Form 8-K - Current report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): July 14, 2023

_____________________

Novan, Inc.

(Exact name of registrant as specified in its charter)

_____________________

Delaware

001-37880

20-4427682

(State or other jurisdiction of
incorporation)

(Commission
File Number)

(IRS Employer
Identification No.)

4020 Stirrup Creek Drive, Suite 110, Durham, North Carolina 27703

(Address of principal executive offices) (Zip Code)

(919) 485-8080

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

_____________________

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


			☐			Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
			☐			Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
			☐			Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
			☐			Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value	NOVN	The Nasdaq Stock Market LLC

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

Emerging growth company ☐

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

Item 1.01. Entry into a Material Definitive Agreement.

The information set forth below in Item 1.03 and Item 2.03 of this Current Report on Form 8-K (the “Form 8-K”) regarding the Purchase Agreement (as defined below), the Bridge Loan (as defined below) and the DIP Loan Agreement (as defined below) is incorporated by reference herein.

Item 1.03. Bankruptcy or Receivership.

Voluntary Petition – Chapter 11 Filing

On July 17, 2023, Novan, Inc. (the “Company”) filed a voluntary petition for relief under chapter 11 of title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Company’s chapter 11 case (the “Chapter 11 Case”) is being administered under the caption, In re: Novan, Inc. et al, Case No. 23-10937. The Company continues to operate its business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Company is seeking approval of a variety of “first day” motions containing customary relief intended to enable the Company to continue its ordinary course operations during the Chapter 11 Case. In addition, the Company filed with the Bankruptcy Court a motion seeking approval (the “Interim DIP Order”) of debtor-in-possession financing in the form of the DIP Credit Facility (as defined and described below) to fund post-petition operations and costs in the ordinary course. The Company has engaged Raymond James & Associates to advise on its strategic options, including the process to sell its assets in connection with the Chapter 11 Case.

Purchase Agreement

On July 17, 2023, prior to the filing of the Chapter 11 Case, the Company and EPI Health, LLC (“EPI Health”) entered into a “stalking horse” asset purchase agreement (the “Purchase Agreement”) with Ligand Pharmaceuticals Incorporated (“Ligand”) to sell substantially all of the assets of the Company and its subsidiaries, including EPI Health (the “Purchased Assets”) for an upfront payment of $15,000,000. The cash payable at closing will be reduced dollar-for-dollar by the outstanding balance of the DIP Credit Facility which will be repaid at closing. The transaction is part of a sale process under Section 363 of the Bankruptcy Code that will be subject to approval by the Bankruptcy Court and compliance with agreed upon and Bankruptcy Court-approved bidding procedures allowing for the submission of higher or otherwise better offers, and other agreed-upon conditions. In accordance with the sale process under Section 363 of the Bankruptcy Code, notice of the proposed sale to Ligand will be given to third parties and competing bids will be solicited. Among other things, for a competing bid to be considered a “qualified bid” under the bidding procedures, the bidder must agree to assume that certain Development Funding and Royalties Agreement, dated May 4, 2019, by and between the Company and Ligand. The Company will manage the bidding process and evaluate the bids, in consultation with its advisors and as overseen by the Bankruptcy Court.

The Purchase Agreement contains customary representations and warranties of the parties and is subject to a number of closing conditions, including, among others, (i) the accuracy of representations and warranties of the parties; (ii) material compliance with the obligations of the parties set forth in the Purchase Agreement, including achievement of certain milestones by the Company related to the Chapter 11 Case and the sales process on a timely basis; and (iii) the absence of certain Defaults or Events of Default (as defined in the DIP Loan Agreement).

The Purchase Agreement may be terminated, subject to certain exceptions: (i) by the mutual written consent of the parties; (ii) by either party, if (a) any court of competent jurisdiction or other competent governmental authority issues a final, non-appealable order prohibiting the transactions; (b) if the closing has not occurred on or prior to September 25, 2023 or (c) the Chapter 11 Case is dismissed or converted to a case under Chapter 7 of the Bankruptcy Code or if a trustee or examiner with expanded powers to operate or manage the financial affairs or reorganization of the Company is appointed in the Chapter 11 Case; (iii) by either party, for certain material breaches by the other party of its representations and warranties or covenants that remain uncured; (iv) automatically, if (a) the Bankruptcy Court approves an alternative transaction with one or more persons other than Ligand or an alternative transaction closes; or (b) Ligand is not the prevailing party at the conclusion of the auction contemplated by the Section 363 sale process; (v) by Ligand if (a) there are certain Defaults or Event of Defaults (each as defined in the DIP Loan Agreement) under the DIP Loan Agreement; (b) the Sale Procedures Order or the Sales Order (each as defined in the Purchase Agreement) is reversed or vacated or is subject to a stay or otherwise modified; (c) any of the milestones related to the Chapter 11 Case, specifically the Sale Procedures Order, the Sales Order and the auction are not met in a timely manner as specified in the Purchase Agreement; or (d) if any secured creditor of the Company or EPI Health obtains relief from the stay to foreclose on a material portion of the Purchased Assets. If the Bankruptcy Court has not entered an order approving the bidding procedures and the final order within a specified time period, then the Bankruptcy Court will be asked to enter an order approving the transactions contemplated by the Purchase Agreement as a private sale to Ligand.

The Purchase Agreement provides that the Company will pay a break-up fee to Ligand equal to $450,000 upon termination of the transaction in certain circumstances, including the entry into or consummation of an alternative transaction for the Purchased Assets with a party other than Ligand.

The foregoing description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the Purchase Agreement, a copy of which is filed as Exhibit 10.1 hereto and incorporated by reference herein. The representations and warranties contained in the Purchase Agreement were made only for the purposes of the Purchase Agreement and solely for the benefit of the parties thereto. Those representations and warranties may be subject to important limitations and qualifications agreed to by the contracting parties. Some of those representations and warranties may not be accurate or complete as of any particular date because they are subject to contractual standards of materiality different from that generally applicable to public disclosures to stockholders. Furthermore, the representations and

warranties may have been made for the purposes of allocating contractual risk between the parties to such contract or other document instead of establishing these matters as facts, and they may or may not have been accurate as of any specific date and do not purport to be accurate as of the date of this Form 8-K. Accordingly, you should not rely upon the representations and warranties in the Purchase Agreement as statements of factual information.

Separately, the Company is also actively engaged in discussions with a number of interested parties with respect to a potential sale of the Purchased Assets or a portion thereof. Any of those sales would be subject to review and approval by the Bankruptcy Court and compliance with Bankruptcy Court-approved bidding procedures.

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

Pre-Petition Financing

On July 14, 2023 the Company entered into a loan and security agreement (the “Bridge Loan Agreement”) with Ligand in the principal amount of up to $3,000,000 (the “Bridge Loan”). The Bridge Loan has interest-only payments due over the course of the 30-day term of the Bridge Loan. The Bridge Loan will bear interest at the rate of 12% per annum, or 18% per annum in the event of default. The non-amortizing principal of the Bridge Loan is to be paid in full at maturity and is secured by all of the assets of the Company and EPI Health. The Bridge Loan Agreement contains certain representations and warranties, covenants and events of default.

The foregoing description of the Bridge Loan does not purport to be complete and is qualified in its entirety by reference to the Bridge Loan, a copy of which is filed as Exhibit 10.2 hereto and incorporated by reference herein.

Debtor-in-Possession Financing

On July 17, 2023, prior to the filing of the Chapter 11 Case, the Company and Ligand (the “DIP Lender”), entered into a superpriority debtor-in-possession loan and security agreement (the “DIP Loan Agreement”), pursuant to which, and subject to the satisfaction of the applicable conditions precedent contained therein, including the entry by the Bankruptcy Court of the Interim DIP Order, the DIP Lender agreed to provide the Company with a secured superpriority debtor-in-possession credit facility in an aggregate principal amount of up to $15,000,000 (including the amount of the Bridge Loan, which will be rolled into the DIP Credit Facility after Bankruptcy Court approval of the DIP Credit Facility), subject to the terms and conditions set forth therein (the “DIP Credit Facility”). If the DIP Credit Facility is approved by the Bankruptcy Court as proposed, the DIP Lender would provide a $15,000,000 multi-draw term loan facility, consisting of $3,000,000 of term loans advanced under the Bridge Loan Agreement, $1,000,000 of term loans available immediately upon entry of the Interim DIP Order (the “Initial Order Loans”), additional amounts made available from time to time up to $2,500,000 (the “Interim Loans”) and the balance available after entry of the final order by the Bankruptcy Court (the “Final Order Loans,” and together with the Bridge Loan, the Initial Order Loans and the Interim Loans, the “DIP Loans”). Borrowings under the DIP Credit Facility would be senior secured obligations of the Company, secured by a superpriority lien on the assets of the Company and its subsidiaries (subject to customary exceptions). The DIP Loan Agreement has various customary covenants, as well as covenants mandating compliance by the Company with a 13-week budget, variance testing and reporting requirements, among others. The proceeds of all or a portion of the proposed DIP Credit Facility may be used for, among other things, post-petition working capital for the Company, payment of costs to administer the Chapter 11 Case, payment of expenses and fees of the transactions contemplated by the Chapter 11 Case, payment of court-approved adequate protection obligations under the DIP Loan Agreement, and payment of other costs, in each case, subject to an approved budget and such other purposes permitted under the DIP Loan Agreement and the Interim DIP Order or any other order of the Bankruptcy Court.

The DIP Loan Agreement is subject to approval by the Bankruptcy Court, which has not been obtained at this time. The Company is seeking (i) interim approval of the DIP Credit Facility and availability of a portion of the DIP Credit Facility in the amount of not less than $1,000,000 at an interim hearing in the Bankruptcy Court and (ii) final approval at a final hearing in the Bankruptcy Court. The Company anticipates that the DIP Loan Agreement will become effective promptly following entry of the Interim DIP Order by the Bankruptcy Court.

The foregoing description of the DIP Loan Agreement does not purport to be complete and is qualified in its entirety by reference to the DIP Loan Agreement as may be approved by the Bankruptcy Court, a copy of which is filed as Exhibit 10.3 hereto and incorporated by reference herein.

Item 7.01. Regulation FD Disclosure.

Press Release

On July 17, 2023, the Company issued a press release announcing the filing of the Chapter 11 Case. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.

The information in Item 7.01 of this Form 8-K and Exhibit 99.1 attached hereto are being furnished pursuant to Item 7.01 and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, except as expressly set forth by specific reference in such a filing.

Additional Information on the Chapter 11 Case

Additional information about the Chapter 11 Case, including access to Bankruptcy Court documents, is available online at www.kccllc.net/novan. The documents and other information available via website or elsewhere are not part of this Form 8-K and shall not be deemed incorporated therein.

Cautionary Information Regarding Trading in the Company’s Securities

The Company cautions that trading in the Company’s securities (including, without limitation, the Company’s common stock) during the pendency of the Chapter 11 Case is highly speculative and poses substantial risks. Trading prices for the Company’s securities may bear little or no relationship to the actual recovery, if any, by holders of the Company’s securities in the Chapter 11 Case. As currently contemplated under the Purchase Agreement, stockholders will not receive any payment or other distribution, and any payment or distribution to stockholders would be dependent on the results of the sale process. The Company expects that holders of shares of the Company’s common stock could experience a significant or complete loss on their investment, depending on the outcome of the Chapter 11 Case. Accordingly, the Company urges extreme caution with respect to existing and future investments in its common stock.

Cautionary Statement Regarding Forward-Looking Statements

This Form 8-K includes statements that are, or may be deemed, “forward-looking statements.” In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “approximately” or, in each case, their negative or other variations thereon or comparable terminology, although not all forward-looking statements contain these words. These forward-looking statements reflect the current beliefs and expectations of management made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industry in which we operate may differ materially from the forward-looking statements contained herein. Any forward-looking statements that we make in this Form 8-K speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Form 8-K or to reflect the occurrence of unanticipated events. The Company’s forward-looking statements in this Form 8-K include, but are not limited to, statements about the Company’s plans to pursue a sale of the business or assets pursuant to chapter 11 of the U.S. Bankruptcy Code and the timing and structure of any such sales and ability to satisfy closing conditions; the Company’s intention to continue operations during the Chapter 11 Case; the Company’s belief that the sale process will be in the best interest of the Company and its stakeholders; and other statements regarding the Company’s strategy and future operations, performance and prospects among others. These forward-looking statements are based on current expectations and beliefs concerning future developments and their potential effects. There can be no assurance that future developments affecting the Company will be those anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the Company’s control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, the risks associated with the potential adverse impact of the Chapter 11 filings on the Company’s results of operations; changes in the Company’s ability to meet its financial obligations during the Chapter 11 process, to comply with the terms of the Purchase Agreement and the DIP Credit Facility and to maintain contracts that are critical to its operations; the outcome and timing of the Chapter 11 process and any potential asset sale; the effect of the Chapter 11 filings and any potential asset sale on the Company’s relationships with vendors, regulatory authorities, employees and other third parties; possible proceedings that may be brought by third parties in connection with the Chapter 11 process or the potential asset sale; and uncertainty regarding obtaining Bankruptcy Court approval of a sale of the Company’s assets or other conditions to the potential asset sale, including the bidding procedures agreed by the parties.

Item 9.01. Financial Statements and Exhibits.


			(d)			Exhibits

EXHIBIT INDEX



Exhibit No.						Description

10.1						Asset Purchase Agreement, dated July 17, 2023, by and among Novan, Inc., EPI Health, LLC and Ligand Pharmaceuticals, Incorporated
10.2						Loan and Security Agreement, dated July 14, 2023, by and among Novan, Inc., EPI Health, LLC and Ligand Pharmaceuticals, Incorporated
10.3						Superpriority Debtor-in-Possession Loan and Security Agreement, dated July 17, 2023, by and between Novan, Inc., EPI Health, LLC and Ligand Pharmaceuticals, Incorporated
99.1						Press Release, dated July 17, 2023
104						Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURES

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

Novan, Inc.

Date: July 17, 2023

By:

/s/ Paula Brown Stafford

Paula Brown Stafford

Chairman, President and Chief Executive Officer

Exhibit 10.1


ASSET PURCHASE AGREEMENT by and among NOVAN, INC., EPI HEALTH, LLC and LIGAND PHARMACEUTICALS INCORPORATED July 17, 2023

TABLE OF CONTENTS

Page


Article I DEFINITIONS			2
Article II PURCHASE AND SALE			15
Section 2.1 Purchase and Sale of Purchased Assets			15
Section 2.2 Excluded Assets			17
Section 2.3 Assumption of Assumed Liabilities			19
Section 2.4 Excluded Liabilities			19
Section 2.5 Consideration			21
Section 2.6 Assumption and Assignment of Contracts.			21
Section 2.7 Schedule Updates			23
Section 2.8 Closing			24
Section 2.9 Deliveries at Closing.			24
Section 2.10 Allocation			25
Article III SELLERS’ REPRESENTATIONS AND WARRANTIES			25
Section 3.1 Organization of Sellers; Good Standing.			26


Section 3.2 Authorization of Transaction			26
Section 3.3 Noncontravention; Consents and Approvals			27
Section 3.4 Compliance with Laws			27
Section 3.5 Title to Purchased Assets			27
Section 3.6 Contracts			28
Section 3.7 Intellectual Property.			28
Section 3.8 Proceedings			30
Section 3.9 Employees and Employment Matters			30
Section 3.10 Employee Benefit Plans			31
Section 3.11 Real Property.			31
Section 3.12 Tangible Personal Property			32
Section 3.13 Permits; Certifications.			32
Section 3.14 Purchased Inventory.			33
Section 3.15 Environmental Matters.			33
Section 3.16 Financial Statements; SEC Filings			34
Section 3.17 Brokers’ Fees			34
Section 3.18 No Other Agreements to Purchase			34
Section 3.19 Taxes.			34
Section 3.20 Business Authorizations; Product Safety and Liability			35
Section 3.21 Health Care Laws; HIPAA Compliance			38
Section 3.22 No Other Representations or Warranties			38
Article IV BUYER’S REPRESENTATIONS AND WARRANTIES			39
Section 4.1 Organization of Buyer			39
Section 4.2 Authorization of Transaction.			39
Section 4.3 Noncontravention			39
Section 4.4 Proceedings			40
Section 4.5 Adequate Assurances Regarding Executory Contracts			40
Section 4.6 Sufficiency of Funds			40
Section 4.7 Brokers’ Fees			40
Section 4.8 No Other Representations and Warranties			40
Article V PRE-CLOSING COVENANTS			40
Section 5.1 Notices and Consents			40
Section 5.2 Bankruptcy Actions			42
Section 5.3 Conduct of Business			44
Section 5.4 Notice of Developments			47
Section 5.5 Access			48
Section 5.6 Press Releases and Public Announcements			48
Section 5.7 Bulk Transfer Laws			48
Section 5.8 Release of Claims			48
Section 5.9 Transition Services Agreement			49
Article VI OTHER COVENANTS			49


Section 6.1 Cooperation			49
Section 6.2 Further Assurances			49
Section 6.3 Availability of Business Records			50
Section 6.4 Employee Matters.			50
Section 6.5 Transfer Taxes			51
Section 6.6 Insurance Policies			51
Section 6.7 Receipt of Misdirected Assets			52
Section 6.8 No Successor Liability			52
Section 6.9 Covenant Not to Compete; Non-Solicitation.			52
Article VII CONDITIONS TO CLOSING			53
Section 7.1 Conditions to Buyer’s Obligations.			53
Section 7.2 Conditions to Sellers’ Obligations			55
Section 7.3 No Frustration of Closing Conditions			55
Section 7.4 Closing Efforts			55
Section 7.5 Waiver of Conditions			56
Article VIII TERMINATION			56
Section 8.1 Termination of Agreement			56
Section 8.2 Procedure Upon Termination			58
Section 8.3 Breakup Fee.			58
Section 8.4 Effect of Termination			59
Article IX MISCELLANEOUS			59
Section 9.1 Remedies			59
Section 9.2 Expenses			59
Section 9.3 Entire Agreement			59
Section 9.4 Incorporation of Schedules, Exhibits and Disclosure Schedule			59
Section 9.5 Amendments and Waivers			60
Section 9.6 Succession and Assignment			60
Section 9.7 Notices			60
Section 9.8 Governing Law; Jurisdiction			62
Section 9.9 Consent to Service of Process			62
Section 9.10 WAIVERS OF JURY TRIAL			62
Section 9.11 Severability			62
Section 9.12 No Third-Party Beneficiaries			62
Section 9.13 No Survival of Representations, Warranties and Agreements			62
Section 9.14 Non-Recourse			63
Section 9.15 Construction			63
Section 9.16 Computation of Time			64
Section 9.17 Mutual Drafting			64
Section 9.18 Disclosure Schedule			64
Section 9.19 No Waiver or Release			64
Section 9.20 Headings; Table of Contents			65


Section 9.21 Counterparts; Facsimile and Email Signatures			65
Section 9.22 Time of Essence			65

Schedule 2.1(b): Commercial Business Assets

Schedule 2.6(a): Assumed Contract List

Exhibit A - Form of Bill of Sale and Assignment and Assumption Agreement

Exhibit B - Form of Lease Assignment

Exhibit C - Form of Patent Assignment

Exhibit D - Form of Trademark Assignment

Exhibit E - Form of Sale Procedure Order

ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT (this “Agreement”) is entered into as of July 17, 2023, by and among Novan, Inc., a Delaware corporation (“Novan”), EPI Health, LLC, a South Carolina limited liability company (“EPI Health” and, together with Novan, “Sellers” or the “Debtors”), and Ligand Pharmaceuticals Incorporated, a Delaware corporation (together with its permitted successors, designees and assigns, “Buyer”). Sellers and Buyer are referred to collectively herein as the “Parties.” Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in Article I.

WHEREAS, on the date hereof, Sellers intend to file voluntary petitions for relief (the “Chapter 11 Cases”) pursuant to Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the “Bankruptcy Code”);

WHEREAS, the Parties entered into a debtor-in-possession credit facility, pursuant to which certain lenders agreed to provide a secured super-priority debtor-in-possession loan facility to the Debtors pursuant to the DIP Order (as defined below) and the DIP Loan Documents (as defined below) (such credit facility, the “DIP Facility”);

WHEREAS, Sellers desire to sell, transfer and assign to Buyer, and Buyer desires to acquire and assume from Sellers, pursuant to Sections 363 and 365 of the Bankruptcy Code, the Purchased Assets and the Assumed Liabilities upon the terms and subject to the conditions set forth herein;

WHEREAS, Sellers intend to seek entry of Sale Procedures Order by the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) upon the terms and subject to the conditions set forth herein and in the Sale Procedures Order;

WHEREAS, Sellers intend to seek the entry of the Sale Order by the Bankruptcy Court approving this Agreement and authorizing Sellers to consummate the Contemplated Transactions upon the terms and subject to the conditions set forth herein and in the Sale Order;

WHEREAS, the board of directors, board of managers or other applicable governing body of each Seller has determined that it is advisable and in the best interests of such Seller’s creditors, equity holders and estate and the beneficiaries of such estate to consummate the Contemplated Transactions provided for herein pursuant to the Sale Procedures Order and the Sale Order and has approved this Agreement, subject to higher and better offers as contemplated by the Sale Procedures Order; and

WHEREAS, the Contemplated Transactions are subject to the approval of the Bankruptcy Court, subject to higher and better offers as contemplated by the Sale Procedures Order, and will be consummated only pursuant to the Sale Order to be entered by the Bankruptcy Court.

NOW, THEREFORE, in consideration of the mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Parties, intending to be legally bound, the Parties agree as follows:

ARTICLE I
DEFINITIONS

“Accounts Receivable” means (a) all accounts, accounts receivable, contractual rights to payment, notes, notes receivable, negotiable instruments, chattel paper, and vendor and supplier rebates of Sellers as conducted by the Sellers and (b) any security interest, claim, remedy or other right related to any of the foregoing.

“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person, and the term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by Contract or otherwise.

“Agreement” has the meaning set forth in the preamble.

“Alternate Transaction” means a transaction or series of related transactions pursuant to which Sellers, pursuant to the Sale Procedures Order, (a) accept one or more Qualified Bids, other than that of Buyer, as the highest and best offer, or (b) sell, transfer, lease or otherwise dispose of, directly or indirectly, including through an asset sale, stock sale, merger, reorganization or other similar transaction (by Sellers or otherwise), including pursuant to a Plan or refinancing, all or substantially all of the Purchased Assets (or agrees to do any of the foregoing) in a transaction or series of transactions to a Person or Persons other than Buyer, but does not mean the sale of assets to customers conducted in the Ordinary Course of Business; provided that with respect to any series of related transactions described herein, the first such transaction in such series constitutes an “Alternate Transaction” for purposes of Section 8.1 and Section 8.3.

“Applicable Deadline” means August 11, 2023.

“Assumed Contract List” means Schedule 2.6(a) hereto (as such schedule may be updated pursuant to Section 2.6(a)).

“Assumed Contracts” means those Leases and Contracts that have been assumed by Sellers and assigned to Buyer pursuant to Section 2.6 and Section 365 of the Bankruptcy Code, which, for the avoidance of doubt shall not include any Non-Real Property Contract or Lease that is excluded and rejected pursuant to Section 2.6.

“Assumed Liabilities” has the meaning set forth in Section 2.3.

“Assumed Permits” means all Permits that are transferable in accordance with their terms and under applicable Law, but excluding all Permits to the extent related primarily to any Excluded Asset (including any Lease that is not an Assumed Contract).

“Auction” means the auction for the sale and assignment of the Purchased Assets as specified in the Sale Procedures Order.

“Bankruptcy Code” has the meaning set forth in the recitals.

“Bankruptcy Court” has the meaning set forth in the recitals.

“Bid” means a bid by the Buyer equal to $15,000,000, which is subject to payment (a) by offset, on a dollar-for-dollar basis, against all outstanding Obligations (as defined in the DIP

Facility) under the DIP Facility, and (b) cash in the amount of the difference between $15,000,000 and all outstanding Obligations (as defined in the DIP Facility) under the DIP Facility.

“Bid And Release” has the meaning set forth in Section 2.5(b)(i).

“Bill of Sale and Assignment and Assumption Agreement” means a bill of sale and assignment and assumption agreement, substantially in the form attached as Exhibit A hereto.

“Breakup Fee” means a breakup fee equal to three percent (3%) of the amount of the Bid.

“Business Authorizations” has the meaning set forth in Section 3.20(a).

“Business Day” means any day other than a Saturday, a Sunday or a day on which banks located in Wilmington, Delaware shall be authorized or required by Law to close.

“Buyer” has the meaning set forth in the preamble.

“Buyer Released Parties” has the meaning set forth in Section 5.8.

“Chapter 11 Cases” has the meaning set forth in the recitals.

“Claim” means a “claim” as defined in section 101(5) of the Bankruptcy Code, whether arising before or after the Petition Date.

“Closing” means the closing of the transactions contemplated by this Agreement, which shall be deemed to have occurred at 12:01 a.m. (Eastern Time) on the Closing Date.

“Closing Date” means the second Business Day after the date on which all conditions to the obligations of Sellers and Buyer to consummate the Contemplated Transactions set forth in Article VII (other than conditions with respect to actions Sellers and/or Buyer will take at the Closing itself, but subject to the satisfaction or waiver of those conditions) have been satisfied or waived by the Party entitled to waive that condition, or at such other time or on such other date as shall be mutually agreed upon by Sellers and Buyer prior thereto.

“Commercial Business Assets” has the meaning set forth in Section 2.1(b).

“Committee” means the official committee of unsecured creditors appointed in the Chapter 11 Cases.

“Company SEC Documents” has the meaning set forth in Section 3.16(b).

“Consent” means any approval, consent, ratification, permission, clearance, designation, qualification, waiver or authorization, or an order of the Bankruptcy Court that deems or renders any of the foregoing unnecessary.

“Contemplated Transactions” means the sale by Sellers to Buyer, and the purchase by Buyer from Sellers, of the Purchased Assets and the assumption by Buyer of the Assumed Liabilities.

“Contract” means any written or oral agreement, contract, lease, sublease, indenture, mortgage, instrument, guaranty, loan or credit agreement, note, bond, customer order, purchase order, sales order, sales agent agreement, supply agreement, development agreement, joint venture agreement, promotion agreement, license agreement, contribution agreement, partnership

agreement or other arrangement, understanding, permission or commitment that, in each case, is legally-binding.

“Conversion Trigger Event” has the meaning set forth in Section 5.2(i).

“Cure Amounts” has the meaning set forth in Section 2.6(b).

“Current Employees” means all individuals employed by Sellers as of the day before the Closing Date, whether active or not (including those on short-term disability, leave of absence, paid or unpaid, or long-term disability).

“Data” has the meaning set forth in Section 3.20(h).

“Debtors” has the meaning set forth in the preamble.

“Development Assets” has the meaning set forth in Section 2.1(a).

“DIP Budget” shall have the same meaning as the term “Approved Budget” as defined in the DIP Order.

“DIP Facility” has the meaning set forth in the recitals.

“DIP Indebtedness” means all “DIP Obligations” as defined in the DIP Order.

“DIP Lender” shall have the same meaning given such term in the DIP Order.

“DIP Loan Agreement” shall have the same meaning as the term “DIP Credit Agreement” as defined in the DIP Order.

“DIP Loan Documents” shall have the meaning given such term in the DIP Order, and for the avoidance of doubt shall include all guarantees, all other security agreements, pledge agreements, notes, guarantees, mortgages, certificates, Uniform Commercial Code financing statements and all other related agreements, instruments and other documents, in each case relating to the DIP Indebtedness, and executed and/or delivered in connection therewith by the Sellers.

“DIP Order” means as of any date of determination (i) the Interim Order (I) Authorizing Debtors to (A) Obtain Postpetition Financing and (B) Use Cash Collateral, (II) Granting Adequate Protection to Prepetition Secured Lender(III) Scheduling a Final Hearing, and (IV) Granting Related Relief that is anticipated to be entered by the Bankruptcy Court on or about July 21, 2023 (the “Interim Order”) or (ii) the Final Order (as defined in the Interim Order), whichever such Order is then in effect.

“DIP Secured Parties” shall have the same meaning given such term in the DIP Order.

“Disclosure Schedule” has the meaning set forth in Article III.

“Employee Benefit Plan” means (a) any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA), (b) employment, consulting, severance, termination protection, change in control, transaction bonus, retention or similar plan, program, policy, agreement or arrangement and (c) any other benefit or compensation plan, program, agreement or arrangement of any kind, providing for compensation, bonuses, profit-sharing, or other forms of incentive or deferred compensation, vacation benefits, insurance, medical, dental, vision, prescription or fringe benefits, life insurance, disability or sick leave benefits or post-employment or retirement

benefits, in each case, maintained or contributed to by any Seller or in which any Seller participates or participated and that provides benefits to any Current Employee or Former Employee.

“Employee Roster” has the meaning set forth in Section 3.9(a).

“Environmental Laws” all applicable Laws concerning pollution or protection of the environment, human health and safety, and natural resources.

“EPI Health” has the meaning set forth in the preamble.

“Equipment” means any and all equipment, computers, machinery, furniture, spare parts, furnishings, fixtures, office supplies, supply inventory, vehicles and all other fixed assets.

“ERISA” means the United States Employee Retirement Income Security Act of 1974.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Excluded Assets” has the meaning set forth in Section 2.2.

“Excluded Claims” means all rights (including rights of set-off and rights of recoupment), refunds, claims, counterclaims, demands, causes of action and rights to collect damages of Sellers against third parties to the extent related primarily to any Excluded Asset or Excluded Liability.

“Excluded Employee” has the meaning set forth in Section 6.4(b).

“Excluded Liabilities” has the meaning set forth in Section 2.4.

“FDA” means the United States Food and Drug Administration.

“Final Order” means: (a) an order or judgment of the Bankruptcy Court, as entered on the docket in any Chapter 11 Cases (or any related adversary proceeding or contested matter) or the docket of any other court of competent jurisdiction; or (b) an order or judgment of any other court having jurisdiction over any appeal from (or petition seeking certiorari or other review of) any order or judgment entered by the Bankruptcy Court (or any other court of competent jurisdiction, including in an appeal taken) in the Chapter 11 Cases (or in any related adversary proceeding or contested matter), in each case that has not been reversed, stayed, modified, or amended, and as to which the time to appeal, or seek certiorari or move for a new trial, reargument, or rehearing has expired according to applicable law and no appeal or petition for certiorari or other proceedings for a new trial, reargument, or rehearing has been timely taken, or as to which any appeal that has been taken or any petition for certiorari that has been or may be timely Filed has been withdrawn or resolved by the highest court to which the order or judgment was appealed or from which certiorari was sought or the new trial, reargument, or rehearing shall have been denied, resulted in no modification of such order, or has otherwise been dismissed with prejudice; provided that the possibility a motion under Rule 60 of the Federal Rules of Civil Procedure, or any analogous rule under the bankruptcy rules or the local bankruptcy rules of the Bankruptcy Court, may be filed relating to such order shall not prevent such order from being a Final Order.

“Former Employees” means all individuals who have been employed by the Sellers (or any of their predecessors) who are not Current Employees.

“Fraud” means, with respect to any party to this Agreement, Delaware common law fraud with a specific intent to deceive (and not a constructive fraud, equitable fraud, negligent misrepresentation or omission, or any form of fraud premised on recklessness or negligence) with respect to the making of any of the representations and warranties by Sellers contained in Article III, the officer’s certificate required to be delivered pursuant to Section 7.1(g) or any Related Agreement, and not with respect to any other matters; provided that, notwithstanding anything herein to the contrary, solely for purposes of Section 7.1(e) and Section 8.1(i), “Fraud” means, with respect to any party to the DIP Loan Agreement, Delaware common law fraud with a specific intent to deceive (and not a constructive fraud, equitable fraud, negligent misrepresentation or omission, or any form of fraud premised on recklessness or negligence) with respect to the making of any of the representations and warranties by Sellers contained in the DIP Loan Agreement or in any officer’s certificate required to be delivered pursuant thereto, and not with respect to any other matters.

“GAAP” means United States generally accepted accounting principles as in effect from time to time.

“Governmental Entity” means any United States federal, state or local or non-United States governmental or regulatory authority, agency, commission, court, body or other governmental entity.

“Hazardous Substance” means any toxic or hazardous material, substance or waste as to which Liability or standards of conduct may be imposed under any Environmental Laws.

“Health Care Laws” means, to the extent applicable to the Sellers or the Purchased Assets (i) any and all federal, state and local fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7(b)), the Stark Law (42 U.S.C. § 1395nn), the civil False Claims Act (31 U.S.C. § 3729 et seq.), the administrative False Claims Law (42 U.S.C. § 1320a-7b(a)), the Anti-Inducement Law (42 U.S.C. § 1320a-7a(a)(5)), the exclusion laws (42 U.S.C. § 1320a-7), the civil monetary penalty laws (42 U.S.C. § 1320a-7a), the regulations promulgated pursuant to such statutes and any comparable state laws; (ii) the Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. § 1320d et seq.), and the regulations promulgated thereunder and any comparable state laws, (iii) Medicare (Title XVIII of the Social Security Act) and the regulations promulgated thereunder; (iv) Medicaid (Title XIX of the Social Security Act) and the regulations promulgated thereunder; (v) the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. No. 108-173) and the regulations promulgated thereunder; (vi) quality, safety and accreditation standards and requirements of all applicable state laws or Governmental Authorities; (and (vii) any and all other applicable health care laws, rules, codes, statutes, ordinances, regulations, manual provisions, policies and administrative guidance, each of (i) through (vii) as may be amended from time to time.

“HIPAA” means the Health Insurance Portability and Accountability Act of 1996, as the same may be amended, modified or supplemented from time to time, any successor statute thereto, any and all rules or regulations promulgated from time to time thereunder, and any comparable state laws.

“Indebtedness” has the meaning set forth in Section 5.3(b)(iii).

“Insurance Policy” means each primary, excess and umbrella insurance policy, bond and other forms of insurance owned or held by or on behalf of Sellers and their operations, properties and assets, including, without limitation, all stop-loss insurance policies with respect to Sellers’ self-insured medical and/or dental insurance programs.

“Intellectual Property” means any and all rights, title and interest in or relating to intellectual property of any type, which may exist or be created under the Laws of any jurisdiction throughout the world, including: (a) patents and patent applications, together with all reissues, continuations, continuations-in-part, divisionals, extensions and reexaminations in connection therewith; (b) trademarks, service marks, trade dress, logos, slogans, trade names, service names, brand names, Internet domain names and all other source or business identifiers and general intangibles of a like nature, along with all applications, registrations and renewals in connection therewith, and all goodwill associated with any of the foregoing; (c) rights associated with works of authorship, including exclusive exploitation rights, mask work rights, copyrights, database and design rights, whether or not Registered or published, all registrations and recordations thereof and applications in connection therewith, along with all extensions and renewals thereof; (d) trade secrets; and (e) all other intellectual property rights related to the business of the Sellers.

“Intellectual Property Assignments” means the Patent Assignment and the Trademark Assignment.

“Interim Order” has the meaning set forth in this Article I under the definition of “DIP Order.”

“Inventory” means all inventory (including finished goods, supplies, raw materials, work in progress, spare, replacement and component parts) maintained or held by, stored by or on behalf of, or in transit to, any Seller, whether for sale or non-commercial use (e.g., validation) or otherwise, together with any interests therein, including (x) being held by customers pursuant to consignment arrangements or (y) being held by suppliers or vendors under tolling or similar arrangements.

“IRB” has the meaning set forth in Section 3.20(i).

“IRC” means the United States Internal Revenue Code of 1986, as amended.

“IT Assets” means computers, software, firmware, middleware, servers, workstations, routers, hubs, switches, telecommunication hardware, audio/video hardware, security system hardware, data communications lines, and all other information technology Equipment, and all associated documentation.

“Law” means any federal, state, provincial, local, municipal, foreign or international, multinational or other law, statute, legislation, constitution, principle of common law, resolution, ordinance, code, edict, Order, proclamation, treaty, convention, rule, regulation, ruling, directive, pronouncement, determination, decision, opinion, guidance or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity, or court of competent jurisdiction, or other legal requirement or rule of law, including applicable building, zoning, subdivision, health and safety and other land use Laws.

“Lease Assignment” means a lease assignment agreement, substantially in the form attached as Exhibit B hereto.

“Leased Real Property” means all (i) leasehold or sub-leasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures or other interest in real property which is used in or otherwise related to the business of the Sellers, including the right to all security deposits and other amounts and instruments deposited by or on behalf of Sellers thereunder, and (ii) any buildings, structures, improvements and fixtures located on any Leased Real Property which are owned by Seller, regardless of whether title to such buildings,

structures, improvements or fixtures are subject to reversion to the landlord or other third party upon the expiration or termination of the Lease for such Leased Real Property (“Leasehold Improvements”).

“Leasehold Improvements” has the meaning set forth in this Article I in the definition of “Leased Real Property”.

“Leases” means all leases, subleases, licenses, concessions and other Contracts, including all amendments, extensions, renewals, guaranties and other agreements with respect thereto, in each case pursuant to which any Seller holds any Leased Real Property.

“Liability” means, as to any Person, any debt, Claim, liability (including any liability that results from, relates to or arises out of tort or any other product liability claim), duty, responsibility, obligation, commitment, assessment, cost, expense, loss, expenditure, charge, fee, penalty, fine, contribution, or premium of any kind or nature whatsoever, whether known or unknown, asserted or unasserted, absolute or contingent, direct or indirect, accrued or unaccrued, liquidated or unliquidated, or due or to become due, and regardless of when sustained, incurred, or asserted or when the relevant events occurred or circumstances existed.

“Lien” means any lien (as defined in Section 101(37) of the Bankruptcy Code), encumbrance, right, demand, charge, mortgage, deed of trust, option, pledge, security interest or similar interests, title defects, hypothecations, easements, rights of way, encroachments, judgments, conditional sale or other title retention agreements and other similar impositions, imperfections or defects of title or restrictions on transfer or use (whether known or unknown, secured or unsecured or in the nature of setoff or recoupment, choate or inchoate, filed or unfiled, scheduled or unscheduled, noticed or unnoticed, recorded or unrecorded, perfected or unperfected, allowed or disallowed, contingent or non-contingent, liquidated or unliquidated, matured or unmatured, material or nonmaterial, disputed or undisputed, whether arising prior to or subsequent to the commencement of the Chapter 11 Cases, and whether imposed by agreement, understanding, Law, equity, or otherwise, including claims otherwise arising under doctrines of successor liability).

“Material Adverse Effect” means any change, event, effect, development, condition, circumstance or occurrence (when taken together with all other changes, events, effects, developments, conditions, circumstances or occurrences), that (a) is, or could reasonably be expected to become, individually or in the aggregate, materially adverse to the condition (financial or otherwise), value or results of operations of the Purchased Assets (taken as a whole); provided, however, that no change, event, effect, development, condition, circumstance or occurrence related to any of the following shall be deemed to constitute, and none of the following shall be taken into account in determining whether there has been a Material Adverse Effect: (i) the filing of a voluntary petition under Chapter 11 of the Bankruptcy Code or the effect, directly or indirectly, of such filing, including (A) any objections in the Bankruptcy Court to (1) this Agreement or any of the transactions contemplated hereby or thereby, (2) the reorganization of the Sellers, (3) the Sale Procedures Order or (4) the assumption or rejection of any Assumed Contract and (B) any Order of the Bankruptcy Court or any actions or omissions of the Sellers or their Subsidiaries in compliance therewith; (ii) acts of war, armed hostilities, sabotage or terrorism, or any escalation or worsening of any such acts of war, armed hostilities, sabotage or terrorism threatened or underway as of the date of this Agreements, except to the extent that such change has a materially disproportionate adverse effect on the business of the Sellers relative to the adverse effect that such changes have on other companies in the industry in which the business of the Sellers operates; (iii) changes in conditions in the U.S. or global economy or capital or financial markets generally, including changes in interest or exchange rates, except to the extent that such change has a materially disproportionate adverse effect on the business of the Sellers relative to the adverse effect that such changes have on other

companies in the industry in which the business of the Sellers operates; (iv) resulting from any act of God or other force majeure event (including natural disasters) (but, and notwithstanding anything contained in this paragraph to the contrary, excluding, for the avoidance of doubt, any global or national epidemic, pandemic (whether or not declared as such by any Governmental Body) or viral outbreak (including the “Coronavirus” or “COVID-19” pandemic), except to the extent that such change has a materially disproportionate adverse effect on the business of the Sellers relative to the adverse effect that such changes have on other companies in the industry in which the business of the Sellers operates); or (v) changes in Law or in GAAP or interpretations thereof; or (b) would reasonably be expected to prevent, materially delay or materially impair to the ability of any Seller to consummate the transactions contemplated by this Agreement or the Related Agreements on the terms set forth herein and therein.

“Material Contract” has the meaning set forth in Section 3.6.

“Non-Real Property Contracts” means the Contracts to which any Seller is a party other than the Leases.

“Novan” has the meaning set forth in the preamble.

“Offeree” has the meaning set forth in Section 6.4(a).

“Order” means any judgment, decree, ruling, decision, opinion, injunction, assessment, attachment, undertaking, award, charge, writ, executive order, judicial order, administrative order or any other order of any Governmental Entity.

“Ordinary Course of Business” means the ordinary and usual course of business of Sellers taken as a whole consistent with past custom and practice and taking into account the commencement of the Chapter 11 Cases.

“Outside Date” means September 26, 2023 (subject to Section 5.2(i)).

“Owned Intellectual Property” has the meaning set forth in Section 3.7(a).

“Parties” has the meaning set forth in the preamble.

“Patent Assignment” means a patent assignment agreement, substantially in the form attached as Exhibit C hereto.

“Permit” means any and all franchise, approval, permit (including environmental, construction and operation permits), license, order, registration, certificate, variance, Consent, exemption, clearance, exemption, classification, tariff, rate schedule or other authorization issued, granted, given or otherwise obtained or required to be obtained, from or by any Governmental Entity, under the authority thereof or pursuant to any applicable Law, including all Business Authorizations and Product Registrations.

“Permitted Liens” means (a) Liens for Taxes which are (i) being contested in good faith by appropriate proceedings or (ii) not due and payable as of the Closing Date and which shall be prorated or released at Closing, and, in each case of clauses (i) and (ii), for which adequate reserves have been made on the Financial Statements in accordance with GAAP and which shall be prorated or otherwise released at Closing; (b) mechanics liens and similar liens for labor, materials or supplies provided with respect to real property incurred in the Ordinary Course of Business which are being contested in good faith by appropriate proceedings for which adequate reserves have been made on the Financial Statements in accordance with GAAP and which shall be prorated or otherwise released at Closing; (c) with respect to real property, zoning, building

codes and other land use Laws regulating the use or occupancy of such real property or the activities conducted thereon which are imposed by any Governmental Entity having jurisdiction over such real property which are not violated by the current use or occupancy of such real property or the operation of the business of the Sellers, except where any such violation would not, individually or in the aggregate, materially impair the use, operation or transfer of the affected property or the conduct of the business of the Sellers thereon as it is currently being conducted; (d) easements, covenants, conditions, restrictions and other similar matters affecting title to real property and other encroachments and title and survey defects that do not or would not materially impair value or the use or occupancy of such real property or materially interfere with the operation of the business of the Sellers at such real property; (e) with respect to Leasehold Improvements, any reversion or similar rights to the landlord or other third party upon expiration or termination of the applicable Lease; (f) any Liens held by Buyer pursuant to the Royalty Agreement and (g) any Liens associated with or arising in connection with any Assumed Liabilities.

“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or any other entity, including any Governmental Entity or any group or syndicate of any of the foregoing.

“Personal Property Leases” means all leases of personal property relating to personal property used by Sellers or to which any Seller is a party or by which the properties or assets of any Seller are bound.

“Petition Date” means the date of the filing of the Chapter 11 Cases.

“Plan” means a Chapter 11 plan of reorganization or liquidation proposed by the Sellers and/or the Committee in the Chapter 11 Cases.

“Proceeding” means any action, cause of action, suit, claim, investigation, mediation, audit, grievance, demand, hearing or proceeding, whether civil, criminal, administrative or arbitral, whether at law or in equity and whether before any Governmental Entity or arbitrator.

“Products” means, collectively, the Commercial Business Assets and the Development Assets.

“Product Registrations” has the meaning set forth in Section 3.20(a).

“Professional Services” means any legal services, accounting services, financial advisory services, investment banking services or any other professional services provided by the Sellers’ advisers obtained pursuant to any order of the Bankruptcy Court.

“Purchase Price” has the meaning set forth in Section 2.5(a).

“Purchased Assets” has the meaning set forth in Section 2.1

“Purchased Avoidance Actions” means all causes of action, lawsuits, claims, rights of recovery and other similar rights of any Seller, including avoidance claims or causes of action under Chapter 5 of the Bankruptcy Code relating to the business of the Sellers or the Purchased Assets.

“Purchased Inventory” means Inventory that is part of the Purchased Assets as set forth in Section 2.1.

“Qualified Bid” means competing bids qualified for the Auction in accordance with the Sale Procedures Order. For the avoidance of doubt, any bid that does not include an express assignment and assumption of the Royalty Agreement, without modification, shall not be deemed a Qualified Bid.

“Recall” has the meaning set forth in Section 3.14(b).

“Records” means the books, records, information, ledgers, files, invoices, documents, work papers, correspondence, lists (including customer lists, supplier lists and mailing lists), plans (whether written, electronic or in any other medium), drawings, designs, specifications, creative materials, advertising and promotional materials, marketing plans, studies, reports, data and similar materials related to the business of the Sellers.

“Registered” means issued by, registered with, renewed by or the subject of a pending application before any Governmental Entity or domain name registrar.

“Related Agreements” means the Bill of Sale and Assignment and Assumption Agreement, the Intellectual Property Assignments, the Lease Assignment, the Transition Services Agreement (if applicable) and any other instruments of transfer and conveyance as may be required under applicable Law to convey valid title of the Purchased Assets to Buyer.

“Remaining SB206 Critical Vendor Cure Payment Amount” means the remaining portion available for payment of the Budgeted SB206 Critical Vendor Cure Payments in the aggregate at the Closing.

“Reports” has the meaning set forth in Section 3.20(d).

“Representative” means a Person’s officers, directors, managers, employees, advisors, representatives (including its legal counsel and its accountants) and agents.

“Restricted Period” has the meaning set forth in Section 6.9.

“Royalty Agreement” means that certain Development Funding and Royalties Agreement, dated as of May 4, 2019 (as amended from time to time), to which Buyer and Novan are each a party.

“Sale Hearing” means the hearing conducted in the Bankruptcy Court seeking entry of the Sale Order.

“Sale Motion” means a motion filed by the Sellers, in form and substance reasonably satisfactory to the Sellers and the Buyer, with the Bankruptcy Court styled as the Motion of Debtors for Entry of Orders (I)(A) Approving Bidding Procedures for Sale of Substantially All of Debtors’ Assets Free and Clear of Liens, Claims, Interests, and Encumbrances and Designating Ligand Pharmaceuticals as a Stalking Horse Bidder, (B) Scheduling an Auction and Approving the Form and Manner of Notice Thereof, (C) Approving Assumption and Assignment Procedures and (D) Scheduling a Sale Hearing and Approving the Forms and Manner of Notice Thereof; (II)(A) Approving the Sale of the Debtors’ Assets Free and Clear of Liens, Claims, Interests, and Encumbrances After the Auction and (B) Approving the Assumption and Assignment of Executory Contracts and Unexpired Leases; and (III) In the Alternative, Approving the Sale of the Debtors’ Assets Free and Clear of Liens, Claims, Interests, and Encumbrances to Ligand Pharmaceuticals If Not Approved as the Stalking Horse Bidder, which Sale Motion requests, among other things, authority to sell all or substantially all of the Debtors’ assets, entry of the

Sale Procedures Order, authority for the Debtors to enter into this Agreement and Related Agreements, and entry of the Sale Order approving this Agreement and Related Agreements.

“Sale Order” means an Order of the Bankruptcy Court: (a) approving (i) this Agreement and the other Related Agreements and the execution, delivery, and performance by Sellers of this Agreement, the other Related Agreements and the other instruments and agreements contemplated hereby and thereby, (ii) the sale of the Purchased Assets to Buyer free and clear of all Liens, other than Permitted Liens and any Liens included in the Assumed Liabilities, (iii) the assumption of the Assumed Liabilities by Buyer on the terms set forth herein and in the other Related Agreements and (iv) the assumption and assignment to Buyer of the Assumed Contracts on the terms set forth herein and in the other Related Agreements; (b) determining that Buyer is a good faith purchaser; and (c) providing that the Closing will occur in accordance with the terms and conditions hereof.

“Sale Order Deadline” means September 11, 2023, unless extended by the Seller.

“Sale Procedures Order” means an order of the Bankruptcy Court approving the sale procedures relief requested in the Sale Motion in substantially the form attached as Exhibit E hereto.

“Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated thereunder.

“SB206” means berdazimer gel, 10.3%.

“SEC” means the U.S. Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Seller” or “Sellers” has the meaning set forth in the preamble.

“Sellers’ Knowledge” (or words of similar import) means the actual or constructive knowledge, after due inquiry, of Paula Brown Stafford, John Donofrio, John M. Gay, Carri Geer and Tomoko Maeda-Chubachi.

“Studies” has the meaning set forth in Section 3.20(h).

“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof (or other persons performing similar functions with respect to such corporation) is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (b) if a limited liability company, partnership, association or other business entity (other than a corporation), a majority of partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof and for this purpose, a Person or Persons owns a majority ownership interest in such a business entity (other than a corporation) if such Person or Persons shall be allocated a majority of such business entity’s gains or losses or shall be or control any managing director, managing member, or general partner of such business entity (other than a corporation). The term “Subsidiary” shall include all Subsidiaries of such Subsidiary.

“Tax” or “Taxes” means any United States federal, state or local or non-United States income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Section 59A of the IRC), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, real property, personal property, ad valorem, escheat, sales, use, transfer, value added, alternative or add-on minimum, estimated or other tax of any kind whatsoever (however denominated), whether computed on a separate or consolidated, unitary or combined basis or in any other manner, including any interest, penalty or addition thereto, whether or not disputed.

“Tax Return” means any return, declaration, report, claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“Termination Event” has the meaning set forth in Section 8.1.

“Trademark Assignment” means a trademark assignment agreement, substantially in the form attached as Exhibit D hereto.

“Transfer Tax” means any stamp, documentary, registration, transfer, added-value or similar Tax imposed under any applicable Law in connection with the transactions contemplated by this Agreement.

“Transferred Employees” has the meaning set forth in Section 6.4(b).

“Transferring Party” has the meaning set forth in Section 5.1(c).

“Transition Services Agreement” has the meaning set forth in Section 5.9.

“Willful Breach” has the meaning set forth in Section 8.4.

ARTICLE II
PURCHASE AND SALE

Section 2.1 Purchase and Sale of Purchased Assets. Pursuant to sections 105, 363 and 365 of the Bankruptcy Code, on the terms and subject to the conditions set forth in this Agreement (including, without limitation, Section 4.7 below), at the Closing, Buyer shall purchase, acquire and accept from Sellers, and Sellers shall sell, transfer, assign, convey and deliver to Buyer, all of the Sellers’ right, title and interest in, to and under the Purchased Assets, free and clear of all Liens (other than Permitted Liens and any Liens included in the Assumed Liabilities), for the consideration specified in Section 2.5. “Purchased Assets” shall mean all of the, direct or indirect, right, title and interest of Sellers in, to and under the tangible and intangible assets (including goodwill), properties, rights, going concern value, claims and Contracts used, useful, or held for use in, or related to, the business of the Sellers (but excluding Excluded Assets) wherever situated and of whatever kind and nature, real or personal, as of the Closing, including:

(a) all of the Sellers’ right, title and interest in and to SB206 and all related Intellectual Property, Equipment, supplies and materials, Business Authorizations and Product Registrations (including new drug applications), files, records (including clinical and pre-clinical data), know-how, manufacturing assets and leases related to the same (collectively, the “Development Assets”);

(b) all of the Sellers’ right, title and interest in and to the products listed on Schedule 2.1(b) and all of the other Products of Sellers (other than those included in the

Development Assets) and all related Intellectual Property, Equipment, supplies and materials, Business Authorizations and Product Registrations (including new drug applications), files, records (including clinical and pre-clinical data), know-how, manufacturing assets and leases related to the same (collectively, the “Commercial Business Assets”);

(c) all Inventory of Sellers as of the Closing, including all rights of Sellers to receive such Inventory, supplies and materials which are on order as of the Closing, whether or not obsolete or carried on Sellers’ books of account, in each case, with any transferable warranty and service rights related thereto;

(d) all Assumed Contracts that have been assumed by and assigned to Buyer pursuant to Section 2.6;

(e) all Intellectual Property owned by Sellers (to the extent not included in Section 2.1(a));

(f) all tangible assets (including Equipment, accessories, materials and all other similar items of tangible personal property or capital assets) of Sellers, including any tangible assets of Sellers located at any Leased Real Property and any other tangible assets on order to be delivered to any Seller, regardless of where located;

(g) all Records, including Records related to Taxes paid or payable by any Seller related to the business of the Sellers;

(h) the Leased Real Property to the extent associated with an Assumed Contract, including any Leasehold Improvements and all permanent fixtures, improvements, and appurtenances thereto and including any security deposits or other deposits delivered in connection therewith, and all rights under any undrawn letters of credit associated with any such security deposits;

(i) all goodwill of Sellers as a going concern or related to the Purchased Assets, including all goodwill associated with the Intellectual Property owned by Sellers and all rights under any confidentiality agreements executed by any third party for the benefit of any of Sellers to the extent relating to the Purchased Assets and/or the Assumed Liabilities (or any portion thereof);

(j) all of the Assumed Permits and all rights, interests, and benefits accruing under all Assumed Permits, and all pending applications therefor;

(k) all insurance benefits and policies relating to or insuring any of the Purchased Assets or Assumed Liabilities (including returns, recoveries and refunds of any premiums paid, or other amounts due back to Sellers);

(l) all other rights of Sellers against third parties (including suppliers, vendors, merchants, distributors, manufacturers and counterparties to leases, licensees, licensors or of any Seller arising under or related to any Assumed Contract, other Purchased Asset or Assumed Liability), including causes of action, claims, counterclaims, defenses, credits, rebates (including any vendor or supplier rebates), demands, allowances, refunds, rebates, credits, allowances, Proceedings, rights of set off, rights of recovery, rights of subrogation, rights of recoupment, rights under or with respect to express or implied guarantees, warranties, representations, covenants or indemnities made by such third parties or other similar rights, in each case at any time or in any manner arising or existing, whether choate or inchoate, known or unknown, now

existing or hereafter acquired, contingent or noncontingent, including the Purchased Avoidance Actions;

(m) all credits, prepaid expenses, deferred charges, advance payments, refunds, rights of set-off, rights of recovery, deposits (including customer deposits and security deposits for rent, electricity, telephone, or otherwise), prepaid or deferred charges, expenses and duties (including any of the foregoing related to Assumed Contracts) arising under or relating to the Purchased Assets or the Assumed Liabilities;

(n) all rights under or pursuant to all warranties, representations and guarantees made by suppliers, manufacturers, contractors and any other Person to the extent relating to Equipment purchased by, products sold by, or services provided to Sellers or to the extent affecting any Purchased Assets and/or Assumed Liabilities;

(o) all rights and obligations under non-disclosure, confidentiality, non-compete, non-interference, non-solicitation, and similar arrangements or Contracts with any current or former employees and/or agents of Sellers or with third parties;

(p) all of the Sellers’ telephone numbers, fax numbers, e-mail addresses, websites, URLs and internet domain names;

(q) all rights arising from any refunds, overpayments, credits or rebates due from federal, state and/or local Governmental Entities with respect to Taxes related to the Purchased Assets or Assumed Liabilities;

(r) all IT Assets; and

(s) all other assets that are related to or used in connection with the Purchased Assets or the business of the Sellers (but excluding all of the Excluded Assets).

Section 2.2 Excluded Assets. Notwithstanding Section 2.1, Buyer expressly understands and agrees that Buyer is not purchasing or acquiring, and the Sellers are not selling or assigning, any of the following assets, properties and rights of Sellers (the “Excluded Assets”):

(a) all Accounts Receivable of Sellers as of the Closing;

(b) all cash, cash equivalents, bank deposits and similar cash items of Sellers, and all bank accounts of Sellers (other than as described in Section 2.1(h));

(d) all Permits other than the Assumed Permits;

(e) all of Sellers’ certificates of incorporation, certificates of formation, bylaws, limited liability company operating agreements and other organizational documents, qualifications to conduct business as a foreign entity, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, stock transfer books, unit certificates and other documents relating to the organization, maintenance and existence of any Seller as a corporation, limited liability company or other entity;

(f) all shares of capital stock, limited liability company interests or other equity securities of any Seller or any of their respective Subsidiaries or securities convertible into, exchangeable, or exercisable for any such shares of capital stock, limited liability company interests or other equity securities of any Seller or any of their respective Subsidiaries;

(g) all net operating losses of any Seller;

(h) the Excluded Claims;

(i) any loans or notes payable to any Seller or any of its Affiliates from any employee of any Seller or any of its Affiliates (other than Ordinary Course of Business employee advances and other than loans or notes from any Transferred Employees);

(j) any (1) Records containing confidential personal private information including confidential personnel and medical Records pertaining to any Current Employees or Former Employees to the extent the disclosure of such information is prohibited by applicable Law, (2) other Records that Sellers are required by Law to retain, (3) any materials primarily related to any Excluded Assets or Excluded Liabilities, (4) all taxpayer and other identification numbers of each Seller, and (5) any Records or other documents relating to the Chapter 11 Cases that are protected by the attorney-client privilege; provided that Buyer shall have the right to make copies of any portions of such retained Records (other than the Records referenced in subsection (5)) to the extent that such portions relate to the business of the Sellers or any Purchased Asset;

(k) all Permits other than the Assumed Permits;

(l) (i) all directors’ and officers’ liability insurance policies, including any tail insurance policies, including the rights of the directors and officers thereunder for coverage (i.e., advancement of expenses and liability coverage with respect to claims made against such officers and directors), and (ii) all insurance benefits and policies primarily relating to or insuring any of the Excluded Assets or Excluded Liabilities, including in the case of (i) and (ii), all insurance recoveries thereunder and rights to assert claims with respect to any such insurance recoveries under such insurance policies;

(m) all Employee Benefit Plans, including all assets held with respect to such Employee Benefit Plans and any insurance contracts, administrative services agreements or funding arrangements related thereto;

(n) all estate claims of the Sellers (other than the Purchased Avoidance Actions);

(o) any warranties, representations, and guarantees to the extent primarily relating to any Excluded Asset, or rights and defenses primarily pertaining to any Excluded Liability; and

(p) the rights of Sellers under this Agreement and the Related Agreements and all non-cash consideration payable or deliverable to Sellers under this Agreement.

Section 2.3 Assumption of Assumed Liabilities. On the terms and subject to the conditions of this Agreement and the Sale Order, at the Closing (or, with respect to Assumed Liabilities under Assumed Contracts or Assumed Permits that are assumed by Buyer after the Closing, such later date of assumption as provided in Section 2.6 and Section 2.7), Buyer shall assume from Sellers (and from and after the Closing pay, perform, discharge, or otherwise satisfy

in accordance with their respective terms), and Sellers shall irrevocably convey, transfer, and assign to Buyer, the following Liabilities, without duplication and only to the extent not paid prior to the Closing and no other Liabilities (collectively, the “Assumed Liabilities”):

(a) all Cure Amounts under any and all Assumed Contracts in accordance with and subject to the limitations set forth in Section 2.6;

(b) Liabilities under the Assumed Contracts and Assumed Permits solely to the extent arising from periods occurring on or after the Closing Date that relate (and only to the extent so relating) to facts, circumstances, or occurrences first arising after the Closing, and that do not arise from or relate to, and are not in connection with, any event, circumstance, or condition occurring or existing at or prior to Closing that, with or without notice or lapse of time, would constitute or result in a breach, violation, or default of such Assumed Contract by any Seller or any of their respective Affiliates;

(c) Liabilities primarily arising out of the ownership or operation of the Purchased Assets, in each case, by Buyer solely to the extent arising from periods occurring on or after the Closing Date; and

(d) all Liabilities for Taxes relating to the Purchased Assets or the Assumed Liabilities to the extent that such Taxes are imposed with respect to or attributable to any taxable period (or portion thereof) beginning on or after the Closing Date.

Notwithstanding the foregoing, Assumed Liabilities shall not include any post-petition Liabilities of the Sellers that were incurred in violation of the DIP Order or the DIP Loan Documents.

Section 2.4 Excluded Liabilities. Notwithstanding anything herein to the contrary, the Parties expressly acknowledge and agree that Buyer shall not assume, be obligated to pay, perform or otherwise discharge or in any other manner be liable or responsible for any Liabilities of Sellers, whether existing on the Closing Date or arising thereafter, other than the Assumed Liabilities (all such Liabilities that Buyer is not assuming being referred to collectively as the “Excluded Liabilities”), and Seller shall be solely and exclusively liable for all such Excluded Liabilities. The Excluded Liabilities shall include:

(a) the sponsorship of, and all Liabilities at any time arising under, pursuant to or in connection with, all Employee Benefit Plans and all Liabilities related to any Current Employee or Former Employee, contractor or other service provider of any Seller or any Subsidiary thereof;

(b) all Liabilities relating to or otherwise arising, whether before, on or after the Closing Date, out of, or in connection with, any of the Excluded Assets;

(d) all Liabilities arising from or related to any Proceeding against Sellers or any of their respective Affiliates (including, for the avoidance of doubt, any Proceeding related to fraud, breach of fiduciary duty, misfeasance or under any other theory relating to conduct, performance or non-performance of Sellers, or any of their respective directors, managers, officers, employees or other Representatives), or related to the Purchased Assets or the Assumed Liabilities, pending or threatened or having any other status or with respect to facts, actions, omissions, circumstances or conditions existing, occurring or accruing prior to the Closing Date (including any breach, default, failure to perform, torts related to performance, violations of Law, infringements or indemnities,

guaranties and overcharges, underpayments, or penalties, whether or not in respect of any Contract), including any successor liability claims or that may be owed to or assessed by, any Governmental Entity or other Person, and whether commenced, filed, initiated, or threatened prior to, on, or following the Closing;

(e) all costs and expenses incurred or to be incurred by Sellers in connection with this Agreement and the consummation of the transactions contemplated hereby or in connection with the Chapter 11 Cases, including those owing for Professional Services;

(f) all Liabilities for any Taxes (including Taxes payable by reason of contract, assumption, transferee or successor Liability, operation of Law, pursuant to Treasury Regulation Section 1.1502-6 (or any similar provision of any state or local law) or otherwise), except to the extent expressly included in the Assumed Liabilities, including Liabilities: (i) of any Seller arising or relating to any taxable period (or portion thereof) prior to the Closing Date, (ii) owed by any of Sellers or any of their direct or indirect beneficial owners or Affiliates (whether or not relating to any taxable period (or portion thereof) prior to the Closing Date), including pursuant to any Tax sharing, Tax indemnity or similar agreement or arrangement to which any Seller (or any Affiliate thereof) is obligated under or a party to, (iii) of any Seller arising in connection with the consummation of the transactions contemplated by this Agreement, (iv) for Taxes or other Liabilities with respect to the Purchased Assets or the business of Sellers with respect to which “responsible person” or similar claims may be made against any of Sellers’ or any of their Affiliates’ employees, managers, officers, directors or similar persons, including pursuant to any wage payment statute, and (v) for Taxes arising from or in connection with an Excluded Asset;

(g) any Liability for any intercompany accounts payable by any Seller or any of their respective Affiliates;

(h) all Liabilities of Sellers arising prior to the Closing under or pursuant to Environmental Laws, including with respect to any real property owned, operated, leased, or otherwise used by Sellers, whether or not used in the Ordinary Course of Business;

(i) all current accrued trade payables to the extent (i) existing on the Closing Date, (ii) incurred after the Petition Date in the Ordinary Course of Business and otherwise in compliance with this Agreement (including Section 5.3) and (iii) not arising under or otherwise relating to any Assumed Liability; and

(j) drafts or checks outstanding as of the Closing (except to the extent expressly stated as an Assumed Liability).

Section 2.5 Consideration.

(a) In aggregate consideration for the sale and transfer of the Purchased Assets (the “Purchase Price”) shall be composed of the following:

i. the Bid; and

ii. the assumption by Buyer of the Assumed Liabilities.

(b) The Purchase Price shall be satisfied at the Closing as to:

i. the Bid, by causing the DIP Lender to (A) acknowledge satisfaction of the portion of the DIP Indebtedness covered by the Bid and (B) to

the extent the Bid covers all DIP Indebtedness, release all security interests and liens securing the DIP Indebtedness (collectively, (i)(A) and (i)(B) above, the “Bid And Release”); and

ii. the amount of the Assumed Liabilities described in Section 2.3, by assuming such Assumed Liabilities through one or more Related Agreements.

Section 2.6 Assumption and Assignment of Contracts.

(a) The Assumed Contract List sets forth a list of all Contracts and Leases to which a Seller is a party or by which any of their properties or assets are bound and which Buyer has designated to be included as an Assumed Contract, together with estimated Cure Amounts for each Assumed Contract, with such Cure Amounts as agreed to among the various counterparties, Sellers and Buyer, or as determined by the Sale Order or such other Order of the Bankruptcy Court. From time to time prior to the Auction, and as reasonably requested by Buyer in the manner requested by Buyer, Sellers shall update the Assumed Contract List.

(b) In connection with the assumption and assignment to Buyer of any Assumed Contract pursuant to this Section 2.6:

i. the cure amounts, if any, necessary to cure all defaults, if any, and to pay all actual pecuniary losses, if any, that have resulted from such defaults under the Assumed Contracts (such amounts, the “Cure Amounts”), in each case as of the Petition Date and to the extent required by Section 365(b) of the Bankruptcy Code and the Sale Order or any other Order of the Bankruptcy Court (or as agreed by the applicable counterparties and the Sellers and Buyer) shall be paid as follows:

(A) Sellers shall be financially responsible for all Cure Amounts in connection with any Assumed Liabilities with respect to the Development Assets but only to the extent that such Cure Amounts are funded under the DIP Facility, and

(B) Buyer shall be financially responsible for all Cure Amounts in connection with any Assumed Liabilities with respect to (1) all Commercial Business Assets and (2) all Development Assets but only with respect to Cure Amounts in excess of Sellers’ payment obligations in respect of Cure Amounts;

provided that neither the Cure Amounts paid by Buyer nor any other expense or obligation set forth in this Section 2.6(b) shall reduce, directly or indirectly, any consideration payable to Sellers hereunder; and

ii. Buyer shall provide sufficient adequate assurance of future performance as of the Sale Hearing necessary to satisfy the conditions contained in Sections 365(b)(1)(C) and 365(f) of the Bankruptcy Code with respect to Assumed Contracts.

(c) Sellers shall use their respective reasonable best efforts to assign the Assumed Contracts to Buyer on the terms set forth in this Section 2.6 pursuant to the Sale

Order or such other Order of the Bankruptcy Court. In the event Sellers are unable to assign any such Assumed Contract to Buyer pursuant to the Sale Order or such other Order of the Bankruptcy Court or by agreement among the applicable counterparties and the Sellers and the Buyer, then the Parties shall use their reasonable best efforts to obtain, and to cooperate in obtaining, all Consents from Governmental Entities and third parties necessary to assume and assign such Assumed Contracts to Buyer, including payment of Cure Amounts in accordance with Section 2.6(b).

(d) Notwithstanding the foregoing, but subject to Section 2.7 and Section 5.1, a Contract shall not be an Assumed Contract hereunder and shall not be assigned to, or assumed by, Buyer to the extent that such Contract (i) is rejected by a Seller or terminated by a Seller in accordance with the terms hereof or by the other party thereto, or terminates or expires by its terms, on or prior to the Closing and is not continued or otherwise extended upon assumption; provided, however, that the foregoing shall be subject to the terms of the DIP Facility; or (ii) was not listed on the Assumed Contract List and not provided by Buyer to Sellers at least 14 calendar days prior to the Auction and requires a Consent of any Governmental Entity or other third party (except as permitted by the Bankruptcy Code) in order to permit the sale or transfer to Buyer of Sellers’ rights under such Contract, and no such Consent has been obtained prior to the Closing. In addition, a Permit shall not be assigned to, or assumed by, Buyer to the extent that such Permit requires a Consent of any Governmental Entity or other third party (other than, and in addition to, that of the Bankruptcy Court) in order to permit the sale or transfer to Buyer of Sellers’ rights under such Permit, and no such Consent has been obtained prior to the Closing.

Section 2.7 Schedule Updates.

(a) Notwithstanding anything to the contrary in this Agreement, and without any increase or decrease in the Purchase Price (other than any resulting increase or decrease in Cure Amounts that are the responsibility of Buyer in accordance with Section 2.6), the Buyer may, in its sole discretion, revise, amend or modify this Agreement and any schedule setting forth the Purchased Assets and the Excluded Assets up to two (2) Business Days prior to the Closing to (i) include in the definition of Purchased Assets (pursuant to the applicable schedule) and to exclude from the definition of Excluded Assets, any Contract or other asset of the Sellers not previously included in the Purchased Assets and require (A) the Sellers to file a notice of assumption and assignment with the Bankruptcy Court, and fix the Cure Amount either by the Sale Order or such other Order of the Bankruptcy Court or as agreed by the applicable counterparty and the Sellers and the Buyer; and (B) the Sellers to provide any necessary notice to the Parties to any such Contract and (ii) to exclude from the definition of Purchased Assets (pursuant to the applicable schedule) and to include in the definition of Excluded Assets, any Assumed Contract or other asset of the Sellers previously included in the Purchased Assets and not otherwise included in the definition of Excluded Assets; provided that no such change of a schedule, the definition of the Purchased Assets or the definition of the Excluded Assets shall reduce the amount of the Purchase Price below the amount of the Bid.

(b) If any Contract is added to (or removed from) the Assumed Contract List and thereby added to (or removed from) the Purchased Assets as permitted by this Section 2.7, the Sellers shall promptly take such steps as are reasonably necessary, including, if applicable, making any necessary or appropriate updates to the Assumed Contract List (provided that the Parties shall be obligated to pay Cure Amounts in accordance with Section 2.6) and prompt delivery of notice to the non-debtor counterparty, to cause such Contracts to be assumed by the Sellers, and assigned to the

Buyer, on the Closing Date (other than as excluded under the Sale Order and this Agreement).

(c) If any Contract is removed from the Purchased Assets as permitted by this Section 2.7, all Liabilities to third parties arising under such Contract shall be Excluded Liabilities. Without limiting any of the Buyer’s rights pursuant to this Section 2.7, in the event that the Sale Order does not approve the assignment or transfer of one or more of the Assumed Contracts to the Buyer as Purchased Assets, the Buyer may, in its sole discretion and at any time prior to the Auction, exclude any or all of the Assumed Contracts from the Purchased Assets but may not reduce the amount of the Purchase Price.

(d) For all purposes of this Agreement (including all representations and warranties of the Sellers contained herein), the Sellers shall be deemed to have obtained all required consents in respect of the assignment of any Assumed Contract and to have cured all defaults thereunder if, and to the extent that, pursuant to the Sale Order or other order of the Bankruptcy Court, the Sellers are authorized and directed to assume and assign the Assigned Contracts to Buyer pursuant to Section 365 of the Bankruptcy Code. For the avoidance of doubt, each Contract that is not an Assumed Contract may be rejected by the Sellers in their sole and absolute discretion, subject to approval by the Bankruptcy Court. Without limiting the foregoing, the failure by the Sellers to disclose any matter related to any Assumed Contract added to the Assumed Contract List after the date hereof shall not be considered a breach of any representations and warranties of the Sellers.

Section 2.8 Closing. The Closing shall take place remotely by electronic exchange of counterpart signature pages commencing at 10:00 a.m. Eastern time on the Closing Date.

Section 2.9 Deliveries at Closing.

(a) At the Closing, Sellers shall deliver or cause to be delivered to Buyer the following documents and other items:

i. a counterpart signature page to the Bill of Sale and Assignment and Assumption Agreement, duly executed by each Seller;

ii. a counterpart signature page to each of the Intellectual Property Assignments, duly executed by each Seller, as applicable;

iii. a counterpart signature page to the Lease Assignment, duly executed by the applicable Seller;

iv. a properly completed and duly executed IRS Form W-9 from each Seller;

v. the officer’s certificate required to be delivered pursuant to Section 7.1(g), in each case duly executed by each applicable signatory thereto; and

vi. a counterpart signature page to the Transition Services Agreement (if applicable), duly executed by each Seller.

(b) At the Closing, Buyer shall deliver to Sellers the following documents and other items:

i. a counterpart signature page to the Bill of Sale and Assignment and Assumption Agreement, duly executed by Buyer;

ii. a counterpart signature page to each of the Intellectual Property Assignments, duly executed by Buyer;

iii. a counterpart signature page to the Lease Assignment, duly executed by Buyer;

iv. the Purchase Price, in the form of the Bid And Release, in form reasonably satisfactory to the Sellers (including documentation reasonably acceptable to the Sellers evidencing satisfaction of the DIP Indebtedness);

v. the officer’s certificate required to be delivered pursuant to Section 7.2(e), duly executed by the applicable signatory thereto; and

vi. a counterpart signature page to the Transition Services Agreement (if applicable), duly executed by Buyer.

Section 2.10 Allocation. Within 90 calendar days after the Closing Date, Buyer shall in good faith prepare an allocation of the Purchase Price (and all capitalized costs and other amounts treated as purchase price for U.S. federal income Tax purposes) among the Purchased Assets in accordance with Section 1060 of the IRC and the Treasury Regulations thereunder (and any similar provision of United States state or local or non-United States Law, as appropriate). Sellers shall have 30 calendar days following receipt of Buyer’s proposed allocation to review and comment on such proposed allocation and Buyer shall consider such comments in good faith. Thereafter, Buyer shall provide Sellers with Buyer’s final allocation schedule, and Buyer and Sellers shall report, act and file Tax Returns (including Internal Revenue Service Form 8594) in all respects and for all purposes consistent with such allocation. Neither Buyer nor Sellers shall take any position (whether in audits, Tax Returns or otherwise) which is inconsistent with such allocation; provided that nothing contained herein shall prevent Buyer or Sellers from settling any proposed deficiency or adjustment by any Governmental Entity based upon or arising out of such allocation, and neither Buyer nor Sellers shall be required to litigate before any court any proposed deficiency or adjustment by any Governmental Entity challenging the allocation.

ARTICLE III
SELLERS’ REPRESENTATIONS AND WARRANTIES

Sellers hereby represent and warrant to Buyer as of the date hereof and as of the Closing Date that, except as set forth in (i) the Company SEC Documents filed on or after January 1, 2022 and publicly available prior to the date hereof (other than any disclosures contained under the captions “Risk Factors” or “Forward-Looking Statements,” and any other disclosures that are predictive, cautionary or forward-looking in nature but, for the purpose of clarification, including and giving effect to any factual or historical statements included in any such statements), and (ii) the disclosure schedule accompanying this Agreement (the “Disclosure Schedule”), the statements contained in this Article III are true and correct.

Section 3.1 Organization of Sellers; Good Standing.

(a) Each Seller is duly incorporated or organized, as applicable, validly existing and in good standing under the Laws of its state of incorporation or formation, as applicable, and has all requisite corporate, limited liability company or similar power and

authority, as applicable, to own, lease and operate its properties and assets and to carry on and conduct the business of the Sellers as currently conducted.

(b) Except as a result of the commencement of the Chapter 11 Cases, each Seller is duly authorized to do business and is in good standing as a foreign corporation or limited liability company, respectively, in each jurisdiction where the ownership or operation of the Purchased Assets or the conduct of the business of the Sellers requires such qualification, and each Seller does not engage in any activity, or own, lease or operate any properties such as to require it to qualify to do business in any other jurisdiction, in each case except for failures to be so authorized or be in such good standing, as would not, individually or in the aggregate, have a Material Adverse Effect.

(c) Schedule 3.1(c) of the Disclosure Schedule sets forth a true, complete and correct list of each jurisdiction in which each Seller or any of their Subsidiaries is organized, and in which each is duly licensed or qualified to do business.

(d) Each of the Subsidiaries of each of the Sellers are set forth on Schedule 3.1(c) of the Disclosure Schedule. Except as set forth on Schedule 3.1(c) of the Disclosure Schedule, none of the Sellers owns any Subsidiaries or shares of capital stock or other equity interests in any other Person.

Section 3.2 Authorization of Transaction.

(a) Each Seller has all requisite corporate or limited liability company power and authority, as applicable, to execute and deliver this Agreement and all Related Agreements to which it is a party and to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and all Related Agreements to which a Seller is a party have been duly authorized by such Seller and no other corporate or limited liability company action on the part of any Seller is necessary to authorize this Agreement or the Related Agreements to which it is party or to consummate the Contemplated Transactions.

(b) This Agreement has been duly and validly executed and delivered by each Seller, and, upon their execution and delivery in accordance with the terms of this Agreement, each of the Related Agreements to which any Seller is a party will have been duly and validly executed and delivered by each such Seller, as applicable. Assuming that this Agreement constitutes a valid and legally binding obligation of Buyer, this Agreement constitutes the valid and legally-binding obligations of Sellers, enforceable against Sellers in accordance with its terms and conditions, subject to applicable bankruptcy, insolvency, moratorium or other similar Laws relating to creditors’ rights and general principles of equity. Assuming, to the extent that it is a party thereto, that each Related Agreement constitutes a valid and legally binding obligation of Buyer, each Related Agreement to which any Seller is a party, when executed and delivered, constituted or will constitute the valid and legally-binding obligations of such Seller, as applicable, enforceable against Sellers, as applicable, in accordance with their respective terms and conditions, subject to applicable bankruptcy, insolvency, moratorium or other similar Laws relating to creditors’ rights and general principles of equity.

Section 3.3 Noncontravention; Consents and Approvals.

(a) Neither the execution and delivery of this Agreement, nor the consummation of the Contemplated Transactions (including the Related Agreements), (i) will conflict with or result in a breach of the certificate of incorporation, certificate of formation, bylaws, operating agreement or other organizational documents of any Seller,

(ii) will result in the material violation of any Law to which any Seller is, or its respective assets or properties are, subject, (iii) subject to the entry of the Sale Order, will conflict in any material respect with any Assumed Contract or Assumed Permit, or (iv) subject to and assuming entry of the Sale Order, will conflict in any material respect with, or result in any material violation of or constitute a material breach or default under, any Order of any Governmental Entity applicable to the Sellers or any of the Purchased Assets.

(b) No Consent, notice or filing is required to be obtained by any Seller from, or to be given by any Seller to, or made by any Seller with, any Governmental Entity in connection with the execution, delivery and performance by any Seller of this Agreement or any Related Agreement. After giving effect to the Sale Order and any applicable order of the Bankruptcy Court authorizing the assignment and assumption of any Contract that is an Assumed Contract hereunder, no Consent, notice or filing is required to be obtained by any Seller from, or to be given by any Seller to, or made by any Seller with, any Person that is not a Governmental Entity in connection with the execution, delivery and performance by any Seller of this Agreement or any Related Agreement, except where the failure to give notice, file or obtain such authorization, consent or approval would not, individually or in the aggregate, have a Material Adverse Effect.

Section 3.4 Compliance with Laws. Sellers and all of the Purchased Assets are in compliance with all Laws applicable to the business of the Sellers or the Purchased Assets in all material respects. Sellers have not received any written notice of violation of any Law with respect to any Seller, the business of the Sellers or the Purchased Assets.

Section 3.5 Title to Purchased Assets. Sellers, as of immediately prior to the Closing, have good and valid title to, or, in the case of leased assets, have valid and enforceable leasehold interests in (subject to the effect on enforceability of (a) any applicable Law relating to bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or preferential transfers, or similar Laws relating to or affecting creditors’ rights generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law)), the Purchased Assets, free and clear of all Liens (except for Permitted Liens), subject to entry of the Sale Order. At the Closing or such time as title is conveyed under Section 2.6, Sellers will convey, subject to the Sale Order having been entered and still being in effect and not subject to any stay pending appeal at the time of Closing, good and valid title to, or valid leasehold interests in, all of the Purchased Assets, free and clear of all Liens (except for Permitted Liens), to the fullest extent permissible under section 363(f) of the Bankruptcy Code and subject to the rights of licensees under section 365(n) of the Bankruptcy Code. Except for the services and rights to be provided or granted to Buyer and its Affiliates pursuant to the Transition Services Agreement, if applicable, the Purchased Assets constitute substantially all of the properties, assets and rights used by the Sellers to conduct and operate the business of the Sellers in all material respects as currently conducted and operated by the Sellers. All of the Purchased Assets are in good working condition, order and repair (ordinary wear and tear excepted) for assets of comparable age and past use and are suitable for use in the Ordinary Course of Business to operate the business of the Sellers substantially as currently conducted and operated by the Sellers. Except as set forth on Schedule 3.5, no Subsidiaries of any Seller hold any assets, properties or rights, and no other Person is engaged in the operation of, or hold rights, title and interest in (except for Permitted Liens) the Purchased Assets.

Section 3.6 Contracts. For purposes of this Agreement, “Material Contract” means any Contract to which any Seller is a party or by which any Seller or any of their respective properties or assets is bound (in each case, excluding any Employee Benefit Plan) that is required to be disclosed and filed as an exhibit to the Company SEC Documents pursuant to the Exchange Act. All Material Contracts have been filed with the Company SEC Documents. No Seller has assigned, delegated or otherwise transferred to any third party any of its rights or obligations

with respect to any Material Contract. Each Assumed Contract is valid and binding on Sellers to the extent such Person is a party thereto, as applicable, and to Sellers’ Knowledge, each other party thereto, and is in full force and effect, assuming entry of the Sale Order. Each Seller and, to Sellers’ Knowledge, any other party thereto have performed all material obligations required to be performed by it under each Assumed Contract except to the extent such default or violation will be cured as a result of the payment of the applicable Cure Amounts, assuming entry of the Sale Order. The Assumed Contracts include all Contracts material to the ownership and/or operation of the business of Sellers. Sellers have not, and, to Sellers’ Knowledge, no other party to any Assumed Contract has, commenced any action against any of the Parties to any Assumed Contract or given or received any written notice of any default or violation under any Assumed Contract that has not been withdrawn or dismissed except to the extent such default or violation will be cured as a result of the payment of the applicable Cure Amounts, assuming entry of the Sale Order. To Sellers’ Knowledge, there are no events or conditions which constitute, or, after notice or lapse of time or both, will constitute a default on the part of any Seller, or to Sellers’ Knowledge, any counterparty under such Assumed Contract. To Sellers’ Knowledge, no Seller has received any notice from any Person that such Person intends to terminate, or not renew, any Assumed Contract. Each Assumed Contract is, or will be upon the Closing, valid, binding and in full force and effect in accordance with its terms.

Section 3.7 Intellectual Property.

(a) Schedule 3.7(a) of the Disclosure Schedule sets forth the following: (i) a complete list of all Intellectual Property owned by the Sellers and for which a registration has been issued or application for such issuance and registration has been filed (“Owned Intellectual Property”), specifying, where applicable, the name of the record owner, the application, registration or serial or other similar identification number, assignment status (if applicable), the jurisdictions in which a registration has been issued or in which an application for such issuance and registration has been filed, including the respective registration or application numbers and the names of the Registered owner or applicant, as applicable, the date of filing or issuance and solely with respect to Internet domain names, the applicable registrar; (ii) all licenses, sublicenses and other agreements pursuant to which any Seller is authorized to use any Intellectual Property owned or controlled by a third party including the identity of all Parties thereto and the type and date thereof, provided, however, that the Sellers need not list object code end-user licenses granted to end-users in the Ordinary Course of Business that permit use of software products without a right to modify, distribute or sublicense the same; and (iii) all licenses, sublicenses and other agreements (other than end-user licenses in the Ordinary Course of Business) pursuant to which any Seller has granted or promised to grant to any third party any right to use any Intellectual Property, including the identity of all Parties thereto, a description of the nature and subject matter thereof, the applicable royalty and the term thereof.

(b) Title, Etc. Each Seller has good and valid right, title and interest in and to and is the sole and exclusive owner of (free and clear of any Liens) Owned Intellectual Property or has a license to use Intellectual Property owned by any third party that is required by such Seller to conduct its business as currently conducted. All Intellectual Property included in the Owned Intellectual Property is unexpired and subsisting and properly recorded with the appropriate Governmental Entity, and no Owned Intellectual Property is subject to any outstanding order, judgment, determination, decree or agreement issued by or with any Governmental Entity adversely affecting such Seller’s use of, or its rights, to such Owned Intellectual Property, and such Seller has not received any written notice of any of the foregoing. There are no Proceedings outstanding or, to the Sellers’ Knowledge, threatened that seeks to challenge or limit such Seller’s ownership of, or right to use or enforce any Owned Intellectual Property.

(c) Infringement. The conduct of the Sellers’ business, including the design, development, use, import, export, branding, advertising, promotion, marketing, manufacture, offer for sale, and sale of the Products, does not infringe, misappropriate, or conflict with any Intellectual Property of any Person or constitute unfair competition or trade practices under the laws of any jurisdiction. There are no Proceedings outstanding or, to the Sellers’ Knowledge, threatened, and no Seller has received any written notice or claim during the three years prior to Closing, alleging that the conduct of its business infringes the Intellectual Property rights of any Person. There is, and there has been, no unauthorized use, infringement or misappropriation of any Owned Intellectual Property by any Person, including any Current Employee or Former Employee, and no Seller has issued any written notice or claim asserting that any such unauthorized use, infringement or misappropriation is occurring or has occurred.

(d) Invention Assignments and Confidentiality. All Current Employees and Former Employees, as well as consultants or other independent contractors, of the Sellers who have been engaged in the past or are presently engaged in any research, development, design or similar services that involve the creation of any Owned Intellectual Property have irrevocably assigned that Person’s rights in such Owned Intellectual Property pursuant to invention assignment agreements and have entered into customary confidentiality agreements with the applicable Seller, in each case substantially in the form or forms that have been delivered to Buyer.

(e) IT Assets. No Person has gained unauthorized access to any of the IT Assets owned, controlled or used by any Seller that has resulted in material Liability to the operation or control of the Purchased Assets. The IT Assets used by the Sellers in the conduct of the business of the Sellers (i) operate and perform in all material respects in accordance with their documentation and functional specifications and otherwise as required by its business as presently conducted, (ii) have not malfunctioned or failed in a manner to materially adversely affect the conduct of its business within the past three years and (iii) are free from material bugs or other material defects.

(f) Privacy and Security Policies. Each Seller has established and implemented written policies regarding privacy, cyber security and data security that are commercially reasonable, and consistent in all material respects with (i) reasonable practices in the industry of the Sellers and (ii) the written commitments of the Sellers. Each Seller has complied in all material respects with (x) all Laws, rules and regulations regarding data protection and the privacy and security of personal information applicable to the Sellers in the operation of the business of the Sellers, and (y) its privacy policies or commitments to customers and consumers regarding data protection and the privacy and security of personal information. No Person has gained unauthorized access to or misused any personal information in a manner that, individually or in the aggregate, has resulted in a material Liability to the operation or control of the Purchased Assets or an obligation of the Sellers to notify a Governmental Entity.

Section 3.8 Proceedings. Other than the Chapter 11 Cases, Schedule 3.8 of the Disclosure Schedule sets forth all unresolved Proceedings brought by or against any Seller, and to Sellers’ Knowledge, there are no other Proceedings threatened in writing against any Seller which is reasonably likely to adversely affect the ability of any Seller to enter into this Agreement or to consummate the Contemplated Transactions.

Section 3.9 Employees and Employment Matters.

(a) No Seller is a party to or bound by any collective bargaining agreement covering the Current Employees (as determined as of the date of this Agreement), nor is

any Seller aware of any ongoing strike, walkout, work stoppage, or other material collective dispute affecting any Seller with respect to the business of the Sellers. Schedule 3.9(a) of the Disclosure Schedule sets forth a complete and correct list of all Current Employees by: name; title or position; status (part-time, full-time, exempt, non-exempt, etc.); whether paid on a salaried, hourly or other basis; current base salary or wage rate; current target bonus; start date; service reference date (if different from the start date); work location; accrued paid time off; and an indication of whether or not such employee is on leave of absence (the “Employee Roster”).

(b) There are no grievances or unfair labor practice complaints pending against the Sellers or any of their Subsidiaries before the National Labor Relations Board or any other Governmental Entity with respect to any employees of Sellers.

(c) Sellers are not liable for any arrears of wages, other compensation or benefits (other than such Liabilities that have been incurred in the Ordinary Course of Business), or any Taxes or penalties for failure to comply with any employment Laws.

(d) No individual who has performed services for Sellers with respect to the business of the Sellers has been improperly excluded from participation in any Employee Benefit Plan, and none of the Sellers has any direct or indirect Liability, whether absolute or contingent, with respect to any misclassification of any Person as an independent contractor or on any other non-employee basis for such Seller rather than as an employee, with respect to any individual employed, engaged, or leased by the Seller from another employer, or with respect to any misclassification of any employee as exempt versus non-exempt under the Fair Labor Standards Act.

(e) There is no material employment or labor-related claim pending against any Seller brought by or on behalf of any employee or any Governmental Entity and, to Sellers’ Knowledge, no such claim is threatened. Except as disclosed to Buyer confidentially, in the last three years, to Sellers’ Knowledge, there have been no allegations of sexual or other unlawful harassment or discrimination made on more than one occasion against (i) any officer of any Seller or (ii) any managerial employee of a Seller.

(f) All employees of Sellers are authorized to work in the United States.

(g) Except as set forth on Schedule 3.9(g) of the Disclosure Schedule, During the 90-day period prior to the date hereof, there have been no involuntary terminations of employment of any employees of Sellers.

Section 3.10 Employee Benefit Plans. With respect to each Employee Benefit Plan, the Sellers have made available to Buyer true and complete copies (to the extent applicable) of (i) the current plan document (or, if such Employee Benefit Plan is unwritten, a written description of the material terms thereof), including any amendments thereto other than any document that Sellers are prohibited from making available to Buyer as the result of applicable Law relating to the safeguarding of data privacy, (ii) the most recent annual report on Form 5500 filed with the Department of Labor, (iii) the most recent IRS determination or opinion letter received by the Sellers, (iv) the most recent summary plan description, (v) each current material related insurance Contract or trust agreement, (vi) the most recent actuarial report, financial statement and trustee report, and (vii) all non-routine correspondence with the IRS or United States Department of Labor since January 1, 2020.

Section 3.11 Real Property.

(a) Sellers do not own any real property.

(b) Schedule 3.11(b) of the Disclosure Schedule sets forth the address of each Leased Real Property, and a true and complete list of all Leases that are Assumed Contracts (including the date and name of the Parties to such Lease document). Sellers have made available to Buyer a true and complete copy of all Leases that are Assumed Contracts (including all amendments, extensions, renewals, guaranties and other agreements with respect thereto) for such Leased Real Property, as amended through the date hereof. With respect to each of the Leases that are Assumed Contracts: (i) Sellers’ possession and quiet enjoyment of the Leased Real Property under such Lease has not been disturbed in any material respect, and there are no pending disputes with respect to Sellers’ obligations under such Lease that will not be satisfied by the Sale Order; (ii) no security deposit or portion thereof deposited with respect such Lease has been applied in respect of a breach or default under such Lease which has not been redeposited in full; (iii) the other party to such Lease is not an affiliate of Sellers; and (iv) the Sellers have not subleased, licensed or otherwise granted any Person the right to use or occupy such Leased Real Property or any portion thereof.

(c) The Leased Real Property and the Leasehold Improvements included in the Purchased Assets comprise all of the real property used in or otherwise related to the operation by Sellers of, the business of the Sellers.

(d) Sellers have received no written notice of any condemnation, expropriation or other proceeding in eminent domain pending or, to Sellers’ Knowledge, which is threatened, affecting any real property underlying the Leased Real Property or any portion thereof or interest therein.

Section 3.12 Tangible Personal Property. Schedule 3.12 of the Disclosure Schedule sets forth all material Personal Property Leases, and each such material Personal Property Lease is valid and enforceable.

Section 3.13 Permits; Certifications.

(a) Schedule 3.13(a) of the Disclosure Schedule contains a list of all material Permits (other than any Business Authorizations and Product Registrations) that Sellers hold as of the date hereof in connection with the operations of the business of the Sellers. All such Permits are valid and are in full force and effect and will continue to be so upon Closing. As of the date hereof, there are no Proceedings pending or, to Sellers’ Knowledge, threatened in writing that seeks the revocation, cancellation, suspension, failure to renew or adverse modification of any Assumed Permits, except where a failure of this representation and warranty to be so true and correct would not have a Material Adverse Effect on the ownership and operation of the business of Sellers. All required filings and maintenance obligations with respect to the Assumed Permits have been made or met, all fees and charges with respect to the Assumed Permits have been paid in full, and all required applications for renewal thereof have been filed, except where a failure of this representation and warranty to be so true and correct would not have a Material Adverse Effect on the ownership and operation of the business of Sellers.

(b) All Products, including the Inventory, have been manufactured, packaged, labeled, tested, stored, shipped, handled, warehoused, and distributed in compliance in all material respects with all Laws, Permits, and Product Registrations.

Section 3.14 Purchased Inventory.

(a) No Inventory that is Purchased Inventory is materially damaged in any significant way, except for any such damage which would not be material to the Purchased Inventory taken as a whole.

(b) No Product has been or has been requested by a Governmental Entity to be recalled, withdrawn, removed, suspended, seized, the subject of a corrective action, or discontinued (whether voluntarily or otherwise) (collectively “Recall”). Neither the Sellers, nor, to the Sellers’ Knowledge, any Governmental Entity or other Person, has sought, is seeking, or, to the Sellers’ Knowledge, has or is currently threatening or contemplating any Recall of a Product. No Product has been subject to any safety alerts, field notifications, or other written notification of misbranding or adulteration, and neither the Sellers, nor, to the Sellers’ Knowledge, any Governmental Entity or other Person, has sought, is seeking, or, to the Sellers’ Knowledge, has threatened any such alert or notice.

(c) The Purchased Inventory is free and clear of all Liens (other than Permitted Liens) and is in material compliance with United States federal and applicable state Laws for such products as of the date hereof, except for any such noncompliance which would not be material to the Purchased Inventory taken as a whole.

(d) The Purchased Inventory is (i) in good, usable and currently marketable condition in the Ordinary Course of Business, and (ii) salable in the Ordinary Course of Business at the carrying value of such Inventory, as shown in the books and records of the Sellers in the Ordinary Course of Business, in accordance in all material respects with all applicable Laws, as the case may be.

Section 3.15 Environmental Matters.

(a) Each Seller is, and has been during the prior three years, in compliance in all material respects with all applicable Environmental Laws, which compliance has included obtaining and maintaining all permits, licenses and authorizations required under applicable Environmental Laws.

(b) No Seller has received during the prior three years written notice from any Governmental Entity or third party regarding any actual or alleged violation of or Liability under Environmental Laws.

(c) No Hazardous Substance has been released at any current or former Leased Real Property, or other real property, by Sellers in material violation of any Environmental Law.

Section 3.16 Financial Statements; SEC Filings.

(a) The consolidated financial statements of Novan (including all related notes or schedules) included or incorporated by reference in the Company SEC Documents, as of their respective dates of filing with the SEC (or, if such Company SEC Documents were amended prior to the date hereof, the date of the filing of such amendment, with respect to the consolidated financial statements that are amended or restated therein), (i) have been prepared in all material respects in accordance with GAAP (except, in the case of unaudited quarterly statements, as permitted by Form 10-Q of the SEC or other rules and regulations of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or as permitted by Regulation S-X), and (ii) fairly present the consolidated financial position of Novan and its consolidated

Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods shown).

(b) Since January 1, 2022, Novan has, in all material respects, timely filed with or otherwise furnished (as applicable) to the SEC all registration statements, prospectuses, forms, reports, certifications, proxy statements, schedules, statements and documents required to be filed or furnished by it with the SEC under the Securities Act or the Exchange Act, as the case may be (such documents and any other documents filed or furnished by Novan with the SEC since January 1, 2022 as have been supplemented, modified or amended since the time of filing, collectively, the “Company SEC Documents”). None of Novan’s Subsidiaries is required to file periodic reports with the SEC. To Sellers’ Knowledge, as of the date hereof, none of the Company SEC Documents is the subject of ongoing SEC review or outstanding SEC investigation.

Section 3.17 Brokers’ Fees. Except for amounts due to Raymond James Securities LLC (which amounts are to be paid by the Seller), no Seller has entered into any Contract to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which Buyer could become liable or obligated to pay.

Section 3.18 No Other Agreements to Purchase. Sellers have not entered into any agreement with any other Person (written or oral) which grants such third party the right or option purchase or acquire from Sellers any Purchased Asset, other than purchase orders for Inventory accepted by Sellers in the Ordinary Course of Business.

Section 3.19 Taxes.

(a) All income and other material Tax Returns (including any IRS Forms W-2 or Forms 1099) required to be filed by or on behalf of Sellers and all Tax Returns required to be filed in respect of the Purchased Assets have been timely filed, and all such Tax Returns are true, correct and complete in all material respects. All income and other material Taxes of Sellers, whether or not shown on any Tax Return, have been timely paid. Sellers have complied in all material respects with all applicable withholding obligations for Taxes required to have been withheld in connection with amounts paid to any employee, independent contractor, creditor, stockholder or other third party.

(b) There are no pending, proposed in writing or threatened in writing audits or other proceedings with respect to any Taxes payable by or asserted against Sellers. All deficiencies for Taxes asserted or assessed in writing against Sellers have been fully and timely (within any applicable extension periods) paid, or settled.

(d) There are currently no Proceedings with regard to a material amount of Taxes of Sellers, and Sellers have not received written notice or announcement of any audits or other Actions with respect to a material amount of Taxes.

(e) Neither Seller has been a party to a “listed transaction” within the meaning of Treasury Regulations Section 1.6011-4(b)(2) (or similar provisions of state, local or non-U.S. Law) with respect to the Purchased Assets.

(f) No claim in writing has been made by any Governmental Entity in a jurisdiction where a Seller does not file Tax Returns that it is or may be subject to taxation by that jurisdiction with respect to the Purchased Assets.

Section 3.20 Business Authorizations; Product Safety and Liability.

(a) Each Seller owns, holds or lawfully uses (either directly or through its distributors) all authorizations and Permits which are necessary for the ownership, operation or use of the Purchased Assets or the conduct of the business of Sellers, except as would not be material (the “Business Authorizations”), including all Business Authorizations required for the manufacturing, packaging, marketing, promotion, commercialization, testing, clinical investigation, distribution, or sale of the Products (collectively, the “Product Registrations”). Schedule 3.20(a) of the Disclosure Schedule sets forth all Business Authorizations and Product Registrations held by each Seller (organized by Product and country). Each Business Authorization and Product Registration is valid and subsisting and in full force and effect and, subject to satisfaction of applicable consent, notice, transfer, change of ownership or similar requirements under applicable Laws, will continue to be so upon Closing, and each Seller is in compliance in all material respects with the respective terms, conditions and obligations of each such Business Authorization and Product Registration. All fees and charges with respect to such Business Authorizations and Product Registrations, as of the date hereof, have been paid in full and all filing, reporting, and maintenance obligations have been completely and timely satisfied, except, in each case, where failure would be not be material. There are no Proceedings pending or, to the Sellers’ Knowledge, threatened, that would result in the termination, revocation, suspension or the imposition of a restriction or other materially adverse action on any such Business Authorization or Product Registration or the imposition of any fine, penalty or other sanction for violation of any such Business Authorization or Product Registration.

(b) Each Seller is, and has been, in material compliance with all applicable Laws, Business Authorizations and Product Registrations, including all applicable Laws, Business Authorizations and Product Registrations administered or issued by the FDA or any other Governmental Entity. In the five years prior to the date hereof, no Seller has received any written notice to the effect that such Seller, the business of the Sellers or the Purchased Assets are or may not be in compliance in all material respects with any Law, Business Authorization or Product Registration.

(c) In the five years prior to the date hereof, no Seller has received any written notice of inspectional observations or other noncompliance, including on a Form FDA 483, warning letters, untitled letters, cyber letters, reprimand, regulatory letter, Establishment Inspection Report, notice of an integrity review, notice of an investigation, request for corrective of remedial action, notice of other adverse finding, notice of deficiency or violation, inspection or audit reports, or similar written communications from any Governmental Entity indicating a failure to comply with applicable Laws that has not been resolved.

(d) As required under applicable Law or pursuant to a Permit, Business Authorization, or Product Registration, in the five years prior to the date hereof Sellers have maintained, filed, or furnished to the applicable Governmental Entity or Person all material filings, documents, claims, reports, notices, and other submissions (collectively “Reports”), required to be maintained, filed, or furnished on a timely basis, and, at the time of maintenance, filing, or furnishing all such Reports were complete and accurate in all material respects, or were subsequently updated, changed, corrected, or modified, except, in each case, where failure would not be material.

(e) In the five years prior to the date hereof, neither Sellers nor any officer or, to the Sellers’ Knowledge, agent or employee of any Seller has made any untrue or misleading statement of material fact or fraudulent statement to the FDA or any other

Governmental Entity, failed to disclose a material fact required to be disclosed to the FDA or any other Governmental Entity, or committed an act, made a statement, or failed to make a statement that would reasonably be expected to provide a basis, if such failure was known to the FDA, for the FDA or any other Governmental Entity to invoke its policy respecting “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities,” as set forth in 56 Fed. Reg. 46191 (September 10, 1991) (and any amendments thereto), in each case relating to the business of the Sellers or the Purchased Assets. Neither Sellers nor any Person providing services to Sellers has ever been investigated by the FDA or other Governmental Entity for data or healthcare program fraud. In the five years prior to the date hereof, neither Sellers nor, to the Sellers’ Knowledge, any Person providing services to Sellers is the subject of any pending or, to the Sellers’ Knowledge, threatened investigation pursuant to the FDA Ethics Policy, or resulting from any other untrue or false statement or omission.

(f) Neither Sellers, nor, to the Sellers’ Knowledge, any Person providing services to Sellers, nor, to the Sellers’ Knowledge, their respective officers, directors, partners, employees, or agents have been:

i. debarred or suspended pursuant to 21 U.S.C. § 335a;

ii. excluded under 42 U.S.C. § 1320a-7 or any similar Law of any Governmental Entity;

iii. excluded, debarred, suspended or deemed ineligible to participate in federal procurement and non-procurement programs, including those produced by the U.S. General Services Administration;

iv. charged, named in a complaint, convicted, or otherwise found liable in any Proceeding that falls within the ambit of 21 U.S.C. § 331, 21 U.S.C. § 333, 21 U.S.C. § 334, 21 U.S.C. § 335a, 21 U.S.C. § 335b, 42 U.S.C. § 1320a - 7, 31 U.S.C. §§ 3729 – 3733, 42 U.S.C. § 1320a-7a, or any other applicable Law;

v. disqualified or deemed ineligible pursuant to 21 C.F.R. Parts 312, 511, or 812, or otherwise restricted, in whole or in part, or subject to an assurance pursuant to 21 C.F.R. Parts 312, 511, or 812; or

vi. had a pending Proceeding, or otherwise received any written notice or other written communication from any Governmental Entity or any Person threatening, investigating, or pursuing (i)-(v) above.

(g) In the five years prior to the date hereof, each Product is, and has been, fit for the ordinary purposes for which it is intended to be used and conforms in all material respects to any promises or affirmations of fact made in all regulatory filings pertaining thereto and made on the container or label for such Product or in connection with its sale. There is no design or manufacturing defect with respect to any Product. In the five years prior to the date hereof, no Seller has received any written notice that such Seller has, and to the Sellers’ Knowledge there is no reasonable basis for any Proceedings against such Seller for, any Liability arising out of any injury to any Person or property as a result of a Product or component thereof manufactured, sold or shipped by, or service provided by, the Sellers.

(h) For all pre-clinical studies, animal studies, and clinical trials concerning a Product, (collectively "Studies"), the study reports, protocols, and statistical analysis plans (collectively, the “Data”) accurately, completely, and fairly reflects the results from

and plans for the Studies in all material respects. The Sellers have no Knowledge of any other studies, the results of which are inconsistent with, or otherwise call into question, the Study results. The Sellers are not aware of any material facts or circumstances related to the safety or efficacy of any Product that would materially and adversely affect the ability to receive or maintain a Permit, Business Authorization, or Product Registration or that would otherwise delay the receipt of the same.

(i) In the five years prior to the date hereof, neither the Sellers nor, to the Sellers’ Knowledge, any Person providing services to the Sellers has received any written notice from the FDA, any other Governmental Entity, any Institutional Review Board (“IRB”), or other Person or board responsible for the oversight or conduct of any Study, requiring or threatening the termination, suspension, material modification or material restriction, delay, or clinical hold of, or otherwise rejecting any Study that was, is planned to be, or is being conducted. In the five years prior to the date hereof, all Studies were and, if still pending, are being conducted in all material respects in accordance with all applicable Laws, good clinical practices, good laboratory practices, the protocols, procedures and controls designed and approved for such Studies, professional medical and scientific standards, and in accordance with any requirement of an IRB responsible for review of such Studies.

Section 3.21 Health Care Laws; HIPAA Compliance. Each Seller is and, in the five years prior to the date hereof, has been in compliance in all material respects with all Health Care Laws applicable to it, its products and its properties or other assets or its business or operation. Each Seller and any Person acting on its behalf, has in effect all Permits, including, without limitation, all Permits necessary for it to own, lease or operate its properties and other assets and to carry on its business and operations, as presently conducted. In the five years prior to the date hereof, neither the Sellers nor any Subsidiary thereof has made an untrue statement of a material fact or fraudulent statement to any Governmental Entity, or, to the Sellers’ Knowledge, failed to disclose a material fact required to any Governmental Entity, or committed an act, or made a statement that, at the time such statement was made, would constitute a violation of any Health Care Law. As applicable, neither Seller nor any Subsidiary thereof, or any of their respective affiliates, employees or Representatives, has made any untrue statement of fact to any Governmental Entity regarding material claims incurred but not reported, in the five years prior to the Closing Date.

Section 3.22 No Other Representations or Warranties. Except for the representations and warranties expressly contained in this Article III (as qualified by the Disclosure Schedule and in accordance with the express terms and conditions (including limitations and exclusions) of this Agreement) or in the officer’s certificate required to be delivered pursuant to Section 7.1(g), none of Sellers or any other Person on behalf of any Seller makes any express or implied representation or warranty with respect to the Purchased Assets or the Assumed Liabilities or with respect to any information, statements, disclosures, documents, projections, forecasts or other material of any nature made available or provided by the Sellers in that certain datasite administered by Datasite on behalf of Sellers or elsewhere to Buyer or any of its Affiliates or Representatives on behalf of Sellers or any of their respective Affiliates or Representatives. Except for the representations and warranties expressly contained in this Article III (as qualified by the Disclosure Schedule and in accordance with the express terms and conditions (including limitations and exclusions) of this Agreement) or in the officer’s certificate required to be delivered pursuant to Section 7.1(g), all other representations and warranties, whether express or implied, are hereby expressly disclaimed by Sellers. Nothing in this Section 3.22 shall limit any rights or remedies of Buyer with respect to a claim arising out of related to Fraud.

ARTICLE IV
BUYER’S REPRESENTATIONS AND WARRANTIES

Buyer represents and warrants to Sellers as follows as of the date hereof and as of the Closing Date:

Section 4.1 Organization of Buyer. Buyer is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its assets and to carry on its business as now being conducted.

Section 4.2 Authorization of Transaction.

(a) Buyer has full corporate power and authority to execute and deliver this Agreement and all Related Agreements to which it is a party and to perform its obligations hereunder and thereunder.

(b) The execution, delivery and performance of this Agreement and all other Related Agreements to which Buyer is a party have been duly authorized by Buyer, and no other corporate action on the part of Buyer is necessary to authorize this Agreement or the Related Agreements to which it is a party or to consummate the Contemplated Transactions.

(c) This Agreement has been duly and validly executed and delivered by Buyer, and, upon their execution and delivery in accordance with the terms of this Agreement, each of the Related Agreements to which Buyer is a party will have been duly and validly executed and delivered by Buyer. To the extent this Agreement constitutes a valid and legally-binding obligation of Sellers, this Agreement constitutes a valid and legally-binding obligation of Buyer, enforceable against Buyer in accordance with its terms and conditions, subject to applicable bankruptcy, insolvency, moratorium or other similar Laws relating to creditors’ rights and general principles of equity. To the extent each Related Agreement constitutes a valid and legally-binding obligation of each Seller party thereto, each Related Agreement to which Buyer is a party, when executed and delivered, constituted or will constitute the valid and legally-binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms and conditions, subject to applicable bankruptcy, insolvency, moratorium or other similar Laws relating to creditors’ rights and general principles of equity.

Section 4.3 Noncontravention. Neither the execution and delivery of this Agreement, nor the consummation of the Contemplated Transactions (including the assignments and assumptions referred to in Section 2.6) will (i) conflict with or result in a breach of the certificate of incorporation, bylaws, or other organizational documents, of Buyer, (ii) subject to any consents required to be obtained from any Governmental Entity, violate any Law to which Buyer is, or its assets or properties are subject, or (iii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel any Contract to which Buyer is a party or by which it is bound, except, in the case of either clause (ii) or (iii), for such conflicts, breaches, defaults, accelerations or rights as would not, individually or in the aggregate, reasonably be expected to prevent, materially delay or materially impair to the ability of Buyer to consummate the transactions contemplated by this Agreement or by the Related Agreements. Buyer is not required to give any notice to, make any filing with, or obtain any authorization, consent or approval of any Governmental Entity in order for the Parties to consummate the transactions contemplated by this Agreement or any of the Related Agreement, except where the failure to give notice, file or obtain such authorization, consent or approval would not, individually or in the aggregate,

reasonably be expected to prevent, materially delay or materially impair to the ability of Buyer to consummate the transactions contemplated by this Agreement or by the Related Agreements.

Section 4.4 Proceedings. There are no Proceedings pending or, to Buyer’s knowledge, threatened against or affecting Buyer that will adversely affect Buyer’s performance under this Agreement or the consummation of the transactions contemplated by this Agreement.

Section 4.5 Adequate Assurances Regarding Executory Contracts. Buyer will be capable of satisfying as of the Sale Hearing the conditions contained in Sections 365(b)(1)(C) and 365(f) of the Bankruptcy Code with respect to the Assumed Contracts.

Section 4.6 Sufficiency of Funds. Buyer has, and will have at the Closing, sufficient funds in an aggregate amount necessary to pay the cash portion of the Purchase Price at the Closing.

Section 4.7 Brokers’ Fees. Neither Buyer nor any of its Affiliates has entered into any Contract to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which any Seller could become liable or obligated to pay.

Section 4.8 No Other Representations and Warranties. Except for the representations and warranties expressly contained in this Article IV or in the officer’s certificate required to be delivered pursuant to Section 7.1(g), each Seller, on behalf of itself and each of its Affiliates, acknowledges and agrees that neither Buyer nor any other Person on behalf of Buyer makes, and no Seller has relied on the accuracy or completeness of any express or implied representation or warranty with respect to Buyer or with respect to any other information provided by or on behalf of Buyer.

ARTICLE V
PRE-CLOSING COVENANTS

The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing (except as otherwise expressly stated to apply to a different period):

Section 5.1 Notices and Consents.

(a) To the extent required by the Bankruptcy Code or the Bankruptcy Court, Sellers shall give any notices to third parties, and each Seller shall use its commercially reasonable efforts to obtain any third party Consents or sublicenses; provided, however, that neither Sellers nor Buyer shall be required to incur any Liabilities or provide any financial accommodation, in order to obtain any such third party Consent with respect to the transfer or assignment of any Purchased Asset.

(b) Sellers and Buyer shall cooperate with one another (a) in promptly determining whether any filings are required to be or should be made or consents, approvals, permits or authorizations are required to be or should be obtained under any applicable Law in connection with this Agreement and the Contemplated Transactions and (b) in promptly making any such filings, furnishing information required in connection therewith and seeking to obtain timely any such consents, permits, authorizations, approvals or waivers; provided, however, that Sellers’ obligations hereunder shall only continue until the Chapter 11 Cases are closed or dismissed.

(c) To the extent permitted by applicable Law and the terms of the Purchased Assets, in the event any third party Consent has not been obtained by the Closing, at the

Buyer’s request, the Party contemplated to be transferring such Purchased Asset under this Agreement (the “Transferring Party”) shall hold in trust for the Buyer, as applicable, the relevant Purchased Asset until the earlier of such time as (i) the third party Consent is obtained, (ii) the Chapter 11 Cases are closed or dismissed or (iii) Buyer elects not to assume or otherwise receive or accept assignment or other transfer of such Purchased Asset. During such time period (and subject to the availability of funds for such purpose), Buyer shall comply with all applicable covenants and obligations under the Purchased Assets, including the payment of any costs or expenses in connection therewith. Buyer shall be entitled to receive all of the benefits of the Transferring Party under the Purchased Asset. Buyer shall satisfy all Liabilities with respect to such Purchased Assets until the earlier of such time as (i) the third party Consent is obtained, (ii) the Chapter 11 Cases are closed or dismissed or (iii) Buyer elects not to assume such Purchased Asset, and shall indemnify and hold Sellers harmless with respect to any such reasonable out-of-pocket expenses arising in the Ordinary Course of Business pursuant to a budget to be reasonably agreed to by the Parties in good faith arising or otherwise relating to such period; provided that each Seller covenants and agrees that in the event of clause (iii), it will wind down such Purchased Asset as soon as commercially reasonable and shall take all commercially reasonable measures to avoid or mitigate any losses, expenses and Liabilities.

(d) Subject to the terms and conditions set forth in this Agreement and applicable Law, Buyer and Sellers shall (A) promptly notify the other Party of any communication to that Party from any Governmental Entity in respect of any filing, investigation or inquiry concerning this Agreement or the Contemplated Transactions, (B) if practicable, permit the other Party the opportunity to review in advance all the information relating to Sellers and their respective Subsidiaries or Buyer and its Affiliates, as the case may be, that appears in any filing made with, or written materials submitted to, any third party and/or any Governmental Entity in connection with the Agreement and the transactions contemplated by this Agreement and consider in good faith the other Party’s reasonable comments, (C) not participate in any substantive meeting or discussion with any Governmental Entity in respect of any filing, investigation, or inquiry concerning this Agreement and the transactions contemplated by this Agreement unless it consults with the other Party in advance, and, to the extent permitted by such Governmental Entity, gives the other Party the opportunity to attend, and (D) furnish the other Party with copies of all correspondences, filings, and written communications between them and their Subsidiaries and Representatives, on the one hand, and any Governmental Entity or its respective staff, on the other hand, with respect to this Agreement and the transactions contemplated by this Agreement, provided, however, that any materials or information provided pursuant to any provision of this Section 5.1(d) may be redacted before being provided to the other Party (i) to remove references concerning the valuation of Buyer, Sellers, or any of their Subsidiaries, (ii) financing arrangements, (iii) as necessary to comply with contractual arrangements, and (iv) as necessary to address reasonable privilege or confidentiality issues. Sellers and Buyer may, as each deems advisable and necessary, reasonably designate any commercially or competitively sensitive material provided to the other under this Section 5.1(d) as “outside counsel only.” Such materials and the information contained therein shall be given only to the outside legal counsel and any retained consultants or experts of the recipient and shall not be disclosed by such outside counsel to employees, officers or directors of the recipient, unless express written permission is obtained in advance from the source of the materials (Sellers or Buyer, as the case may be). Each of Sellers and Buyer shall promptly notify the other Party if such Party becomes aware that any third party has any objection to the Agreement on antitrust or anti-competitive grounds.

Section 5.2 Bankruptcy Actions.

(a) Sellers shall have commenced the Chapter 11 Cases no later than July 18, 2023.

(b) On the Petition Date, the Sellers shall file the Sale Motion, which motion shall seek the Bankruptcy Court’s (i) entry of the Sale Procedures Order and (ii) entry of the Sale Order by no later than the Sale Order Deadline that provides the Parties, inter alia, consummate the Closing as soon as practicable after the entry of the Sale Order and no later than three days following the entry of the Sale Order, subject to the satisfaction of all conditions to the obligations of Sellers and Buyer as set forth in Article VII (other than conditions with respect to actions Sellers and/or Buyer will take at the Closing itself, but subject to the satisfaction or waiver of those conditions). The Sellers and Buyer agree, and the Sale Procedures Order shall reflect the fact that, the provisions of this Agreement are reasonable, were a material inducement to the Buyer to enter into this Agreement and are designed to achieve the highest or best offer for the Purchased Assets.

(c) Sellers shall provide Buyer with a reasonable opportunity to review and comment upon all motions, applications, and supporting papers relating to the transactions contemplated by this Agreement prepared by Sellers or any Affiliates (including forms of orders and notices to interested Parties) prior to the Petition Date. All motions, applications, and supporting papers prepared by Sellers and relating to the transactions contemplated by this Agreement to be filed on behalf of Sellers after the date hereof shall be approved in form and substance by Buyer.

(d) Each of Buyer and Sellers shall continue to act in good faith and without any improper conduct, including collusion or fraud of any kind.

(e) Each of Buyer and Sellers shall promptly take such actions as are reasonably requested by the other party to assist in obtaining entry of the Sale Order and the Sale Procedures Order, including furnishing affidavits or other documents or information for filing with the Bankruptcy Court for purposes, among others, of providing necessary assurances of performance by Sellers of their obligations under this Agreement and the Related Agreements and demonstrating that Buyer is a good faith buyer under Section 363(m) of the Bankruptcy Code.

(f) Unless the Bankruptcy Court enters an order approving a private sale of the Purchased Assets to Buyer without a requirement to complete a public sale after competitive bidding, pursuant to the terms of the proposed Sale Procedures Order, Sellers shall, among other things, solicit bids from other prospective purchasers for the sale of all or substantially all of the Purchased Assets on terms and conditions substantially the same in all respects to this Agreement (or more favorable terms to Sellers) and in accordance with the procedures set forth in the proposed Sale Procedures Order, and Sellers shall adhere to those procedures.

(g) Sellers shall use commercially reasonable efforts to provide appropriate notice of the hearings on the Sale Motion to all Persons entitled to notice, including, but not limited to, all Persons that have asserted Liens in the Purchased Assets, all Parties to the Assumed Contracts and all Taxing authorities in jurisdictions applicable to Sellers and as otherwise required by the Bankruptcy Code and bankruptcy rules.

(h) Sellers shall serve a cure notice by first class mail on all non-debtor counterparties to all Non-Real Property Contracts and Leases as required by the Sale Procedures Order and provide a copy of the same to Buyer.

(i) In the event that the Bankruptcy Court has not (a) entered the Sale Procedures Order by the Applicable Deadline or (b) entered the DIP Order by the Applicable Deadline (either such event, a “Conversion Trigger Event”) in accordance with the Sale Procedures Order, the Parties shall use their respective reasonable best efforts to obtain an order of the Bankruptcy Court to enter an order approving this Agreement as a “private sale” no longer subject to overbids. Following a Conversion Trigger Event, (x) Sections 5.2(f), Section 7.1(f) and 8.1(k) of this Agreement shall be deemed to have become null and void, (y) the Outside Date as defined in this Agreement shall be amended to be the date that is 30 days following the Petition Date (or, in the event the conditions to the obligations of Sellers and Buyer as set forth in Article VII (other than conditions with respect to actions Sellers and/or Buyer will take at the Closing itself) have been satisfied as of the Conversion Trigger Event and the Conversion Trigger Event occurs on a date that is less than two Business Days prior to the Outside Date (as so amended), the date that is two Business Days after the Conversion Trigger Event) and (z) the Parties shall take such further action as necessary to make any other applicable amendments or modifications to this Agreement such that this Agreement no longer contemplates a “public sale” subject to overbids as contemplated by Section 5.2(f). In the event of a conflict between the provisions of this Section 5.2(i) and the terms of the proposed Sale Procedures Order, the terms of the proposed Sale Procedures Order shall control.

Section 5.3 Conduct of Business.

(a) Except as (i) required by applicable Law, (ii) required by order of the Bankruptcy Court or restricted pursuant to the Bankruptcy Code, the DIP Order or the DIP Loan Documents, as the case may be, or (iii) expressly required by this Agreement, during the period from the date of this Agreement until the Closing (or such earlier date and time on which this Agreement is terminated pursuant to Article VIII), unless Buyer otherwise consents in writing (such consent shall not be unreasonably withheld, conditioned or delayed), the Sellers shall (i) continue to operate their businesses and the Purchased Assets in compliance with all Laws and pay all of their respective post-petition obligations in the Ordinary Course of Business in compliance with and as contemplated by the DIP Budget, (ii) use its and their commercially reasonable efforts to preserve substantially intact their goodwill and relationships with employees, suppliers, vendors, licensors, licensees, distributors, consultants, customers, and other Persons, in each case, having material relationships with Sellers (other than making any payment of any pre-petition claim except as approved by the Bankruptcy Court and as contemplated in the DIP Budget), (iii) use commercially reasonable efforts not to take, or agree to or commit to assist any other Person in taking, any action (x) that would reasonably be expected to result in a failure of any of the conditions to the Closing or (y) that would reasonably be expected to impair the ability of Sellers or Buyer to consummate the Closing in accordance with the terms hereof or to materially delay such consummation, and (iv) shall make all post-petition payments related to Assumed Contracts (other than Cure Amounts) that become or became due or payable pursuant to the terms thereof to the extent provided in the DIP Budget.

(b) Except as (i) required by applicable Law, (ii) required by order of the Bankruptcy Court or restricted pursuant to the Bankruptcy Code, the DIP Order or the DIP Loan Documents, as the case may be, (iii) expressly required by this Agreement, or (iv) expressly set forth in Schedule 5.3(b) of the Disclosure Schedule, and without limiting the generality of the restrictions set forth in Section 5.3(a), during the period from the date of this Agreement until the Closing (or such earlier date and time on which this Agreement is terminated pursuant to Article VIII), unless Buyer otherwise consents in writing (such consent shall not be unreasonably withheld, conditioned or delayed), the

Sellers shall not do or take any of the following actions (whether by merger, operation of law or otherwise):

i. use any proceeds borrowed under the DIP Loan Agreement except as set forth in the DIP Budget (as the same may be updated from time to time in accordance with the DIP Loan Documents and subject to permitted variances under the DIP Loan Documents);

ii. (A) issue, sell, encumber or grant any shares of the capital stock or other equity or voting interests of any Seller, or any securities or rights convertible into, exchangeable or exercisable for, or evidencing the right to subscribe for any shares of such capital stock or other equity or voting interests, or any rights, warrants or options to purchase any shares of such capital stock or other equity or voting interests; (B) redeem, purchase or otherwise acquire any of the outstanding shares of capital stock or other equity or voting interests of any Seller, or any rights, warrants or options to acquire any shares of such capital stock or other equity or voting interests, (C) establish a record date for, declare, set aside for payment or pay any dividend on, or make any other distribution in respect of, any shares of the capital stock or other equity or voting interests of any Seller, or (D) split, combine, subdivide or reclassify any shares of the capital stock or other equity or voting interests of any Seller;

iii. issue, incur, assume or otherwise become liable for (i) any indebtedness for borrowed money, (ii) any notes, mortgages, bonds, debentures or other debt securities or warrants or other rights to acquire any notes, mortgages, bonds, debentures or other debt securities of any Seller, (iii) any letters of credit, security or performance bonds or similar credit support instruments or overdraft facilities or cash management programs of any Person, (iv) any amounts owing as deferred purchase price for property or services, including any capital leases, seller notes and “earn out” payments, or other contingent payment obligations, or (v) any guarantee of any of the foregoing obligations of another Person, or any “keep well” or other agreement to maintain any financial statement condition of another Person (collectively, “Indebtedness”);

iv. sell, divest, distribute, assign, license, mortgage, pledge, encumber, transfer, lease or sublease to any Person, or otherwise dispose of, in a single transaction or series of related transactions, any of the Purchased Assets, except dispositions of Inventory in exchange for fair value in cash in the Ordinary Course of Business or to the extent permitted by the DIP Loan Documents;

v. enter into any commitment for, make or authorize capital expenditures in excess of $25,000 for any individual commitment and $100,000 for all commitments in the aggregate, including for property, plant and equipment, except for those, if any, that are expressly contemplated by the DIP Budget;

vi. make any acquisition of, or investment in, or otherwise acquire, any properties, assets, securities, or business (including by merger, asset acquisition, equity purchase, or other transaction), except for any acquisition of Inventory in the Ordinary Course of Business;

vii. other than as required by applicable Law, as contemplated by the DIP Budget or as set forth on Schedule 5.3(b)(vii) of the Disclosure Schedule, (1) grant to any current or former director, officer, employee, contractor or other service provider of any Seller any increase in compensation or benefits, (2) grant

to any current or former director, officer, employee, contractor or other service provider of any Seller any severance, retention, change in control, termination or similar compensation or benefits, (3) grant or amend any equity, equity-based or other incentive or similar awards, (4) other than as required by any Contract or Employee Benefit Plan as in effect as of the date of this Agreement and made available to Buyer, pay any amount to any current or former director, officer, employee, contractor or other service provider of any Seller, (5) establish, adopt, enter into, materially amend or voluntarily terminate any Employee Benefit Plan or (6) take any action to accelerate or modify the vesting of, or payment of, any compensation or benefit, including under any Employee Benefit Plan;

viii. make any changes in financial accounting methods, principles, practices, procedures, or policies, except insofar as may be required by changes, after the date of this Agreement (A) in GAAP or (B) or any applicable Law, including Regulation S-X under the Securities Act;

ix. sell, lease, transfer, license, abandon, or otherwise dispose of, or grant any Lien (other than Permitted Liens), on any assets, other than sales of Inventory in the Ordinary Course of Business in exchange for fair value in cash or except to the extent permitted by the DIP Loan Documents;

x. waive, release, assign, institute, compromise, settle, or offer to do any of the foregoing, with respect to any pending or threatened Proceedings related to any Seller, their respective businesses, the Purchased Assets or the Assumed Liabilities, other than (i) as required by order of the Bankruptcy Court or restricted pursuant to the Bankruptcy Code, the DIP Order or the DIP Loan Documents, as the case may be or (ii) involving solely money damages not in excess of $75,000 individually, or $150,000 in the aggregate (which damages, for further clarity, will constitute Excluded Liabilities);

xi. (A) terminate, amend, supplement, modify or waive any provision of, fail to timely exercise any reserved right under, or accelerate any rights, benefits or obligations under, any Assumed Contract, except the expiration in accordance with its terms, (B) enter into any Contract that would have been a Material Contract if executed prior to the date of this Agreement; or (C) assume, reject or assign any (i) Contract that may become an Assumed Contract other than through the assumption and assignment of the Assumed Contracts, as contemplated by this Agreement, to Buyer, or (ii) Lease;

xii. (A) abandon, cancel, fail to renew, permit to lapse (1) any Owned Intellectual Property that is used in the conduct of the business of Sellers or is otherwise material or (2) any Intellectual Property licensed by the Sellers to the extent that a Seller has the right to take or cause to be taken such action pursuant to the terms of the applicable Contract under which such Intellectual Property is licensed to the applicable Seller Party, (B) sell, transfer, license, lease, sublease, pledge or otherwise encumber any Owned Intellectual Property or Intellectual Property that is licensed by any Seller, other than non-exclusive licenses of Owned Intellectual Property granted to customers or vendors in the Ordinary Course of Business, or (C) disclose any trade secrets or confidential information other than pursuant to a written non-disclosure agreement in the Ordinary Course of Business;

xiii. fail to use commercially reasonably efforts to renew and maintain the validity of their respective rights in, to or under any material Intellectual Property;

xiv. amend in any material respect, cancel or permit to terminate any material insurance policy naming any Seller or a Subsidiary of any Seller as an insured, a beneficiary or a loss payable payee without first obtaining comparable substitute insurance coverage with no lapse in coverage;

xv. grant any material waiver under or materially amend or modify, or surrender, revoke, permit to lapse or otherwise terminate any Permit or Business Authorization;

xvi. (1) make, revoke or change any material Tax election or method of accounting with respect to Taxes, (2) file any Tax Return (other than in the Ordinary Course of Business and consistent with past practice and applicable Law) or amend any Tax Return, (3) enter into any closing agreement related to Taxes, or (4) enter into any Tax allocation, sharing, indemnity or similar agreement or arrangement; and

xvii. authorize any of, or commit, agree or promise, in writing or otherwise, to take any of, the foregoing actions.

It is understood and agreed that certain actions may be contemplated by one or more provisions of this Section 5.3, and, in such event, such action may only be taken (or omitted to be taken) if so permitted by each such provision of this Section 5.3. Nothing contained in this Agreement is intended to give Buyer or its Affiliates, directly or indirectly, the right to control or direct any of the Sellers’ or their Subsidiaries’ operations or business prior to the Closing, and nothing contained in this Agreement is intended to give any Seller, directly or indirectly, the right to control or direct Buyer’s or its Subsidiaries’ operations. Prior to the Closing, each of Buyer and the Sellers shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its and its Subsidiaries’ respective operations.

Section 5.4 Notice of Developments. From the date hereof until the Closing Date, each of the Sellers (with respect to itself), as the case may be, shall promptly disclose to Buyer, on the one hand, and Buyer shall promptly disclose to Sellers, on the other hand, in writing (in the form of an updated Disclosure Schedule, if applicable) after attaining knowledge (as applicable to each of Sellers and Buyer) of any real or alleged failure of any of Sellers or Buyer to comply with or satisfy any of their respective covenants, conditions or agreements to be complied with or satisfied by it under this Agreement in any material respect; provided, however, that the delivery of any notice pursuant to this Section 5.4 shall not limit or otherwise affect the remedies available to the party receiving such notice under this Agreement if such party objects to the disclosures contained in such notice within five days of receipt of such notice.

Section 5.5 Access. Upon reasonable advance written request by Buyer, Sellers shall permit Buyer and its Representatives to have reasonable access to, and make reasonable investigation of, during normal business hours, subject to the terms of Leases and in a manner so as not to interfere unreasonably with the normal business operations of Sellers, to all of the books and records, premises, properties, personnel, Records, Contracts, businesses, assets, accountants, auditors, counsel and operations of the Sellers related to the business of the Sellers; provided, however, that, for the avoidance of doubt, the foregoing shall not require any Party to waive, or take any action with the effect of waiving, its attorney-client privilege or any confidentiality obligation to which it is bound with respect thereto or take any action in violation of applicable Law. Sellers shall cause their respective officers, employees, consultants, agents, accountants,

attorneys and other representatives to cooperate with Buyer and Buyer’s Representatives in connection with such investigation and examination, and Buyer and its Representatives shall cooperate with Sellers and their respective Representatives and shall use their reasonable efforts to minimize any disruption to the business of the Sellers.

Section 5.6 Press Releases and Public Announcements. After notice to and consultation with Buyer, after the Petition Date (but not before), Sellers shall be entitled to disclose, only to the extent required by applicable Law or by order of the Bankruptcy Court, this Agreement and all information provided by Buyer in connection herewith to the Bankruptcy Court, the United States Trustee, the Committee, parties in interest in the Chapter 11 Cases. Other than statements made in the Bankruptcy Court (or in pleadings filed therein), no Party shall issue (prior to, on or after the Closing) any press release or make any public statement or public communication without the prior written consent of the other Parties, which shall not be unreasonably withheld or delayed; provided, however, that (i) Sellers, without the prior consent of Buyer, may (A) make any such public announcement in connection with the Auction after having provided Buyer at least one Business Day to review and comment on such release or announcement (which comments shall be reasonably considered by the Seller) and (B) communicate with its and its Affiliates’ investors and potential investors relating to the transactions contemplated by this Agreement. Notwithstanding anything to the contrary in this Section 5.6, nothing shall preclude and claims or noticing agent engaged in the Chapter 11 Cases from posting this Agreement for access to the Sellers’ creditors and other stakeholders or as required by applicable Law to be filed by Novan with, or otherwise furnished by Novan to (as applicable), the SEC.

Section 5.7 Bulk Transfer Laws. Buyer acknowledges that Sellers will not comply with the provisions of any bulk transfer Laws of any jurisdiction in connection with the transactions contemplated by this Agreement, and hereby waives all claims related to the non-compliance therewith. The Parties intend that pursuant to section 363(f) of the Bankruptcy Code, the transfer of the Purchased Assets shall be free and clear of any Liens on the Purchased Assets (other than Permitted Liens), including any Liens arising out of the bulk transfer Laws, and the Parties shall take such steps as may be necessary or appropriate to so provide in the Sale Order.

Section 5.8 Release of Claims. Notwithstanding anything contained herein to the contrary (including any restriction contained in Section 5.3) not later than the Closing, the Sellers shall deliver to Buyer a full, irrevocable and unconditional release of any and all claims, actions, refunds, causes of action, choses in action, actions, suits or proceedings, rights of recovery, rights of setoff, rights of recoupment, rights of indemnity or contribution and other similar rights (known and unknown, matured and unmatured, accrued or contingent, regardless of whether such rights are currently exercisable) against Buyer and its respective current and former officers, directors, stockholders, employees, agents, representatives, attorneys, investors, parents, predecessors, subsidiaries, successors, assigns, and affiliates, each of the foregoing in their capacity as such (individually and collectively, the “Buyer Released Parties”), from all actions, causes of action, damages, claims, and demands whatsoever, in law or in equity, known or unknown, contingent or liquidated, whether direct claims or for indemnification or contribution, that the Sellers ever had, now has, or may have against the Buyer Released Parties in connection with any event, conduct or circumstance occurring prior to the Closing, except, in each case, with respect to (i) any rights of the Sellers under this Agreement, any of the Related Agreements, any of the DIP Loan Documents or any other agreement between the Parties entered after the date hereof and (ii) fraud, gross negligence or willful misconduct of the Buyer Released Parties. The foregoing release shall be effective upon approval by a Final Order of the Bankruptcy Court.

Section 5.9 Transition Services Agreement. Upon the request by Buyer following the date of this Agreement and prior to the date that is five Business Days prior to the Closing

Date, the Parties shall negotiate in good faith a customary transition services agreement by and between Sellers, on the one hand, and Buyer, on the other hand (the “Transition Services Agreement”), in a form reasonably satisfactory to the Parties, pursuant to which the Parties shall provide reasonable assistance in transitioning the Purchased Assets from Sellers to Buyer for a period mutually agreed, with each of the Parties bearing their own respective costs in connection with such Transition Services Agreement (unless otherwise agreed in the Transition Services Agreement).

ARTICLE VI
OTHER COVENANTS

The Parties agree as follows with respect to the period from and after the Closing:

Section 6.1 Cooperation. Each of the Parties shall cooperate with each other, and shall use their commercially reasonable efforts to cause their respective Representatives to cooperate with each other, to provide an orderly transition of the Purchased Assets and Assumed Liabilities from Sellers to Buyer and to minimize the disruption to the business of the Sellers resulting from the Contemplated Transactions.

Section 6.2 Further Assurances. In case at any time from and after the Closing any further action is necessary or reasonably required to carry out the purposes of this Agreement, subject to the terms and conditions of this Agreement and the terms and conditions of the Sale Order, at any Party’s request and sole cost and expense, each Party shall take such further action (including the execution and delivery to any other Party of such other reasonable instruments of sale, transfer, conveyance, assignment, assumption and confirmation and providing materials and information) as another Party may reasonably request as shall be necessary to transfer, convey and assign to Buyer all of the Purchased Assets, to confirm Buyer’s assumption of the Assumed Liabilities and to confirm Sellers’ retention of the Excluded Assets and Excluded Liabilities. Without limiting the generality of this Section 6.2, to the extent that either Buyer or Sellers discovers any additional assets or properties which the Parties mutually agree should have been transferred or assigned to Buyer as Purchased Assets but were not so transferred or assigned, Buyer and Sellers shall cooperate and execute and deliver any instruments of transfer or assignment necessary to transfer and assign such asset or property to Buyer.

Section 6.3 Availability of Business Records. From and after the Closing, Buyer shall provide to Sellers and their respective Representatives (after reasonable notice and during normal business hours and without charge to Sellers) reasonable access to all Records included in the Purchased Assets for periods prior to the Closing and reasonable access to Transferred Employees to the extent such access is necessary in order for Sellers (as applicable) to comply with applicable Law or any contract to which it is a party, for liquidation, winding up, Tax reporting or other proper purposes and so long as such access is subject to an obligation of confidentiality, and shall preserve such Records until the latest of (i) three years after the Closing Date, (ii) the required retention period for all government contact information, records or documents, (iii) the conclusion of all bankruptcy proceedings relating to the Chapter 11 Cases or (iv) in the case of Records related to Taxes, the expiration of the statute of limitation applicable to such Taxes. Such access shall include access to any information in electronic form to the extent reasonably available.

Section 6.4 Employee Matters.

(a) Within 10 days prior to Closing (or on such other timeline as agreement by the Parties) Sellers will update the Employee Roster. At least five days prior to the Closing, Buyer will identify the employees (or corresponding positions) on the Employee Roster to whom Buyer intends make an offer of employment. Prior to Closing, Buyer

shall offer employment to the employees listed on such schedule (an “Offeree”) to the extent such employee is an employee of a Seller and remains employed by such Seller immediately prior to the Closing on employment terms as Buyer may determine in its sole discretion.

(b) Each Offeree of Sellers who accept offers for employment with Buyer prior to the Closing shall be referred to herein as a “Transferred Employee.” Effective as of the Closing, each Transferred Employee shall cease to be an employee of any Seller or their Affiliates. Each Offeree of Sellers who is not a Transferred Employee shall be referred to herein as an “Excluded Employee.”

i. Sellers will allow Buyer or any of its Representatives reasonable access upon reasonable advance notice to meet with and interview the individuals listed on the Employee Roster during normal business hours;

ii. Sellers shall not, nor shall any Seller authorize or direct or give express permission to any Affiliate, officer, director or employee of any Seller or any Affiliate, to (A) interfere with Buyer’s or its Representatives’ rights under Section 6.4(a) to make offers of employment to any Offeree, or (B) solicit or encourage any Offeree not to accept, or to reject, any such offer of employment;

iii. Sellers shall provide reasonable cooperation and information to Buyer or the relevant Representative as reasonably requested by Buyer or such Representative with respect to its determination of terms and conditions of employment for any Offeree;

iv. Sellers shall process the payroll for and pay, or cause to be paid, the base wages, base salary and benefits that are due and payable prior to the Closing Date with respect to all employees of Sellers. Sellers shall withhold and remit all applicable payroll taxes as required by Law prior to the Closing Date with respect to all employees of Sellers as of such date; and

v. For the sake of clarity Buyer does not assume any Liability with respect to Excluded Employees, including for paying any accrued wages, paid time off or other accrued compensation obligations of Excluded Employees.

(d) Nothing in this Section 6.4 shall be construed as requiring, and neither Sellers nor any of their Affiliates shall take any affirmative action that would have the effect of requiring Buyer to continue any specific employee benefit plan or to continue the employment of any specific person. Nothing in this Agreement is intended to establish, create or amend, nor shall anything in this Agreement be construed as establishing, creating or amending, any employee benefit plan, practice or program of Buyer, any of its Affiliates or any of Sellers’ Employee Benefit Plans, nor shall anything in this Agreement create or be construed as creating any contract of employment or as conferring upon any Current Employee, Transferred Employee or upon any other person, other than the Parties to this Agreement in accordance with its terms, any rights to enforce any provisions of this Agreement under ERISA or otherwise.

Section 6.5 Transfer Taxes. To the extent not exempt under Section 1146 of the Bankruptcy Code, Buyer shall pay all Transfer Taxes. Sellers and Buyer shall cooperate to prepare and timely file any Tax Returns required to be filed in connection with Transfer Taxes described in the immediately preceding sentence.

Section 6.6 Insurance Policies. From and after the Closing, Buyer shall have the right to make claims and the right to any proceeds with respect to any matter related to the Assumed Liabilities under any insurance policies for occurrence-based claims pertaining to, arising out of, and inuring to the benefit of any Seller for all periods prior to the Closing, and Sellers shall use commercially reasonable efforts to seek recovery or allow Buyer to seek recovery (including by executing or delivering any document, agreement, instrument or other information as Buyer may request to seek such recovery) under such insurance policies, and each Seller shall cooperate with all of Buyer’s reasonable requests if it seeks recovery, with respect to such matters and shall remit (or, at Buyer’s request, direct any such insurer to pay directly to Buyer) any insurance proceeds actually obtained therefrom (net of such Seller’s reasonable and documented out-of-pocket costs and expenses of seeking such recovery, to the extent not otherwise paid or reimbursed by Buyer) to Buyer or its designee.

Section 6.7 Receipt of Misdirected Assets. From and after the Closing, if any Seller or any Affiliate thereof receives, or becomes aware that it holds, any right, property or asset that is a Purchased Asset, the applicable Seller shall promptly transfer or cause such of its Affiliates to transfer (without cost to Buyer) such right, property or asset (and shall promptly endorse and deliver any such asset that is received in the form of cash, checks or other documents) to Buyer or its designee, and such asset will be deemed the property of Buyer or its designee held in trust by such Seller for Buyer until so transferred. From and after the Closing, if Buyer or any of its Affiliates receives, or becomes aware that it holds, any right, property or asset that is an Excluded Asset, Buyer shall promptly transfer or cause such of its Affiliates to transfer (without cost to Sellers) such asset (and shall promptly endorse and deliver any such right, property or asset that is received in the form of cash, checks or other documents) to Sellers, and such asset will be deemed the property of Sellers or its designee held in trust by Buyer for Sellers until so transferred.

Section 6.8 No Successor Liability. The Parties intend that, to the fullest extent permitted by applicable Law (including under Section 363 of the Bankruptcy Code), upon the Closing, Buyer shall not be deemed to: (a) be the successor of any Seller, (b) have, de facto or otherwise, merged with or into any Seller, (c) be a mere continuation or substantial continuation of any Seller or the enterprise(s) of Sellers or (d) be liable or have any Liability for any acts or omissions of Sellers in the conduct of their businesses or arising under or related to the Purchased Assets other than as expressly set forth and agreed in this Agreement. Without limiting the generality of the foregoing, and except as otherwise expressly provided in this Agreement, the Parties intend that Buyer shall have no Liability for any Lien (other than the Assumed Liabilities and Permitted Liens on the Purchased Assets) against Sellers or any of Sellers predecessors or Affiliates, and Buyer shall have no successor or vicarious liability of any kind or character whether known or unknown as of the Closing Date or in connection with the transactions contemplated to occur on the Closing, whether now existing or hereafter arising, or whether fixed or contingent, with respect to the businesses of Sellers, the Purchased Assets or any Liability of Sellers arising prior to, or relating to any period occurring prior to, the Closing Date. The Parties agree that the Sale Order shall contain provisions substantially in the form set forth in this Section 6.8.

Section 6.9 Covenant Not to Compete; Non-Solicitation.

(a) For a period commencing on the Closing Date and ending on the three-year anniversary of the Closing Date (the “Restricted Period”), each Seller shall not, directly or indirectly, establish, finance, own, manage, operate, engage in or otherwise participate in the conduct of any business that is the same or substantially similar to and directly or indirectly competes in any respect with the business of the Sellers as conducted in the 12 months prior to the Closing Date.

(b) During the Restricted Period, each Seller shall not (i) directly or indirectly solicit, encourage or attempt to solicit or encourage any of the employees, agents, independent contractors, consultants or representatives of Buyer to terminate his, her or its relationship with Buyer; (ii) directly or indirectly solicit, encourage or attempt to solicit or encourage any of the employees, agents, independent contractors, consultants or representatives of Buyer to become employees, agents, representatives, consultants or independent contractors of any other Person; (iii) directly or indirectly solicit or attempt to solicit any customer, vendor or distributor of Buyer with respect to any product or service being furnished, made, sold or leased by Buyer; or (iv) persuade or seek to persuade any customer of Buyer to cease to do business or to reduce the amount of business that such customer has customarily done prior to the Closing Date with the Sellers.

(c) The Parties expressly acknowledge that it would be difficult to measure the damages that might result from any breach of this Section 6.9, and that any such breach will result in immediate, substantial and irreparable injury to Buyer for which it will have no adequate remedy at law. Buyer shall be entitled to, without the posting of any bond, seek an injunction or other equitable relief issued by a court of competent jurisdiction enjoining and restraining any violation or threatened violation of this Section 6.9 by any Seller. Each Seller acknowledges and agrees that this Section 6.9 is (i) a material inducement for Buyer to enter into this Agreement and consummate the transactions contemplated hereby, and (ii) reasonable under the circumstances to protect the Purchased Assets and goodwill acquired by Buyer under this Agreement. Rights and remedies provided for in this Section 6.9 are cumulative and shall be in addition to rights and remedies otherwise available to the Parties hereunder or under any other agreement or applicable law.

(d) If any provision contained in this Section 6.9 is for any reason held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provisions of this Section 6.9, but this Section 6.9 will be construed as if such invalid, illegal or unenforceable provision had never been contained herein. The Parties intend that if any of the restrictions or covenants contained herein is held to cover a geographic area or to be for a length of time which is not permitted by applicable law, or in any way construed to be too broad or to any extent invalid, such provision will not be construed to be null, void and of no effect, but to the extent such provision would be valid or enforceable under applicable law, a court of competent jurisdiction will construe and interpret or reform this Section 6.9 to provide for a covenant having the maximum enforceable geographic area, time period and other provisions (not greater than those contained herein) as will be valid and enforceable under such applicable law.

(e) It is expressly agreed by Buyer that in no event will the restrictions set forth in this Section 6.9 apply or be deemed or interpreted to apply to any other Person other than Seller itself.

ARTICLE VII
CONDITIONS TO CLOSING

Section 7.1 Conditions to Buyer’s Obligations.

Subject to Section 7.3, Buyer’s obligation to consummate the Contemplated Transactions in connection with the Closing is subject to satisfaction or written waiver of the following

conditions (any or all of which may be waived in writing by the Sellers and the Buyer in whole or in part to the extent permitted by applicable Law):

(a) as of the date hereof and as of the Closing (in each case, except for any representation or warranty that is expressly made as of a specified date, in which case as of such specified date), (i) each representation or warranty contained in Section 3.1, Section 3.2 or Section 3.3 shall be true and correct in all respects other than de minimis exceptions, and (ii) each other representation or warranty set forth in Article III shall be true and correct in all respects, except where the failure of such representations and warranties referred to in this clause (ii) to be true and correct, individually or in the aggregate with other such failures, has not had, and would not reasonably be expected to have, a Material Adverse Effect; provided, however, that for purposes of determining the accuracy of representations and warranties referred to in clause (ii) for purposes of this condition, all qualifications as to “materiality” and “Material Adverse Effect” contained in such representations and warranties shall be disregarded;

(b) Sellers shall have performed and complied with their covenants and agreements hereunder to the extent required to be performed prior to the Closing in all material respects, and Sellers shall have caused the documents and instruments required by Section 2.9(a) to be delivered to Buyer (or tendered subject only to Closing);

(c) no Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Order that is in effect and that has the effect of making the Closing illegal or otherwise prohibiting the consummation of the Closing;

(d) the Sale Order shall have been entered by the Bankruptcy Court and shall have become a Final Order;

(e) (i) no Default or Event of Default (in each case as such term is defined in the DIP Loan Agreement) shall have occurred and be continuing under the DIP Loan Agreement arising from the appointment of an examiner with expanded powers pursuant to Section 1104(c) of the Bankruptcy Code or a trustee or any of the Chapter 11 Cases being dismissed or converted to a case under Chapter 7 under the Bankruptcy Code; and (ii) no other Default or Event of Default shall have occurred and be continuing under the DIP Loan Agreement under circumstances where, on or prior to the date of such other Default or Event of Default, there shall have been Fraud or a Willful Breach committed by either Seller under or in respect of the DIP Loan Agreement;

(f) the DIP Order and DIP Loan Documents shall have been approved and shall not have been terminated; and

(g) Sellers shall have delivered a certificate from an authorized officer of each Seller to the effect that each of the conditions specified in Section 7.1(a) and Section 7.1(b) have been satisfied.

Section 7.2 Conditions to Sellers’ Obligations. Subject to Section 7.3, Sellers’ obligation to consummate the Contemplated Transactions in connection with the Closing are subject to satisfaction or written waiver of the following conditions (any or all of which may be waived in writing by the Sellers and the Buyer in whole or in part to the extent permitted by applicable Law):

Section 4.2 or Section 4.3 shall be true and correct in all respects other than de minimis exceptions, and (ii) each other representation or warranty set forth in Article IV shall be true and correct in all material respects, except where the failure of such representations and warranties referred to in this clause (ii) to be true and correct, individually or in the aggregate with other such failures, would not reasonably be expected to materially prevent, restrict or delay the consummation of the Contemplated Transactions or by any Related Agreement; provided, however, that for purposes of determining the accuracy of representations and warranties referred to in clause (ii) for purposes of this condition, all qualifications as to “materiality” and “Material Adverse Effect” contained in such representations and warranties shall be disregarded;

(b) Buyer shall have performed and complied with its covenants and agreements hereunder to the extent required to be performed prior to the Closing in all material respects, and Buyer shall have caused the documents, instruments and payments required by Section 2.9(b) to be delivered to Sellers (or tendered subject only to Closing);

(d) the Sale Order shall have been entered by the Bankruptcy Court and shall have become a Final Order; and

(e) Buyer shall have delivered a certificate from an authorized officer of Buyer to the effect that each of the conditions specified in Section 7.2(a) and Section 7.2(b) have been satisfied.

Section 7.3 No Frustration of Closing Conditions. Neither Buyer nor Sellers may rely on the failure of any condition to its obligation to consummate the Contemplated Transactions set forth in Section 7.1 or Section 7.2, as the case may be, to be satisfied if such failure was caused by such Party’s failure to use its commercially reasonable efforts with respect to those matters contemplated by the applicable Sections of this Agreement to satisfy the conditions to the consummation of the Contemplated Transactions or other breach of a representation, warranty or covenant hereunder.

Section 7.4 Closing Efforts. Subject to, and in accordance with, (i) the terms and conditions of this Agreement, (ii) applicable Law and (iii) any requirements, conditions or other Proceedings of the Bankruptcy Court, each of the Parties shall use its reasonable best efforts to take promptly all actions and to do all things necessary, proper or advisable to satisfy the conditions to the other Party’s obligations set forth herein and to consummate the Contemplated Transactions.

Section 7.5 Waiver of Conditions. Upon the occurrence of the Closing, any condition set forth in this Article VII that was not satisfied as of the Closing will be deemed to have been waived for all purposes by the Party having the benefit of such condition as of and after the Closing.

ARTICLE VIII
TERMINATION

Section 8.1 Termination of Agreement. This Agreement may be terminated in accordance with this Article VIII and the Contemplated Transactions abandoned at any time prior to the Closing (each a “Termination Event”):

(a) by the mutual written consent of Buyer, on the one hand, and Sellers, on the other hand;

(b) by written notice of either Buyer or Sellers, if there shall be any Law that makes consummation of the Contemplated Transactions illegal or otherwise prohibited, or upon the issuance by any Governmental Entity of an Order restraining, enjoining, or otherwise prohibiting the consummation of the Contemplated Transactions or declaring unlawful the Contemplated Transactions, and such Order having become final, binding and non-appealable; provided that no termination may be made by a Party under this Section 8.1(b) if the issuance of such Order was caused by the breach or action or inaction of such Party;

(d) by written notice of either Buyer or Sellers, if any of the Chapter 11 Cases is dismissed or converted to a case under Chapter 7 of the Bankruptcy Code, or if a trustee or examiner with expanded powers to operate or manage the financial affairs or reorganization of the Sellers is appointed in the Chapter 11 Cases;

(e) by Buyer, if (i) the Sale Procedures Order shall not have been entered by the Bankruptcy Court on or before the Applicable Deadline, (ii) the Auction has not concluded on or before the 45th calendar day after the earliest Petition Date of Sellers, (iii) the Sale Order shall not have been entered by the Bankruptcy Court on or before the 55th calendar day after the earliest Petition Date of Sellers, (iv) at any time after entry of the Sale Procedures Order, such Sale Procedures Order (including, without limitation, the provisions therein relating to the bid protections) is reversed, stayed, vacated or otherwise modified by the Bankruptcy Court, or (v) at any time after entry of the Sale Order, such Sale Order is reversed, stayed, vacated or otherwise modified;

(f) by Buyer by giving written notice to Sellers at any time prior to Closing in the event Sellers have breached any representation, warranty, covenant or agreement contained in this Agreement and as a result of such breach the conditions set forth in Sections 7.1(a) and 7.1(b) hereof, as the case may be, would not then be satisfied at the time of such breach, Buyer has notified Sellers of the breach, and the breach has continued without cure for the earlier of 10 days following the proposed Closing Date;

(g) by Sellers by giving written notice to Buyer at any time prior to Closing in the event Buyer has breached any representation, warranty, covenant or agreement contained in this Agreement and as a result of such breach the conditions set forth in Sections 7.2(a) and 7.2(b) hereof, as the case may be, would not then be satisfied at the time of such breach, Sellers have notified Buyer of the breach, and the breach has continued without cure for the earlier of 10 days following the proposed Closing Date;

(h) by written notice from Sellers to Buyer, if all of the conditions set forth in Section 7.1 have been satisfied (other than conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the

Closing) or waived and Buyer fails to complete the Closing at the time required by Section 2.8;

(i) by written notice from Buyer to Sellers upon (i) the occurrence of any Event of Default (as defined in the DIP Order or any DIP Loan Documents) arising from Fraud, Willful Breach by either of the Sellers, appointment of an examiner with expanded powers pursuant to Section 1104(c) of the Bankruptcy Code or a trustee or any of the Chapter 11 Cases being dismissed or converted to a case under Chapter 7 under the Bankruptcy Code or (ii) the occurrence of any other Default or Event of Default under the DIP Loan Agreement if, on or prior to the date of such other Default or Event of Default, there shall have been Fraud or a Willful Breach committed by either Seller under or in respect of the DIP Loan Agreement;

(j) by Buyer if any secured creditor of any Seller obtains relief from the stay to foreclose on a material portion of the Purchased Assets; or

(k) automatically and without any action or notice by Sellers to Buyer, or Buyer to Sellers, immediately upon:

i. approval by the Bankruptcy Court of an Alternate Transaction, unless Buyer has agreed to be a “back-up bidder” under the Sale Procedures Order; or

ii. the consummation of an Alternate Transaction.

Notwithstanding anything to the contrary contained herein, (i) in no event may Buyer terminate this Agreement under Section 8.1(f) on account of Buyer’s failure to satisfy the conditions contained in Sections 365(b)(1)(C) and 365(f)(2)(B) of the Bankruptcy Code with respect to any proposed Assumed Contract, and (ii) a Party shall not be permitted to terminate this Agreement pursuant to this Article VIII if the applicable Termination Event was caused by the breach of such Party or such Party’s gross negligence, willful misconduct, or bad faith or such Party is in material breach of any covenant, representation or warranty hereunder such that the conditions in Section 7.1(a)-(b) or Section 7.2(a)-(b), as applicable, would fail to be satisfied at the Closing.

Section 8.2 Procedure Upon Termination. In the event of termination and abandonment by Buyer, on the one hand, or Sellers, on the other hand, or both, pursuant to Section 8.1, written notice thereof shall forthwith be given to the other Party or Parties, and this Agreement shall terminate and the Contemplated Transactions shall be abandoned, without further action by Buyer or Sellers.

Section 8.3 Breakup Fee.

(a) Upon the closing of an Alternate Transaction, Sellers shall immediately pay to Buyer the Breakup Fee.

(b) Sellers’ obligation to pay the Breakup Fee pursuant to this Section 8.3 shall be subject to Bankruptcy Court approval and shall survive termination of this Agreement and shall constitute an administrative expense of Sellers under section 503(b) of the Bankruptcy Code.

(c) The Sellers acknowledge and agree that (A) the payment of the Breakup Fee is an integral part of the transactions contemplated by this Agreement, (B) in the absence of the Sellers’ obligations to make this payment, the Buyer would not have entered into this Agreement, (C) time is of the essence with respect to the payment of the

Breakup Fee and (D) the Breakup Fee shall constitute part of the DIP Indebtedness and shall be secured by the DIP Lien (as defined in the DIP Order) on the Collateral (as defined in the DIP Order) and be entitled to the other DIP Protections (as defined in the DIP Order). If the Sellers fail to take any action necessary to cause the delivery of the Breakup Fee under circumstances where the Buyer is entitled to the Breakup Fee and, in order to obtain such Breakup Fee the Buyer commences a suit which results in a judgment in favor of the Buyer, the Sellers shall pay to the Buyer, in addition to the Breakup Fee, an amount in cash equal to the costs and expenses (including reasonable attorney’s fees) incurred by the Buyer in connection with such suit.

(d) The Parties further acknowledge that the damages resulting from termination of this Agreement under circumstances where Buyer is entitled to the Breakup Fee are uncertain and incapable of accurate calculation and that the delivery of the Breakup Fee to the Buyer is not a penalty but rather shall constitute liquidated damages in a reasonable amount that will compensate the Buyer in the circumstances where the Buyer is entitled to the Breakup Fee for the efforts and resources expended and opportunities foregone while negotiating this Agreement and in reliance on this Agreement and on the expectation of the consummation of the Contemplated Transactions, and that, without these agreements, the Buyer would not enter into this Agreement.

(e) Notwithstanding anything to the contrary in this Agreement, but subject to Section 8.4, and except in the event of Willful Breach of this Agreement by Sellers, the Breakup Fee shall be the sole and exclusive remedy of Buyer upon a termination of this Agreement under circumstances where Buyer is entitled to the Breakup Fee.

Section 8.4 Effect of Termination(a) . In the event that this Agreement is validly terminated pursuant to a right of termination as provided herein, then each of the Parties shall be relieved of its duties and obligations arising under this Agreement effective as of the date of such termination and such termination shall be without Liability to Buyer or the Sellers; provided, however, that Section 8.1, Section 8.2, Section 8.3, this Section 8.4, Article IX and the Sale Procedures Order (if entered) shall survive any such termination and shall be enforceable hereunder. In no event shall any termination relieve any Party from any Liability from any Willful Breach of this Agreement prior to the date of such termination or from any Proceeding by Buyer or its Affiliates related to or arising out of Fraud. “Willful Breach” means a material breach of this Agreement or the DIP Loan Agreement, as applicable, that is a consequence of an intentional act or intentional failure to act with the actual knowledge that the taking of the act or failure to act would result in a material breach of this Agreement or the DIP Loan Agreement, respectively.

ARTICLE IX
MISCELLANEOUS

Section 9.1 Remedies. The Parties recognize that if a Party breaches or refuses to perform any of their covenants set forth in this Agreement, monetary damages alone would not be adequate to compensate the non-breaching Party for their injuries. The non-breaching Party shall therefore be entitled, in addition to any other remedies that may be available, to obtain specific performance of, or to enjoin the violation of, the terms of such covenants. If any Proceedings are brought by the non-breaching Party to enforce such covenants, the breaching Party shall waive the defense that there is an adequate remedy at Law. The Parties agree to waive any requirement for the security or posting of any bond in connection with any Proceeding seeking specific performance of, or to enjoin the violation of, such covenants. The Parties agree that the only permitted objection that they may raise in response to any action for specific

performance of such covenants is that it contests the existence of a breach or threatened breach of such covenants.

Section 9.2 Expenses. Except as otherwise provided in this Agreement, the DIP Order, the DIP Loan Documents or a Related Agreement, Sellers and Buyer shall bear their own expenses, including attorneys’ fees, incurred in connection with the negotiation and execution of this Agreement, the Related Agreements and each other agreement, document and instrument contemplated by this Agreement and the consummation of the Contemplated Transactions.

Section 9.3 Entire Agreement. This Agreement (including the schedules and exhibits hereto and other documents specifically referred to herein) and the Related Agreements constitute the entire agreement among the Parties and supersede any prior understandings, agreements or representations (whether written or oral) by or among the Parties, written or oral, with respect to the subject matter hereof.

Section 9.4 Incorporation of Schedules, Exhibits and Disclosure Schedule. The schedules, appendices and exhibits to this Agreement, the documents and other information made available in the Disclosure Schedule are incorporated herein by reference and made a part hereof.

Section 9.5 Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by each Party except as expressly provided herein. No waiver of any breach of this Agreement shall be construed as an implied amendment or agreement to amend or modify any provision of this Agreement. No waiver by any Party of any default, misrepresentation or breach of warranty or covenant hereunder, whether intentional or not, shall be valid unless the same shall be in writing and signed by the Party making such waiver, nor shall such waiver be deemed to extend to any prior or subsequent default, misrepresentation or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent default, misrepresentation or breach of warranty or covenant. No conditions, course of dealing or performance, understanding or agreement purporting to modify, vary, explain or supplement the terms or conditions of this Agreement shall be binding unless this Agreement is amended or modified in writing pursuant to the first sentence of this Section 9.5 except as expressly provided herein. Except where a specific period for action or inaction is provided herein, no delay on the part of any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof.

Section 9.6 Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. None of the Parties may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of all Parties; provided, however, that (i) Buyer shall be permitted to assign any of its rights hereunder to one or more of its Affiliates, as designated by Buyer in writing to Sellers; (ii) Buyer shall remain liable for all of its obligations under this Agreement after any such assignment; and (iii) Sellers shall be permitted to assign any of their rights hereunder pursuant to a confirmed plan under Chapter 11 of the Bankruptcy Code or pursuant to an order of the Bankruptcy Court.

Section 9.7 Notices. All notices, requests, demands, claims and other communications hereunder shall be in writing except as expressly provided herein. Any notice, request, demand, claim or other communication hereunder shall be deemed duly given (i) when delivered personally to the recipient; (ii) one Business Day after being sent to the recipient by reputable overnight courier service (charges prepaid); (iii) when sent by email (with written confirmation of transmission); or (iv) three Business Days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid, and addressed to the intended recipient as set forth below:


If to the Sellers, then to:						Novan, Inc.
						4020 Stirrup Creek Drive, Suite 110
						Durham, North Carolina 27703
						Attention: Paula Brown Stafford; John M. Gay
						Email: [***]

with a copy to:						Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P.
						150 Fayetteville Street, Suite 2300
						Raleigh, North Carolina 27609
						Attention: Gerald F. Roach; Christopher B. Capel; James R. Jolley
						Email: [***]

						and

						Morris, Nichols, Arsht & Tunnell LLP
						1201 N Market St # 1600, Wilmington, DE 19801
						Wilmington, DE 19801
						Attention: Derek Abbot
						Email: [***]


If to Buyer, then to:						Ligand Pharmaceuticals, Incorporated
						3911 Sorrento Valley Blvd., Suite 110
						San Diego, California 92121
						Attention: Chief Financial Officer
						Email: [***]

with a copies (which shall not constitute notice) to:						Ligand Pharmaceuticals, Incorporated
						3911 Sorrento Valley Blvd., Suite 110
						San Diego, California 92121
						Attention: General Counsel
						Email: [***]

						and

						Morgan, Lewis & Bockius LLP
						101 Park Avenue
						New York, New York 10178
						Attention: Craig Wolfe
						Email: [***]

Any Party may change the mailing address or email address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other Party notice in the manner set forth in this Section 9.7.

Section 9.8 Governing Law; Jurisdiction. This Agreement shall in all aspects be governed by and construed in accordance with the internal Laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the Laws of any jurisdiction other than the State of Delaware, and the obligations, rights and remedies of the Parties shall be determined in accordance with such Laws. The Parties agree that any Proceeding one Party commences against any other Party pursuant to this Agreement shall be brought exclusively in the Bankruptcy Court and each of the Parties hereby irrevocably consents to the jurisdiction of the Bankruptcy Court (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in the Bankruptcy Court or that any such suit, action or proceeding which is brought in the Bankruptcy Court has been brought in an inconvenient forum; provided that if the Bankruptcy Court is unwilling or unable to hear any such Proceeding, then the courts of the State of Delaware, sitting in New Castle County, Delaware, and the federal courts of the United States of America sitting in New Castle County, Delaware, shall have exclusive jurisdiction over such Proceeding.

Section 9.9 Consent to Service of Process. Each of the Parties hereby consents to process being served by any Party, respectively, in any suit, action or proceeding by delivery of a copy thereof in accordance with the provisions of Section 9.7.

Section 9.10 WAIVERS OF JURY TRIAL. EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE CONTEMPLATED TRANSACTIONS.

Section 9.11 Severability. The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement so long as the economic or legal substance of the Contemplated Transactions is not affected in a manner adverse to any Party. If any provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid or unenforceable, (a) the Parties shall negotiate in good faith to find a suitable and equitable provision that shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision, and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability in any one jurisdiction affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

Section 9.12 No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.

Section 9.13 No Survival of Representations, Warranties and Agreements. Each of the representations and warranties and the covenants and agreements (to the extent such covenant or agreement contemplates or requires performance by such party prior to the Closing) of the Parties set forth in this Agreement or in any other Related Agreement, or in any certificate delivered hereunder or thereunder, will terminate effective immediately as of the Closing such that no claim for breach of any such representation, warranty, covenant or agreement, detrimental reliance or other right or remedy (whether in contract, in tort or at law or in equity) may be brought with respect thereto after the Closing. Each covenant and agreement that explicitly contemplates performance after the Closing, will, in each case and to such extent, expressly survive the Closing in accordance with its terms, and if no term is specified, then for

six years following the Closing Date, and nothing in this Section 9.13 will be deemed to limit any rights or remedies of any Person for breach of any such surviving covenant or agreement. Buyer and Sellers acknowledge and agree, on their own behalf and, with respect to Buyer that the agreements contained in this Section 9.13 (a) require performance after the Closing to the maximum extent permitted by applicable Law and will survive the Closing for six years; and (b) are an integral part of the Contemplated Transactions and that, without the agreements set forth in this Section 9.13, none of the Parties would enter into this Agreement.

Section 9.14 Non-Recourse. This Agreement may only be enforced against, and any Proceeding based upon, arising out of or related to this Agreement may only be brought against, the Persons that are expressly named as parties to this Agreement. Except to the extent named as a party to this Agreement, and then only to the extent of the specific obligations of such parties set forth in this Agreement, no past, present or future shareholder, member, partner, manager, director, officer, employee, Affiliate, agent or representative of any party to this Agreement will have any Liability (whether in contract, tort, equity or otherwise) for any of the representations, warranties, covenants, agreements or other obligations or Liabilities of any of the parties to this Agreement or for any Proceeding based upon, arising out of or related to this Agreement.

Section 9.15 Construction. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of names and pronouns shall include the plural and vice versa. The word “including” and “include” and other words of similar import shall be deemed to be followed by the phrase “without limitation.” The words “herein,” “hereto” and “hereby,” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision of this Agreement. Unless expressly stated in connection therewith or the context otherwise requires, the phrase “relating to the business” and other words of similar import shall be deemed to mean “relating to the operation of the business of the Sellers as conducted as of the date hereof.” Except as otherwise provided herein, references to Articles, Sections, clauses, subclauses, subparagraphs, Schedules, Exhibits, Appendices and the Disclosure Schedule herein are references to Articles, Sections, clauses, subclauses, subparagraphs, Schedules, Appendices, Exhibits and the Disclosure Schedule of this Agreement. Any reference herein to any Law (or any provision thereof) shall include such Law (or any provision thereof) and any rule or regulation promulgated thereunder, in each case, including any successor thereto, and as it may be amended, modified or supplemented from time to time. Any reference herein to “dollars” or “$” means United States dollars.

Section 9.16 Computation of Time. In computing any period of time prescribed by or allowed with respect to any provision of this Agreement that relates to Sellers or the Chapter 11 Cases, the provisions of rule 9006(a) of the Federal Rules of Bankruptcy Procedure shall apply.

Section 9.17 Mutual Drafting. Each of the Parties has participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.

Section 9.18 Disclosure Schedule. The Disclosure Schedule has been arranged for purposes of convenience in separately numbered sections corresponding to the sections of this Agreement; provided, however, that each section of the Disclosure Schedule will be deemed to incorporate by reference all information disclosed in any other section of the Schedules, and any disclosure in the Disclosure Schedule will be deemed a disclosure against any representation or warranty set forth in this Agreement if the purpose for disclosure in such other section of the Schedules or again any other representation or warranty is reasonably apparent on its face.

Capitalized terms used in the Disclosure Schedule and not otherwise defined therein have the meanings given to them in this Agreement. The specification of any dollar amount or the inclusion of any item in the representations and warranties contained in this Agreement, the Disclosure Schedule or the attached exhibits is not intended to imply that the amounts, or higher or lower amounts, or the items so included, or other items, are or are not required to be disclosed (including whether such amounts or items are required to be disclosed as material or threatened) or are within or outside of the Ordinary Course of Business or consistent with past practice, and no party will use the fact of the setting of the amounts or the fact of the inclusion of any item in this Agreement, the Disclosure Schedule or exhibits in any dispute or controversy between the Parties as to whether any obligation, item or matter not set forth or included in this Agreement, the Disclosure Schedule or exhibits is or is not required to be disclosed (including whether the amount or items are required to be disclosed as material or threatened) or are within or outside of the Ordinary Course of Business. In addition, matters reflected in the Disclosure Schedule are not necessarily limited to matters required by this Agreement to be reflected in the Disclosure Schedule. Such additional matters are set forth for informational purposes only and do not necessarily include other matters of a similar nature. No information set forth in the Disclosure Schedule will be deemed to broaden in any way the scope of the Parties’ representations and warranties. Any description of any agreement, document, instrument, plan, arrangement or other item set forth on any Disclosure Schedule is a summary only and is qualified in its entirety by the terms of such agreement, document, instrument, plan or arrangement which terms will be deemed disclosed for all purposes of this Agreement. The information contained in this Agreement, in the Disclosure Schedule and exhibits hereto is disclosed solely for purposes of this Agreement, and no information contained herein or therein will be deemed to be an admission by any Party to any third party of any matter whatsoever, including any violation of Law or breach of contract.

Section 9.19 No Waiver or Release. Notwithstanding anything herein to the contrary, all terms, conditions, covenants, representations and warranties contained in the DIP Order and the DIP Loan Documents, and all rights, powers and remedies of the DIP Secured Parties and all of the obligations of the Sellers thereunder (including, without limitation, the obligation to reimburse the DIP Secured Parties for fees and expenses incurred in connection with preparation and negotiation of this Agreement to the extent set forth therein), are reserved and are not amended, modified, limited or otherwise affected by the terms and conditions of this Agreement.

Section 9.20 Headings; Table of Contents. The section headings and the table of contents contained in this Agreement and the Disclosure Schedule are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

Section 9.21 Counterparts; Facsimile and Email Signatures. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

Section 9.22 Time of Essence. Time is of the essence of this Agreement.

SIGNATURE PAGE TO
ASSET PURCHASE AGREEMENT

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

SELLERS:

NOVAN, INC.

By /s/ Paula Brown Stafford

Name: Paula Brown Stafford

Title: President, Chief Executive Officer, and Chairman

EPI HEALTH, LLC

By /s/ Paula Brown Stafford

Name: Paula Brown Stafford

Title: Chief Executive Officer

BUYER:

LIGAND PHARMACEUTICALS INCORPORATED

By /s/ Matthew Korenberg

Name: Matthew Korenberg

Title: President and Chief Operating Officer

[Signature Page to Asset Purchase Agreement]

Exhibit 10.2

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time, “Agreement”) is entered into as of July 14, 2023 (“Effective Date”), among LIGAND PHARMACEUTICALS, INCORPORATED, a Delaware corporation (together with its successors and assigns, “Lender”), NOVAN, INC. a Delaware corporation (“Novan”) and EPI HEALTH, LLC, a South Carolina limited liability company (“EPI” and, together with Novan, each, a “Borrower” and collectively, the “Borrowers”).

ARTICLE 1
CERTAIN DEFINITIONS

Section 1.1 Certain Definitions. Capitalized terms used herein but not otherwise defined herein shall have the meanings defined in the UCC (as defined below). As used herein, the following terms have the meanings indicated:

(1) “Advance” means an advance of funds made by Lender to the Borrowers pursuant to Section 2.3 below.

(2) “Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Person specified.

(3) “Agreement” means this Loan and Security Agreement, as amended, restated, supplemented or otherwise modified from time to time.

(4) “Asset Disposition” means any sale, lease, license, transfer, assignment, statutory division or other consensual disposition by a Borrower of any asset.

(5) “Authority Documents” means the following: (i) a certificate of good standing from the Borrowers’ state of organization; (ii) a copy of the Borrowers’ articles of organization or other applicable document; (iii) a copy of the Borrowers’ operating agreement or other applicable agreement; and (iv) a consent in form and content satisfactory to Lender, authorizing each Borrower to execute the Loan Documents to which it is a party.

(6) “Business Day” means a day other than a Saturday, a Sunday, or a legal holiday on which national banks located in the State of New York are not open for general banking business.

(7) “Capital Stock” means any and all shares, interests, participations, units or other equivalents (however designated) of capital stock of a corporation, membership interests in a limited liability company, partnership interests of a limited partnership, any and all equivalent ownership interests in a Person and any and all warrants, rights or options to purchase any of the foregoing.

(8) “Change of Control” means, with respect to any Borrower:

(a) any person or group of persons (within the meaning of Section 13(d) or 14(a) of the Exchange Act) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under the Exchange Act) of thirty-five percent (35%) or more of the voting Equity Interests of such Borrower;

(b) any person or group of persons shall have acquired, by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, control over the Equity Interests of such persons entitled to vote for members of the board of directors of such Borrower (on a fully diluted basis and taking into account all such Equity Interests that such

person or group of persons has the right to acquire pursuant to any option right) representing thirty-five percent (35%) or more of the combined voting power of such Equity Interests; or

(c) except pursuant to a transaction permitted hereunder, the failure of such Borrower to beneficially own, directly or indirectly (on a fully diluted basis), one hundred percent (100%) of the voting Equity Interests of any of its Subsidiaries.

(9) “Collateral" shall include the following properties, assets and rights of the Borrowers, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof, in each case, to the extent of the Borrowers’ right, title or interest therein:

(a) all Accounts;

(b) all Chattel Paper (whether tangible or electronic);

(d) all Deposit Accounts, Securities Accounts, cash, cash equivalents and money;

(e) all Documents;

(f) all Equipment;

(g) all Equity Interests;

(h) all General Intangibles (including, without limitation, all Payment Intangibles);

(i) all Instruments (including, without limitation, Promissory Notes);

(j) all Intellectual Property;

(k) all Inventory;

(l) all Investment Property;

(m) all IP Licenses;

(n) all Letter-of-Credit Rights;

(o) all Goods and other property not otherwise described above (except for any property specifically excluded from any clause in this section above, and any property specifically excluded from any defined term used in any clause of this section above);

(p) all income, royalties, proceeds and liabilities at any time due or payable or asserted under or with respect to any Intellectual Property, including all rights to sue or recover at law or in equity for any past, present or future infringement, misappropriation, dilution or violation of any Intellectual Property;

(q) all books and records pertaining to the Collateral;

(r) all Commercial Tort Claims;

(s) to the extent not otherwise included, all Proceeds, including all Cash Proceeds and Noncash Proceeds, Supporting Obligations and products of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing;

(t) to the extent not covered by clauses (a) through (r) of this definition, all other assets, personal property and rights of the Borrowers, whether tangible or intangible; and

(u) the Borrowers’ rights under any agreement, including without limitation, the Borrowers’ rights to claim a reversionary interest in any Intellectual Property pursuant to an underlying agreement;

(v) provided that, notwithstanding anything to the contrary in this Agreement, the Collateral shall not include, and no security interest shall be granted in the Excluded Assets, except that such exclusion shall not in any way limit, impair or otherwise affect Lender’s continuing security interest upon any rights or interests of the Borrowers in or to (x) monies due or to become due in respect of the Excluded Assets or (y) any and all proceeds from the sale, transfer, assignment, license, franchise, lease or other disposition of the Excluded Assets, in each case, to the extent that such monies and proceeds in clauses (x) and (y) are not themselves part of the Excluded Assets.

(10) “Contract Rate” means twelve percent (12%) per annum.

(11) “Copyrights” means, with respect to each Borrower, (a) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, and (b) the right to obtain all renewals thereof.

(12) “Copyright Licenses” means any written agreement naming a Borrower as licensor or licensee, granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright.

(13) “Debt” means, for any Person, without duplication and limitation: (a) all indebtedness of such Person for borrowed money or for amounts drawn under a letter of credit, (b) all unfunded amounts under a loan agreement, letter of credit, or other credit facility for which such Person would be liable, if such amounts were advanced under the credit facility, (c) all amounts required to be paid by such Person as a guaranteed payment to members (or other equity holders) or a preferred or special dividend, including any mandatory redemption of shares or interests, (d) all guaranties of Debt, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase, to provide funds for payment of Debt, to supply funds to invest in any Person or entity, or otherwise to assure a creditor against loss, (e) all obligations under leases that constitute capital leases for which such Person is liable, (f) obligations evidenced by bonds, debentures, notes, or other similar instruments, (g) obligations for the deferred purchase price of property or services (including trade obligations), (h) obligations under acceptance facilities, (i) obligations secured by any Liens, whether or not the obligations have been assumed, (j) all obligations of such Person under interest rate swaps, caps, floors, collars and other interest hedge agreements, in each case whether such Person is liable contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Person otherwise assures a creditor against loss and/or (k) any other items which would properly be included in the liability section of a balance sheet or in a footnote to a financial statement in accordance with GAAP, and shall also include all contingent liabilities.

(14) “Default Rate” means, the lesser of (a) the Maximum Rate and (b) six percent (6%) per annum in excess of the Contract Rate.

(15) “Disbursement Schedule” has meaning assigned in Section 5.4.

(16) “Equity Interests” means (a) all shares of capital stock (whether denominated as common stock or preferred stock), equity interests, beneficial, partnership or membership interests, joint venture interests, participations or other ownership or profit interests in or equivalents (regardless of how designated) of or in a Person (other than an individual), whether voting or non-voting and (b) all securities convertible into or exchangeable for any of the foregoing and all warrants, options or other rights to purchase, subscribe for or otherwise acquire any of the foregoing, whether or not presently convertible, exchangeable or exercisable.

(17) “Event of Default” has the meaning assigned in Article 8.

(18) “Excluded Assets” means, collectively, (i) any of such Borrowers’ right, title or interest in any lease, license, contract, property right or agreement to which such Borrower is a party or any of its right, title or interest thereunder to the extent, but only to the extent, that such a grant (A) would, under the express terms of such lease, license, contract or agreement result in a breach of the terms of, or constitute a default under, such lease, license, contract or agreement or (B) violate any law applicable thereto or principles of equity, (ii) any property of a Borrower to the extent and for so long as the grant of a security interest pursuant to this Agreement in such Borrower’s right, title or interest therein (A) is prohibited by any applicable law, or (B) requires a consent pursuant to any law that has not been obtained from any Governmental Authority, and (iii) any “intent-to-use” application for registration of a trademark filed pursuant to Section 1(b) of the Lanham Act, 15 U.S.C. § 1051, prior to the filing of a “Statement of Use” pursuant to Section 1(d) of the Lanham Act or an “Amendment to Allege Use” pursuant to Section 1(c) of the Lanham Act with respect thereto, solely to the extent, if any, that and solely during the period, if any, in which, the grant of a security interest therein would impair the validity or enforceability of any registration that issues from such intent-to-use application under applicable federal law; provided that such security interest shall attach immediately and automatically when such prohibition, termination right or consent requirement is repealed, rescinded or otherwise ceases to be effective, when such consent is obtained, or such filing has been made; provided, however, that (I) Excluded Assets shall not include any Proceeds of property described above (unless such Proceeds would otherwise constitute Excluded Assets) and (II) any Excluded Assets that ceases to be Excluded Assets shall automatically, without the action of any other Person, become Collateral.

(19) “Factoring Agreement” means that certain Factoring Agreement dated as of December 1, 2022 by and between EPI and CSNK Working Capital Finance Corp. d/b/a Bay View Funding.

(20) “FATCA” means Sections 1471 through 1474 of the Internal Revenue Code of 1986, as amended as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) thereof and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such provisions.

(21) “Fee Letter” means the Fee Letter, dated as of the Effective Date, by and among the Borrowers and Lender.

(22) “GAAP” means United States generally accepted accounting principles, as in effect from time to time, consistently applied.

(23) “Governmental Authority” means the United States, and any state, county, city or other political subdivision, agency or instrumentality exercising jurisdiction over the Borrowers.

(24) “Health Care Laws” means, to the extent applicable to any Borrower, the Subsidiaries, or their respective assets, businesses, and operations: (i) any and all federal, state and local fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7(b)), the Stark Law (42 U.S.C. § 1395nn), the civil False Claims Act (31 U.S.C. § 3729 et seq.), the administrative False Claims Law (42 U.S.C. § 1320a-7b(a)), the Anti-Inducement Law (42 U.S.C. § 1320a-7a(a)(5)), the exclusion laws (42 U.S.C. § 1320a-7), the civil monetary penalty laws (42 U.S.C. §

1320a-7a), the regulations promulgated pursuant to such statutes and any comparable state laws; (ii) the Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. § 1320d et seq.), and the regulations promulgated thereunder and any comparable state laws, (iii) Medicare (Title XVIII of the Social Security Act) and the regulations promulgated thereunder; (iv) Medicaid (Title XIX of the Social Security Act) and the regulations promulgated thereunder; (v) the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. No. 108-173) and the regulations promulgated thereunder; (vi) quality, safety and accreditation standards and requirements of all applicable state laws or Governmental Authorities; and (vii) any and all other applicable health care laws, rules, codes, statutes, ordinances, regulations, manual provisions, policies and administrative guidance, each of (i) through (vii) as may be amended from time to time.

(25) “Historical Financial Statements” means with respect to each Borrower, information filed by or on their behalf on Forms 10-Q, 10-K and 8-K with the U.S. Securities and Exchange Commission.

(26) “Indemnitees” means, collectively, Lender and any Affiliates of Lender, together with the respective partners, members, directors, officers, employees, agents and advisors of Lender and any Affiliates of Lender.

(27) “Intellectual Property” means with respect to each Borrower, collectively, all rights, priorities and privileges (including, without limitation, any IP Ancillary Rights) relating to intellectual property, now owned or hereafter acquired and owned by such Borrower, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, the Copyrights, the Copyright Licenses, the Patents, and the Trademarks.

(28) “IP Ancillary Rights” means, with respect to any Intellectual Property, as applicable, all foreign counterparts to, and all divisionals, reversions, continuations, continuations-in-part, reissues, reexaminations, renewals and extensions of, such Intellectual Property, and, in each case, all rights to obtain any other IP Ancillary Right throughout the world.

(29) “IP License” means all contractual obligations (and any related IP Ancillary Rights), whether written or oral, granting any right, title and interest in or relating to any Intellectual Property.

(30) “Lien” means any lien, security interest, encumbrance or other similar creditor’s right or claim in or against an asset, securing an obligation owed to, or a claim by, any Person other than the owner of such asset, whether such interest is based on common law, statute or contract, including the lien or security interest arising from a deed of trust, mortgage, assignment, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes.

(31) “Loan” means the loan to be made by Lender to the Borrowers under this Agreement and all other amounts secured by the Loan Documents in an aggregate amount not to exceed the Commitment.

(32) “Loan Documents” means: (a) this Agreement, (b) such assignments and/or consent agreements pertaining to management agreements, contracts and other rights as may be required under this Agreement, (c) all other documents evidencing, securing, governing or otherwise pertaining to the Loan, and (d) all amendments, modifications, renewals, substitutions and replacements of any of the foregoing.

(33) “Material Adverse Effect” means (a) a material impairment of the ability of the Borrowers to perform their respective Obligations under any Loan Document to which they are a party; or (b) a material adverse effect upon the legality, validity, binding effect or enforceability against the Borrowers of any Loan Document to which it is a party.

(34) “Maturity Date” means August 14, 2023, or such earlier date resulting from the acceleration of the Obligations hereunder.

(35) “Maximum Rate” means the maximum interest rate allowed by applicable law in effect with respect to the Advance on the date for which a determination of interest accrued hereunder is made and after taking into account all fees, payments and other charges which are, under applicable law, characterized as interest.

(36) “Obligations” mean the full and punctual observance and performance of all present and future duties, covenants and responsibilities due to Lender by the Borrowers under this Agreement and all other Loan Documents, all present and future obligations and liabilities of the Borrowers to Lender for the payment of money under any of the Loan Documents (including, without limitation, all principal amounts, interest, late charges, fees and all other charges and sums, as well as all costs and expenses payable by the Borrowers under this Agreement and the other Loan Documents and whether or not allowed or allowable in any proceeding), whether direct or indirect, contingent or non-contingent, matured or unmatured, accrued or not accrued, related or unrelated to this Agreement, whether or not now contemplated and whether or not of the same character or class as the Borrowers’ obligations under this Agreement or any other Loan Document, as well as all renewals, refinancings, consolidations and extensions of any of the foregoing.

(37) “Patents” means with respect to the Borrowers, (a) all letters patent of the United States, and any other jurisdiction, country or any political subdivision thereof, all foreign counterparts to, and all divisionals, reversions, continuations, continuations-in-part, reissues, reexaminations, renewals and extensions thereof and all goodwill associated therewith, (b) all applications for letters patent of the United States and any other jurisdiction, country or any political subdivision thereof, all foreign counterparts to, and all divisionals, reversions, continuations, continuations-in-part, reissues, reexaminations, renewals and extensions thereof and (c) all rights to obtain any foreign counterparts to, divisionals, reversions, continuations, continuations-in-part, reissues, reexaminations, renewals and extensions of the foregoing.

(38) “Permits” means, with respect to any Person, any permit, approval, clearance, authorization, enrollment, license, registration, certificate, concession, grant, franchise, variance or permission from, and any other contractual obligations with, any Governmental Authority, in each case, and applicable to or binding upon such Person or any of its property or Products or to which such Person or any of its property or Products is subject.

(39) “Permitted Debt” means, collectively:

(a) any Debt owing to Lender under this Agreement and the other Loan Documents; and

(b) any Debt outstanding on the date hereof.

(40) “Permitted Liens” means, collectively:

(a) Liens in favor of Lender (if any); and

(b) any Liens existing on the date hereof as set forth on Schedule 1.1(40) hereto.

(41) “Person” means any individual, corporation, partnership, joint venture, association, joint stock company, trust, trustee, estate, limited liability company, unincorporated organization, government or any agency or political subdivision thereof, or any other form of entity.

(42) “Pledged Issuers” has the meaning specified therefor in the definition of the term “Pledged Shares”.

(43) “Pledged Shares” means, subject to Section 10.1, (i) the shares of Equity Interests described in Schedule 4.17(6) hereto, whether or not evidenced or represented by any stock certificate, certificated security or other Instrument, issued by the Persons described in such Schedule

4.17(6) (the “Existing Issuers”), (ii) the rights, privileges, authorities, and powers of such Borrower as an owner or holder of such Equity Interests, including all economic rights, all control rights, authority, and powers, all status rights of such Borrower as a member, shareholder, or other owner (as applicable), and all rights and interests, if any, to participate in the management of each Pledged Issuer (as defined below), (iii) the shares of Equity Interests at any time and from time to time owned or acquired by a Borrower of any and all Persons now or hereafter existing (such Persons, together with the Existing Issuers, being hereinafter referred to collectively as the “Pledged Issuers” and each individually as a “Pledged Issuer”), whether or not evidenced or represented by any stock certificate, certificated security or other Instrument, (iv) the certificates representing such shares of Equity Interests, all options and other rights, contractual or otherwise, in respect thereof and all dividends, distributions, cash, financial assets, securities, other Equity Interests, stock options and commodity contracts, notes, debentures, bonds, promissory notes or other evidences of indebtedness and all other property (including, without limitation, any stock dividend and any distribution in connection with a stock split) from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Equity Interests and (v) without affecting the obligations of any Borrower under any provision prohibiting such action under this Agreement or any other Loan Document, in the event of any consolidation or merger involving any Pledged Issuer and in which such Pledged Issuer is not the surviving entity or any division of any Pledged Issuer, all Equity Interests of the successor entity formed by or resulting from such consolidation, merger or division.

(44) “Request for Advance” means a request in form and substance acceptable to Lender directing where the proceeds of the Advance are to be made and attaching a funds-flow memorandum setting forth the sources and uses of such proceeds, which funds-flow memorandum shall be in form and substance reasonably satisfactory to Lender and shall contain the details of how funds from each source are to be transferred to particular uses and the wire transfer instructions for the particular uses of such funds.

(45) “Responsible Officer” means any of the Chief Executive Officer, President, Chief Financial Officer, Vice President, Treasurer, Controller or Secretary of each Borrower.

(46) “State” means the State of New York.

(47) “Subsidiary” means, with respect to any Person, (a) any corporation or limited liability company more than fifty percent (50%) of whose Voting Stock having by the terms thereof power to elect a majority of the directors or managers of such corporation or limited liability company (irrespective of whether or not at the time stock of any class or classes of such corporation or limited liability company shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person, directly or indirectly, through Subsidiaries and (b) any partnership, association, joint venture or other entity in which such Person, directly or indirectly, through Subsidiaries, has more than a fifty percent (50%) voting Equity Interest at the time. Unless otherwise expressly provided, all references herein to a “Subsidiary” shall mean a Subsidiary of a Borrower.

(48) “Trademarks” means, with respect to the Borrowers, (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto and (b) the right to obtain all extensions or renewals thereof.

(49) “UCC” means the UCC, as adopted and enacted and as in effect from time to time in the State of New York.

(50) “Voting Stock” means with respect to any Person, shares of such Person’s Capital Stock having the right to vote for the election of directors or managers (or Persons acting in a comparable capacity) of such Person under ordinary circumstances.

ARTICLE 2
LOAN TERMS

Section 2.1 Loan. The principal amount of the Loan shall not exceed Three Million Dollars ($3,000,000) (“Commitment”) and shall be funded and repaid in accordance with this Agreement.

Section 2.2 [Reserved].

Section 2.3 Advance. Subject to the terms and conditions set forth in this Agreement, including, without limitation, the conditions set forth in Schedule 2.3 attached hereto, so long as no Event of Default has occurred, Lender agrees to make a single Advance to the Borrowers on the Effective Date in a principal amount equal to the Commitment. The Commitment shall automatically and permanently terminate on the Effective Date upon the funding of the Loan hereunder. Any principal amount of the Loan which is repaid or prepaid may not be reborrowed.

Section 2.4 Maturity. All Obligations of the Borrowers under this Agreement, if not already paid pursuant to the provisions herein, including all accrued and unpaid interest thereto and all fees and other amounts owing by Borrower to Lender with respect thereto, will be due and payable upon the Maturity Date.

Section 2.5 Method of Borrowing.

(1) With respect to the single Advance made on the Effective Date, the Borrowers shall submit to Lender or to Lender’s designated agent(s) a written request for such Advance. Lender agrees to make available the amount of such Advance to the Borrowers in immediately available funds.

(2) The Borrowers hereby irrevocably authorizes Lender to rely on telephonic, facsimile, electronic transmission or written instructions of any Person identifying themselves as one of the individuals listed herein (or any other individual from time to time authorized to act on behalf of the Borrowers) with respect to any request to make an Advance or a repayment hereunder.

Section 2.6 Interest; Default Rate. The outstanding principal balance of the Loan (including any amounts added to principal under the Loan Documents) shall bear fixed, non-compounding interest at the Contract Rate. Payments of interest shall be due monthly in cash, in arrears on the first day of each month, commencing with August 1, 2023. If any Obligations are outstanding after August 14, 2023, the Obligations shall automatically bear interest at the Default Rate.

Section 2.7 Payments and Maturity. Except as otherwise provided herein, interest shall be computed and accrue on the principal amount hereof from time to time outstanding at a rate per annum equal to the Contract Rate.

(1) On the Maturity Date, Borrower shall pay the principal balance of the Loan, together with any and all remaining unpaid interest thereon at the Contract Rate.

(2) Any prepayments are to be applied: first, to any fees and expenses due to Lender under the Loan Documents; second, to the payment of interest on the principal balance from time to time remaining unpaid at the applicable rate provided herein; and third, to reduce the principal balance. Any prepayments shall be applied to installments in the inverse order of incurrence.

Section 2.8 Additional Payment Terms.

(1) All sums payable to Lender hereunder shall be payable in lawful currency of the United States of America in immediately available funds without deduction, set-off or counterclaim no later than 12:00 p.m. Eastern time on the date when due at the principal office of Lender, or to or from such other account or address as Lender may from time to time designate in a written notice to the Borrowers. No credit shall be given for any payment received by check, draft or other instrument or item

until such time as Lender shall have received credit therefor from the bank or other financial institution upon which said check, draft or other instrument or item is drawn.

(2) When any payment hereunder is due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of interest.

(3) If at any time a Borrower is required by law to make any deduction or withholding in respect of any taxes, duties or other charges from any payment due hereunder, the sum due from such Borrower in respect of such payment shall be increased to the extent necessary to ensure that, after the making of such deduction or withholding, Lender will in any event receive and retain a net sum equal to the sum which Lender would have received had no such deduction or withholding been required to be made. Such Borrower shall promptly deliver to Lender receipts, certificates or other proof evidencing the amounts (if any) paid or payable in respect of any such deduction or withholding. If Lender is entitled to an exemption from or reduction of withholding with respect to payments made under any Loan Document, Lender shall deliver to such Borrower such properly completed and executed documentation reasonably requested by such Borrower as will permit such payments to be made without withholding or at a reduced rate of withholding; including, if Lender is a U.S. Person (as defined in Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), an IRS Form W-9 or, if Lender is not a U.S. Person, the appropriate IRS Form W-8. In addition, if reasonably requested by such Borrower, Lender shall deliver such other documentation prescribed by applicable law or reasonably requested by such Borrower as will enable such Borrower (i) to determine whether or not Lender is subject to backup withholding or information reporting requirements and (ii) to comply with FATCA, as applicable.

Section 2.9 Use of Proceeds. The proceeds of the Advance shall be used by the Borrowers solely (i) to pay fees and expenses incurred in connection with this Agreement and related transactions and (ii) for working capital and general corporate purposes of the Borrowers in accordance with the Disbursement Schedule.

Section 2.10 Prepayments. The Loan may be prepaid, in whole at any time, or in any part from time to time, without premium or penalty, and must be prepaid in the following amounts and at the following times:

(1) unless Lender shall otherwise consent in writing, contemporaneously with the refinancing of the Debt owing to Lender under this Agreement, in an amount equal to one hundred percent (100%) of the outstanding Obligations;

(2) unless Lender shall otherwise consent in writing, on the date on which a Borrower (or Lender as loss payee or assignee) receives any casualty proceeds with respect to any asset upon which Lender maintained a Lien, an amount equal to one hundred percent (100%) of such proceeds (net of reason-able and documented out-of-pocket expenses and fees), or such lesser portion of such proceeds as Lender shall elect to apply to the Obligations;

(3) an amount equal to any interest that is deemed to be in excess of the Maximum Rate and is required to be applied to the reduction of the principal balance of the Loan as provided for in this Agreement;

(4) unless Lender shall otherwise consent in writing, upon receipt by a Borrower of the proceeds of any Asset Disposition that is not made in the ordinary course of business or that pertains to any collateral securing the Obligations, an amount equal to one hundred percent (100%) of the net cash proceeds of such asset disposition (net of reasonable and documented out-of-pocket fees and expenses) or such lesser portion as Lender shall elect to apply to the Obligations; and

in each case, which is prohibited by the terms herein, an amount equal to one hundred percent (100%) of such net proceeds, or such lesser portion as Lender shall elect to apply to the Obligations.

Section 2.11 Recourse Obligations. The Loan shall be a fully recourse Obligation of the Borrowers and upon the occurrence of an Event of Default, Lender may exercise all of its rights and remedies under the Loan Documents, including, without limitation, its right to seek and obtain a monetary judgment against Borrower with respect to the Obligations evidenced hereby and to hold the Borrowers liable for such Obligations.

ARTICLE 3
CONDITIONS PRECEDENT TO LENDER’S OBLIGATIONS

It is expressly agreed that Lender shall not be obligated to make the Advance hereunder until the following conditions have been satisfied, unless waived by Lender in writing at its sole discretion:

Section 3.1 [Reserved].

Section 3.2 Documents. Lender shall have received and reviewed to its satisfaction the following fully-executed documents or deliverables:

(1) this Agreement;

(2) the Fee Letter;

(3) (i) a certificate of each Borrower, dated the Effective Date and executed by its Secretary, which shall (A) certify the resolutions of its Board of Directors, members or other body authorizing the execution, delivery and performance of the Agreement and Loan Documents to which it is a party, (B) identify by name and title and bear the signatures of each financial officer and any other officers of such Borrower authorized to sign the Loan Documents to which it is a party, and (C) contain appropriate attachments, including (i) the certificate or articles of incorporation or organization of each Borrower certified by the relevant authority of the jurisdiction of organization of such Borrower and a true and correct copy of its by-laws or operating, management or partnership agreement and (ii) a long form good standing certificate for each Borrower from its jurisdiction of organization; and

(4) filing of appropriate financing statements in such office or offices as may be determined as necessary by Lender to perfect the security interests and Liens purported to be created hereunder.

Section 3.3 Lien Searches. Lender shall have received the results of a recent lien search in such jurisdictions as Lender shall deem appropriate, and such search shall reveal no liens on any of the assets of the Borrowers (other than Permitted Liens).

Section 3.4 Fees, Costs and Expenses. The Borrowers shall have paid (i) fees (including, without limitation, reasonable and documented attorneys’ fees), costs, and expenses incurred by Lender in connection with the negotiation, execution and delivery of this Agreement and the other Loan Documents in connection therewith, including up to an amount equal to $135,000.00, which shall be deducted by Lender from the Advance and the balance of which shall be added to the Obligations hereunder and (ii) fees due and payable under the Fee Letter.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES

Each Borrower represents and warrants to Lender that:

Section 4.1 Organization and Power. Each Borrower is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Each Borrower has all requisite limited liability company or similar power and authority under the laws of its jurisdiction of organization

to own, lease and operate its properties and to carry on its business as now being conducted. No Borrower is a “foreign person” within the meaning of § 1445(f)(3) of the Internal Revenue Code of 1986, as amended. A true, correct and complete copy of the organizational structure of the Borrowers and their respective Subsidiaries is attached hereto as Exhibit A.

Section 4.2 Validity of Loan Documents. Each Borrower has all requisite organizational power and authority to execute and deliver the Loan Documents and to perform its obligations thereunder. The execution and delivery of the Loan Documents, and performance of its obligations hereunder, by each Borrower: (1) are duly authorized and do not require the consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any other party or Governmental Authority which has not been obtained; (2) will not violate any applicable law in any material respect or result in the imposition of any Lien, charge or encumbrance upon the assets of such Borrower, except as contemplated by the Loan Documents; and (3) will not conflict with or result or cause a breach of any of the terms or provisions of, or constitute a default under, any material indenture, pledge, mortgage, deed of trust, loan agreement, partnership agreement, operating agreement or any other agreement or instrument to which any Borrower is party or by which any Borrower’s property or assets are subject or bound. The Loan Documents constitute the legal, valid and binding obligations of each Borrower, enforceable in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles.

Section 4.3 Compliance with Laws; No Violations. Each Borrower is in compliance with all applicable laws, rules, statues, regulations and ordinances except where noncompliance would not reasonably be expected to have a material adverse effect. Each Borrower has duly obtained and now holds all material licenses, permits, certifications, approvals and the like required by federal, state and local laws of the jurisdictions in which such Borrower conducts its business, and each remains valid and in full force and effect. There exists no violations of any statutes, rules, orders, ordinances, regulations or requirements of any Governmental Authorities with respect to the operation of each Borrower’s business.

Section 4.4 Financial Condition; Liabilities; Litigation.

(1) The Historical Financial Statements and the other financial statements of each Borrower delivered to Lender are true and correct in all material respects and fairly present the financial condition of such Borrower as of the dates indicated therein and the results of its operations for the indicated periods and were or will be, as the case may be, prepared in accordance with GAAP and applied on a consistent basis with prior periods. All Debt of each Borrower as of the Effective Date is reflected on the most recently dated Historical Financial Statements of such Borrower. No information, exhibit, or report furnished by the Borrowers to Lender in connection with the negotiation of this Agreement contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statement contained therein not materially misleading.

(2) Except as otherwise disclosed to Lender, there is no litigation, administrative proceeding, investigation or other legal action (including any proceeding under any state or federal bankruptcy or insolvency law) pending or, to the knowledge of any Borrower, threatened against any Borrower that (a) questions the validity of the Loan Documents or the right of such Borrower to enter into the Loan Documents and consummate the transactions contemplated thereby, (b) prevents, delays, interferes or would otherwise make illegal the consummation of the transactions contemplated by the Loan Documents, or (c) could reasonably be expected to cause, either individually or in the aggregate, any Material Adverse Effect.

Section 4.5 Other Agreements; Defaults. No Borrower is a party to any agreement or instrument or subject to any court order, injunction, permit, or restriction that could reasonably be expected to have a Material Adverse Effect. No Borrower is in violation or default of any provisions of its organizational documents, each as amended from time to time and as currently in effect, or of any material instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound. The execution, delivery and performance of and compliance with the Loan Documents will not result in any such violation or default.

Section 4.6 Location of Borrower. Each Borrower’s principal place of business and chief executive offices are located at the address stated in Schedule 4.6 hereof.

Section 4.7 Tax Filings. Each Borrower has filed (or has obtained effective extensions for filing) all federal, state and local tax returns required to be filed and has paid or made adequate provision for the payment of all federal, state and local taxes, charges and assessments payable by such Borrower except (a) taxes that are being contested in good faith by appropriate proceedings and for which the Borrowers, as applicable, have set aside on their books adequate reserves in accordance with GAAP or (b) to the extent that the failure to do so could not reasonably be expected to result in a material adverse effect.

Section 4.8 Outstanding Debt. No Borrower has outstanding Debt except as set forth in its most recently dated Historical Financial Statement. No Borrower intends to incur Debt or liabilities (including contingent liabilities and other commitments) beyond its ability to pay such Debt as they mature (taking into account the timing and amounts of cash to be received by such Borrower and the amounts to be payable on or in respect of obligations of such Borrower).

Section 4.9 Full and Accurate Disclosure. No statement of fact made by or on behalf of any Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading. There is no fact presently known to any Borrower which has not been disclosed to Lender which could reasonably be expected to have a Material Adverse Effect.

Section 4.10 Anti-Terrorism and Anti-Money Laundering Compliance.

(1) No Borrower is, and no Person who (a) owns a controlling interest in or otherwise controls a Borrower, or (b) holds, directly or indirectly, any legal or beneficial interest whatsoever in Borrower, is: (i) listed on the Specially Designated Nationals and Blocked Persons List (the “SDN List”) maintained by the Office of Foreign Assets Control (“OFAC”), Department of the Treasury, and/or on any other similar list (“Other Lists” and, collectively with the SDN List, the “Lists”) maintained by the OFAC pursuant to any authorizing statute, Executive Order or regulation (collectively, “OFAC Laws and Regulations”); or (ii) a Person (a “Designated Person”) either (A) included within the term “designated national” as defined in the Cuban Assets Control Regulations, 31 C.F.R. Part 515, or (B) designated under Sections 1(a), 1(b), 1(c) or 1(d) of Executive Order No. 13224, 66 Fed. Reg. 49079 (published September 25, 2001) or similarly designated under any related enabling legislation or any other similar Executive Orders (collectively, the “Executive Orders”). The OFAC Laws and Regulations and the Executive Orders are collectively referred to in this Agreement as the “Anti-Terrorism Laws”. This Section 4.10(1) shall not apply to any Person to the extent that such Person’s interest in a Borrower is through a U.S. Publicly-Traded Entity. As used in this Agreement, “U.S. Publicly-Traded Entity” means a Person (other than an individual) whose securities are listed on a national securities exchange, or quoted on an automated quotation system, in the United States, or a wholly-owned subsidiary of such a Person.

(2) Each Borrower has taken reasonable measures appropriate to the circumstances (and in any event as required by law), with respect to each holder of a direct or indirect interest in such Borrower, to assure that funds invested by such holders in such Borrower are derived from legal sources (“Anti-Money Laundering Measures”). The Anti-Money Laundering Measures have been undertaken in accordance with the Bank Secrecy Act, 31 U.S.C. §§ 5311 et seq. (“BSA”), and all applicable laws, regulations and government guidance on BSA compliance and on the prevention and detection of money laundering violations under 18 U.S.C. §§ 1956 and 1957 (collectively with the BSA, “Anti-Money Laundering Laws”).

(3) No Borrower, nor to the knowledge of the Borrowers any Person who (1) owns a controlling interest in or otherwise controls Borrower, or (2) holds, directly or indirectly, any legal or beneficial interest whatsoever in Borrower, (i) is under investigation by any Governmental Authority for, or has been charged with, or convicted of, money laundering under 18 U.S.C. §§ 1956 and 1957, drug trafficking, terrorist-related activities or other money laundering predicate crimes, or any violation of the

BSA, (ii) has been assessed civil penalties under any Anti-Money Laundering Laws, or (iii) has had any of its funds seized or forfeited in an action under any Anti-Money Laundering Laws.

Section 4.11 Health Care Matters.

(1) Compliance with Health Care Laws; Permits. Each Borrower is and, in the five (5) years prior to the Effective Date, has been in compliance in all material respects with all Health Care Laws applicable to it, its products and its properties or other assets or its business or operation. Each Borrower and any Person acting on its behalf, has in effect all Permits, including, without limitation, all Permits necessary for it to own, lease or operate its properties and other assets and to carry on its business and operations, as presently conducted, except as immaterial. All such Permits are in full force and effect and there exists no material default under, or material violation of, any such Permit and neither Borrower nor any Subsidiary has received written notice of any current or proposed limitation, suspension, termination or revocation of any such Permit. No action, proceeding, litigation, demand, or investigation by any Governmental Authority and no suit, action or proceeding by any other person, in each case with respect to any of Borrower or any Subsidiary is pending or, to the knowledge of such Person, threatened.

(2) Material Statements. In the five (5) years prior to the Effective Date, neither Borrower nor any Subsidiary has made an untrue statement of a material fact or fraudulent statement to any Governmental Authority, or, to the knowledge of either Borrower or any Subsidiary, failed to disclose a material fact required to any Governmental Authority, or committed an act, or made a statement that, at the time such statement was made, would constitute a material violation of any Health Care Law. As applicable, neither Borrower nor any Subsidiary, or any of their respective affiliates, employees or agents, has made any untrue statement of fact to any Governmental Authority regarding material claims incurred but not reported, in the five (5) years prior to the Effective Date.

Section 4.12 Acknowledgment of Lender’s Reliance. Each Borrower acknowledges that Lender will extend the Loan in reliance upon the representations and warranties contained in the Loan Documents or any certificate delivered to Lender pursuant to the Loan Documents. Lender shall be entitled to such reliance notwithstanding any investigation which has been or will be conducted by Lender on its behalf.

Section 4.13 Business Purpose. The proceeds of the Loan will be used entirely for the Borrowers’ business purposes.

Section 4.14 [Reserved].

Section 4.15 Factoring Agreement. There are no outstanding amounts or obligations due and payable under the Factoring Agreement and no more than $4,000,000 cash is posted as collateral for the obligations thereunder.

Section 4.16 Borrower Information. Schedule 4.16 hereto sets forth a complete and accurate list as of the Effective Date of (i) the exact legal name of each Borrower, (ii) the state or jurisdiction of organization of each Borrower, (iii) the type of organization of each Borrower and (iv) the organizational identification number of each Borrower or states that no such organizational identification number exists.

Section 4.17 Collateral.

(1) Except as otherwise provided or referenced in this Agreement, each Borrower has good, marketable and indefeasible title to the Collateral, and the Collateral is free from all encumbrances and rights of setoff of any kind (other than Permitted Liens).

(2) Except as otherwise provided or referenced in this Agreement, no Borrower will hereafter, without Lender’s prior written consent, sell, pledge, encumber, assign or otherwise dispose of any of the Collateral other than in the ordinary course of business or permit any lien or security interest to exist thereon except to Lender (other than Permitted Liens).

(3) Upon the filing of any UCC-1 financing statements in the appropriate filing office, Lender will have a perfected security interest (subject only to Permitted Liens) in the Collateral (including, without limitation, after-acquired Collateral at the time any Borrower acquires rights therein) to the extent that a security interest in the Collateral can be perfected by such filing.

(4) Except as otherwise provided or referenced in this Agreement, each Borrower will defend the Collateral against all claims and demands of all persons at any time claiming the same or any interest therein.

(5) Set forth in Schedule 4.17(5) hereto is a complete and accurate list, as of the Effective Date, of each Deposit Account, Securities Account and Commodities Account of each Borrower, together with the name and address of each institution at which each such account is maintained, the account number for each such account and a description of the purpose of each such account.

(6) The Pledged Issuers set forth in Schedule 4.17(6) identified as a Subsidiary of a Borrower are each such Borrower’s only Subsidiaries existing on the Effective Date. The Pledged Shares have been duly authorized and validly issued and the Pledged Shares of any issuer that is a corporation are fully paid and nonassessable and the holders thereof are not entitled to any preemptive, first refusal or other similar rights. Except as noted in Schedule 4.17(6) hereto, the Pledged Shares constitute 100% of the issued shares of Equity Interests of the Pledged Issuers as of the date hereof. All other shares of Equity Interests of each Borrower’s Subsidiaries constituting Pledged Interests will be duly authorized and validly issued, fully paid and nonassessable (other than Equity Interests in limited liability companies and partnerships which are validly issued and fully paid).

Section 4.18 Survival; Updates of Representations and Warranties. All representations and warranties contained in or made in connection with this Agreement and the other Loan Documents shall survive the Effective Date and any advance made hereunder. Lender acknowledges and agrees that any and all representations and warranties contained in or made under or in connection with this Agreement may be amended, changed or otherwise modified by the Borrowers, with the consent of Lender, at any time and from time to time after the Effective Date so as to accurately reflect the matters represented and warranted therein; provided, that such amendments, changes and/or modifications are disclosed in writing to and approved by Lender. Lender shall have no obligation to waive any Event of Default due to any present or future inaccuracy of such representation or warranty or to agree to any amendment, change or modification of such representation or warranty.

ARTICLE 5
REPORTING

Section 5.1 Disbursements Schedule. Attached hereto as Exhibit B is the Borrowers’ projected cash expenditures for their operations for the term of this Agreement (the “Disbursements Schedule”). On July 18, 2023 and on or before the Tuesday of each calendar week (or, solely to the extent any Tuesday is not a Business Day, on or before the Wednesday of such calendar week), the Borrowers shall deliver a certificate signed by an Authorized Officer of the Borrowers to Lender, certifying that the Borrowers have not made any expenditure or disbursement other than as set forth in the Disbursement Schedule and disclosing the amount and payee of each disbursement made from the Advance by the Borrowers.

ARTICLE 6

Section 6.1 [Reserved].

Section 6.2 Access to Books and Records. Each Borrower shall keep and maintain proper and current books and records in accordance with GAAP and permit Lender and its agents and representatives, upon prior reasonable notice and during normal business hours, (i) to examine and produce copies of, as applicable, all of the facilities, processes, records, books and papers of such Borrower and (ii) to discuss the business, affairs and finances of the Borrowers with any of its officers

and managers and such Borrower’s independent accountants. All reasonable costs and expenses of such inspections, examinations and discussions shall be paid by the Borrowers.

Section 6.3 Reporting.

(i) Promptly after delivery thereof, of any written notice from any Governmental Authority of any investigation or audit, or pending or threatened proceedings relating to, any violation by the Borrowers or any Subsidiary of any applicable laws, including any Health Care Laws, in each case, solely to the extent the same would reasonably be expected to result in any material liability to any Borrower or any Subsidiary.

(ii) Each Borrower shall promptly notify Lender in writing of (a) any condition or event which constitutes (or which upon the giving of notice or lapse of time, or both would constitute) an Event of Default under this Agreement or any other Loan Documents, including any event or circumstance which causes any information which has previously been provided by such Borrower to Lender to include an untrue statement of material fact or to omit to state any material fact or any fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and, in such event, such Borrower shall promptly furnish to Lender updated or revised information which will correct such untrue statement or include such omitted fact; (b) any written notice of default received by such Borrower or otherwise material to such Borrower’s business; (c) any threatened or pending legal, judicial or regulatory proceedings or investigation, including any dispute between such Borrower and any Governmental Authority affecting such Borrower; and (d) any event causing extraordinary loss or depreciation of the value of such Borrower’s assets (whether or not insured) or business and the facts with respect thereto.

Section 6.4 Each Borrower shall provide Lender copies of all certificates, notices and other information delivered to such Borrower by, or received by such Borrower from, any other material contract counterparty, contemporaneously with such delivery or promptly after such receipt.

ARTICLE 7
COVENANTS

Each Borrower covenants and agrees with Lender that, so long as Borrower has any outstanding Obligations (other than unasserted contingent Obligations) under the Loan Documents, without the prior written consent of Lender:

Section 7.1 Due on Sale and Encumbrances; Authority Documents.

(1) No Borrower shall (a) sell, convey, assign or otherwise transfer its properties, assets or contractual rights other than in the ordinary course of business consistent with past practice; or (b) mortgage, pledge, encumber, alienate, grant any other Lien on or grant any other interest in its properties or assets other Liens in favor of Lender (other than Permitted Liens), without prior consultation with Lender; and

(2) No Borrower shall not amend, modify, or otherwise supplement its respective Authority Documents in a manner that would be adverse to Lender.

Section 7.2 Taxes on Security. Each Borrower shall pay all taxes, charges, filing, registration and recording fees, excises and levies payable with respect to the Liens (if any) created or secured by the Loan Documents. If there shall be enacted any law changing existing laws of taxation of security interests, mortgages, deeds of trust, security deeds, or debts secured by real property, or changing the manner of collecting any such taxes, such Borrower shall promptly pay to Lender, on demand, all additional taxes, costs and charges for which Lender is or may be liable as a result thereof.

Section 7.3 Limitations on Other Debt. Without the prior consultation with Lender, no Borrower shall incur any Debt (whether secured or unsecured) (other than Permitted Debt).

Section 7.4 Compliance with Laws, etc. Each Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, and all material licenses and permits and comply with all applicable laws, rules, statutes, regulations and ordinances in all material respects.

Section 7.5 Compliance with Health Care Laws.

(1) Without limiting or qualifying any other provision of this Agreement, each Borrower will comply, and will cause each Subsidiary, to comply in all material respects, with all applicable Health Care Laws relating to the operation of such Person’s business.

(2) Notwithstanding anything to the contrary in this Agreement, neither Borrower nor any Subsidiary shall be required to furnish to Lender any protected health information or any patient related information, to the extent such disclosure to Lender is prohibited by Health Care Laws or other applicable laws.

Section 7.6 Continued Business Operations. Without prior consultation with Lender, each Borrower shall continue to conduct such Borrower’s business operations in substantially the same manner as is currently being conducted. Each Borrower shall keep or cause to be kept adequately insured by financially sound and reputable insurers such Borrower’s business activities in the manner usually insured by businesses engaged in the same or similar businesses. Without limiting the generality of the foregoing, each Borrower shall at all times maintain adequate business liability insurance applicable to such Borrower’s operations.

Section 7.7 Prohibited Actions. No Borrower shall: (a) enter into any agreements affecting the operation of such Borrower’s business or amend or terminate any existing agreements without prior consultation with Lender; (b) enter into any line of business substantially different from those lines of business conducted by the such Borrower on the date hereof or any business substantially related or incidental thereto; (c) commence any legal action or proceeding against any person or settle any legal action or proceeding against such Borrower brought by any third party or Governmental Authority; (d) make loans or advances to any person or entity; (e) engage in, or seek or consent to, any dissolution, winding up, liquidation, consolidation, merger or asset sale unless otherwise permitted hereby; (f) enter into or be a party to any transaction with its members or any of its affiliates, except on terms that are no less favorable to any party thereto than would be obtained in a comparable arm’s length transaction with an unrelated third party; (g) except as permitted by Section 10.2 of hereof), change its name; and/or (h) use any trade name other than such Borrower’s true name.

Section 7.8 Further Assurances. Each Borrower shall (a) cure any defects in the execution and delivery of the Loan Documents, and (b) execute and deliver, or cause to be executed and delivered, all such other documents, agreements and instruments as Lender may reasonably request to further evidence and more fully describe the collateral for the Loan, to correct any omissions in the Loan Documents, or to obtain any consents as may be necessary or appropriate in connection therewith.

Section 7.9 [Reserved].

Section 7.10 Disbursement Schedule. No Borrower may make any disbursements other than those set forth in the Disbursements Schedule delivered to Lender pursuant to Section 5.4 hereof.

Section 7.11 Factoring Agreement. EPI shall not utilize, or issue any invoices under, the Factoring Agreement and the balance thereunder shall remain at $0 at all times.

ARTICLE 8
EVENTS OF DEFAULT

Each of the following shall constitute an “Event of Default” under the Loan:

Section 8.1 Payments. Any Borrower’s failure to pay (a) any payment of principal, interest, fees or other amount due under the Loan Documents when and as due and/or (b) the Loan at the Maturity Date, whether by acceleration or otherwise.

Section 8.2 Covenants. Any Borrower’s failure to perform or observe any of the agreements and covenants contained in Section 6.3, Section 7.1, Section 7.3, Section 7.7, Section 7.10 or Section 7.11.

Section 8.3 Other Covenants. Any Borrower’s failure to perform or observe any of the other agreements and covenants contained in this Agreement or any other Loan Documents for a period of more than five (5) days following the occurrence thereof.

Section 8.5 Involuntary Bankruptcy or Other Proceeding. Commencement of an involuntary case or other proceeding against any Borrower that seeks liquidation, reorganization or other relief with respect to it or its debts or other liabilities under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeks the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any of its property; or an order for relief against any Borrower shall be entered in any such case under the Federal Bankruptcy Code.

Section 8.6 Voluntary Petitions, Etc. Commencement by any Borrower of a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its Debt or other liabilities under any bankruptcy, insolvency or other similar law or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official for it or any of its property, or consent by such Borrower to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or the making by such Borrower of a general assignment for the benefit of creditors, or the failure by such Borrower, or the admission by such Borrower in writing of its inability, to pay its debts generally as they become due, or any action by Borrower to authorize or effect any of the foregoing.

Section 8.8 Material Business Disruption. Any Borrower is enjoined, restrained or in any way prevented by order of a court or regulatory agency from continuing to conduct all or any material part of its business affairs for a period in excess of five (5) consecutive days.

Section 8.9 Other Encumbrances. If a judgment or other claim becomes a Lien or encumbrance upon any material portion of any Borrower’s assets, other than a Permitted Lien.

Section 8.10 Loan Documents. Any of the Loan Documents or the security interests and Liens thereunder are challenged by any Borrower or any Loan Document is revoked or rescinded.

Section 8.11 Collateral. (A) the failure of Lender to have a perfected first priority security interest in the Collateral, except for Permitted Liens or as otherwise provided in this Agreement or (B) a forfeiture or loss of all or a material portion of the collateral to any Governmental Authority.

ARTICLE 9
REMEDIES

Section 9.1 Remedies.

(1) While any Event of Default exists, Lender shall have no obligation to make the Advance hereunder. Upon the occurrence of an Event of Default under Article 7 hereof, at the option and upon the declaration of Lender, (x) the entire Loan (including, without limitation, any and all costs and expenses, including professional fees) shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and the Default Rate will apply in accordance with Section 2.6; and (y) the obligation, if any, of Lender to make any further Advance hereunder shall be terminated. Notwithstanding the generality of the foregoing, the Lender shall not exercise any rights or remedies hereunder until July 20, 2023.

(2) Upon the occurrence of an Event of Default under Article 7 hereof, Lender may, immediately enforce payment of all amounts due and owing under the Loan Documents and exercise all rights and remedies therefor under the Loan Documents and at law or in equity, including, without limitation, instituting any proceeding or proceedings to enforce the Obligations. The rights, powers and remedies of Lender under the Loan Documents shall be in addition to all rights, powers and remedies given to Lender by virtue of any statute or rule of law, or any other agreement between Lender and any Borrower, all of which rights, powers and remedies shall be cumulative and may be exercised successively or concurrently without impairing Lender’s rights in any security interests created by the Loan Documents.

(3) The acceptance of any payment by any Borrower to Lender shall not be deemed to cure or constitute a waiver of any Event of Default and Lender retains its rights under this Agreement and the other Loan Documents to accelerate and to continue to demand payment of the Loan upon the happening of any Event of Default, despite any payments made to Lender after the occurrence of such Event of Default.

(4) Lender’s exercise of any right or remedy which has the effect of remedying an Event of Default under the Loan Documents shall not constitute a cure or waiver of such Event of Default.

(5) The failure of Lender to insist upon strict performance of any term, covenant or condition contained in the Loan Documents shall not be deemed to be a waiver, modification, amendment or estoppel with respect to the enforcement of such term, covenant or condition. No Borrower shall be relieved or released from its Obligations by reason of (a) the failure of Lender to comply with any request of such Borrower to take any action to enforce any of the provisions of the Loan Documents; (b) the release, regardless of consideration, of any Person liable for the Loan or any portion thereof; or (c) any agreement or stipulation by Lender extending the time of payment or otherwise modifying or supplementing the terms of the Loan Documents. The rights of Lender under each of the Loan Documents shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Lender shall be construed as an election to proceed under any one provision of any Loan Document to the exclusion of any other provision. Lender shall not be limited exclusively to the rights and remedies herein stated, but shall be entitled to every right and remedy now or hereafter afforded at law or in equity.

(6) Upon the occurrence and during the continuance of any Event of Default, Lender may declare all Obligations secured hereby immediately due and payable and shall have, in addition to any remedies provided herein or by any applicable law or in equity, all the remedies of a Lender under the UCC. All of the rights and remedies of Lender, whether evidenced by this Agreement or by any other writing, shall be cumulative and may be exercised singularly or concurrently by Lender. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of the Borrowers under this Agreement, after failure to perform, shall not affect the right of Lender to declare a default and to exercise remedies available to Lender under this Agreement. Nothing under this Agreement or otherwise shall be construed so as to limit or restrict the rights and remedies available to Lender under this Agreement following the occurrence and during the continuance of an Event of Default, or in any way to limit or restrict the rights

and ability of Lender to proceed directly against the Borrowers and/or to proceed against any other collateral directly or indirectly securing the Obligations. Nothing under this Agreement or otherwise shall be construed so as to require Lender to proceed against or resort to any collateral directly or indirectly securing the Obligations at any time.

(7) Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an Event of Default, Lender, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below or as otherwise required herein) to or upon the Borrowers or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof, which rights shall include, without limitation, the right to (a) peaceably by its own means or with judicial assistance enter the premises of the Borrowers and take possession of the Collateral without prior notice to the Borrowers or the opportunity for a hearing, (b) render the Collateral unusable, (c) dispose of the Collateral on the Borrowers’ premises, and (d) require the Borrowers to assemble the Collateral and make it available to Lender at a place designated by Lender. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give the Borrowers reasonable notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made. The requirements of commercially reasonable notice shall be met if such notice is sent to the Borrowers at least ten (10) days before the time of the intended sale or disposition. Expenses of retaking, holding, preparing for sale, selling or the like shall include Lender's reasonable attorney's fees and legal expenses, incurred or expended by Lender to enforce any payment due it under this Agreement either as against the Borrowers, as applicable, or in the prosecution or defense of any action, or concerning any matter growing out of or in connection with the subject matter of this Agreement and the Collateral pledged hereunder. Each Borrower waives all relief from all appraisement or exemption laws now in force or hereafter enacted.

(8) Each Borrower hereby irrevocably appoints Lender as its agent and attorney-in-fact, with full power of substitution, in the name of such Borrower, for the sole use and benefit of Lender, but at the expense of such Borrower, to exercise, at any time and from time to time during the continuance of an Event of Default, all or any of the following powers with respect to all or any of the Collateral:

(a) to demand, collect, receive, receipt for, sue and recover all sums of money or other property which may now or hereafter become due, owing or payable from the Collateral,

(b) to endorse such Borrower’s name to any instruments, chattel paper and documents comprising part of the Collateral (including endorsing such instruments, chattel paper and documents to Lender (for the benefit of Lender)),

(c) to assign, on behalf of such Borrower, any instruments, chattel paper or documents comprising part of the Collateral to Lender (for the benefit of Lender),

(d) to execute, sign and endorse any and all claims, instruments, receipts, checks, drafts or warrants issued in payment for the Collateral,

(e) to settle or compromise any and all claims arising under the Collateral, and, in the place and stead of such Borrower, to execute and deliver its release and settlement for the claim,

(f) to file any claim or claims or to take any action or institute or take part in any proceedings, either in its role as Lender, as applicable, or in the name of such Borrower, or otherwise, which in the discretion of Lender may seem to be necessary or advisable,

(g) to receive, open, and dispose of all mail addressed to such Borrower pertaining to the Collateral (or appearing to Lender to possibly pertain to the Collateral),

(h) to notify postal authorities to change the address for delivery of mail addressed to such Borrower to such address as Lender may designate, and

(i) to assume such Borrower’s role in its relationships and contractual obligations and rights as to any custodian or administrator.

This power is given as security for the Obligations, and, upon the occurrence and during the continuation of an Event of Default, the authority hereby conferred is, and shall be, irrevocable and coupled with an interest and shall remain in full force and effect until renounced by Lender.

ARTICLE 10
COLLATERAL

Section 10.1 Grant of Security Interest. To secure the payment and performance in full of the Obligations, each Borrower hereby assigns and grants to Lender a continuing Lien (subject only to Permitted Liens) on and security interest in the Collateral. Each Borrower hereby irrevocably authorizes Lender at any time and from time to time to file in any UCC jurisdiction any initial financing statements and amendments thereto that (a) indicate the Collateral (i) as all assets of such Borrower or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC of such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (b) contain any other information required by part 5 of Article 9 of such UCC for the sufficiency or filing office acceptance of any financing statement or amendment, including, but not limited to (i) whether such Borrower is an organization, the type of organization and (ii) any organization identification number issued to such Borrower. Each Borrower agrees to furnish any such information to Lender promptly upon request. Each Borrower also ratifies its authorization for Lender to have filed in any UCC jurisdiction any like initial financing statements or amendments thereto if filed prior to the date hereof.

Section 10.2 Change in Name or Locations. Each Borrower agrees that (a) without providing at least thirty (30) days’ prior written notice to Lender, such Borrower will not change its name, its chief executive office or organizational identification number, (b) without the prior written consent of Lender (not to be unreasonably withheld), such Borrower will not change its type of organization or jurisdiction of organization and (c) without prior consultation with Lender, such Borrower will not cause any Equipment or Inventory of such Borrower with a value in excess of $250,000 to be located at any location other than as set forth on Schedule 10.2 attached hereto (or in transit between such locations).

Section 10.3 Intellectual Property.

(1) With respect to each Trademark, each Borrower (either itself or through licensees) will, to the extent material to the conduct of its business, (i) continue to use such Trademark on each and every trademarked class of goods applicable to its then current lines of products and services as reflected in its current catalogs, brochures, price lists and other sales materials to the extent necessary to maintain such Trademark in full force and effect free from any reasonable claim of abandonment for non-use, (ii) maintain the quality of products and services offered under such Trademark, (iii) reasonably use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable law, and (iv) not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark is reasonably likely to become invalidated or materially impaired in any way.

(2) No Borrower (either itself or through licensees) will, except as its reasonable business judgment otherwise dictates, do any act, or knowingly omit to do any act, whereby any Patent material to such Borrower’s business is reasonably likely to become forfeited, abandoned or dedicated to the public.

(3) No Borrower (either itself or through licensees) will (and will not permit any licensee or sublicensee thereof to), except as its reasonable business judgment otherwise dictates, do any act or knowingly omit to do any act whereby any such Copyright is reasonably likely to become invalidated or otherwise impaired. No Borrower will (either itself or through licensees), except as its reasonable business judgment otherwise dictates otherwise, do any act whereby any such Copyright may fall into the public domain (other than by expiration).

(4) No Borrower (either itself or through licensees) will, except as its reasonable business judgment otherwise dictates otherwise, do any act that knowingly infringes the intellectual property rights of any other Person.

(5) Each Borrower will, to the extent necessary or useful in the conduct of its business, take all necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of any Intellectual Property material to its business, including, without limitation, paying of maintenance fees, filing of applications for renewal, affidavits of use and affidavits of incontestability.

(6) Each Borrower shall notify Lender reasonably promptly if it knows that any United States Patent, Trademark or Copyright owned by such Borrower and material to the business of such Borrower, and is the subject of an application or registration, has or is reasonably likely to become abandoned, lost or dedicated to the public (except by expiration), or of any materially adverse and final determination (including the institution of, or any such materially adverse and final determination in, any proceeding in the United States Patent and Trademark Office or United States Copyright Office, as applicable, in connection with the prosecution of any application for issuance of a Patent or registration of a Trademark or Copyright) regarding such Borrower’s ownership of any such Patent, Trade-mark or Copyright, its right to register the same, or its right to keep and maintain the same.

(7) Each Borrower agrees that, should it obtain an ownership or other interest in any Intellectual Property that constitutes Collateral after the Effective Date, (i) the provisions of this Agreement shall automatically apply thereto and (ii) any such Intellectual Property shall automatically become Intellectual Property subject to the terms and conditions of this Agreement, except, with respect to each of (i) and (ii) above, if such interest in Intellectual Property is obtained under a license from a third party under which the grant of a security interest would not be permitted.

Section 10.4 Covenants.

(1) Possessory Collateral. As of the date hereof, each Borrower shall have delivered to Lender (or any other custodian approved by Lender) all other instruments and tangible chattel paper included in the Collateral to the extent Lender has requested such delivery.

(2) Electronic Chattel Paper. If any Borrower at any time holds or acquires an interest in any Collateral that is electronic chattel paper or a “transferable record,” as that term is defined in Section 201 of the federal Electronic Signatures in Global and National Commerce Act, or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction, such Borrower shall promptly notify Lender thereof and, at the request and option of Lender, shall take such action as Lender may reasonably request to vest in Lender control, under Section 9-105 of the UCC, of such electronic chattel paper or control under Section 201 of the federal Electronic Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record.

(3) Perfection of Security Interests. Each Borrower shall take any other action reasonably requested by Lender to insure the attachment, perfection and priority of, and the ability of Lender, at the written direction of Lender, the security interests including, without limitation, (a) executing, delivering and, where appropriate, filing financing statements and amendments relating thereto under the UCC, to the extent, if any, that the signature of such Borrower thereon is required therefor, (b) causing the name of Lender, for the benefit of Lender, to be noted as Lender on any certificate of title for

a titled good if such notation is a condition to attachment, perfection or priority of, or ability of Lender to enforce, the security interests in such Collateral, (c) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of Lender to enforce, the security interests in such Collateral, including, without limitation, executing and delivering any filings necessary to perfect the security interests in the Intellectual Property, (d) using commercially reasonable efforts to obtain governmental and other third party consents and approvals, including without limitation any consent of any licensor, lessor or other Person with rights in the Collateral, and (e) taking all actions required by any UCC or by other applicable law; provided, however, that in no event shall deposit account control agreements be required with respect to any Excluded Accounts. Each Borrower also hereby appoints Lender and its employees and agents as its irrevocable attorney-in-fact for the purpose of executing and/or filing any documents necessary to perfect or to continue any security interest, such appointment being coupled with an interest and irrevocable until such time as the Obligations (excluding any contingent indemnification claims not yet asserted) are paid and performed in full.

(4) Notice to Lender. Each Borrower shall promptly notify Lender in writing upon such Borrower’s knowledge of the filing of any Lien on such Borrower or any of the Collateral, other than Permitted Liens.

(5) Preservation of Collateral. Each Borrower shall be fully responsible for any losses that any Lender may suffer as a result of anyone other than any Lender (or any custodian on behalf of such Lender) and/or holders of Permitted Liens asserting any rights or interest in or to the Collateral. Each Borrower shall appear in and to defend all actions or proceedings purporting to affect the security rights and interests granted to Lender under this Agreement. In the event that Lender elects to defend any such action or proceeding, each Borrower agrees to reimburse Lender for the reasonable and documented costs associated therewith, including without limitation, the reasonable attorneys’ fees of Lender, which costs will be payable upon demand.

(6) Compliance with Laws. Each Borrower shall comply in all material respects with all federal, state or local laws applicable to it or in connection with its acquisition of, or any actions taken with respect to, the Collateral.

(7) Accounts. No Borrower shall maintain, or cause any of its Subsidiaries to maintain, any Deposit Account, Securities Account or Commodities Account other than such accounts listed on Schedule 4.17(5) hereto, without the prior written consent of Lender.

(8) Pledged Shares. If any Borrower shall be or become entitled to receive or shall receive any certificate in respect of any Pledged Stock (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization of such Pledged Stock), option or rights in respect of any Pledged Stock, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares of the Pledged Stock, or otherwise in respect thereof, such Borrower shall accept and hold the same for the benefit of Lender and promptly deliver the same forthwith to Lender in the exact form received, duly endorsed by such Borrower to Lender, if required, together with an undated stock transfer power covering such certificate duly executed in blank by such Borrower and otherwise in form and substance reasonably satisfactory to Lender, to be held by Lender as additional Collateral for the Obligations. Notwithstanding the foregoing, with respect to Pledged Shares owned by any Borrower on the Effective Date, such Borrower shall deliver to Lender all certificates and undated stock transfer powers with respect thereto duly executed in blank by such Borrower and otherwise in form and substance reasonably satisfactory to Lender on or prior to the Effective Date.

(9) Negative Pledge; No Transfer. No Borrower will sell or offer to sell or otherwise transfer or grant or allow the imposition of a Lien or security interest upon the Collateral (other than Permitted Liens) or use any portion thereof in any manner inconsistent with this Agreement. So long as this Agreement remains in effect, no Borrowers shall, without the prior written consent of Lender compromise, settle, adjust, or extend payment under or with regard to any material payment obligations, except in the ordinary course of business.

Section 10.5 Further Assurances. Upon the request of Lender, each Borrower will promptly (a) correct any defect, error or omission which may be discovered in any financing statement relating to this Agreement; (b) execute, acknowledge, deliver and record such further instruments (including, without limitation, further security agreements, financing statements, continuation statements and assignments of accounts, contract rights, general intangibles and proceeds) and do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Agreement as determined by Lender in its reasonable discretion and to more fully identify and subject to the security interest hereof any property intended to be covered hereby, including without limitation any renewals, additions, substitutions, replacements or accessions to the Collateral; (c) execute, acknowledge, deliver and record any document or instrument (including specifically any financing statement) necessary, desirable or proper, as determined by Lender in its reasonable discretion, to protect the Lien and security interest hereunder against the rights or interests of third persons; and (d) execute, deliver and file such filings as Lender in its reasonable discretion deems appropriate, to the extent, if any, that the signature of such Borrower thereon is required therefor. Each Borrower shall pay all reasonable and actually incurred costs connected with any of the foregoing.

Section 10.6 Limitation on Duty of Lender. Beyond the exercise of reasonable care in the custody thereof, Lender shall have no duty as to any Collateral in its custody or control or in the custody or control of any agent or bailee or any income thereon. Lender shall be deemed to have exercised reasonable care in the custody of the Collateral in its possession or custody if the Collateral is accorded treatment substantially equal to that which it accords its own property, and shall not be liable or responsible for any loss or damage to any of the Collateral (except for gross negligence, willful misconduct or bad faith of Lender) or for any diminution in the value thereof, by reason of the act or omission of any warehouseman, carrier, forwarding agency, consignee or other agent or bailee selected by Lender in good faith.

Section 10.7 Payment of Expenses. Each Borrower will reimburse Lender for all reasonable and documented expenses actually incurred by Lender in connection with the perfection, termination, and the continuation of the perfection of any security interest in the Collateral. At its option, upon the occurrence and during the continuation of an Event of Default, Lender may, but is not required to discharge taxes, Liens, security interests or such other encumbrances as may attach to the Collateral; pay for required insurance on the Collateral; and pay for the maintenance, appraisal or reappraisal, and preservation of the Collateral, as determined by Lender to be necessary. Each Borrower will reimburse Lender on demand for any payment so made or any expense incurred by Lender pursuant to the foregoing authorization, and the Collateral also will secure any advances or payments so made or expenses so incurred by Lender.

Section 10.8 Preservation of Rights. No delay or omission on Lender’s part to exercise any right or power arising hereunder will impair any such right or power or be considered a waiver of any such right or power, nor will Lender’s action or inaction impair any such right or power. Lender's rights and remedies hereunder are cumulative and not exclusive of any other rights or remedies that Lender may have under other agreements, at law or in equity.

shall have the effect of waiving any of the rights and remedies of Lender. Any partial exercise of any rights and remedies granted to Lender shall furthermore not constitute a waiver of any other rights and remedies of Lender, it being each Borrower’s intent and agreement that the rights and remedies of Lender shall be cumulative in nature. Each Borrower further agrees that, upon the occurrence and continuance of any Event of Default, any waiver or forbearance on the part of Lender to pursue the rights and remedies available to Lender under this Agreement shall be binding upon Lender only to the extent that Lender specifically agrees to any such waiver or forbearance in writing. A waiver or forbearance as to one Event of Default shall not constitute a waiver or forbearance as to any other Event of Default. None of the warranties, conditions, provisions and terms contained in this Agreement or any Loan Document, shall be deemed to have been waived by any act or knowledge of Lender or the agents, officers or employees of Lender; but only by an instrument in writing specifying such waiver, signed by a duly authorized officer of Lender and delivered to the Borrowers.

ARTICLE 11
MISCELLANEOUS

Section 11.1 Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be sent by overnight air courier service, or personally delivered to a representative of the receiving party, or sent by electronic mail (email). All such communications shall be mailed, sent or delivered, addressed to the party for whom it is intended at its address set forth below.


If to Lender:						Ligand Pharmaceuticals, Incorporated
						3911 Sorrento Valley Blvd., Suite 110
						San Diego, California 92121
						Attention: Matthew Korenberg, President & COO and
						Andrew T. Reardon, Chief Legal Officer and Secretary
						Email: [***]

with a copy to:						Morgan, Lewis & Bockius LLP
						101 Park Avenue
						New York, New York 10178-0060
						Attention: Kristen V. Campana
						Email: [***]

If to the Borrowers:						Novan, Inc.
						4020 Stirrup Creek Drive, Suite 110
						Durham, North Carolina 27703
						Attention: Paula Brown Stafford; John M. Gay
						Email: [***]

with a copy to:						Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P.
						150 Fayetteville Street, Suite 2300
						Raleigh, North Carolina 27609
						Attention: Gerald F. Roach; Christopher B. Capel; James R. Jolley
						Email: [***]

Any communication so addressed and mailed shall be deemed to be given on the earliest of (a) when actually delivered, or (b) on the first (1st) Business Day after deposit with an overnight air courier service, in each case to the address of the intended addressee, and any communication so delivered in person shall be deemed to be given when receipted for by, or actually received by Lender or Borrower, as the case may be. If given by email, a notice shall be deemed given and received when the email is transmitted to the party’s email address specified above and confirmation of complete receipt is received by the

transmitting party during normal business hours or on the next Business Day if not confirmed during normal business hours. Either party may designate a change of address by promptly giving prior written notice of such change of address.

Section 11.2 Amendments and Waivers. No amendment or waiver of any provision of the Loan Documents shall be effective unless in writing and signed by the party against whom enforcement is sought. No course of dealing on the part of Lender, its officers, employees, consultants or agents, nor any failure or delay by Lender with respect to exercising any right, power or privilege of Lender under any of the Loan Documents, shall operate as a waiver thereof.

Section 11.3 Limitation on Interest. It is the intention of the parties hereto to conform strictly to applicable usury laws. Accordingly, all agreements among the Borrowers and Lender with respect to the Loan are hereby expressly limited so that in no event, whether by reason of acceleration of maturity or otherwise, shall the amount paid or agreed to be paid to Lender or charged by Lender for the use, forbearance or detention of the money to be lent hereunder or otherwise, exceed the maximum amount allowed by law. The terms and provisions of this Section 11.3 shall control and supersede every other provision of the Loan Documents. The Loan Documents are contracts made under and shall be construed in accordance with and governed by the laws of the State, except that if at any time the laws of the United States of America permit Lender to contract for, take, reserve, charge or receive a higher rate of interest than is allowed by the laws of the State (whether such federal laws directly so provide or refer to the law of any state), then such federal laws shall to such extent govern as to the rate of interest which Lender may contract for, take, reserve, charge or receive under the Loan Documents.

Section 11.4 Invalid Provisions. If any provision of any Loan Document is held to be illegal, invalid or unenforceable, such provision shall be fully severable; the Loan Documents shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof; the remaining provisions thereof shall remain in full effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance therefrom; and in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of such Loan Document a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible to be legal, valid and enforceable.

Section 11.5 Expenses; Attorneys’ Fees; Indemnification.

(1) The Borrowers will pay on demand, all documented out-of-pocket fees, costs and expenses incurred by or on behalf of Lender, including without limitation, reasonable and documented out-of-pocket fees, costs, client charges and expenses of, for Lender, one primary outside counsel, arising from or relating to: (a) the negotiation, preparation, execution, delivery, performance and administration of this Agreement and the other Loan Documents, (b) any requested amendments, waivers or consents to this Agreement or the other Loan Documents whether or not such documents become effective or are given, (c) the preservation and protection of Lender’s rights under this Agreement or the other Loan Documents, (d) the defense of any claim or action asserted or brought against Lender by any Person that arises from or relates to this Agreement, any other Loan Document, the Lender’s claims against any Loan Party, or any and all matters in connection therewith, (e) the commencement or defense of, or intervention in, any court proceeding arising from or related to this Agreement or any other Loan Document, (f) the filing of any petition, complaint, answer, motion or other pleading by Lender, or the taking of any action in respect of the Collateral or other security, in connection with this Agreement or any other Loan Document, (g) the protection, collection, lease, sale, taking possession of or liquidation of, any Collateral or other security in connection with this Agreement or any other Loan Document, (h) any attempt to enforce any Lien or security interest in any Collateral or other security in connection with this Agreement or any other Loan Document, (i) any attempt to collect from any Borrower and (j) the receipt by Lender of any advice from professionals with respect to any of the foregoing. Without limitation of the foregoing or any other provision of any Loan Document, if the Borrowers fail to perform any covenant or agreement contained herein or in any other Loan Document, Lender may itself perform or cause performance of such covenant or agreement, and the expenses of Lender incurred in connection therewith shall be reimbursed on demand by the Borrowers. The obligations of the Borrowers under this Section 11.5 shall survive the repayment of the Obligations and discharge of any Liens granted under the Loan Documents.

(2) Subject to Section 7.4 and Section 11.5(1) above, each Borrower shall indemnify each Indemnitee against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys, who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by such Borrower arising out of, in connection with, or as a result of: (i) the execution or delivery of this Agreement, any other Loan Document or any document contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby (including (a) the handling of any collateral of a Borrower as herein provided, (b) Lender’s relying on any instructions of a Borrower, or (c) any other action taken by Lender hereunder or under the other Loan Documents); (ii) the Loan or the use or proposed use of the proceeds thereof; or (iii) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by a Borrower or any subsidiary thereof, and regardless of whether any Indemnitee is a party thereto.

(3) Each Borrower agrees to save harmless and indemnify Lender from and against any claim, demand, action, suit, proceeding or liability for any such fee or commission, including any costs and expenses (including attorneys’ fees) incurred by Lender in connection with any broker’s or finder’s or commission in connection with this Agreement or the transactions contemplated hereby.

Section 11.6 Conditions. All conditions of the obligations of Lender hereunder, including the obligation to make the Advance, are imposed solely and exclusively for the benefit of Lender, its successors and assigns, and no other Person shall have standing to require satisfaction of such conditions or be entitled to assume that Lender will refuse to make the Advance in the absence of strict compliance with any or all of such conditions, and no other Person shall, under any circumstances, be deemed to be a beneficiary of such conditions, any and all of which may be freely waived in whole or in part by Lender at any time in Lender’s sole discretion.

Section 11.7 Lender Not in Control; No Partnership. None of the covenants or other provisions contained in this Agreement shall, or shall be deemed to, give Lender the right or power to exercise control over the affairs or management of the Borrowers, the power of Lender being limited to the rights to exercise the remedies referred to in the Loan Documents. The relationship between the Borrowers and Lender is, and at all times shall remain, solely that of debtor and creditor. No covenant or provision of the Loan Documents is intended, nor shall it be deemed or construed, to create a partnership, joint venture, agency or other similar interest between Lender and the Borrowers, and the rights of Lender to receive interest, fees and other compensation for the credit made available by Lender to Borrowers shall be interpreted at all times to make Lender a creditor of the Borrowers. Lender and the Borrowers disclaim any intention to create any partnership, joint venture, agency or other similar interest between Lender and the Borrowers by virtue of this Agreement.

Section 11.8 Time of the Essence. Time is of the essence with respect to this Agreement.

Section 11.9 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Lender, Borrowers and their respective successors and assigns, provided that no Borrower shall, without the prior written consent of Lender, assign any rights, duties or obligations hereunder.

Section 11.10 Renewal, Extension or Rearrangement. All provisions of the Loan Documents shall apply with equal effect to each and all promissory notes and amendments thereof hereinafter executed which in whole or in part represent a renewal, extension, increase or rearrangement of the Loan, including any notes or other documents issues in substitution for the existing Loan Documents.

Section 11.11 Cumulative Rights. Rights and remedies of Lender under the Loan Documents shall be cumulative, and the exercise or partial exercise of any such right or remedy shall not preclude the exercise of any other right or remedy.

Section 11.12 Singular and Plural. Words used in this Agreement and the other Loan Documents in the singular, where the context so permits, shall be deemed to include the plural and vice

versa. The definitions of words in the singular in this Agreement and the other Loan Documents shall apply to such words when used in the plural where the context so permits and vice versa.

Section 11.13 Phrases. When used in this Agreement and the other Loan Documents, the phrase “including” shall mean “including, but not limited to,” the phrase “satisfactory to Lender” shall mean “in form and substance satisfactory to Lender in all respects,” the phrase “with Lender’s consent” or “with Lender’s approval” shall mean such consent or approval at Lender’s reasonable discretion, and the phrase “acceptable to Lender” shall mean “acceptable to Lender at Lender’s reasonable discretion.”

Section 11.14 Exhibits and Schedules. The exhibits and schedules attached to this Agreement are incorporated herein and shall be considered a part of this Agreement for the purposes stated herein.

Section 11.15 Titles of Articles, Sections and Subsections. All titles or headings to articles, sections, subsections or other divisions of this Agreement and the other Loan Documents or the exhibits hereto and thereto are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other content of such articles, sections, subsections or other divisions, such other content being controlling as to the agreement between the parties hereto.

Section 11.16 Confidentiality. Neither party shall disclose or make public any information concerning the Loan and the Loan Documents, all of which shall be strictly confidential save where disclosure is required by law or by a regulatory or tax authority having jurisdiction over the transaction contemplated by this Agreement; provided, that both parties may disclose information concerning the Loan and the Loan Documents to either party’s advisors, managers and officers on a need-to-know basis.

Section 11.17 Survival. All of the representations, warranties, covenants, and indemnities hereunder, and under the indemnification provisions of the other Loan Documents shall survive the repayment in full of the Loan and the release of the Liens evidencing or securing the Loan.

Section 11.18 Waiver of Jury Trial; Venue. TO THE MAXIMUM EXTENT PERMITTED BY LAW, EACH BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTION OF EITHER PARTY OR ANY EXERCISE BY ANY PARTY OF THEIR RESPECTIVE RIGHTS UNDER THE LOAN DOCUMENTS OR IN ANY WAY RELATING TO THE LOAN (INCLUDING ANY ACTION TO RESCIND OR CANCEL THIS AGREEMENT, AND ANY CLAIM OR DEFENSE ASSERTING THAT THIS AGREEMENT WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE). THIS WAIVER IS A MATERIAL INDUCEMENT FOR LENDER TO ENTER THIS AGREEMENT. LENDER IS HEREBY AUTHORIZED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE BORROWERS AND LENDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH BORROWER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. EACH BORROWER AGREES THAT THE NEW YORK COUNTY DISTRICT COURT SHALL HAVE EXCLUSIVE JURISDICTION WITH REGARD TO ALL MATTERS RELATING HERETO AND EACH BORROWER SUBMITS ITSELF TO SUCH VENUE, SUBJECT TO ANY LAWFUL REQUIREMENT TO SUBMIT TO OTHER JURISDICTIONS SO REQUIRED WITH RESPECT TO ENFORCEMENT OF COLLATERAL.

Section 11.19 Waiver of Punitive or Consequential Damages. In no event shall Lender be liable to the Borrowers for any punitive, exemplary or consequential damages which may be alleged as a result of the Loan or the transaction contemplated hereby, including any breach or other default by Lender, and each Borrower, for itself and its affiliates, hereby waives all claims for consequential damages.

Section 11.20 Sole Discretion. Unless otherwise specifically provided in this Agreement, whenever the consent or approval of Lender is required under this Agreement, the decision as to whether or not to consent or approve shall be in the sole and exclusive discretion of Lender, and the decision of Lender shall be final and conclusive. Unless otherwise specifically provided in this Agreement, whenever the consent or approval of Lender is required under this Agreement, the decision as to whether or not to consent or approve shall be in the sole and exclusive discretion of Lender, and the decision of Lender shall be final and conclusive.

Section 11.21 Governing Law. The Loan Documents are being executed and delivered, and are intended to be performed, in the State, and the laws of the State and of the United States of America shall govern the rights and duties of the parties hereto and the validity, construction, enforcement and interpretation of the Loan Documents, except to the extent otherwise specified in any of the Loan Documents.

Section 11.22 Entire Agreement. This Agreement and the other Loan Documents embody the entire agreement and understanding among Lender and the Borrowers and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof. Accordingly, the Loan Documents may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. If any conflict or inconsistency exists between this Agreement or any of the other Loan Documents, the terms of this Agreement shall control.

Section 11.23 Levy; Attachment. Neither Lender’s obligation hereunder nor any monies, property or funds deposited or required to be deposited under this Agreement shall be subject or liable to attachment or levy by suit or action of any creditor of the Borrowers or of any agent, contractor, subcontractor or supplier of the Borrowers.

Section 11.24 Successors and Assigns; Participations and Assignments.

(1) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that no Borrower may assign or otherwise transfer any of its respective rights or obligations hereunder without the prior written consent of Lender. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Indemnitees) any legal or equitable right, remedy or claim under or by reason of this Agreement or to the Borrowers or any Subsidiary thereof.

(2) Each Borrower agrees and consents that Lender may assign to one or more assignees (together with its successors and assigns, each an “Assignee”) all or a portion of its rights and obligations under this Agreement (including all or a portion of the Loan) without any limitation whatsoever. Each Borrower hereby waives any and all notices of assignment by Lender or by any Assignee. Each Borrower also agrees that any Assignee will be considered the absolute owner of such Assignee’s interest in the Loan and will have all the rights and obligations granted to such Assignee. Each Borrower further waives all rights of offset or counterclaim that it may have now or hereafter against Lender or against any Assignee and unconditionally agrees that either Lender or such Assignee may enforce such Borrower’s obligations under the Loan Documents irrespective of the failure or insolvency of any holder of any interest in the Loan. Each Borrower further agrees that any Assignee may enforce its interests irrespective of any personal claims or defenses that such Borrower may have against Lender.

all the rights granted to it under the participation agreement or agreements governing the sale of such Participant’s interest. Each Borrower further waives all rights of offset or counterclaim that it may have now or hereafter against Lender or against any Participant and unconditionally agrees that either Lender or such Participant may enforce such Borrower’s obligations under the Loan Documents irrespective of the failure or insolvency of any holder of any interest in the Loan. Each Borrower further agrees that any Participant may enforce its interests irrespective of any personal claims or defenses that such Borrower may have against Lender.

Section 11.25 USA Patriot Act Notification. Lender hereby notifies the Borrowers that pursuant to the requirements of the USA PATRIOT Act of 2001, 31, U.S.C. 5318, it is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of the Borrowers and other information that will allow Lender to identify the Borrowers in accordance therewith.

Section 11.26 Right to Defend. Lender shall have the right, but not the obligation, at each Borrower’s expense, to commence, to appear in or to defend any action or proceeding purporting to affect the rights or duties of the parties hereunder and, in connection therewith, pay out of the funds of the Loan all necessary expenses, including fees of counsel satisfactory to Lender, except in a suit by the Borrowers against Lender, in which case the prevailing party shall be entitled to such fees and expenses as a part of any judgment obtained.

Section 11.27 No Joint Venture. Each Borrower and Lender intend that the relationship created under this Agreement and the other Loan Documents be solely that of debtor and creditor. Nothing herein or in the other Loan Documents is intended to create a joint venture, partnership, tenancy-in-common or joint tenancy relationship between the Borrowers and Lender.

Section 11.28 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, but all of which shall constitute one document.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES APPEAR ON THE FOLLOWING PAGE]

EXECUTED as of the date first written above.

LIGAND PHARMACEUTICALS, INCORPORATED, a Delaware corporation, as Lender

By: /s/ Matthew Korenberg

Name: Matthew Korenberg

Title: President and Chief Operating Officer

NOVAN, INC. a Delaware corporation, as a Borrower

By: /s/ Paula Brown Stafford

Name: Paula Brown Stafford

Title: President, Chief Executive Officer, and Chairman

EPI HEALTH, LLC, a North Carolina limited liability company, as a Borrower

By: /s/ Paula Brown Stafford

Name: Paula Brown Stafford

Title: Chief Executive Officer

[Signature Page to Loan and Security Agreement]

Exhibit 10.3

SUPERPRIORITY DEBTOR IN POSSESSION LOAN AND SECURITY AGREEMENT

THIS SUPERPRIORITY DEBTOR IN POSSESSION LOAN AND SECURITY AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time, “Agreement”) is entered into as of July 17, 2023 (“Effective Date”), among LIGAND PHARMACEUTICALS, INCORPORATED, a Delaware corporation (together with its successors and assigns, “Lender”), NOVAN, INC. a Delaware corporation (“Novan”) and EPI Health, LLC, a South Carolina limited liability company (“EPI” and, together with Novan, each, a “Borrower” and collectively, the “Borrowers”).

On July 17, 2023 (the “Petition Date”), the Borrowers commenced Chapter 11 case numbers 23-10937 and 23-10938, as jointly administered for procedural purposes at Chapter 11 case number __ (each a “Case”, and collectively, the “Cases”) by filing with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq., and have continued to operate their business as debtors-in-possession pursuant to Sections 1107 and 1108 thereof.

Prior to the Petition Date, Lender provided financing to the Borrowers pursuant to that certain Loan and Security Agreement, dated as of July 14, 2023, by and among the Borrowers and the Prepetition Secured Lender (as amended, amended and restated, supplemented or otherwise modified from time to time through the Petition Date, the “Prepetition Loan Agreement”).

On the Petition Date, the outstanding principal balance of the Loans (as defined in the Prepetition Loan Agreement) under the Prepetition Loan Agreement was approximately $3.0 million plus interest, fees, costs and expenses and all other Prepetition Obligations under the Prepetition Loan Agreement.

The Prepetition Obligations under the Prepetition Loan Agreement are secured by security interest and liens in substantially all of the existing and after-acquired assets of the Borrowers as more fully set forth in the Prepetition Loan Agreement, and such security interest is perfected, and, with certain exceptions as described in the Prepetition Loan Agreement, has priority over all other security interests.

The Borrowers have requested, and, upon the terms and subject to the conditions set forth in this Agreement, Lender has agreed, to extend credit to the Borrowers in the form a secured term loan credit facility in an aggregate principal amount of $15.0 million, consisting of two tranches: (i) a $12.0 million in aggregate principal amount senior secured term loan facility and (ii) a $3.0 million in aggregate principal amount senior secured term loan resulting from the roll-up and refinancing of certain of the Prepetition Loans outstanding on the Effective Date in accordance with the DIP Orders, each to fund the working capital requirements of the Borrowers and their respective Subsidiaries during the pendency of the Cases and the Carve-Out, in each case, pursuant to and in accordance with the DIP Budget.

NOW, THEREFORE, the parties hereto, in consideration of the premises and their mutual covenants and agreements herein set forth, and intending to be legally bound hereby, covenant and agree as follows:

ARTICLE 1
CERTAIN DEFINITIONS

(1) “13-Week Cash Flow Projections” has the meaning assigned in Section 6.1.

(2) “Acceptable Security Interest” shall mean a security interest which (a) exists in favor of Lender, (b) has superpriority lien status and is superior to all other security interests (other than the Carve-Out and the Prepetition Permitted Liens), (c) secures the Obligations, (d) is enforceable against Borrower which created such security interest and (d) is, proposed or intended to be, perfected.

(3) “Adequate Protection Liens” has the meaning specified in the DIP Orders.

(4) “Adequate Protection Superpriority Claims” has the meaning set forth in the Interim DIP Order or, upon entry of the Final DIP Order, in the Final DIP Order, as applicable.

(5) “Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Person specified.

(6) “Agreement” means this Superpriority Debtor in Possession Loan and Security Agreement, as amended, restated, supplemented or otherwise modified from time to time.

(7) “Allowed Professional Fees” has the meaning set forth in the DIP Orders.

(8) “Anti-Money Laundering Measures” has the meaning assigned in Section 4.10(3).

(9) “Anti-Terrorism Laws” has the meaning assigned in Section 4.10(1).

(10) “Asset Disposition” means any sale, lease, license, transfer, assignment, statutory division or other consensual disposition by a Borrower of any asset.

(11) “Asset Purchase Agreement” means that certain Asset Purchase Agreement, dated as of July 17, 2023, by and among Novan, Inc. and EPI Health, LLC, as Sellers and Ligand Pharmaceuticals, Incorporated, as Buyer.

(12) “Assignee” has the meaning assigned in Section 11.23(2).

(13) “Authority Documents” means the following: (a) (i) a certificate of good standing from Borrowers’ state of organization and (ii) certificates of good standing from such other states in which such Borrower does business and is required to domesticate or otherwise register, except where the failure to domesticate or otherwise register would not reasonably be expected to result in a Material Adverse Effect; (b) a copy of the Borrowers’ articles of organization or other applicable document; (c) a copy of the Borrowers’ operating agreement or other applicable agreement; and (d) a consent in form and content satisfactory to Lender in its sole discretion, authorizing each Borrower to execute the Loan Documents to which it is a party.

(14) “Automatic Stay” means the automatic stay imposed under Section 362 of the Bankruptcy Code.

(15) “Bankruptcy Code” means Title 11 of the United States Code, 11. U.S.C. §§ 101 et seq. and any amendments or successor statute thereto.

(16) “Bankruptcy Court” has the meaning assigned in the recitals of this Agreement.

(17) “Bankruptcy Rules” means the Federal Rules of Bankruptcy Procedure as now and hereafter in effect, or any successor statute.

(18) “Bay View Adequate Protection Liens” has the meaning in the Interim DIP Order.

(19) “Bidding Procedures” means bidding procedures in connection with the sale as contemplated under the Asset Purchase Agreement, which such bidding procedures shall be in form and substance acceptable to Lender in its sole discretion.

(20) “Borrower Financial Advisor” means, as the context may require, each of SierraConstellation Partners, LLC, in its capacity as a financial advisor retained by Borrower to advise on

cash management and reporting and/or Raymond James & Associates, in its capacity as a financial advisor retained by the Borrower to manage the process for, and consummating, a Sale Transaction.

(21) “Borrowing” means a borrowing consisting of simultaneous Loans made by Lender.

(22) “BSA” has the meaning assigned in Section 4.10(2).

(23) “Budget Testing Date” means, with respect to the Budget, 6:00 p.m. Central Standard Time on the Wednesday that is one full week occurring after the Petition Date and each Wednesday thereafter.

(24) “Budget Testing Period” means, the week period ending immediately prior to the Budget Testing Date.

(25) “Business Day” means a day other than a Saturday, a Sunday, or a legal holiday on which national banks located in the State of New York are not open for general banking business.

(26) “Capital Stock” means any and all shares, interests, participations, units or other equivalents (however designated) of capital stock of a corporation, membership interests in a limited liability company, partnership interests of a limited partnership, any and all equivalent ownership interests in a Person and any and all warrants, rights or options to purchase any of the foregoing.

(27) “Carve-Out” has the meaning assigned in the DIP Orders.

(28) “Carve-Out Reserve” has the meaning assigned in Section 2.3(3).

(29) “Carve-Out Trigger Notice” has the meaning assigned in the DIP Orders.

(30) “Case” has the meaning assigned in the recitals of this Agreement.

(31) “Cash Management Order” has the meaning assigned in Section 3.1(9).

(32) “Change of Control” means, with respect to any Borrower:

(d) the consummation of a Sale Transaction.

(33) “Collateral" shall include the following properties, assets and rights of the Borrowers, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof, in each case, to the extent of the Borrowers’ right, title or interest therein:

(a) all Accounts;

(b) all Chattel Paper (whether tangible or electronic);

(d) all Deposit Accounts. Securities Accounts, cash, cash equivalents and money;

(e) all Documents;

(f) all Equipment;

(g) all Equity Interests;

(h) all General Intangibles (including, without limitation, all Payment Intangibles);

(i) all Instruments (including, without limitation, promissory notes);

(j) all Intellectual Property;

(k) all Inventory;

(l) all Investment Property;

(m) all IP Licenses;

(n) all Letter-of-Credit Rights;

(q) all books and records pertaining to the Collateral;

(r) all Commercial Tort Claims;

(t) to the extent not covered by clauses (a) through (r) of this definition, all other assets, personal property and rights of the Borrowers, whether tangible or intangible; and

(34) “Committee” means an official creditors’ committee of creditors holding unsecured claims appointed by the Bankruptcy Court in respect of the Cases pursuant to Section 1102(a) of the Bankruptcy Code.

(35) “Commitment” means the Lender’s New Money Delayed Draw Commitment and the Lender’s Roll-Up Commitment or any combination thereof.

(36) “Contract Rate” means twelve percent (12%) per annum.

(37) “Contractual Rights” has the meaning assigned in Section 10.14.

(38) “Control Agreement” means, with respect to each deposit account, securities account and commodities account of a Borrower (other than an Excluded Account), a control agreement that establishes control by the Lender over such accounts in accordance with Section 9.104 of the UCC, among Lender, such Borrower and the applicable depository institution, in form and substance acceptable to Lender.

(39) “Copyrights” means, with respect to each Borrower, (a) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, and (b) the right to obtain all renewals thereof.

(40) “Copyright Licenses” means any written agreement naming a Borrower as licensor or licensee, granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright.

(41) “Debt” means, for any Person, without duplication and limitation: (a) all indebtedness of such Person for borrowed money or for amounts drawn under a letter of credit, (b) all unfunded amounts under a loan agreement, letter of credit, or other credit facility for which such Person would be liable, if such amounts were advanced under the credit facility, (c) all amounts required to be paid by such Person as a guaranteed payment to members (or other equity holders) or a preferred or special dividend, including any mandatory redemption of shares or interests, (d) all guaranties of Debt, endorsements (other than for collection or deposit in the ordinary course of business and consistent with past practice), and other contingent obligations to purchase, to provide funds for payment of Debt, to supply funds to invest in any Person or entity, or otherwise to assure a creditor against loss, (e) all obligations under leases that constitute capital leases for which such Person is liable, (f) obligations evidenced by bonds, debentures, notes, or other similar instruments, (g) obligations for the deferred purchase price of property or services (including trade obligations), (h) obligations under acceptance facilities, (i) obligations secured by any Liens, whether or not the obligations have been assumed, (j) all obligations of such Person under interest rate swaps, caps, floors, collars and other interest hedge agreements, in each case whether such Person is liable contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Person otherwise assures a creditor against loss and/or (k) any other items which would properly be included in the liability section of a balance sheet or in a

footnote to a financial statement in accordance with GAAP, and shall also include all contingent liabilities.

(42) “Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

(43) “Default Rate” means, the lesser of (a) the Maximum Rate and (b) six percent (6%) per annum in excess of the Contract Rate.

(44) “Designated Person” has the meaning assigned in Section 4.10(1).

(45) “DIP Budget” means the 13-week cash flow budget of anticipated and forecasted revenues and expenses and, as in effect from time to time, in form and substance satisfactory to Lender in its sole discretion, including the Initial DIP Budget, as the same may be updated from time to time by the Borrowers with the consent of Lender in its sole discretion. Any reference contained herein to compliance with the DIP Budget shall include any permitted variance permitted by Section 7.10.

(46) “DIP Liens” means an Acceptable Security Interest in the Collateral granted to Lender pursuant to this Agreement, the other Loan Documents and the DIP Orders.

(47) “DIP Priority Collateral” has the meaning given that term in the DIP Orders.

(48) “DIP Orders” shall mean the Interim DIP Order and/or the Final DIP Order, as in effect at such time and as the context may require, and any amendment, modification or supplement thereto, in each case, in form and substance acceptable to Lender in its sole discretion.

(49) “Equity Interests” means (a) all shares of capital stock (whether denominated as common stock or preferred stock), equity interests, beneficial, partnership or membership interests, joint venture interests, participations or other ownership or profit interests in or equivalents (regardless of how designated) of or in a Person (other than an individual), whether voting or non-voting and (b) all securities convertible into or exchangeable for any of the foregoing and all warrants, options or other rights to purchase, subscribe for or otherwise acquire any of the foregoing, whether or not presently convertible, exchangeable or exercisable.

(50) “Event of Default” has the meaning assigned in Article 8.

(51) “Excluded Account” means a deposit account that is used exclusively to hold any and all amounts to be used exclusively for payroll, payroll taxes, and other employee wage and benefit accounts.

(52) “Excluded Assets” means, collectively, (i) any of such Borrowers’ right, title or interest in any lease, license, contract, property right or agreement to which such Borrower is a party or any of its right, title or interest thereunder to the extent, but only to the extent, that such a grant (A) would, under the express terms of such lease, license, contract or agreement result in a breach of the terms of, or constitute a default under, such lease, license, contract or agreement or (B) violate any law applicable thereto or principles of equity, (ii) any property of a Borrower to the extent and for so long as the grant of a security interest pursuant to this Agreement in such Borrower’s right, title or interest therein (A) is prohibited by any applicable law, or (B) requires a consent pursuant to any law that has not been obtained from any Governmental Authority, (iii) any “intent-to-use” application for registration of a trademark filed pursuant to Section 1(b) of the Lanham Act, 15 U.S.C. § 1051, prior to the filing of a “Statement of Use” pursuant to Section 1(d) of the Lanham Act or an “Amendment to Allege Use” pursuant to Section 1(c) of the Lanham Act with respect thereto, solely to the extent, if any, that and solely during the period, if any, in which, the grant of a security interest therein would impair the validity or enforceability of any registration that issues from such intent-to-use application under applicable federal law and (iv) any Excluded Account; provided that such security interest shall attach immediately and automatically when such prohibition, termination right or consent requirement is repealed, rescinded or otherwise ceases to be effective, when such consent is obtained, or such filing has been made; provided, however, that (I) Excluded Assets shall not include any Proceeds of property described above

(unless such Proceeds would otherwise constitute Excluded Assets) and (II) any Excluded Assets that ceases to be Excluded Assets shall automatically, without the action of any other Person, become Collateral.

(53) “Excluded Taxes” means, with respect to the Lender,

(a) (A) any tax on such Lender’s net income or profits (or franchise tax in lieu of such tax on net income or profits) imposed by a jurisdiction as a result of Lender being organized under the laws of or having its principal office or applicable Lending Office located in such jurisdiction or (B) any Tax imposed as a result of any other present or former connection between Lender and the taxing jurisdiction (including as a result of Lender carrying on a trade or business, having a permanent establishment or being a resident for tax purposes in such jurisdiction) other than a connection arising solely from Lender having executed, delivered, enforced, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to, or sold or assigned an interest in, any Loans or Loan Document,

(b) any branch profits tax or similar tax imposed by any jurisdiction described in clause (a),

(c) any U.S. federal withholding tax that is imposed on amounts payable to Lender pursuant to a Law in effect at the time Lender becomes a party hereto (or designates a new Lending Office), except, in the case of Lender’s designation of a new Lending Office or becoming an assignee, to the extent that Lender (or its assignor, if any) was entitled, immediately prior to the time of designation of a new Lending Office (or assignment), to receive additional amounts from a Borrower with respect to such U.S. federal withholding tax pursuant to Section 2.6(3),

(d) any withholding tax attributable to Lender’s failure to comply with Section 2.6,

(e) any U.S. federal withholding tax imposed under FATCA and

(f) any interest, additions to taxes and penalties with respect to any taxes described in clauses (a) through (f) of this definition.

(54) “Executive Orders” has the meaning assigned in Section 4.10(1).

(55) “Factoring Agreement” means that certain Factoring Agreement dated as of December 1, 2022 by and between EPI and CSNK Working Capital Finance Corp. d/b/a Bay View Funding (“Bay View”), as in effect on the Petition Date.

(56) “FATCA” means Sections 1471 through 1474 of the Internal Revenue Code of 1986, as amended as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) thereof and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such provisions.

(57) “Fee Letter” means the Fee Letter, dated as of the Effective Date, by and among the Borrowers and Lender.

(58) “Final DIP Order” means, collectively, the order of the Bankruptcy Court entered in the Cases after notice and final hearing pursuant to the Bankruptcy Rules or such other procedures as approved by the Bankruptcy Court which, among other matters (but not by way of limitation), authorizes the Borrowers to obtain credit and to incur (or guaranty) the Obligations and grant Liens under the Loan Documents, as the case may be, and provides for the superpriority of Lender’s claims, and authorizes the use of cash collateral, as the same shall be approved by, and may be modified or supplemented from time to time after the Final Order Entry Date with the written consent of, Lender in its sole and absolute discretion.

(59) “Final Order Effective Date” means the date on which the conditions under Sections 3.2 are satisfied or waived as determined by Lender.

(60) “Final Order Entry Date” means the date on which the Final DIP Order is entered on the docket of the Bankruptcy Court.

(61) “FRB” means the Board of Governors of the Federal Reserve System or any successor thereto.

(62) “GAAP” means United States generally accepted accounting principles, as in effect from time to time, consistently applied.

(63) “Governmental Authority” means the United States, and any state, county, city or other political subdivision, agency or instrumentality exercising jurisdiction over the Borrowers.

(64) “Health Care Laws” means, to the extent applicable to any Borrower, the Subsidiaries, or their respective assets, businesses, and operations: (i) any and all federal, state and local fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7(b)), the Stark Law (42 U.S.C. § 1395nn), the civil False Claims Act (31 U.S.C. § 3729 et seq.), the administrative False Claims Law (42 U.S.C. § 1320a-7b(a)), the Anti-Inducement Law (42 U.S.C. § 1320a-7a(a)(5)), the exclusion laws (42 U.S.C. § 1320a-7), the civil monetary penalty laws (42 U.S.C. § 1320a-7a), the regulations promulgated pursuant to such statutes and any comparable state laws; (ii) the Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. § 1320d et seq.), and the regulations promulgated thereunder and any comparable state laws, (iii) Medicare (Title XVIII of the Social Security Act) and the regulations promulgated thereunder; (iv) Medicaid (Title XIX of the Social Security Act) and the regulations promulgated thereunder; (v) the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. No. 108-173) and the regulations promulgated thereunder; (vi) quality, safety and accreditation standards and requirements of all applicable state laws or Governmental Authorities; and (vii) any and all other applicable health care laws, rules, codes, statutes, ordinances, regulations, manual provisions, policies and administrative guidance, each of (i) through (vii) as may be amended from time to time.

(65) “Historical Financial Statements” means with respect to each Borrower, information filed by or on their behalf on Forms 10-Q, 10-K and 8-K with the U.S. Securities and Exchange Commission.

(66) “Indemnitees” means, collectively, Lender and any Affiliates of Lender, together with the respective partners, members, directors, officers, employees, agents and advisors of Lender and any Affiliates of Lender.

(67) “Initial DIP Budget” means the DIP Budget delivered to Lender on the Effective Date, which shall be acceptable to Lender in its sole discretion. The Initial DIP Budget is attached hereto as Exhibit B and is acceptable to Lender in its sole discretion.

(68) “Intellectual Property” means with respect to each Borrower, collectively, all rights, priorities and privileges (including, without limitation, any IP Ancillary Rights) relating to intellectual property, now owned or hereafter acquired and owned by such Borrower, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, the Copyrights, the Copyright Licenses, the Patents, and the Trademarks.

(69) “Interim DIP Order” means the order of the Bankruptcy Court substantially in the form attached hereto as Exhibit C (except as may otherwise be agreed in writing or on the record by Lender at the interim hearing with respect to such order in the Cases) entered in the Cases after an interim hearing pursuant to the Bankruptcy Rules, which, among other matters (but not by way of limitation), authorizes, on an interim basis, the Borrowers to obtain credit and incur (or guaranty) the Obligations and grant Liens under the Loan Documents, as the case may be, and provides for the superpriority of Lender’s claims, and authorizes the use of cash collateral, as the same shall be approved by, and may be modified or supplemented from time to time after the Interim Order Entry Date but before the Final Order Entry Date, with the written consent of the Lender in its sole and absolute discretion.

(70) “Interim Order Entry Date” means the date on which the Interim DIP Order is entered on the docket of the Bankruptcy Court.

(71) “IP Ancillary Rights” means, with respect to any Intellectual Property, as applicable, all foreign counterparts to, and all divisionals, reversions, continuations, continuations-in-part, reissues, reexaminations, renewals and extensions of, such Intellectual Property, and, in each case, all rights to obtain any other IP Ancillary Right throughout the world.

(72) “IP License” means all contractual obligations (and any related IP Ancillary Rights), whether written or oral, granting any right, title and interest in or relating to any Intellectual Property.

(73) “Lien” means any lien, security interest, encumbrance or other similar creditor’s right or claim in or against an asset, securing an obligation owed to, or a claim by, any Person other than the owner of such asset, whether such interest is based on common law, statute or contract, including the lien or security interest arising from a deed of trust, mortgage, assignment, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes.

(74) “Lists” has the meaning assigned in Section 4.10(1).

(75) “Loans” means the loans to be made by Lender to Borrowers under this Agreement, whether in the form of a New Money Loan or a Roll-Up Loan, as applicable, and all other amounts secured by the Loan Documents in an aggregate amount not to exceed the Commitment.

(76) “Loan Documents” means: (a) this Agreement, (b) the Fee Letter, (c) the DIP Orders, (d) the Sale Order, (e) the Cash Management Order, (f) each Request for Loan, (g) each Variance Report, (h) such assignments and/or consent agreements pertaining to management agreements, contracts and other rights as may be required under this Agreement, (i) any Control Agreement, (j) all other documents evidencing, securing, governing or otherwise pertaining to any Obligations, and (k) all amendments, modifications, renewals, substitutions and replacements of any of the foregoing.

(77) “Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent) or financial, condition of the Borrowers; (b) a material impairment of the ability of the Borrowers to perform their respective Obligations under any Loan Document to which they are a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Borrowers of any Loan Document to which it is a party. Notwithstanding the foregoing, in no event shall any Material Adverse Effect be deemed to exist as a result of the commencement of the Cases or the circumstances and events leading up thereto to the extent that such event(s) would reasonably be expected to result therefrom.

(78) “Material Contract” means, with respect to any Person, (a) the Factoring Agreement and (b) each contract to which such Person is a party (i) the termination of which contract could reasonably be expected to have a Material Adverse Effect or (ii) involving aggregate payments to or by any Borrower in an amount greater than $100,000 and (iii) each contract which Lender designates as “material” from time to time.

(79) “Maturity Date” means the earliest of (a) seventy (70) days after the Petition Date (b) the consummation of a sale of all or substantially all of the assets of the Borrowers pursuant to

Section 363 of the Bankruptcy Code or otherwise, (c) the effective date of a Plan of Reorganization or liquidation in the Case, and (d) the date of termination of the Lender’s Commitments and the acceleration of any outstanding extensions of credit upon an Event of Default, in each case, under this Agreement in accordance with the terms hereof and the other Loan Documents.

(80) “Maximum Rate” means the maximum interest rate allowed by applicable law in effect with respect to any Loan on the date for which a determination of interest accrued hereunder is made and after taking into account all fees, payments and other charges which are, under applicable law, characterized as interest.

(81) “New Money Delayed Draw Commitment” means the Lender’s obligation to make (a) New Money Loans to the Borrowers hereunder on the Effective Date and (b) New Money Delayed Draw Loans to the Borrowers hereunder after the Effective Date, expressed as an amount representing the maximum principal amount of New Money Delayed Draw Loans to be made by the Lender under this Agreement. The aggregate amount of the New Money Delayed Draw Commitments on the Effective Date is $12.0 million, before giving effect to the issuance of the New Money Initial Loans funded on the Effective Date.

(82) “New Money Delayed Draw Loans” has the meaning specified in Section 2.1.

(83) “New Money Delayed Draw Termination Date” means the earlies to occur of (i) the date on which the New Money Delayed Draw Commitments are fully drawn, (ii) the Maturity Date and (iii) unless otherwise agreed by the Lender, the date that is three (3) Business Days prior to the consummation of a sale of all or substantially all of the assets of the Borrowers pursuant to Section 363 of the Bankruptcy Code or otherwise.

(84) “New Money Initial Loan” has the meaning specified in Section 2.1.

(85) “New Money Loans” means the New Money Initial Loans and the New Money Delayed Draw Loans.

(86) “Non-Excluded Taxes” means all Taxes other than Excluded Taxes imposed on or with respect to any payment made by or on account of any obligation of any Borrower under any Loan Documents.

(87) “Obligations” mean the full and punctual observance and performance of all present and future duties, covenants and responsibilities due to Lender by the Borrowers under this Agreement and all other Loan Documents, all present and future obligations and liabilities of the Borrowers to Lender for the payment of money under any of the Loan Documents (including, without limitation, the Roll-Up Loan, all principal amounts, interest, late charges, fees and all other charges and sums, as well as all costs and expenses payable by the Borrowers under this Agreement and the other Loan Documents and whether or not allowed or allowable in any proceeding), whether direct or indirect, contingent or non-contingent, matured or unmatured, accrued or not accrued, related or unrelated to this Agreement, whether or not now contemplated and whether or not of the same character or class as the Borrowers’ obligations under this Agreement or any other Loan Document, as well as all renewals, refinancings, consolidations and extensions of any of the foregoing.

(88) “OFAC” has the meaning assigned in Section 4.10(1).

(89) “OFAC Laws and Regulations” has the meaning assigned in Section 4.10(1).

(90) “Other Lists” has the meaning assigned in Section 4.10(1).

(91) “Participant” has the meaning assigned in Section 11.23(3).

(92) “Patents” means with respect to the Borrowers, (a) all letters patent of the United States, and any other jurisdiction, country or any political subdivision thereof, all foreign counterparts to,

and all divisionals, reversions, continuations, continuations-in-part, reissues, reexaminations, renewals and extensions thereof and all goodwill associated therewith, (b) all applications for letters patent of the United States and any other jurisdiction, country or any political subdivision thereof, all foreign counterparts to, and all divisionals, reversions, continuations, continuations-in-part, reissues, reexaminations, renewals and extensions thereof and (c) all rights to obtain any foreign counterparts to, divisionals, reversions, continuations, continuations-in-part, reissues, reexaminations, renewals and extensions of the foregoing.

(93) “Permits” means, with respect to any Person, any permit, approval, clearance, authorization, enrollment, license, registration, certificate, concession, grant, franchise, variance or permission from, and any other contractual obligations with, any Governmental Authority, and applicable to or binding upon such Person or any of its property or Products or to which such Person or any of its property or Products is subject.

(94) “Permitted Debt” means, collectively:

(a) any Debt owing to Lender under this Agreement and the other Loan Documents;

(b) the Prepetition Obligations; and

(c) the other Debt outstanding on the Petition Date as set forth on Schedule 1.1(94) hereto; provided that any principal amounts incurred under each category of Debt listed therein shall not increase from and after the Petition Date other than to the extent expressly contemplated by and permitted under the DIP Budget;

provided, that, notwithstanding anything to the contrary, other than with respect to the Carve-Out, no Debt shall be permitted to have an administrative expense claim status under the Bankruptcy Code senior to or pari passu with the super priority administrative expense claims of Lender as set forth herein and in the DIP Orders.

(95) “Permitted Liens” means, collectively:

(a) Liens in favor of Lender;

(b) the Prepetition Liens;

(d) the Prepetition Permitted Liens; and

(e) the other Liens outstanding on the Petition Date as set forth on Schedule 1.1(95) hereto; provided that (i) the principal amount of the underlying obligations that such Liens secure shall not increase in amount from and after the Petition Date other than to the extent expressly contemplated by and permitted under the DIP Budget and (ii) no additional or other assets shall secure such Obligations other than as in effect on the Petition Date.

provided, that that all Permitted Liens (other than the Carve-Out and the Prepetition Permitted Liens), while any portion of the Obligations remain outstanding, shall at all times be junior and subordinate to the Liens granted under the Loan Documents and the DIP Orders. The prohibition provided for in this definition specifically restricts, without limitation, any Borrower, the Committee, or any other party-in-interest in the Cases or any successor case, from priming or creating claims, Liens or interests pari passu with any claims, Liens or interests of Lender, any Lien (other than for the Carve-Out and the

Prepetition Permitted Liens) irrespective of whether such claims, Liens or interests may be “adequately protected”.

(96) “Person” means any individual, corporation, partnership, joint venture, association, joint stock company, trust, trustee, estate, limited liability company, unincorporated organization, government or any agency or political subdivision thereof, or any other form of entity.

(97) “Petition” means the voluntary petitions for relief under Chapter 11 of the Bankruptcy Code filed by the Borrowers with the Bankruptcy Code.

(98) “Petition Date” has the meaning assigned in the recitals of this Agreement.

(99) “Plan of Reorganization” means a Chapter 11 plan of reorganization submitted by the Borrowers to the Bankruptcy Court in connection with the Cases, or any Case, as applicable.

(100) “Pledged Issuers” has the meaning specified therefor in the definition of the term “Pledged Shares”.

(101) “Pledged Shares” means, subject to Section 10.1, (i) the shares of Equity Interests described in Schedule 4.17(6) hereto, whether or not evidenced or represented by any stock certificate, certificated security or other Instrument, issued by the Persons described in such Schedule 4.17(6) (the “Existing Issuers”), (ii) the rights, privileges, authorities, and powers of such Borrower as an owner or holder of such Equity Interests, including all economic rights, all control rights, authority, and powers, all status rights of such Borrower as a member, shareholder, or other owner (as applicable), and all rights and interests, if any, to participate in the management of each Pledged Issuer (as defined below), (iii) the shares of Equity Interests at any time and from time to time owned or acquired by a Borrower of any and all Persons now or hereafter existing (such Persons, together with the Existing Issuers, being hereinafter referred to collectively as the “Pledged Issuers” and each individually as a “Pledged Issuer”), whether or not evidenced or represented by any stock certificate, certificated security or other Instrument, (iv) the certificates representing such shares of Equity Interests, all options and other rights, contractual or otherwise, in respect thereof and all dividends, distributions, cash, financial assets, securities, other Equity Interests, stock options and commodity contracts, notes, debentures, bonds, promissory notes or other evidences of indebtedness and all other property (including, without limitation, any stock dividend and any distribution in connection with a stock split) from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Equity Interests and (v) without affecting the obligations of any Borrower under any provision prohibiting such action under this Agreement or any other Loan Document, in the event of any consolidation or merger involving any Pledged Issuer and in which such Pledged Issuer is not the surviving entity or any division of any Pledged Issuer, all Equity Interests of the successor entity formed by or resulting from such consolidation, merger or division.

(102) “Post-Carve Out Amounts” has the meaning assigned in Section 2.3(3).

(103) “Post-Carve Out Trigger Notice Cap” has the meaning assigned in the DIP Orders.

(104) “Post-Carve Out Trigger Notice Reserve” has the meaning assigned in Section 2.3(3).

(105) “Pre-Carve Out Amounts” has the meaning assigned in Section 2.3(3).

(106) “Pre-Carve Out Trigger Notice Reserve” has the meaning assigned in Section 2.3(3).

(107) “Prepetition Facility” means the credit facility governed by the Prepetition Loan Agreement.

(108) “Prepetition Secured Lender” has the meaning set forth in the DIP Orders.

(109) “Prepetition Liens” means any Liens securing the Prepetition Obligations.

(110) “Prepetition Loan” means the “Loan” as defined in the Prepetition Loan Agreement.

(111) “Prepetition Loan Agreement” has the meaning assigned in the recitals of this Agreement.

(112) “Prepetition Loan Documents” means the Prepetition Loan Agreement and the “Loan Documents” as defined in the Prepetition Loan Agreement (as such Prepetition Loan Documents have been amended, restated, amended and restated, supplemented or otherwise modified prior to the Petition Date).

(113) “Prepetition Permitted Liens” has the meaning assigned in the DIP Orders.

(114) “Prepetition Obligations” means the “Obligations” as defined in the Prepetition Loan Agreement.

(115) “Professional Fees” means all accrued and unpaid claims for fees and expense reimbursements of Professional Persons retained by the Borrowers (but not any success or transaction fees).

(116) “Professional Person” means a Person who is an attorney, accountant, appraiser, auctioneer or financial advisor or other professional person who is retained with approval of the Bankruptcy Court by any Borrower pursuant to Section 327 of the Bankruptcy Code.

(117) “Proposed DIP Budget” has the meaning assigned in Section 7.10(6).

(118) “Purchased Assets” has the meaning assigned to it in the Asset Purchase Agreement.

(119) “Remedies Notice Period” has the meaning assigned in Section 9.1(1).

(120) “Request for Loan” means a request in form attached hereto as Exhibit D and otherwise in form and substance acceptable to Lender directing where the proceeds of the Loan are to be made and attaching a funds-flow memorandum setting forth the sources and uses of such proceeds, which funds-flow memorandum shall be in form and substance satisfactory to Lender in its sole discretion and shall contain the details of how funds from each source are to be transferred to particular uses and the wire transfer instructions for the particular uses of such funds.

(121) “Responsible Officer” means any of the Chief Executive Officer, President, Chief Financial Officer, Vice President, Treasurer, Controller or Secretary of each Borrower.

(122) “Roll-Up Loan” means the Loan made pursuant to Section 2.1(3) resulting from the roll-up and refinancing of the Prepetition Obligations outstanding on the Effective Date, in accordance with the DIP Orders.

(123) “Roll-Up Loan Commitment” means, Lender’s obligation to make the Roll-Up Loan to the Borrowers pursuant to Section 2.1(3), immediately prior to giving effect to the roll-up. The aggregate principal amount of the Roll-Up Loan Commitment on the Effective Date is $3.0 million plus all other outstanding Prepetition Obligations, which amount shall (i) comprise a roll-up and refinancing of the Prepetition Obligations (including any fees due and owing pursuant to the “Fee Letter” thereunder) approved pursuant to the DIP Orders and (ii) be deemed funded by Lender pursuant to Section 2.1.

(124) “Sale” has the meaning assigned in the DIP Order.

(125) “Sale Milestone” has the meaning assigned in Section 7.7(4).

(126) “Sale Transaction” means a sale of the entire business of the Borrowers and their respective Subsidiaries as a going concern.

(127) “SDN List” has the meaning assigned in Section 4.10(1).

(128) “State” means the State of New York.

(129) “Statutory Rights” has the meaning assigned in Section 10.14.

(130) “Subsidiary” means, with respect to any Person, (a) any corporation or limited liability company more than fifty percent (50%) of whose Voting Stock having by the terms thereof power to elect a majority of the directors or managers of such corporation or limited liability company (irrespective of whether or not at the time stock of any class or classes of such corporation or limited liability company shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person, directly or indirectly, through Subsidiaries and (b) any partnership, association, joint venture or other entity in which such Person, directly or indirectly, through Subsidiaries, has more than a fifty percent (50%) voting Equity Interest at the time. Unless otherwise expressly provided, all references herein to a “Subsidiary” shall mean a Subsidiary of a Borrower.

(131) “Tax” means any present or future tax, levy, impost, duty, assessment, charge, fee, deduction or withholding (including backup withholding) of any nature and whatever called, imposed by any Governmental Authority, including any interest, additions to tax and penalties applicable thereto.

(132) “Tax Indemnitee” has the meaning assigned in Section 2.6(3)(a).

(133) “Termination Declaration Date” has the meaning assigned in Section 2.3(3).

(134) “Trademarks” means, with respect to the Borrowers, (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto and (b) the right to obtain all extensions or renewals thereof.

(135) “Transition Services Agreement" has the meaning assigned in the Asset Purchase Agreement.

(136) “UCC” means the Uniform Commercial Code, as adopted and enacted and as in effect from time to time in the State of New York or the Uniform Commercial Code or any successor provision thereof (or similar code or statute) of another jurisdiction, to the extent it may be required to apply to any item or items of Collateral.

(137) “U.S. Publicly-Traded Entity” has the meaning assigned in Section 4.10(1).

(138) “U.S. Trustee” means the United States Trustee for the District of Delaware.

(139) “Voting Stock” means with respect to any Person, shares of such Person’s Capital Stock having the right to vote for the election of directors or managers (or Persons acting in a comparable capacity) of such Person under ordinary circumstances.

ARTICLE 2
LOAN TERMS

Section 2.1 The Loans.

(1) Subject to the terms and conditions set forth in Sections 3.1 and 3.2 hereof and in the DIP Orders, the Lender agrees following the Bankruptcy Court’s entry of the Interim DIP Order, to make a term loan to the Borrowers in a single Borrowing on, or on the Business Day after, the Effective Date (the “New Money Initial Loan”) out of a portion of the Lender’s New Money Delayed Draw Commitment in an aggregate principal amount not to exceed the Lender’s New Money Delayed Draw Commitment; provided, that the total amount of the Borrowing of New Money Delayed Draw Loans made on the Effective Date shall not exceed $1.0 million. Amounts borrowed under this Section 2.1(1) and repaid or prepaid may not be reborrowed.

(2) Subject to the terms and conditions set forth in Section 3.2 hereof and in the DIP Orders, the Lender agrees following the Bankruptcy Court’s entry of the Interim DIP Order, to make additional delayed draw term loans to the Borrower in one or more Borrowings at any time from time to time until the New Money Delayed Draw Termination Date (the “New Money Delayed Draw Loans”) in an aggregate principal amount not to exceed such Lender’s New Money Delayed Draw Commitment; provided, that (i) there shall be no more than one (1) Borrowing of New Money Delayed Draw Loans per calendar week (which may be more frequent in the Lender’s sole discretion) and (ii) the total amount of Borrowings of New Money Delayed Draw Loans made prior to the Final DIP Order Entry Date shall not exceed $2.5 million. Each New Money Delayed Draw Loan shall be in a minimum amount of $1,000,000 or a whole multiple of $100,000 in excess thereof. Amounts paid or prepaid in respect of the Delayed Draw Term Loan may not be reborrowed. The New Money Delayed Draw Commitments shall terminate automatically in their entirety on the New Money Delayed Draw Termination Date. Amounts borrowed under this Section 2.1(2) and repaid or prepaid may not be reborrowed.

(3) Subject to the terms and conditions set forth herein and in the DIP Orders, the Lender shall automatically, and without further action or order of the Bankruptcy Court, be deemed on the Interim Order Entry Date to have “rolled-up” and refinanced as the Roll-Up Loan all Prepetition Obligations held by the Lender immediately prior to the Effective Date. The Roll-Up Loan shall be deemed fully funded in the amount of the Roll-Up Loan Commitment on the Effective Date, the Roll-Up Loan Commitment shall immediately terminate thereafter and the Roll-Up Loan shall be due and payable in accordance with the terms and conditions set forth in this Agreement as if originally funded hereunder on the Effective Date. On the Effective Date when the Roll-Up Loan is deemed funded, the outstanding aggregate amount of the Prepetition Loans shall be automatically and irrevocably deemed reduced by the amount of, and refinanced by, such Roll-Up Loan deemed funded.

Section 2.2 Maturity. All Obligations of the Borrowers under this Agreement, if not already paid pursuant to the provisions herein, including all accrued and unpaid interest thereto and all fees and other amounts owing by Borrower to Lender with respect thereto, will be due and payable upon the Maturity Date.

Section 2.3 Method of Borrowing.

(1) Each Borrowing of New Money Loans shall be made upon the Borrowers’ irrevocable written notice, on behalf of the Borrowers, to the Lender. Each such notice must be received by the Lender not later than 12:00 p.m. Eastern time, one (1) Business Day prior to the requested date of any Borrowing. Each Borrowing shall be in a principal amount of $1,000,000 or a whole multiple of $100,000 in excess thereof. Each Request for Loan shall specify:

(a) the requested date of the Borrowing (which shall be a Business Day),

(b) the principal amount of the Loan to be borrowed, and

(2) Borrowers hereby irrevocably authorizes Lender to rely on telephonic, facsimile, electronic transmission or written instructions of any person identifying themselves as one of the individuals listed herein (or any other individual from time to time authorized to act on behalf of Borrowers) with respect to any request to make a Loan or a repayment hereunder.

(3) On the day on which a Carve-Out Trigger Notice is given by the Lender to the Borrowers with a copy to counsel to the Committee (the “Termination Declaration Date”), the Carve-Out Trigger Notice shall (i) be deemed a Request for Loan, in an amount equal to the then unpaid amounts of the Allowed Professional Fees and (ii) also constitute a demand to the Borrowers to utilize all cash on hand as of such date and any available cash thereafter held by the Borrowers to fund a reserve in an amount equal to the then unpaid amounts of the Allowed Professional Fees. The Borrowers shall deposit and hold such amounts in a segregated account in trust to pay such then unpaid Allowed Professional Fees (the “Pre-Carve Out Trigger Notice Reserve”) prior to any and all other claims. On the Termination Declaration Date, the Carve-Out Trigger Notice shall also (i) be deemed a Request for Loan in an amount equal to the Post-Carve Out Trigger Notice Cap and (ii) constitute a demand to the Borrowers to utilize all cash on hand as of such date and any available cash thereafter held by the Borrowers, after funding the Pre-Carve Out Trigger Notice Reserve, to fund a reserve in an amount equal to the Post-Carve Out Trigger Notice Cap. The Borrowers shall deposit and hold such amounts in a segregated account in trust to pay such Allowed Professional Fees benefiting from the Post-Carve Out Trigger Notice Cap (the “Post-Carve Out Trigger Notice Reserve” and, together with the Pre-Carve Out Trigger Notice Reserve, the “Carve-Out Reserves”) prior to any and all other claims. On the first Business Day after the Lender gives such Request for Loan, notwithstanding anything herein to the contrary, including with respect to the existence of a Default or an Event of Default, the failure of the Borrowers to satisfy any or all of the conditions precedent for a Borrowing under this facility, any termination of the Commitments following an Event of Default, or the occurrence of the Maturity Date, the Lender shall be obligated to make New Money Loans to the Borrowers to fully fund the Carve Out Reserve in an amount not to exceed the aggregate outstanding amount of New Money Delayed Draw Commitments as of the Effective Date; provided that in no event shall the aggregate principal amount of all New Money Loans exceed $12.0 million. All funds in the Pre-Carve Out Trigger Notice Reserve shall be used first to pay the obligations set forth in clauses (i) through (iii) of the definition of Carve-Out (the “Pre-Carve Out Amounts”), but not, for the avoidance of doubt, the Post-Carve Out Trigger Notice Cap, until paid in full, and then, to the extent the Pre-Carve Out Trigger Notice Reserve has not been reduced to zero, to pay the Lender, unless the Obligations have been indefeasibly paid in full, in cash, and all Commitments have been terminated, in which case any such excess shall be paid to the Prepetition Secured Lender in accordance with its rights and priorities as set forth in the Interim Dip Order. All funds in the Post-Carve Out Trigger Notice Reserve shall be used first to pay the obligations set forth in clause (iv) of the definition of Carve Out (the “Post-Carve Out Amounts”), and then, to the extent the Post-Carve Out Trigger Notice Reserve has not been reduced to zero, to pay the Lender, unless the Obligations have been indefeasibly paid in full, in cash, and all Commitments have been terminated, in which case any such excess shall be paid to the Prepetition Secured Lender on account of any Prepetition Obligations that remain outstanding to the extent not rolled up and converted into Obligations hereunder, and then, to the extent all Obligations and Prepetition Obligations have been indefeasibly paid in full in cash, any excess shall be paid to the Borrowers’ estate. Notwithstanding anything to the contrary in the Loan Documents or the DIP Orders, if either of the Carve Out Reserves is not funded in full in the amounts set forth in this Section 2.03(3), then, any excess funds in one of the Carve Out Reserves following the payment of the Pre-Carve Out Amounts and Post-Carve Out Amounts, respectively, shall be used to fund the other Carve-Out Reserve, up to the applicable amount set forth in this Section 2.03(3), prior to making any payments to the Lender or the Prepetition Secured Lender, as applicable. For the avoidance of doubt and notwithstanding anything to the contrary herein or in any Prepetition Loan Document, the Carve-Out shall be senior to all liens and claims securing this facility, the Adequate Protection Liens, and any and all other forms of adequate protection, liens or claims securing the Obligations or the Prepetition Obligations.

Section 2.4 Interest; Default Rate. The outstanding principal balance of the Loans (including any amounts added to principal under the Loan Documents) shall bear fixed, non-compounding interest at the Contract Rate. Payments of interest shall be due monthly in cash, in arrears on the first day of each month, commencing with August 1, 2023.

Section 2.5 Payments; Fees and Maturity. Except as otherwise provided herein, interest shall be computed and accrue on the principal amount hereof from time to time outstanding at a rate per annum equal to the Contract Rate.

(1) On the Maturity Date, Borrower shall pay the principal balance of the Loans, together with any and all remaining unpaid interest thereon at the Contract Rate.

(3) The Borrower shall pay to the Lender such fees as shall have been separately agreed upon in writing in the amounts and at the times so specified in the Fee Letter. Such fees shall be fully earned when and as set forth therein and shall not be refundable for any reason whatsoever.

Section 2.6 Additional Payment Terms.

(1) All sums payable to Lender hereunder shall be payable in lawful currency of the United States of America in immediately available funds without deduction, set-off or counterclaim no later than 12:00 p.m. Eastern time on the date when due at the principal office of Lender, or to or from such other account or address as Lender may from time to time designate in a written notice to Borrowers. No credit shall be given for any payment received by check, draft or other instrument or item until such time as Lender shall have received credit therefor from the bank or other financial institution upon which said check, draft or other instrument or item is drawn.

(3) Taxes.

(a) The Borrowers shall, jointly and severally, indemnify Lender (each a “Tax Indemnitee”), within ten (10) days after written demand therefor, for the full amount of any Non-Excluded Taxes paid or payable by such Tax Indemnitee or required to be withheld or deducted from a payment to such Tax Indemnitee attributable to any payment under or with respect to any Loan Document, and any Other Taxes paid or payable by such Tax Indemnitee (including Non-Excluded Taxes or Other Taxes imposed on or attributable to amounts payable under this Section 2.6(3)), and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability prepared in good faith and delivered by the Tax Indemnitee or by Lender on its own behalf or on behalf of another Tax Indemnitee, shall be conclusive absent manifest error.

(b) If and to the extent that a Tax Indemnitee, in its sole discretion (exercised in good faith), determines that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.6(3) (including by the payment of additional amounts pursuant to this Section 2.6(3)), then such Tax Indemnitee shall pay to the relevant Borrower the amount of such refund, net of all out-of-pocket expenses of the Tax Indemnitee (including any Taxes imposed with respect to such refund), and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrowers, upon the request of the Tax Indemnitee, agrees to repay the amount paid over by the Tax Indemnitee (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Tax Indemnitee to the extent the Tax Indemnitee is required to repay such refund to such Governmental

Authority. Notwithstanding anything to the contrary in this paragraph (b), in no event will the Tax Indemnitee be required to pay any amount to a Borrower pursuant to this paragraph (b) the payment of which would place the Tax Indemnitee in a less favorable net after-Tax position than the Tax Indemnitee would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph (b) shall not be construed to require a Tax Indemnitee to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to any Borrower or any other Person.

(c) If Lender is entitled to an exemption from or reduction of withholding with respect to payments made under any Loan Document, Lender shall deliver to such Borrower such properly completed and executed documentation reasonably requested by such Borrower as will permit such payments to be made without withholding or at a reduced rate of withholding; including, if Lender is a U.S. person (as defined in Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), an IRS Form W-9 or, if Lender is not a U.S. person, the appropriate IRS Form W-8. In addition, if reasonably requested by such Borrower, Lender shall deliver such other documentation prescribed by applicable law or reasonably requested by such Borrower as will enable such Borrower (i) to determine whether or not Lender is subject to backup withholding or information reporting requirements and (ii) to comply with FATCA, as applicable.

(d) The agreements in this Section 2.6 survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.

Section 2.7 Use of Proceeds. The proceeds of the Loans shall be used by the Borrowers solely (i) to pay fees and expenses incurred in connection with this Agreement and related transactions, (ii) to pay approved Prepetition Obligations in accordance with the DIP Budget and (iii) for working capital and general corporate purposes of the Borrowers in accordance with the DIP Budget. No part of the proceeds of the Loans will be used, whether directly or indirectly:

(1) in any manner that causes such Loan or the application of such proceeds to violate the Regulations of the Board, including Regulation T, Regulation U and Regulation X, or any other regulation thereof, or to violate the Securities Exchange Act;

(2) for any purpose that is prohibited under the Bankruptcy Code or the DIP Orders;

(3) to finance in any way: (x) any adversary action, suit, arbitration, proceeding, application, motion, contested matter or other litigation of any type materially adverse to the interests of any or all of Lender or the Prepetition Secured Lender or their respective rights and remedies under the Loan Documents, the DIP Orders or the Prepetition Loan Documents or (y) any other action which with the giving of notice or passing of time would result in an Event of Default hereunder or under any of the Loan Documents;

(4) for the payment of fees, expenses, interest, or principal under any prepetition obligations other than under the Prepetition Loan Documents pursuant to the roll-up hereunder and adequate protection payments permitted under the DIP Order;

(5) unless otherwise agreed by Lender, to make any distributions under a Plan of Reorganization in the Cases that does not provide for the indefeasible payment of the Loans in full and in cash;

(6) except as expressly permitted by the DIP Budget (including any permitted variances) to make any payment in settlement of any prepetition claim, action or proceeding without the

prior written consent of Lender; provided that, advisors to any Committee, may investigate the liens granted pursuant to, or any claims under or causes of action with respect to, the Prepetition Obligations at an aggregate expense for such investigation not to exceed $50,000, provided that no portion of such amount may be used to prosecute any claims; or

(7) to make any post-petition payments or disbursements not otherwise expressly authorized by an entered order of the Bankruptcy Court that constitute critical vendor payments as described in the DIP Budget, without the prior written consent of the Lender.

Nothing herein shall in any way prejudice or prevent Lender from objecting, for any reason, to any requests, motions, or applications made in the Bankruptcy Court, including any application of final allowances of compensation for services rendered or reimbursement of expenses incurred under Sections 105(a), 330 or 331 of the Bankruptcy Code, by any party in interest (and each such order shall preserve Lender’s right to review and object to any such requests, motions or applications).

Section 2.8 Prepayments. The Loans may be prepaid, in whole at any time, or in any part from time to time, without premium or penalty, and must be prepaid in the following amounts and at the following times:

(3) an amount equal to any interest that is deemed to be in excess of the Maximum Rate and is required to be applied to the reduction of the principal balance of the Loans as provided for in this Agreement;

(4) unless Lender shall otherwise consent in writing, upon receipt by a Borrower of the proceeds of any Asset Disposition that is not made in the ordinary course of business and consistent with past practice or that pertains to any Collateral securing the Obligations, an amount equal to one hundred percent (100%) of the net cash proceeds of such asset disposition (net of reasonable and documented out-of-pocket fees and expenses) or such lesser portion as Lender shall elect to apply to the Obligations; and

(5) unless Lender shall otherwise consent in writing, upon receipt by a Borrower of proceeds (net of reasonable and documented out-of-pocket fees and expenses) of any other extraordinary receipts or from the incurrence of Debt or issuance and sale of any Debt or equity securities at any time, in each case, which is prohibited by the terms herein, an amount equal to one hundred percent (100%) of such net proceeds, or such lesser portion as Lender shall elect to apply to the Obligations.

Section 2.9 Recourse Obligations. Each Loan shall be a fully recourse Obligation of the Borrowers and upon the occurrence of an Event of Default, Lender may exercise all of its rights and remedies under the Loan Documents, including, without limitation, its right to seek and obtain a monetary judgment against Borrower with respect to the Obligations evidenced hereby and to hold the Borrowers liable for such Obligations.

ARTICLE 3
CONDITIONS PRECEDENT TO LENDER’S OBLIGATIONS

Section 3.1 Conditions to Effective Date. It is expressly agreed that Lender shall not be obligated to make the Loans hereunder until the following conditions have been satisfied, unless waived by Lender in writing at its sole discretion:

(1) Documents. Lender shall have received and reviewed to its satisfaction the following fully-executed documents or deliverables:

(a) this Agreement;

(b) the Fee Letter;

(c) the Initial DIP Budget certified by a Responsible Officer of the Borrowers, certifying that the projections therein have been prepared in good faith based on reasonable assumptions, and that such projections contain no statements or conclusions (and there are no omissions of information) which are based upon or include information known to the Borrowers to be misleading in any material respect or which fail to take into account information known to the Borrowers regarding materials reported therein;

(d) (i) a certificate of each Borrower, dated the Effective Date and executed by its Secretary, which shall (A) certify the resolutions of its board of directors, members or other body authorizing the execution, delivery and performance of the Agreement and Loan Documents to which it is a party, (B) identify by name and title and bear the signatures of each financial officer and any other officers of such Borrower authorized to sign the Loan Documents to which it is a party, and (C) contain appropriate attachments, including (i) the certificate or articles of incorporation or organization of each Borrower certified by the relevant authority of the jurisdiction of organization of such Borrower and a true and correct copy of its by-laws or operating, management or partnership agreement and (ii) a long form good standing certificate for each Borrower from its jurisdiction of organization;

(e) an opinion of Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, LLP, counsel to the Borrowers, addressed to Lender and dated the Effective Date, in form and substance satisfactory to Lender in its sole discretion (and the Borrowers hereby instruct such counsel to deliver such opinion to Lender);

(f) filing of appropriate financing statements in such office or offices as may be determined as necessary by Lender to perfect the security interests and Liens purported to be created hereunder;

(g) a certificate dated as of the Effective Date from a Responsible Officer of the Borrowers stating that the conditions specified in this Section 3.1 have been fully satisfied;

(h) evidence satisfactory to Lender in its sole discretion that the Asset Purchase Agreement has been executed; and

(i) a Request for Loan delivered to Lender by 10:00 a.m. Eastern time at least one (1) Business Day in advance of the Effective Date; provided that such Request for Loan will not be deemed final and ready for Lender’s review until Borrower delivers to Lender all information or documents as Lender may require to evaluate the Request for Loan.

(2) Representations and Warranties; No Default or Event of Default. (i) The representations and warranties contained in this Agreement and in all other Loan Documents are true and correct on and as of the date of the Interim Order in all material respects, except to the extent that any such representation and warranty is qualified by materiality, “Material Adverse Effect” or other similar qualification, such representation and warranty shall be true and correct in all respects and (ii) no Default or Event of Default shall have occurred or is continuing.

(3) Litigation. There is not presently pending any unstayed suit, action, proceeding or investigation against the Borrowers which could reasonably be expected to have a Material Adverse Effect, or any proceedings challenging this Agreement or the DIP Orders or any part thereof

(4) Lien Searches. Lender shall have a valid first priority perfected Lien on the assets of the Borrowers, subject only to the Carve-Out and Prepetition Permitted Liens, and Lender shall have received the results of a recent lien search in such jurisdictions as Lender shall deem appropriate, and such search shall reveal no liens on any of the assets of the Borrowers (other than Prepetition Liens and the Prepetition Permitted Liens).

(5) Fees, Costs and Expenses. The Borrowers shall have paid all fees (including, without limitation, all reasonable and documented attorneys’ fees), costs, and expenses incurred by Lender in connection with the negotiation, execution and delivery of this Agreement and the other Loan Documents in connection therewith in the amount of $540,000, which shall be deducted by Lender from the Loans and the balance of which shall be added to the Obligations hereunder.

(6) Legal Investment. On the Effective Date, such Loan shall not be prohibited by any applicable law of any Governmental Authority (including, without limitation, Regulations T, U or X of the FRB) as a result of the promulgation or enactment thereof or any changes therein, or change in the interpretation thereof by any Governmental Authority, subsequent to the date of this Agreement.

(7) Material Adverse Effect. No event shall have occurred or failed to occur since July 14, 2023, which occurrence or failure could be expected to have a Material Adverse Effect.

(8) Governmental and Third Party Approvals. All governmental and third party approvals in connection with the Transaction necessary for the Borrowers and their respective Subsidiaries to conduct their business as conducted as of the date hereof without materially adverse financial consequences have been obtained and remain in effect. The Borrowers and their respective Subsidiaries have obtained all necessary regulatory approvals, and the absence of any injunction, temporary restraining order or judgment which prohibits the making or purchase of the Loans.

(9) Cases. Borrowers shall have filed the Petitions with the Bankruptcy Court commencing the Cases and all “first day orders” (including a cash management order (the “Cash Management Order”) entered at the time of commencement of the Cases shall be in form and substance satisfactory to Lender in its sole discretion).

(10) Interim DIP Order and First Day Orders. Lender shall have received a certified copy of the Interim DIP Order, which Interim DIP Order (i) shall have been entered on the docket of the Bankruptcy Court on or before the Effective Date and (ii) shall be in full force and effect and shall not have been vacated, stayed, reversed, modified or amended in any respect without the written consent of Lender in its sole discretion; and, if the Interim DIP Order is the subject of a pending appeal in any respect, neither the Loans, nor the performance by the Borrowers of any of their respective obligations hereunder, under the other Loan Documents or under any other instrument or agreement referred to herein shall be the subject of a presently effective stay pending appeal. Such Interim DIP Order shall authorize and approve this Agreement and the Loan Documents contemplated hereby and thereby. All motions, orders (including the “first day” orders) and other documents to be filed with and submitted to the Bankruptcy Court on the Petition Date shall be in form and substance satisfactory to the Lender in its sole discretion.

(11) Other Proceedings. No unstayed action, suit, investigation or other proceeding (including without limitation, the enactment or promulgation of a statute or rule) by or before any arbitrator or any Governmental Authority shall be threatened in writing or pending (other than the Cases) and no preliminary or permanent injunction or order by a state or federal court shall have been entered (i) in connection with this Agreement, any other Loan Document, or any transaction contemplated hereby or thereby or (ii) which could be expected to result in a Material Adverse Effect, including, in each case, any proceedings challenging this Agreement or the DIP Orders or any part thereof.

Section 3.2 Conditions to Final Order Effective Date. It is expressly agreed that Lender shall not be obligated to make any Loan on or after the Final Order Effective Date until the following conditions have been satisfied, unless waived by Lender in writing at its sole discretion:

(1) Documents. Lender shall have received and reviewed to its satisfaction the following fully-executed documents or deliverables:

(a) a certificate dated as of the Effective Date from a Responsible Officer of the Borrowers stating that the conditions specified in this Section 3.2 have been fully satisfied;

(b) a Request for Loan delivered to Lender by 10:00 a.m. Eastern time at least three (3) Business Days in advance of the Final Order Effective Date; provided that such Request for Loan will not be deemed final and ready for Lender’s review until Borrowers delivers to Lender all information or documents as Lender may require to evaluate the Request for Loan.

(2) Representations and Warranties; No Default or Event of Default. (i) The representations and warranties contained in this Agreement and in all other Loan Documents are true and correct on and as of the date of the Final Order Effective Date in all material respects, except to the extent that any such representation and warranty is qualified by materiality, “Material Adverse Effect” or other similar qualification, such representation and warranty shall be true and correct in all respects and (ii) no Default or Event of Default shall have occurred or is continuing.

(3) Material Adverse Effect. No event shall have occurred or failed to occur since the Effective Date, which occurrence or failure could be expected to have a Material Adverse Effect.

(4) Final DIP Order. Lender shall have received a certified copy of the Final DIP Order, which Final DIP Order (i) shall have been entered on the docket of the Bankruptcy Court on or before the date that is twenty-five (25) days after the Petition Date and (ii) shall be in full force and effect and shall not have been vacated, stayed, reversed, modified or amended in any respect without the written consent of Lender in its sole discretion; and, if the Final DIP Order is the subject of a pending appeal in any respect, the performance by the Borrowers of any of their respective obligations hereunder, under the other Loan Documents or under any other instrument or agreement referred to herein shall not be the subject of a presently effective stay pending appeal. Such Final DIP Order shall authorize and approve this Agreement and the Loan Documents contemplated hereby and thereby. All motions, orders and other documents to be filed with and submitted to the Bankruptcy Court in connection therewith shall be in form and substance satisfactory to Lender in its sole discretion.

(5) No Investigations or Injunctions. No unstayed action, suit, investigation or other proceeding (including without limitation, the enactment or promulgation of a statute or rule) by or before any arbitrator or any governmental authority shall be threatened in writing or pending (other than the Cases) and no preliminary or permanent injunction or order by a state or federal court shall have been entered (i) in connection with this Agreement, any other Loan Document, or any transaction contemplated hereby or thereby or (ii) which could be expected to result in a Material Adverse Effect, including, in each case, any proceedings challenging this Agreement or the DIP Orders or any part thereof.

(6) DIP Order. The applicable DIP Order shall be in full force and effect and shall not have been vacated, stayed, reversed, modified or amended in any respect without the written consent of Lender in its sole discretion.

(7) Use of Proceeds. The use of the proceeds of the Loans shall be in compliance with the DIP Budget.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES

Each Borrower represents and warrants to Lender that:

Section 4.1 Organization and Power. Each Borrower and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Each Borrower and each of its Subsidiaries has all requisite limited liability company or similar power and authority under the laws of its jurisdiction of organization to own, lease and operate its properties and to carry on its business as now being conducted. No Borrower is a “foreign person” within the meaning of § 1445(f)(3) of the Internal Revenue Code of 1986, as amended. A true, correct and complete copy of the organizational structure of the Borrowers and their respective Subsidiaries is attached hereto as Exhibit A.

Section 4.3 Compliance with Laws; No Violations. Each Borrower and each of its Subsidiaries is in compliance with all applicable laws, rules, statues, regulations and ordinances in all material respects. Each Borrower and each of its Subsidiaries has duly obtained and now holds all material licenses, permits, certifications, approvals and the like required by federal, state and local laws of the jurisdictions in which such Borrower or such Subsidiary conducts its business, and each remains valid and in full force and effect. There exists no violations of any statutes, rules, orders, ordinances, regulations or requirements of any Governmental Authorities with respect to the operation of the business of each Borrower and each of its Subsidiaries.

Section 4.4 Financial Condition; Liabilities; Litigation.

(1) The Historical Financial Statements and the other financial statements of each Borrower and each of its Subsidiaries delivered to Lender are true and correct in all material respects and fairly present the financial condition of such Borrower and such Subsidiary as of the dates indicated therein and the results of its operations for the indicated periods and were or will be, as the case may be, prepared in accordance with GAAP and applied on a consistent basis with prior periods. All Debt of each Borrower and each of its Subsidiaries as of the Effective Date is reflected on the most recently dated Historical Financial Statements of such Borrower and such Subsidiary. No information, exhibit, or report furnished by the Borrowers to Lender in connection with the negotiation of this Agreement contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statement contained therein not materially misleading.

(2) Except as otherwise disclosed to Lender, there is no litigation, administrative proceeding, investigation or other legal action (including any proceeding under any state or federal bankruptcy or insolvency law) pending or, to the knowledge of a Borrower, threatened against any Borrower or any of its Subsidiaries that (a) questions the validity of the Loan Documents or the right of such Borrower to enter into the Loan Documents and consummate the transactions contemplated thereby, (b) prevents, delays, interferes or would otherwise make illegal the consummation of the transactions contemplated by the Loan Documents, or (c) could reasonably be expected to cause, either individually or in the aggregate, any Material Adverse Effect.

Section 4.5 Other Agreements; Defaults. No Borrower nor any of its Subsidiaries is a party to any agreement or instrument or subject to any court order, injunction, permit, or restriction that could reasonably be expected to have a Material Adverse Effect. No Borrower nor any of its Subsidiaries is in

violation or default of any provisions of its organizational documents, each as amended from time to time and as currently in effect, or of any material instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound. The execution, delivery and performance of and compliance with the Loan Documents will not result in any such violation or default.

Section 4.6 Location of Borrower. Each Borrower’s principal place of business and chief executive offices are located at the address stated in Schedule 4.6 hereof.

Section 4.7 Tax Filings. Each Borrower and each of its Subsidiaries has filed (or has obtained effective extensions for filing) all federal, state and local tax returns required to be filed and has paid or made adequate provision for the payment of all federal, state and local taxes, charges and assessments payable by such Borrower or such Subsidiary except (a) taxes that are being contested in good faith by appropriate proceedings and for which the Borrowers, as applicable, have set aside on their books adequate reserves in accordance with GAAP or (b) to the extent that the failure to do so could not reasonably be expected to result in a material adverse effect.

Section 4.8 Outstanding Debt. No Borrower nor any of its Subsidiaries has outstanding Debt except as set forth in its most recently dated Historical Financial Statement and as set forth on Schedule 1.1(92) hereto. No Borrower nor any of its Subsidiaries intends to incur Debt or liabilities (including contingent liabilities and other commitments) beyond its ability to pay such Debt as they mature (taking into account the timing and amounts of cash to be received by such Borrower or such Subsidiary and the amounts to be payable on or in respect of obligations of such Borrower or such Subsidiary).

Section 4.9 Full and Accurate Disclosure. No statement of fact made by or on behalf of any Borrower or any of its Subsidiaries in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading. There is no fact presently known to any Borrower or any of its Subsidiaries which has not been disclosed to Lender which could reasonably be expected to have a Material Adverse Effect.

Section 4.10 Anti-Terrorism and Anti-Money Laundering Compliance.

(1) No Borrower nor any of its Subsidiaries is, and no Person who (a) owns a controlling interest in or otherwise controls a Borrower, or (b) holds, directly or indirectly, any legal or beneficial interest whatsoever in such Borrower or such Subsidiary, is: (i) listed on the Specially Designated Nationals and Blocked Persons List (the “SDN List”) maintained by the Office of Foreign Assets Control (“OFAC”), Department of the Treasury, and/or on any other similar list (“Other Lists” and, collectively with the SDN List, the “Lists”) maintained by the OFAC pursuant to any authorizing statute, Executive Order or regulation (collectively, “OFAC Laws and Regulations”); or (ii) a Person (a “Designated Person”) either (A) included within the term “designated national” as defined in the Cuban Assets Control Regulations, 31 C.F.R. Part 515, or (B) designated under Sections 1(a), 1(b), 1(c) or 1(d) of Executive Order No. 13224, 66 Fed. Reg. 49079 (published September 25, 2001) or similarly designated under any related enabling legislation or any other similar Executive Orders (collectively, the “Executive Orders”). The OFAC Laws and Regulations and the Executive Orders are collectively referred to in this Agreement as the “Anti-Terrorism Laws”. This Section 4.10(1) shall not apply to any Person to the extent that such Person’s interest in a Borrower is through a U.S. Publicly-Traded Entity. As used in this Agreement, “U.S. Publicly-Traded Entity” means a Person (other than an individual) whose securities are listed on a national securities exchange, or quoted on an automated quotation system, in the United States, or a wholly-owned subsidiary of such a Person.

(2) Each Borrower and each of its Subsidiaries has taken reasonable measures appropriate to the circumstances (and in any event as required by law), with respect to each holder of a direct or indirect interest in such Borrower, to assure that funds invested by such holders in such Borrower or such Subsidiary are derived from legal sources (“Anti-Money Laundering Measures”). The Anti-Money Laundering Measures have been undertaken in accordance with the Bank Secrecy Act, 31 U.S.C. §§ 5311 et seq. (“BSA”), and all applicable laws, regulations and government guidance on

BSA compliance and on the prevention and detection of money laundering violations under 18 U.S.C. §§ 1956 and 1957 (collectively with the BSA, “Anti-Money Laundering Laws”).

(3) No Borrower nor any of its Subsidiaries, nor to the knowledge of the Borrowers any Person who (1) owns a controlling interest in or otherwise controls such Borrower or such Subsidiary, or (2) holds, directly or indirectly, any legal or beneficial interest whatsoever in such Borrower or such Subsidiary, (i) is under investigation by any Governmental Authority for, or has been charged with, or convicted of, money laundering under 18 U.S.C. §§ 1956 and 1957, drug trafficking, terrorist-related activities or other money laundering predicate crimes, or any violation of the BSA, (ii) has been assessed civil penalties under any Anti-Money Laundering Laws, or (iii) has had any of its funds seized or forfeited in an action under any Anti-Money Laundering Laws.

Section 4.11 Health Care Matters.

(1) Compliance with Health Care Laws; Permits. Each Borrower and each of its Subsidiaries is and, in the five (5) years prior to the Effective Date, has been in compliance in all material respects with all Health Care Laws applicable to it, its products and its properties or other assets or its business or operation. Each Borrower, and each of its Subsidiaries is, and any Person acting on its behalf, has in effect all Permits, including, without limitation, all Permits necessary for it to own, lease or operate its properties and other assets and to carry on its business and operations, as presently conducted, except as immaterial. All such Permits are in full force and effect and there exists no material default under, or material violation of, any such Permit and neither Borrower nor any Subsidiary has received written notice of any current or proposed limitation, suspension, termination or revocation of any such Permit. No action, proceeding, litigation, demand, or investigation by any Governmental Authority and no suit, action or proceeding by any other person, in each case with respect to any Borrower or any of its Subsidiaries is pending or, to the knowledge of such Person, threatened.

(2) Material Statements. In the five (5) years prior to the Effective Date, neither Borrower nor any Subsidiary has made an untrue statement of a material fact or fraudulent statement to any Governmental Authority, or, to the knowledge of such Borrower or such Subsidiary, failed to disclose a material fact required to any Governmental Authority, or committed an act, or made a statement that, at the time such statement was made, would constitute a violation of any Health Care Law. As applicable, neither Borrower nor any Subsidiary, or any of their respective affiliates, employees or agents, has made any untrue statement of fact to any Governmental Authority regarding material claims incurred but not reported, in the five (5) years prior to the Effective Date.

Section 4.12 Acknowledgment of Lender’s Reliance. Each Borrower and each of its Subsidiaries acknowledges that Lender will extend the Loans in reliance upon the representations and warranties contained in the Loan Documents or any certificate delivered to Lender pursuant to the Loan Documents. Lender shall be entitled to such reliance notwithstanding any investigation which has been or will be conducted by Lender on its behalf.

Section 4.13 Business Purpose. The proceeds of the Loans will be used entirely for Borrowers’ business purposes.

Section 4.14 [Reserved].

Section 4.15 Factoring Agreement. Under the Factoring Agreement, there are (i) no outstanding amounts or obligations due and payable, (ii) no invoices issued or outstanding, (iii) no assets transferred and (iv), as of the Effective Date, no more than $4,300,000 cash is posted as collateral for the obligations.

Section 4.17 Collateral.

(2) Except as otherwise provided or referenced in this Agreement, no Borrower will hereafter, without Lender’s prior written consent, sell, pledge, encumber, assign or otherwise dispose of any of the Collateral other than in the ordinary course of business and consistent with past practice or permit any lien or security interest to exist thereon except to Lender (other than Permitted Liens).

(3) Upon the filing of any UCC-1 financing statements in the appropriate filing office, Lender will have a perfected security interest (subject only to Permitted Liens and subject in priority only to the Carve-Out and Prepetition Permitted Liens) in the Collateral (including, without limitation, after-acquired Collateral at the time any Borrower acquires rights therein) to the extent that a security interest in the Collateral can be perfected by such filing.

ARTICLE 5

[RESERVED]

ARTICLE 6

REPORTING AND INFORMATION

Section 6.1 Projections. On or before the Thursday of every other calendar week (or, solely to the extent any applicable Thursday is not a Business Day, on or before the next Business Day), commencing with the first week following the Effective Date, the Borrowers shall deliver to Lender financial projections that set forth: (i) projections of the weekly cash flows for the 13-week period commencing on the first day of such fiscal week (the “13-Week Cash Flow Projections”) that reflect the Borrowers’ consolidated projected cash receipts and cash expenditures for their corporate and other operations; and (ii) a Variance Report comparing, for each line of such 13-Week Cash Flow Projections, the actual disbursements and receipts for the previous reporting weeks and the variance of such actual results from those projected for such previous reporting week on the most current 13-Week Cash Flow Projections delivered under the terms of this Agreement prior to such date. Upon Lender’s request and upon reasonable notice, the Borrowers and the Borrower Financial Advisor shall (and the Borrowers shall cause the Borrower Financial Advisor to) participate in a telephone call with Lender whereby the Borrowers and the Borrower Financial Advisor shall provide an explanation of any material variance between the projected weekly cash flows and the actual disbursements and receipts for any fiscal week.

Section 6.2 Access to Books and Records. Each Borrower and each of their Subsidiaries shall keep and maintain proper and current books and records in accordance with GAAP and permit Lender and its agents and representatives, upon prior reasonable notice and during normal business hours, (i) to examine and produce copies of, as applicable, all of the facilities, processes, records, books and papers of such Borrower and its Subsidiaries and (ii) to discuss the business, affairs and finances of the Borrowers and their respective Subsidiaries with any of its officers and managers and such Borrower’s independent accountants. Each Borrower shall permit, and cause each of its Subsidiaries to permit, the Lender and the duly authorized agents and representatives of Lender, at such reasonable times during normal business hours and intervals as Lender may designate to examine and make copies of and abstracts from its records and books of account, to visit and inspect its properties, to verify materials, records, books, papers, leases, contracts, notes, accounts receivable, deposit accounts and its other assets, to conduct audits, physical counts, valuations, appraisals or examinations and to discuss its affairs, finances, contracts and accounts with any of its directors, officers, employees, senior managerial employees, independent public accountants, other professional advisors or any of its other representatives. In furtherance of the foregoing, each Borrower hereby authorizes its officers, employees, independent public accounts and other professional advisors of each of its Subsidiaries, to discuss the affairs, finances and accounts of such Person with the Lender and the duly authorized agents and representatives of Lender in accordance with this Section 6.2. All reasonable costs and expenses of such inspections, examinations and discussions shall be paid by the Borrowers.

Section 6.3 Notices.

(i) Promptly after the occurrence of a Default or Event of Default, Borrowers shall deliver to Lender notice thereof together with a description of the nature and effect of such event and the remedial steps being taken by the Borrowers as a result thereof.

(i) Promptly after delivery thereof, Borrowers shall deliver to Lender any written notice from any Governmental Authority of any investigation or audit, or pending or threatened proceedings relating to, any violation by the Borrowers or any Subsidiary of any applicable laws, including any Health Care Laws, in each case, solely to the extent the same would reasonably be expected to result in any material liability to any Borrower or any Subsidiary.

(ii) Each Borrower shall promptly notify Lender in writing of (a) any condition or event which constitutes (or which upon the giving of notice or lapse of time, or both would constitute) an Event of Default under this Agreement or any other Loan Documents, including any event or circumstance which causes any information which has previously been provided by such Borrower to Lender to include an untrue statement of material fact or to omit to state any material fact or any fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and, in such event, such Borrower shall promptly furnish to Lender updated or revised information which will correct such untrue statement or include such omitted fact; (b) any written notice of breach or default received by such Borrower or its Subsidiaries or otherwise material to such Borrower’s business; (c) any threatened or pending legal, judicial or regulatory proceedings or investigation, including any dispute between such Borrower and/or any of its Subsidiaries and any Governmental Authority affecting such Borrower or such Subsidiary; and (d) any event causing extraordinary loss or depreciation of the value of such Borrower’s assets (whether or not insured) or business and the facts with respect thereto.

(iii) Immediately (and in no event later than one (1) Business Day after actual knowledge thereof), Borrowers shall deliver to Lender (1) any information publicly disclosed in any document filed with the Bankruptcy Court and (2) copies of all material written reports and presentations delivered by or on behalf of any Borrower to the Committee in any of the Cases to the extent not publicly filed.

(iv) Each Borrower shall provide Lender copies of all certificates, notices and other information delivered to such Borrower or its Subsidiaries by, or received by such Borrower or its Subsidiaries from, any other Material Contract counterparty, contemporaneously with such delivery or promptly after such receipt.

Section 6.4 Financials. During the duration of the Cases, each Borrower shall deliver to Lender (a) operating reports shared with the U.S. Trustee, (b) any financial information shared with the U.S. Trustee, the Committee and any other third-party Person in connection with the Cases and (c) such other financial information as Lender reasonably requests.

ARTICLE 7
COVENANTS

Section 7.1 Due on Sale and Encumbrances; Authority Documents.

(1) No Borrower nor any of its Subsidiaries shall sell, convey, assign or otherwise transfer its properties, assets or contractual rights other than (a) in the ordinary course of business and consistent with past practice in accordance with the DIP Budget; or (b) mortgage, pledge, encumber, alienate, grant any other Lien on or grant any other interest in its properties or assets other Liens in favor of Lender (other than Permitted Liens); and

(2) No Borrower nor any of its Subsidiaries shall amend, modify, or otherwise supplement its respective Authority Documents.

Section 7.2 Taxes on Security. Each Borrower and each of its Subsidiaries shall pay all taxes, charges, filing, registration and recording fees, excises and levies payable with respect to the Liens (if any) created or secured by the Loan Documents. If there shall be enacted any law changing existing laws of taxation of security interests, mortgages, deeds of trust, security deeds, or debts secured by real property, or changing the manner of collecting any such taxes, such Borrower or such Subsidiary shall promptly pay to Lender, on demand, all additional taxes, costs and charges for which Lender is or may be liable as a result thereof.

Section 7.3 Limitations on Other Debt. No Borrower nor any of its Subsidiaries shall incur any Debt (whether secured or unsecured) (other than Permitted Debt). Notwithstanding anything to the contrary, other with respect to the Carve-Out, no Debt shall be permitted to have an administrative expense claim status under the Bankruptcy Code senior to or pari passu with the super priority administrative expense claims of Lender as set forth herein and in the DIP Orders.

Section 7.4 Compliance with Laws, etc. Each Borrower and each of its Subsidiaries shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, and all material licenses and permits and comply with all applicable laws, rules, statutes, regulations and ordinances in all material respects.

Section 7.5 Compliance with Health Care Laws.

(2) Notwithstanding anything to the contrary in this Agreement, neither Borrower nor any of its Subsidiary shall be required to furnish to Lender any protected health information or any patient related information, to the extent such disclosure to Lender is prohibited by Health Care Laws or other applicable laws.

Section 7.6 Continued Business Operations. Each Borrower and each of its Subsidiaries shall continue to conduct such Borrower’s or such Subsidiary’s business operations in substantially the same manner as is currently being conducted. Each Borrower and each of its Subsidiaries shall keep or cause to be kept adequately insured by financially sound and reputable insurers such Borrower’s or such Subsidiary’s business activities in the manner usually insured by businesses engaged in the same or similar businesses. Without limiting the generality of the foregoing, each Borrower and each of its Subsidiaries shall at all times maintain adequate business liability insurance applicable to such Borrower’s or such Subsidiary’s operations, shall be in full compliance with all terms and conditions of such insurance and shall pay all insurance premiums payable by it.

Section 7.7 Prohibited Actions. No Borrower nor any of its Subsidiaries shall: (a) enter into any agreements other than in the ordinary course of business and consistent with past practice or any agreements adversely affecting the operation of such Borrower’s or such Subsidiary’s business or amend or terminate any existing agreement; (b) enter into any line of business substantially different from those lines of business conducted by such Borrower or such Subsidiary on the date hereof or any business substantially related or incidental thereto; (c) commence any legal action or proceeding against any person or settle any legal action or proceeding against such Borrower or such Subsidiary brought by any third party or Governmental Authority; (d) make loans or advances to any person or entity; (e) engage in, or seek or consent to, any dissolution, winding up, liquidation, consolidation, merger or asset sale unless otherwise permitted hereby; (f) enter into or be a party to any transaction with its members or any of its affiliates, except on terms that are no less favorable to any party thereto than would be obtained in a comparable arm’s length transaction with an unrelated third party; (g) except as permitted by Section 10.2 of hereof), change its name; and/or (h) use any trade name other than such Borrower’s or such Subsidiary’s true name.

Section 7.8 Further Assurances. Each Borrower shall (a) cure any defects in the execution and delivery of the Loan Documents, and (b) execute and deliver, or cause to be executed and delivered, all such other documents, agreements and instruments as Lender may reasonably request to further evidence and more fully describe the collateral for the Loans, to correct any omissions in the Loan Documents, or to obtain any consents as may be necessary or appropriate in connection therewith.

Section 7.9 Borrower Financial Advisor; Sale Process and Transaction.

(1) The Borrowers shall provide to the Lender, as soon as possible but in no event more than (i) one (1) Business Day after sending or receipt thereof, copies of all bid letters and term sheets and (ii) two (2) Business Days after sending or receipt thereof, associated valuation analyses that

the Borrower Financial Advisor or any Borrower or any of its Subsidiaries sends to, or receives from, any potential buyer. Lender shall have the consent rights as set forth in the Bidding Procedures, as acceptable to the Lender in its sole discretion.

(2) Each Borrower irrevocably authorizes the Borrower Financial Advisor to (i) regularly consult with, and respond to the inquiries of, Lender concerning any and all matters relating to the affairs, finances and businesses of the Borrowers, the assets and capital stock of the Borrowers and any aspect of the sale process or any refinancing transaction and (ii) provide periodic updates to Lender (which may be provided telephonically), in each case at such times as Lender may reasonably request, to discuss progress and developments regarding the sale or any refinancing.

(3) The Borrowers shall, and shall cause each of their Subsidiaries to, comply with the following deadlines (each a “Sale Milestone”), and the Borrowers hereby acknowledge and agree that, by entering into this Agreement or otherwise, the Lender does not consent to, and nothing contained herein shall be deemed to be a consent to, any particular Sale Transaction or other Disposition of assets of the Borrowers:

(a) No later than five (5) business days after the Petition Date, entry by the Bankruptcy Court of the Interim DIP Order;

(b) No later than twenty-five (25) calendar days after the Petition Date, entry by the Bankruptcy Court of an order approving (i) the Asset Purchase Agreement and (ii) the Bidding Procedures for the Purchased Assets;

(c) No later than twenty-five (25) calendar days after the Petition Date, entry by the Bankruptcy Court of the Final Order;

(d) No later than forty-two (42) calendar days after the Petition Date, the submission deadline for all bids for the sale of the Purchased Assets as set forth in the Bidding Procedures;

(e) No later than forty-five (45) calendar days after the Petition Date, holding of an auction (if necessary) for the sale of the Purchased Assets as set forth in the Bidding Procedures;

(f) No later than fifty-five (55) calendar days after the Petition Date, entry by the Bankruptcy Court of the Sale Order (as defined in the Asset Purchase Agreement); and

(g) No later than seventy (70) calendar days after the Petition Date, consummation of the sale of the Purchased Assets.

(4) Case Matters.

(a) All Professional Fees at any time paid by the Borrowers, or any of them, shall be paid by the Borrowers pursuant to procedures established by an order of the Bankruptcy Court and pursuant to the DIP Budget.

(b) The Borrowers will not return any inventory or other property to any vendor pursuant to Section 546(g) of the Bankruptcy Code, unless otherwise ordered by the Bankruptcy Court in accordance with Section 546(g) of the Bankruptcy Code upon prior notice to Lender or unless otherwise consented to by Lender.

(c) No Borrower shall submit to the Bankruptcy Court a Plan of Reorganization without the prior written consent of Lender, unless such Plan of Reorganization will indefeasibly pay the Obligations and the Prepetition

Obligations in full, in cash and terminate any commitment to extend credit hereunder.

(d) No Borrower shall propose to the Bankruptcy Court, or otherwise, a sale of all or substantially all of the Collateral, without the prior written consent of Lender, unless such sale will indefeasibly pay the Borrowers’ liabilities in full, in cash and terminate any commitment to extend credit hereunder.

Section 7.10 Disbursements, DIP Budget Variance and Updated DIP Budget.

(1) The Borrowers may not make any disbursements other than those set forth in the DIP Budget.

(2) Each Borrower shall deliver to Lender a certificate signed by an Authorized Officer of such Borrower, on the Thursday of each week (or the succeeding Business Day if such Thursday is not a Business Day), commencing on the second Thursday after the Petition Date, certifying the cash disbursements and receipts, on a line by line basis, for the week ended (and on a cumulative basis since the Petition Date) the immediately prior Saturday, together with a variance report, on an individual line item basis and an aggregate basis, comparing such disbursements to the DIP Budget.

(3) Each Borrower shall deliver to Lender a certificate signed by an Authorized Officer of such Borrower on the Thursday of every other week, commencing on the third Thursday after the Petition Date, certifying as to the accrued Professional Fees for the two week period ended (and on a cumulative basis since the Petition Date) the Saturday ten days prior to such date, together with a variance report comparing such Professional Fees to the DIP Budget.

(4) Each Borrower shall deliver to Lender a certificate signed by an Authorized Officer of such Borrower on the Thursday of each week (or the succeeding Business Day if such Thursday is not a Business Day), commencing on the second Thursday after the date of entry of the Interim DIP Order, a variance report (the “Variance Report”) for the immediately preceding two-week Variance Period comparing, in each case, (i) the actual aggregate cumulative cash disbursements for such Variance Period (without consideration of Professional Fees) which shall not exceed the projected disbursements for such Variance Period by more than fifteen percent (15%) and (ii) the actual aggregate cumulative cash receipts for such Variance Period which shall not be less than the projected cash receipts for such period, by more than fifteen percent (15%) to the projected cash receipts for such Variance Period, and, in each case, as set forth in the DIP Budget for such two-week look-back period (the “Variance Period” and, such variance of up to fifteen percent (15%) during each Variance Period, the “Permitted Variance”).

(5) Every two weeks after the Petition Date, the Borrowers shall propose an updated budget (the “Proposed DIP Budget”) which shall reflect the Borrower’s good faith projection of all weekly receipts and disbursements in connection with the operation of the Borrowers’ and their respective Subsidiaries’ business during the next thirteen-week period, including but not limited to, collections, payroll, capital expenditures, Professional Fees and other cash outlays, in each case, consistent in form substance (other than dollar amounts) with the Initial DIP Budget. Lender may approve such Proposed DIP Budget, which will then become the “DIP Budget” then in effect in the Lender’s sole and absolute discretion. If Lender does not approve such Proposed DIP Budget, then the current DIP Budget will remain in effect. If at any time there is no approved DIP Budget in effect for the current period, such event shall be an immediate Event of Default hereunder.

Section 7.11 Factoring Agreement. No Borrower nor any of its Subsidiaries shall utilize, or issue any invoices or transfer any assets under, the Factoring Agreement and the balance thereunder shall remain at $0 at all times. No later than fourteen (14) days after the Petition Date, the Borrowers shall file a Bankruptcy Code section 363 motion under Bankruptcy Rule 9019 to approve a settlement with respect to the termination of the Factoring Agreement, which motion and settlement term shall be in form and substance satisfactory to the Lender in its sole discretion.

Section 7.12 Transition Services Agreement. Upon the request by Lender following the date of this Agreement and prior to the date that is five (5) Business Days prior to the Closing Date (as defined in the Asset Purchase Agreement), the Borrowers and Lender shall negotiate in good faith the Transition Services Agreement, in a form reasonably satisfactory to Lender and the Borrowers, pursuant to which the parties shall provide reasonable assistance in transitioning the Purchased Assets (as defined in the Asset Purchase Agreement) from the Borrowers to Lender for a period mutually agreed, with each of the parties bearing their own respective costs in connection with the Transition Services Agreement (unless otherwise agreed in the Transition Services Agreement).

Section 7.13 Amendments to Orders. No Borrower nor any of its Subsidiaries shall amend, modify or waive (or make any payment consistent with an amendment, modification or waiver of), or apply to the Bankruptcy Court for authority to make any amendment, modification or waiver of, any provision of the Interim DIP Order, the Cash Management Order, the Sale Order or the Final DIP Order without in each case the prior written consent of Lender in its sole discretion.

Section 7.14 Post-Closing Obligations.

(1) Not later than the date that is two (2) weeks after the Effective Date, Lender shall have received all insurance certificates and accompanying endorsements naming Lender as additional insured or lender’s loss payee under Borrowers’ insurance policies and providing that such policies may be terminated or canceled (by the insurer or the insured thereunder) only upon thirty (30) days’ prior written notice to Lender and each such named insured or lender’s loss payee (or 10 days’ prior written notice in the event of a cancellation due to a failure to pay premiums).

(2) Not later than the date that is thirty (30) days after the Effective Date (or such longer time as Lender shall agree in writing in its sole discretion), Lender shall have received a Control Agreement with respect to each deposit account, securities account and commodities account of the Borrowers (other than Excluded Accounts), and each duly executed by the applicable Borrower, the applicable depositary bank or securities intermediary.

ARTICLE 8
EVENTS OF DEFAULT

Each of the following shall constitute an “Event of Default” under the Loans:

Section 8.1 Payments. Any Borrower’s failure to pay (a) any payment of principal, interest, fees or other amount due under the Loan Documents when and as due, (b) any payment obligations under the DIP Orders when and as due and/or (c) each Loan at the Maturity Date, whether by acceleration or otherwise.

Section 8.2 Covenants. Any Borrower’s failure to perform or observe any of the agreements and covenants contained in Section 6.3 or Article 7.

Section 8.4 Representations and Warranties. Any representation or warranty made in any Loan Document or in any financial statement, application, schedule, report or any other document given by any Borrower under any Loan Document proves to be untrue in any material respect when made or deemed made, except to the extent that any such representation and warranty is qualified by materiality, “Material Adverse Effect” or other similar qualification, such representation and warranty shall be true and correct in all respects, or if any warranty shall cease to be complied with in any material respect, or if any Borrower omitted to state any material fact necessary to make such information not misleading.

Section 8.5 Exclusivity. An order shall be entered terminating or reducing Borrowers’ exclusivity period for proposing a Plan of Reorganization (to the extent such motion is not made by Lender).

Section 8.6 Sale Milestones and Variance. Failure of Borrower to comply with any of the Sale Milestones; provided that Lender may agree to an extension of any of the Sale Milestone dates in its sole and absolute discretion. The actual amount of aggregate cumulative disbursements for a Variance Period exceeds the projected cumulative disbursements in the DIP Budget for such Variance Period by more than a Permitted Variance or the actual amount of aggregate cumulative receipts for such Variance Period are less than the projected cumulative receipts for such Variance Period by more than the Permitted Variance.

Section 8.7 Business Change. Any Borrower consummates any (i) dissolution, liquidation, consolidation or merger with or into any other business entity, (ii) any transaction which results in a Change of Control, (iii) any transaction for the sale, transfer or other disposition of all or a material portion of any Borrower’s or any of their Subsidiaries’ assets or (iv) any sale of all or substantially all assets of the Borrowers pursuant to Section 363 of the Bankruptcy Code or entry into an agreement obligating any Borrower to consummate any such sale, other than a sale pursuant to the Asset Purchase Agreement, unless (x) the proceeds of such sale are used to indefeasibly satisfy the Obligations in full in cash, or (y) such sale is consented to by Lender.

Section 8.9 Other Encumbrances. A final post-petition judgment or other claim shall be entered that, together with any other undischarged final judgments against any Borrower or any of their Subsidiaries during the term of this Agreement, exceeds an aggregate of $25,000, and within five (5) days after the entry thereof, has not been discharged or execution thereof stayed pending appeal, or, within five (5) days after the expiration of such stay, has not been discharged.

Section 8.10 Loan Documents. Any of the Loan Documents or the security interests and Liens thereunder are challenged by any Borrower or any Loan Document is revoked or rescinded.

Section 8.11 Collateral. (A) Lender fails to have a perfected first priority security interest in the Collateral subject only to the Carve-Out and Prepetition Permitted Liens or (B) a forfeiture or loss of all or a material portion of the Collateral to any Governmental Authority occurs.

Section 8.12 Cross Default. (A) Any Borrower or any Subsidiary thereof fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise but subject to any applicable grace periods applicable thereto) or otherwise fails to observe or perform any other agreement or condition relating to any Debt or guarantee, whether individually or in the aggregate, having an aggregate principal amount in excess of $25,000 contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Debt or the beneficiary or beneficiaries of such guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Debt to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Debt to be made, prior to its stated maturity, or such guarantee to become payable or cash collateral in respect thereof to be demanded (subject, in each case, to any applicable grace or cure periods applicable thereto and after giving effect to any amendments or waivers thereof) or (B) a material breach of the Asset Purchase Agreement occurs, other than as a result of Lender’s material breach.

Section 8.13 Case Orders.

(1) An order shall be entered in any of the Cases appointing, or any Borrower shall file an application for an order with respect to any of the Cases seeking (x) the appointment of, in either case without the prior written consent of Lender, (i) a trustee under Section 1104 of the Bankruptcy Code or (ii) an examiner or any other Person with enlarged powers relating to the operation of the business (i.e., powers beyond those set forth in Sections 1104(d) and 1106(a)(3) and (4) of the Bankruptcy Code) under

Section 1106(b) of the Bankruptcy Code or (y) a change of venue with respect to any Case or any related adversary proceeding.

(2) An order shall be entered dismissing a Case or converting a Case to a case under Chapter 7 of the Bankruptcy Code.

(3) An order shall be entered with respect to the Case or Cases, without the prior written consent of Lender, (i) to revoke, reverse, stay, vacate or otherwise modify the DIP Orders, (ii) to permit any administrative expense or any claim (now existing or hereafter arising, of any kind or nature whatsoever) to have administrative priority equal or superior to the priority of Lender in respect of the Obligations other than the Carve-Out and the Adequate Protection Liens granted to the Prepetition Secured Lender and the Bay View Adequate Protection Liens pursuant to the DIP Orders, (iii) terminating or denying the use of cash collateral, or (iv) granting or permitting the grant of a lien that is equal in priority with or senior to the liens securing the Obligations other than the Carve-Out and the Adequate Protection Liens granted to the Prepetition Secured Lender and the Bay View Adequate Protection Liens pursuant to the DIP Orders.

Section 8.14 Automatic Stay. An order shall be entered that is not stayed pending appeal granting relief from the Automatic Stay to any creditor of a Borrower (other than Lender) with respect to any claim against any property that, when taken together with all other orders entered on the docket of the Bankruptcy Court that are not stayed pending appeal granting relief from the Automatic Stay with respect to Borrowers’ Collateral having a value in excess of $25,000 individually or in the aggregate.

Section 8.15 Plan of Reorganization. An order shall be entered by the Bankruptcy Court confirming a Plan of Reorganization or liquidation in any of the Cases which does not (i) contain a provision for termination of all commitments to extend credit hereunder and indefeasible payment in full in cash of all Obligations hereunder and under the other Loan Documents and all Prepetition Obligations under the Prepetition Credit Agreement on or before the effective date of such plan or plans upon entry thereof and (ii) provide for the continuation of the Liens and security interests granted to Lender for the benefit of Lender (as Lender hereunder and as Prepetition Secured Lender) with the same priorities under the DIP Orders until such plan effective date.

Section 8.16 Violation of DIP Orders. A violation by any Borrower or Subsidiary thereof of any of the provisions of the DIP Orders, the Cash Management Order or the Sale Order occurs.

Section 8.17 Rejection of Contracts. Any Borrower rejects or assumes an unexpired lease or other contract, other than with the prior written consent of Lender in its sole discretion.

Section 8.18 Litigation Regarding DIP Liens. Any Borrower, any of Borrower’s affiliates, any creditor or the Committee commences, or supports, any person, in any litigation challenging or seeking to challenge the DIP Liens against Lender, except as may be permitted under the DIP Orders.

Section 8.19 Payments of Debt. Any Borrower shall make a payment or grants adequate protection with respect to Debt existing prior to the Petition Date (other than as permitted under this Agreement, the DIP Orders or the “first day” orders or otherwise and approved by Lender and the Bankruptcy Court).

Section 8.20 Post-Petition Payments. Any Borrower or any Subsidiary thereof fails to make any post-petition payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Material Contract or fails to observe or perform any other material agreement or condition relating to any such Material Contract or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the counterparty to such Material Contract to terminate such Material Contract, in each case, except to the extent as permitted with the express prior consent of the Lender in its sole discretion.

Section 8.21 Asset Purchase Agreement. Termination of the Asset Purchase Agreement; provided that such termination (x) was not caused by, or the result of, a breach by Buyer (as defined in the

Asset Purchase Agreement) of its obligations thereunder, or (y) is the result of a party other than Buyer winning the Auction (as defined in the Asset Purchase Agreement) with respect to the sale of the Purchased Assets.

ARTICLE 9
CONSEQUENCES OF AN EVENT OF DEFAULT

Section 9.1 Remedies.

(1) If an Event of Default exists, the Lender may, at any time or times and in any order, without notice to or demand on any Borrower (except for such notice or consent that is expressly provided for hereunder, under the DIP Order, or required by applicable law): (i) restrict the amount of or refuse to permit the Lender to fund any Loans, (ii) terminate any commitment to extend any credit hereunder, and thereupon such commitments shall terminate immediately, (iii) declare the Obligations then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be immediately due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be immediately due and payable, together with accrued interest thereon and all fees and other Obligations of the Borrowers accrued hereunder and under the other Loan Documents, shall become due and payable immediately, without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other notice of any kind, all of which are hereby waived by the Borrowers, (iv) exercise the right (after providing three (3) Business Days’ prior notice to the Borrowers, the U.S. Trustee, and counsel to the Committee (but this shall not serve as a consent to the use of the Loans hereunder to pay Professional Fees incurred by any other such official committee)) to realize on all Collateral without the necessity of obtaining any further relief or order from the Bankruptcy Court, subject to the right of the Borrowers to seek continuation of the automatic stay during such three (3) Business Day period (such three (3) Business Day period, the “Remedies Notice Period”); and (iv) pursue its other rights and remedies under the Loan Documents, the DIP Orders and/or applicable law. Except as otherwise provided in the DIP Orders, the foregoing remedies may be exercised without demand and without further application to or order of the Bankruptcy Court. In any hearing regarding any exercise of remedies under this Section 9.1(1) (which hearing must take place within the Remedies Notice Period), the only issue that may be raised by any party in opposition thereto shall be whether, in fact, an Event of Default has occurred and is continuing the Borrowers, any committee and all other parties in interest shall not be entitled to seek relief, including, without limitation, under Section 105 of the Bankruptcy Code, to the extent such relief would in any way impair or restrict the rights and remedies of Lender set forth in the DIP Orders, this Agreement or the Loan Documents, as applicable. If no such order is entered during the Remedies Notice Period, all use of the Collateral shall cease and the Lender shall be entitled to enforce the remedies hereunder.

(2) While any Event of Default exists, Lender shall have no obligation to make any Loans hereunder. Upon the occurrence of an Event of Default under Article 8 hereof, at the option and upon the declaration of Lender, (x) all Obligations (including, without limitation, any and all costs and expenses, including professional fees) shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and the Default Rate will apply in accordance with Section 2.6; and (y) the Commitments and obligation, if any, of Lender to make any further Loans hereunder shall be terminated.

(3) Upon the occurrence of an Event of Default under Article 7 hereof, Lender may, immediately enforce payment of all amounts due and owing under the Loan Documents and exercise all rights and remedies therefor under the Loan Documents and at law or in equity, including, without limitation, instituting any proceeding or proceedings to enforce the Obligations. The rights, powers and remedies of Lender under the Loan Documents shall be in addition to all rights, powers and remedies given to Lender by virtue of any statute or rule of law, or any other agreement between Lender and any Borrower, all of which rights, powers and remedies shall be cumulative and may be exercised successively or concurrently without impairing Lender’s rights in any security interests created by the Loan Documents.

(4) The acceptance of any payment by any Borrower to Lender shall not be deemed to cure or constitute a waiver of any Event of Default and Lender retains its rights under this Agreement

and the other Loan Documents to accelerate and to continue to demand payment of the Loans upon the happening of any Event of Default, despite any payments made to Lender after the occurrence of such Event of Default.

(5) Lender’s exercise of any right or remedy which has the effect of remedying an Event of Default under the Loan Documents shall not constitute a cure or waiver of such Event of Default.

(6) The failure of Lender to insist upon strict performance of any term, covenant or condition contained in the Loan Documents shall not be deemed to be a waiver, modification, amendment or estoppel with respect to the enforcement of such term, covenant or condition. No Borrower shall be relieved or released from its Obligations by reason of (a) the failure of Lender to comply with any request of such Borrower to take any action to enforce any of the provisions of the Loan Documents; (b) the release, regardless of consideration, of any Person liable for the Loans or any portion thereof; or (c) any agreement or stipulation by Lender extending the time of payment or otherwise modifying or supplementing the terms of the Loan Documents. The rights of Lender under each of the Loan Documents shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Lender shall be construed as an election to proceed under any one provision of any Loan Document to the exclusion of any other provision. Lender shall not be limited exclusively to the rights and remedies herein stated, but shall be entitled to every right and remedy now or hereafter afforded at law or in equity.

(7) Upon the occurrence and during the continuance of any Event of Default, Lender may declare all Obligations secured hereby immediately due and payable and shall have, in addition to any remedies provided herein or by any applicable law or in equity, all the remedies of a Lender under the UCC. All of the rights and remedies of Lender, whether evidenced by this Agreement or by any other writing, shall be cumulative and may be exercised singularly or concurrently by Lender. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of the Borrowers under this Agreement, after failure to perform, shall not affect the right of Lender to declare a default and to exercise remedies available to Lender under this Agreement. Nothing under this Agreement or otherwise shall be construed so as to limit or restrict the rights and remedies available to Lender under this Agreement following the occurrence and during the continuance of an Event of Default, or in any way to limit or restrict the rights and ability of Lender to proceed directly against the Borrowers and/or to proceed against any other collateral directly or indirectly securing the Obligations. Nothing under this Agreement or otherwise shall be construed so as to require Lender to proceed against or resort to any collateral directly or indirectly securing the Obligations at any time.

(8) Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an Event of Default, Lender, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below or as otherwise required herein) to or upon the Borrowers or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof, which rights shall include, without limitation, the right to (a) peaceably by its own means or with judicial assistance enter the premises of the Borrowers and take possession of the Collateral without prior notice to the Borrowers or the opportunity for a hearing, (b) render the Collateral unusable, (c) dispose of the Collateral on the Borrower's premises, and (d) require the Borrowers to assemble the Collateral and make it available to Lender at a place designated by Lender. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give the Borrowers reasonable notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made. The requirements of commercially reasonable notice shall be met if such notice is sent to the Borrowers at least ten (10) days before the time of the intended sale or disposition. Expenses of retaking, holding, preparing for sale, selling or the like shall include Lender's reasonable attorney's fees and legal expenses, incurred or expended by Lender to enforce any payment due it under this Agreement either as against the Borrowers, as applicable, or in the prosecution or defense of any action, or concerning any matter growing out of or connection with the subject matter of this Agreement and the Collateral pledged

hereunder. The Borrower waives all relief from all appraisement or exemption laws now in force or hereafter enacted.

Section 9.2 Sales, UCC.

(1) Each Borrower recognizes that Lender may be unable to effect a public sale of any or all of the Collateral that constitutes securities to be sold by reason of certain prohibitions contained in the laws of any jurisdiction outside the United States or in applicable federal or state securities laws but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Collateral to be sold for their own account for investment and not with a view to the distribution or resale thereof. Each Borrower acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall, to the extent permitted by law, be deemed to have been made in a commercially reasonable manner. Unless required by law, Lender shall not be under any obligation to delay a sale of any of such Collateral to be sold for the period of time necessary to permit the issuer of such securities to register such securities under the laws of any jurisdiction outside the United States or under any applicable federal or state securities laws, even if such issuer would agree to do so. Each Borrower further agrees to do or cause to be done, to the extent that such Borrower may do so under all applicable, all such other acts and things as may be necessary to make such sales or resales of any portion or all of such Collateral or other property to be sold valid and binding and in compliance with any applicable law at Borrowers’ expense. Each Borrower further agrees that a breach of any of the covenants contained in this Section 9.2(1) will cause irreparable injury to Lender for which there is no adequate remedy at law and, as a consequence, agrees that each covenant contained in this Section 9.2(1) shall be specifically enforceable against such Borrower, and each Borrower hereby waives and agrees, to the fullest extent permitted by law, not to assert as a defense against an action for specific performance of such covenants that (i) such Borrower’s failure to perform such covenants will not cause irreparable injury to Lender or (ii) Lender has an adequate remedy at law in respect of such breach. Each Borrower further acknowledges the impossibility of ascertaining the amount of damages which would be suffered by Lender by reason of a breach of any of the covenants contained in this Section 9.1(1) and consequently, agrees that, if such Borrower shall breach any of such covenants and Lender shall sue for damages for such breach, such Borrower shall pay to Lender, as liquidated damages and not as a penalty, an aggregate amount equal to the value of the Collateral or other property to be sold on the date Lender shall demand compliance with this Section 9.2(1).

(2) If an Event of Default has occurred and is continuing, Lender shall have, in addition to all other rights of Lender, the rights and remedies of a secured party under the UCC, and without limiting the generality of the foregoing, Lender shall be empowered and entitled to, subject to the terms of the DIP Orders: (i) take possession of, foreclose on and/or request a receiver of the Collateral and keep it on any Borrower’s premises at any time, at no cost to Lender, or remove any part of it to such other place or places as the Lender may determine, or the Borrowers shall, upon Lender’s demand, at the Borrowers’ cost, assemble the Collateral and make it available to the Lender at a place convenient to the Lender; (ii) sell and deliver any Collateral at public or private sales, for cash, upon credit, or otherwise, at such prices and upon such terms as Lender deems advisable, in its sole discretion, and may postpone or adjourn any sale of the Collateral by an announcement at the time and place of sale or of such postponed or adjourned sale; (iii) hold, lease, develop, manage, operate, control and otherwise use the Collateral upon such terms and conditions as may be reasonable under the circumstances (making such repairs, alterations, additions and improvements and taking other actions, from time to time, as may be reasonably necessary or desirable), exercise all such rights and powers of each Borrower with respect to the Collateral, whether in the name of such Borrower or otherwise, including, without limitation, the right to make, cancel, enforce or modify leases, obtain and evict tenants, and demand, sue for, collect and receive all rents, in each case, in accordance with the standards applicable to the Lender under the Loan Documents, (iv) employ consultants to inspect the Collateral and to assure compliance by each Borrower of the terms and conditions of the Loan Documents and (v) take any other actions, as may be necessary or desirable, in connection with the Collateral (including preparing for the disposition thereof), and all actual, out-of-pocket fees and expenses incurred in connection therewith shall be borne by the Borrowers. Upon demand from the Lender, the applicable Borrower shall direct the grantor or licensor of, or the contracting party to, any property agreement with respect to any Property to recognize and

accept the Lender as the party to such agreement for any and all purposes as fully as it would recognize and accept such Borrower and the performance of such Borrower thereunder and, in such event, without further notice or demand and at such Borrower’s sole cost and expense, the Lender may exercise all rights of such Borrower arising under such agreements. Without in any way requiring notice to be given in the following manner, each Borrower agrees that any notice by the Lender of sale, disposition, or other intended action hereunder or in connection herewith, whether required by the UCC or otherwise, shall constitute reasonable notice to such Borrower if such notice is mailed by registered or certified mail, return receipt requested, postage prepaid, or is delivered personally against receipt, at least ten (10) Business Days prior to such action to the Borrower’s address in accordance with Section 11.1 of this Agreement. If any Collateral is sold on terms other than payment in full at the time of sale, no credit shall be given against the Obligations until the Lender receive payment, and if the buyer defaults in payment, the Lender may resell the Collateral. In the event the Lender seeks to take possession of all or any portion of the Collateral by judicial process, each Borrower irrevocably waives: (A) the posting of any bond, surety, or security with respect thereto which might otherwise be required; (B) any demand for possession prior to the commencement of any suit or action to recover the Collateral; and (C) any requirement that the Lender retain possession and not dispose of any Collateral until after trial or final judgment. Each Borrower agrees that the Lender has no obligation to preserve rights to the Collateral or marshal any Collateral for the benefit of any Person. The proceeds of sale shall be applied as set forth in the DIP Orders. The Lender will return any excess to the Borrowers and the Borrowers shall remain liable for any deficiency.

Section 9.3 Attorney-in-Fact. Each Borrower hereby irrevocably appoints Lender as its agent and attorney-in-fact, with full power of substitution, in the name of such Borrower, for the sole use and benefit of Lender, but at the expense of such Borrower, to exercise, at any time and from time to time during the continuance of an Event of Default, all or any of the following powers with respect to all or any of the Collateral:”

(1) to demand, collect, receive, receipt for, sue and recover all sums of money or other property which may now or hereafter become due, owing or payable from the Collateral,

(2) to endorse such Borrower’s name to any instruments, chattel paper and documents comprising part of the Collateral (including endorsing such instruments, chattel paper and documents to Lender (for the benefit of Lender)),

(3) to assign, on behalf of such Borrower, any instruments, chattel paper or documents comprising part of the Collateral to Lender (for the benefit of Lender),

(4) to execute, sign and endorse any and all claims, instruments, receipts, checks, drafts or warrants issued in payment for the Collateral,

(5) to settle or compromise any and all claims arising under the Collateral, and, in the place and stead of such Borrower, to execute and deliver its release and settlement for the claim,

(6) to file any claim or claims or to take any action or institute or take part in any proceedings, either in its role as Lender, as applicable, or in the name of such Borrower, or otherwise, which in the discretion of Lender may seem to be necessary or advisable,

(7) to receive, open, and dispose of all mail addressed to such Borrower pertaining to the Collateral (or appearing to Lender to possibly pertain to the Collateral),

(8) to notify postal authorities to change the address for delivery of mail addressed to such Borrower to such address as Lender may designate, and

(9) to assume such Borrower’s role in its relationships and contractual obligations and rights as to any custodian or administrator.

ARTICLE 10
COLLATERAL

Section 10.1 Grant of Security Interest.

(1) To secure the payment and performance in full of the Obligations, each Borrower hereby assigns and grants to Lender a continuing Lien (subject only to Permitted Liens) on and security interest in the Collateral. Each Borrower hereby irrevocably authorizes Lender at any time and from time to time to file in any UCC jurisdiction any initial financing statements and amendments thereto that (a) indicate the Collateral (i) as all assets of such Borrower or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC of such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (b) contain any other information required by part 5 of Article 9 of such UCC for the sufficiency or filing office acceptance of any financing statement or amendment, including, but not limited to (i) whether such Borrower is an organization, the type of organization and (ii) any organization identification number issued to such Borrower. Each Borrower agrees to furnish any such information to Lender promptly upon request. Each Borrower also ratifies its authorization for Lender to have filed in any UCC jurisdiction any like initial financing statements or amendments thereto if filed prior to the date hereof.

(2) However, notwithstanding anything to the contrary, subject to the Carve-Out and subject to the scheme of priority set forth in the DIP Order, pursuant to Bankruptcy Code Section 364(c)(1), Lenders have been granted a superpriority administrative claim over any and all administrative expenses of the kind specified in sections 503(b) and 507(b) of the Bankruptcy Code and any and all administrative expenses or other claims arising under sections 105, 326, 327, 328, 330, 331, 365, 503(b), 506(c), 507(a), 507(b), 726, 1113, or 1114 of the Bankruptcy Code. As collateral for the Loans and security for the full and timely payment and performance of all Obligations when due (whether at stated maturity, by acceleration or otherwise), Lender is hereby granted (i) pursuant to Section 364(c)(2) of the Bankruptcy Code, a perfected first priority Lien on the Collateral that is otherwise unencumbered as of the commencement of the Cases, including upon entry of the Final DIP Order, avoidance actions under Sections 502(d), 544-553 of the Bankruptcy Code or the proceeds therefrom, or as otherwise recovered under 506(c) or any other avoidance actions under the Bankruptcy Code; (ii) pursuant to Section 364(c)(3) of the Bankruptcy Code, a perfected Lien on all Collateral of the Borrowers (other than the assets referred to in the following clause), junior only to (A) the valid, perfected and non-avoidable Liens on such assets as of the Petition Date, and (B) valid Liens in existence at the time of such commencement that are perfected subsequent to such commencement as permitted by Section 546(b) of the Bankruptcy Code; and (iii) pursuant to Section 364(d)(1) of the Bankruptcy Code, a perfected senior priming Lien on all of the Borrowers’ Collateral that is subject only to the Carve-Out and the Prepetition Permitted Liens.

Section 10.2 Change in Name or Locations. Each Borrower agrees that (a) such Borrower will not change its name, its chief executive office or organizational identification number, (b) such Borrower will not change its type of organization or jurisdiction of organization and (c) such Borrower will not cause any Equipment or Inventory of such Borrower to be located at any location other than as set forth on Schedule 10.2 attached hereto (or in transit between such locations).

Section 10.3 Intellectual Property.

knowingly omit to do any act whereby such Trademark is reasonably likely to become invalidated or materially impaired in any way.

Section 10.4 Covenants.

National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record.

(3) No Filings Required; Priority. The Liens and security interests referred to herein shall be deemed valid and perfected by entry of the DIP Orders. Lender shall not be required (but shall have the option and authority) to file any financing statements, mortgages, notices of Lien or similar instruments in any jurisdiction or filing office or to take any other action in order to validate or perfect the Lien and security interest granted by or pursuant to this Agreement, any other Loan Document or the DIP Orders. The DIP Liens in the Collateral will not be junior in priority to any Lien other than the Carve-Out and the Prepetition Permitted Liens (to the extent, and only to the extent, set forth in the DIP Orders).

(4) Perfection of Security Interests; Further Assurances.

(a) Notwithstanding the perfection of any security interest granted hereunder pursuant to the order of the Bankruptcy Court under the applicable DIP Order, each Borrower shall, as applicable, at such Borrower’s expense, perform all steps requested by the Lender at any time to perfect, maintain, protect, and enforce the DIP Liens, including: upon request by the Lender, delivering to Lender) (1) the originals of all certificated Investment Property, instruments, documents, and chattel paper, and all other Collateral of which the Lender should have physical possession in order to perfect and protect the Lender’s security interest therein, duly pledged, endorsed, or assigned to the Lender without restriction and (2) certificates of title (excluding deeds for real estate) covering any portion of the Collateral for which certificates of title have been issued and (3) all letters of credit on which such Borrower is named beneficiary. To the fullest extent permitted by applicable law, Lender may file one or more financing statements disclosing the DIP Liens on the Collateral.

(b) Each Borrower shall take any other action reasonably requested by Lender to insure the attachment, perfection and priority of, and the ability of Lender, at the written direction of Lender, the security interests including, without limitation, (a) executing, delivering and, where appropriate, filing financing statements and amendments relating thereto under the UCC, to the extent, if any, that the signature of such Borrower thereon is required therefor, (b) causing the name of Lender, for the benefit of Lender, to be noted as Lender on any certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or ability of Lender to enforce, the security interests in such Collateral, (c) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of Lender to enforce, the security interests in such Collateral, including, without limitation, executing and delivering any filings necessary to perfect the security interests in the Intellectual Property, (d) using commercially reasonable efforts to obtain governmental and other third party consents and approvals, including without limitation any consent of any licensor, lessor or other Person with rights in the Collateral, and (e) taking all actions required by any UCC or by other applicable law; provided, however, that in no event shall Control Agreements be required with respect to Excluded Accounts. Each Borrower also hereby appoints Lender and its employees and agents as its irrevocable attorney-in-fact for the purpose of executing and/or filing any documents necessary to perfect or to continue any security interest, such appointment being coupled with an interest and irrevocable until such time as the Obligations (excluding any contingent indemnification claims not yet asserted) are paid and performed in full.

(5) Notice to Lender. Each Borrower shall promptly notify Lender in writing upon such Borrower’s knowledge of the filing of any Lien on such Borrower or any of the Collateral, other than Permitted Liens.

(6) Preservation of Collateral. Each Borrower shall be fully responsible for any losses that any Lender may suffer as a result of anyone other than any Lender (or any custodian on behalf of such Lender) and/or holders of Permitted Liens asserting any rights or interest in or to the Collateral. Each Borrower shall appear in and to defend all actions or proceedings purporting to affect the security rights and interests granted to Lender under this Agreement. In the event that Lender elects to defend any such action or proceeding, each Borrower agrees to reimburse Lender for the documented costs associated therewith, including without limitation, the reasonable attorneys’ fees of Lender, which costs will be payable upon demand.

(7) Compliance with Laws. Each Borrower shall comply in all material respects with all federal, state or local laws applicable to it or in connection with its acquisition of, or any actions taken with respect to, the Collateral.

(8) Accounts. No Borrower shall maintain, or cause any of its Subsidiaries to maintain, any Deposit Account, Securities Account or Commodities Account other than such accounts listed on Schedule 4.17(5) hereto, without the prior written consent of Lender.

(9) Pledged Shares. If any Borrower shall be or become entitled to receive or shall receive any certificate in respect of any Pledged Stock (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization of such Pledged Stock), option or rights in respect of any Pledged Stock, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares of the Pledged Stock, or otherwise in respect thereof, such Borrower shall accept and hold the same for the benefit of Lender and promptly deliver the same forthwith to Lender in the exact form received, duly endorsed by such Borrower to Lender, if required, together with an undated stock transfer power covering such certificate duly executed in blank by such Borrower and otherwise in form and substance satisfactory to Lender in its sole discretion, to be held by Lender as additional Collateral for the Obligations. Notwithstanding the foregoing, with respect to Pledged Shares owned by any Borrower on the Effective Date, such Borrower shall deliver to Lender all certificates and undated stock transfer powers with respect thereto duly executed in blank by such Borrower and otherwise in form and substance satisfactory to Lender in its sole discretion on or prior to the Effective Date.

(10) Negative Pledge; No Transfer. No Borrower will sell or offer to sell or otherwise transfer or grant or allow the imposition of a Lien or security interest upon the Collateral (other than Permitted Liens) or use any portion thereof in any manner inconsistent with this Agreement. So long as this Agreement remains in effect, no Borrowers shall, without the prior written consent of Lender compromise, settle, adjust, or extend payment under or with regard to any material payment obligations, except in the ordinary course of business and consistent with past practice.

Section 10.5 Further Assurances. Upon the request of Lender, each Borrower will promptly (a) correct any defect, error or omission which may be discovered in any financing statement relating to this Agreement; (b) execute, acknowledge, deliver and record such further instruments (including, without limitation, further security agreements, financing statements, continuation statements and assignments of accounts, contract rights, general intangibles and proceeds) and do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Agreement as determined by Lender in its reasonable discretion and to more fully identify and subject to the security interest hereof any property intended to be covered hereby, including without limitation any renewals, additions, substitutions, replacements or accessions to the Collateral; (c) execute, acknowledge, deliver and record any document or instrument (including specifically any financing statement) necessary, desirable or proper, as determined by Lender in its reasonable discretion, to protect the Lien and security interest hereunder against the rights or interests of third persons; and (d) execute, deliver and file such filings as Lender in its reasonable discretion deems appropriate, to the extent, if any, that the signature of such Borrower thereon is required therefor. Each Borrower shall pay all actually incurred costs connected with any of the foregoing.

Section 10.6 Limitation on Duty of Lender. Beyond the exercise of reasonable care in the custody thereof, Lender shall have no duty as to any Collateral in its custody or control or in the custody

or control of any agent or bailee or any income thereon. Lender shall be deemed to have exercised reasonable care in the custody of the Collateral in its possession or custody if the Collateral is accorded treatment substantially equal to that which it accords its own property, and shall not be liable or responsible for any loss or damage to any of the Collateral (except for gross negligence, willful misconduct or bad faith of Lender) or for any diminution in the value thereof, by reason of the act or omission of any warehouseman, carrier, forwarding agency, consignee or other agent or bailee selected by Lender in good faith.

Section 10.7 Payment of Expenses. Each Borrower will reimburse Lender for all documented expenses actually incurred by Lender in connection with the perfection, termination, and the continuation of the perfection of any security interest in the Collateral (not to exceed $675,000 unless an Event of Default has occurred). At its option, upon the occurrence and during the continuation of an Event of Default, Lender may, but is not required to discharge taxes, Liens, security interests or such other encumbrances as may attach to the Collateral; pay for required insurance on the Collateral; and pay for the maintenance, appraisal or reappraisal, and preservation of the Collateral, as determined by Lender to be necessary. Each Borrower will reimburse Lender on demand for any payment so made or any expense incurred by Lender pursuant to the foregoing authorization, and the Collateral also will secure any advances or payments so made or expenses so incurred by Lender.

Section 10.9 Waivers. Each Borrower has waived, and/or does by these presents waive, presentment for payment, protest, notice of protest and notice of nonpayment under all of the Obligations secured by this Agreement. Each Borrower further agrees that discharge or release of any party who is, may be, or will be liable to Lender under any of the Obligations, or the release of the Collateral or any other collateral directly or indirectly securing repayment of the same, shall not have the effect of releasing or otherwise diminishing or reducing the actual or potential liability of such Borrower and/or any other party or parties guaranteeing payment of the Obligations, who shall remain liable to Lender. Each Borrower additionally agrees that the acceptance of payments by Lender other than in accordance with the terms of any agreement, or agreements governing repayment of the Obligations, or the subsequent agreement of Lender to extend or modify such repayment terms, shall likewise not have the effect of releasing such Borrower, and/or any other party or parties guaranteeing payment of the Obligations, from their respective obligations to Lender under this Agreement and to Lender under the Obligations, and/or of releasing any of the Collateral or other collateral directly or indirectly securing repayment of the Obligations. In addition, no course of dealing between any Borrower and Lender nor any failure or delay on the part of Lender to exercise any of the rights and remedies granted to Lender under this Agreement shall have the effect of waiving any of the rights and remedies of Lender. Any partial exercise of any rights and remedies granted to Lender shall furthermore not constitute a waiver of any other rights and remedies of Lender, it being each Borrower’s intent and agreement that the rights and remedies of Lender shall be cumulative in nature. Each Borrower further agrees that, upon the occurrence and continuance of any Event of Default, any waiver or forbearance on the part of Lender to pursue the rights and remedies available to Lender under this Agreement shall be binding upon Lender only to the extent that Lender specifically agrees to any such waiver or forbearance in writing. A waiver or forbearance as to one Event of Default shall not constitute a waiver or forbearance as to any other Event of Default. None of the warranties, conditions, provisions and terms contained in this Agreement or any Loan Document, shall be deemed to have been waived by any act or knowledge of Lender or the agents, officers or employees of Lender; but only by an instrument in writing specifying such waiver, signed by a duly authorized officer of Lender and delivered to the Borrowers.

Section 10.10 Possession; Sale of Collateral.

(1) Upon the occurrence and during the continuance of an Event of Default, Lender may: (i) require each Borrower to assemble the tangible assets that comprise part of the Collateral and make them available to Lender at any place or places reasonably designated by Lender; (ii) to the extent

permitted by applicable Law and subject to any applicable agreement with the owner of the real property, with or without notice or demand for performance and without liability for trespass, enter any premises where the Collateral may be located and peaceably take possession of the same, and may demand and receive such possession from any person who has possession thereof, and may take such measures as it may deem necessary or proper for the care or protection thereof (including, but not limited to, the right to remove all or any portion of the Collateral); and (iii) with or without taking such possession may sell or cause to be sold, in one or more sales or parcels, for cash, on credit or for future delivery, without assumption of any credit risk, all or any portion of the Collateral, at public or private sale or at any broker’s board or any securities exchange, without demand of performance or notice of intention to sell or of time or place of sale, except ten (10) Business Days’ written notice to the applicable Borrower of the time and place of such sale or sales (and such other notices as may be required by applicable statute, if any, and which cannot be waived), which each Borrower hereby expressly acknowledge is commercially reasonable. Lender shall have no obligation to clean-up or otherwise prepare any Collateral for sale. Each purchaser at any such sale shall hold the property sold absolutely, free from any claim or right on the part of any Borrower, and each Borrower hereby waives (to the extent permitted by law) all rights of redemption, stay and appraisal that such Borrower now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. At any such sale, the Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as Lender may (in its sole and absolute discretion) determine. Lender shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. Lender may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. Lender may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any disposition of the Collateral. In case any sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by Lender until the sale price is paid by the purchaser or purchasers thereof. Lender shall not incur any liability for the failure to collect or realize upon any or all of the Collateral or for any delay in doing so and, in case of any such failure, shall not be under any obligation to take any action with respect thereto; provided, such Collateral may be sold again upon like notice. If any Collateral is sold upon credit, the applicable Borrower will be credited only with payments actually made by the purchaser, received by Lender and applied to the Obligations in accordance with this Agreement. In the event the purchasers fail to pay for the Collateral, Lender may resell the Collateral. At any public sale, or, to the extent permitted by applicable law, at any private sale, made pursuant to this Agreement, Lender may bid for or purchase, free from any right of redemption, stay or appraisal and all rights of marshalling, the Collateral and any other security for the Obligations or otherwise on the part of the Borrowers (all said rights being also hereby waived and released by each Borrower to the fullest extent permitted by law), and may make payment on account thereof by using any claim then due and payable to Lender from any Borrower as a credit against the purchase price, and Lender may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to any Borrower therefor. For purposes hereof, a written agreement to purchase the Collateral or any portion thereof shall be treated as a sale thereof. Lender shall be free to carry out any such sale pursuant to such agreement, and no Borrower shall be entitled to the return of the Collateral or any portion thereof subject thereto, notwithstanding the fact that after Lender shall have entered into such an agreement, all Events of Default shall have been remedied and any obligations to Lender shall have been paid in full. As an alternative to exercising the power of sale herein conferred upon it, Lender may proceed by a suit or suits at law or in equity to foreclose this Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. In any action hereunder, Lender shall be entitled to the appointment of a receiver without notice, to peaceably take possession of all or any portion of the Collateral and to exercise such powers as the Bankruptcy Court shall confer upon the receiver. Notwithstanding the foregoing, if an Event of Default shall occur and be continuing, Lender shall be entitled to apply, without notice to any Borrower, any cash or cash items constituting Collateral in its possession to payment of the Obligations.

(2) If an Event of Default shall occur and be continuing, Lender shall, in addition to exercising any and all rights and remedies afforded to them hereunder, have all the rights and remedies of a secured party under all applicable provisions of law, including but not limited to, the Code.

(3) Each Borrower agrees that notwithstanding anything to the contrary contained in this Agreement, such Borrower shall remain liable under each contract or other agreement giving rise to Accounts and General Intangibles and all other contracts or agreements constituting part of the Collateral and Lender shall not have any obligation or liability in respect thereof.

(4) After the occurrence and during the continuance of an Event of Default, upon Lender’s request, but subject to the rights of any other secured party having rights senior to Lender, each Borrower shall deliver to Lender all original and other documents, evidencing and relating to the sale and delivery of Inventory or Accounts, including but not limited to, all original orders, invoices and shipping receipts.

Section 10.11 Authority of Lender. Lender shall have and be entitled to exercise all such powers hereunder as are specifically delegated to Lender by the terms hereof, together with such powers as are reasonably incidental thereto. Lender may execute any of its duties hereunder by or through its agents or employees and shall be entitled to retain counsel and to act in reliance upon the advice of such counsel concerning all matters pertaining to its duties hereunder.

Section 10.12 Certain Waivers; Borrowers Not Discharged. Each Borrower expressly and irrevocably waives (to the extent permitted by applicable law) presentment, demand of payment and protest of nonpayment in respect of its Obligations under this Agreement. The obligations and duties of each Borrower hereunder are irrevocable, absolute, and unconditional and shall not be discharged, impaired or otherwise affected by (a) the failure of Lender to assert any claim or demand or to enforce any right or remedy against any Borrower or any grantee under the provisions of this Security Agreement or any waiver, consent, extension, indulgence or other action or inaction in respect thereof, (b) any extension or renewal of any part of the Obligations, (c) any rescission, waiver, amendment or modification of any of the terms or provisions of any agreement related to this Agreement, (d) the release of any liens on or security interests in any part of the Collateral or the release, sale or exchange of or failure to foreclose against any security held by or for the benefit of Lender for payment or performance of the Obligations, (e) the bankruptcy, insolvency or reorganization of any Borrower or any grantee or any other Persons, (f) any change, restructuring or termination of the organization structure or existence of any Borrower or any grantee or any restructuring or refinancing of all or any portion of the Obligations, or (g) any other event that under law would discharge the obligations of a surety other than payment and satisfaction in full of all Obligations.

Section 10.13 Transfer of Security Interest. In connection with a transfer of the Loans permitted under this Agreement (including Section 11.23), Lender may transfer to any other Person all or any part of the liens and security interests granted hereby, and all, or any part of the Collateral which may be in Lender’s possession. Upon such transfer, the transferee shall be vested with all the rights and powers of Lender hereunder with respect to such of the Collateral as is so transferred but, with respect to any of the Collateral not so transferred, Lender shall retain all of its rights and powers (whether given to it in this Agreement, or otherwise). In connection with a transfer of the Loans permitted under this Agreement (including Section 11.23), Lender may, at any time, assign its rights as the secured party hereunder to any Person, in Lender’s discretion, and upon notice to the Borrowers, provided that any such transferee shall agree to be subject to the subordination provisions hereof, if any, but without any requirement for consent or approval by or from any Borrower, and any such assignment shall be valid and binding upon each Borrower, as fully as if it had expressly approved the same.

Section 10.14 Contractual Rights. The security interests and other rights granted or reserved to Lender and its successors and assigns under this Agreement (the “Contractual Rights”) and the other rights available to Lender under applicable law by reason of the existence of this Agreement and the attachment and perfection of the security interests created under this Agreement (the “Statutory Rights”) are for the benefit of the Lender. All Contractual Rights and Statutory Rights shall be exercised from time to time by Lender in accordance with such instructions as may be required by the Loan Agreement. All recoveries attributable to enforcement of Contractual Rights or Statutory Rights, or both, shall (except as otherwise expressly set forth herein or in the other Purchase Documents) be for the benefit of the Lender as provided in the Loan Agreement.

Section 10.15 Borrowers’ Obligations. The provisions of this Article 10 are for the purpose of defining the relative rights of the Lender with respect to the Collateral and the exercise of Contractual Rights and Statutory Rights. Nothing herein shall impair the obligations of Borrower, which are absolute and unconditional, to pay and perform the Obligations as and when due. No provision of this Agreement shall be construed to prevent Lender from exercising remedies that may otherwise be available to it.

Section 10.16 Continuing Lien; Termination. It is the intent of the parties hereto that (a) this Agreement shall constitute a continuing agreement as to any and all future, as well as existing transactions, between each Borrower and Lender under or in connection with the Loans, and (b) the security interest provided for herein shall attach to after-acquired as well as existing Collateral. Upon payment in cash and satisfaction in full of the Obligations and termination of all commitments relating thereto, Lender shall reassign, redeliver and release (or cause to be so reassigned, redelivered and released), without recourse upon or warranty by Lender, and at the sole expense of each Borrower, to such Borrower, against receipt therefor, such of the Collateral (if any) as shall not have been sold or otherwise applied by Lender pursuant to the terms hereof and not theretofore reassigned, redelivered and released to any Borrower, together with appropriate instruments of reassignment and release.

Section 10.17 Adequate Protection. The Prepetition Secured Lender has been granted adequate protection in accordance with the DIP Orders to the extent of any diminution in the value of the Collateral as of the Petition Date, including but not limited to any diminution in value resulting from (i) the use, sale or lease of Collateral pursuant to Bankruptcy Code Section 363(c) or (ii) the imposition of the automatic stay pursuant to Bankruptcy Code Section 362(a), in the form of Adequate Protection Liens.

Section 10.18 Validity and Priority of Security Interest; Administrative Priority.

(1) The provisions of this Agreement and the other Loan Documents create Liens upon the Collateral in favor of the Lender, which shall be deemed valid and perfected as of the Petition Date by entry of the DIP Orders with respect to the Borrowers and which shall constitute continuing Liens on the Collateral having priority over all other Liens on the Collateral (other than the Carve-Out and the Prepetition Permitted Liens), securing all the Obligations. The Lender shall not be required to file or record (but shall have the option and authority to file or record) any financing statements, mortgages, notices of Lien or similar instruments, in any jurisdiction or filing office or to take any other action in order to validate, perfect or establish the priority of the Liens and security interest granted by or pursuant to this Agreement, the DIP Orders or any other Loan Document.

(2) Pursuant to Section 364(c)(1) of the Bankruptcy Code, the Obligations of the Borrowers shall at all times constitute allowed administrative expenses against each of the Borrowers in the Cases (without the need to file any proof of claim or request for payment of administrative expense), with priority over any and all other administrative expenses, adequate protection claims, diminution claims (including all Adequate Protection Superpriority Claims) and all other claims against the Borrowers, now existing or hereafter arising, of any kind or nature whatsoever, including, without limitation, all administrative expenses of the kind specified in Sections 503(b) and 507(b) of the Bankruptcy Code, and over any and all other administrative expense claims arising under Sections 105, 326, 328, 330, 331, 503(b), 507(a), 507(b), 546, 726, 1113 and 1114 of the Bankruptcy Code, whether or not such expenses or claims may become secured by a judgment lien or other non-consensual lien, levy or attachment, which al-lowed claims shall for purposes of Section 1129(a)(9)(A) of the Bankruptcy Code be considered.

ARTICLE 11
MISCELLANEOUS


If to Lender:						Ligand Pharmaceuticals, Incorporated
						3911 Sorrento Valley Blvd., Suite 110
						San Diego, California 92121
						Attention: Matthew Korenberg, President & COO and
						Andrew T. Reardon, Chief Legal Officer and Secretary
						Email: [***]

with a copy to:						Morgan, Lewis & Bockius LLP
						101 Park Avenue
						New York, New York 10178-0060
						Attention: Kristen V. Campana
						Email: [***]

If to the Borrowers:						Novan, Inc.
						4020 Stirrup Creek Drive, Suite 110
						Durham, North Carolina 27703
						Attention: Paula Brown Stafford; John M. Gay
						Email: [***]

with a copy to:						Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P.
						150 Fayetteville Street, Suite 2300
						Raleigh, North Carolina 27609
						Attention: Gerald F. Roach; Christopher B. Capel; James R. Jolley
						Email: [***]

Section 11.2 Limitation on Interest. It is the intention of the parties hereto to conform strictly to applicable usury laws. Accordingly, all agreements among the Borrowers and Lender with respect to the Loans are hereby expressly limited so that in no event, whether by reason of acceleration of the Loans, termination of the Commitments or otherwise, shall the amount paid or agreed to be paid to Lender or charged by Lender for the use, forbearance or detention of the money to be lent hereunder or otherwise, exceed the maximum amount allowed by law. The terms and provisions of this Section 11.2 shall control and supersede every other provision of the Loan Documents. The Loan Documents are contracts made under and shall be construed in accordance with and governed by the laws of the State, except that if at any time the laws of the United States of America permit Lender to contract for, take, reserve, charge or receive a higher rate of interest than is allowed by the laws of the State (whether such federal laws directly so provide or refer to the law of any state), then such federal laws shall to such extent govern as to the rate of interest which Lender may contract for, take, reserve, charge or receive under the Loan Documents.

Section 11.3 Invalid Provisions. If any provision of any Loan Document is held to be illegal, invalid or unenforceable, such provision shall be fully severable; the Loan Documents shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof; the remaining provisions thereof shall remain in full effect and shall not be affected by the illegal, invalid, or

unenforceable provision or by its severance therefrom; and in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of such Loan Document a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible to be legal, valid and enforceable.

Section 11.4 Expenses; Attorneys’ Fees; Indemnification.

(1) The Borrowers will pay on demand, all documented out-of-pocket fees, costs and expenses incurred by or on behalf of Lender, including without limitation, documented out-of-pocket fees, costs, client charges and expenses of, for Lender, one primary outside counsel, arising from or relating to: (a) the negotiation, preparation, execution, delivery, performance and administration of this Agreement and the other Loan Documents, (b) any requested amendments, waivers or consents to this Agreement or the other Loan Documents whether or not such documents become effective or are given, (c) the preservation and protection of Lender’s rights under this Agreement or the other Loan Documents, (d) the defense of any claim or action asserted or brought against Lender by any Person that arises from or relates to this Agreement, any other Loan Document, the Lender’s claims against any Borrower, or any and all matters in connection therewith, (e) the commencement or defense of, or intervention in, any court proceeding arising from or related to this Agreement or any other Loan Document, (f) the filing of any petition, complaint, answer, motion or other pleading by Lender, or the taking of any action in respect of the Collateral or other security, in connection with this Agreement or any other Loan Document, (g) the protection, collection, lease, sale, taking possession of or liquidation of, any Collateral or other security in connection with this Agreement or any other Loan Document, (h) any attempt to enforce any Lien or security interest in any Collateral or other security in connection with this Agreement or any other Loan Document, (i) any attempt to collect from any Borrower and (j) the receipt by Lender of any advice from professionals with respect to any of the foregoing. Without limitation of the foregoing or any other provision of any Loan Document, if the Borrowers fail to perform any covenant or agreement contained herein or in any other Loan Document, Lender may itself perform or cause performance of such covenant or agreement, and the expenses of Lender incurred in connection therewith shall be reimbursed on demand by the Borrowers. The obligations of the Borrowers under this Section 11.4 shall survive the repayment of the Obligations and discharge of any Liens granted under the Loan Documents.

(2) Subject to Section 7.4 and Section 11.5(1) above, each Borrower shall indemnify each Indemnitee against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys, who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by such Borrower arising out of, in connection with, or as a result of: (i) the execution or delivery of this Agreement, any other Loan Document or any document contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby (including (a) the handling of any collateral of a Borrower as herein provided, (b) Lender’s relying on any instructions of a Borrower, or (c) any other action taken by Lender hereunder or under the other Loan Documents); (ii) the Loans or the use or proposed use of the proceeds thereof; or (iii) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by a Borrower or any subsidiary thereof, and regardless of whether any Indemnitee is a party thereto.

Section 11.5 Conditions. All conditions of the obligations of Lender hereunder, including the obligation to make the Loans, are imposed solely and exclusively for the benefit of Lender, its successors and assigns, and no other Person shall have standing to require satisfaction of such conditions or be entitled to assume that Lender will refuse to make the Loans in the absence of strict compliance with any or all of such conditions, and no other Person shall, under any circumstances, be deemed to be a

beneficiary of such conditions, any and all of which may be freely waived in whole or in part by Lender at any time in Lender’s sole discretion.

Section 11.6 Lender Not in Control; No Partnership. None of the covenants or other provisions contained in this Agreement shall, or shall be deemed to, give Lender the right or power to exercise control over the affairs or management of the Borrowers, the power of Lender being limited to the rights to exercise the remedies referred to in the Loan Documents. The relationship between the Borrowers and Lender is, and at all times shall remain, solely that of debtor and creditor. No covenant or provision of the Loan Documents is intended, nor shall it be deemed or construed, to create a partnership, joint venture, agency or other similar interest between Lender and the Borrowers, and the rights of Lender to receive interest, fees and other compensation for the credit made available by Lender to Borrowers shall be interpreted at all times to make Lender a creditor of the Borrowers. Lender and the Borrowers disclaim any intention to create any partnership, joint venture, agency or other similar interest between Lender and the Borrowers by virtue of this Agreement.

Section 11.7 Time of the Essence. Time is of the essence with respect to this Agreement.

Section 11.8 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Lender, Borrowers and their respective successors and assigns, provided that no Borrower shall, without the prior written consent of Lender, assign any rights, duties or obligations hereunder.

Section 11.9 Renewal, Extension or Rearrangement. All provisions of the Loan Documents shall apply with equal effect to each and all amendments thereof hereinafter executed which in whole or in part represent a renewal, extension, increase or rearrangement of the Loans, including any other documents issued in substitution for the existing Loan Documents.

Section 11.10 Cumulative Rights. Rights and remedies of Lender under the Loan Documents shall be cumulative, and the exercise or partial exercise of any such right or remedy shall not preclude the exercise of any other right or remedy.

Section 11.11 Singular and Plural. Words used in this Agreement and the other Loan Documents in the singular, where the context so permits, shall be deemed to include the plural and vice versa. The definitions of words in the singular in this Agreement and the other Loan Documents shall apply to such words when used in the plural where the context so permits and vice versa.

Section 11.12 Phrases. When used in this Agreement and the other Loan Documents, the phrase “including” shall mean “including, but not limited to,”, the phrase “satisfactory to Lender” shall mean “in form and substance satisfactory to Lender in all respects”, the phrase “as agreed by Lender” shall mean as agreed in Lender’s sole discretion and the phrase “as determined by Lender” shall mean as determined in Lender’s sole discretion.

Section 11.13 Exhibits and Schedules. The exhibits and schedules attached to this Agreement are incorporated herein and shall be considered a part of this Agreement for the purposes stated herein.

Section 11.14 Titles of Articles, Sections and Subsections. All titles or headings to articles, sections, subsections or other divisions of this Agreement and the other Loan Documents or the exhibits hereto and thereto are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other content of such articles, sections, subsections or other divisions, such other content being controlling as to the agreement between the parties hereto.

Section 11.15 Confidentiality. Neither party shall disclose or make public any information concerning the Loans and the Loan Documents, all of which shall be strictly confidential save where disclosure is required by law or by a regulatory or tax authority having jurisdiction over the transaction contemplated by this Agreement; provided, that both parties may disclose information concerning the Loans and the Loan Documents to either party’s advisors, managers and officers on a need-to-know basis.

Section 11.16 Survival. All of the representations, warranties, covenants, and indemnities hereunder, and under the indemnification provisions of the other Loan Documents shall survive the repayment in full of each Loan and the release of the Liens evidencing or securing such Loan.

Section 11.17 Waiver of Jury Trial; Venue. IN THE EVENT THAT THE BANKRUPTCY COURT DOES NOT HAVE OR REFUSES TO EXERCISE JURISDICTION WITH RESPECT THERETO, TO THE MAXIMUM EXTENT PERMITTED BY LAW, EACH BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTION OF EITHER PARTY OR ANY EXERCISE BY ANY PARTY OF THEIR RESPECTIVE RIGHTS UNDER THE LOAN DOCUMENTS OR IN ANY WAY RELATING TO THE LOANS (INCLUDING ANY ACTION TO RESCIND OR CANCEL THIS AGREEMENT, AND ANY CLAIM OR DEFENSE ASSERTING THAT THIS AGREEMENT WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE). THIS WAIVER IS A MATERIAL INDUCEMENT FOR LENDER TO ENTER THIS AGREEMENT. LENDER IS HEREBY AUTHORIZED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE BORROWERS AND LENDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH BORROWER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. EACH BORROWER AGREES THAT THE NEW YORK COUNTY DISTRICT COURT SHALL HAVE EXCLUSIVE JURISDICTION WITH REGARD TO ALL MATTERS RELATING HERETO AND EACH BORROWER SUBMITS ITSELF TO SUCH VENUE, SUBJECT TO ANY LAWFUL REQUIREMENT TO SUBMIT TO OTHER JURISDICTIONS SO REQUIRED WITH RESPECT TO ENFORCEMENT OF COLLATERAL.

Section 11.18 Waiver of Punitive or Consequential Damages. In no event shall Lender be liable to the Borrowers for any punitive, exemplary or consequential damages which may be alleged as a result of any Loan or the transactions contemplated hereby, including any breach or other default by Lender, and each Borrower, for itself and its affiliates, hereby waives all claims for consequential damages.

Section 11.19 Sole Discretion. Unless otherwise specifically provided in this Agreement, whenever the consent or approval of Lender is required under this Agreement, the decision as to whether or not to consent or approve shall be in the sole and exclusive discretion of Lender, and the decision of Lender shall be final and conclusive. Unless otherwise specifically provided in this Agreement, whenever the consent or approval of Lender is required under this Agreement, the decision as to whether or not to consent or approve shall be in the sole and exclusive discretion of Lender, and the decision of Lender shall be final and conclusive.

Section 11.20 Governing Law. Except to the extent governed by the Bankruptcy Code, the Loan Documents are being executed and delivered, and are intended to be performed, in the State, and the laws of the State and of the United States of America shall govern the rights and duties of the parties hereto and the validity, construction, enforcement and interpretation of the Loan Documents, except to the extent otherwise specified in any of the Loan Documents.

Section 11.21 Entire Agreement. This Agreement and the other Loan Documents embody the entire agreement and understanding among Lender and the Borrowers and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof. Accordingly, the Loan Documents may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. If any conflict or inconsistency exists between this Agreement or any of the other Loan Documents, the terms of this Agreement shall control.

Section 11.22 Levy; Attachment. Neither Lender’s obligation hereunder nor any monies, property or funds deposited or required to be deposited under this Agreement shall be subject or liable to attachment or levy by suit or action of any creditor of the Borrowers or of any agent, contractor, subcontractor or supplier of the Borrowers.

Section 11.23 Successors and Assigns; Participations and Assignments.

(2) Each Borrower agrees and consents that Lender may assign to one or more assignees (together with its successors and assigns, each an “Assignee”) all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) without any limitation whatsoever. Each Borrower hereby waives any and all notices of assignment by Lender or by any Assignee. Each Borrower also agrees that any Assignee will be considered the absolute owner of such Assignee’s interest in the Commitment and the Loans at the time owing to it and will have all the rights and obligations granted to such Assignee. Each Borrower further waives all rights of offset or counterclaim that it may have now or hereafter against Lender or against any Assignee and unconditionally agrees that either Lender or such Assignee may enforce such Borrower’s obligations under the Loan Documents irrespective of the failure or insolvency of any holder of any interest in the Commitment and the Loans at the time owing to it. Each Borrower further agrees that any Assignee may enforce its interests irrespective of any personal claims or defenses that such Borrower may have against Lender.

(3) Each Borrower agrees and consents to Lender’s sale or transfer, whether now or hereafter, of one or more participation interests in this loan facility to one or more purchasers (together with its successors and assigns, each a “Participant”), whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information of knowledge Lender may have about the Borrowers or about any other matter relating to this loan facility, and each Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Each Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Each Borrower also agrees that any Participant will be considered the absolute owner of such Participant’s interest in the Commitment and the Loans at the time owing to it and will have all the rights granted to it under the participation agreement or agreements governing the sale of such Participant’s interest. Each Borrower further waives all rights of offset or counterclaim that it may have now or hereafter against Lender or against any Participant and unconditionally agrees that either Lender or such Participant may enforce such Borrower’s obligations under the Loan Documents irrespective of the failure or insolvency of any holder of any interest in its Commitment and the Loans at the time owing to such Lender or such Participant. Each Borrower further agrees that any Participant may enforce its interests irrespective of any personal claims or defenses that such Borrower may have against Lender.

Section 11.24 USA Patriot Act Notification. Lender hereby notifies the Borrowers that pursuant to the requirements of the USA PATRIOT Act of 2001, 31, U.S.C. 5318, it is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of the Borrowers and other information that will allow Lender to identify the Borrowers in accordance therewith.

Section 11.25 Right to Defend. Lender shall have the right, but not the obligation, at each Borrower’s expense, to commence, to appear in or to defend any action or proceeding purporting to affect the rights or duties of the parties hereunder and, in connection therewith, pay out of the funds of the Loans all necessary expenses, including fees of counsel satisfactory to Lender in its sole discretion,

except in a suit by the Borrowers against Lender, in which case the prevailing party shall be entitled to such fees and expenses as a part of any judgment obtained.

Section 11.26 No Joint Venture. Each Borrower and Lender intend that the relationship created under this Agreement and the other Loan Documents be solely that of debtor and creditor. Nothing herein or in the other Loan Documents is intended to create a joint venture, partnership, tenancy-in-common or joint tenancy relationship between the Borrowers and Lender.

Section 11.27 Incorporation of DIP Orders by Reference. Each of the Borrowers and Lender agrees that any reference contained herein to (i) the Interim DIP Order shall include all terms, conditions, and provisions of such Interim DIP Order and that the Interim DIP Order is incorporated herein for all purposes, and (ii) the Final DIP Order shall include all terms, conditions, and provisions of such Final DIP Order and that the Final DIP Order is incorporated herein for all purposes. To the extent there is any inconsistency between the terms of this Agreement and the terms of the DIP Orders, the terms of the DIP Orders shall govern.

Section 11.28 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, but all of which shall constitute one document.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES APPEAR ON THE FOLLOWING PAGE]

EXECUTED as of the date first written above.

LIGAND PHARMACEUTICALS, INCORPORATED, a Delaware corporation, as Lender

By: /s/ Matthew Korenberg

Name: Matthew Korenberg

Title: President and Chief Operating Officer

NOVAN, INC. a Delaware corporation, as a Borrower

By: /s/ Paula Brown Stafford

Name: Paula Brown Stafford

Title: President, Chief Executive Officer, and Chairman

EPI HEALTH, LLC, a South Carolina limited liability company, as a Borrower

By: /s/ Paula Brown Stafford

Name: Paula Brown Stafford

Title: Chief Executive Officer

[Signature Page to Superpriority Debtor in Possession Loan and Security Agreement]

Exhibit 99.1

Novan Enters into Agreement to Sell Substantially All of its Assets, including Berdazimer Gel, 10.3% (SB206), and Files for Chapter 11 Protection

– The Company and Ligand Pharmaceuticals sign agreement to sell substantially all of Novan’s assets under Section 363 of the U.S. Bankruptcy Code, along with a commitment from Ligand to fund $15 million in debtor-in-possession financing –

– Progression toward PDUFA goal date of January 5, 2024, for berdazimer gel, 10.3% (SB206) continues, with Pre-Approval Inspection (PAI) complete and favorable mid-cycle review communication from FDA –

– Agreement provides a path forward for a product, if approved, to treat molluscum contagiosum, an unmet medical need –

DURHAM, N.C. – July 17, 2023 – Novan, Inc. (Nasdaq: NOVN) and its wholly owned subsidiary, EPI Health, LLC (collectively, “the Company” or “Novan”), today announced that it has entered into a stalking horse asset purchase agreement (“APA”) with Ligand Pharmaceuticals, Inc. (“Ligand”) (Nasdaq: LGND) prior to filing voluntary petitions for relief under chapter 11 of title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the “Chapter 11 Case”). The Company continues to operate its business as a “debtor-in-possession” (“DIP”) under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Company also entered into a secured DIP credit facility with Ligand in the principal amount of $15.0 million.

The APA governs the sale of substantially all the assets of the Company for $15 million to be paid in cash at closing. The cash payable at closing will be reduced dollar-for-dollar by

the outstanding balance of the DIP credit facility which will be repaid at closing. The transaction will be subject to approval by the Bankruptcy Court and compliance with agreed upon and Bankruptcy Court-approved bidding procedures allowing for the submission of higher or otherwise better offers, and other agreed-upon conditions.

In addition, on July 14, 2023, the Company entered into a bridge loan with Ligand for the principal amount of $3.0 million. This pre-petition loan provided needed working capital to the Company for general corporate purposes and is secured by the assets of the Company. The pre-petition bridge loan will be rolled into the DIP credit facility after Bankruptcy Court approval of the DIP credit facility.

As the Chapter 11 Case progresses, the Company plans to continue to work with the FDA to progress towards potential approval of berdazimer gel, 10.3% (SB206), with a PDUFA goal date of January 5th, 2024. In the second quarter of 2023, the Company received its mid-cycle review communication from the FDA, in addition to the manufacturing facility’s pre-approval inspection and establishment inspection report.

Novan has engaged Raymond James & Associates to advise on its strategic options, including the process to sell its assets in connection with the Chapter 11 Case. As previously disclosed, the Company has been pursuing financing and strategic alternatives as well as taking measures to conserve cash. The board of directors of the Company made the decision to commence the Chapter 11 Case, with Ligand as a stalking horse bidder, after careful review of such alternatives, after considering factors such as the Company's challenging financial circumstances and the challenging market climate for similarly situated companies and upon consultation with the Company's professional advisors.

The above description of the APA and the DIP credit facility and the transactions contemplated by those documents, including the sale, does not purport to be complete. Please refer to the Company’s Form 8-K, filed with the U.S, Securities and Exchange Commission on July 17, 2023, for the full text of the APA and the DIP credit facility.

Additional information about the Chapter 11 Case, including access to Bankruptcy Court documents, is available online at www.kccllc.net/novan.

About Novan

Novan, Inc. is a medical dermatology company focused on developing and commercializing innovative therapeutic products for skin diseases. Our goal is to deliver safe and efficacious therapies to patients, including developing product candidates where there are unmet medical needs. The U.S. Food and Drug Administration (“FDA”) accepted for filing Novan’s New Drug Application (“NDA”) seeking approval for berdazimer gel, 10.3% (SB206) for the treatment of molluscum contagiosum. The Company also has a pipeline of potential product candidates using its proprietary nitric oxide-based technology platform, NITRICIL™, to generate new treatments for multiple indications.

Cautionary Statements

The Company cannot assure that holders of the Company’s common stock will receive any payment or other distribution on account of those shares following the Chapter 11 Case. As currently contemplated under the APA, stockholders will not receive any payment or other distribution, and any payment or distribution to stockholders would be dependent on the results of the sale process, which are speculative. The Company cautions that trading in the Company’s common stock during the pendency of the Chapter 11 Case is highly speculative and poses substantial risks. Trading prices for the Company’s common stock may bear little or no relationship to the actual recovery, if any, by holders of the Company’s common stock in the Chapter 11 Case. Accordingly, the Company urges extreme caution with respect to existing and future investments in its common stock.

Forward-Looking Statements

Any statements contained in this press release that do not describe historical facts may constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements may be identified by words such as “believe,” “expect,” “target,” “anticipate,” “may,” “plan,” “potential,” “will,” “look forward to” and similar expressions, and are based on the Company’s current beliefs and expectations. These forward-looking statements include, but are not limited to, statements related to the potential FDA approval and the timing

thereof of the Company’s NDA for berdazimer gel, 10.3% (SB206) for the treatment of molluscum contagiosum, along with the Company’s plans to support the approval process; the potential therapeutic value of the Company’s products and product candidates; the Company’s plans to sell its assets pursuant to Chapter 11 of the U.S. Bankruptcy Code and the timing of such sales and ability to satisfy closing conditions; the Company’s intention to continue operations during the Chapter 11 Case; the Company’s belief that the sale process will be in the best interest of the Company and its stakeholders; and other statements regarding the Company’s strategy and future operations, performance and prospects. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from the Company’s expectations, including, but not limited to, the risks associated with the potential adverse impact of the Chapter 11 filings on the Company’s results of operations; changes in the Company’s ability to meet its financial obligations during the Chapter 11 process, to comply with the terms of the APA and the DIP credit facility and to maintain contracts that are critical to its operations; the outcome and timing of the Chapter 11 process and any potential asset sale; the effect of the Chapter 11 filings and any potential asset sale on the Company’s relationships with vendors, regulatory authorities, employees and other third parties; possible proceedings that may be brought by third parties in connection with the Chapter 11 process or the potential asset sale; uncertainty regarding obtaining Bankruptcy Court approval of a sale of the Company’s assets or other conditions to the potential asset sale, including the bidding procedures agreed by the parties; risks related to the regulatory approval process, which is lengthy, time-consuming and inherently unpredictable, including the risk that the FDA will not agree with the Company’s approach in its NDA submission for berdazimer gel, 10.3% (SB206) for molluscum or any future NDA submission or that the Company’s product candidates may not be approved or that additional studies may be required for approval or other delays may occur; and other risks and uncertainties described in the Company’s annual report filed with the Securities and Exchange Commission on Form 10-K for the twelve months ended December 31, 2022, and in the Company’s subsequent filings with the Securities and Exchange Commission. Such forward-looking statements speak only as of the date of this press release, and the Company disclaims any intent or obligation to update these forward-looking statements to reflect events or circumstances after the date of such statements, except as may be required by law.

CONTACT:

Jenene Thomas

JTC Team, LLC

833-475-8247

NOVN@jtcir.com

# # #

Cover	Jul. 14, 2023
Cover [Abstract]
Document Type	8-K
Document Period End Date	Jul. 14, 2023
Entity Registrant Name	Novan, Inc.
Entity Incorporation, State or Country Code	DE
Entity File Number	001-37880
Entity Tax Identification Number	20-4427682
Entity Address, Address Line One	4020 Stirrup Creek Drive, Suite 110
Entity Address, City or Town	Durham
Entity Address, State or Province	NC
Entity Address, Postal Zip Code	27703
City Area Code	919
Local Phone Number	485-8080
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common Stock, $0.0001 par value
Trading Symbol	NOVN
Security Exchange Name	NASDAQ
Entity Emerging Growth Company	false
Amendment Flag	false
Entity Central Index Key	0001467154

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