Document:

Exhibit

Exhibit 10.2

THE SYMBOL “[***]” DENOTES PLACES WHERE CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH (i) NOT MATERIAL AND (ii) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE COMPANY IF PUBLICLY DISCLOSED
Execution Version

DEVELOPMENT FUNDING AND ROYALTIES AGREEMENT

THIS DEVELOPMENT FUNDING AND ROYALTIES AGREEMENT (this “Agreement”) is made and entered into effective as of May 4, 2019 (the “Effective Date”) by and between LIGAND PHARMACEUTICALS INCORPORATED, a Delaware corporation having a place of business at 3911 Sorrento Valley Boulevard, Suite 110, San Diego, California 92121, U.S.A. (“Ligand”), and NOVAN, INC., a Delaware corporation having a place of business at 4105 Hopson Road, Morrisville, North Carolina 27560, U.S.A., and its Affiliates (“Novan”).  Novan and Ligand may be referred to herein individually as a “Party” or collectively as the “Parties.”

RECITALS

WHEREAS, Ligand is engaged in the development and commercialization of pharmaceutical products;   

WHEREAS, Novan owns or otherwise controls certain intellectual property rights and regulatory filings relating to the product designated as SB206, which is the subject of clinical development for molluscum contagiosum;

WHEREAS, Ligand desires to contribute to the funding of the development of the product designated as SB206 in exchange for the right to receive future payments based on the development and commercialization of such product; and

WHEREAS, Novan would like to obtain such funding from Ligand for such development activities, and sell to Ligand the right to receive such future payments, as set forth in this Agreement below. 

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants herein contained, the Parties hereby agree as follows.

ARTICLE 1
 
DEFINITIONS
The terms in this Agreement with initial letters capitalized, whether used in the singular or the plural, will have the meaning set forth below or, if not listed below, the meaning designated in places throughout this Agreement.

CONFIDENTIAL

 

1.1     “Affiliate” of a Person means any other Person that (directly or indirectly) is controlled by, controls or is under common control with such initial Person.  For the purposes of this definition, the term “control” (and, with correlative meanings, the terms “controlled by” and “under common control with”) as used with respect to a Person means: (a) direct or indirect ownership of more than fifty percent (50%) of the voting interest in the Person in question, or more than fifty percent (50%) interest in the income of the Person in question; or (b) other than through ownership of securities, possession, directly or indirectly, of the power to direct or cause the direction of management or policies of the Person in question.
1.2    “Applicable Law” means all laws, statutes, ordinances, codes, rules, and regulations that have been enacted by a Governmental Authority and are in force as of the Effective Date or come into force during the Term, in each case to the extent that the same are applicable to the performance by a Party of its obligations, and/or exercise of its rights, under this Agreement.
1.3    “Bankruptcy Event” means the occurrence of any of the following in respect of a Person: (a) an admission in writing by such Person of its inability to pay its debts generally or a general assignment by such Person for the benefit of creditors; (b) the filing of any petition or answer by such Person seeking to adjudicate itself as bankrupt or insolvent, or seeking for itself any liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of such Person or its debts under any Applicable Law relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization, examination, relief of debtors or other similar Applicable Law now or hereafter in effect, or seeking, consenting to or acquiescing in the entry of an order for relief in any case under any such Applicable Law, or the appointment of or taking possession by a receiver, trustee, custodian, liquidator, examiner, assignee, sequestrator or other similar official for such Person or for any substantial part of its property; (c) corporate or other entity action taken by such Person to authorize any of the actions set forth in clause (a) or clause (b) above; (d) without the consent or acquiescence of such Person, the entering of an order for relief or approving a petition for relief or reorganization or any other petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or other similar relief under any present or future bankruptcy, insolvency or similar Applicable Law, or the filing of any such petition against such Person, or, without the consent or acquiescence of such Person, the entering of an order appointing a trustee, custodian, receiver or liquidator of such Person or of all or any substantial part of the property of such Person, in each case where such petition or order shall remain unstayed or shall not have been stayed or dismissed within ninety (90) days from entry thereof; provided that in the case of an involuntary petition, such Person has not challenged such petition within ninety (90) days thereof; (e) the appointment of a trustee, receiver, or custodian for all or substantially all of the property of such Person, or for any lesser portion of such property, if the result materially and adversely affects the ability of such Person to fulfill its obligations hereunder, which appointment is not dismissed within sixty (60) days; or (f) the dissolution or liquidation of such Person.
1.4    “Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by Applicable Law to remain closed.

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1.5    “Calendar Quarter” means the respective periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 and December 31; provided, however, that (a) the first Calendar Quarter of the Term will extend from the Effective Date to the end of the first complete Calendar Quarter thereafter, and (b) the last Calendar Quarter of the Term will end upon the expiration or termination of this Agreement.
1.6    “Calendar Year” means (a) for the first Calendar Year of the Term, the period beginning on the Effective Date and ending on December 31, 2019, (b) for each Calendar Year of the Term thereafter, each successive period beginning on January 1 and ending twelve (12) consecutive calendar months later on December 31, and (c) for the last Calendar Year of the Term, the period beginning on January 1 of the Calendar Year in which this Agreement expires or terminates and ending on the effective date of expiration or termination of this Agreement.
1.7    “Change of Control” means with respect to a Party: (a) the sale or exclusive license of all or substantially all of such Party’s assets or business relating to this Agreement to a Third Party; (b) a merger, reorganization or consolidation involving the Party and a Third Party in which the voting securities of the Party outstanding immediately prior thereto cease to represent at least fifty percent (50%) of the combined voting power of the surviving entity immediately after such merger, reorganization or consolidation; or (c) a transaction (which may include a tender offer for such Party’s stock or the issuance, sale or exchange of stock of such Party) with a Third Party or Third Parties in which the stockholders of such Party immediately prior to the transaction do not, immediately after consummation of such transaction, (i) own, directly or indirectly through one or more intermediaries, stock or other securities of such Party that possess a majority of the voting power of all of such Party’s outstanding stock and other securities or (ii) possess the power to elect a majority of the members of such Party’s board of directors.
1.8    “Claims” has the meaning set forth in Section 7.1.
1.9    “Commercially Reasonable Efforts” means, as to Novan and the Product, the level of effort, expertise, and resources required to Develop and Commercialize the Product consistent with the reasonable efforts that would be typically exerted by a biotechnology or pharmaceutical company of comparable size and capabilities as Novan in pursuing the development and commercialization of a similar product with similar product characteristics at a similar stage in its development or product life, including without limitation with respect to commercial potential, the proprietary position of the Product, the regulatory status and approval process and other relevant technical, scientific, medical or legal factors, but not taking into account any competitive product in Novan’s portfolio. 
1.10    “Commercialize,” “Commercializing,” and “Commercialization” means activities directed to manufacturing, obtaining pricing and reimbursement approvals for, marketing, promoting, distributing, importing, and/or selling the Product.
1.11    “Confidential Information” means any and all technical, business or other information or materials that are disclosed or provided by such Party to the other Party under or in connection with this Agreement and are designated as confidential or would otherwise reasonably 

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be understood to be confidential or proprietary in light of the nature of the information and the circumstances of the disclosure, whether disclosed or provided in oral, written, graphic, or electronic form, which may include without limitation trade secrets, processes, formulae, data, Know-How, improvements, inventions, chemical or biological materials, chemical structures, techniques, clinical, sublicensing and marketing and other Development and/or Commercialization plans, strategies, customer lists, financial data, intellectual property information, tangible or intangible proprietary information or materials or other information in whatever form.  For clarity, Confidential Information of Novan shall include all reports delivered by Novan pursuant to this Agreement.  
1.12    “Control” or “Controlled” means, with respect to an item, information, or an intellectual property right, that the applicable Party owns or has a license or other appropriate rights in, to, and under such item, information, or intellectual property right and has the ability to disclose and grant a license or sublicense to the other Party as provided for in this Agreement in, to, and under such item, information, or intellectual property right without violating the terms of any written agreement with any Third Party.  
1.13    “Cover,” “Covered,” or “Covering” means, with respect to a Patent Right, that, in the absence of ownership of or a license under such Patent Right, the manufacture, use, offer for sale, sale or importation of the Product or components thereof would infringe a Valid Claim in such Patent Right.  
1.14    “Development” means non-clinical, pre-clinical and clinical drug discovery, research, and/or development activities, including without limitation quality assurance and quality control development, and any other activities reasonably related to or leading to the development and submission of information to a Regulatory Authority.  When used as a verb, “Develop” means to engage in Development.    
1.15    “Development Budget” has the meaning set forth in Section 2.2.  
1.16    “Development Plan” has the meaning set forth in Section 2.2.  
1.17    “Disclosing Party” has the meaning set forth in Section 5.1.
1.18    “Dollars” or “US$” means the lawful currency of the United States.
1.19    “Export Control Laws” means all applicable laws and regulations relating to (a) sanctions and embargoes imposed by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the European Union or (b) the export or re-export of commodities, technologies or services or data, including without limitation the Export Administration Act of 1979, 24 U.S.C. §§ 2401-2420; the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-1706; the Trading with the Enemy Act, 50 U.S.C. App. §§ 1 et. seq.; the Arms Export Control Act, 22 U.S.C. §§ 2778 and 2779; and the International Boycott Provisions of Section 999 of the U.S. Internal Revenue Code of 1986, and European Union laws and regulations (including without limitation Regulation (EC) No 428/2009, as amended), in each case as amended.
1.20    “FCPA” means the U.S. Foreign Corrupt Practices Act (15 U.S.C. § 78dd-1 et. seq.), as amended. 

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1.21    “FDA” means the United States Food and Drug Administration, or any successor agency thereto.
1.22    “Field” means the treatment of any and all indications, diseases, disorders, and/or conditions, including without limitation treatment of molluscum contagiosum in humans.
1.23    “First Commercial Sale” means, with respect to a particular product, the first commercial sale for monetary value by Novan, one or more of its Affiliates or one or more of its Licensees in an arm’s length transaction to a Third Party that is not a Licensee, including without limitation any final sale to a distributor or wholesaler under any non-conditional sale arrangement, of such Product in the Field in the Territory after Regulatory Approval of such Product has been granted in the Field in the Territory.  For the avoidance of doubt, sales or transfers of a Product for clinical and non-clinical research and trials (including studies reasonably necessary to comply with Applicable Law or requests by a Regulatory Authority), early access programs or for compassionate or similar use, shall not be considered a First Commercial Sale.
1.24    “GAAP” means generally accepted accounting principles in the United States, consistently applied.
1.25    “Governmental Authority” will mean any supranational, federal, national, multinational, regional, provincial, county, city, state, or local government, court, governmental agency, authority, board, bureau, instrumentality, regulatory body, or other political subdivision, domestic or foreign.  
1.26    “Indemnitee” has the meaning set forth in Section 7.1.
1.27    “Know-How” means technical information and materials, including without limitation technology, software, instrumentation, devices, data, biological materials, assays, constructs, compounds, inventions (patentable or otherwise), practices, methods, algorithms, models, knowledge, know‐how, trade secrets, skill and experience (including without limitation all biological, chemical, pharmacological, toxicological, clinical, assay and related know-how and trade secrets, and all manufacturing data, manufacturing processes, specifications, assays, quality control and testing procedures, regulatory submissions and related know‐how and trade secrets). 
1.28    “Knowledge” means, with respect to the applicable Party, that the officers of such Party have actual, or reasonably should have, knowledge of facts that make the associated statement true or untrue.      
1.29    “License” means any agreement pursuant to which Novan grants to a Third Party (a “Licensee”) a license, sublicense, option, or other right to any Novan Patents or Regulatory Filings or Regulatory Approvals relating to the Products; provided, however, that a License shall not include any agreement pursuant to which Novan or any of its Affiliates grants a license or sublicense of any of its intellectual property rights (i) solely to conduct research, (ii) solely to manufacture a Product, or (iii) otherwise to service providers solely on a non-exclusive basis in the ordinary course of Development or Commercialization of a Product (e.g., material transfer agreements, distribution agreements, and consulting agreements).  

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1.30    “Licensee” has the meaning set forth in the definition of License. 
1.31    “Losses” has the meaning set forth in Section 7.1.
1.32    “Milestone Payment” has the meaning set forth in Section 4.2.
1.33    “NDA” means a New Drug Application filed with the FDA that is required for approval for Commercialization of a Product in the United States, or its foreign equivalent in the Territory.
1.34    “Net Sales” means, with respect to any Product, the total invoiced sales price received for such Product sold by Novan or its Affiliates or Licensees less (a) [***], (b) [***], (c) [***], (d) [***], (e) [***], and (f) [***].  Such Product will be considered sold when paid for.  Notwithstanding the foregoing, Net Sales shall not include, and shall be deemed zero with respect to, (1) the distribution of reasonable quantities of promotional samples of a Product, (2) Product provided for clinical trials or research purposes, or charitable or compassionate use purposes or (3) Product provided to any Affiliate or Licensee under an agreement in which Net Sales by such Affiliate or Licensee shall be subject to Royalties under Section 4.3. For the avoidance of doubt, any revenue from sales of Product that is booked by Novan or its Affiliates or Licensees and recorded as revenue in accordance with GAAP will be counted as Net Sales, subject to the deductions set forth above in this Section 1.34, without duplication.
1.35    “Novan Patents” means any and all patents and patent applications in the Territory that are Controlled by Novan or its Affiliates and Cover a Product or its manufacture, use, sale, export or import.  
1.36    “Novan Technology” means berdazimer sodium (NVN1000).  
1.37    “Patent Rights” means (a) patents and patent applications, and any foreign counterparts thereof, (b) all divisionals, continuations, continuations-in-part of any of the foregoing, and any foreign counterparts thereof, and (c) all patents issuing on any of the foregoing, and any foreign counterparts thereof, together with all registrations, reissues, re‐examinations, supplemental protection certificates, substitutions or extensions thereof, and any foreign counterparts thereof. 
1.38    “Person” means any natural person, firm, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, business trust, unincorporated organization, Governmental Authority or any other legal entity, including without limitation public bodies, whether acting in an individual, fiduciary or other capacity.
1.39    “Prior CDA” means the Mutual Nondisclosure Agreement between the Parties, effective as of January 21, 2019.
1.40    “Product” means (a) SB206 and/or (b) any other pharmaceutical product that incorporates and/or uses the Novan Technology to the extent that such product is Commercialized by Novan and/or its Affiliates or Licensees for the treatment of molluscum contagiosum in humans. 
1.41    “Public Official or Entity” means (a) any officer, employee (including without limitation physicians, hospital administrators or other healthcare professionals), agent, 

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representative, department, agency, de facto official, representative, corporate entity, instrumentality or subdivision of any government, military or international organization, including without limitation any ministry or department of health or any state-owned or affiliated company or hospital, or (b) any candidate for political office, any political party or any official of a political party.
1.42    “Purchase Price” has the meaning set forth in Section 4.1.
1.43    “Receiving Party” has the meaning set forth in Section 5.1.
1.44    “Regulatory Approval” means approval of an NDA by the FDA for the applicable Product in the United States, or approval by the applicable Regulatory Authority of a regulatory approval application that is equivalent to an NDA in a country in the Territory other than the United States, and any approvals, licenses, registrations, or authorizations necessary for the manufacture, marketing, and sale of Product in such country and, where relevant, including without limitation any reimbursement or pricing approvals.  For the sake of clarity, except as otherwise expressly provided herein, “Regulatory Approval” will not be achieved for a Product in a country or, where applicable, a multinational jurisdiction until any applicable approvals relating to pricing and reimbursement from the relevant Regulatory Authorities have been obtained in such country or such jurisdiction.
1.45    “Regulatory Authority” means any national or supranational Governmental Authority, including without limitation FDA, that has responsibility for granting any licenses or approvals or granting pricing and/or reimbursement approvals necessary for the development, marketing, and sale of a Product in any country.
1.46    “Regulatory Exclusivity” means any exclusive marketing rights or data exclusivity rights conferred by any Governmental Authority under Applicable Law with respect to a Product in a country or jurisdiction in the Territory to prevent Third Parties from Commercializing such Product in such country or jurisdiction, other than a Patent Right, including without limitation orphan drug exclusivity, pediatric exclusivity, rights conferred in the U.S. under the Hatch-Waxman Act or the FDA Modernization Act of 1997, in the EU under Directive 2001/83/EC, or rights similar thereto in other countries or regulatory jurisdictions in the Territory.  
1.47    “Regulatory Filings” means any and all regulatory applications, filings, modifications, amendments, supplements, revisions, reports, submissions, authorizations, and Regulatory Approvals, and associated correspondence required to Develop and Commercialize Products in the Territory, including without limitation any reports or amendments necessary to maintain Regulatory Approvals.  
1.48    “Royalties” has the meaning set forth in Section 4.3.1.
1.49    “Royalty Term” has the meaning set forth in Section 4.3.2.  
1.50    “SEC” has the meaning set forth in Section 3.3.2.
1.51    “SB206” means the composition described in Investigational New Drug application #137015 in section 3.2.P.2.1, as may be amended from time to time.

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1.52    “Securities Act” means the Securities Act of 1933, as amended.
1.53    “Term” has the meaning set forth in Section 6.1. 
1.54    “Territory” means the United States, Canada and Mexico and all of their respective territories and possessions.
1.55    “Third Party” means any Person other than Novan, Ligand, and their respective Affiliates.
1.56    “United States” or “U.S.” means the United States of America and all of its territories and possessions.
1.57    “Valid Claim”  means either (a) a claim of an issued and unexpired patent or a supplementary protection certificate within the Novan Patents that has not been held permanently revoked, unenforceable, or invalid by a decision of a court or other Governmental Authority of competent jurisdiction, unappealable or unappealed within the time allowed for appeal and that is not admitted to be invalid or unenforceable through reissue, disclaimer, or otherwise (i.e., only to the extent the subject matter is disclaimed or is sought to be deleted or amended through reissue), or (b) a claim of a pending patent application within the Novan Patents that has not been abandoned, finally rejected, or expired without the possibility of appeal or refiling.  
ARTICLE 2
      
NOVAN RESPONSIBILITIES; LICENSING; REPORTING
2.1    Responsibilities.  Novan will have the sole right, as between the Parties, to Develop and Commercialize Products in the Field, including without limitation determining the marketing and regulatory strategies for seeking (if and when appropriate) Regulatory Approvals and Regulatory Exclusivity in the Territory for Products in the Field, filing for such Regulatory Approvals and Regulatory Exclusivity for Products in the Field in the Territory, preparing, submitting, and maintaining any and all Regulatory Filings and Regulatory Approvals for Products in the Field in the Territory, and seeking any necessary Regulatory Approvals of Regulatory Authorities for Product labeling and promotional materials to be used in the applicable jurisdiction(s) in connection with Commercializing Products in the Field.  As between the Parties, Novan will be responsible for all costs and expenses incurred by Novan in connection with the foregoing activities, except for the Purchase Price paid by Ligand pursuant to Section 4.1.  If an Affiliate and/or a Licensee meets or fulfills any or all of the obligations of Novan under this Agreement, and/or observes any of the terms or conditions hereof, then Novan will be deemed to have met or fulfilled such obligations or observed such terms or conditions, as the case may be.  
2.2    Development Plan and Development Budget.  Novan will conduct the activities set forth in the Development plan set forth on Appendix A (the “Development Plan”) in accordance with the Development budget set forth on Appendix B (the “Development Budget”).  Novan may update or modify in good faith the Development Plan and the Development Budget from time to time in its sole discretion without Ligand’s consent; provided that Novan must obtain Ligand’s 

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consent (not to be unreasonably withheld, delayed or conditioned) with respect to any updates or modifications that are not made to implement reasonable and customary modifications in Development activities, or that could reasonably materially adversely affect Ligand’s ability to receive Milestone Payments and Royalties under this Agreement.  Novan will use the Purchase Price paid by Ligand pursuant to Section 4.1 solely to fund activities in accordance with the Development Plan and the Development Budget, including for the purpose of seeking Regulatory Approval of the Products in the Field, each of which may be modified from time to time in accordance with this Section 2.2.  Without limiting any other remedies available, if all Development of Products in the Field in the Territory is ceased prior to the first Regulatory Approval of Products in the Territory, Novan will pay to Ligand an amount equal to the Purchase Price less the amounts spent in accordance with the Development Budget on Development activities conducted prior to such cessation.  
2.3        Diligence.  Novan will use Commercially Reasonable Efforts to carry out its responsibilities under this Agreement.  During the Term, Novan will use Commercially Reasonable Efforts to (i) Develop and Commercialize at least one (1) Product in the Field in the Territory, (ii) initiate a Phase 3 trial with respect to at least one (1) Product by [***] and (iii) file an NDA with respect to at least one (1) Product by [***].  Without limiting the foregoing, Novan will use Commercially Reasonable Efforts to perform all of the activities set forth in the Development Plan in accordance with the timelines set forth therein. 
2.4    Licensing.
2.4.1    Right to License.  Novan will retain the right to perform its activities under this Agreement through Licensees, subject to this Section 2.4.  Novan will remain responsible for the performance of Licensees as set forth in this Agreement, including without limitation with respect to all payments due hereunder.  Novan will provide Ligand with notice of the entering into of each License promptly after execution of such License.  In addition, Novan will provide a copy of any such License to Ligand after execution of such License.  Ligand will treat Licenses as Confidential Information of Novan, subject to the terms of Article 5.
2.4.2     Terms.  Each License granted by Novan pursuant to Section 2.4.1 will contain terms and conditions consistent in all material respects with Novan’s obligations in this Agreement.  Without limiting the foregoing, agreements with any Licensee that include the right to Commercialize any Product will contain provisions consistent with the following:  (a) the requirements set forth in Sections 4.4, 4.5, and 8.2.19, and (b) a requirement that such Licensee comply with the confidentiality and non-use provisions of Article 5 with respect to both Parties’ Confidential Information. 
2.4.3    Subcontracting.  Novan may utilize the services of Third Parties, including without limitation Third Party contract research organizations, contract manufacturing organizations, suppliers, partners and service providers to perform its Development and Commercialization activities; provided that Novan will remain at all times fully responsible for its respective responsibilities under this Agreement.  Any agreement with a Third Party to perform 

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Novan’s responsibilities under this Agreement will include confidentiality and non-use provisions which are no less stringent than those set forth in Article 5.  
 
ARTICLE 3
 REGULATORY AND PATENT MATTERS
3.1    Regulatory Filings.  As between the Parties, Novan will solely own and control any and all Regulatory Approvals and any and all other Regulatory Filings submitted in connection with seeking and maintaining Regulatory Approvals for Products in the Field in the Territory.  
3.2    Regulatory Communications.  Novan will be the sole contact, as between the Parties, with the applicable Regulatory Authorities and will be solely responsible, using Commercially Reasonable Efforts, for all communications with such Regulatory Authorities that relate to any Regulatory Approvals or other Regulatory Filings prior to and after any Regulatory Approval with respect to Products in the Field in the Territory.  If Ligand is required to respond to any requests from or by any and all Regulatory Authorities with respect to any Product, Novan will have an opportunity to comment on the response to the extent such response may materially impact a Product before Ligand submits such response and Ligand will provide a copy of the final response to Novan.   
3.3    Reports.  
3.3.1    Within [***] after the end of each Calendar Quarter during the Term, Novan will deliver to Ligand a report containing information regarding its Development and Commercialization activities conducted by or on behalf of Novan and its Affiliates and Licensees during such Calendar Quarter.  Without limiting the foregoing, such report shall include a description of all material activities in connection with any Regulatory Approvals and Regulatory Exclusivity for Products in the Field in the Territory, preparing, submitting, and maintaining any and all Regulatory Filings and Regulatory Approvals for Products in the Field in the Territory, and seeking any necessary Regulatory Approvals of Regulatory Authorities for Product labeling and promotional materials to be used in the applicable jurisdiction(s) in connection with Commercializing Products in the Field. In addition, such reports shall contain a description of Novan’s performance against the activities and timelines set forth in the Development Plan and costs and expenses incurred against the Development Budget. 
3.3.2    If at any time Novan is no longer required to publicly disclose audited financial reports with U.S. Securities and Exchange Commission (“SEC”), Novan will furnish to Ligand, within [***] after the last day of each quarter, financial statements, which shall include a balance sheet as of the last date of the applicable quarter and a statement of income and operating expenses with respect to such quarter.  
3.3.3    Novan will provide Ligand with prompt written notice at such time as (a) Novan becomes insolvent as defined in Applicable Law, including without limitation interpretations in applicable case law; (b) Novan’s liabilities (which, for clarity, shall not be deemed to include 

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warrants and preferred stock issued by Novan) exceed its assets; (c) Novan is unable to pay its debts as they become due; (d) there is an occurrence of a default by Novan with respect to any of its debt or payment obligations or any agreement having a materially adverse effect on this Agreement or the Development of Products; (e) Novan suspends, closes, or otherwise ceases to operate a portion of its business having a material adverse effect on Novan’s ability to comply with its obligations and/or Ligand’s ability to receive payments under this Agreement;  or (f) any corporate or other action is taken by Novan for the purpose of effecting any of the foregoing.  In addition, if at any time Novan is no longer required to publicly disclose audited financial reports with the SEC, within [***] of a written request of Ligand (such request not to be made more than four times during any Calendar Year), Novan will provide Ligand with its most recent audited financial reports.  Ligand will treat all notices and financial reports (and the information contained therein) as Confidential Information of Novan, subject to the terms of Article 5.
3.3.4    It is the intention of the Parties that the sale, transfer, assignment and conveyance of the Royalties contemplated by this Agreement constitute a sale of the Royalties from Novan to Ligand and not a financing transaction, borrowing or loan.  In connection therewith, Novan shall treat the sale, transfer, assignment and conveyance of the Royalties as a sale of an “account” or a “payment intangible” (as appropriate) in accordance with the Uniform Commercial Code in the applicable jurisdiction (“UCC”), and Novan hereby authorizes Ligand to file financing statements (and continuation statements with respect to such financing statements when applicable) naming Novan as the debtor and Ligand as the secured party in respect of the Royalties.  Not in derogation of the foregoing statement of the intent of the Parties in this regard, and for the purposes of providing additional assurance to Ligand in the event that, despite the intent of the Parties, the sale, transfer, assignment and conveyance contemplated hereby is hereafter held not to be a sale, Novan does hereby grant to Ligand, as security for the obligations of Novan hereunder, a first priority security interest in and to all right, title and interest of Novan, in, to and under the Royalties and any “proceeds” (as such term is defined in the UCC) thereof, and Novan does hereby authorize Ligand, from and after the Effective Date, to file such financing statements (and continuation statements with respect to such financing statements when applicable) as may be necessary to perfect such security interest.  Prior to filing any financing statement, Ligand shall provide a copy of such financing statement to Novan to review and provide comments on such financing statement, and shall in good faith take such comments into account.
3.4    Patent Matters.  
3.4.1    As between the Parties, Novan will have the sole responsibility, at its expense, for the preparation, filing, prosecution, and maintenance of the Novan Patents, including without limitation any patent term extensions.  Novan will provide copies to Ligand of any and all correspondence with the PTO relating to the Novan Patents that are owned by Novan.  During the Term, Novan will maintain the Novan Patents owned by Novan comprising issued patents, and with respect to the Novan Patents controlled but not owned by Novan, will maintain such Novan Patents to the extent Novan has the right and obligation to do so, in each case in a manner that would not result in a material adverse effect on the Royalties.  In no event will Novan permit any of the Novan Patents to be abandoned in any country in the Territory in any manner that could reasonably have 

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a material adverse effect on Ligand’s ability to receive the Royalties.  Novan will provide Ligand with notice of any decision to abandon any of the Novan Patents at least [***] prior to any abandonment thereof.  
3.4.2    In the event that either Party has cause to believe that a Third Party may be infringing or misappropriating any of the Novan Patents in the Field in the Territory, it will promptly notify the other Party in writing, identifying the alleged infringer and the alleged infringement or misappropriation complained of and furnishing the information upon which such determination is based.  As between the Parties, Novan will have the sole right to stop such infringement or misappropriation of the Novan Patents by such Third Party in the Field in the Territory or settle with such Third Party.  Upon reasonable request by Ligand, Novan will give Ligand all reasonable information with respect to any such enforcement action or settlement.  As between the Parties, Novan will bear all costs and expenses (including without limitation any costs or expenses incurred that exceed the amounts recovered by Novan) in pursuing any such enforcement action or settlement and will be responsible for payments awarded against or agreed to be paid by Novan.  After deducting any amounts recovered by Novan, its Affiliates and Licensees in connection with the foregoing, whether by settlement or judgment, to reimburse Novan, its Affiliates and Licensees for their respective reasonable costs and expenses in making such recovery, Novan will retain any remainder; provided that, solely for purposes of Section 4.3, to the extent such remaining amount constitutes lost profits and/or recovery resulting from sales by a Third Party of a Product in the Territory that infringes a Valid Claim, such remaining amount will be deemed to be Net Sales in the Calendar Quarter in which such amounts were received by or paid, and thereby will be subject to the Royalties payments contemplated in Section 4.3.  
3.4.3    Novan will promptly inform Ligand in writing of any actual, threatened, or alleged infringement or misappropriation, based on the making, using, selling, or offering for sale of Products in the Field in the Territory, of a Third Party’s intellectual property rights of which it becomes aware.  
ARTICLE 4

PAYMENTS
4.1    Purchase Price.  In consideration for the rights transferred or granted under this Agreement to Ligand, including without limitation the sale of the Royalties,  Ligand will pay Novan a one-time payment of Twelve Million Dollars ($12,000,000) (the “Purchase Price”) within [***] after the Effective Date to an account designated in writing by Novan.
4.2    Milestone Payments.  In partial consideration for the Purchase Price paid to Novan under Section 4.1, Novan will pay Ligand each milestone payment set forth in the table in this Section 4.2 below (each, a “Milestone Payment”) after the first achievement of the corresponding milestone event set forth in the table in this Section 4.2 below (each, a “Milestone Event”) for a Product.  All such payments are non-refundable and non-creditable.  For the avoidance of doubt, each of the Milestone Payments shall be payable no more than one time.  Novan will notify Ligand of any achievement of a Milestone Event within [***] after Novan achieves such Milestone Event 

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or otherwise obtains information from its Affiliates and Licensees which establish such achievement.  Ligand may submit an invoice to Novan for each Milestone Payment at any time after the corresponding Milestone Event is achieved.  Novan will pay any Milestone Payments payable under this Section 4.2 within [***] after the date of Novan’s required notice under this Section 4.2.  
	
		
	Milestone Event

	Milestone Payment

	[***]

	[***]

	[***]

	[***]

	[***]

	[***]

	[***]
	[***]

4.3    Royalty Payments.
4.3.1    Royalties on Products.  In partial consideration for the Purchase Price paid to Novan under Section 4.1, Novan hereby sells to Ligand all of its right, title, and interest in and to royalties on annual aggregate Net Sales of Products in the Field in the Territory in each Calendar Year during the Royalty Term, in an amount calculated by multiplying the applicable royalty rate in the table below by the corresponding amount of incremental Net Sales of Products in the Field in the Territory (“Royalties”).  Novan shall have no right, title, or interest in the Royalties and Novan shall remit all Royalties to Ligand in accordance with Section 4.4. Ligand’s ownership interest in the Royalties shall vest upon Novan’s receipt of payment of the Purchase Price pursuant to Section 4.1.  Ligand is acquiring no rights other than those expressly assigned herein.  For the avoidance of doubt, Ligand is acquiring no rights under any intellectual property of Novan, including any Novan Patents.

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	Net Sales Tier

	Royalty Rate

	For that portion of annual aggregate Net Sales of Products in the Field in the Territory in a Calendar Year that are less than [***]

	

[***]

	For that portion of annual aggregate Net Sales of Products in the Field in the Territory in a Calendar Year that are greater than or equal to [***] but less than [***]
	

[***]

	 
	 

	For that portion of annual aggregate Net Sales of Products in the Field in the Territory in a Calendar Year that are greater than or equal to [***] but less than [***]
   
	

[***]

	For that portion of annual aggregate Net Sales of Products in the Field in the Territory in a Calendar Year that are greater than or equal to [***]
	

[***]

    
4.3.2    Royalty Term.  Royalties will be remitted under this Section 4.3, on a country-by-country basis, commencing on First Commercial Sale of the first Product in such country until the last to occur of:  (i) [***]; (ii) [***]; and (iii) the [***] of the First Commercial Sale of such first Product in such country (the “Royalty Term”).  
4.4    Royalty Reports and Payments.  During the Term following the First Commercial Sale of any Product, within [***] after the end of each of the first three (3) Calendar Quarters of each Calendar Year and within [***] after the end of the last Calendar Quarter of each Calendar Year, Novan will pay to Ligand Royalties due for such Calendar Quarter calculated in accordance with Section 4.3 and will deliver to Ligand a Royalties report showing, on a country-by-country basis for the Territory, the information set forth in this Section 4.4 below:
4.4.1    the gross amount invoiced for and the amounts received and the Net Sales resulting from sales of Products sold by Novan, its Affiliates or Licensees during such Calendar Quarter, including without limitation the specific deductions applied in the calculation of such Net Sales amounts, and any amounts required to be included in Net Sales pursuant to Section 3.4.2;
4.4.2    the Royalties (in Dollars) that have accrued in such Calendar Quarter with respect to such Net Sales;
4.4.3    withholding taxes, if any, required by Applicable Law to be deducted with respect to such Royalties; and
4.4.4    the rate of exchange used by Novan in determining the amount of Dollars due hereunder.
If no Royalties are due for any Calendar Quarter hereunder, Novan will so report.  Novan will keep, and will require in its Licenses, and use good faith efforts to enforce such requirements, its Licensees and their respective Affiliates to keep (all in accordance with GAAP), complete and accurate records 

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in sufficient detail to properly reflect the Net Sales to enable the Royalties due hereunder to be determined for a period of at least three (3) Calendar Years.
In addition, Novan will deliver to Ligand no later than [***] following the end of each Calendar Quarter a preliminary statement setting forth the actual Net Sales for the first two (2) months of such Calendar Quarter and estimated Net Sales for the third (3rd) month of such Calendar Quarter, the calculation of Royalties or Net Sales due on a country-by-country basis in the Territory (based on such actual and estimated Net Sales) and, if applicable, the exchange rate to be utilized by Novan to convert a local currency payment to Dollars.
4.5    Audits of Royalty Reports.  Upon the written request of Ligand and not more than [***] in any twelve (12) month period, Novan will permit an independent certified public accounting firm selected by Ligand and reasonably acceptable to Novan, at Ligand’s expense, to have access during normal business hours to such records of Novan as may be necessary to verify the accuracy of the payment reports made and the amounts owed to Ligand under this Agreement for any Calendar Year period ending not more than [***] prior to the date of such request.  Such rights with respect to any Calendar Year will terminate [***] after the end of any such Calendar Year.  Ligand will provide Novan with a copy of such accounting firm’s written report within thirty (30) days after completion of such report.  If such accounting firm concludes that an overpayment or underpayment was made, then the owing Party will pay the amount due within thirty (30) days after the date Ligand delivers to Novan such accounting firm’s written report so concluding, and any accrued interest as determined in accordance with Section 4.9 from the date such overpayment was paid or such underpayment was originally due, as applicable, until payment thereof.  Ligand will bear the full cost of such audit unless such audit discloses that the additional payment payable by Novan for the audited period is more than five percent (5%) of the amount of the payments due for that audited period or Ten Thousand Dollars, whichever is greater, in which case Novan will pay the reasonable documented fees and expenses charged by the accounting firm.  If the Parties dispute any such accounting firm’s conclusion, they will resolve such issue pursuant to Article 10.  Ligand will treat all information subject to review under Section 4.5 in accordance with the confidentiality provisions of this Agreement.
4.6    Currency of Payments.  All payments under this Agreement will be made in Dollars by wire transfer of immediately available funds into an account designated by the Party receiving the funds.  Net Sales outside of the U.S. will be first determined in the currency in which they are earned and will then be converted into an amount in Dollars using Novan’s customary and usual conversion procedures used in preparing its financial statements pursuant to GAAP for the applicable reporting period. 
4.7    Blocked Currency.  In each country in the Territory where the local currency is blocked and cannot be removed from the country, at the election of Ligand, Royalties accrued on Net Sales in such country will be paid to Ligand in local currency by deposit in a local bank in such country designated by Ligand. 
4.8    Taxes.  Each Party will be solely responsible for the payment of all taxes imposed on its share of income arising directly or indirectly from the efforts of the Parties under this 

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Agreement.  The Parties agree to cooperate with one another and use reasonable efforts to reduce or eliminate tax withholding or similar obligations in respect of Royalties, Milestone Payments, and other payments made by Novan to Ligand under this Agreement.  To the extent Novan is required under the Internal Revenue Code of 1986, as amended (the “Code”), or any other tax laws to deduct and withhold taxes on any payment to Ligand, Novan will deduct from such royalty or other payment the tax amount to be withheld, and Novan will pay the amounts of such taxes to the proper Governmental Authority in a timely manner and promptly transmit to Ligand an official tax certificate or other evidence of such withholding sufficient to enable Ligand to claim such payment of taxes.  Upon Novan’s reasonable request, Ligand will provide Novan any tax forms that may be reasonably necessary in order for Novan to determine whether to withhold tax on any such payments or to withhold tax on such payments at a reduced rate under the Code or any other tax laws, including without limitation any applicable bilateral income tax treaty.  Novan will give reasonable support so that any withholding tax or value added tax may be minimized or avoided to the extent permitted under the Applicable Laws and treaties.  Each Party will provide the other with reasonable assistance to enable the recovery, as permitted by Applicable Laws, of withholding taxes, value added taxes, or similar obligations resulting from payments made under this Agreement, such recovery to be for the benefit of the Party bearing such withholding tax or value added tax.  Novan will require its Licensees to cooperate with Ligand in a manner consistent with this Section 4.8.    
4.9    Interest Due.  Novan will pay Ligand interest on any payments that are not paid on or before the date such payments are due under this Agreement at a monthly interest rate equal to the U.S. prime interest rate, as reported by The Wall Street Journal (New York edition) for the first Business Day of the month in which such payment was due plus one percentage point (1 ppt), or the maximum applicable legal rate, if less, calculated based on the total number of days payment is delinquent. 
 
ARTICLE 5
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
5.1    Nondisclosure.  Each Party agrees that, during the Term and for a period of [***] thereafter (or, for any trade secret, for so long as the Disclosing Party maintains such trade secret as a trade secret), a Party (the “Receiving Party”) receiving Confidential Information of the other Party (the “Disclosing Party”) will (a) maintain in confidence such Confidential Information, (b) not disclose such Confidential Information to any Third Party without the prior written consent of the Disclosing Party, except for disclosures expressly permitted in this Article 5, and (c) not use such Confidential Information for any purpose except those expressly permitted by this Agreement.  The Parties agree that any Confidential Information (within the meaning of the Prior CDA) disclosed by the Parties or their Affiliates pursuant to the Prior CDA will be Confidential Information within the meaning of, and will be subject to, this Article 5.  The Agreement shall be deemed Confidential Information of both Parties.

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5.2    Exceptions.  The obligations under Section 5.1 will not apply with respect to any portion of Confidential Information of a Disclosing Party that the Receiving Party can show by competent evidence:
5.2.1    at the time of disclosure to Receiving Party is in the public domain; 
5.2.2    after disclosure, becomes part of the public domain by publication or otherwise, except by breach of this Agreement by the Receiving Party or anyone to whom the Receiving Party disclosed Confidential Information; 
5.2.3    was (a) in the Receiving Party’s possession at the time of disclosure without any obligation to keep it confidential or any restriction on its use or (b) subsequently and independently developed by the Receiving Party’s employees who had no knowledge of and who did not use, rely on or refer to any of Disclosing Party’s Confidential Information, in each case as shown by Receiving Party’s records; or
5.2.4    is received by the Receiving Party from a Third Party who has the lawful right to disclose such Confidential Information and who has not obtained such Confidential Information either directly or indirectly from the Disclosing Party.
5.3    Authorized Disclosure.  To the extent (and only to the extent) that it is reasonably necessary or appropriate to fulfill its obligations or exercise its rights under this Agreement, the Receiving Party may disclose Confidential Information belonging to the Disclosing Party in the following instances:
5.3.1    prosecuting or defending litigation;
5.3.2    subject to Sections 5.4 and 5.5, required by Applicable Laws (including without limitation the rules and regulations of the SEC or any national securities exchange) and with judicial process; and
5.3.3    to Affiliates in connection with the performance of this Agreement and solely on a need-to-know basis; to potential or actual collaborators (including without limitation actual and potential Licensees), who prior to disclosure must be bound by written obligations of confidentiality and non-use no less restrictive than the obligations set forth in this Article 5; to potential or actual investment bankers, investors, lenders, acquirers, merger partners or other potential financial partners, and their attorneys and agents, who prior to disclosure must be bound by written or professional obligations of confidentiality and non-use no less restrictive than the obligations set forth in this Article 5; or employees, independent contractors (including without limitation contract research organizations, contract manufacturing organizations, consultants and clinical investigators) or agents, each of whom prior to disclosure must be bound by written obligations of confidentiality and non-use no less restrictive than the obligations set forth in this Article 5; provided, however, that the Receiving Party will remain responsible for any failure by any Person who receives Confidential Information pursuant to this Section 5.3.3 to treat such Confidential Information as required under this Article 5. 

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If and whenever any Confidential Information is disclosed in accordance with this Section 5.3, such disclosure will not cause any such information to cease to be Confidential Information except to the extent that such disclosure results in a public disclosure of such information (other than in breach of this Agreement).  Where reasonably possible and subject to Sections 5.4 and 5.5, the Receiving Party will notify the Disclosing Party in writing of the Receiving Party’s intent to make such disclosure pursuant to Sections 5.3.1–5.3.3 sufficiently prior to making such disclosure so as to allow the Disclosing Party adequate time to take whatever action appropriate to protect the confidentiality of the information while still permitting such disclosure, and the Receiving Party will cooperate with the Disclosing Party in such efforts.
5.4    Required Disclosure.  A Receiving Party may disclose Confidential Information of the Disclosing Party to the extent such disclosure is required pursuant to interrogatories, judicial requests for information or documents, subpoena, civil investigative demand issued by a court or Governmental Authority or as otherwise required by Applicable Law; provided, however, that the Receiving Party will notify the Disclosing Party promptly in writing upon receipt thereof, giving (where practicable) the Disclosing Party sufficient advance notice to permit it to oppose, limit or seek a protective order or confidential treatment for such disclosure; and provided, further, that the Receiving Party will furnish only that portion of the Confidential Information that it is advised by counsel is legally required whether or not a protective order or other similar order is obtained by the Disclosing Party.
5.5    Securities Filings.  In the event a Party proposes to file with the SEC or the securities regulators of any state or other jurisdiction a registration statement or any other disclosure document which describes or refers to this Agreement under the Securities Act, the Securities Exchange Act, of 1934, as amended, or any other applicable securities laws, such Party will notify the other Party in writing of such intention and will provide such other Party with a copy of relevant portions of the proposed filing not less than five (5) days prior to such filing (and any revisions to such portions of the proposed filing a reasonable time prior to the filing thereof), including without limitation any appendices to this Agreement, will consider in good faith the other Party’s comments and will use reasonable efforts to obtain confidential treatment of any information concerning this Agreement that such other Party requests, no later than two (2) days prior to such filing, be kept confidential, and will only disclose Confidential Information that it is advised by counsel is legally required to be disclosed.  No such notice will be required under this Section 5.5 if the substance of the description of or reference to this Agreement contained in the proposed filing has been included in any previous filing made by the either Party hereunder or otherwise approved by the other Party (including pursuant to Section 5.6).  
5.6    Disclosure of Agreement.  Except for a press release and a Current Report on Form 8-K previously approved in form and substance by Ligand and Novan or any other public announcement using substantially the same text as such press release or Form 8-K, or as otherwise permitted under Section 5.3.3 or Section 5.5, neither Party may issue any press release or make any other public statement or other disclosure disclosing to any Third Party any information relating to this Agreement or its terms or the transactions contemplated hereby without the prior written consent of the other Party, such consent not to be unreasonably withheld, delayed, or conditioned; provided 

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that either Party shall be entitled to respond to analysts’ and investors’ questions in the ordinary course and in a manner substantially consistent with any previous disclosure made in accordance with this Section 5.6.
ARTICLE 6
TERM AND TERMINATION
6.1    Term and Expiration.  The term of this Agreement will commence on the Effective Date and will continue for as long as payments are due and payable under this Agreement or until such date as this Agreement is sooner terminated in accordance with Section 6.2, 6.3 or 6.4 or by mutual written consent of the Parties (the “Term”).  
6.2        Termination by Ligand. Ligand may terminate this Agreement for any or no reason upon ninety (90) days prior written notice to Novan.
6.3    Termination for Material Breach.  
6.3.1    If Ligand believes that Novan is in material breach of this Agreement, then Ligand may deliver notice of such breach to Novan.  In such notice Ligand will identify with specificity the alleged breach and the actions or conduct that it wishes Novan to take for an acceptable and prompt cure of such breach; provided that such identified actions will not be binding upon Novan with respect to the actions that it may need to take to cure such breach.  Novan will have sixty (60) days to cure such breach.  If Novan fails to cure such breach within such cure period, Ligand may, subject to Section 6.3.2, terminate this Agreement immediately by providing Novan a written notice at the end of such cure period.  Notwithstanding the foregoing, if Novan fails to cure such breach within such cure period, but within such cure period Novan is using good faith efforts to cure such breach, then Ligand may not terminate this Agreement for so long as Novan is using good faith efforts to cure such breach.
6.3.2    Notwithstanding the foregoing, if Novan disputes in good faith the existence or materiality of such breach and provides notice to Ligand of such dispute within such cure period, Ligand will not have the right to terminate this Agreement in accordance with this Section 6.3 unless and until it has been determined in accordance with Article 10 that this Agreement was materially breached by Novan and Novan failed to cure such breach within the applicable cure period.  It is understood and acknowledged that during the pendency of such a dispute, all of the terms and conditions of this Agreement will remain in effect and the Parties will continue to perform all of their respective obligations hereunder.  
6.4    Termination for Insolvency.  To the extent permitted under Applicable Law, Ligand may terminate this Agreement upon written notice to Novan on or after the occurrence of any Bankruptcy Event relating to Novan.
6.5    Effect of Expiration or Termination of Agreement.  Expiration or termination of this Agreement for any reason will not (a) release any Party from any obligation that has accrued prior to the effective date of such expiration or termination, (b) preclude any Party from claiming 

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any other damages, compensation, or relief that it may be entitled to upon such expiration or termination, or (c) terminate any right to obtain performance of any obligation provided for in this Agreement that will survive expiration or termination.  Without limiting the foregoing, upon expiration or termination of this Agreement, the rights and obligations of the Parties under this Section 6.5 and Articles 1, 4, 5 (for the term set forth in Section 5.1), 7, 9, 10, and 11 will survive such expiration or termination.  Without limiting any other remedies available, if this Agreement is terminated by Ligand pursuant to (x) Section 6.3 for a material breach of Section 2.3 or (y) Section 6.4, then within thirty (30) days following the effective date of such termination, Novan shall pay to Ligand an amount equal to the Purchase Price less any payments made by Novan under this Agreement as of the effective date of termination.  Upon expiration of this Agreement or early termination of this Agreement, Ligand will have the right to retain all amounts previously paid to Ligand by Novan.
ARTICLE 7
 
INDEMNITY
7.1    Novan Indemnity Obligations.  Novan will defend Ligand, its Affiliates, and their respective directors, officers, employees, contractors and agents (collectively, the “Indemnitees”), and will indemnify and hold harmless the Indemnitees, from and against any liabilities, losses, costs, damages, fees, or expenses incurred by such Indemnitees, and reasonable attorney’s fees and other legal expenses with respect thereto, (“Losses”) arising out of any allegation, claim, action, lawsuit, or other proceeding (“Claims”) brought against any Indemnitee to the extent directly resulting from or relating to: (a) any breach by Novan of any of its representations, warranties, covenants, or obligations pursuant to this Agreement, (b) research, Development, manufacturing, Commercialization, transfer, importation or exportation, labeling, handling or storage, or use of or other exploitation of any Product by or on behalf of Novan, its Affiliates, Licensees, distributors, or contractors, including without limitation Claims brought following the Effective Date based on product liability, bodily injury, risk of bodily injury, death, or property damage, (c) any allegations of infringement or misappropriation of the intellectual property of any Third Party with respect to any Product or the Novan Patents, (d) the gross negligence or willful misconduct of Novan, its Affiliates and/or Licensees, or (e) any violation of Applicable Law by Novan, its Affiliates, or Licensees; except in any such case to the extent such Losses and Claims directly result from: (i) the gross negligence or willful misconduct of Ligand or an Indemnitee, (ii) any breach by Ligand of any of its representations, warranties, covenants, or obligations pursuant to this Agreement, or (iii) any violation of Applicable Law by Ligand or an Indemnitee.  
7.2    Procedure.  If any Indemnitee intends to claim indemnification under this Article 7, the Indemnitee will promptly notify Novan in writing of any Claim in respect of which the Indemnitee intends to claim such indemnification, and Novan will assume the defense thereof with counsel selected by Novan and reasonably acceptable to the Indemnitee; provided, however, that an Indemnitee will have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitee, if representation of such Indemnitee by the counsel retained by Novan would be inappropriate due to actual or potential differing interests between such Indemnitee and any other 

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Party represented by such counsel in such proceedings.  Novan will have the right to control the defense of, and settle, dispose of or compromise any Claims for which it is providing indemnification under this Article 7; provided that the prior written consent of the Indemnitee (which will not be unreasonably withheld, delayed, or conditioned) will be required in the event any such settlement, disposition or compromise would adversely affect the interests of the Indemnitee.  The failure to deliver notice to Novan within a reasonable time after the commencement of any such action, to the extent prejudicial to Novan’s ability to defend such action, will relieve Novan of any liability to the Indemnitee under this Article 7, but the omission to so deliver notice to Novan will not relieve it of any liability that it may have to any Indemnitee otherwise than under this Article 7.  The Indemnitee under this Article 7, its employees, and its agents, will cooperate with Novan and its legal representatives in the investigation of any Claim covered by this indemnification.  
 
ARTICLE 8
REPRESENTATIONS, WARRANTIES, AND COVENANTS
8.1    Mutual Representations and Warranties.  Each Party represents and warrants to the other Party that:
8.1.1    it has the full right and corporate power and authority to enter into and perform  this Agreement;
8.1.2    it has full legal power to extend the rights transferred or granted to the other under this Agreement; 
8.1.3    it is not aware of any impediment that would inhibit its ability to perform the terms and conditions imposed on it by this Agreement; and 
8.1.4    it has taken all necessary action on its part required to authorize the execution and delivery of this Agreement.
8.2    Further Representations and Warranties, and Covenants, of Novan.  Novan represents and warrants as of the Effective Date, and, as applicable,  Novan covenants, that:
8.2.1    it has enforceable written agreements with all of its employees, consultants, or independent contractors who receive Confidential Information under this Agreement obligating them to keep such information confidential and to use such information only as permitted in this Agreement, and assigning to Novan ownership of all intellectual property rights created in the course of their employment or performance of consulting or contracting services;
8.2.2    as of the Effective Date, it has the full right to transfer and grant the rights to receive payments transferred and granted to Ligand under this Agreement, and is not currently bound by any agreement with any Third Party, or by any outstanding order, judgment, or decree of any court or administrative agency, that restricts it in any way from transferring or granting to Ligand the rights as set forth in this Agreement;

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8.2.3    it has not granted as of the Effective Date any right, option, license or interest in or to any Novan Patents or Regulatory Filings that is in conflict with the rights granted to Ligand under this Agreement and Novan will not do any of the foregoing during the Term; it has not granted, or permitted to be attached, any lien, security interest, or other encumbrance with respect to Novan Patents or Regulatory Filings;
8.2.4    Novan will not create, incur, assume or suffer to exist any lien, security interest, or other encumbrance on the Novan Patents or Regulatory Filings, except to the extent that such lien, security interest, or encumbrance does not have an adverse effect on the interest of Ligand under this Agreement, including without limitation the right to receive payments and related information under this Agreement;
8.2.5    Novan will not assign, transfer, convey, or otherwise encumber its right, title, and interest in Novan Patents or Regulatory Filings in a manner that conflicts with any rights transferred or granted to Ligand hereunder, including without limitation by assigning, transferring, or conveying its right, title, and interest in Novan Patents or Regulatory Filings to any Person to which this Agreement (including, for clarity, the obligation to pay to Ligand the Milestone Payments and Royalties) is not contemporaneously assigned, transferred, and conveyed; provided that this Section 8.2.5 will not restrict Novan’s right to perform its activities under this Agreement through Licensees in accordance with Section 2.4 or to enter into any lending arrangements that are secured by any Novan Patents, Regulatory Filings or other assets of Novan, or product revenue monetization arrangements similar to this Agreement, provided that in each case the Milestone Payments and Royalties remain free and clear of any lien, security interest, or other encumbrance, and continue to be payable to Ligand in accordance with Article 4;
8.2.6    Novan has no Knowledge of any infringement or misappropriation by any Third Party of any of the Novan Patents or Regulatory Filings as of the Effective Date;
8.2.7    to Novan’s Knowledge, Novan Controls, and is unaware of any facts that have lead Novan to suspect that it does not Control, Novan Patents existing as of the Effective Date; 
8.2.8    Novan has not utilized and will not utilize, in conducting Development, manufacture, or Commercialization of Products, any Person that at such time, to Novan’s Knowledge, is debarred by FDA or other Regulatory Authority; 
8.2.9     Novan has obtained, and during the Term will maintain, all licenses, authorizations, and permissions necessary under Applicable Law for meeting and performing its obligations under this Agreement and all such licenses, authorizations, and permissions are in full force and effect;
8.2.10     All of Novan’s activities relating to its use of Novan Patents and Regulatory Filings, and the research, Development and Commercialization of Products pursuant to this Agreement have complied and will comply in all material respects with all Applicable Laws; 
8.2.11    Novan has not incurred, will not incur and does not presently intend to incur, debts, liabilities, or other obligations beyond its ability to pay such debts, liabilities, or other 

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obligations as they become absolute and matured.  Novan is not subject to any Bankruptcy Event, and no action has been taken or is intended by Novan or, to its Knowledge, any other Person, to make Novan subject to a Bankruptcy Event;
8.2.12    Novan has no indebtedness for borrowed money of Novan.  The fair salable value of Novan’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities.  After giving effect to the transactions described in this Agreement, Novan (a) is not left with unreasonably small capital in relation to its business as presently conducted and (b) is able to pay its debts (including trade debts) as they mature.
8.2.13    Novan shall provide Ligand with written notice as promptly as possible (but in no event more than [***]) after acquiring Knowledge of the occurrence of a Bankruptcy Event in respect of Novan;
8.2.14    the claims and rights of Ligand created by this Agreement to receive the Milestone Payments and Royalties are not and shall not be subordinated to any creditor of Novan or any other Person (other than as a result of Ligand’s own election);
8.2.15    Novan and, to its Knowledge, its Affiliates and Licensees and their respective employees and contractors have not, and Novan and its Affiliates will not, and will use good faith efforts to cause its Licensees and their respective employees and contractors to not, directly or indirectly through Third Parties, pay, promise, or offer to pay, or authorize the payment of, any money or give any promise or offer to give, or authorize the giving of anything of value to a Public Official or Entity or other Person for purpose of obtaining or retaining business for or with, or directing business to, any Person, including without limitation Ligand or Novan.  Without any limitation to the foregoing, Novan and its Affiliates and Licensees and their respective employees and contractors have not, and Novan and its Affiliates will not, and will use good faith efforts to cause its Licensees and their respective employees and contractors to not, directly or indirectly promise, offer, or provide any corrupt payment, gratuity, emolument, bribe, kickback, illicit gift, or hospitality or other illegal or unethical benefit to a Public Official or Entity or any other Person;
8.2.16    Novan is aware of all applicable anti-corruption and anti-bribery laws, including without limitation the FCPA, and all applicable anti-corruption laws in effect in the countries in which Novan conducts or will conduct business.  Novan and its Affiliates will not, and Novan will use good faith efforts to cause its Licensees and their respective employees and contractors to not, cause any Indemnitees to be in violation of the FCPA, Export Control Laws, or any other Applicable Laws;
8.2.17    Novan and its Affiliates will fully cooperate and will use good faith efforts to cause its Licensees and their respective employees, contractors, and subcontractors to cooperate fully with Ligand in ensuring compliance with the FCPA, Export Control Laws, and all other Applicable Laws.  During the Term, Novan will provide Ligand with such due diligence information relating to compliance with the FCPA, Export Control Laws, and other Applicable Laws by Novan and its Affiliates, subcontractors, and Licensees and their respective principals, directors, officers, employees, representatives, and contractors, as Ligand may reasonably request; 

23
        

 

8.2.18    Novan will immediately notify Ligand if Novan has any information or reasonable belief that there may be a violation of the FCPA, Export Control Laws, or any other Applicable Law in connection with the performance of this Agreement or the sale of Products in the Territory; and
8.2.19    Neither Novan nor its Affiliates or Licensees will directly or indirectly sell any Product to any Person outside of the Territory that Novan knows is going to market, distribute, or sell such Product, directly or indirectly, in the Territory.  Novan will ensure that reasonable safeguards are put in place so that all Products that are sold by Novan, its Affiliates or its Licensees outside of the Territory will not subsequently be imported into or sold in the Territory.
ARTICLE 9
DISCLAIMER; LIMITATION OF LIABILITY
9.1    DISCLAIMER.  EXCEPT AS PROVIDED UNDER ARTICLE 8, EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN ALL CASES WITH RESPECT THERETO.
9.2    LIMITATION OF LIABILITY.  
9.2.1    NEITHER PARTY WILL BE LIABLE FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY, PUNITIVE, OR MULTIPLE DAMAGES ARISING IN CONNECTION WITH THIS AGREEMENT OR THE EXERCISE OF ITS RIGHTS OR PERFORMANCE OF ITS OBLIGATIONS HEREUNDER, OR FOR LOST PROFITS OR LOSS OF USE ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES.
9.2.2    NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, SECTION 9.2.1 WILL NOT LIMIT OR RESTRICT (A) DAMAGES AVAILABLE FOR BREACHES OF CONFIDENTIALITY OBLIGATIONS UNDER ARTICLE 5, (B) THE INDEMNIFICATION OBLIGATIONS UNDER ARTICLE 7, OR (C) THE OBLIGATIONS TO PAY MILESTONE PAYMENTS AND ROYALTIES UNDER SECTIONS 4.2 AND 4.3.
9.3    No Assumed Obligations.  Notwithstanding any provision in this Agreement, Ligand is not assuming any liability or obligation of Novan or any of Novan’s Affiliates of whatever nature, whether presently in existence or arising or asserted hereafter. All such liabilities and obligations shall be retained by and remain liabilities and obligations of Novan or its Affiliates, as the case may be.

24
        

 

 
ARTICLE 10
DISPUTE RESOLUTION
10.1    Resolution by Senior Executives.  The Parties will seek to settle amicably any and all disputes or differences arising out of or in connection with this Agreement.  Any dispute between the Parties will be promptly presented to the Chief Executive Officer of Novan and the Chief Executive Officer of Ligand, or their respective designees, for resolution.  Such officers, or their designees, will attempt in good faith to promptly resolve such dispute. Notwithstanding the foregoing, either Party may seek equitable or interim relief or provisional remedy in any court of competent jurisdiction to enforce its rights under this Agreement, including without limitation injunctive relief and specific performance, without having to prove actual damages or post a bond.  If the Chief Executive Officers of the Parties, or their respective designees, are unable to resolve a given dispute within [***] of the matter being referred to them, either Party may have the dispute adjudicated in accordance with Section 10.2.
10.2    Applicable Law and Venue.  This Agreement will be governed by, enforced, and will be construed in accordance with the laws of the State of New York, United States of America without regard to any Applicable Law, rule, or principle that would result in the application of the laws of any other jurisdiction.  All actions and proceedings arising out of or relating to this Agreement will be heard and determined exclusively in any New York State or federal court sitting in the Southern District of New York, and each Party hereby irrevocably consents to personal jurisdiction and venue in, and agrees to service of process issued or authorized by, such court in any such action or proceeding and irrevocably waive any defense of an inconvenient forum to the maintenance of any such action or proceeding.  Notwithstanding the foregoing, either Party may seek injunctive relief in any court in any jurisdiction where appropriate.  
 
ARTICLE 11
MISCELLANEOUS
11.1    Assignment.
11.1.1    Novan shall not enter into an agreement after the date hereof (i) with respect to a Change of Control of Novan or (ii) whereby Novan directly or indirectly sells, licenses, conveys, assigns or otherwise transfers all or any significant portion of its Regulatory Filings, Know-How, Patent Rights or other intellectual property rights or interests in and to any Product to a Third Party unless, in each case, such Third Party that succeeds to the rights of Novan to develop such Product assumes the obligations of Novan contained in this Agreement with respect to the development of such Product (including, without limitation, the obligations set forth in Sections 2.2 and 2.3 of this Agreement and the obligation to pay to Ligand the Milestone Payments and Royalties) and Novan assigns all of the applicable Novan Patents and Regulatory Filings to such Third Party; provided 

25
        

 

that this Section 11.1.1 will not restrict Novan’s right to perform its activities under this Agreement through Licensees in accordance with Section 2.4.
11.1.2    This Agreement may not be assigned or otherwise transferred by either Party without the consent of the other Party, which consent will not be unreasonably withheld, delayed, or conditioned; provided, however, that either Party may, without such consent, assign this Agreement together with all of its rights and obligations hereunder to its Affiliates, or to a successor in interest in connection with the transfer or sale of all or substantially all of its business to which this Agreement relates, or in the event of a Change of Control, subject in each case to Section 11.1.1 and the assignee or successor-in-interest agreeing to be bound by the terms of this Agreement.  Any purported assignment in violation of this Section 11.1 will be void.  Any permitted assignee or successor will assume and be bound by all obligations of its assignor or predecessor under this Agreement.
11.2    Severability.  If any provision of this Agreement is held to be invalid or unenforceable, all other provisions will continue in full force and effect, and the Parties will substitute for the invalid or unenforceable provision a valid and enforceable provision which conforms as nearly as possible with the original intent of the Parties.
11.3    Notices.  Any notice or other communication to a Party pursuant to this Agreement will be sufficiently made or given on the date it was sent; provided that such notice or other communication is sent by first class certified or registered mail, postage prepaid, or is sent by next day express delivery service, addressed to it at its address in this Section 11.3, below, or to such other address as the Party to whom notice is to be given may have furnished to the other Party in writing in accordance herewith.
If to Ligand:
Ligand Pharmaceuticals, Inc.
3911 Sorrento Valley Boulevard, Suite 110 
San Diego, California 92121, U.S.A.
Attention:  Chief Financial Officer

With copies to (which alone will not constitute notice):

Ligand Pharmaceuticals, Inc.
3911 Sorrento Valley Boulevard, Suite 110 
San Diego, California 92121, U.S.A. 
Attention:  General Counsel
and 
Latham & Watkins LLP
12670 High Bluff Drive
San Diego, CA 92130
Attention: Matthew Bush

26
        

 

If to Novan, to:

Novan, Inc.
4105 Hopson Road
Morrisville, NC 27560, U.S.A.        
Attn: Chief Executive Officer
 

With copies to (which alone will not constitute notice):        
        
Smith, Anderson, Blount,
Dorsett, Mitchell & Jernigan, LLP
Wells Fargo Capitol Center
150 Fayetteville Street, Suite 2300
Raleigh, NC 27601, U.S.A.
Attn: Gerald F. Roach, Esq.

11.4    Expenses.  Except as expressly set forth in this Agreement or as may be specifically agreed to in writing by Novan and Ligand, each Party will be responsible for all costs and expenses it incurs in connection with this Agreement.
11.5    Headings.  The headings of Articles and Sections of this Agreement are for ease of reference only and will not affect the meaning or interpretation of this Agreement in any way.
11.6    Waiver.  The failure of either Party in any instance to insist upon the strict performance of the terms of this Agreement will not be construed to be waiver or relinquishment of any of the terms of this Agreement, either at the time of the Party’s failure to insist upon strict performance or at any time in the future, and such terms will continue in full force and effect.
11.7    Counterparts; Electronic Delivery.  This Agreement and any amendment may be executed in one or more counterparts (including without limitation by way of PDF or electronic transmission), each of which will be deemed an original, but all of which together will constitute one and the same instrument.  When executed by the Parties, this Agreement will constitute an original instrument, notwithstanding any electronic transmission, storage and printing of copies of this Agreement from computers or printers.  For clarity, PDF signatures will be treated as original signatures.
11.8    Use of Names.  Neither Party will, without prior written consent of the other Party, use the name or any trademark or trade name owned by the other Party, or owned by an Affiliate of the other Party, in any publication, publicity, advertising, or otherwise, except as expressly permitted by Article 5.
11.9    Independent Contractors.  Nothing contained in this Agreement will be deemed to constitute a joint venture, partnership, or employer-employee relationship between Ligand and Novan, or to constitute one as the agent of the other.  Neither Party will be entitled to any benefits 

27
        

 

applicable to employees of the other Party.  Both Parties will act solely as independent contractors, and nothing in this Agreement will be construed to make one Party an agent, employee, or legal representative of the other Party for any purpose or to give either Party the power or authority to act for, bind, or commit the other Party.
11.10    Entire Agreement.  This Agreement, together with the Appendices attached hereto, constitutes the entire agreement and understanding between the Parties with respect to the subject matter hereof, and supersedes all prior or contemporaneous proposals, oral or written, confidentiality agreements, and all other communications between the Parties with respect to such subject matter, including without limitation the Prior CDA.  
11.11    Modifications.  The terms and conditions of this Agreement may not be amended or modified, except in writing signed by both Parties.
11.12    Exports.  The Parties acknowledge that the export of technical data, materials, or products is subject to the exporting Party receiving any necessary export licenses and that the Parties cannot be responsible for any delays attributable to export controls which are beyond the reasonable control of either Party.  Novan and Ligand agree not to export or re-export, directly or indirectly, any information, technical data, the direct product of such data, samples, or equipment received or generated under this Agreement in violation of any applicable export control laws.
11.13    Further Assurances.  Each Party agrees to do and perform all such further reasonable acts and things and will execute and deliver such other agreements, certificates, instruments, and documents necessary to carry out the intent and accomplish the purposes of this Agreement and to evidence, perfect, or otherwise confirm the other Party’s rights hereunder.  Novan shall make available to Ligand such information as Ligand may, from time to time, reasonably request with respect to the right to receive payments under this Agreement.
11.14    Interpretation.
11.14.1    This Agreement was prepared in the English language, which language will govern the interpretation of, and any dispute regarding, the terms of this Agreement.
11.14.2    Each of the Parties acknowledges and agrees that this Agreement has been diligently reviewed by and negotiated by and between them, that in such negotiations each of them has been represented by competent counsel and that the final agreement contained herein, including without limitation the language whereby it has been expressed, represents the joint efforts of the Parties and their counsel.  Accordingly, in the event an ambiguity or a question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the Parties and no presumption or burden of proof will arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement.
11.14.3    The definitions of the terms herein will apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun will include the corresponding masculine, feminine, and neuter forms.  The word “any” will mean “any and all” unless otherwise clearly indicated by context.

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11.14.4    Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument, or other document herein will be construed as referring to such agreement, instrument, or other document as from time to time amended, supplemented, or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or therein), (b) any reference to any Applicable Laws herein will be construed as referring to such Applicable Laws as from time to time enacted, repealed, or amended, (c) any reference herein to any Person will be construed to mean the Person’s successors and assigns (after any such succession or assignment), (d) the words “herein”, “hereof” and “hereunder”, and words of similar import, will be construed to refer to this Agreement in its entirety and not to any particular provision hereof, and (e) all references herein to Articles, Sections, or Appendices, unless otherwise specifically provided, will be construed to refer to Articles, Sections, and Appendices of this Agreement.
11.14.5    References to sections of the Code of Federal Regulations and to the United States Code will mean the cited sections, as these may be amended from time to time.
11.15       Force Majeure Event.  Except for the payment of money, neither Party will be in breach or default, nor will either Party be liable or responsible to the other Party for losses or damages, nor will either Party have the right to terminate this Agreement, for any breach, default or delay by the other Party that is attributable to an event beyond their reasonable control, including without limitation acts of God, acts of government (including without limitation injunctions), fire, flood, earthquake, strike, lockout, labor dispute, breakdown of plant, shortage of equipment or supplies, loss or unavailability of manufacturing facilities or materials, casualty or accident, stoppage or interruption of transportation or utilities, civil commotion, acts of public enemies, acts of terrorism or threat of terrorist acts, blockage or embargo and the like (each, a “Force Majeure Event”); provided, however, that such Party will use reasonable efforts to avoid and/or minimize the impact of such occurrence, and give prompt written notice of any Force Majeure Event to the other Party.  
[Signature Page Follows]    

29
        

IN WITNESS WHEREOF, each of the Parties has caused its duly authorized officer to execute and deliver this Agreement as of the Effective Date.

	
			
	LIGAND PHARMACEUTICALS INCORPORATED

	 

	By:
	 
	/s/ Charles Berkman

	 
	 
	 

	Name:
	 
	Charles Berkman

	 
	 
	 

	Title:
	 
	SVP, GC & Secretary

	 
	 
	 

	NOVAN, INC.

	 
	 
	 

	By:
	 
	/s/ G. Kelly Martin 

	 
	 
	 

	Name:
	 
	G. Kelly Martin

	 
	 
	 

	Title:
	 
	CEO

	 
	 
	 

[SIGNATURE PAGE TO DEVELOPMENT FUNDING AND ROYALTIES AGREEMENT]

Appendix A

Development Plan

[***]

    
    

Appendix B

Development Budget

[***]Exhibit 10.1

 

$100,000,000

HORIZON FUNDING TRUST 2019-1

 

	4.21% Asset Backed Notes

  

NOTE PURCHASE AGREEMENT

 

August 6, 2019

 

KeyBanc Capital Markets
Inc.

1301 Avenue of the Americas,
37th Floor

New York, New York 10019

 

Ladies and Gentlemen:

 

Section 1.               
Introductory. Horizon Funding Trust 2019-1, a Delaware statutory trust (the "Issuer"), proposes,
subject to the terms and conditions stated herein, to issue and sell to KeyBanc Capital Markets Inc., as initial purchaser (the
"Initial Purchaser"), its Asset Backed Notes (the "Notes"), in the Initial Note Principal Balance
set forth in Exhibit A to this note purchase agreement (this "Agreement"). The Notes are to be issued under
the Indenture, to be dated as of the hereafter defined Closing Date (the "Indenture"), between the Issuer and
U.S. Bank National Association ("U.S. Bank"), as trustee (the "Trustee"). The Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder, is herein referred to as the "Securities Act".
Capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Indenture or in the Sale and Servicing
Agreement, to be dated as of the Closing Date, by and among the Issuer, Horizon Funding 2019-1 LLC, as trust depositor (the "Depositor"),
Horizon Technology Finance Corporation, as seller and as servicer ("Horizon", and together with the Issuer and
the Depositor, individually a "Horizon Entity" and collectively the "Horizon Entities") and U.S.
Bank, as Trustee, backup servicer, custodian and securities intermediary.

 

The offer and sale of
the Notes to the Initial Purchaser will be made without registration under the Securities Act in reliance on certain exemptions
from the registration requirements thereof. Subject to the terms and conditions of this Agreement, the Initial Purchaser shall
offer and sell the Notes (or beneficial interests therein): (i) to non-U.S. persons in transactions occurring outside the United
States in reliance on Regulation S under the Securities Act ("Regulation S") that in each case are "qualified
purchasers" as defined in Section 2(A)(51) of the Investment Company Act of 1940 (each such person, a "Qualified Purchaser")
and (ii) in the United States to Persons who are "qualified institutional buyers," as defined in Rule 144A ("QIBs"
and each, a "QIB") in reliance on Rule 144A under the Securities Act ("Rule 144A") that in each
case are Qualified Purchasers.

 

A preliminary confidential
private placement memorandum and a confidential private placement memorandum relating to the Notes, to be offered by the Initial
Purchaser, have been prepared by the Issuer. The preliminary confidential private placement memorandum, dated July 31, 2019 (the
"Preliminary PPM"), the investor presentation dated July 2019 attached as Exhibit B to this Agreement (the
"Road Show"), any and all asset level data, including any Intex cdi file, provided by a Horizon Entity, or by
any of their respective affiliates on behalf of a Horizon Entity, to the Initial Purchaser for distribution to one or more prospective
investors, whether in electronic form or otherwise (collectively, the "Collateral Data Information"), any information
prepared by or on behalf of the Issuer and delivered to prospective holders of the Notes (other than the Preliminary PPM and the
Road Show) attached as Exhibit C to this Agreement (the "Pricing Information" and, together with the Road
Show, Form 15G, the Collateral Data Information and the Preliminary PPM, the "Time of Sale Information"), and
the final confidential private placement memorandum, dated August 6, 2019, that includes the offering prices and other final terms
of the Notes (the "PPM"), each, as amended or supplemented by additional information in accordance herewith, are
collectively referred to as the "Offering Document". The Offering Document at a particular time means the Offering
Document in the form actually amended or supplemented and issued at such time (as opposed to the Offering Document prior to such
amendment or supplement). The "Time of Sale" means 10:30 A.M. EST on August 2, 2019.

 

     

     

    

 

Section 2.               
Representations and Warranties of the Issuer, the Depositor and Horizon. Each Horizon Entity, with respect to itself,
represents and warrants to the Initial Purchaser, as of the Closing Date or such other date as may be specified below as follows:

 

(a)  
The Preliminary PPM, as of the date thereof, did not, and the Time of Sale Information, as of the Time of Sale did not and
as of the Closing Date will not, contain any untrue statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which they were made, not misleading. The PPM, as of
the date thereof, did not, and as of the Closing Date will not (and any amendment or supplement thereto, as of the date thereof
and as of the Closing Date, will not) contain any untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Notwithstanding
the foregoing, none of the Horizon Entities makes any representations or warranties as to statements or omissions therein based
upon the Initial Purchaser Information, it being understood and agreed that the "Initial Purchaser Information"
is only such information that is described as such in Section 7(b) hereof. If, subsequent to the initial Time of Sale, the
Issuer and the Initial Purchaser determine that the original Time of Sale Information included an untrue statement of material
fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading and the Initial Purchaser advises the Issuer that investors in the Notes have elected to terminate
their initial "contracts of sale" (within the meaning of Rule 159 under the Securities Act, the "Contracts of
Sale") and enter into new Contracts of Sale, then the "Time of Sale" will refer to the time of entry into the
first new Contract of Sale and the "Time of Sale Information" will refer to the information available to purchasers at
the time of entry (prior to the Closing Date) into the first new Contract of Sale, including any information that corrects such
material misstatements or omissions (such new information, the "Corrective Information") and Exhibit C
to this Agreement will be deemed to be amended to include such Corrective Information in the Time of Sale Information. Notwithstanding
the foregoing, for the purposes of Section 7 hereof, in the event that an investor elects not to terminate its initial Contract
of Sale and enter into a new Contract of Sale, "Time of Sale" will refer to the time of entry into such initial Contract
of Sale and "Time of Sale Information" with respect to Notes to be purchased by such investor will refer to information
available to such purchaser at the time of entry into such initial Contract of Sale.

 

    	 	2	 

     

    

 

(b)              
The Issuer is a statutory trust duly formed, validly existing and in good standing under the laws of the State of Delaware,
with power and authority (trust and other) to own its properties and conduct its business as presently conducted and as described
in the Offering Document and to execute, deliver and perform its obligations under each of the Transaction Documents to which it
is or will be a party and to authorize, issue and sell the Notes as contemplated by this Agreement; and the Issuer is duly qualified
to do business as a foreign entity in good standing in all other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification if failure to qualify would have a Material Adverse Effect. As used herein,
"Material Adverse Effect" shall mean, as to any entity, a material adverse effect on the condition (financial
or other), business, properties, assets, or results of operations of such entity and its subsidiaries (taken as a whole) or a material
adverse effect on the ability of such entity to perform its obligations under the Transaction Documents to which it is a party.

 

(c)              
The Depositor is a limited liability company formed, validly existing and in good standing under the laws of the State of
Delaware, with limited liability company power and authority to own its properties and conduct its business as presently conducted
and as described in the Offering Document and to execute, deliver and perform its obligations under each of the Transaction Documents
to which it is or will be a party; and the Depositor is duly qualified to do business as a foreign entity in good standing in all
other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification if failure
to qualify would have a Material Adverse Effect.

 

(d)              
Horizon is a corporation duly formed, validly existing and in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct its business as presently conducted and as described
in the Offering Document and to execute, deliver and perform its obligations under each of the Transaction Documents and each other
agreement or instrument contemplated thereby to which it is or will be a party; and Horizon is duly qualified to do business as
a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of
its business requires such qualification, except where the failure to so qualify would not reasonably be expected to have a Material
Adverse Effect.

 

(e)              
On the Closing Date, the Notes will have been duly authorized; and when the Notes are delivered and paid for pursuant to
this Agreement, and authenticated and issued pursuant to the Indenture, such Notes will have been duly executed, authenticated,
issued and delivered and will conform in all material respects to the description thereof contained in the Offering Document; and
will constitute valid and legally binding obligations of the Issuer, enforceable against the Issuer in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles; and will be entitled to the benefits of the Indenture.

 

    	 	3	 

     

    

 

(f)               
Assuming (i) that the Initial Purchaser's representations and warranties in Section 4 hereof are true, and (ii) compliance
by the Initial Purchaser with the covenants set forth herein, no consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the consummation of the transactions contemplated by the Transaction
Documents and in connection with the issuance and sale of the Notes by the Issuer.

 

(g)              
The execution, delivery and performance of each of the Transaction Documents and the issuance and sale of the Notes and
compliance with the terms and provisions thereof will not result in a breach or violation of any of the terms and provisions of,
or constitute a default under or conflict with, (i) any statute, any rule, regulation or order of any governmental agency or body
or any court, domestic or foreign, having jurisdiction over the Horizon Entities or any of their respective material properties,
(ii) any material agreement or instrument to which any Horizon Entity is a party or by which a Horizon Entity is bound or to which
any of the material properties of a Horizon Entity is subject, or (iii) the organizational documents of the Horizon Entities, and
the Issuer has full power and authority to authorize, issue and sell the Notes as contemplated by this Agreement.

 

(h)              
This Agreement has been, and as of the Closing Date each other Transaction Document to which the Issuer is a party will
have been, duly authorized, executed and delivered by the Issuer and, when executed and delivered by the Issuer, assuming due authorization,
execution and delivery thereof by the other parties hereto and thereto, will constitute a valid and legally binding obligation
of the Issuer enforceable against the Issuer in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general
equity principles. This Agreement has been, and as of the Closing Date each other Transaction Document to which the Depositor is
a party will have been, duly authorized, executed and delivered by the Depositor and, when executed and delivered by the Depositor,
assuming due authorization, execution and delivery thereof by the other parties hereto and thereto, will constitute a valid and
legally binding obligation of the Depositor enforceable against the Depositor in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles. This Agreement has been, and as of the Closing Date each other Transaction
Document to which Horizon is a party will have each been, duly authorized, executed and delivered by Horizon and, when executed
and delivered by Horizon, assuming due authorization, execution and delivery thereof by the other parties hereto and thereto, will
constitute a valid and legally binding obligation of Horizon enforceable against Horizon in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles.

 

(i)                
As of the Closing Date, the Issuer shall have good and marketable title to the Loans and the other property comprising the
Trust Estate, in each case, free from liens, encumbrances and defects that would materially affect the value thereof or materially
interfere with the use made or to be made thereof by it, other than liens and encumbrances pursuant to or permitted by the Transaction
Documents. On each Additional Loan Cutoff Date, the Issuer shall have good and marketable title to the Additional Loans and the
other property comprising the Trust Estate, in each case, free from liens, encumbrances and defects that would materially affect
the value thereof or materially interfere with the use made or to be made thereof by it, other than liens and encumbrances pursuant
to or permitted by the Transaction Documents.

 

    	 	4	 

     

    

 

(j)                
Each of the Horizon Entities possesses all material certificates, authorities, licenses, approvals or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business now operated by it, except for any such certificates,
authorities, licenses, approvals or permits the failure of which to obtain or make would not, individually or in the aggregate,
produce a Material Adverse Effect on such Horizon Entity. Except as described in or contemplated by the Offering Document, none
of the Horizon Entities has received any notice of proceedings relating to the revocation or modification of any such certificate,
authority, license, approval or permit that, if determined adversely to the Horizon Entities, would individually or in the aggregate
produce a Material Adverse Effect on the Horizon Entities.

 

(k)              
Except as disclosed in the Offering Document, there are no pending actions, suits, investigations or proceedings against
or affecting any Horizon Entity or any of their respective Affiliates or any of their respective properties that, if determined
adversely to such Horizon Entity or any of their respective Affiliates, as applicable, would individually or in the aggregate have
a Material Adverse Effect on such Horizon Entity or would materially and adversely affect the validity or enforceability of the
Notes, or the federal income tax characterization of the Notes or classification of the Issuer, or which are otherwise material
in the context of the sale of the Notes; and, to the Issuer's knowledge, no such actions, suits, investigations or proceedings
are threatened or contemplated.

 

(l)                
The Issuer is not and, after giving effect to the offering and sale of the Notes and the application of the proceeds thereof
as described in the Offering Document, will not be subject to registration as an "investment company" under the Investment
Company Act of 1940, as amended (the "Investment Company Act"); and in making this determination the Issuer will
be relying primarily on exemptions from the definition of "investment company" under the Investment Company Act set forth
in Section 3(c)(7) and Rule 3a-7 thereof, although there may be additional exclusions or exemptions available to the Issuer. The
Issuer is being structured so as not to constitute a "covered fund" for purposes of Section 619 of the Dodd Frank Wall
Street Reform and Consumer Protection Act of 2010, based on its current interpretations.

 

(m)            
The Notes are eligible for resale pursuant to Rule 144A. No securities of the same class (within the meaning of Rule 144A(d)(3)
under the Securities Act) as the Notes are listed on any national securities exchange registered under Section 6 of the United
States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange
Act"), or quoted in a U.S. automated interdealer quotation system.

 

(n)              
Assuming (i) that the Initial Purchaser's representations and warranties in Section 4 hereof are true and (ii) compliance
by the Initial Purchaser with the covenants set forth herein, the offer and sale of the Notes to the Initial Purchaser in the manner
contemplated by this Agreement will be exempt from the registration requirements of the Securities Act by reason of Section 4(a)(2)
thereof, the offer, resale and delivery of the Notes by the Initial Purchaser in the manner contemplated by this Agreement will
meet the requirements of Rule 144A(d)(3) of the Securities Act, as applicable, and no registration of the Notes under the Securities
Act and no qualification of the Indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"),
is required for the offer, sale and delivery of the Notes in the manner contemplated by this Agreement.

 

    	 	5	 

     

    

 

(o)              
None of the Horizon Entities or any of their respective affiliates, as such term is defined in Rule 501(b) of Regulation
D under the Securities Act ("Regulation D"), has (directly or indirectly) solicited any offer to buy, sold or
offered to sell or otherwise negotiated in respect of in the United States or to any United States citizen or resident any security
that is or would (assuming compliance by the Initial Purchaser with their obligations under Section 4 of this Agreement)
be integrated with the sale of the Notes in a manner that would require the Notes to be registered under the Securities Act.

 

(p)              
None of the Horizon Entities has entered or will enter into any contractual arrangement with respect to the distribution
of the Notes except for this Agreement.

 

(q)              
Upon the execution and delivery of the Transaction Documents, the Issuer will have the power and authority to pledge the
Trust Estate to the Indenture Trustee on behalf of the Noteholders free and clear of all liens other than liens under the Transaction
Documents.

 

(r)               
On the Closing Date, each of the representations and warranties of the Issuer set forth in each of the Transaction Documents
to which it is a party will be true and correct in all material respects. On the Closing Date, each of the representations and
warranties of the Depositor set forth in each of the Transaction Documents to which it is a party will be true and correct in all
material respects. On the Closing Date, each of the representations and warranties of Horizon set forth in each of the Transaction
Documents to which it is a party will be true and correct in all material respects.

 

(s)               
Any taxes, fees and other governmental charges in connection with the execution and delivery of the Transaction Documents
or the execution, delivery and sale of the Notes have been or will be paid on or prior to the Closing Date.

 

(t)                
Since the respective dates as of which information is given in the Offering Document (x) there has not occurred any change
in the business, properties, assets, financial condition, results of operations or regulatory situation of the Horizon Entities,
that would or would reasonably be expected to result in a Material Adverse Effect, (y) none of the Horizon Entities has entered
into any transaction or agreement (whether or not in the ordinary course of business) material to such Horizon Entity, that, in
either case, would reasonably be expected to have a Material Adverse Effect on such Horizon Entity, otherwise than as set forth
or contemplated in the Offering Document and (z) none of the Horizon Entities have defaulted under any material agreement or instrument
to which it is a party or by which it is bound which would individually or in the aggregate have, or would reasonably be expected
to result in, a Material Adverse Effect, in each case other than as set forth in or contemplated by the Offering Document.

 

(u)              
Immediately after the consummation of the transactions to occur on the Closing Date, (i) the fair value of the assets of
Horizon, at a fair valuation, will exceed its debts and liabilities, subordinated, contingent or otherwise; (ii) the present fair
saleable value of the property of Horizon will be greater than the amount that will be required to pay the probable liability of
its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and
matured; (iii) each of the Horizon Entities will be able to pay its debts and liabilities, subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured; and (iv) Horizon will not have unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted following the
Closing Date.

 

    	 	6	 

     

    

 

(v)              
This Agreement and the other Transaction Documents and the Notes conform in all material respects to the descriptions thereof
contained in the Offering Document.

 

(w)            
None of the Horizon Entities or any of their respective affiliates (as defined in Rule 501(b) of Regulation D, nor
any Person authorized to act on its or their behalf (other than through the Initial Purchaser, as to which no representation is
made), has engaged or will engage in connection with the offering of the Notes in any form of general solicitation or general advertising
within the meaning of Rule 502(c) of Regulation D under the Securities Act or in any manner involving a public offering within
the meaning of Section 4(a)(2) of the Securities Act.

 

(x)              
None of the Horizon Entities or any of their respective affiliates or any Person acting on its or their behalf (other than
the Initial Purchaser, as to which no representation is made) has engaged or will engage, with respect to Notes sold outside of
the United States to persons that are U.S. Persons (within the meaning of Regulation S) in any "directed selling efforts"
within the meaning of Rule 902 of Regulation S and each of the Horizon Entities and any Person acting on its or their behalf (other
than the Initial Purchaser, as to which no representation is made) has complied and will implement the "offering restrictions"
within the meaning of Regulation S.

 

(y)              
None of the Horizon Entities nor any of their respective officers, directors or controlling Persons has taken, directly
or indirectly, any action designed to cause or to result in, or that has constituted or that might reasonably be expected to constitute,
the stabilization or manipulation of the price of the Notes, as the case may be, to facilitate the sale or resale of the Notes
(or beneficial interests therein), except that no such representation is made with respect to any actions taken directly or indirectly
by the Initial Purchaser.

 

(z)                 
Neither Horizon nor the Issuer has engaged in any activity or conduct which would violate any applicable anti-bribery, anti-corruption
or anti-money laundering laws, regulations or rules in any applicable jurisdiction and Horizon has instituted and maintains policies
and procedures designed to prevent any such violation. Neither Horizon nor the Issuer is a Person that is: (i) the subject of any
economic or trade sanctions or restrictive measures enacted, administered, imposed or enforced by the U.S. government (including,
without limitation, U.S. Department of the Treasury, the Office of Foreign Assets Control, the U.S. Department of State and including,
without limitation, the designation as a "specially designated national" or "blocked person"), the United Nations
Security Council, Her Majesty's Treasury, the Swiss Secretariat for Economic Affairs, the Monetary Authority of Singapore, the
Hong Kong Monetary Authority, the European Union or other relevant sanctions authority (collectively, "Sanctions";
any such Person, a "Sanctioned Person") or (ii) located, organized or resident in a country or territory that
is, or whose government is, the subject of Sanctions broadly prohibiting dealings with such government, country, or territory (a
"Sanctioned Country"), including Cuba, Iran, Burma, North Korea, Sudan, Syria and the region of Crimea and/or
any other country or region that is the subject of any economic and/or trade sanctions. Neither Horizon nor the Issuer will, in
violation of applicable Sanctions, directly or indirectly use the proceeds of the Notes issued hereunder, or lend, contribute or
otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity (i) to fund or facilitate
any activities of or business with any person that, at the time of such funding or facilitation, is the subject or target of Sanctions,
(ii) in or involving a Sanctioned Country or any country or territory which at the time of such funding is the subject of comprehensive
country-wide or territory-wide Sanctions, other than Cuba or Iran, or (iii) in any other manner that will result in a violation
by any person (including any person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of
Sanctions. Neither Horizon, the Issuer nor any of their affiliates or subsidiaries have knowingly engaged in and are not now knowingly
engaged in any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or
the target of Sanctions or with any Sanctioned Country in violation of applicable Sanctions. The Issuer and Horizon each represent
and covenant that, regardless of Sanctions, it will not, directly or indirectly, use the proceeds of the transaction, or lend,
contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person, to fund any activities
of or business in or involving Cuba or Iran.

 

    	 	7	 

     

    

 

(aa)              
Each of the Issuer and Horizon represents that it is in compliance, and will continue to be in compliance, with all applicable
anti-money laundering laws and regulations, including the Bank Secrecy Act, as amended by the USA PATRIOT Act, and the regulations
thereunder, and FINRA Conduct Rule 3011. Each of the Issuer and Horizon represents that it is subject to an anti-money laundering
program of its parent that is designed to comply with applicable U.S. laws, regulations, and guidance, including rules of self-regulatory
organizations, relating to the prevention of money laundering, terrorist financing, and related financial crimes.

 

(bb)             
No Horizon Entity nor any of its subsidiaries nor any director, officer, or employee of such Horizon Entity or any of its
subsidiaries nor, to the knowledge of the Issuer or Horizon, any agent, or other person on behalf of such Horizon Entity or any
of its subsidiaries has (i) used any funds for any unlawful contribution, gift, entertainment or other unlawful expense relating
to political activity; (ii) made or taken an act in furtherance of an offer, promise or authorization of any direct or indirect
unlawful payment or benefit to any foreign or domestic government or regulatory official or employee, including of any government-owned
or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of
any of the foregoing, or any political party or party official or candidate for political office; (iii) violated or is in violation
of any provision of the Foreign Corrupt Practices Act of 1977, as amended, or any applicable law or regulation implementing the
OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or committed an offence
under the Bribery Act 2010 of the United Kingdom, or any other applicable anti-bribery or anticorruption laws; or (iv) made, offered,
agreed, requested or taken an act in furtherance of any unlawful bribe or other unlawful benefit, including, without limitation,
any unlawful rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit. Each Horizon Entity
and its subsidiaries have instituted, maintain and enforce, and will continue to maintain and enforce policies and procedures reasonably
designed to promote and ensure compliance with all applicable anti-bribery and anti-corruption laws.

 

    	 	8	 

     

    

 

(cc)              
None of Horizon, the Issuer or their respective affiliates has engaged or will engage any third-party to undertake "due
diligence services" (as defined in Rule 17g-10(d)(1) of the Exchange Act, "Third-Party Due Diligence Services")
and none of Horizon, the Issuer or their respective affiliates has obtained or will obtain a "third-party due diligence report"
(as defined in Rule 15Ga-2(d) of the Exchange Act, a "Third-Party Due Diligence Report") with respect to the assets
held by the Issuer or the transactions contemplated by this Agreement, except as specifically set forth on Exhibit D hereto.
A Horizon Entity has provided any Third-Party Due Diligence Report to the Initial Purchaser prior to the furnishing or filing of
such report, or any portion thereof, on the Securities and Exchange Commission’s EDGAR website or its 17g-5 website, as applicable.
Third-Party Due Diligence Reports are deemed to have been obtained by the Issuer or Horizon pursuant to Rules 15Ga-2(a) and 17g-10
under the Exchange Act, and all legal obligations with respect to Third-Party Due Diligence Reports have been and will be timely
complied with. No portion of any Form 15G contains any names, addresses, other personal identifiers or zip codes with respect to
any individuals, or any other personally identifiable or other information that would be associated with an individual, including
without limitation any “nonpublic personal information” within the meaning of Title V of the Gramm-Leach-Bliley Financial
Services Modernization Act of 1999.

 

(dd)             
Horizon is the "sponsor" (in such capacity, the "Sponsor") as defined in the Credit Risk Retention
Rules (defined below), and as the Sponsor expects to comply as of the Closing Date, in all material respects with Regulation RR,
17 C.F.R. §246.1, et seq. (the "Credit Risk Retention Rules"), either directly or (to the extent permitted
by the Credit Risk Retention Rules) through a "Wholly-Owned Affiliate" or a "Majority-Owned Affiliate" (as
defined in the Credit Risk Retention Rules). The Sponsor, or one or more of its Wholly-Owned Affiliates or its Majority-Owned Affiliates,
expects to satisfy on the Closing Date the Credit Risk Retention Rules through the retention of an "eligible horizontal residual
interest", which includes the residual interest of the Issuer.

 

(ee)              
The Sponsor has determined the expected range of fair values of the ABS Interests based on its own valuation methodology,
inputs and assumptions.

 

(ff)                
No election has been, or will be, made or filed pursuant to which the Issuer is or will be classified as an association
for U.S. federal income tax purposes under Treasury Regulation Section 301.7701-3(a).

 

(gg)             
Other than as contemplated by this Agreement or as disclosed in the Time of Sale Information and the PPM, there is no broker,
finder or other party that is entitled to receive from the Horizon Entities, or any affiliate thereof, any brokerage or finder's
fee or other fee or commission as a result of any of the transactions contemplated by this Agreement.

 

(hh)          
As of the date hereof and as of the Closing Date, the information included in any Beneficial Ownership Certification provided
by any Horizon Entity or any affiliate thereof to which the Beneficial Ownership Regulation is applicable with respect to the transactions
undertaken pursuant to the Transaction Documents, is true and correct in all respects. A "Beneficial Ownership Certification"
means a certification required by 31 C.F.R. § 1010.230 (the "Beneficial Ownership Regulation").

 

    	 	9	 

     

    

 

Section 3.               
Purchase, Sale and Delivery of Notes.

 

(a)              
On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions
set forth herein, the Issuer agrees to sell to the Initial Purchaser and the Initial Purchaser agrees to purchase from the Issuer,
the Notes at the respective purchase prices and the Initial Note Principal Balance set forth in Exhibit A to this Agreement.

 

(b)              
The Issuer will deliver, against payment of the purchase price, the Notes to be offered and sold by the Initial Purchasers
in reliance on Regulation S (the "Regulation S Notes") in the form of one or more temporary global notes in registered
form without interest coupons (the "Regulation S Global Notes") which will be deposited with the Indenture Trustee,
in its capacity as custodian, for The Depository Trust Company ("DTC") for the respective accounts of the DTC
participants for Euroclear Bank S.A./N.V., as operator of the Euroclear System ("Euroclear"), and Clearstream
Banking, société anonyme ("Clearstream") and registered in the name of Cede & Co., as nominee
for DTC. The Issuer will deliver, against payment of the purchase price of the Notes to be purchased by the Initial Purchasers
hereunder and to be offered and sold by the Initial Purchasers in reliance on Rule 144A under the Securities Act (the "144A
Notes") in the form of one or more permanent global securities in definitive form without interest coupons (the "Rule
144A Global Notes") deposited with the Indenture Trustee, in its capacity as custodian, for DTC and registered in the
name of Cede & Co., as nominee for DTC. The Regulation S Global Notes and the Rule 144A Global Notes shall be assigned separate
CUSIP, ISIN and Common Code numbers. The Notes shall include the applicable legends regarding restrictions on transfer set forth
under "TRANSFER RESTRICTIONS" in the PPM, as applicable. Until the termination of the "40-day distribution compliance
period" (as defined in Regulation S) with respect to the offering of the Notes sold pursuant to Regulation S, interests in
the Regulation S Global Notes may only be held by the DTC participants for Euroclear and Clearstream. Interests in any permanent
global notes will be held only in book-entry form through Euroclear, Clearstream or DTC, as the case may be, except in the limited
circumstances permitted by the Indenture.

 

(c)              
Payment for the Notes shall be made by the Initial Purchaser in federal (same day) funds by wire transfer to an account
at a bank designated by the Issuer on August 13, 2019 (or, on such other date or at such other time as the Initial Purchaser and
the Issuer shall agree, the "Closing Date") against delivery to the Indenture Trustee, in its capacity as custodian
for DTC, of (i) the Regulation S Global Notes representing all of the Regulation S Notes for the respective accounts of the DTC
participants for Euroclear and Clearstream and (ii) the Rule 144A Global Notes representing all of the 144A Notes. Copies of the
Regulation S Global Notes and the Rule 144A Global Notes will be made available for inspection (which may be done by electronic
mail) at least 24 hours prior to the Closing Date.

 

(d)              
Each of the Horizon Entities and the Initial Purchaser hereby acknowledges and agrees that, for all tax purposes, it is
entering into this Agreement with the intention that the Notes not held by the Issuer or an affiliate thereof will be characterized
as indebtedness and shall treat the Notes as indebtedness, unless otherwise required by applicable law.

 

    	 	10	 

     

    

 

Section 4.               
Representations and Covenants of the Initial Purchaser; Resales.

 

(a)              
The Initial Purchaser represents and warrants that it is both a QIB and an "accredited investor" within the meaning
of Regulation D under the Securities Act.

 

(b)              
The Initial Purchaser represents and agrees that it is a QIB and a Qualified Purchaser and that it will not offer, sell
or deliver any Notes within the United States or to, or for the account of benefit of, U.S. persons except in accordance with the
requirements described under the "PLAN OF DISTRIBUTION—Investment Considerations; Transfer Restrictions" section
in the PPM and that it will send to each other dealer to which it sells Notes, as applicable, during the 40-day period prescribed
by Regulation S commencing on the later of (i) the date upon which Notes are first offered to persons other than the Initial Purchaser
and any other distributor (as such term is defined in Regulation S) of the Notes and (ii) the Closing Date, a confirmation or other
notice setting forth the restrictions on offers and sales of Notes in non-offshore transactions or to, or for the account or benefit
of, U.S. persons.

 

(c)              
The Initial Purchaser agrees that it and each of its Affiliates will not offer or sell the Notes in the United States by
means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act, including,
but not limited to (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio, or (ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. The Initial Purchaser agrees, with respect to resales made in reliance on Rule 144A of any
of the Notes, to deliver either with the confirmation of such resale or otherwise prior to settlement of such resale a notice to
the effect that the resale of such Notes has been made in reliance upon the exemption from the registration requirements of the
Securities Act provided by Rule 144A.

 

(d)              
The Initial Purchaser represents and agrees that (i) it has only communicated or caused to be communicated and will only
communicate or cause to be communicated any it has not offered, sold or otherwise made available and will not offer, sell or otherwise
make available any Notes which are the subject of the offering contemplated by the PPM in relation thereto to any retail investor
in the European Economic Area ("EEA"). For the purposes of this provision:

 

(i)                
the expression "retail investor" means a person who is one (or more) of the following:

 

(a)              
a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, "MiFID II");

 

(b)              
a customer within the meaning of Directive (EU) 2016/97 (as amended), where that customer would not qualify as a professional
client as defined in point (10) of Article 4(1) of MiFID II; or

 

    	 	11	 

     

    

 

(c)              
not a qualified investor as defined in Directive 2010/71/EU (the "Prospectus Directive"); and

 

(ii)             
the expression "offer" includes the communication in any form and by any means of sufficient information on the
terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe for the Notes.

 

(e)              
The Initial Purchaser is not acquiring the Notes for or on behalf of or with the assets of any Benefit Plan Investor or
any "governmental plan" within the meaning of Section 3(32) of ERISA that is subject to any Similar Law.

 

(f)   
The Initial Purchaser represents that it has not engaged any third party to undertake any Third-Party Due Diligence
Services or obtained any Third-Party Due Diligence Report with respect to the assets held by the Issuer or the transactions contemplated
by this Agreement.

 

Section 5.               
Certain Covenants of the Issuer and Horizon. The Issuer, the Depositor and Horizon each agree with the Initial Purchaser
that:

 

(a)              
During the period from the date hereof until the earlier of (i) 180 days from the date hereof; or (ii) such date as of which
all of the Notes shall have been sold by the Initial Purchaser (such period, the "Offering Period"), before amending
or supplementing the Offering Document, the Issuer will advise the Initial Purchaser promptly of any proposal to amend or supplement
the Offering Document and will not effect such amendment or supplementation without the Initial Purchaser's consent. If, at any
time, following delivery of any document comprising the Offering Document and prior to the completion of the resale of the Notes
by the Initial Purchaser, (i) any event occurs as a result of which such document as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading, the Issuer promptly will notify the Initial Purchaser
of such event, or (ii) if, in the reasonable opinion of the Initial Purchaser, a change to the Offering Document is necessary to
comply with law or regulations, then in either case the Issuer promptly will prepare, at its own expense, an amendment or supplement
which will correct such statement or omission or which will cause the Offering Document to comply with such laws or regulations,
as applicable. Neither the consent of the Initial Purchaser to, nor the Initial Purchaser's delivery to offerees or investors of,
any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6 hereof.

 

(b)              
If requested by the Initial Purchaser, the Issuer will furnish to the Initial Purchaser copies of each document comprising
a part of the Offering Document as soon as available and in such quantities as the Initial Purchaser reasonably requests. Horizon
will also cause to be furnished to the Initial Purchaser, on the Closing Date, the letters specified in Section 6(a) hereof.
At any time the Notes are Outstanding, the Issuer will promptly furnish or cause to be furnished to the Initial Purchaser and,
upon request of holders and prospective purchasers of the Notes, to such holders and purchasers, copies of the information required
to be delivered to holders and prospective purchasers of the Notes pursuant to Rule 144A(d)(4) under the Securities Act (or
any successor provision thereto) in order to permit compliance with Rule 144A in connection with resales by such holders of
the Notes. The Issuer or Horizon will pay the expenses of printing and distributing to the Initial Purchaser all such documents.

 

    	 	12	 

     

    

 

(c)              
During the period of two years after the Closing Date, the Issuer will not, and will not permit any of its affiliates (as
defined in Rule 144 under the Securities Act) to, resell any of the Notes that have been reacquired by any of them.

 

(d)              
The Issuer will not conduct its business in a manner that will require it to be registered under the Investment Company
Act.

 

(e)              
The Issuer will pay or cause to be paid all expenses incidental to the performance of its obligations under the Transaction
Documents including (i) all expenses in connection with the execution, issue, authentication, packaging and initial delivery of
the Notes, the preparation of the Transaction Documents and the printing of the Offering Document and amendments and supplements
thereto, and any other document relating to the issuance, offer, sale and delivery of the Notes; (ii) any expenses (including reasonable
fees and disbursements of counsel) incurred in connection with qualification of the Notes for sale under the laws of such jurisdictions
in the United States as the Initial Purchaser designates and the printing of memoranda relating thereto; (iii) any fees charged
by the Rating Agency for the rating of the Notes, and (iv) for any reasonable fees and disbursements of Kramer Levin Naftalis &
Frankel LLP, counsel to the Initial Purchaser.

 

(f)               
The Issuer shall promptly advise the Initial Purchaser of any downgrade of (or any "negative watch" or any similar
warning placed on) a rating accorded to the Notes by the Rating Agency promptly after it is advised by the Rating Agency (or otherwise
becomes aware) of any such downgrading (or warning).

 

(g)              
In connection with the offering, until the Initial Purchaser shall have notified the Issuer of the completion of the resale
of the Notes, neither the Issuer nor any of its Affiliates has or will, either alone or with one or more other persons, bid for
or purchase for any account in which it or any of its Affiliates has a beneficial interest any Notes or attempt to induce any person
to purchase any Notes; and neither it nor any of its Affiliates will make bids or purchases for the purpose of creating actual,
or apparent, active trading in, or of raising the price of, the Notes.

 

(h)              
Each of Horizon and the Issuer will comply with the representations, certifications and covenants made by it in the engagement
letters with the Rating Agency, including any representation, certification or covenant provided by it to the Rating Agency in
connection with Rule 17g-5, and will make accessible to any non-hired "nationally recognized statistical rating organization"
all information provided by it to the Rating Agency in connection with the issuance and monitoring of the credit ratings on the
Notes in accordance with Rule 17g-5.

 

(i)                
Each Horizon Entity agrees that it will promptly following any request therefor, provide information and documentation reasonably
requested by the Initial Purchaser for purposes of compliance with applicable "know your customer" and anti-money laundering
rules and regulations, including, without limitation, the USA PATRIOT Act, and the regulations thereunder, and the Beneficial Ownership
Regulation.

 

    	 	13	 

     

    

 

(j)                
Horizon, in its capacity as Sponsor, agrees that it will comply with all of the legal requirements imposed by the Credit
Risk Retention Rules on the sponsor of a securitization transaction consisting of the issuance of the Notes.

 

Section 6.               
Conditions of the Initial Purchaser's Obligations. The obligations of the Initial Purchaser to purchase and pay for
the Notes on the Closing Date will be subject to the accuracy of the representations and warranties on the part of the Issuer and
Horizon herein, the accuracy of the statements of officers of the Issuer made pursuant to the provisions hereof, the performance
by each of Horizon and the Issuer of its obligations hereunder and the following additional conditions precedent:

 

(a)              
The Initial Purchaser shall have received a letter or letters of RSM US LLP in form and substance satisfactory to the Initial
Purchaser, containing statements and information of the type ordinarily included in accountants' "comfort letters" to
underwriters, with respect to certain financial or statistical information set forth in the Offering Document.

 

(b)              
Subsequent to the execution and delivery of this Agreement, the Initial Purchaser may terminate this Agreement by notice
given by the Initial Purchaser to the Issuer, if after the execution and delivery of this Agreement and prior to the Closing Date:
(i) a change in U.S. or international financial, political or economic conditions or currency exchange rates or exchange controls
as would, in the reasonable judgment of the Initial Purchaser, be likely to prejudice materially the success of the proposed issue,
sale or distribution of the Notes, whether in the primary market or in respect of dealings in the secondary market, (ii) trading
generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the
American Stock Exchange or the NASDAQ National Market, or there shall have been any setting of minimum prices for trading on any
such exchange, (iii) a material disruption in securities settlement, payment or clearance services in the United States shall have
occurred, (iv) any general moratorium on commercial banking activities shall have been declared by Federal or New York State authorities,
(v) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis
or natural disaster or a declaration by the United States of a national emergency or war or any other major act of terrorism involving
the United States, or any other substantial national or international calamity, emergency or crisis, the effect of which is material
and adverse, and which singly or together with any other event specified in this subsection (b), makes it, in the judgment of the
Initial Purchaser, impracticable or inadvisable to proceed with the offer, sale or delivery of the Notes on the terms and in the
manner contemplated in the Time of Sale Information or the PPM, or (vi) any change, or any development that could reasonably be
expected to cause a change, affecting the business or properties of the Issuer or Horizon occurs that, in the judgment of the Initial
Purchaser, is material and adverse, and which singly or together with any other event specified in this subsection (b), makes it,
in the judgment of the Initial Purchaser, impracticable or inadvisable to proceed with the offer, sale or delivery of the Notes
on the terms and in the manner contemplated in the Time of Sale Information or the PPM. Upon such notice being given, subject to
Section 9 hereof, the parties to this Agreement shall be released and discharged from their respective obligations under
this Agreement.

 

    	 	14	 

     

    

 

(c)              
The Notes shall have been duly authorized, executed, authenticated, delivered and issued, and each of the Transaction Documents
shall have been duly authorized, executed and delivered by the respective parties thereto and shall be in full force and effect,
and all conditions precedent contained in the Transaction Documents shall have been satisfied or waived.

 

(d)              
On or before the Closing Date, all actions required to be taken in order to perfect: (i) the Issuer's ownership and security
interest in the Initial Loans and related assets and (ii) the Indenture Trustee's first priority, perfected security interest in
the Trust Estate shall have been taken. The Initial Purchaser shall have received evidence reasonably satisfactory to the Initial
Purchaser that UCC financing statements in the State of Delaware with respect to (1) the sale of the Initial Loans and related
assets from Horizon to the Issuer and (2) the pledge of the Trust Estate from the Issuer to the Indenture Trustee are being filed
(or will be sent for filing within three Business Days of the Closing Date).

 

(e)              
The Initial Purchaser shall have received legal opinions of Dechert LLP, counsel to the Horizon Entities, (i) with respect
to certain corporate, enforceability, federal tax, security interest, securities law and investment company matters, in form and
substance satisfactory to the Initial Purchaser, (ii) with respect to certain “true sale” issues in form and substance
satisfactory to the Initial Purchaser and (iii) with respect to certain “non-consolidation” issues in form and substance
satisfactory to the Initial Purchaser. Dechert LLP shall also provide a customary “negative assurances” letter, dated
as of the Closing Date, addressed to the Initial Purchaser and in form and substance reasonably satisfactory to its counsel, containing
customary exceptions and limitations, to the effect that such counsel has no reason to believe that the Preliminary PPM, at the
Time of Sale, or the PPM, as of the date thereof and as of the Closing Date, included any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they
were made, not misleading (in each case, other than the financial statements and other information of a statistical, accounting
or financial nature included in the Preliminary PPM and PPM).

 

(f)               
(i) The Initial Purchaser shall have received a letter from Dechert LLP that it has no reason to believe that the Preliminary
PPM, together with the Pricing Information, as of the Time of Sale, and the PPM as of the date thereof and as of the Closing Date,
contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein
not misleading, it being understood that such counsel need express no opinion as to the financial statements or other financial
data contained in the Offering Document.

 

(ii) The Initial Purchaser
shall have received a letter from Kramer Levin Naftalis & Frankel LLP that it has no reason to believe that the Preliminary
PPM, together with the Pricing Information, as of the Time of Sale, and the PPM as of the date thereof and as of the Closing Date,
contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein
not misleading, it being understood that such counsel need express no opinion as to the financial statements or other financial
data contained in the Offering Document.

 

(g)              
The Initial Purchaser shall have received from each party to the Transaction Documents such information, certificates, opinions
and documents as the Initial Purchaser may reasonably have requested and all proceedings in connection with the transactions contemplated
by this Agreement and all documents incident hereto shall be in all material respects reasonably satisfactory in form and substance
to the Initial Purchaser.

 

    	 	15	 

     

    

 

(h)              
(i) The Notes shall have received a rating of at least "A+" from the Rating Agency, and (ii) such rating shall
not have been rescinded, and no public announcement shall have been made by (x) the Rating Agency that the rating of such Notes
has been placed under review or (y) by a non-hired rating agency that it has issued an unsolicited lower rating on such Notes.

 

(i)                
At least two business days prior to the date hereof, each Horizon Entity and any affiliate thereof to which the Beneficial
Ownership Regulation is applicable with respect to the transactions undertaken pursuant to the Transaction Documents, to the extent
that any such entity qualifies as a "legal entity customer" under the Beneficial Ownership Regulation shall (i) deliver,
or ensure that it has delivered, to each Initial Purchaser that so requests, a Beneficial Ownership Certification in relation to
itself, or (ii) deliver to each Initial Purchaser an updated Beneficial Ownership Certification if any previously delivered Beneficial
Ownership Certification ceases to be true and correct in all respects..

 

The Initial Purchaser
may in its sole discretion waive compliance with any conditions to the obligations of the Initial Purchaser hereunder.

 

Section 7.               
Indemnification and Contribution.

 

(a)              
Each of the Horizon Entities jointly and severally agrees (i) to indemnify and hold harmless the Initial Purchaser, its
partners, directors, employees and officers and each person, if any, who controls the Initial Purchaser within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act (each, an "Initial Purchaser Indemnified Party"), against
any losses, claims, damages or liabilities, to which any Initial Purchaser Indemnified Party may become subject, under the Securities
Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) ("Loss")
arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the draft preliminary
offering memorandum dated May 17, 2019, any Form ABS-15G furnished on EDGAR with respect to the transaction contemplated by this
Agreement, whether prepared by or furnished by Horizon or the Issuer ("Form 15G"), any document comprising a part
of the Offering Document, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and (ii) will reimburse the Initial Purchaser for any legal or
other expenses reasonably incurred by an Initial Purchaser Indemnified Party in connection with investigating or defending any
such Loss or bringing any claim to enforce the indemnification obligations of a Horizon Entity, as such expenses are incurred;
provided, however, that none of the Horizon Entities will be liable in any such case to the extent that any such
Loss or reimbursement request arises out of or is based upon an untrue statement or alleged untrue statement in or omission or
alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Horizon
Entities by the Initial Purchaser specifically for use therein, it being understood and agreed that such information consists only
of the information described as such in subsection (b) below; and provided, further, that none of the Horizon
Entities will be liable in any such case to the extent that such misstatement or omission from any document comprising a part of
the Offering Document was corrected by the Horizon Entities reasonably prior to the initial time of sale and the Initial Purchaser
did not deliver, prior to the initial time of sale, a copy of such document comprising a part of the Offering Document, as then
revised, amended or supplemented, if any of the Horizon Entities furnished copies thereof reasonably prior to the initial time
of sale to the Initial Purchaser in accordance with the terms of this Agreement.

 

    	 	16	 

     

    

 

(b)              
The Initial Purchaser will indemnify and hold harmless the Horizon Entities, their respective directors and officers, and
each person, if any, who controls such Horizon Entity within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any Losses to which a Horizon Entity may become subject, under the Securities Act or the Exchange Act or
otherwise, insofar as such Losses arise out of or are based upon any untrue statement or alleged untrue statement of any material
fact contained in any document comprising a part of the Offering Document or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each
case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished to the Horizon Entities by the Initial Purchaser
specifically for use therein, and the Initial Purchaser will reimburse any legal or other expenses reasonably incurred by a Horizon
Entity in connection with investigating or defending any such Loss or bringing any claim to enforce the indemnification obligations
of the Initial Purchaser as such expenses are incurred, it being understood and agreed that the only such information furnished
by the Initial Purchaser consists of the first sentence of the second paragraph and the first sentence of the eight paragraph under
the caption "PLAN OF DISTRIBUTION" in the Preliminary PPM and the PPM (the "Initial Purchaser Information").

 

(c)              
Promptly after receipt by an indemnified party under subsection (a) or (b) of notice of the commencement of any action,
such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under such subsection,
notify the indemnifying party in writing of the commencement thereof; but the omission to notify the indemnifying party will not
relieve the indemnifying party from any liability which it may have to any indemnified party otherwise than under subsection (a)
or (b) above, except to the extent that the indemnifying party has been materially prejudiced by such failure. The indemnifying
party shall have the right to assume the defense thereof with counsel reasonably satisfactory to the indemnified party to represent
the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the reasonable fees
and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (A)
the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel and payment of reasonable
legal fees and expenses thereto, (B) the named parties to any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due
to actual or potential differing interests between them (in which case the indemnifying party shall not have the right to direct
the defense of such action on behalf of the indemnified party) or (C) the indemnifying party fails to timely retain counsel as
provided in the preceding sentence. The indemnifying party shall not, in connection with any proceeding or related proceedings
in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm (in addition to any local
or specialized counsel) for all such indemnified parties and all such fees and expenses shall be reimbursed as they are incurred.
Such firm shall be designated in writing by the Initial Purchaser in the case of parties indemnified pursuant to subsection (a)
of this Section and by the Issuer in the case of parties indemnified pursuant to subsection (b) of this Section. The indemnifying
party shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party
agrees to promptly indemnify the indemnified party from and against any loss or liability by reason of such settlement or final
judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably
withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened action, suit
or proceeding in respect of which any indemnified party is or could be a party and indemnity could have been sought hereunder by
such indemnified party unless such settlement, compromise or consent includes an unconditional release of such indemnified party
from all liability on any claims that are the subject matter of such action and does not include a statement as to or an admission
of fault, culpability or failure to act by or on behalf of any indemnified party.

 

    	 	17	 

     

    

 

(d)              
If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party
under subsection (a) or (b) above, then each indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred
to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the
Issuer, the Depositor and Horizon on the one hand and the Initial Purchaser on the other from the offering of the Notes or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the relative fault of the Issuer, the Depositor and Horizon
on the one hand and the Initial Purchaser on the other in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Issuer,
the Depositor and Horizon on the one hand and the Initial Purchaser on the other shall be deemed to be in the same proportion as
the total proceeds from the Note offering (after deducting the Initial Purchaser's fee or underwriting discount, but before deducting
expenses) received directly by the Issuer bear to the total fees, discounts and commissions received by the Initial Purchaser in
respect thereof. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the
Issuer, the Depositor and/or Horizon on the one hand or the Initial Purchaser on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection
(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating
or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection
(d), the Initial Purchaser shall not be required to contribute any amount in excess of the difference between the total price at
which the Notes were resold by it and the total price of the Notes acquired by it.

 

    	 	18	 

     

    

 

(e)              
The obligations of the Horizon Entities under this Section 7 shall be in addition to any liability which a Horizon
Entity may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Initial
Purchaser within the meaning of the Securities Act or the Exchange Act; and the obligations of the Initial Purchaser under this
Section shall be in addition to any liability which the Initial Purchaser may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls a Horizon Entity within the meaning of the Securities Act or the Exchange
Act.

 

Section 8.               
Default of Initial Purchaser. If the Initial Purchaser defaults in its obligations to purchase the Notes and the
aggregate principal amount of the Notes with respect to which such default occurs exceeds 10% of the total principal amount of
the Notes and arrangements satisfactory to the Issuer and Horizon for the purchase of such Notes by any other persons are not made
within 36 hours after such default, this Agreement will terminate without liability on the part of the Issuer or Horizon, except
as provided in Section 9 hereof. Nothing herein will relieve the Initial Purchaser from liability for any default hereunder.

 

Section 9.               
Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties
and other statements of the Horizon Entities or their respective officers and of the Initial Purchaser and its officers set forth
in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to
the results thereof, made by or on behalf of the Initial Purchaser, a Horizon Entity or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of and payment for the Notes. If this Agreement is terminated
pursuant to Section 8 hereof or if for any reason the purchase of the Notes by the Initial Purchaser is not consummated,
the Issuer shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5(f) hereof
and the respective obligations of the Horizon Entities and the Initial Purchaser pursuant to Section 7 hereof shall
remain in effect. If the purchase of the Notes by the Initial Purchaser is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 hereof, the Horizon Entities will reimburse the Initial Purchaser
for all out-of-pocket expenses (including reasonable fees and disbursements of legal counsel) reasonably incurred by them in connection
with the offering of the Notes. Section 17 shall survive the termination of this Agreement.

 

Section 10.           
Severability Clause. Any part, provision, representation, or warranty of this Agreement which is prohibited or is
held to be void or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof.

 

Section 11.            Notices.
All communications hereunder will be in writing and, (A) if sent to the Initial Purchaser, will be mailed, delivered or faxed
and confirmed to the Initial Purchaser, at KeyBanc Capital Markets Inc., 1301 Avenue of the Americas, 37th Floor, New York,
New York 10019, Attention: Alan Staggers, email: alan.staggers@key.com, or (B) if sent to the Issuer, will be
mailed, delivered or faxed and confirmed to it at c/o Wilmington Trust, National Association, Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration, Facsimile No.: (302) 636-4140, or (C)
if sent to the Depositor, will be mailed, delivered or faxed and confirmed to it at Horizon Funding 2019-1 LLC, c/o Horizon
Technology Finance Corporation, 312 Farmington Avenue, Farmington, Connecticut 06032 Attention: Legal Department, Re: Horizon
Funding Trust 2019-1, Telephone: (860) 676-8654, Facsimile No.: 860-676-8655; with a copy to Horizon Funding 2019-1 LLC, c/o
Horizon Technology Finance Corporation, 312 Farmington Avenue, Farmington, Connecticut 06032 Attention: Legal Department, Re:
Horizon Funding Trust 2019-1, Telephone: (860) 676-8654, Facsimile No.: 860-676-8655, or (D) if sent to Horizon, will be
mailed, delivered or faxed and confirmed to it at Horizon Technology Finance Corporation, 312 Farmington Avenue, Farmington,
Connecticut 06032, Attention: Legal Department, Re: Horizon Funding Trust 2019-1, telephone: (860) 676-8654, Facsimile No.:
860-676-8655; with a copy to Horizon Technology Finance Corporation, 312 Farmington Avenue, Farmington, Connecticut 06032,
Attention: Legal Department, Re: Horizon Funding Trust 2019-1, Telephone: (860) 676-8654, Facsimile No.: 860-676-8655.

 

    	 	19	 

     

    

 

Section 12.           
Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective
successors and the controlling persons referred to in Section 7 hereof, and no other person will have any right or
obligation hereunder.

 

Section 13.           
Applicable Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS
LAW OF THE STATE OF NEW YORK.

 

Section 14.           
Submission to Jurisdiction, etc.

 

(a)              
The parties hereto hereby irrevocably and unconditionally submit to the jurisdiction of: (i) the United States District
Court for the Southern District of New York or of any New York State court (in either case sitting in the Borough of Manhattan
in The City of New York) and (ii) the courts of its own corporate domicile, in each case with all applicable courts of appeal therefrom,
with respect to actions brought against it as a defendant for purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby or thereby; provided that nothing herein shall be deemed to limit the ability
of any party to this Agreement to bring suit against any other party to this Agreement in any other permissible jurisdiction. Each
of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now
or hereafter have to the laying of the venue of any such proceeding brought in such a court, any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum and any objection based on place of residence or domicile.

 

(b)              
To the extent that any party hereto has or hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution or execution, on
the ground of sovereignty or otherwise) with respect to itself or its property, it hereby irrevocably waives, to the fullest extent
permitted by applicable law, such immunity in respect of its obligations under this Agreement.

 

    	 	20	 

     

    

 

Section 15.           
WAIVERS OF JURY TRIAL.

 

THE PARTIES HERETO
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR
ANY COUNTERCLAIM RELATING THERETO. EACH PARTY ACKNOWLEDGES THAT THE OTHER PARTIES HERETO ARE ENTERING INTO THIS AGREEMENT IN RELIANCE
UPON SUCH WAIVER.

 

Section 16.           
Counterparts, Etc. This Agreement supersedes all prior or contemporaneous agreements and understandings relating
to the subject matter hereof between the Initial Purchaser and the Horizon Entities. Neither this Agreement nor any term hereof
may be changed, waived, discharged or terminated except by a writing signed by the party against whom enforcement of such change,
waiver, discharge or termination is sought. This Agreement may be signed in any number of counterparts each of which shall be deemed
an original, which taken together shall constitute one and the same instrument. Delivery of an executed counterpart of this Agreement
by facsimile transmission or other electronic transmission (i.e. a "pdf" or "tif") shall be effective as of
delivery of a manually executed counterpart hereof.

 

Section 17.           
No Petition. During the term of this Agreement and for one year and one day after all debt securities issued by the
Issuer have been paid, none of the parties hereto or any affiliate thereof will file any involuntary petition or otherwise institute
any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other proceeding under any federal or state
bankruptcy or similar law against the Issuer.

 

Section 18.           
Owner Trustee. It is expressly understood and agreed by the parties hereto that (a) this Agreement, when executed
by the Issuer, is executed and delivered by Wilmington Trust, National Association ("WTNA"), not individually
or personally but solely in its capacity as Owner Trustee on behalf of the Issuer, in the exercise of the powers and authority
conferred and vested in it under the Trust Agreement, (b) each of the representations, warranties, covenants, undertakings and
agreements herein made on the part of the Issuer is made and intended to bind only the Issuer and does not constitute personal
representations, undertakings and agreements by WTNA in its individual capacity or as Owner Trustee, (c) nothing herein contained
shall be construed as creating any liability on WTNA, individually or personally or as Owner Trustee, to perform any covenant either
expressed or implied contained herein of the Issuer, all such liability, if any, being expressly waived by the parties hereto and
by any Person claiming by, through or under the parties hereto, (d) WTNA has made no (and is under no obligation to make any) investigation
or determination as to the satisfaction, accuracy or completeness of any representations and warranties made by the Issuer in this
Agreement and (e) under no circumstances shall WTNA be personally liable for the payment of any indebtedness or expenses of the
Owner Trustee or the Issuer or be liable for the breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Issuer under this Agreement, the Indenture, the Notes or any other Transaction Documents. It is expressly
understood and agreed that the rights, duties and obligations of Issuer hereunder will be exercised and performed by Horizon in
its capacity as the Administrator on behalf of the Issuer pursuant to its authority under the Trust Agreement and the Administration
Agreement and under no circumstances shall the Owner Trustee have any duty or obligation to monitor, exercise or perform the rights,
duties or obligations of the Issuer or the Administrator hereunder.

 

    	 	21	 

     

    

 

Section 19.           
No Advisory or Fiduciary Responsibility. Each of the Horizon Entities acknowledges and agrees that: (a) the purchase
and sale of the Notes pursuant to this Agreement, including the determination of the offering price of the Notes and any related
discounts and commissions, is an arm's-length commercial transaction among the Horizon Entities and the Initial Purchaser and each
of the Horizon Entities is capable of evaluating and understanding and understands and accepts the terms, risks and conditions
of the transactions contemplated by this Agreement; (b) in connection with the purchase and sale of the Notes, the Initial Purchaser
is and has been acting solely as a principal and is not the agent or fiduciary of any of the Horizon Entities, or their respective
affiliates, stockholders, creditors or employees or any other party; (c) the Initial Purchaser has not assumed nor will assume
an advisory or fiduciary responsibility in favor of any of the Horizon Entities with respect to any of the transactions contemplated
hereby; (d) the Initial Purchaser and its respective affiliates may be engaged in a broad range of transactions that involve interests
that differ from those of either of the Horizon Entities and that the Initial Purchaser has no obligation to disclose any of such
interests by virtue of any fiduciary or advisory relationship; (e) the Horizon Entities shall each consult with its own advisors
concerning the purchase and sale of the Notes and shall be responsible for making their own independent investigation and appraisal
of the transaction contemplated hereby, and the Initial Purchaser shall not have any responsibility or liability to a Horizon Entity
with respect thereto; (f) the Initial Purchaser and its respective affiliates are not providing and have not provided legal, regulatory,
tax, insurance or accounting advice in any jurisdiction; and (g) each of the Horizon Entities waives, to the fullest extent permitted
by law, any claims it may have against the Initial Purchaser for breach of fiduciary duty or alleged breach of fiduciary duty.

 

Section 20.           
Recognition of the U.S. Special Resolution Regimes.

 

(a)              
In the event that any Initial Purchaser that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution
Regime, the transfer from the Initial Purchaser that is a Covered Entity of this Agreement, and any interest and obligation in
or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution
Regime if this Agreement, and any interest and obligation in or under this Agreement, were governed by the laws of the United States
or a state of the United States.

 

(b)              
In the event that any Initial Purchaser that is a Covered Entity or a BHC Act Affiliate of any Initial Purchaser that is
a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, any Default Rights under this Agreement
that may be exercised against such Initial Purchaser that is a Covered Entity are permitted to be exercised to no greater extent
than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws
of the United States or a state of the United States.

 

    	 	22	 

     

    

 

For the purposes of
this Section 17, the following terms shall have the meaning ascribed to them below:

 

"BHC Act Affiliate"
has the meaning assigned to the term "affiliate" in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k).

 

"Covered Entity"
means any of the following:

 

(i)       a
"covered entity" as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b);

 

(ii)       a
"covered bank" as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or

 

(iii)       a
"covered FSI" as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).

 

"Default Right"
has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1,
as applicable.

 

"U.S. Special
Resolution Regime" means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and
(ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.

 

[signature page follows]

 

    	 	23	 

     

    

 

If the foregoing is in
accordance with your understanding of our agreement, please sign and return to the undersigned a counterpart hereof, whereupon
this Note Purchase Agreement shall represent a binding agreement among the Horizon Entities and the Initial Purchaser.

 

	 	Very truly yours,
	 	 	 
	 	Horizon Funding Trust 2019-1
	 	 	 
	 	By: 	Wilmington Trust, National
Association, not in its individual capacity but
solely as Owner Trustee on behalf of the Issuer
	 	 	 
	 	By:	 
	 	Name:
	 	Title:
	 	 	 
	 	Horizon Funding 2019-1 LLC
	 	 	 
	 	By:	 
	 	Name:
	 	Title:
	 	 	 
	 	Horizon Technology Finance Corporation
	 	 	 
	 	By:   	             
	 	Name:
	 	Title:

  

	The foregoing Note Purchase Agreement is	 
	hereby confirmed and accepted as	 
	of the date first above written.	 
	 	 	 
	KeyBanc Capital Markets Inc.	 
	 	 	 
	By:  	         	 
	Name:	 
	Title:	 

 

 

Signature
Page to Horizon Funding Trust 2019-1 Note Purchase Agreement

 

     

     

    

 

EXHIBIT A

 

	Initial Note Balance	Purchase Price
	 	 
	$100,000,000	99.99166%

 

     

     

    

 

EXHIBIT B

 

Road Show

 

[see attached]

 

     

     

    

 

Exhibit C

 

The Initial Purchaser has indicated to
the Issuer that it conveyed the pricing information below to each of its initial transferees of the Notes:

 

Initial Note Principal Balance: $100,000,000

 

Issue Price: 99.99166%

 

Closing Date: August 13, 2019

 

     

     

    

 

EXHIBIT D

 

Agreed-upon procedures report, dated July
17, 2019, obtained by Horizon, with respect to certain agreed-upon procedures performed by RSM US LLP.

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