Document:

novn-ex1011_2442.htm

 

Exhibit 10.11

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is entered into as of August 25, 2016 (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 M. Joyce Rico, a citizen and resident of Orange County, North Carolina (“Employee”).

WITNESSETH:

WHEREAS, Employee commenced employment with the Company on August 7, 2012;

WHEREAS, the Company wishes to continue to employ Employee, and Employee desires to accept such continued employment with the Company, on the terms described herein; and

WHEREAS, effective as of the Effective Date, the parties desire to enter into this Agreement which shall supersede the offer letter dated July 18, 2012 (“Offer Letter”) in its entirety.

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

1. EMPLOYMENT. The Company hereby agrees to continue to employ Employee, and Employee hereby accepts such continued employment. Employee shall serve as the Company’s Chief Medical Officer, reporting to the Chief Executive Officer (the “CEO”), upon the terms and conditions hereinafter set forth. The initial term of employment under this Agreement (the “Initial Term”) shall be for the period beginning on the Effective Date and ending on the third (3rd) anniversary thereof, unless earlier terminated as provided in Section 4. This Agreement shall automatically be extended for successive one-year periods (each, an “Extension Term” and, collectively with the Initial Term, the “Term”) unless either party gives notice of non-extension to the other no later than 90 days prior to the expiration of the then-applicable Term.

2. DUTIES; EXCLUSIVE SERVICE.

(a) During the Term, Employee shall faithfully discharge her responsibilities and perform all duties reasonably prescribed to her by the CEO consistent with her position, as well as any duties as are set forth in the Bylaws of the Company related to Employee’s position. In addition, Employee expressly agrees that her services include but are not limited to attendance at scheduled meetings of the Company’s Board of Directors (the “Board”), if and as requested by the CEO or the Board, and all other normal duties associated with the responsibilities of a Chief Medical Officer. Employee agrees to comply with all Company policies, standards and regulations now existing or hereafter promulgated of which she is aware. Employee further agrees to devote all of her working time and attention to the performance of her duties and responsibilities on behalf of the Company and in furtherance of its best interests. Notwithstanding the foregoing, Employee may serve on boards or advisory committees of non-profit or charitable organizations or, 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 Employee’s duties at the Company. Employee 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 sole discretion of the Board.

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

(a) Base Salary. During the Term, Employee shall receive as compensation a base salary at an annual rate of Three Hundred Fifty Thousand and Four Hundred Dollars ($350,400.00) (the “Base Salary”), less any federal, state and local payroll taxes and other withholdings legally required or properly requested by Employee. The Base Salary shall be payable semi-monthly in accordance with the Company’s regular payroll practices and procedures. Employee’s Base Salary shall be subject to annual review by the CEO. All full-time employees may be eligible for additional compensation based on performance and may receive additional stock option grants as approved by the Board in its sole discretion.

 

	
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(b) Long-Term and Equity Incentive Compensation. During the Term, Employee shall be eligible to participate, at such level and on such terms as shall be approved by the Board in its sole discretion, in the Novan, Inc. 2016 Incentive Award Plan and such other long-term and/or equity-based incentive compensation plans or programs as may be approved by the Board from time to time.

(c) Annual Bonus. For calendar year 2016 and each subsequent calendar year that ends during the Term, Employee will be eligible to receive an annual performance-based cash bonus, upon achievement of the annual bonus objectives established by the President/CEO and/or Board of Directors or Compensation Committee thereof (the “Annual Bonus”), pursuant to the Company’s Executive Annual Incentive Plan or another bonus plan established by the Company, with a target Annual Bonus equal to thirty-five percent (35%) of the Base Salary for achievement of 100% of the performance objectives. Employee’s success in achieving the objectives and the amount of the Annual Bonus will be determined by the President, CEO and/or Board in their reasonable discretion. Upon the recommendation of the President and/or CEO, Employee’s annual Bonus may exceed thirty-five percent (35%) of the Base Salary.

(d) Paid Leave. Employee shall be entitled to one hundred ninety-two (192) hours of paid time off (“PTO”) each calendar year during the Term, to be used accrued and capped in accordance with the Company’s then-existing policies at an accrual rate of eight (8) hours per pay period. Notwithstanding the Company’s PTO policies providing otherwise, upon termination of Employee’s employment other than for “Cause” (as hereinafter defined), Employee will receive pay for all PTO accrued and unused as of the termination date.

(e) Benefits. During the Term, Employee 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, including, but not limited to sick leave arrangements. 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 Employee’s consent.

(f) Business Expenses. During the Term, the Company will reimburse all reasonable expenses incurred by Employee in the performance of her duties to the Company, provided Employee complies with the Company’s policies and procedures for reimbursement or advance of business expenses established by the Company. Traveling on behalf of the Company to professional meetings and participating in the dermatology community is expected of Employee in her role as Chief Medical Officer. The reasonable travel and related expenses incurred for such activities, as well as Employee’s annual dues for two professional associations and fees for licensing in one state, shall be paid or reimbursed by the Company. Employee agrees to seek the Company’s prior approval for any expenses in excess of One Thousand Dollars ($1,000.00).

(i) Life Insurance. During the Term, Company shall pay Employee’s cost, or at Employee’s election reimburse Employee for the cost required, to purchase term life insurance in the face amount of $700,800 to be effective as of the Effective Date or as soon thereafter as is reasonably practicable. The term of the policy will be for ten (10) years, with an annual payment term. The Company will pay the premium during the term of the agreement and any period during which Employee is receiving payments following separation from service under Section 6.

4. EMPLOYMENT AT WILL; TERMINATION. Subject to the terms of Section 6 of this Agreement, Employee’s employment pursuant to this Agreement shall continue until terminated by either party. Employee’s employment with the Company is at-will, 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 Employee’s employment hereunder by either party regardless of the cause or reason, the Company shall pay Employee accrued, unpaid wages through the termination date. Such final payment, less any withholdings required by law or properly requested by Employee, 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 Employee.

6. SEVERANCE PROVISIONS.

(a) Definitions. For the purposes of this Section 6, the following terms shall be defined as set out below:

i. “Base Salary” shall mean Employee’s then current annual Base Salary.

ii. “Cause” shall be determined in good faith by the Board and shall mean:

a. Employee’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 Employee is charged, or that involves moral turpitude;

b. Any act of theft, fraud or embezzlement, or any other willful misconduct or materially dishonest behavior by Employee;

 

	
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c. Employee’s willful failure or refusal to perform her reasonably-assigned duties, provided that such failure or refusal is not corrected as promptly as practicable, and in any event within ten (10) calendar days after Employee shall have received written notice from the Company stating the nature of such failure or refusal;

d. Employee’s willful or material violation of any of her obligations contained in any agreement between Employee and the Company, including but not limited to Confidentiality and Assignment of Inventions Agreement and Non-Competition Agreement executed by Employee (the “Restrictive Covenants Agreements”) or material violation of any policies in the Company’s Employee Handbook; and/or

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

iii. A “Change In Control” shall be deemed to have occurred upon the consummation of a merger or consolidation in which the shareholders of the Company immediately prior to the merger or consolidation cease to own at least fifty percent (50%) of the combined entity immediately following the merger or consolidation; a sale of all or substantially all of the assets of the Company; the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities and Exchange Act of 1934, as amended) of beneficial ownership of any capital stock of the Company, if, after such acquisition, such individual, entity or group owns more than fifty percent (50%) of either (A) the then-outstanding common stock of the Company or (B) the combined voting power of the then-outstanding securities of the Company entitled to vote in the election of directors; or during any period of 12 consecutive months, a majority of the members of the board of directors of the Company cease to be composed of individuals (i) who were members of that board on the first day of such period, (ii) whose election or nomination to that board was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or (iii) whose election or nomination to that board was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board.

iv. “Disability” shall mean Employee’s inability due to a physical or mental impairment to perform the essential functions of her job, with or without reasonable accommodation, for a period of at least ninety (90) consecutive or non-consecutive days in any twelve (12) month period.

v. “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 Employee within any legally-prescribed revocation period; provided, however, a release shall not be considered an Effective Release unless, in addition to the foregoing conditions, the release is executed and not revoked, and the legally-prescribed revocation period ends by the sixtieth (60th) day following the Separation Date; provided further that such release shall not impose material post-employment obligations on Employee other than those set forth herein or as agreed to by the parties, nor shall such release require Employee to release any rights under Sections 3(i) and 6 of this Agreement. 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.

vi. “Good Reason” shall mean a material negative change to Employee in the service relationship with the Company as a result of one or more of the following conditions arising without the consent of Employee:

a. A decrease in Employee’s Base Salary of greater than or equal to twenty percent (20%) of the then Base Salary;

b. A material diminution in Employee’s authority, duties or responsibilities;

c. A material change in the geographic location at which Employee must perform services for the Company from her current work location in Durham, North Carolina, 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) Employee notifies the Company within ninety (90) days of the initial existence of one of the adverse events described above, (B) Employee provides the Company with at least thirty (30) days’ written notice of her intent to resign for Good Reason, and (C) the Company fails to correct the adverse event within thirty (30) days of such notice.

 

	
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vii. “Separation from Service” shall mean Employee has a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations and other interpretive guidance thereunder (“Section 409A”) from the Company and will not perform any additional services after a certain date for the Company (or a related entity) or that the level of bona fide services (whether performed as an employee or as a contractor) will permanently decrease to no more than 20% of the average level of bona fide services performed (whether performed as an employee or as a contractor) over the immediately preceding 36-month period (or, if less, the period the employee has rendered service to the Company).

viii. “Separation Date” shall mean the date that Employee has a Separation from Service from the Company.

(b) Compensation upon Separation without “Cause” or for “Good Reason.” Upon Separation from Service by the Company without Cause or by Employee for Good Reason, conditioned upon the existence of an Effective Release and Employee's continued compliance with the Restrictive Covenants Agreements and the terms thereunder, and subject to Section 8, Employee shall be entitled to, in lieu of any other separation payment or severance benefit:

i. Payment of an amount equal to twelve (12) months of her Base Salary, minus applicable withholdings required by law or authorized by Employee, to be paid in installments pursuant to the Company’s standard payroll practices and procedures, during the period beginning on the Company’s next regular pay day occurring sixty (60) days following the Separation Date and ending on the twelve (12) month anniversary of the Separation Date;

ii. Vesting of the remaining options in the then current vesting year of any and all granted options to purchase Company common stock on the Separation Date, such options requiring exercise within ninety (90) days of the Separation Date and pursuant to the other terms and conditions of the applicable Company incentive award plan and individual award agreement; and

iii. Conditioned on Employee’s proper and timely election to continue her health insurance benefits under COBRA after the Separation Date, reimbursement of Employee’s applicable COBRA premiums for the lesser of eighteen (18) months following the Separation Date or until Employee becomes eligible for insurance benefits from another employer; provided, that the Company may discontinue the benefits under this paragraph and make a lump sum payment in lieu thereof to the extent reasonably necessary to avoid any penalty or excise taxes imposed on it in connection with the continued payment of premiums or other amounts by the Company under the Patient Protection and Affordable Care Act of 2010, as amended. Such lump sum payment shall be equal to the product of the current COBRA premium paid by the Company times the number of months remaining in the eighteen (18) month period if Employee is not at the time of the lump sum payment eligible for insurance benefits from another employer.

(c) Compensation upon Separation due to Change in Control. Upon Separation from Service by the Company without Cause or by Employee for Good Reason within six (6) months after a Change in Control, and conditioned upon the existence of an Effective Release and Employee's continued compliance with the Restrictive Covenants Agreements and the terms thereunder, Employee shall be entitled to, in lieu of any other separation payment or severance benefit (including but not limited to the severance benefits provided for in Section 6(b) hereof):

i. Payment of an amount equal to twelve (12) months of her Base Salary, minus applicable withholdings required by law or authorized by Employee, to be paid in installments pursuant to the Company’s standard payroll practices and procedures during the period beginning on the Company’s next regular pay day occurring sixty (60) days following the Separation Date and ending on the twelve (12) month anniversary of the Separation Date;

ii. Accelerated vesting of the remaining unvested portion of any and all granted options to purchase Company common stock on the Separation Date, such options requiring exercise within ninety (90) days of the Separation Date and pursuant to the other terms and conditions of the Novan Inc. 2008 Stock Plan and Employee’s Notice(s) of Stock Option Grant; and

iii. Conditioned on Employee’s proper and timely election to continue her health insurance benefits under COBRA after the Separation Date, reimbursement of Employee’s applicable COBRA premiums for the lesser of eighteen ( 18) months following the Separation Date or until Employee becomes eligible for insurance benefits from another employer; provided, that the Company may discontinue the benefits under this paragraph and make a lump sum payment in lieu thereof to the extent reasonably necessary to avoid any penalty or excise taxes imposed on it in connection with the continued payment of premiums or other amounts by the Company under the Patient Protection and Affordable Care Act of 2010, as amended. Such lump sum payment shall be equal to the product of the current COBRA premium paid by the Company times the number of months remaining in the eighteen (18) month period if Employee is not at the time of the lump sum payment eligible for insurance benefits from another employer.

(d) Other Separation from Service. Notwithstanding any Change in Control, upon Separation from Service by Employee other than for Good Reason or due to Employee’s death or Disability, or by the Company for Cause, Employee shall not be entitled to additional compensation under this Agreement beyond that earned and accrued as of the Separation Date.

 

	
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7. SECTION 409A.

(a) The parties hereby acknowledge and agree that all benefits or payments provided by the Company to Employee pursuant to this Agreement are intended either to be exempt from Section 409A of the Code, or to be in compliance with Section 409A, and the 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 the Agreement, or if Section 409A guidance indicates that a change to the 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 Employee 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 the Employee or any other individual to the Company or any of its affiliates, employees or agents.

(b) If any severance or other payments that are required by the 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 in-kind 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 in-kind benefits provided in one year shall not affect the amount of in-kind benefits provided in any other year.

(c) If any severance compensation or other benefit provided to Employee 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 Employee is a “specified employee” within the meaning of Section 409A, no payments of any of such severance or other benefit shall 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 §§ 1.409A-1(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 Employee in a lump sum on the New Payment Date.

8. EXCESS PARACHUTE PAYMENTS.

(a) If any payments or benefits received or to be received by Employee pursuant to this Agreement or any other Company plan, program or arrangement, including those made in connection with or contingent on a change in ownership or control, (collectively, the “Company Payments”) would be deemed to be an “excess parachute payment” within the meaning of Section 280G of the Code (“Excess Parachute Payment”), and if the Company has no publicly-traded stock, the Company, with the consent of Employee, will use commercially reasonable efforts to obtain “shareholder approval” within the meaning of Section 280G(b)(5) of the Code of such payments or benefits in order to exempt such payments or benefits from being considered an Excess Parachute Payment. Employee’s consent to shareholder approval shall include a waiver by Employee of any such payments or benefits that are not approved by the shareholders. If Employee does not consent to subjecting such payments or benefits to shareholder approval, then, at Company’s election, such payments under this Agreement shall either be paid in full or reduced to the extent necessary to avoid being considered an Excess Parachute Payment, based upon Company’s determination, in its sole discretion, as to which alternative results in the better tax consequences for Employee.

(b) If the Company has publicly traded stock, then Employee will be entitled to receive either (i) the full amount of the Company Payments, or (ii) a portion of the Company Payments having a value equal to $10 less than three (3) times Employee’s “base amount” (as such term is defined in Section 280G(b)(3)(A) of the Code), whichever of clauses (i) and (ii), after taking into account applicable federal, state, and local income taxes and the excise tax imposed by Section 4999 of the Code, results in the receipt by Employee on an after-tax basis, of the greatest portion of the Company Payments. Any determination required under this Section 8 shall be made in writing by the independent public accountant of the Company (the “Accountants”), whose determination shall be conclusive and binding for all purposes upon the Company and Employee. For purposes of making any calculation required by this Section 8, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good-faith interpretations concerning the application of Sections 280G and 4999 of the Code. If there is a reduction of the Company Payments pursuant to this Section 8, such reduction shall occur in the following order: (A) any cash severance payable by reference to Employee’s Base Salary or Annual Bonus, (B) any other cash amount payable to Employee, (C) any employee benefit valued as a “parachute payment,” and (D) acceleration of vesting of any outstanding equity award.

 

	
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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.

 

	
If to Employee:
	
 
	
M. Joyce Rico

306 W. Barbee Chapel Road

Chapel Hill, North Carolina 27517

	
 
	
 
	
 

	
If to the Company:
	
 
	
Novan, Inc.

4222 Emperor Boulevard

Suite 200

Durham, North Carolina 27703

(Fax) (919) 237-9212

Attn: Chief Financial 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 Employee’s Separation from Service from the Company for any reason, Employee shall return to Company all personal property belonging to Company (“Company Property”) that is in Employee’s possession or control as of the date of such Separation from Service, 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 Employee, reasonable wear and tear excepted.

11. EMPLOYEE REPRESENTATIONS.

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

(b) Employee understands as part of the consideration for this Agreement and for Employee’s employment or continued employment by the Company, that Employee has not brought and will not bring with Employee to the Company, or use in the performance of Employee’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 Employee 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) Employee understands that during her employment for the Company she is not to breach any obligation of confidentiality that Employee has to a former employer or any other person or entity and agrees to comply with such understanding.

 

	
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12. INDEMNIFICATION. Employee 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 Employee’s prior employers that the termination of Employee’s employment with such employer, Employee’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.

13. SEVERABILITY. Employee 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. Employee may not assign any of her rights or delegate any of her 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 Employee by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement (including, without limitation, the Offer Letter, any 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 governed by and construed in accordance with the laws of the State of North Carolina, without regard to that body of law known as choice of law. Any litigation under this Agreement shall be brought by either party exclusively in Durham County, North Carolina. As such, the parties irrevocably consent to the jurisdiction of the courts in Durham County, North Carolina (whether federal or state) for all disputes related to this Agreement.

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.

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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/ Nathan Stasko

	
 
	
 
	
NATHAN STASKO

	
 
	
 
	
President and  Chief Executive Officer

	
 
	
 
	
 

	
 
	
 
	
EMPLOYEE

	
 
	
 
	
/s/ M. Joyce Rico

	
 
	
 
	
M. JOYCE RICO

 

 

	
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Exhibit 10.12

NOVAN, INC.

NON-EMPLOYEE DIRECTOR COMPENSATION POLICY

Non-employee members of the board of directors (the “Board”) of Novan, Inc. (the “Company”) shall be eligible to receive cash and equity compensation as set forth in this Non-Employee Director Compensation Policy (this “Policy”). The cash and equity compensation described in this Policy shall be paid or be made, as applicable, automatically and without further action of the Board, to each member of the Board who is not an employee of the Company or any parent or subsidiary of the Company (each, a “Non-Employee Director”), who may be eligible to receive such cash or equity compensation, unless such Non-Employee Director declines the receipt of such cash or equity compensation by written notice to the Company. This Policy shall become effective on the date (the “Effective Date”) of the Company’s initial public offering (the “IPO”) and shall remain in effect until it is revised or rescinded by further action of the Board. This Policy may be amended, modified or terminated by the Board at any time in its sole discretion. The terms and conditions of this Policy shall supersede any prior cash and/or equity compensation arrangements for service as a member of the Board between the Company and any of its Non-Employee Directors and between any subsidiary of the Company and any of its non-employee directors. No Non-Employee Director shall have any rights hereunder, except with respect to equity awards granted pursuant to the Policy.

1. Cash Compensation.

(a) Annual Retainers. Each Non-Employee Director shall receive an annual retainer of $35,000 for service on the Board.

(b) Additional Annual Retainers. In addition, a Non-Employee Director shall receive the following annual retainers:

(i) Chairman of the Board. A Non-Employee Director serving as Chairman of the Board shall receive an additional annual retainer of $25,000 for such service.

(ii) Audit Committee. A Non-Employee Director serving as Chairperson of the Audit Committee shall receive an additional annual retainer of $15,000 for such service. A Non-Employee Director serving as a member of the Audit Committee (other than the Chairperson) shall receive an additional annual retainer of $7,500 for such service.

(iii) Compensation Committee. A Non-Employee Director serving as Chairperson of the Compensation Committee shall receive an additional annual retainer of $12,500 for such service. A Non-Employee Director serving as a member of the Compensation Committee (other than the Chairperson) shall receive an additional annual retainer of $6,250 for such service.

(iv) Nominating and Corporate Governance Committee. A Non-Employee Director serving as Chairperson of the Nominating and Corporate Governance Committee shall receive an additional annual retainer of $10,000 for such service. A Non-Employee Director serving as a member of the Nominating and Corporate Governance Committee (other than the Chairperson) shall receive an additional annual retainer of $5,000 for such service.

(c) Payment of Retainers. The annual retainers described in Sections 1(a) and 1(b) shall be earned on a quarterly basis based on a calendar quarter and shall be paid by the Company in arrears not later than the fifteenth day following the end of each calendar quarter. In the event a Non-Employee Director does not serve as a Non-Employee Director, or in the applicable positions described in Section 1(b), for an entire calendar quarter, such Non-Employee Director shall receive a prorated portion of the retainer(s) otherwise payable to such Non-Employee Director for such calendar quarter pursuant to Section 1(b), with such prorated portion determined by multiplying such otherwise payable retainer(s) by a fraction, the numerator of which is the number of days during which the Non-Employee Director serves as a Non-Employee Director or in the applicable positions described in Section 1(b) during the applicable calendar quarter and the denominator of which is the number of days in the applicable calendar quarter.

 

 

2. Equity Compensation. Non-Employee Directors shall be granted the equity awards described below. The awards described below shall be granted under and shall be subject to the terms and provisions of the Company’s 2016 Incentive Award Plan or any other applicable Company equity incentive plan then-maintained by the Company (the “Equity Plan”) and shall be granted subject to the execution and delivery of award agreements, including attached exhibits, in substantially the forms previously approved by the Board. All applicable terms of the Equity Plan apply to this Policy as if fully set forth herein, and all equity grants hereunder are subject in all respects to the terms of the Equity Plan.

(a) IPO Awards. Each Non-Employee Director who (i) serves on the Board as of the date the IPO price of the shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”) is established in connection with the Company’s IPO (the “Pricing Date”) and (ii) will continue to serve as a Non-Employee Director immediately following the Pricing Date shall be automatically granted, on the Pricing Date, an option to purchase the number of shares of the Company’s common stock (at a per-share exercise price equal to the IPO price) that have an aggregate fair market value on the date of grant of $100,000 (as determined in accordance with FASB Accounting Standards Codification Topic 718 (“ASC 718”)) (with the number of shares of Common Stock underlying each such award subject to adjustment as provided in the Equity Plan). The awards described in this Section 2(a) shall be referred to herein as the “IPO Awards”).

(b) Annual Awards. A Non-Employee Director who (i) serves on the Board as of the date of any annual meeting of the Company’s stockholders (an “Annual Meeting”) after the Effective Date and (ii) will continue to serve as a Non-Employee Director immediately following such Annual Meeting shall be automatically granted, on the date of such Annual Meeting, an option to purchase the number of shares of the Company’s common stock (at a per-share exercise price equal to the closing price per share of the Company’s common stock on the date of such annual meeting (or on the last preceding trading day if the date of the annual meeting is not a trading day) that have an aggregate fair value on the date of grant of $100,000 (as determined in accordance with ASC 718) (with the number of shares of Common Stock underlying each such award subject to adjustment as provided in the Equity Plan). The awards described in this Section 2(b) shall be referred to as the “Annual Awards.” Notwithstanding the foregoing, the Board in its sole discretion may determine that the Annual Awards for any year be granted in the form of restricted stock units with equivalent value on the date of grant (with the number of shares of Common Stock underlying each such award subject to adjustment as provided in the Equity Plan). For the avoidance of doubt, a Non-Employee Director elected for the first time to the Board at an Annual Meeting shall only receive an Annual Award in connection with such election, and shall not receive any Initial Award (as defined below) on the date of such Annual Meeting as well.

(c) Initial Awards. Except as otherwise determined by the Board, each Non-Employee Director who is initially elected or appointed to the Board after the Pricing Date on any date other than the date of an Annual Meeting shall be automatically granted, on the date of such Non-Employee Director’s initial election or appointment (such Non-Employee Director’s “Start Date”), an option to purchase shares of the Company’s common stock (at a per-share exercise price equal to the [closing price per share of the Company’s common stock on the date of such annual meeting (or on the last preceding trading day if the date of the annual meeting is not a trading day)] that have an aggregate fair value on such Non-Employee Director’s Start Date equal to the product of (i) $100,000 (as determined in accordance with ASC 718), and (ii) a fraction, the numerator of which is (x) 365 minus (y) the number of days in the period beginning on the date of the Annual Meeting immediately preceding such Non-Employee Director’s Start Date (or, if no such Annual Meeting has occurred, the effective date of the Company’s IPO) and ending on such Non-Employee Director’s Start Date and the denominator of which is 365 (with the number of shares of Common Stock underlying each such award subject to adjustment as provided in the Equity Plan). The awards described in this Section 2(c) shall be referred to as “Initial Awards.” Notwithstanding the foregoing, the Board in its sole discretion may determine that the Initial Award for any Non-Employee Director be granted in the form of restricted stock units with equivalent value on the date of grant (with the number of shares of Common Stock underlying each such award subject to adjustment as provided in the Equity Plan). For the avoidance of doubt, no Non-Employee Director shall be granted more than one Initial Award.

 

	
Novan, Inc.
	
2
	
 

 

 

(d) Termination of Service of Employee Directors. Members of the Board who are employees of the Company or any parent or subsidiary of the Company who subsequently terminate their service with the Company and any parent or subsidiary of the Company and remain on the Board will not receive an Initial Award pursuant to Section 2(c) above, but to the extent that they are otherwise eligible, will be eligible to receive, after termination from service with the Company and any parent or subsidiary of the Company, Annual Awards as described in Section 2(b) above.

(e) Vesting of Awards Granted to Non-Employee Directors. Each IPO Award, Annual Award and Initial Award shall vest and become exercisable in four equal quarterly installments, such that each such award shall be fully vested and exercisable on the first anniversary of the date of grant, subject to the Non-Employee Director’s continued service on the Board as a Non-Employee Director through each applicable vesting date. No portion of an IPO Award, Annual Award or Initial Award that is unvested or unexercisable at the time of a Non-Employee Director’s termination of service on the Board as a Non-Employee Director shall become vested and exercisable thereafter. All of a Non-Employee Director’s IPO Awards, Annual Awards and Initial Awards shall vest in full immediately prior to the occurrence of a Change in Control (as defined in the Equity Plan), to the extent outstanding at such time.

* * * * *

 

	
Novan, Inc.
	
3

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