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Exhibit 4.2

 
DESCRIPTION OF REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

The following description of our capital stock and certain provisions of our restated certificate of incorporation and our amended and restated bylaws is not complete and may not contain all the information you should consider before investing in our capital stock. This description is summarized from, and qualified in its entirety by reference to, our restated certificate of incorporation and amended and restated bylaws, each of which has been publicly filed with the SEC. See Exhibits 3.1 and 3.2, respectively, to the Annual Report on Form 10-K that links to this exhibit. Unless the context otherwise requires, all references to “we”, “us”, the “Company”, or “Novan” in this Exhibit 4.2 refer to Novan, Inc.

Our authorized capital stock consists of:

•200,000,000 shares of common stock, par value $0.0001 per share, of which we had outstanding 18,815,892 shares of our common stock as of December 31, 2021; and
    
•10,000,000 shares of preferred stock, par value $0.0001 per share, of which none were outstanding as of December 31, 2021. 

Common Stock

Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. An election of directors by our stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of any series of preferred stock that we may designate and issue in the future.

In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately our net assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. Our outstanding shares of common stock are, and the shares offered by us in this offering will be, when issued and paid for, validly issued, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

Our common stock is listed on the Nasdaq Capital Market under the symbol “NOVN.”

The Company is permitted to issue, and has from time to time, issued warrants and options to purchase shares of the Common Stock, as well as stock appreciation rights.

Transfer Agent

The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC.

Preferred Stock

Under the terms of our restated certificate of incorporation, our board of directors is authorized to direct us to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. The preferred shares may have voting or conversion rights that could have the effect of restricting dividends on our common shares, diluting the voting power of our common shares, impairing the rights of our common shares in the event of our dissolution, liquidation or winding-up or otherwise adversely affect the rights of holders of our common shares. The holders of preferred shares are entitled to receive notice of any meeting of our shareholders and to attend and vote, except as otherwise provided in the rights and restrictions attached to the shares by the board of directors.

Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws

Restated Certificate of Incorporation and Amended and Restated Bylaws

Because our stockholders do not have cumulative voting rights, our stockholders holding a majority of the voting power of our shares of common stock outstanding will be able to elect all of our directors. Our restated certificate of incorporation and amended and restated bylaws provide that all stockholder actions must be effected at a duly called meeting of stockholders and not by consent in writing. A special meeting of stockholders may be called only by a majority of our board of directors, the chair of our board of directors, our president or our chief executive officer.

Our restated certificate of incorporation further provides that the affirmative vote of holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of voting stock, voting as a single class, will be required to amend certain provisions of our certificate of incorporation, including provisions relating to the size of the board, removal of directors, special meetings, actions by written consent and cumulative voting. The affirmative vote of holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of voting stock, voting as a single class, will be required to amend or repeal our bylaws, although our bylaws may be amended by a simple majority vote of our board of directors.

Our restated certificate of incorporation further provides that our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered terms.

Finally, our restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: (i) any derivative action or proceeding brought on behalf of us; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees or agents to us or our stockholders; (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our restated certificate of incorporation or amended and restated bylaws; or (iv) any action asserting a claim against us governed by the internal affairs doctrine. These choice of forum provisions do not preclude or contract the scope of exclusive federal or concurrent jurisdiction for any actions brought under the Securities Act or the Exchange Act. Accordingly, our choice of forum provisions will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any action, a court could find the choice of forum provisions contained in our restated certificate of incorporation to be inapplicable or unenforceable in such action. Nonetheless, any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to these provisions. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees or agents, which may discourage lawsuits against us and our directors, officers and other employees or agents.

The foregoing provisions, including the choice of forum provisions, will make it more difficult for our existing stockholders to replace our board of directors as well as for another party to obtain control of our company by replacing our board of directors. Since our board of directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management. In addition, the authorization of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change the control of our company. 

These provisions are intended to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage certain types of transactions that may involve an actual or threatened acquisition of our Company. These provisions are also designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage certain tactics that may be used in proxy fights. However, these provisions could have the effect of discouraging others from making tender offers for our shares and may have the effect of deterring hostile takeovers or delaying changes in control of our Company or our management. As a consequence, these provisions also may inhibit fluctuations in the market price of our stock that could result from actual or rumored takeover attempts.

Section 203 of the Delaware General Corporation Law

We are subject to Section 203 of the Delaware General Corporation Law, which prohibits persons deemed to be “interested stockholders” from engaging in a “business combination” with a publicly held Delaware corporation for three years following the date these persons become interested stockholders unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors.Document

Exhibit 10.14

Execution Copy

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is entered into as of November 1, 2021 (the “Effective Date”) by and between Novan, Inc., a Delaware corporation with its principal place of business in Durham County, North Carolina (the “Company”), and Brian M. Johnson (“Executive”).  Executive and the Company may be referred to individually as a “party” and collectively as the “parties.”

WITNESSETH:

WHEREAS, the Company wishes to employ Executive as its Chief Commercial Officer and Executive wishes to accept such employment, to commence on November 1, 2021;

WHEREAS, the Company and Executive have negotiated the terms of Executive’s employment, as set forth in this Agreement; and 

WHEREAS, as a condition of Executive’s employment, Executive will also execute contemporaneously with this Agreement the Confidentiality and Assignment of Inventions Agreement and the Noncompetition Agreement (collectively the “Restrictive Covenants Agreements”); and

WHEREAS, Executive acknowledges and agrees that the compensation and benefits provided under this Agreement are more than adequate consideration for Executive’s execution of the Restrictive covenants Agreements.

NOW, THEREFORE, in consideration of the foregoing, the mutual promises herein contained, and other good and valuable consideration, including the employment of Executive by the Company, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows.

1.EMPLOYMENT. As of the Effective Date, Executive shall serve as the Company’s Chief Commercial Officer (“CCO”), reporting to the Company’s President and Chief Executive Officer, upon the terms and conditions hereinafter set forth.

2.DUTIES; EXCLUSIVE SERVICE.

a.Executive shall faithfully discharge his responsibilities and perform all duties prescribed to him by the Company’s Chief Executive Officer (the “CEO”), as well as any duties as are set forth in the Bylaws of the Company related to Executive’s position. In addition, Executive expressly agrees that his services include but are not limited to attendance at scheduled meetings of the Company’s Board of Directors (the “Board”) and all other normal duties associated with the responsibilities of a Chief Commercial Officer. Executive agrees to comply with all Company policies, standards and regulations now existing or hereafter promulgated. Executive further agrees to devote all of his working time and attention to the performance of his duties and responsibilities on behalf of the Company and in furtherance of its best interests. Notwithstanding the foregoing, Executive may serve on boards or advisory committees without compensation of non-profit or charitable organizations and, with the prior written consent of the CEO, boards or advisory committees of for-profit organizations or companies, in each case, so long as 

such service and obligations do not interfere with Executive’s duties at the Company. During the Term, Executive agrees to immediately resign from the board of any company that engages in any business that competes with or represents a conflict with the business of the Company as determined in the reasonable discretion of the Board.

3.COMPENSATION. Executive’s compensation shall be paid as follows:

a.Base Salary. Executive shall receive as compensation a base salary at an annual rate of Three Hundred Forty Thousand Dollars ($340,000.00) (“Base Salary”), less any federal, state and local payroll taxes and other withholdings legally required or properly requested by Executive.  Base Salary shall be payable semi-monthly in accordance with the Company’s regular payroll practices and procedures. Base Salary for the period commencing January 1, 2023 and each year thereafter shall be subject to annual review by the Company and adjustment within the Company’s discretion.  Notwithstanding the forgoing provisions, Executive’s Base Salary shall be subject to a special review by the Company immediately following the first United States Food and Drug Administration (“FDA”) regulatory approval during the Term of a Company New Drug Application for the drug referred to as SB206 (the “NDA-SB206”) and, upon such review, the Company may adjust Executive’s Base Salary, but it may not at such time reduce it below the amount of Base Salary set forth above.  

b.Annual Bonus. For each calendar year during the Term, Executive will be eligible to receive an annual performance-based cash bonus, upon achievement of the annual bonus objectives established by the Company (“Annual Bonus”) pursuant to the Company’s bonus program as may established by the Company from time to time, with a target Annual Bonus equal to thirty five percent (35%) of Base Salary paid in a calendar year for achievement of the performance objectives established by the Company; provided, however, that immediately following the Company’s commercial launch of the drug covered by the NDA-SB206 referred to in Section 3(a), and subject to achievement of sales targets to be agreed upon by the CEO, the target for Executive’s Annual Bonus shall be increased to fifty percent (50%) of Base Salary paid in the applicable calendar year. In the event Executive’s target changes during a calendar year as the result of the commercial launch of the drug covered by NDA-SB206, the Annual Bonus for such year will be prorated between the applicable targets with each target applied to the portion of the Annual Bonus amount that reflects the period of time covered by each target.  Executive’s eligibility for any Annual Bonus is contingent on Executive remaining employed through December 31 of the applicable calendar year, except as otherwise provided in Section 6.  Each Annual Bonus will be paid to Executive no later than March 15 of the calendar year following the calendar year during which performance is measured.

c.Equity Grant. Conditioned on approval by the Company’s Board of Directors, the Company will grant to Executive 50,000 nonqualified stock options to purchase shares of the Company’s Common Stock, with an exercise price to be determined in accordance with the terms of the Company’s 2016 Incentive Award Plan, as amended or restated from time to time (collectively, the “2016 Plan”), which options will vest in three (3) equal annual installments on each annual anniversary of the grant until fully vested, subject to Executive’s continuous service with the Company on each such vesting date.  Such options will be subject to the terms of the 2016 Plan and the standard stock option award agreement. 
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d.Equity Incentive Plan.  Executive will be eligible to participate in Company’s incentive award plans as may be approved by the Board from time-to-time, including the 2016 Plan, at such level and on such terms as shall be approved by the Compensation Committee of the Board, in its sole discretion

e.Paid Time Off.  Executive is entitled to receive the maximum amount of paid-time-off (“PTO”) allowed under the Company’s policies, which PTO will be accrued and used in accordance with the Company’s policies.

f.Benefits. Executive shall be entitled to participate in employee benefit plans, programs and arrangements of the Company as are provided generally from time to time to all other similarly situated employees of the Company. All such benefits are subject to the provisions of their respective plan documents in accordance with their terms and are subject to amendment or termination by the Company without Executive’s consent.

g.Business Expenses. The Company will reimburse all reasonable expenses incurred by Executive in the performance of his duties to the Company, provided Executive complies with the Company’s policies and procedures for reimbursement or advance of business expenses established by the Company. 

4.EMPLOYMENT AT WILL; TERMINATION. The term of employment under this Agreement (the “Term”) shall commence on the Effective Date and continue until termination as provided in this Section 4, and subject to the terms of Section 6.  Subject to Section 6, Executive’s employment with the Company is atwill, and either party can terminate the employment relationship and/or this Agreement at any time, for any or no cause or reason, and with or without prior notice.

5.EFFECT OF TERMINATION. Upon termination of Executive’s employment hereunder by either party regardless of the cause or reason, the Company shall pay Executive accrued, unpaid wages through the termination date and reimbursement for unreimbursed business expenses properly incurred by Executive, which shall be subject to and paid in accordance with the Company's expense reimbursement policy (the “Accrued Amounts”). The final payment of wages, less any withholdings required by law or properly requested by Executive, shall be made on the next regular payday of the Company following the termination, in accordance with the Company’s normal payroll procedures. Except as otherwise provided in Section 6 of this Agreement, no other payments, benefits or other remuneration shall be due or payable to Executive.

6.SEVERANCE PROVISIONS.

(a)     Definitions. For the purposes of this Agreement, the following terms shall be defined as set out below:

i.“Cause” shall be determined in good faith by the Board (excluding Executive if then a director) and shall mean:

a.Executive’s conviction of, or plea of no contest to, any crime (whether or not involving the Company) that constitutes a felony in the jurisdiction in which Executive is charged, or that involves moral turpitude;
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b.Any act of theft, fraud or embezzlement, or any other willful misconduct or materially dishonest behavior by Executive involving or in connection with Executive’s position with the Company;

c.Executive’s failure to adequately perform his reasonably assigned duties, provided that such failure or refusal is not corrected as promptly as practicable, and in any event within sixty (60) calendar days after Executive shall have received written notice from the Company stating the nature of such failure or refusal;

d.Executive’s willful or material violation of any of his obligations contained in any agreement between Executive and the Company, including but not limited to the Confidentiality and Assignment of Inventions Agreement and Noncompetition Agreement executed by Executive;

e.Conduct by Executive that constitutes willful gross neglect or willful gross misconduct in carrying out his duties under this Agreement that results or that may result, as reasonably determined by the Company, in material harm to the Company, including harm to its reputation; and/or 

f.Any material failure by Executive to comply with the Company's written policies or rules, as they may be in effect from time to time, if such failure causes material/reputational or financial harm to the Company.

ii.“Change in Control” shall have the same meaning given to such term in Section 2.9 of the Company’s 2016 Plan. The Board shall have sole discretion to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and all incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.

iii. “Disability” shall mean Executive’s inability due to a physical or mental impairment to perform the essential functions of his job, with or without reasonable accommodation, for a period of at least ninety (90) consecutive or non-consecutive days in any twelve-month period.

iv.“Effective Release” is defined as a general release of claims in favor of the Company in a form reasonably acceptable to the Company’s counsel that is executed after the Separation Date and within any consideration period required by applicable law and that is not revoked by Executive within any legallyprescribed revocation period. Failure to provide and have in effect an Effective Release within the sixty (60) day period following the Separation Date shall result in forfeiture of any benefits conditioned upon the existence of an Effective Release.

v.“Good Reason” shall mean the occurrence of any of the following, in each case during the Term without Executive's consent:

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a.a material diminution in Executive’s Base Salary or Annual Bonus eligibility (other than in both cases a diminution that is in connection with an across the board reduction in the base salaries or bonus eligibility of the management level employees of the Company);

b.a material, adverse change in Executive's title, authority, duties, or responsibilities (other than temporarily while Executive is physically or mentally incapacitated or as required by applicable law), taking into account the Company's size, status as a public company, and capitalization as of the date of this Agreement; provided, however, that Good Reason shall not exist based on Executive’s appointment to similar positions of a subsidiary or affiliate of the Company;

c.a material change in the geographic location at which Executive must perform services for the Company, not to include regular business travel; or

d.any other action or inaction that constitutes a material breach of the terms of this Agreement by the Company. 

Notwithstanding the forgoing, Good Reason shall not include an event or condition unless (A) Executive notifies the Company within thirty (30) days of the initial existence of one of the adverse events described above, (B) Executive provides the Company with at least thirty (30) days’ written notice of his intent to resign for Good Reason, and (C) the Company fails to correct the adverse event within thirty (30) days of such notice.

vi. “Separation Date” shall mean the date that Executive’s employment is terminated.

(b)     Compensation upon Separation without Cause or for Good Reason Not in Connection with a Change in Control  Upon termination of employment by the Company without Cause or upon termination of employment by Executive for Good Reason, in each case, only if Executive is not entitled to benefits under Section 6(c) of this Agreement, conditioned upon the existence of an Effective Release and Executive’s continued compliance with the Restrictive Covenants Agreements and the terms thereunder, and subject to Section 7(c) and Section 8, Executive shall be entitled to, in lieu of any other separation payment or severance benefit available under any plan or otherwise:

i.Payment of severance pay in an amount equal to (i) twelve (12) months of Executive’s current Base Salary, plus (ii) a prorated Annual Bonus calculated at the minimum target level for the calendar year in which the Separation Date occurs based on the percentage of the calendar year actually worked by Executive as of the Separation Date (both (i) and (ii) referred to herein collectively as “Regular Severance Pay”). All applicable withholdings required by law or authorized by Executive shall be withheld from Severance Pay.  Severance Pay shall be paid in equal installments paid over the 12-month period (the “Regular Severance Period”) following Executive’s Separation Date pursuant to the Company’s standard payroll practices and procedures applicable to Executive immediately prior to Executive’s separation from service and such payments shall commence on the first such payroll date on or following the 10th day after the date on which the Effective Release becomes effective and non-revocable, as provided in Section 6(a)(iv); provided, however, that if the 60th day following Executive’s termination from employment occurs in the year following the year of Executive’s termination, then the payments shall commence no earlier than January 1 of such subsequent year, and the first 
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such installment payment may include any payments missed due to any delay under this Section 6(b)(i); 

ii.Payment of the amount of any unpaid Annual Bonus for the prior calendar year, if any, to be paid when Annual Bonuses are paid to other executives at Executive’s level or on the same date as the first installment of Regular Severance Pay is made, whichever date is later;

iii.Vesting as of the Separation Date of any then unvested equity awards that would have otherwise vested through the end of the calendar year in which the Separation Date occurs; and

iv.If Executive timely and properly elects health continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), the Company shall reimburse Executive during the Regular Severance Period for the difference between the monthly COBRA premium paid by Executive for himself and his dependents and the monthly premium amount paid by similarly situated active executives. Such reimbursement shall be paid to Executive on the 10th business day of the month immediately following the month in which the Executive timely remits the premium payment. Executive shall be eligible to receive such reimbursement until the earliest of: (a) the six-month anniversary of the Separation Date; (b) the date Executive is no longer eligible to receive COBRA continuation coverage; or (c) the date on which Executive becomes eligible to receives substantially similar coverage from another employer or other source. Notwithstanding the foregoing, if the Company's reimbursements under this Section 6(b)(iv) would violate the nondiscrimination rules applicable to non-grandfathered plans under the Affordable Care Act (the "ACA"), or result in the imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder), the parties agree to reform this Section 6(b)(iv) in a manner as is necessary to comply with the ACA.

(c)     Compensation upon Separation due to Change in Control. Upon termination of employment by the Company without Cause or upon termination of employment by Executive for Good Reason at the time of, or within twelve (12) months after a Change in Control, and conditioned upon the existence of an Effective Release and Executive’s continued compliance with the Restrictive Covenants Agreements and the terms thereunder, and subject to Section 7(c) and Section 8, Executive shall be entitled to, in lieu of any other separation payment or severance benefit available under any plan or otherwise (including but not limited to the severance benefits provided for in Section 6(b) hereof):

i.Payment of severance pay in an amount equal to (i) twelve (12) months of Executive’s current Base Salary, plus (ii) an amount equal to the Annual Bonus calculated at the minimum target level for the calendar year in which the Separation Date occurs (both (i) and (ii) referred to herein collectively as “CIC Severance Pay”). All applicable withholdings required by law or authorized by Executive shall be withheld from Severance Pay.   Severance Pay shall be paid in equal installments paid over the twelve-month period (the “CIC Severance Period”) following Executive’s Separation Date pursuant to the Company’s standard payroll practices and procedures applicable to Executive immediately prior to Executive’s separation from service and such payments shall commence on the first such payroll date on or following the 10th day after the date on which the Effective Release becomes effective and non-revocable, as provided in 
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Section 6(a)(iv); provided, however, that if the 60th day following Executive’s termination from employment occurs in the year following the year of Executive’s termination, then the payments shall commence no earlier than January 1 of such subsequent year, and the first such installment payment may include any payments missed due to any delay under this Section 6(c)(i);

ii.Payment of the amount of any unpaid Annual Bonus for the prior calendar year, if any, to be paid when Annual Bonuses are paid to other executives at Executive’s level or on the same date as the first installment of CIC Severance Pay is made, whichever date is later;

iii.Accelerated vesting of the remaining unvested portion of any and all equity awards issued to Executive as of the Separation Date;

iv.If Executive timely and properly elects health continuation coverage under COBRA, the Company shall reimburse Executive during the CIC Severance Period for the difference between the monthly COBRA premium paid by Executive for himself and his dependents and the monthly premium amount paid by similarly situated active executives. Such reimbursement shall be paid to Executive on the 10th business day of the month immediately following the month in which the Executive timely remits the premium payment. Executive shall be eligible to receive such reimbursement until the earliest of: (a) the twelfth-month anniversary of the Separation Date; (b) the date Executive is no longer eligible to receive COBRA continuation coverage; or (c) the date on which Executive becomes eligible to receives substantially similar coverage from another employer or other source. Notwithstanding the foregoing, if the Company's reimbursements under this Section 6(c)(iv) would violate the nondiscrimination rules applicable to non-grandfathered plans under the ACA, or result in the imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder), the parties agree to reform this Section 6(c)(iv) in a manner as is necessary to comply with the ACA.

(d)     Compensation Upon Voluntary Retirement.  If on or after the date Executive turns sixty (60) years of age, Executive voluntarily resigns his employment after providing the Company with at least sixty (60) days’ written notice, and conditioned upon the existence of an Effective Release and Executive’s continued compliance with the Restrictive Covenants Agreements and the terms thereunder, and subject to Section 7(c) and Section 8, then Executive shall be entitled to:

i.Payment of an amount equal to Executive’s Base Salary for a one-year period, with the amount of Base Salary for these purposes only to be calculated based on the highest rate of Base Salary Executive has received during the term of this Agreement, less all applicable withholdings (“Retirement Pay”).  Retirement Pay shall be paid in equal installments over the 12-month period following Executive’s Separation Date pursuant to the Company’s standard payroll practices and procedures applicable to Executive immediately prior to Executive’s separation from service, and, unless a delay is required under Section 7(d), such payments shall commence on the first such payroll date on or following the 10th day after the date on which the Effective Release becomes effective and non-revocable, as provided in Section 6(a)(iv); provided, however, that if the 60th day following Executive’s termination from employment occurs in the year following the year of Executive’s termination, then the payments shall commence no earlier than January 1 of such subsequent year, and the first such installment payment may include any payments missed due to any delay under this Section 6(d);
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ii.Payment of the amount of any unpaid Annual Bonus under Section 3(b) for the prior calendar year, if any, to be paid when Annual Bonuses are paid to other executives at Executive’s level or on the same date as the first installment of Retirement Pay is made, whichever date is later;

iii.Payment of a prorated Annual Bonus under Section 3(b) for the calendar year in which the Separation Date occurs based on the percentage of the calendar year actually worked by Executive prior to the Separation Date, with the amount of such Annual Bonus, if any, to be determined by the Company in its discretion after the end of such calendar year applying the applicable performance objectives under Section 3(b) to the full calendar year.  Such Annual Bonus, if any, shall be paid in accordance with the schedule set forth in Section 3(b) of this Agreement; and

iv.Vesting as of the Separation Date of any then unvested equity awards that would have otherwise vested through the end of the calendar year in which the Separation Date occurs.

(e)     Other Termination of Employment. Upon the termination of Executive’s employment by Executive, other than for Good Reason, or due to Executive’s death or Disability, or by the Company for Cause, Executive shall not be entitled to additional compensation under this Agreement beyond the Accrued Amounts and unpaid Annual Bonus for the prior calendar year, if any. For clarity and the avoidance of doubt, under no circumstances will Executive be entitled to benefits under both Section 6(b) and Section 6(c) or under Section 6(b) or Section 6(c) and Section 6(d).

7.SECTION 409A.

a.Intent of the Parties.  The parties hereby acknowledge and agree that all benefits or payments provided by the Company to Executive pursuant to this Agreement are intended either to be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), or to be in compliance with Section 409A, and this Agreement shall be interpreted to the greatest extent possible to be so exempt or in compliance and to incorporate the terms and conditions required by Section 409A. If there is an ambiguity in the language of this Agreement, or if Section 409A guidance indicates that a change to this Agreement is required or desirable to achieve exemption or compliance with Section 409A, notwithstanding any provision of this Agreement to the contrary, the Company reserves the right (without any obligation to do so or to indemnify Executive for failure to do so) to (i) adopt such amendments to this Agreement and or adopt such other policies and procedures, including amendments, policies and procedures with retroactive effect, that the Company determines to be necessary or appropriate to preserve the intended tax treatment of the benefits provided by this Agreement, to preserve the economic benefits of this Agreement and to avoid less favorable accounting or tax consequences for the Company and/or (ii) take such other actions as the Company determines to be necessary or appropriate to exempt the amounts payable hereunder from Section 409A or to comply with the requirements of Section 409A and thereby avoid the application of penalty taxes thereunder. No provision of this Agreement shall be interpreted or construed to transfer any liability for failure to comply with the requirements of Section 409A from Executive or any other individual to the Company or any of its affiliates, employees or agents.

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b.Installments.  If any severance or other payments that are required by this Agreement are to be paid in a series of installment payments, each individual payment in the series shall be considered a separate payment for purposes of Section 409A. To the extent that any reimbursement of expenses or inkind benefits constitutes “deferred compensation” under Section 409A, such reimbursement or benefit shall be provided no later than December 31 of the year following the year in which the expense was incurred. The amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year. The amount of any inkind benefits provided in one year shall not affect the amount of inkind benefits provided in any other year.

c.Delay.  If any severance compensation or other benefit provided to Executive pursuant to this Agreement that constitutes “nonqualified deferred compensation” within the meaning of Section 409A is considered to be paid on account of “separation from service” within the meaning of Section 409A, and Executive is a “specified employee” within the meaning of Section 409A, no payments of any such severance or other benefit shall be made for six (6) months plus one (1) day after the Separation Date (the “New  Payment Date”). Amounts payable under this Agreement shall be deemed not to be “nonqualified deferral of compensation” subject to Section 409A to the extent provided in the exceptions in Treasury Regulation § § 1.409A1(b)(4) (“short-term deferrals”) and (b)(9) (“separation pay plans,” including the exception under subparagraph (iii)) and other applicable provisions of Section 409A. The aggregate of any such payments that would have otherwise been paid during the period between the Separation Date and the New Payment Date shall be paid to Executive in a lump sum on the New Payment Date. 

8.EXCESS PARACHUTE PAYMENTS. In the event amounts payable under this Agreement or otherwise are contingent on a change in control for purposes of Section 280G of the Code, and it is determined by a public accounting firm or legal counsel authorized to practice before the Internal Revenue Service selected by the Company that any payment or benefit made or provided to Executive in connection with this Agreement or otherwise (“Payment” or collectively, the “Payments”) would be subject to the excise tax imposed by Section 4999 of the Code (the “Parachute Tax”), the Payments under this Agreement shall be payable in full or, if applicable, in such lesser amount which would result in no portion of such Payments being subject to the Parachute Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Parachute Tax, results in Executive’s receipt, on an after-tax basis, of the greatest amount of Payments under this Agreement.  If Payments are reduced pursuant to this paragraph, cash severance payments under Sections 6(b)(i), 6(b)(ii) and 6(b)(iv), Sections 6(c)(i),6(c)(ii) and 6(c)(iv) or Section 6(d)(i), 6(d)(ii) and 6(d)(iii), as applicable, shall first be reduced, and the other benefits under this Agreement shall thereafter be reduced, to the extent necessary so that no portion of the Payments is subject to the Parachute Tax. 

9.NOTICES. Any notice required or permitted hereunder shall be made in writing (a) either by actual delivery of the notice into the hands of the party thereto entitled, by messenger, by fax or by over-night delivery service or (b) by the mailing of the notice in the United States mail, certified or registered mail, return receipt requested, all postage pre-paid and addressed to the party to whom the notice is to be given at the party’s respective address set forth below, or such other address as the parties may from time to time designate by written notice as herein provided.

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If to Executive:                       Brian Johnson
[***]
[***]

If to the Company:                  Novan, Inc.
4020 Stirrup Creek Drive, Suite 110
Durham, NC 27703
(Fax) (919) 237¬9212
Attn: President and Chief Executive Officer

The notice shall be deemed to be received, if sent per subsection (a), on the date of its actual receipt by the party entitled thereto and, if sent per subsection (b), on the third day after the date of its mailing.

10.RETURN OF COMPANY PROPERTY. Upon Executive’s separation from employment from the Company for any reason, Executive shall return to the Company all personal property belonging to the Company (“Company Property”) that is in Executive’s possession or control as of the Separation Date, including, without limitation, all records, papers, drawings, notebooks, specifications, marketing materials, software, reports, proposals, equipment, or any other device, document or possession, however obtained, whether or not such Company Property contains confidential information belonging to the Company. Such Company Property shall be returned in the same condition as when provided to Executive, reasonable wear and tear excepted.

11. EMPLOYEE REPRESENTATIONS.

a.Executive represents that his performance of all of the terms of this Agreement does not and will not breach any arrangement to keep in confidence information acquired by Executive in confidence or in trust prior to Executive’s employment by the Company. Executive represents that he has not entered into, and agrees not to enter into, any agreement either oral or written in conflict herewith.

b.Executive understands as part of the consideration for this Agreement and for Executive’s employment or continued employment by the Company, that Executive has not brought and will not bring with Executive to the Company, or use in the performance of Executive’s duties and responsibilities for the Company or otherwise on its behalf, any materials or documents of a former employer or other owner which are generally not available to the public, unless Executive has obtained written authorization from the former employer or other owner for their possession and use and has provided the Company with a copy thereof.

c.Executive understands that during his employment for the Company he is not to breach any obligation of confidentiality that Executive has to a former employer or any other person or entity and agrees to comply with such understanding.

12. INDEMNIFICATION. 

a.By Executive.  Executive agrees to indemnify and hold harmless the Company, its directors, officers, agents and employees against any liabilities and expenses, including amounts paid in settlement, incurred by any of them in connection with any claim by any of Executive’s prior employers that the termination of Executive’s employment with such 
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employer, Executive’s employment by the Company, or use of any skills and knowledge by the Company is a violation of contract or law or otherwise violates the rights thereof.

b.By the Company. The Company will indemnify and hold harmless the Executive from any liabilities and expenses arising from Executive’s actions as an officer, director or employee of the Company to the fullest extent permitted by law, excepting any unauthorized acts, intentional or illegal conduct which breaches the terms of this or any other agreement or Company policy, including but not limited to the Restrictive Covenants Agreements. Executive will be covered by the Company’s D&O insurance to the same extent as other executive officers and directors. The indemnification described in this Section 12 is in addition to, and not in lieu of, any right to indemnification provided by the Company to Executive pursuant to any separate written agreement between them, including but not limited to the Indemnification Agreement between the Company and Executive dated as of January 28, 2019 (the “Indemnification Agreement”).  

13.SEVERABILITY. Executive hereby agrees that each provision herein shall be treated as a separate and independent clause, and the unenforceability of any one clause shall in no way impair the enforceability of any of the other clauses herein.

14.WAIVER. Any waiver by the Company of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of such provision or any other provision hereof.

15.AFFILIATES; ASSIGNMENT; BINDING EFFECT. The term “Company” shall also include any of the Company’s subsidiaries, subdivisions or affiliates. The Company shall have the right to assign this Agreement to its successors and assigns, and all covenants and agreements hereunder shall inure to the benefit of and be enforceable by said successors or assigns. Executive may not assign any of his rights or delegate any of his duties under this Agreement. This Agreement shall be binding upon and shall inure to the benefit of each of the parties hereto, and to their respective heirs, representatives, successors and permitted assigns.

16.ENTIRE AGREEMENT. The terms of this Agreement (together with any other agreements and instruments contemplated hereby or referred to herein) are intended by the parties hereto to be the final expression of their agreement with respect to the employment of Executive by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement (including, without limitation, any prior or contemporaneous employment agreement, term sheet or offer letter). The parties hereto further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative or other legal proceeding to vary the terms of this Agreement. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by each of the parties hereto.

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

18.COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one agreement. Counterparts may be transmitted and/or signed by facsimile or electronic mail. The effectiveness of any such documents and signatures shall have the same force and effect as manually signed originals and shall be binding on the parties to the same extent as a manually signed original thereof.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties have executed this Employment Agreement effective as of the day and year first above written.

									
			NOVAN, INC.
			
			/s/ Paula Brown Stafford
			Paula Brown Stafford
			Chairman, President and Chief Executive Officer

			
			Brian M. Johnson
			
			/s/ Brian M. Johnson
			

[Signature Page for Employment Agreement]

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