Item 1.01 Entry into a Material Definitive Agreement
Institutional Investor Term Sheet
On March 25, 2019, the Company entered into a Term Sheet (the “Term Sheet”) with an Institutional Investor. Pursuant to the Term Sheet, upon the transaction closing, the Institutional Investor will have the right to purchase shares of common stock of the Company up to a value of $3,000,000 (the “Shares”) at a purchase price equal to 90% of the lowest trading price of the Company’s common stock for the five business days prior to the closing date. In addition, the Term Sheet requires a donation of 150,000 shares of common stock to an affiliate of the Institutional Investor (the “Donation Shares”) and a document preparation fee of $15,000. The Term Sheet also requires that a Form S-3 be filed by April 1, 2019 to register the Shares and Donation Shares with the Securities and Exchange Commission.
The foregoing description of the Term Sheet is qualified in its entirety by reference to the Term Sheet, which is filed as Exhibit 10.1 to this Current Report and incorporated herein by reference.
Securities Purchase Agreement and Convertible Promissory Note
On March 26, 2019 (the “Closing Date”), NovaBay Pharmaceuticals, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Iliad Research and Trading, L.P. (the “Lender”), pursuant to which the Company issued a Secured Convertible Promissory Note (the “Convertible Note”) to the Lender dated as of the Closing Date. The Convertible Note has an original principal amount of $2,215,000, bears interest at a rate of 10% per annum and will mature on September 26, 2020, unless earlier paid, redeemed or converted in accordance with its terms. The Company received proceeds of $2,000,000 after an original issue discount and payment of Lender’s legal fees.
The Convertible Note provides the Lender with the right to convert, at any time, all or any part of the outstanding principal and accrued but unpaid interest into shares of the Company’s Common Stock at a conversion price of $1.65 per share (“Lender Conversion Price”). Further, beginning on September 26, 2019, the Convertible Note also provides the Lender with the right to redeem all or any portion of the Convertible Note (“Redemption Amount”). The payments of each Redemption Amount may be made, at the option of the Company, in cash, by converting such Redemption Amount into shares of Common Stock (“Redemption Conversion Shares”), or a combination thereof. The number of Redemption Conversion Shares equals the portion of the applicable Redemption Amount being converted divided by the lesser of $1.65 or the Market Price. The Market Price is defined as 85% of the lowest closing bid price during the twenty (20) Trading Days immediately preceding the applicable measurement date. The Purchase Agreement requires the Company to reserve at least 3,200,000 shares of Common Stock from its authorized and unissued Common Stock to provide for all issuances of Common Stock under the Convertible Note. However, the Convertible Note provides that the aggregate number shares of Common Stock issued to the Lender under the Convertible Note and Purchase Agreement shall not exceed 19.99% of the total number of shares of Common Stock outstanding as of the Closing Date unless the Company has obtained stockholder approval of the issuance pursuant to the requirements of the NYSE American Company Guide.
Pursuant to a Security Agreement between the Company and the Lender, repayment of the Convertible Note is secured by all of the assets of the Company. The assets covered by the Security Agreement are currently encumbered by that certain lien of up to $1,000,000 in favor of Pioneer Pharma (Hong Kong) Company Limited as described in the Company’s Current Report on Form 8-K filed on March 1, 2019. The Purchase Agreement and the Convertible Note contain customary events of default upon the occurrence and during the continuance of which all obligations under the Purchase Agreement and the Convertible Note may be declared immediately due and payable. Additionally, the Company has engaged Ascendiant Capital Markets, LLC to serve as placement agent for the transaction between the Company and the Lender in exchange for a commission equal to six percent (6%) of the gross proceeds.
The Company has filed herewith as Exhibits 10.2, 10.3 and 10.4 the Purchase Agreement, the Convertible Note and the Security Agreement, which are incorporated herein by reference, and the foregoing descriptions of the Purchase Agreement, the Convertible Note and the Security Agreement are qualified in their entirety by reference thereto.