NBY NovaBay Pharmaceuticals Inc New

Beneficial Owner; Shares Registered in the Name of a B roker, B ank or O ther N ominee

If you are a beneficial owner and do not instruct your broker, bank or other nominee how to vote your shares, the question of whether your broker, bank or other nominee will still be able to vote your shares depends on whether the New York Stock Exchange (“ NYSE ”) deems the particular proposal to be a “routine” matter. Brokers, banks or other nominees can use their discretion to vote “uninstructed” shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters. Under the rules and interpretations of the NYSE, “non-routine” matters are matters that may substantially affect the rights or privileges of stockholders, such as mergers, stockholder proposals, elections of directors (even if not contested), executive compensation (including any advisory stockholder votes on executive compensation and on the frequency of stockholder votes on executive compensation), and certain corporate governance proposals, even if management supported. Both Proposal One and Proposal Two are deemed non-routine matters. Accordingly, your broker, bank or other nominee may not vote your shares on either Proposal One or Proposal Two.

Voting Methods

If you were a registered stockholder on the Record Date, you may vote your shares at the virtual Special Meeting or by visiting the Company ’s online voting website www.meetingcenter.io/293415062, which contains voting instructions as well as how to demonstrate proof of stock ownership. The meeting starts at 9:00 a.m. (Pacific Time). You may also vote your shares by telephone by calling (toll free within the U.S. and Canada) 1-800-652-VOTE (8683) and following the voting instructions read to you by the automated operator.

Upon visiting the meeting website or calling the call-in telephone line, you will be prompted to enter your 1 5-digit control number provided to you on your proxy card. Your unique control number allows us to identify you as a stockholder and will enable you to securely cast votes.

Internet and telephone voting facilities for stockholders of record will be available 24 hours a day beginning at 12:01 a.m. Pacific Time on Monday, December 4, 2017. Internet and telephone voting will close promptly at 11:59 p.m. Pacific Time on Thursday, December 19, 2017. After this, you will only be able to vote by attending the Special Meeting via live webcast, as described above. After voting is closed during the Special Meeting, you will no longer have the ability to vote your shares for the specific proposals considered at the Special Meeting.

If you are a registered stockholder as of the Record Date and hold your shares in more than one fund or other affiliated investment vehicle, you will receive separate voting credentials for each such entity that is a record holder of shares of our common stock. Please be sure to log on separately for each fund in order to cast all votes that you are entitled to cast at the Special Meeting.

If your shares are held in the name of a broker , bank or other holder of record, you will receive instructions from the holder of record. You must follow the instructions of the holder of record in order for your shares to be voted. Telephone and Internet voting also will be offered to stockholders owning shares through certain banks and brokers. Please note, however, that any beneficial owner who intends to vote during the Special Meeting (as opposed to in advance of the meeting) will need to register in advance with Computershare, as outlined under “Attendance at the Special Meeting” above and at www.investorvote.com/NBY.

If you receive proxy materials by mail or if you request paper copies of the proxy materials, you can vote by mail by marking, dating, signing and returning your proxy card in the postage-paid envelope. Further instructions on how to vote by mail are included on the proxy card. Only proxy cards that have been signed, dated, and timely returned will be counted towards the quorum and entitled to vote.

If your proxy card does not specify how the shares represented thereby are to be voted, the proxy will be voted “FOR” the approval of Proposal One and Proposal Two described in the Notice and this Proxy Statement.

The proxy card also grants the proxy holders discretionary authority to vote on any other business that may properly come before the Special Meeting. We have not been notified by any stockholder of his or her intent to present a stockholder proposal at the Special Meeting.

Revoking Proxies

If your shares are held in your name, you may revoke or change your vote at any time before the Special Meeting by (i) submitting another proxy on a later date on the Internet or by telephone (only your latest Internet or telephone proxy submitted prior to the Special Meeting will be counted), or (ii) attending the Special Meeting live via webcast and voting during the meeting (simply attending the virtual meeting will not, by itself, revoke your proxy), or (iii) by filing a notice of revocation or another signed proxy card with a later date with our Corporate Secretary, Mr. Justin Hall, at our principal executive offices at 2000 Powell Street, Suite 1150, Emeryville, California 94608.

Solicitation

NovaBay will bear the entire cost of proxy solicitation, including the costs of preparing, assembling, printing and mailing this Proxy Statement, the Notice, the proxy card and any additional solicitation materials furnished to the stockholders. Copies of these materials will be furnished to brokers, banks or other nominees holding shares in their names that are beneficially owned by others so they may forward these materials to such beneficial owners. In addition, we may reimburse such persons for their reasonable expenses in forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail may be supplemented by a solicitation by personal contact, telephone, facsimile, email or any other means by our directors, officers or employees. No additional compensation will be paid to these individuals for any such services.

Results of the Voting at the Special Meeting

Preliminary voting results will be announced at the Special Meeting. In addition, final voting results will be published in a current report on Form 8-K that we expect to file within four (4) business days after the Special Meeting.

MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING

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PROPOSAL ONE:

APPROVAL OF THE ISSUANCE OF SHARES OF NOVABAY COMMON STOCK TO A PURCHASER PURSUANT TO THE TERMS OF THE Amended and Restated Share PURCHASE AGREEMENT, DATED NOVEMBER 20, 2017

Summary of the Amended and Restated Share Purchase Agreement

On November 20, 2017, we entered into an Amended and Restated Share Purchase Agreement (the “ Purchase Agreement ”) with Ch-gemstone Capital (Beijing) Co., Ltd., a company organized in China (the “ Purchaser ”). The Purchase Agreement amended and restated the share purchase agreement between the Company and the Purchaser dated as of November 13, 2017 (the “ Original Agreement ”) for the purpose of adding the Company’s stockholder approval as a closing condition of the transaction contemplated under the Original Agreement.

Under the Purchase Agreement, w e will issue and sell to the Purchaser a total of 2,400,000 shares of our common stock, par value $0.01 per share, for an aggregate purchase price of $10,320,000, or $4.30 per share (the “ Private Placement ”). The sale price of $4.30 per share represents a premium of $0.10 per share over the Company’s closing price of $4.20 on the signing date of the Purchase Agreement (November 13, 2017). The Private Placement is expected to close in January 2018, following the satisfaction of certain customary closing conditions specified in the Purchase Agreement, including the approval of the transaction by the Company’s stockholders as well as the approval of the Purchaser’s funds transfer from China for the closing by the applicable regulatory authorities in China.

Ch ina Kington Asset Management (“ China Kington ”) has agreed to serve as placement agent in exchange for a commission equal to six percent (6%) of the total purchase price of the shares sold to the Purchaser upon the closing of the Private Placement.

The Pur chaser is an accredited investor in accordance with applicable securities rules and regulations promulgated thereunder. The common stock we will issue pursuant to the Purchase Agreement has not been registered under the Securities Act of 1933, as amended (the “ Securities Act ”), and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. We are relying on the private placement exemption from registration provided by Section 4(a)(2) of the Securities Act and by Rule 506 of Regulation D, and in reliance on similar exemptions under applicable state laws.

On November 14, 2017, Jinzi Ham Co., Ltd., the parent company of the Purchaser, publicly announced in China both (i) the Purchaser ’s entry into the Original Agreement and (ii) the Purchaser’s concurrent entry into share transfer agreements with two existing stockholders of the Company, Pioneer Pharma (Hong Kong) Company Limited (“ Pioneer Hong Kong ” and together with its affiliates including China Pioneer Pharma Holdings Limited (“ China Pioneer Pharma ”) , “ Pioneer ”) and Jian Ping Fu (“ Mr. Fu ”), to purchase 216,696 shares and 3,983,304 shares of our common stock, respectively (the “ Share Transfers ”). The Share Transfers are expected to close in January 2018. After the completion of both the Private Placement and the Share Transfers, the Purchaser would become the largest stockholder of NovaBay holding approximately 37.14% of our outstanding shares of common stock.

In the Share Transfers, the Pur chaser intends to purchase 216,696 shares from Pioneer. Pioneer is currently the largest stockholder of NovaBay, holding 5,212,748 shares or approximately 34% of our outstanding shares of common stock. Pioneer is the exclusive distributor of NovaBay’s NeutroPhase® Skin and Wound Cleanser in China and Southeast Asia. Further, Board member Xinzhou (Paul) Li  has been the Chairman and Executive Director of China Pioneer Pharma since 2013 and is also Director of China Pioneer Pharma’s wholly-owned subsidiary, Pioneer Hong Kong. Board member Mijia (Bob) Wu is the Non-Executive Director of China Pioneer Pharma and indirect owner of Pioneer Hong Kong, as well as the Managing Director of China Kington, the Company’s placement agent. 

In the Share Transfers, the P urchaser intends to purchase 3,983,304 shares from Mr. Fu, or all of his holdings in NovaBay. Mr. Fu is currently the second largest stockholder of NovaBay, holding 3,983,304 shares or approximately 26% of our outstanding shares of common stock. Mr. Fu acquired his shares in the Company’s February and April 2016 private placement transactions, both of which were facilitated by China Kington as placement agent. As a result of the Company’s January 2016 bridge loan that was facilitated by China Kington, among other items China Kington was given the right to nominate two members to our Board of Directors. Given Mr. Fu’s significant investment in NovaBay, one of China Kington’s board nominees was a representative of Mr. Fu’s, Xiaoyan (Henry) Liu. Thus, upon the closing of the Share Transfer with Mr. Fu, the Purchaser may be given the opportunity by China Kington to nominate a director to our Board in the future to replace Mr. Liu.

Section 713(b) of NYSE American LLC Company Guide (the “ Company Guide ”) requires stockholder approval in connection with any transaction involving the issuance, or potential issuance, of additional shares that may result in a change of control of the issuer. With the common stock being issued in the Private Placement in connection with the Share Transfers, the Purchaser will not only become our largest stockholder, but may also have the opportunity to nominate a director to our Board in the future, which would likely constitute a change of control for the purposes of Section 713(b), thereby triggering a stockholder approval requirement.

Pursuant to this Proposal One, we are asking our stockholders to approve, in accordance with Section 713(b) of the Company Guide, the issuance of the Company common stock to the Purchaser pursuant to the terms of the Purchase Agreement.

Consequences of the Private Placement

Dilutive Effect of Issuances of Common Stock. After the closing of the Private Placement, the Purchaser will own approximately 13.51% of the Company’s outstanding shares of common stock newly issued for the Private Placement. All the shares of common stock outstanding immediately prior to such closing will constitute approximately 86.49% of the Company’s outstanding shares immediately after such closing.

After the closing of both the Private Placement and the Share Transfers, the Purchaser and Pioneer will collectively own 11,596,052 shares or approximately 65.26% of the Company ’s outstanding shares of common stock, with the Purchaser holding 6,600,000 shares, or 37.14% of the outstanding shares, and Pioneer holding 4,996,052 shares, or 28.12% of the outstanding shares. All other stockholders will beneficially own approximately 34.74% of our outstanding shares of common stock (excluding the Company’s two largest shareholders of the Purchaser and Pioneer), as compared to approximately 40.16% prior to such closing (excluding the Company’s two largest shareholders of Pioneer and Mr. Fu). Mr. Fu will not hold any shares of our common stock after the closing of the Share Transfers.

Rights of Investors . If stockholder approval is received, the rights and privileges associated with our common stock issued in the Private Placement will be identical to the rights and privileges associated with the common stock held by our existing common stockholders, including the right to vote on all matters presented to the holders of our common stock.

Risks of the Private Placement

The Purchaser and Pioneer may use their influence to the detriment of our general stockholders. After the closing of both the Private Placement and the Share Transfers, the Purchaser will beneficially own approximately 37.14% of our outstanding common stock and Pioneer will own approximately 28.12% of our common stock. Our director Mr. Paul Li is the Chairman and Executive Director of China Pioneer, which is the parent company of Pioneer Hong Kong, and also Director of Pioneer Hong Kong. Our director Bob Wu is the Non-Executive Director of China Pioneer Pharma and indirect owner of Pioneer Hong Kong, as well as the Managing Director of China Kington, the Company’s placement agent.  Our director Henry Liu, along with Bob Wu, were both nominated to our Board by China Kington, with such nomination accepted by the Board as partial consideration for China Kington facilitating the Company’s January 2016 bridge loan.

In addition, upon the closing of the Private Placement, the Purchaser may be given the opportunity by China Kingt on to nominate a director to our Board in the future to replace Mr. Liu as one of China Kington’s two director nominees resulting from our January 2016 bridge loan transaction.

As a result, the Purchaser and Pioneer may have input on all matters before our Board and may be able to exercise significant influence over all matters requiring Board and stockholder approval.

In addition, were the Purchaser and Pioneer to cooperate (with an approximate 65.26% combined beneficial ownership), they could eventuall y unilaterally elect all of their preferred director nominees at our annual meetings of stockholders. Even with our classified Board, the Purchaser and Pioneer could ensure that three (3) of our eight (8) directors are either nominees of the Purchaser or Pioneer. In the interim, the Purchaser and Pioneer could exert significant indirect influence on us and our management in anticipation of a possible change in control of our Board.

The risk that a closing condition may not be satisfied. The closing of the Private Placement is currently expected to occur in January 2018, subject to customary closing conditions, including shareholder approval and the approval of the Purchaser’s funds transfer from China for the closing by the applicable regulatory authorities in China. Should any closing condition fail to be satisfied, the Company or the Purchaser may elect not to proceed with the closing of the Private Placement. If such closing does not occur for any reason, we will need to seek additional sources of financing to fund our planned operations and meet our ongoing obligations during 2018.

Reasons for the Private Placement

Maintain our listing on the NYSE American. Our common stock is traded on the NYSE American, a leading capital market for small cap companies within the NYSE. On May 16, 2017, we were notified by the NYSE American that our common stock no longer satisfied continued listing standards and fell into the delisting categories set forth in Section 1003(a)(iii) of the Company Guide (stockholders’ equity of less than $6,000,000 if an issuer has sustained losses from continuing operations and/or net losses in its five (5) most recent fiscal years). We prepared and submitted a plan to regain compliance and on June 29, 2017, the Company was further notified that its plan to regain compliance had been accepted, and the NYSE American provided the Company until May 16, 2018 to satisfy the terms of its compliance plan or be subject to delisting procedures.

On September 14, 2017, we were notified by the NYSE American that our common stock no longer satisfied continued listing standards and fell into the delisting categories set forth in Section 1003(a)(ii) of the Company Guide (stockholders ’ equity of less than $4,000,000 if an issuer has sustained losses from continuing operations and/or net losses in three (3) of its four (4) most recent fiscal years). According to the Exchange, this notice does not impact the Company’s ongoing plan to regain compliance with continued listing standards, which requires the Company to regain such compliance by May 16, 2018 or be subject to delisting procedures. We continue our listing but will be subject to periodic reviews by the NYSE American. If we do not make progress consistent with the plan, the exchange will initiate delisting procedures as appropriate.

The Board has considered the potential harm to the Company and its stockholders should the NYSE delist our common stock from the NYSE American. Delisting could adversely affect the liquidity of our common stock because alternatives, such as the OTC Markets and the pink sheets, are generally considered to be less efficient markets. An investor likely would find it less convenient to sell, or to obtain accurate quotations in seeking to buy our common stock on an over-the-counter market. Many investors likely would not buy or sell our common stock due to difficulty in accessing over-the-counter markets, policies preventing them from trading in securities not listed on a national exchange or other reasons. The Board believes that the Private Placement is a potentially effective means for us to maintain compliance with the rules of the NYSE American by increasing the stockholders’ equity of our common stock.

Our cash and cash equivalents are insufficient to fund our planned operations and meet our ongoing obligations. We have incurred significant losses from operations since inception and expect losses to continue until revenues reach a level sufficient to support ongoing growth and operations. Accordingly, the Company’s planned operations raise doubt about its ability to continue as a going concern. Because our cash and cash equivalents are not sufficient to fund our planned operations, in order to fund such operations and meet our ongoing obligations, we must continue with our historical financing strategy to raise additional capital.

Our Board has determined that the Private Placement is our best alternative to achieve the Company ’s financing objectives. Our Board has determined that an equity financing is in the best interests of our Company and its stockholders after a thorough evaluation of and comparison to the other alternatives that may be available to us, including, without limitation, seeking other sources of debt financing, pursuing new strategic partnerships and/or monetizing the Company’s non-core assets. This evaluation included, without limitation, the amount of capital that the Company could expect to raise and the terms it could expect to receive for each such alternative.

In addition, the Board believes the proposed offering price for our common stock in the Private Placement is fair given our current stock price, past performance, current assets and liabilities and strategic alternati ves, among other considerations. After careful consideration, our Board believes that the Private Placement is the Company’s best option to increase our stockholders’ equity, fund our planned operations and meet our ongoing obligations.

Stockholder Approval

The affirmative vote of the holders of a majority of the shares of our common stock present or represented and entitled to vote at the Special Meeting is required for approval of Proposal One. If approved by the stockholders, we will be able to issue and sell to the Purchaser 2,400,000 shares of our common stock in accordance with the terms of the Purchase Agreement. If the issuance of our common stock pursuant to the Purchase Agreement is not approved by stockholders, we will not be able to issue and sell any shares of our common stock pursuant to the Purchase Agreement.

Recommendation of Our Board of Directors

For the reasons described in this Proxy Statement, our Board recommends unanimously that you vote “FOR” the approval of the issuance of our common stock pursuant to the Purchase Agreement.