlord has received notice of the election of the issuer not to renew the letter of credit. If the Landlord draws on the letter of credit upon receipt of notice from the issuer that it is not renewing the letter of credit, the Landlord shall be entitled to retain the monies as security for all the same purposes as the letter of credit.

The letter of credit (i) shall indemnify the Landlord for the breach of any of and all of the obligations of the Tenant under the Lease, and (ii) shall indemnify the Landlord from all losses or damages, howsoever arising, including without limitation, loss of future rents and additional rents that would have been payable under the Lease, the cost of repairing the premises, the cost of restoring the premises to base condition, monies spent on leasehold improvements for the Tenant, inducement payments to the Tenant, the costs of releasing the Premises, the costs of agent’s fees and commissions, and an amount equivalent to the amount payable as accelerated rent under the Lease (if such accelerated rent was not actually paid to the Landlord), resulting from termination of the Lease for any reason, including without limitation, termination by court order, disclaimer by a trustee in bankruptcy, disclaimer by the Tenant pursuant to the Bankruptcy and Insolvency Act (Canada) or termination, rejection or repudiation pursuant to any applicable law or legislation.

The issuer shall be a Canadian chartered bank or other financial institution acceptable to the Landlord. The letter of credit shall permit partial drawings. The letter of credit shall be payable in the City of Ottawa. The letter of credit shall provide that it is transferable by the Landlord and that the proceeds may be assigned to a third party by the Landlord, in each case without the Tenant’s consent.

The Letter of Credit shall be fully and finally released December 16^th, 2003.


Date	Reduction		New Balance
December 16, 2003	$	1,034,317.72	$	0

4.00

TENANT’S BUSINESS TAX

In each and every year during the Term the Tenant covenants to pay and discharge prior to the same becoming due and payable all taxes, rates, duties and assessments and other charges that may be levied, rated, charged or assessed against or in respect of the Tenant’s or other occupant’s use and occupancy of the Leased Premises or in respect of the Tenant’s or other occupant’s leasehold improvements, equipment, machinery, trade fixtures and facilities situate or installed on or in the Leased Premises and every tax and licence fee in respect of any and every business carried on in the Leased Premises or in respect of the use or occupancy thereof by the Tenant (and any and every subtenant, licensee or occupant thereof) whether such taxes, rates, duties, assessments and licence fees are charged by any municipal, parliamentary, school or other body during the term hereby demised. The Tenant will indemnify and keep indemnified the Landlord from and against payment of all loss, costs, charges and expenses occasioned by, or arising from any and all such taxes, rates, duties, assessments, licence fees, and any and all taxes which may in future be levied or charged in lieu of such taxes; and any such loss, costs, charges and expenses suffered by the Landlord may be collected by the Landlord as rent with all rights of distress and otherwise as reserved to the Landlord in respect of rent in arrears. The Tenant further covenants and agrees that upon written request of the Landlord, the Tenant will promptly deliver to the Landlord for inspection receipts for payment of all such taxes, rates, duties, assessments, licence fees and other charges in respect of all improvements, equipment and facilities of the Tenant on or in the Leased Premises or in respect of any business carried on in the Leased Premises which were due and payable up to one (1) month prior to such request.

4.01

LANDLORD’S BUSINESS TAX

In the event that there are any taxes, rates, duties, assessments or charges levied, rated, charged or assessed against the Landlord by any municipal or other governmental authority with respect to the Landlord’s use or occupancy of any part of the Building or the Land which the Tenant is entitled to use in common with other persons or with respect to any other part of the Building which the Landlord uses or occupies for the purpose of supplying services to the Leased Premises (such taxes, rates, duties, assessments or charges hereinafter called the “Landlord’s Business Tax”), then it is

agreed that in addition to all other sums, the Tenant is required to pay pursuant to this Lease, the Tenant shall pay to the Landlord as Additional Rent, the Tenant’s Proportionate Share of such Landlord’s Business Tax.

4.02

TAX ON TENANT’S LEASEHOLD IMPROVEMENTS

The Tenant shall pay to the Landlord as Additional Rent, in respect of each applicable tax year, an amount equal to that portion of the Tax for such tax year, as determined by the Landlord, which may reasonably be regarded as being attributable to the fixtures, improvements, installations, alterations, additions and equipment from time to time made, erected or installed by or on behalf of the Tenant in the Leased Premises.

4.03

PROPERTY TAX

“Tax” in this Lease means an amount equivalent to all taxes, rates, duties, levies and assessments whatsoever levied, rated, charged or assessed by any municipal, parliamentary, educational, school or other governmental authority charged upon the Building, the Lands, the property and all improvements now or hereafter appurtenant thereto or upon the Landlord on account thereof including all taxes, rates, duties, levies and assessments for local improvements and including any tax which has been attracted by the Tenant’s leasehold improvements and equipment and for which the Tenant is responsible hereunder and excluding any portion of Tax payable solely by any other tenant and excluding any Tax charged against or applicable to the other office buildings constructed on the Lands and the parking spaces (excluding visitor parking) applicable to such buildings and excluding such taxes as corporate income, capital gains, profits or excess profits, taxes assessed upon the income of the Landlord, and shall also include any and all taxes which may in future be levied in lieu of Tax as hereinbefore defined.

4.04

ALLOCATION OF TAX

If the Tax or any portion thereof that may be payable by the Tenant by reason of this Lease, depends upon an assessment or an approximation of an assessment which has not been made by the taxing authority or authorities having jurisdiction, the Landlord shall determine the same; any such determination made by the Landlord shall be binding upon the Tenant unless shown to be unreasonable or erroneous in some substantial respect. The Landlord shall have the right from time to time to reasonably allocate and re-allocate Taxes not charged separately to the various buildings (including the Building) and the parking garages located on the Lands.

4.05

SEPARATE SCHOOL TAXES

If the Tenant or any subtenant or licensee of the Tenant or any occupant of the Leased Premises shall elect to have the Leased Premises or any part thereof assessed for separate school taxes, the Tenant shall pay to the Landlord, as additional rent, as soon as the amount of the separate school taxes is ascertained, any amount by which the amount of separate school taxes exceeds the amount which would have been payable for Tax had such election not been made and if the Tenant or any subtenant or licensee of the Tenant shall elect to have the Leased Premises or any part thereof assessed for separate school taxes as aforesaid and if such separate school taxes are less than the taxes which would have been payable for school taxes had such election not been made, then and in that event, the Tenant shall be entitled to deduct from the rent for the first month of the year following which such taxes were payable, the amount by which the separate school taxes were less than the amount which would have been payable for school taxes in the year prior to such month.

4.06

TAX APPEAL

Any expense incurred by the Landlord in obtaining or attempting to obtain a reduction in the amount of the Tax or the assessment upon which the Tax may be based, shall be added to and included in the amount of the Tax and if the Tenant shall have paid its Proportionate Share of the Tax and the Landlord shall thereafter receive a refund of any portion of the Tax, the Landlord shall make an appropriate refund to the Tenant.

4.07

CAPITAL TAX

“Capital Tax” means the tax or excise imposed or capable of being imposed upon the Landlord by any government authority having jurisdiction which is measured or based in whole or in part upon the taxable capital employed by the Landlord, which said taxable capital shall be deemed to be the cost to the Landlord of said Building and Lands computed as if the amount of such tax were that amount due if the Building and the Lands were the only property of the Landlord, the Landlord was entitled to no capital deduction, investment allowance or any other deduction whatsoever. For the purpose of this paragraph the Term “investment allowance” and “capital deduction” shall be defined by reference to the applicable taxing statute.

5.00

OPERATING COSTS

“Operating Costs” in this Lease means the total charges, expenses, costs, fees, rentals, disbursements or outlays incurred, accrued, paid, payable or attributable whether by the Landlord or others on behalf of the Landlord for complete repair, maintenance, operation, cleaning and management of the Building, Lands and all the improvements thereon and the components of each of them (herein collectively called the “Property”) such as are in keeping with maintaining the standard of a first class commercial Property so as to give it high character and distinction; and including, without limiting the generality of the foregoing, the cost of all repairs and replacements required for such operation and maintenance, the cost of maintaining and repairing the heating, air-conditioning, ventilating and mechanical systems and equipment in the Building, the cost of operating and maintaining any elevators, (including the cost of service contracts); the costs of providing hot and cold water; the costs of providing electricity not otherwise chargeable to tenants; the costs of all fuel, gas and steam used in heating, ventilating and air-conditioning; the cost of energy conservation devices or equipment; the cost of snow removal; landscape maintenance including the cost of replacing any landscaping on the Lands; the cost of window cleaning; the cost of insurance premiums for fire, casualty, liability, rental and any other insurance coverage maintained by the Landlord in connection with the Property; telephone and other utility costs; the amount paid or payable for all salaries, wages and benefits and other payments paid to or on behalf of persons engaged in the cleaning, supervision, maintenance and repair of the Property (including wages of the on site Property Manager); the cost of accounting services necessary to prepare the statements and opinions for the tenants and to compute the rents and other charges payable by the tenants of the Building; the cost of porters, guards and other protection services; the cost of providing security services; the cost of garbage or refuse removal from the Building not otherwise chargeable to tenants; the cost of repair and maintenance of the roadways, curbs, paving, walkways, pools, landscaping, lighting and other common facilities and outside areas on the Lands; cost of services provided for the common use of the tenants of the Building; building management fees or an administrative fee (not exceeding the going rate charged by trust companies or first class building Management Companies for building management in the City of Ottawa for similar buildings); the cost of service contracts with independent contractors and all other expenses, paid or payable by the Landlord in connection with the operation of the Property, but such Operating Costs shall not include any interest on any debt or capital; retirement of any debt; any amounts directly chargeable by the Landlord to any tenant or tenants of the Building and the cost of any repairs paid for by insurance proceeds or for which the Landlord was reimbursed by insurance proceeds. For greater certainty, the parties agree that Operating Costs are to be calculated as defined by generally accepted accounting principles for similar class buildings.

5.01

ALLOCATION OF OPERATING COSTS

In determining the Operating Costs attributable to the Building, the Landlord shall have the right from time to time to reasonably allocate and re-allocate such Operating Costs which represent operating costs incurred for facilities or services shared by the

Building and such other buildings as are owned or operated by the Landlord and which are not charged or allocated separately against the Building and any such other building or buildings. Any such determination made by the Landlord shall be binding upon the Tenant unless shown to be unreasonable or erroneous in some substantive respect.

5.02

FULL OCCUPANCY

If in any year the Building has not been fully occupied for the whole year, the amount of the Operating Costs for such year may be adjusted by the Landlord, acting reasonably, to an amount which reflects what the amount of the Operating Costs would be if the Building had been fully occupied for the whole year.

5.03

USE OF ELECTRICITY

The Tenant’s use of electricity in the Leased Premises shall be for the operation of office lighting and business machines and for the Tenant’s use of the Leased Premises as set out in Section 7.03 of the Lease. The Tenant’s use of electricity shall not at any time exceed the capacity of any of the electrical conductors and equipment in or otherwise serving the Leased Premises of a capacity to meet a maximum peak demand of Six (6) watts per rentable square foot. The Tenant undertakes to never consume an amount of electrical power exceeding the capacity of the electrical conductors and equipment supplying the Leased Premises. In order to ensure that such capacity is not exceeded and to avert possible adverse effect upon the Building’s electrical service, the Tenant shall not, without the Landlord’s prior written consent in each instance, connect any additional fixtures, appliances or equipment (other than normal office electrical fixtures, lamps, typewriters and similar small office machines) to the Building’s electric distribution system or make any alteration or addition to the electrical system of the Leased Premises existing at the commencement of the Term. If the Landlord grants such consent, the cost of all additional risers and other equipment required therefor shall be paid as Additional Rent by the Tenant to the Landlord upon demand. As a condition to granting such consent, the Landlord may require the Tenant to agree to pay an increase in the Additional Rent for Operating Costs by an amount which will reasonably reflect the increased cost of the Landlord of the additional electrical services to be furnished to the Leased Premises by the Landlord.

5.04

METERS

The Tenant covenants to pay for the cost of any additional metering which may be required by the Landlord to be installed in the Building for the purpose of determining the amount of electricity consumed by the Tenant in the Leased Premises.

6.00

ASSIGNING OR SUBLETTING

Except to Permitted Assigns, the Tenant covenants that it will not assign or sublet the Leased Premises or any part thereof without the prior written consent of the Landlord, which consent shall not be unreasonably withheld save and except in the event of any of the following, in which case the Landlord may arbitrarily withhold its consent:

(a)

an assignment or sublet of the whole of the Leased Premises, the terms of which have a net present value that are less or more than the net present value of the terms of the Lease or the terms then generally being offered to prospective tenants (not including the value of initial leasehold improvements, leasing commissions or inducements of any kind under the Lease) and in the latter event if the Landlord consents to such assignment or sublet the Tenant shall pay 50 % of the increased value over the then current market rates for the Building to the Landlord as Additional Rent;

(b)

a sublet of a part of the Leased Premises; or

(c)

where the assignee or subtenant is then a tenant of the Landlord or a prospective tenant with whom the Landlord has been dealing and the Landlord has or will have during the next following six (6) months, vacant space for rent in the Building.

“Permitted Assign” means a subsidiary or affiliated company of the Tenant as defined in the Canada Business Corporations Act. Notwithstanding that the Landlord’s consent is not required for an assignment to a Permitted Assign, the Tenant must still comply with the provisions of sections 6.03, 6.04, 6.05, 6.06 and 6.07 of this Lease.

Without limiting the generality of the foregoing, Permitted Assigns include [****************************************************************************]

6.01

REQUEST TO ASSIGN OR SUBLET

If the Tenant requests the Landlord’s consent to an assignment of this Lease or to a subletting of the whole or any part of the Leased Premises, the Tenant shall submit to the Landlord the name and address of the proposed assignee or subtenant together with a copy of an offer or agreement to assign or sublet or the sublease or assignment and such additional information as to the nature of its business and its financial responsibility and standing (including financial statements) as the Landlord may reasonably require (“required information”).

6.02

LANDLORD’S RIGHT TO CANCEL

Upon receipt of such request and the required information from the Tenant, the Landlord shall have the right, exercisable in writing within twenty (20) days after such receipt, to cancel and terminate this Lease if the request is to assign this Lease or to sublet all of the Leased Premises, or, if the request is to sublet a portion of the Leased Premises only, to cancel and terminate this Lease with respect to such portion, in each case as of the date set forth in the Landlord’s notice of exercise of right (“Landlord’s notice of termination”), which shall be neither less than sixty (60) days nor more than one hundred and twenty (120) days following the delivery of the Landlord’s notice of termination. If the Landlord shall exercise such right, the Tenant shall surrender possession of the entire Leased Premises or the portion which is the subject of the right, as the case may be, on the date set forth in the Landlord’s notice of termination in accordance with the provisions of this Lease relating to the surrender of the Leased Premises at the expiration of the Term. If this Lease shall be cancelled as to a portion of the Leased Premises only, the rent payable by the Tenant under this Lease shall be abated proportionately. In the event that the Landlord shall not exercise the right to cancel this Lease, then the Landlord’s consent to any such request to assign or sublet shall not be unreasonably withheld.

6.03

ASSIGNMENT AGREEMENT

The Landlord’s consent to any assignment may be conditional upon the assignee entering into an assignment in form and content satisfactory to the Landlord, to perform, observe and keep each and every covenant, condition and agreement in this Lease on the part of the Tenant to be performed, observed and kept including the payment of rent and all other sums and payments agreed to be paid or payable under this Lease on the days and times and in the manner specified.

6.04

CONSENT NOT TO RELEASE TENANT

In no event shall any assignment or subletting to which the Landlord may have consented release or relieve the Tenant from his obligations fully to perform all the terms, covenants and conditions of this Lease to be performed.

6.05

CHANGE IN CORPORATE CONTROL

If the Tenant is a corporation or if this Lease, with the written consent of the Landlord, is assigned to a corporation, and if at any time during the Term any part or all of the

corporate shares or voting rights of shareholders shall be transferred by sale, assignment, bequest, inheritance, trust, operation of law or other disposition, or treasury shares be issued, so as to result in a change in the control of such corporation by the person or persons now owning a majority of the corporate shares thereof, the Landlord may terminate this Lease at any time after such change in control by giving the Tenant thirty (30) days prior written notice of such termination. The Tenant shall, at the request of the Landlord, make available to the Landlord for inspection or copying, or both, all books and records of the Tenant which, alone or with other data, show the applicability or inapplicability of this paragraph. If any stockholder or shareholder of the Tenant shall, after the request of the Landlord so to do, fail or refuse to furnish forthwith to the Landlord any data verified by the affidavit of such stockholder or shareholder or other credible person, which data, alone or with other data show the applicability or inapplicability of this paragraph, the Landlord may terminate this Lease by giving the Tenant thirty (30) days’ prior written notice of such termination. The Landlord agrees that the provisions of Section 6.05 shall not apply if:

the shares of the Tenant are traded on a publicly regulated stock exchange in Canada or the United States of America and widely held; or

the shares of the Tenant are being made available as part of a public offering of securities and will comply with subsection 6.05(1).

6.06

NOTICE OF CHANGE OF CONTROL

Where there is a change in corporate control of the Tenant, the Tenant shall forthwith so advise the Landlord in writing.

6.07

COST OF CONSENT

The Tenant further agrees that prior to any consent for assignment, subletting or change in control being effective and binding upon the Landlord, the Tenant shall pay on demand the Landlord’s reasonable costs (including the Landlord’s own administrative costs) incurred in connection with the Tenant’s request for such consent.

7.00

TENANT’S COVENANTS

The Tenant further covenants with the Landlord as follows:

7.01

TENANT REPAIRS

To repair, maintain and keep the Leased Premises and all trade fixtures and improvements therein in good and substantial repair subject only to defects in construction of the structural members of the Building, reasonable wear and tear and damage by fire, lightning and tempest or other casualty against which the Landlord is insured (herein collectively referred to as “Tenant Repair Exceptions”); and that the Landlord may enter and view state of repair and that the Tenant will repair according to notice in writing, except for Tenant Repair Exceptions and that the Tenant will leave the Leased Premises in good repair, except for Tenant Repair Exceptions. Notwithstanding anything hereinbefore contained, the Landlord may in any event make repairs to the Leased Premises without notice if such repairs are, in the Landlord’s opinion, necessary for the protection of the Building and the Tenant covenants and agrees with the Landlord that if the Landlord exercises any such option to repair, the Tenant will pay to the Landlord together with the next instalment of Monthly Rent which shall become due after the exercise of such option all sums which the Landlord shall have expended in making such repairs and that such sums, if not so paid within such time, shall be recoverable from the Tenant as rent in arrears. Provided further that in the event that the Landlord from time to time makes any repairs as hereinbefore provided, the Tenant shall not be deemed to have been relieved from the obligation to repair and leave the Leased Premises in a good state of repair.

7.02

RULES AND REGULATIONS

That the Tenant and his employees and all persons visiting or doing business with him on the Leased Premises shall be bound by and shall observe rules and regulations annexed hereto or as may hereafter be reasonably set by the Landlord of which notice in writing shall be given to the Tenant and upon such notice being delivered all such rules and regulations shall be deemed to be incorporated into and form part of this Lease.

7.03

USE OF PREMISES

Tenant hereby agrees that it may use the Leased Premises solely for a pharmaceutical research facility in accordance with the Laboratory Biosafety Guidelines 2^nd edition 1996, as it may be amended from time to time or, if replace, in accordance with the replacement guidelines, that will be limited to the following elements:

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The Tenant represents that the foregoing use of the Leased Premises does not contravene any law, by-law or regulation in force.

The Tenant shall have the right to cease carrying on business in the Leased Premises, provided the Tenant continues to meet all covenants and obligations under this Lease.

7.04

INCREASE IN INSURANCE PREMIUMS

That it will not keep, use, sell or offer for sale in or upon the Leased Premises any article which may be prohibited by any insurance policy in force from time to time covering the Building including any regulations made by any fire insurance underwriters applicable to such policies. In the event the Tenant’s occupancy or conduct or business in, or on the Leased Premises, whether or not the Landlord has consented to the same, results in any increase in premiums for the insurance carried from time to time by the Landlord with respect to the Building, the Tenant shall pay any such increase in premiums as Additional Rent within ten (10) days after bills for such additional premiums shall be rendered by the Landlord. In determining whether increased premiums are a result of the Tenant’s use or occupancy of the Leased Premises, a schedule issued by the organization computing the insurance rate on the Building showing the various components of such rate, shall be conclusive evidence of the several items and charges which make up such rate. The Tenant shall promptly comply with all reasonable requirements of the insurance authority or of any insurer now or hereafter in effect relating to the Leased Premises.

7.05

CANCELLATION OF INSURANCE

If any policy of insurance upon the Building or any part thereof or upon the Lands or any part thereof shall be cancelled or rendered voidable by the insurer by reason of any act, omission or occupation of the Leased Premises or any part thereof by the Tenant, any assignee or subtenant of the Tenant or by anyone permitted by the Tenant to be upon the Leased Premises, and the Tenant, after receipt of notice from the Landlord, shall have failed to immediately reinstate such insurance policies or avoid cancellation of such insurance policies, the Landlord may at its option determine this Lease forthwith by leaving upon the Leased Premises notice in writing of its intention so to do and thereupon rent and any other payments for which the Tenant is liable under this Lease shall be apportioned and paid in full to the date of such determination and the Tenant shall immediately deliver up possession of the Leased Premises to the Landlord and the Landlord may re-enter and take possession of the same or the Landlord shall pay any increased cost of such insurance and the Tenant shall pay as Additional Rent, on demand, the amount by which the premiums for such insurance are so increased.

7.06

OBSERVANCE OF LAW

To comply promptly at its own expense with all provisions of law including without limitation, federal and provincial legislative enactments, building by-laws, and any other governmental or municipal regulations which relate to the partitioning, equipment, operation and use of the Leased Premises, and to the making of any repairs, replacements, alterations, additions, changes, substitutions or improvements of or to the Leased Premises and the Landlord agrees not to unreasonably withhold its consent to the Tenant undertaking such compliance, however, the Tenant acknowledges that the Landlord has the right to impose alternative solutions to the Tenant to achieve compliance. And to comply with all police, fire and sanitary regulations imposed by any federal, provincial or municipal authorities or made by fire insurance underwriters, and to observe and obey all governmental and municipal regulations and other requirements governing the conduct of any business conducted in the Leased Premises and the Landlord agrees not to unreasonably withhold its consent to the Tenant undertaking such compliance, however, the Tenant acknowledges that the Landlord has the right to impose alternative solutions to the Tenant to achieve compliance. Provided that in default of the Tenant so complying the Landlord may at its option where possible comply with any such requirement and the cost of such compliance shall be payable on demand by the Tenant to the Landlord as Additional Rent.

7.07

WASTE AND OVERLOADING OF FLOORS

Not to do or suffer any waste or damage, disfiguration or injury to the Leased Premises or the fixtures and equipment thereof or permit or suffer any overloading of the floors thereof; and not to place therein any safe, heavy business machine or other heavy thing without first obtaining the consent in writing of the Landlord; and not to use or permit to be used any part of the Leased Premises for any dangerous, noxious or offensive trade or business and not to cause or permit any nuisance in, at or on the Leased Premises; and without the prior consent in writing of the Landlord, the Tenant will not bring onto or use in the Leased Premises or permit any person subject to the Tenant to bring onto or use on the Leased Premises any fuel or combustible material for heating, lighting or cooking nor will it allow onto the Leased Premises any stove, burner, kettle, apparatus or appliance for utilizing the same and the Tenant will not purchase, acquire or use electrical current or gas for consumption on the Leased Premises except from such supplier thereof as shall have been approved in writing by the Landlord.

7.08

INSPECTION

To permit the Landlord, its servants or agents to enter upon the Leased Premises at any time and from time to time for the purpose of inspection and of making repairs, alterations or improvements to the Leased Premises or to the Building, provided the

Landlord gives the Tenant with at least 24 hours written notice in advance and the Landlord is accompanied by a representative of the Tenant, except in cases of emergency and the Tenant shall not be entitled to compensation for any inconvenience, nuisance or discomfort occasioned thereby. The Landlord, its servants or agents may at any time and from time to time enter upon the Leased Premises to remove any article or remedy any condition which, in the opinion of the Landlord, reasonably arrived at, would be likely to lead to cancellation of any policy of insurance, provided the Landlord gives the Tenant with at least 24 hours written notice in advance and the Landlord is accompanied by a representative of the Tenant, except in cases of emergency and such entry by the Landlord shall not be deemed to be a re-entry. The Tenant, acting reasonably, may temporarily deny access [*****************************] and the Landlord will abide by all reasonable security measures imposed by the Tenant in the Leased Premises of which the Landlord has received advance written notice. The Tenant shall, upon written request of the Landlord, produce audited Financial Statements of the Tenant, which statements shall include a Balance Sheet, Income Statement, Statement of Retained Earnings, Statement of Source and Application of Funds.

7.09

INDEMNITY TO LANDLORD

To promptly indemnify and save harmless the Landlord for any and all liabilities, damages, costs, claims, suits or actions of any nature or kind including the full cost to the Landlord in resisting or defending the same to which the Landlord shall or may become liable or suffer arising out of or by reason of:

(a)

any breach, violation or non-performance by the Tenant of any of its covenants and obligations under this Lease;

(b)

any damage to property while said property shall be in or about the Leased Premises including the systems, furnishings and amenities thereof, as a result of the negligence, misuse or wilful act of the Tenant, its express or implied invitees, licensees, agents, servants or employees;

(c)

any injury to any invitee, licensee, agent, servant or employee of the Tenant, including death resulting at any time therefrom, occurring on or about the Leased Premises, the Property or the Lands;

(d)

any damage or claim suffered by the Landlord including claims brought against the Landlord by other Tenants of the Building or by any third party as a result of any noise or odour emanating from the Leased Premises or the Building from the Tenant’s use of the Leased Premises;

(e)

provided that any occurrence described in su