UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 1, 2019

Verrica Pharmaceuticals Inc.

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: (484) 453-3300

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☒

On July 1, 2019, Verrica Pharmaceuticals Inc. (the “Company”) entered into a lease (the “Lease”) with 44 West Gay LLC (the “Landlord”) for approximately 5,829 square feet of office space located on the 4^th floor of 44 West Gay Street, West Chester, Pennsylvania (the “44 West Property”). The 44 West Property is expected to serve as the Company’s new headquarters beginning in mid-2020, replacing its existing headquarters at 10 North High Street, Suite 200, West Chester, Pennsylvania.

The term of the Lease will end 7 years after the Commencement Date (as defined in the Lease), unless terminated earlier. The Company is entitled to an option to extend the term of the Lease for five years and an ongoing right of first offer to lease up to approximately 5,000 square feet of additional space on the same floor of the building, subject to certain occupancy and other conditions set forth in the Lease.

The Company’s monthly base rent for the first year after the Commencement Date will be $14,572.50, with annual increases thereafter as set forth in the Lease. In addition, the Company is responsible for its proportionate share of operating expenses and real estate taxes for the building in a given year.

The Lease also contains customary provisions allowing the Landlord to terminate the Lease if the Company fails to remedy a breach of any of its obligations within specified time periods, or upon bankruptcy or insolvency of the Company.

The foregoing description of the Lease is only a summary and is qualified in its entirety by reference to the complete terms and conditions of the Lease, which is attached as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by reference.

(d) Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Exhibit 10.1

LEASE AGREEMENT

BETWEEN

44 WEST GAY LLC

AND

VERRICA PHARMACEUTICALS INC.

LEASE AGREEMENT

AGREEMENT OF LEASE made as of the 1st day of July, 2019 (the “Effective Date”), by and between 44 WEST GAY LLC, a Pennsylvania limited liability company with its principal place of business at 120 Pennsylvania Avenue, Malvern, Pennsylvania 19355 (“Landlord”) and VERRICA PHARMACEUTICALS INC., a Delaware corporation with an address of 10 North High Street, Suite 200, West Chester, Pennsylvania 19380 (“Tenant”). Landlord and Tenant are each individually a “party,” and collectively the “parties”.

WITNESSETH THAT, for and in consideration of the rents, covenants and agreements herein contained and intending to be legally bound hereby, the parties hereto covenant and agree as follows:

As used in this Lease, the following terms shall be defined as indicated and refer to the data set forth in this Section 1.

TENANT’S ADDRESS:

10 North High Street

Suite 200

West Chester, PA 19380

PREMISES:

ALL THAT approximately 5,829 rentable square foot portion (the “Premises”), known as Suite 400 and located on the fourth (4th) floor of the building (the “Building”), along with common areas, located at 44 West Gay Street, West Chester, Pennsylvania (“Property”) and further identified on the floor plan attached hereto as Exhibit “A” and made a part hereof.

TERM:

The initial term of this Lease shall be seven (7) years, commencing on the Commencement Date (as hereinafter defined) and expiring on the last day of the seventh (7^th) Lease Year (the “Term”). The term “Lease Year” shall mean each consecutive period of twelve (12) full calendar months, commencing with the Commencement Date, but if the Commencement Date is not the first day of the calendar month, then the first Lease Year shall include the period between the Commencement Date and the end of the month in which the Commencement Date occurs, and the following twelve (12) full calendar months.

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Provided Tenant is not in default of any of its obligations under this Lease, both at the time Tenant exercises its renewal option and at the time the Extension Period (hereinafter defined) is scheduled to commence, Tenant shall have the option to extend the Term for one (1) period of five (5) years (the “Extension Period”) on the same terms and conditions herein, except that Base Rent in the Extension Period shall be as specified below. Tenant may exercise the option to extend by giving written notice to Landlord not less than nine (9) months prior to the expiration of the Term. If Tenant elects to extend the Term of the Lease, the Term shall be extended to include the Extension Period. The right granted to Tenant in this paragraph is personal to Tenant and may not be exercised by any successor or assignee of Tenant.

BASE RENT:

(a) Commencing on the Commencement Date, Base Rent for the Premises shall be due on the first day of each calendar month of the Term, in the following amounts for the following periods:

OPERATING EXPENSE CHARGES: Tenant’s Proportionate Share of Operating Expenses (including taxes, insurance, common area maintenance and janitorial services) in the applicable Operating Year, estimated to be a total of $9.92 per rentable square foot of the Premises for the first year of the Term.

FIXED RENT:

Base Rent plus Operating Expense Charges.

ADDITIONAL RENT:

Sums not including Base Rent which Tenant is obligated to pay to Landlord from time to time pursuant to the terms of this Lease.

SECURITY DEPOSIT: $19,391.14 (One Month’s Base Rent plus One Month’s Operating Expense Charges).

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TENANT’S PROPORTIONATE SHARE:

Initially 17.35% of Operating Expenses allocable to the office space in the Building, as determined in accordance with the office and retail allocations set forth on Exhibit “B” hereto. This is determined by dividing the rentable square footage of the Premises (5,829) by the rentable square footage of all office space in the Building, excluding the basement and all retail space (33,603).

PERMITTED USES:

Tenant shall use and occupy the Premises for general office use and for no other purpose.

TENANT ALLOWANCE:

Subject to the provisions set forth in Section 3 below, Landlord shall construct Landlord’s Work (hereinafter defined) pursuant to Tenant’s Plans (hereinafter defined), as approved by Landlord, but in no event shall Landlord be obligated to incur Costs (as hereinafter defined) to construct Landlord’s Work in excess of $320,595.00 (or $55.00 per square foot of the Premises) (the “Allowance”). Tenant shall be responsible for all Costs in excess of the Allowance. “Costs” shall mean all “hard” and “soft” costs to construct Landlord’s Work. “Hard” costs shall include the actual costs of labor and materials in the construction of Landlord’s Work, including contractor profit, overhead and general conditions. “Soft” costs shall include all costs other than “hard” costs, including, without limitation, design, engineering and architect’s fees, project management fees (not to exceed 3% of total Costs), permit fees and inspection fees. Landlord shall bid the final construction drawings for Landlord’s Work and shall deliver to Tenant an estimate of the Costs based upon the bid selected by Landlord and such other information as Landlord considers relevant in determining the total Costs. If the Costs are estimated to exceed the Allowance, Tenant shall pay to Landlord within ten (10) days after receipt of such estimate the difference between the Costs and the budgeted amount of the Costs (the “Excess”). Upon completion of Landlord’s Work, Landlord shall submit to Tenant a statement of the actual Costs incurred by Landlord. If the actual Costs exceed the Allowance and the Excess paid to Landlord, Tenant shall pay such additional amount to Landlord within ten (10) days after receipt of such statement. If the actual Costs exceed the Allowance, but are less than the Allowance and the Excess, Landlord shall refund the difference to Tenant with such statement. If the actual Costs are less than the Allowance, Landlord shall credit any excess to Tenant for moving expenses and costs for furniture, fixtures and equipment actually incurred by Tenant, and any additional excess shall be credited against Base Rent. If Tenant requests, and Landlord approves, any changes to Tenant’s Plans, Tenant shall be responsible for one hundred percent (100%) of the costs to implement such change, including any costs resulting from delays in Landlord’s Work, and Tenant shall pay such excess Costs to Landlord as a condition to Landlord’s obligation to construct such change.

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RIGHT OF FIRST OFFER:

Provided that Tenant is not in default under the terms of this Lease beyond any applicable cure period, during the initial Term hereof, Tenant shall have a right of first offer (the “Right of First Offer”), during the initial seven (7) year term only (the “Initial Term”) to lease that certain space containing approximately 5,829 square feet and located on the fourth (4th) floor of the Building (the “First Offer Space”), such First Offer Space being identified on the floor plan attached hereto as Exhibit “A”, upon the following terms and conditions:

(a) Commencing on the Effective Date and continuing throughout the initial Term, Tenant shall have the continuing right to lease the First Offer Space from Landlord on the same terms and conditions as set forth in this Lease for the Premises, including but not limited to a proportionate share of the Allowance described above. After November 1, 2019, if Tenant has not yet exercised its Right of First Offer to lease the First Offer Space, Landlord shall have the right to market the First Offer Space to other tenants or occupants, however, notwithstanding Landlord’s marketing efforts, Tenant shall continue to have its Right of First Offer. In the event that a prospective tenant submits a letter of intent setting for the terms on which it is interested in leasing or occupying all or any portion of the First Offer Space, Landlord shall give Tenant written notice (“Landlord’s Notice”) of the existence of such prospective tenant. Within ten (10) days after Tenant’s receipt of Landlord’s Notice, Tenant must give Landlord written notice pursuant to which Tenant shall elect either (i) to lease the First Offer Space on the same terms and conditions as set forth in this Lease for the Premises, as set forth above, or (ii) to decline to lease the First Offer Space. If Tenant fails to elect clause (i) within such ten (10)–day period, then Tenant shall be deemed to have declined to lease the First Offer Space. In the event that Tenant declines (or is deemed to have declined) to lease the First Offer Space, then Landlord shall be free to lease the First Offer Space to any other party(ies) without any further obligation to Tenant hereunder, and Tenant shall have no further Right of First Offer with respect to the First Offer Space or any other space in the Building.

(b) If Tenant elects to lease the First Offer Space in accordance with subparagraph (a) above (upon such election, the “Additional Space”), then Landlord and Tenant shall execute an amendment to the Lease to provide for the inclusion of the Additional Space. All terms and conditions of the Lease shall apply to the Additional Space except that: (i) Tenant’s Proportionate Share with respect to Operating Expense Charges shall be increased to take into account the square footage of the Additional Space and all other terms of the Lease affected by the addition of such square footage shall be adjusted accordingly, (ii) Landlord shall perform or construct improvements to the Additional Space, as shall be more specifically set forth in the lease amendment, but in no event shall Landlord be obligated to incur Costs to construct such improvements in excess of the $55.00 per square foot Allowance described above (the “New Space Allowance”), (iii) Tenant shall increase the Security Deposit by one (1) month of Base Rent for the Additional Space, and (iv) Tenant shall not be entitled to any other allowances, credits, options or other concessions with respect to the Additional Space unless specifically provided for in Landlord’s Notice, or the Lease, as amended. Notwithstanding the foregoing, unless Tenant agrees in writing to extend the term of this Lease with respect to the original Premises and the Additional Space to end seven (7) years after the effective date of the addition of the Additional Space to the

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Premises, then the New Space Allowance shall be prorated based on the amount of time remaining in the Initial Term. For example, if the Additional Space is added to the Premises effective as of the end of the second Lease Year (meaning five (5) Lease Years remain in the Initial Term) and Tenant does not agree in writing to extend the Initial Term for two (2) Lease Years, then the New Space Allowance shall be $39.28 per square feet of space in the Additional Space ($55/sf x 5/7 = $39.28).

(c) The effective date of the addition of the Additional Space to the Premises shall be the date that Landlord delivers possession of the Additional Space to Tenant in accordance with the terms of Landlord’s Notice.

(d) Except as otherwise provided in Landlord’s Notice and in subparagraph (b) above, Tenant agrees to accept the Additional Space in its “AS IS” condition, without any representation or warranty by Landlord.

Landlord hereby demises and lets to Tenant and Tenant hereby hires and leases from Landlord the Premises for the Term, upon the conditions and limitations set forth herein.

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The Term shall commence on the date that Landlord substantially completes Landlord’s Work and delivers possession of the Premises to Tenant, or the date that Tenant enters upon the Premises, with Landlord’s consent, to perform any work in the Premises, whichever is earlier (the “Commencement Date”). The Commencement Date is estimated to be June 1, 2020.

In the event Landlord does not substantially complete Landlord’s Work and deliver possession of the Premises to Tenant on or before December 31, 2020 (the “Outside Delivery Date”), Tenant shall have the right, as its sole and exclusive remedy, to terminate this Lease by written notice to Landlord (which termination right shall expire in the event the Premises is delivered to Tenant after the Outside Delivery Date and prior to Tenant’s termination notice), whereupon neither party shall have any further right or remedy hereunder. The Outside Delivery Date shall be extended by one day for each day Landlord’s Work is delayed by reason of force majeure or Tenant Delay.

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Tenant hereby acknowledges that late payment by Tenant to Landlord of rent or other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Landlord by terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any sum due from Tenant shall not be received by Landlord or Landlord’s designee within five (5) days after said amount is due, then Tenant shall pay to Landlord a late charge of five (5%) percent of such overdue amount, plus any attorney’s reasonable fees and court costs incurred by Landlord by reason of Tenant’s failure to pay rent and/or other charges when due to Landlord hereunder. The parties hereby agree that such late charges represent a fair and reasonable estimate of the cost that Landlord will incur by reason of the late payment by Tenant. In addition, any amounts due and not paid by Tenant within thirty (30) days after the same is due shall accrue interest at the annual rate of 12% per annum.

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The Operating Expense Charges due and payable under the terms, covenants, conditions and agreements of this Section shall be payable to Landlord without any setoff or deduction, and such Operating Expense Charge shall be pro-rated during the first and last years of the term hereof.

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Notwithstanding the foregoing, the following items shall be excluded from Operating Expenses: (i) costs and expenses for capital improvements, except as set forth in (9) above, (ii) expenses incurred in the leasing of or procuring new tenants (i.e., leasing commissions, advertising expenses and the cost of tenant improvements for new tenants), and (iii) legal expenses pertaining to the enforcement of any lease.

In determining Operating Expenses for any year, the following adjustments shall be made:

(i) if less than one hundred percent (100%) of the Building rentable area shall have been occupied by tenants at any time during such year, Operating Expenses shall be deemed for such year to be an amount equal to the like expenses which Landlord reasonably determines would normally be incurred had such occupancy been one hundred percent (100%) throughout such year;

(ii) if any tenant of the Building supplies itself with a service at any time during such year that Landlord would ordinarily supply without separately charging therefor, then Operating Expenses shall be deemed to include the cost that Landlord would have incurred had Landlord supplied such service to such tenant;

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(iii) if, after the first calendar year of the Term, Landlord successfully obtains a reduction in Real Estate Taxes, then the Operating Expenses shall thereafter be correspondingly reduced (on a dollars per square foot basis) to the extent of the reduction in Real Estate Taxes; and

(iv) Commencing with the second full calendar year after the Commencement Date, Tenant’s Proportionate Share of Controllable Expenses shall not exceed the Cap in such calendar year. “Controllable Expenses” shall mean all Operating Expenses other than Real Estate Taxes, costs of insurance, costs of snow and ice removal, security costs, utility costs and costs to comply with laws. The “Cap” in the second full calendar year after the Commencement Date shall be one hundred five percent (105%) of the Controllable Expenses in the prior calendar year, and the Cap shall increase by five percent (5%) in each calendar year thereafter on a cumulative and compounding basis.

As additional security for the full and prompt performance by Tenant of the terms and covenants of this Lease, Tenant has deposited with the Landlord the Security Deposit. This Security Deposit shall not be deemed to constitute rent for any month. If Tenant defaults with respect to any provision of this Lease, including, but not limited to the provisions relating to the payment of rent, Landlord may (but shall not be required to) use, apply or retain all or any part of this Security Deposit for the payment of any rent or any other sum in default, or for the payment of any amount which Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant’s default. If any portion of said Security Deposit is so used or applied, Tenant shall, within five (5) days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount and Tenant’s failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep this Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on the Security Deposit. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant (or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder) within sixty (60) days after the expiration of the Term. In the event of termination of Landlord’s interest in this Lease, Landlord shall transfer the Security Deposit to Landlord’s successor in interest and Landlord shall thereafter be considered released by Tenant from all liability to account for or to return the Security Deposit. In the event of any permitted assignment of Tenant’s estate or interest in the Demised Premises, the Security Deposit shall be deemed to be held by Landlord as a deposit made by the assignee and Landlord shall have no further liability with respect to an accounting for or the return of the Security Deposit to the assignor.

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(i) Provide water for drinking, lavatory and toilet purposes drawn through fixtures installed by Landlord;

(ii) Furnish electricity, heat, ventilation and air conditioning to the Premises during Landlord’s normal Building operating hours, which normal operating hours shall be from 7:00 a.m. until 7:00 p.m., Monday through Friday;

(iii) Provide janitorial services in accordance with Landlord’s standard janitorial specifications attached hereto as Exhibit “D”;

(iv) Provide elevator service to the Premises in the manner currently provided in the Building; and

(v) Provide electricity to the Leased Premises in amounts necessary for normal office use.

It is understood that Landlord does not warrant that any of the services referred to in this Section will be free from interruption from causes beyond the reasonable control of Landlord. Unless resulting from Landlord’s gross negligence or willful misconduct, no interruption of service shall ever be deemed an eviction or disturbance of Tenant’s use and possession of the Premises or any part thereof or render Landlord liable to Tenant for damages, permit Tenant to abate rent or otherwise relieve Tenant from performance of Tenant’s obligations under this Lease.

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Tenant shall have the right to install trade fixtures, office machinery and computer equipment (excluding alterations, improvements and additions which are governed by Section 14) required by Tenant or used by it in its business, provided that same do not impair the structural strength of the Building and further provided that such trade fixtures, office machinery and equipment shall be limited to items normally used in an office building. Without limiting the generality of the foregoing, it is specifically understood and agreed that Tenant shall not have the right to install or operate any electrical equipment or machinery in the Premises (other than normal office machinery and equipment) without Landlord’s prior written consent. Tenant shall remove all such trade fixtures, office machinery and computer equipment prior to the end of the Term, and Tenant shall repair and restore any damage to the Premises and Building caused by such installation or removal, provided Tenant shall not be required to repaint.

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Tenant shall not, without on each occasion first obtaining Landlord’s prior written consent, make any alterations, improvements or additions to the Premises, except that Tenant may, without the consent of Landlord but with prior written notice to Landlord, make minor improvements to the interior of the Premises provided that: (i) they do not impair the structural strength, operation or value of the Building, and (ii) Tenant shall take all steps required or permitted by law to avoid the imposition of any mechanics’ lien upon the Premises, Building and Property, and upon the completion of any such alterations, improvements and/or additions, shall deliver to Landlord final releases of liens and claims from any and all contractors, subcontractors and materialmen performing work or supplying materials in connection with such alterations, improvements and/or additions. All alterations, improvements and additions, except for minor alterations and improvements, become part of the Premises and the property of Landlord without payment therefor by Landlord and shall be surrendered to Landlord at the end of the Term; PROVIDED, HOWEVER, if so notified by Landlord, Tenant shall, prior to the end of the Term, remove all and any such alterations and improvements made by Tenant after initial occupancy, or the parts thereof specified by Landlord, from the Premises and shall repair all damage caused by installation and removal, provided Tenant shall be required to repaint pursuant to the foregoing obligation. For purposes of this Section 14, “minor improvements” shall be defined as those improvements costing no more than $5,000.00 for any particular improvement or series of related improvements.

Tenant shall not, in the making of any repairs or alterations to the Premises, suffer or permit any mechanic’s, laborer’s or materialman’s lien to be filed against the Premises, Building, Property or any part thereof by reason of labor or materials supplied or claimed to have been supplied to Tenant; and if any such lien shall be filed, Tenant, within fifteen (15) days after notice of filing, shall cause it to be discharged of record or bonded, at Tenant’s option.

Tenant may use and occupy the Premises only for the express and limited purposes listed in Section 1 of this Lease, and the Premises shall not be used or occupied, in whole or in part, for any other purpose without the prior written consent of Landlord. Tenant shall not commit or suffer any waste upon the Premises or Building, or any nuisance or any other act which may disturb the quiet enjoyment of any other tenant in the Building.

Tenant covenants and agrees that Tenant, its employees, agents, invitees, licensees and other visitors, shall observe faithfully, and comply strictly with, such reasonable Rules and Regulations as Landlord or Landlord’s agents may, after notice to Tenant, from time to time adopt with respect to the Building, uniformly applied and enforced among all tenants.

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Tenant shall, in the use and occupancy of the Premises, comply with all applicable laws, ordinances, notices and regulations of all governmental and municipal authorities, and with the regulations of the insurers of the Premises. Tenant shall keep in force at all times all licenses, consents and permits necessary for the lawful conduct of Tenant’s business at the Premises. Nothing in the foregoing shall require the Tenant to perform any work or make any improvements or repairs which the Landlord is required to make pursuant to other provisions of this Lease, unless the same are required by Tenant’s particular use of the Premises or any alterations or improvements made by Tenant.

Except for signs which are located wholly within the interior of the Premises and which are not visible from the exterior thereof, no signs shall be erected by Tenant anywhere upon the Premises, Building or Property. Landlord shall have the right to approve all signs prior to their installation. Design, including size, lettering, colors, and location shall be submitted to the Landlord for approval prior to installation. Signs located wholly within the interior of the Premises and not visible from the exterior thereof are excepted from this provision.

Landlord and its agents, contractors and invitees shall have the right to enter the Premises at all reasonable times with reasonable notice to inspect the same, to exhibit same to prospective purchasers, tenants and mortgagees, and to make any necessary repairs thereto, provided Landlord will only exhibit the Premises to prospective tenants in the last year of the Term. All such entry shall be at the sole risk of the person so entering and Tenant shall not be liable to any person for any damages or losses suffered by such person during or as a result of such entry. Landlord shall not be liable in any manner to Tenant by reason of such entry or the performance of repair work in the Premises and the obligations of Tenant hereunder shall not thereby be affected; however, Landlord agrees (except in the case of Tenant’s default hereunder) that all repair work (excepting only emergency work or work which must, in Landlord’s judgment, be performed on an urgent basis) by Landlord shall be performed in a reasonable manner at reasonable times.

Tenant shall indemnify, defend and hold Landlord harmless from and against any and all losses, costs, claims, suits, actions and causes of action, whether legal or equitable (including reasonable counsel fees and expenses incurred in defense of any of the foregoing) sustained or arising by reason of Tenant’s default in any of its obligations hereunder, any misrepresentation of Tenant, or of the fault or neglect of Tenant or of the failure by Tenant or any of its officers, agents, employees or invitees to fulfill any duty toward the public, or any person or persons whomsoever, which Tenant by reason of its occupancy, use or ownership of the Premises, may owe.

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Landlord shall indemnify, defend and hold Tenant harmless from and against any and all losses, costs, claims, suits, actions and causes of action, whether legal or equitable (including reasonable counsel fees and expenses incurred in defense of any of the foregoing) sustained or arising by reason of Landlord’s default in any of its obligations hereunder, any misrepresentation of Landlord herein, or of the fault or neglect of Landlord or of the failure by Landlord or any of its officers, agents, employees or invitees to fulfill any duty toward the public, or any person or persons whomsoever, which Landlord by reason of its ownership of the Premises, may owe.

If Tenant shall default in performing any of its obligations hereunder, Landlord may (but shall not be so obliged), in addition to Landlord’s other rights and remedies and without waiver of such default, cure such default on behalf of Tenant, thereby entering and possessing the Premises if deemed necessary by Landlord. Tenant, upon demand of Landlord, shall reimburse Landlord for all costs (including reasonable counsel fees) incurred by Landlord with respect to such default, and, if Landlord so elects, Landlord’s efforts to cure the same, which costs shall be deemed Additional Rent hereunder.

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So long as no Event of Default then exists hereunder, Tenant’s quiet and peaceful enjoyment of the Premises shall not be disturbed or interfered with by Landlord or by any person claiming by, through or under Landlord.

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Tenant shall not assign, pledge, mortgage or otherwise transfer or encumber this Lease, nor sublet all or any part of the Premises or permit the same to be occupied or used by anyone other than Tenant or its employees without Landlord’s prior written approval, which Landlord agrees not unreasonably to withhold. It will not be unreasonable for Landlord to withhold consent if the reputation, financial responsibility, or business of a proposed assignee or subtenant is unsatisfactory to Landlord, or if Landlord deems such business not to be consonant with that of other tenants in the Building, or if the intended use by the proposed assignee or subtenant conflicts with any commitment made by Landlord to any other tenant in the Building.

Tenant’s request for approval shall be in writing and contain the name, address, and description of the business of the proposed assignee or subtenant, its most recent financial statement and other evidence of financial responsibility, its intended use of the Premises, and the terms and conditions of the proposed assignment or subletting.

Within thirty (30) days from receipt of such request Landlord shall either: (a) grant or refuse consent; or (b) elect to require Tenant (i) to execute an assignment of lease or sublease of Tenant’s interest hereunder to Landlord or its designee upon the same terms and conditions as are contained herein, together with an assignment of Tenant’s interest as sublessor in any such proposed sublease, or (ii) if the request is for consent to a proposed assignment of this Lease, to terminate this Lease and the term hereof effective as of the last day of the third month following the month in which the request was received.

Each assignee or sublessee of Tenant’s interest hereunder shall assume and be deemed to have assumed this Lease and shall be liable jointly and severally with Tenant for all payments and for the due performance of all terms, covenants, conditions and provisions herein contained on Tenant’s part to be observed and performed for the portion of the Premises assigned or sublet. No assignment shall be binding upon Landlord unless the assignee shall deliver to Landlord an instrument in recordable form containing a covenant of assumption by the assignee, but the failure or refusal of an assignee to execute the same shall not release assignee from its liability as set forth herein.

Tenant shall pay to Landlord, as Additional Rent hereunder, one hundred percent (100%) of all subrents or other sums or economic consideration received by Tenant (after deducting Tenant’s reasonable costs of re-letting), whether denominated as rentals or otherwise, in excess of the monthly sums which Tenant is required to pay under this Lease.

Any consent by Landlord hereunder shall not constitute a waiver of strict future compliance by Tenant of the provisions of this Section 25 or a release of Tenant from the full performance by Tenant of any of the terms, covenants, provisions, or conditions in this Lease contained.

This Lease is and shall be subject and subordinate at all times to any lease under which Landlord is in control of the Premises, to the rights of the owners of the Building and Property, and to all mortgages and other encumbrances now or hereafter placed upon the Premises or the Building and Property, and all advances, amendments and replacements thereof, without the necessity of any further instrument or act on the part of Tenant to effectuate such subordination. Tenant shall from time to time execute and deliver within ten days following the request of

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Landlord or Landlord’s mortgagee, grantee or lessor, recordable instruments evidencing such subordination and Tenant’s agreement to attorn to the holder of such prior right. Notwithstanding the foregoing, any mortgagee may at any time subordinate its mortgage to this Lease, without Tenant’s consent, by notice in writing to Tenant, whereupon this Lease shall be deemed prior to such mortgage without regard to their respective dates. If any mortgage is foreclosed, then Tenant will attorn to and recognize the mortgagee or purchaser at foreclosure sale as Tenant’s landlord for the Term. At no time shall such any Subordination affect Tenant’s quiet and peaceful enjoyment of the Premises so long as Tenant is not in default hereunder.

At any time and from time to time, within ten (10) business days after Landlord shall request the same, Tenant, without charge or expense to Landlord, will execute, acknowledge and deliver to Landlord and to such mortgagee or other party as may be designated by Landlord, a certificate in such form as is attached hereto as Exhibit “C”. In the event that Tenant fails to provide such certificate within ten (10) business days after request by Landlord therefor, Tenant shall be deemed to have approved the contents of any such certificate submitted to Tenant by Landlord and Landlord is hereby authorized to so certify.

By entry and possession of the Premises, Tenant thereby acknowledges that Tenant has examined the Premises and accepts the same as being in the condition called for by this Lease. Tenant, shall, at the end of the Term, promptly surrender the Premises in good order and condition and in conformity with the applicable provisions of this Lease, excepting only reasonable wear and tear and damage caused by fire or other insured casualty.

This Lease shall expire absolutely and without notice on the last day of the Term, provided that if Tenant, with the prior written consent of Landlord, retains possession of the Premises or any part thereof after the termination of this Lease by expiration of the Term or otherwise, a month-to-month tenancy shall be deemed to exist, and Tenant shall continue to pay the Base Rent and Additional Rent due hereunder. If such holding over exists without Landlord’s prior written consent, Tenant shall pay Landlord, as partial compensation for such unlawful retention, an amount calculated on a per diem basis for each day of such continued unlawful retention, equal to 200% of the Base Rent and Additional Rent for the time Tenant thus remains in possession. Such payments for unlawful retention shall not limit any rights or remedies of Landlord resulting by reason of the wrongful holding over by Tenant or create any right in Tenant to continue in possession of the Premises.

All notices, requests and consents herein required or permitted from either party or the other shall be in writing and shall be deemed given on receipt by either party via the United States Postal Service, registered or certified mail, return receipt requested, postage prepaid, addressed to Landlord at its address aforesaid, with a copy to any mortgagee designated by Landlord, or, as the case may be, addressed to Tenant at its address aforesaid, or to such other address as the party to receive same may designate by notice to the other.

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Each of the parties represents and warrants that there are no claims for brokerage commissions or finder’s fees in connection with the execution of this Lease except for Precision Realty Group (“Broker”) on behalf of Tenant, and each party agrees to indemnify the other against, and hold it harmless from, all liability arising from any such claim including, without limitation, the cost of counsel fees in connection therewith. All brokerage commissions payable to Broker shall be paid by Landlord pursuant to a separate commission agreement.

The word “Landlord” is used herein to include the Landlord named above and any subsequent person who succeeds to the rights of Landlord herein, each of whom shall have the same rights and remedies as it would have had it originally signed this Lease as Landlord, but neither Landlord nor any such person shall have any liability hereunder after it ceases to hold a fee or leasehold interest in the Premises, except for obligations which may have theretofore accrued; and in all events, Tenant shall look solely to the Premises and rents derived therefrom for enforcement of any obligation hereunder or by law assumed or enforceable against Landlord or such other person. Any sale or other transfer by Landlord of all or any portion of its interest in the Property and/or in this Lease shall be conditioned upon the agreement of such transferee to assume all of Landlord’s obligations hereunder and to accept such transfer subject to all terms and conditions of this Lease and Tenant’s rights hereunder. The word “Tenant” is used herein to include the party named above as Tenant as well as its or their respective heirs, personal representatives, successors and assigns, each of whom shall be under the same obligations, liabilities and disabilities and have only such rights, privileges and powers as he would have possessed had he originally signed this Lease as Tenant.

This Lease constitutes the entire agreement between the parties hereto with respect to the Premises and there are no other agreements or understandings. This Lease shall not be modified except by written instrument executed by both parties. The captions used herein are for convenience only, and are not part of the Lease. This Lease shall be construed in accordance with the laws of the Commonwealth of Pennsylvania. Exhibits “A”, “B”, “C” and “D” are attached hereto and made a part hereof.

The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, shall not constitute a lease or agreement to enter in to a lease (even if such term is less than three (3) years in duration), nor confer any rights or impose any obligations upon either party until the execution thereof by Landlord and the delivery of an executed original copy thereof by Landlord to Tenant or Tenant’s representative.

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IN ANY SUCH ACTION, A TRUE COPY OF THIS LEASE SHALL BE SUFFICIENT WARRANT, AND IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL AS A WARRANT OF ATTORNEY, ANY RULE OF COURT, CUSTOM OR PRACTICE TO THE CONTRARY NOTWITHSTANDING.

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TENANT ACKNOWLEDGES AND AGREES THAT THIS LEASE CONTAINS PROVISIONS UNDER WHICH LANDLORD MAY ENTER JUDGMENT BY CONFESSION AGAINST TENANT. BEING FULLY AWARE OF TENANT’S RIGHTS TO PRIOR NOTICE AND A HEARING ON THE VALIDITY OF ANY JUDGMENT OR OTHER CLAIMS THAT MAY BE ASSERTED AGAINST TENANT BY LANDLORD HEREUNDER BEFORE JUDGMENT IS ENTERED, TENANT HEREBY FREELY, KNOWINGLY AND INTELLIGENTLY WAIVES THESE RIGHTS AND EXPRESSLY AGREES AND CONSENTS TO LANDLORD’S ENTERING JUDGMENT AGAINST TENANT BY CONFESSION PURSUANT TO THE TERMS OF THIS LEASE.

-SIGNATURE PAGE TO FOLLOW-

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IN WITNESS WHEREOF, the parties hereto have executed this Lease, under seal, as of the day and year first above written.

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Exhibit “A”

Premises/Floor Plan

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Exhibit “B”

Office / Retail Space Allocations

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Exhibit “C”

ESTOPPEL CERTIFICATE

________________________________________

________________________________________

________________________________________

________________________________________

Gentlemen:

Tenant hereby certifies that the above description of the Lease, and the description of the Leased Premises therein demised, is a true and correct description of the same and that the Lease constitutes the only agreement between Landlord and Tenant with respect to the Leased Premises.

Tenant hereby certifies, acknowledges and agrees as follows:

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Very truly yours,

_______________________________________

By:____________________________________

Its:____________________________________

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EXHIBIT “D”

CLEANING SPECIFICATIONS

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