Exhibit 10.16
Execution Copy

SEPARATION AND GENERAL RELEASE AGREEMENT

This Separation and General Release Agreement (the “Agreement”) is made and
entered into this 29th day of January, 2019, by and between Novan, Inc. (the
“Company”) and Jeff N. Hunter (“Executive”). Throughout the remainder of this
Agreement, the Company and Executive may be collectively referred to as the
“Parties” and individually referred to as a “Party.”
WHEREAS, Executive is currently employed pursuant to an Employment Agreement
between the Parties, dated April 15, 2018 (the “Employment Agreement”);
WHEREAS, Executive is also subject to the terms of the Confidentiality and
Assignment of Inventions Agreement, executed by Employee on October 9, 2009, and
the Amended and Restated Noncompetition Agreement, executed by Employee on May
11, 2016 (collectively the “Restrictive Covenants Agreements”);
WHEREAS, the Parties desire to terminate the Employment Agreement and the
employment relationship as of January 31, 2019;
WHEREAS, the Parties are executing simultaneously herewith a Consulting
Agreement under which Executive shall provide services to the Company as a
consultant; and
WHEREAS, the Parties have reached agreement on the terms and conditions of
Executive’s separation from employment and wish to enter into this Agreement and
a Consulting Agreement, to memorialize such terms; and
WHEREAS, Executive represents that he has carefully read this entire Agreement,
understands its consequences, and voluntarily enters into it.
NOW THEREFORE, in consideration of the above and the mutual promises set forth
below, Executive and the Company agree as follows:
1.SEPARATION. Executive’s resignation from employment with the Company is
effective as of January 31, 2019 (“Separation Date”). As of the Separation Date,
Executive hereby resigns from all officer positons with the Company.
2.SEVERANCE BENEFITS. In consideration of the release of claims and other
promises contained herein and on the condition that Executive fully complies
with his obligations under this Agreement, and the Restrictive Covenants
Agreements, the Company will:
(a)    pay Executive severance pay in the amount of Three Hundred Fifty Thousand
and 00/100 ($350,000) (less all applicable withholdings), to be paid in
installment payments over the twelve (12) month period following the Separation
Date in accordance with the Company’s regular payroll schedule, commencing on
the first payroll date occurring ten (10) days after this Agreement has become
effective as provided in Section 11;

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(b)    pay Executive a lump sum equal to Sixty One Thousand Two Hundred Fifty
and 00/100 Dollars ($61,250) (less applicable withholdings), to be paid on the
same payroll date on which severance pay under Section 2(i) commences; and
(c)    reimburse Executive for the additional costs of continuing Executive’s
Company sponsored group medical, dental and vision coverage under COBRA
applicable to the type of medical, dental and vision coverage in effect for
Executive (e.g., family coverage vs. employee-only coverage) as of the
Separation Date for the 12-month period following the Separation Date, or until
Executive is eligible for new group healthcare coverage, whichever is shorter.
Reimbursements shall be made to Executive on a monthly basis within 30 days of
Executive providing documentation of the costs, commencing in the month after
this Agreement has become effective as provided in Section 11.
Nothing in this Agreement constitutes a guarantee of COBRA continuation coverage
or benefits or a guarantee of eligibility for health benefits and Executive
bears full responsibility for applying for COBRA continuation coverage. As of
the Separation Date, Executive shall not be entitled to group disability,
accidental death and dismemberment insurance benefits, or any other employee
benefits, and shall not be a participant in the Company’s 401(k) Plan (the
“401(k) Plan”) or any other plan of any type. For clarification and the
avoidance of doubt, Executive will not be eligible to contribute to Executive’s
401(k) plan from any post-termination payments made under this Section 2 nor
receive matching funds from the Company under related policies. Nothing in this
Agreement, however, shall be deemed to limit Executive’s continuation coverage
rights under COBRA or Executive’s vested rights, if any, under the 401(k) Plan
or other Company plan, and the terms of those plans shall govern.
3.EMPLOYMENT AGREEMENT AND RESTRICTIVE COVENANTS AGREEMENTS. Executive
acknowledges and agrees the Employment Agreement is hereby terminated, but that
Executive shall continue to be fully bound by the terms of the Restrictive
Covenants Agreements. In consideration of the benefits under this Agreement, and
in light of Executive’s continuing role as a consultant following the Separation
Date under the Consulting Agreement, Executive and the Company hereby amend the
Restrictive Covenants Agreements as follows: (a) the Restrictive Covenants
Agreements shall apply to the services provided by Executive as a consultant
under the Consulting Agreement as if Executive was still employed during the
Consulting Term (as defined in the Consulting Agreement), (b) the one-year
post-employment Restricted Period, as defined in Executive’s Noncompetition
Agreement, shall be extended so that it ends on the one-year anniversary of the
date on which the Consulting Term ends under the Consulting Agreement; and (c)
the following companies shall be added to Exhibit A to Executive’s
Noncompetition Agreement: KNOW Bio, LLC, Vast Therapeutics, Inc., and any of
their affiliates, subsidiaries or joint ventures.

4.EXECUTIVE ACKNOWLEDGEMENTS. By signing this Agreement, Executive represents
that (a) he has been properly paid for all time worked and received all salary,
expense reimbursement, and all other amounts of any kind due to him from the
Company with the exceptions of (i) Executive’s final paycheck for work during
the final payroll period in which the Separation Date occurs, , and will include
payment of unused paid-time-off through December 31, 2018, per Company policy,
in the amount of $26,923.08 (less applicable withholdings, and (ii) the pay
under Section 2 of this Agreement, and (b) that the payments set forth in
Section 2 of this Agreement constitute all post-termination or severance
payments or benefits to which Executive is entitled to

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receive, and he is not entitled to any other compensation, payments or benefits
of any nature as the result of the termination of his employment.

5.COMPANY PROPERTY. Executive agrees to deliver to the Company immediately: (i)
all Company records, memoranda, data, documents and other property of any
description which refer or relate in any way to trade secrets or confidential
information, including all copies thereof, which are in his possession, custody
or control, except for what the Company agrees is needed by Executive to provide
Services under the Consulting Agreement; and (ii) all Company property
(including, but not limited to, keys, credit cards, computers, client files,
contracts, proposals, work in process, manuals, forms, computer stored work in
process and other computer data, research materials, other items of business
information concerning any Company customer or client or potential prospect to
purchase some or all of the Company’s assets, or Company business or business
methods, including all copies thereof) which is in his possession, custody or
control; provided, however, that the Company agrees that it will sell to
Executive his current laptop for $500 once the laptop has been returned to the
Company and cleansed of Company information. Executive also agrees that he will
fully cooperate with the Company in winding up his work and transferring that
work to other individuals designated by the Company.

6.ADEQUACY OF CONSIDERATION. Executive acknowledges that the benefits available
to him under this Agreement are significant, would not be available to him if he
did not sign this Agreement, and constitute adequate consideration for the
releases of claims, under Sections 7 and 8 of this Agreement.

7.RELEASE. In consideration of the benefits conferred by this AGREEMENT,
EMPLOYEE (ON BEHALF OF HIMSELF, HIS FAMILY MEMBERS, HEIRS, ASSIGNS, EXECUTORS
AND OTHER REPRESENTATIVES) RELEASES THE COMPANY AND ITS PAST, PRESENT AND FUTURE
PARENTS, SUBSIDIARIES, AFFILIATES, AND ITS AND/OR THEIR PREDECESSORS,
SUCCESSORS, ASSIGNS, AND ITS AND/OR THEIR PAST, PRESENT AND FUTURE OFFICERS,
DIRECTORS, EMPLOYEES, OWNERS, INVESTORS, SHAREHOLDERS, ADMINISTRATORS, BUSINESS
UNITS, EMPLOYEE BENEFIT PLANS (TOGETHER WITH ALL PLAN ADMINISTRATORS, TRUSTEES,
FIDUCIARIES AND INSURERS) AND AGENTS (“RELEASEES”) FROM ALL CLAIMS AND WAIVES
ALL RIGHTS KNOWN OR UNKNOWN, HE MAY HAVE OR CLAIM TO HAVE IN EACH CASE RELATING
TO HIS EMPLOYMENT WITH THE COMPANY, OR HIS SEPARATION THEREFROM arising before
the execution of this Agreement by Executive, including but not limited to
claims: (i) for discrimination, harassment or retaliation arising under any
federal, state or local laws, or the equivalent applicable laws of a foreign
country, prohibiting age (including but not limited to claims under the Age
Discrimination in Employment Act of 1967 (ADEA), as amended, and the Older
Worker Benefit Protection Act of 1990 (OWBPA) (“OWBPA”) (the release of ADEA and
OWBPA claims shall collectively be referred to herein as the “ADEA Release”)),
sex, national origin, race, religion, disability, veteran status or other
protected class discrimination, the Family and Medical Leave Act, as amended
(FMLA), harassment or retaliation for protected activity; (ii) for compensation,
commission payments, bonus payments and/or benefits including but not limited to
claims under the Fair Labor Standards Act of 1938 (FLSA), as amended, the
Executive Retirement Income Security Act of 1974, as amended (ERISA), the Family
and Medical Leave Act, as amended (FMLA), and similar federal, state, and local
laws; (iii) under federal, state or local law, of any nature whatsoever,
including but not limited to constitutional, statutory; and common law; (iv)
under his Employment Agreement, and (v) for attorneys’ fees. Executive
specifically waives his right to bring or participate in any class or collective
action against the

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Company. Provided, however, that this release does not apply to claims by
Executive: (aa) for workers’ compensation benefits or unemployment benefits
filed with the applicable state agencies; (bb) for vested pension or retirement
benefits including under the Company’s 401(k) plan; (cc) to continuation
coverage under COBRA, or equivalent applicable law; (dd) to rights that cannot
lawfully be released by a private settlement agreement; (ee) to claims or rights
that arise or accrue after Executive’s execution of this Agreement; or (ff) to
enforce, or for a breach of, this Agreement (the “Reserved Claims”). For the
purpose of implementing a full and complete release and discharge, Executive
expressly acknowledges that this Agreement is intended to include in its effect,
without limitation, all claims which he does not know or suspect to exist in his
favor at the time of execution hereof, and that this Agreement contemplated the
extinguishment of any such claim or claims.

8.COVENANT NOT TO SUE. In consideration of the benefits offered to Executive,
Executive will not sue Releasees on any of the released claims or on any matters
relating to his employment arising before the execution of this Agreement other
than with respect to the Reserved Claims, including but not limited to claims
under the ADEA, or join as a party with others who may sue Releasees on any such
claims; provided, however, this paragraph will not bar a challenge under the
OWBPA to the enforceability of the waiver and the ADEA Release set forth in this
Agreement, the Reserved Claims, or where otherwise prohibited by law. If
Executive does not abide by this paragraph, then (i) he will return all monies
received under this Agreement and indemnify the Company for all expenses
incurred in defending the action, and (ii) the Company will be relieved of its
obligation hereunder.

9.RIGHT TO REVIEW. The Company delivered the ADEA Release (as defined in Section
7 above) contained in this Agreement to Executive to Executive on January 24,
2019 (the “ADEA Release Notification Date”) and informs him that it desires that
he have adequate time and opportunity to review and understand the consequences
of entering into the ADEA Release. Accordingly, the Company advises Executive as
follows: (i) Executive should consult with his attorney prior to executing the
ADEA Release; and (ii) Executive has 21 days from the Notification Date within
which to consider the ADEA Release. Executive must return an executed copy of
this Agreement to the Company on or before the 22nd day following the
Notification Date. Executive acknowledges and understands that he is not
required to use the entire 21-day review period and may execute and return this
Agreement at any time before the 22nd day following the Notification Date, but
in no event may this Agreement be signed or returned by Executive before the
Separation Date. If, however, Executive does not execute and return an executed
copy of this Agreement on or before the 22nd day following the Notification
Date, this Agreement shall become null and void. This executed Agreement shall
be returned to: Kelly Martin, Chief Executive Officer, Novan, Inc., 4105 Hopson
Road, Morrisville, NC 27560.

10.REVOCATION. Executive may revoke this Agreement during the seven (7) day
period immediately following his execution of this Agreement. Neither this
Agreement nor the Consulting Agreement, will not become effective or enforceable
until the revocation period has expired. To revoke this Agreement, a written
notice of revocation must be delivered to: Kelly Martin, Chief Executive
Officer, Novan, Inc., 4105 Hopson Road, Morrisville, NC 27560.

11.AGENCY CHARGES/INVESTIGATIONS. Nothing in this Agreement prohibits or
prevents Executive from filing a charge with or participating, testifying, or
assisting in any investigation, hearing, whistleblower proceeding or other
proceeding before any federal, state, or local government agency (e.g. EEOC,
NLRB, SEC., etc.) (“Government Agency”), nor does anything in this Agreement
preclude, prohibit, or otherwise limit, in any way, Executive’s rights

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and abilities to contact, communicate with, report matters to, or otherwise
participate in any whistleblower program administered by any such agencies.
Executive further understands that this Agreement does not limit Executive's or
the Company’s ability to communicate with any Government Agency or otherwise
participate in any investigation or proceeding that may be conducted by any
Government Agency in connection with reporting a possible securities law
violation, or other violation of law, without notice to the Company. Nothing in
this Agreement or any other agreement limits Executive’s right to receive an
award for information provided to any Government Agency/SEC staff.

12.NONDISPARAGEMENT. Executive agrees that he shall not at any time make,
publish or communicate to any person or entity or in any public forum any
defamatory or disparaging remarks, comments or statements concerning the
Company, or any of its employees, officers or directors, and existing and
prospective customers, suppliers, investors and other associated third parties,
now or in the future. The Company shall instruct its officers and directors not
to knowingly engage in any conduct that involves the making or publishing of
written or oral statements or remarks (including, without limitation, the
repetition or distribution of derogatory rumors, allegations, negative reports
or comments) which are disparaging, deleterious or damaging to the integrity,
reputation or good will of Executive. This Section does not, in any way,
restrict or impede Executive from exercising protected rights to the extent that
such rights cannot be waived by agreement or from complying with any applicable
law or regulation or a valid order of a court of competent jurisdiction or an
authorized government agency, provided that such compliance.

13.REFERENCES. Executive agrees that all requests for references will be in
writing and will be directed to the Company’s Human Resources department.
Consistent with the Company’s practices, prospective employers will only be
provided with verification of the dates of Executive’s employment with the
Company and job title.

14.DISCLAIMER OF LIABILITY. Nothing in this Agreement is to be construed as
either an admission of liability or admission of wrongdoing on the part of
either Party, each of which denies any liabilities or wrongdoing on its part.

15.GOVERNING LAW. This Agreement shall be construed, interpreted, and governed
in accordance with and by North Carolina law and the applicable provisions of
federal law (“Applicable Federal Law”). Any and all claims, controversies, and
causes of action arising out of or relating to this Agreement, whether sounding
in contract, tort, or statute, shall be governed by the laws of the state of
North Carolina, including its statutes of limitations, except for Applicable
Federal Law, without giving effect to any North Carolina conflict-of-laws rule
that would result in the application of the laws of a different
jurisdiction. Both Executive and the Company acknowledge and agree that the
state or federal courts located in North Carolina have personal jurisdiction
over them and over any dispute arising under this Agreement, and both Executive
and the Company irrevocably consent to the jurisdiction of such courts.

16.ENTIRE AGREEMENT. Except for the Restrictive Covenant Agreements, as amended
herein, the Consulting Agreement, the Indemnification Agreement (referred to in
Section 20) and as expressly provided herein, this Agreement: (i) supersedes and
cancels all other understandings and agreements, oral or written, with respect
to Executive’s employment with the Company; (ii) supersedes all other
understandings and agreements, oral or written, between the Parties with respect
to the subject matter of this Agreement; and (iii) constitutes the sole
agreement between the Parties with respect to this subject matter. Each Party
acknowledges that: (i) no

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representations, inducements, promises or agreements, oral or written, have been
made by any Party or by anyone acting on behalf of any Party, which are not
embodied in this Agreement; and (ii) no agreement, statement or promise not
contained in this Agreement shall be valid. No change or modification of this
Agreement shall be valid or binding upon the Parties unless such change or
modification is in writing and is signed by the Parties. This Agreement shall be
in addition to and, except as expressly provided herein, shall not affect the
provisions of any employee benefit or other plan or program of the Company and
any award agreement between the Company and Executive.

17.SEVERABILITY. If any portion, provision, or part of this Agreement is held,
determined, or adjudicated by any court of competent jurisdiction to be invalid,
unenforceable, void, or voidable for any reason whatsoever, each such portion,
provision, or part shall be severed from the remaining portions, provisions, or
parts of this Agreement, and such determination or adjudication shall not affect
the validity or enforceability of such remaining portions, provisions, or parts.

18.COUNTERPARTS. This Agreement may be executed in any number of counterparts,
and delivered by facsimile, PDF or other electronic copy, and each counterpart
when so executed and delivered shall be deemed to be an original and when taken
together shall constitute one and the same instrument, and production of an
originally executed, facsimile, PDF or other electronic copy, of each
counterpart execution page will be sufficient for purposes of proof of execution
and delivery of this Agreement. Any Party hereto may execute this Agreement by
signing any such counterpart.

19.WAIVER OF BREACH. A waiver of any breach of this Agreement shall not
constitute a waiver of any other provision of this Agreement or any subsequent
breach of this Agreement.

20.INDEMNIFICATION; DIRECTORS AND OFFICERS COVERAGE. Nothing in this Agreement
shall affect or diminish either the Executive’s or the Company’s rights and
obligations under the Indemnification Agreement, dated September 26, 2016, and
such Indemnification Agreement shall survive the termination of Executive’s
employment hereunder. For clarification and the avoidance of doubt, such
Indemnification Agreement shall apply to Proceedings (as defined in the
Indemnification Agreement) regardless of whether such Proceedings commence prior
to or after the Separation Date.

21.SUCCESSORS; BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of each of the parties hereto and to their respective
successors, assigns, heirs, executors, administrators and other legal
representatives.
 
22.SECTION 409A OF THE INTERNAL REVENUE CODE.

a.Parties’ Intent. The Parties intend that no payments or benefits hereunder
shall constitute non-qualified deferred compensation within the meaning of
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and
the regulations thereunder (collectively, “Section 409A”) and all provisions of
this Agreement shall be construed in a manner consistent with such intention. If
any provision of this Agreement (or of any award of compensation, including
equity compensation or benefits) would cause Executive to incur any additional
tax or interest under Section 409A, the Company shall, upon the specific request
of Executive, use its

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reasonable business efforts to in good faith reform such provision to be exempt
from, or comply with, Code Section 409A; provided, that to the maximum extent
practicable, the original intent and economic benefit to Executive and the
Company of the applicable provision shall be maintained, and the Company shall
have no obligation to make any changes that could create any material additional
economic cost or loss of material benefit to the Company. The Company shall
timely use its reasonable business efforts to amend any plan or program in which
Executive participates to bring it under an exemption from, or in compliance
with, Section 409A. Notwithstanding the foregoing, the Company shall have no
liability with regard to any failure to comply with Section 409A so long as it
has acted in good faith with regard to compliance therewith.

b.Separation from Service. A termination of employment or separation from
service shall not be deemed to have occurred for purposes of any provision of
this Agreement providing for the payment of any amounts or benefits that
constitute nonqualified deferred compensation within the meaning of Section 409A
upon or following a termination of employment or separation from service unless
such termination also constitutes a “Separation from Service” within the meaning
of Section 409A and, for purposes of any such provision of this Agreement,
references to a “termination,” “termination of employment,” “separation from
service” or like terms shall mean Separation from Service.

c.Separate Payments. Each installment payment required under this Agreement
shall be considered a separate payment for purposes of Section 409A.

d.Delayed Distribution to Specified Executives. If the Company determines in
accordance with Sections 409A and 416(i) of the Code and the regulations
promulgated thereunder, in the Company’s sole discretion, that Executive is a
Specified Executive of the Company on the date he experiences a separation from
service with the Company and that a delay in benefits provided under this
Agreement is necessary to comply with Code Section 409A(A)(2)(B)(i), then any
post separation payments and any continuation of benefits or reimbursement of
benefit costs provided by this Agreement, and not otherwise exempt from Section
409A, shall be delayed for a period of six (6) months following the date of
Executive’s separation from service (the “409A Delay Period”). In such event,
any post separation payments and the cost of any continuation of benefits
provided under this Agreement that would otherwise be due and payable to
Executive during the 409A Delay Period shall be paid to Executive in a lump sum
cash amount in the month following the end of the 409A Delay Period. For
purposes of this Agreement, “Specified” shall mean an employee who, on an
Identification Date (“Identification Date” shall mean each December 31) is a key
employee as defined in Section 416(i) of the Code without regard to paragraph
(5) thereof.
[Signature Page Follows]

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IN WITNESS WHEREOF, the Parties have entered into this Agreement as of the day
and year written below.

JEFF N. HUNTER
 
 
 
 
 
 
/s/ Jeff N. Hunter
 
Date: 1/25/2019
 
 
 
 
 
 
 
 
NOVAN, INC.
 
 
 
 
 
 
/s/ G. Kelly Martin
 
 
By:
G. Kelly Martin
 
 
Title:
CEO