Item 1.01. Entry into a Material Definitive Agreement.
On January 18, 2021, Novan, Inc. (the "Company") entered into a Lease dated as
of January 18, 2021 (the "Lease"), by and between the Company and Copper II
2020, LLC ("Landlord"), pursuant to which the Company will lease approximately
15,463 rentable square feet located at 4020 Stirrup Creek Drive, Durham, North
Carolina 27703 (the "Premises"). The Premises will serve as the Company's new
corporate headquarters. The Company is building out the Premises to support
various cGMP activities, including research and development and small-scale
manufacturing capabilities. These anticipated capabilities include the
infrastructure necessary to support small-scale drug substance manufacturing and
the ability to act as a component of, or as a back up to, elements of a
potential future commercial supply chain.
The Lease commenced on January 18, 2021 (the "Lease Commencement Date"). Rent
under the Lease commences on the earlier of (i) the date the Company occupies a
certain portion of the Premises, as specified in the Lease, for the purposes of
conducting business therein or (ii) nine months after the Lease Commencement
Date, provided that the date for purposes of (ii) is subject to extension for
any delay in Landlord's delivery of the Premises to the Company in accordance
with certain specifications set forth in the Lease (the "Rent Commencement
Date"). The term of the Lease expires on the last day of the one hundred
twenty-third calendar month after the Rent Commencement Date immediately
preceding the tenth anniversary of the Lease Commencement Date (and if the Rent
Commencement Date does not occur on the first day of a calendar month, the
period from the Rent Commencement Date to the first day of the next calendar
month shall be included in the first such month for purposes of determining the
duration of the term of the Lease). The Lease provides the Company with one
option to extend the term of the Lease for a period of five years, which would
commence upon the expiration of the original term of the Lease, with base rent
of a market rate determined according to the Lease.
The monthly base rent for the Premises will be $39,301.79 for months 1-12.
Beginning with month 13 and annually thereafter, the monthly base rent will be
increased by 3%. Subject to certain terms, the Lease provides that base rent
will be abated for three months following the Rent Commencement Date. The
Company is obligated to pay its pro rata portion of taxes and operating expenses
for the building as well as maintenance and insurance for the Premises, all as
provided for in the Lease.
Landlord has agreed to provide the Company with a tenant improvement allowance
in an amount not to exceed $130 per rentable square foot in the Premises.
Pursuant to the terms of the Lease, the Company delivered to Landlord a letter
of credit in the amount of $471,621.50 in lieu of a cash security deposit as
collateral for the full performance by the Company of all of its obligations
under the Lease and for all losses and damages Landlord may suffer as a result
of any default by the Company under the Lease.
The foregoing summary of the Lease does not purport to be complete and is
qualified in its entirety by reference to the full text of the Lease, a copy of
which will be filed as an exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2021.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The information contained in Item 1.01 above is hereby incorporated by reference
into this Item 2.03.

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