NBY NovaBay Pharmaceuticals Inc New

 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

(Amendment No.     )

 

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Filed by the Registrant ☒

Filed by a Party other than the Registrant ☐

 

Check the appropriate box:

 

☐	Preliminary Proxy Statement
☐	Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

☒	Definitive Proxy Statement
☐	Definitive Additional Materials

☐	Soliciting Material Pursuant to § 240.14a-12

 

 

NOVABAY PHARMACEUTICALS, INC.

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(Name of Registrant as Specified in Its Charter)

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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

☐	No fee required
☒	Fee paid previously with preliminary materials
☐	Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11

 

 

 

NOVABAY PHARMACEUTICALS, INC.

2000 Powell Street, Suite 1150

Emeryville, California 94608

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

 

Date:	Time:	Place:
Friday, November 22, 2024	11:00 a.m. Pacific Time	Virtual meeting at: www.virtualshareholdermeeting.com/NBY2024SM

 

To the Stockholders of NovaBay Pharmaceuticals, Inc.:

 

You are cordially invited to attend the 2024 Special Meeting of Stockholders (the “Special Meeting”) of NovaBay Pharmaceuticals, Inc., a Delaware corporation (“NovaBay,” the “Company,” “we,” “our” and “us”). The Special Meeting will be a virtual meeting of stockholders. We encourage you to attend online and participate. You will not be able to attend the Special Meeting in person.

 

Stockholders may attend the Special Meeting online, vote their shares electronically, and submit questions during the Special Meeting by visiting www.virtualshareholdermeeting.com/NBY2024SM and entering the 16-digit control number included in their proxy card or the voting information form provided by their broker, bank, or other nominee. Prior to the Special Meeting, stockholders can vote at www.proxyvote.com using their 16-digit control number or by the other methods described in the accompanying proxy statement (the “Proxy Statement”). We recommend that you log in fifteen (15) minutes before 11:00 a.m. Pacific Time on November 22, 2024 to ensure you are logged in when the Special Meeting starts. 

 

The Special Meeting will be held for the following purposes:

 

Proposal One: (The Asset Sale Proposal)	To approve the sale of Avenova, representing substantially all of the assets of the Company (the “Asset Sale”), pursuant to the Asset Purchase Agreement dated September 19, 2024 (the “Asset Purchase Agreement”), by and between the Company and PRN Physician Recommended Nutriceuticals, LLC (“PRN”).
Proposal Two: (The Dissolution Proposal)	To approve the liquidation and dissolution of the Company (the “Dissolution”), pursuant to the Plan of Complete Liquidation and Dissolution of the Company (the “Plan of Dissolution”), which, if approved, will authorize the Company to liquidate and dissolve in accordance with the Plan of Dissolution, and pursuant to the discretion of the Board of Directors to proceed with the Dissolution.
Proposal Three: (The Adjournment Proposal)	To grant discretionary authority to our Board of Directors to adjourn the Special Meeting from time to time, if necessary or appropriate, to establish a quorum or, even if a quorum is present, to permit further solicitation of proxies if there are not sufficient votes cast at the time of the Special Meeting in favor of Proposal One and/or Proposal Two.

 

Proposal One (the Asset Sale Proposal), Proposal Two (the Dissolution Proposal), and Proposal Three (the Adjournment Proposal) are collectively referred to as the “Proposals”.

 

After careful consideration, the NovaBay Board of Directors has determined that the Proposals are advisable and in the best interests of NovaBay and its stockholders and recommends that the holders of the Company’s common stock entitled to vote at the Special Meeting on each of the Proposals vote or give instruction to vote “FOR” Proposal One, “FOR” Proposal Two and “FOR” Proposal Three.

 

 

The Proposals, as well as the proposed Asset Sale and the proposed Dissolution, and the related determinations of our Board of Directors in connection with its evaluation of the Asset Sale, the Asset Purchase Agreement, the Plan of Dissolution and the Dissolution, are described in the accompanying Proxy Statement. A copy of the Asset Purchase Agreement is attached as Annex A to the Proxy Statement, a copy of the fairness opinion delivered to the Board of Directors of the Company in connection with the Asset Sale is attached as Annex B and a copy of the Plan of Dissolution is attached as Annex C to the Proxy Statement. In particular, we urge you to read the Proxy Statement, the Asset Purchase Agreement and the Plan of Dissolution carefully in their entirety as they contain important information about the Asset Sale and the Dissolution and how both affect you as a stockholder.

 

The record date for the Special Meeting is October 15, 2024. Only stockholders of record at the close of business on that date are entitled to notice of, and may vote at, the virtual Special Meeting or any adjournment thereof. This Notice of Special Meeting and the accompanying Proxy Statement are being distributed and being made available on or about October 16, 2024.

 

A list of stockholders entitled to vote at the Special Meeting will be available at NovaBay Pharmaceuticals, Inc., 2000 Powell Street, Suite 1150, Emeryville, California 94608, for a period of ten days prior to the Special Meeting. If you wish to inspect the stockholder list, please contact our Corporate Secretary at (510) 899-8800. The stockholder list will also be available during the virtual Special Meeting through the following secure link www.virtualshareholdermeeting.com/NBY2024SM.

 

October 16, 2024			By Order of the Board of Directors,
			Paul E. Freiman Chair of the Board

 

 

You are cordially invited to attend, via live webcast, the virtual Special Meeting.  Your vote is important. We encourage you to promptly vote your shares either by telephone, over the Internet or by completing, signing, dating and returning your proxy card, which contains instructions on how you would like your shares to be voted at the Special Meeting. Please submit your vote by proxy through one of these methods regardless of whether you will attend the Special Meeting. This will help us ensure that your shares are represented at the Special Meeting.  A return envelope (which is postage prepaid if mailed in the United States) has been provided for your convenience if you plan to return your proxy card.  Signing and submitting your proxy will not prevent you from voting electronically at the virtual Special Meeting should you be able to attend the virtual Special Meeting, but will assure that your vote is counted, if for any reason you are unable to attend.  Voting instructions are printed on your proxy card and are also included in the accompanying Proxy Statement.

 

Neither the United States Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Asset Sale or the Dissolution, passed upon the merits of the Asset Sale or the Dissolution, or passed upon the adequacy or accuracy of the information contained in the accompanying Proxy Statement and any documents incorporated by reference. Any representation to the contrary is a criminal offense.

 

TABLE OF CONTENTS

	Page
SUMMARY OF THE PROXY STATEMENT	1
About NovaBay	1
Background for the Asset Sale and the Dissolution	1
Summary Term Sheet: Proposal One (The Asset Sale Proposal)	2
Summary: Proposal Two (The Dissolution Proposal)	6
Summary: Proposal Three (The Adjournment Proposal)	9
Summary: The Special Meeting	9
QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING	11
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	19
RISK FACTORS	20
General Risks Related to the Asset Sale and the Dissolution	20
Risks Related to the Asset Sale	22
Risks Related to the Dissolution	23
THE SPECIAL MEETING	27
Purpose of Meeting	27
Attendance at the Special Meeting	27
Voting; Quorum	27
Required Votes and Effects of Abstentions and Broker Non-Votes	27
Effect of Not Voting	28
Voting Methods	29
Revoking Proxies	29
Solicitation	30
Results of Voting at the Special Meeting	30
MATTERS TO BE CONSIDERED  AT THE SPECIAL MEETING	31
PROPOSAL ONE: THE ASSET SALE PROPOSAL	31
General	31
The Parties to the Asset Sale	31
Summary of Key Deal Terms of the Asset Purchase Agreement	32
Background for the Asset Sale and the Dissolution	32
Reasons for the Asset Sale	35
Fairness of the Asset Sale: Opinion of Hemming Morse	38
Principal Terms and Conditions of the Asset Purchase Agreement	45
Accounting Treatment of the Asset Sale	54
No Appraisal Rights in Respect of the Asset Sale	54
Certain U.S. Federal Income Tax Consequences of the Asset Sale	54
Stockholder Approval of the Asset Sale	54
Unanimous Recommendation of the Board of Directors	54
PROPOSAL TWO: THE DISSOLUTION PROPOSAL	55
General	55
Summary of the Dissolution	55
Background for the Dissolution	56
Reasons for the Dissolution	56
Dissolution Under Delaware Law	57
Principal Terms and Conditions of the Plan of Dissolution	60
Estimated Liquidating Distributions	63
Contingency Reserve	64
Reporting Requirements & Cessation of Trading of Common Stock	65
Regulatory Approvals	65
Accounting Treatment of the Dissolution	65
No Appraisal Rights in Respect of the Asset Sale	65
Certain U.S. Federal Income Tax Consequences of the Dissolution	65
Stockholder Approval of the Dissolution	67
Unanimous Recommendation of the Board of Directors	67
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE APPROVAL OF THE ASSET SALE AND PLAN OF DISSOLUTION	68
Continuing Service and Compensation of our Directors	68
Equity Ownership	68
Indemnification and Insurance	68
PROPOSAL THREE: THE ADJOURNMENT PROPOSAL	69
Overview	69
Stockholder Approval of the Adjournment Proposal	69
Unanimous Recommendation of the Board of Directors	69
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	70
ADDITIONAL INFORMATION	71
Description of Business	71
Market Price and Dividend Data	71
Deadlines for Receipt of Future Stockholder Proposals and Nominations for Our 2025 Annual Meeting	71
Householding of Proxy Materials	72
Method of Proxy Solicitation	73
Where You Can Find More Information; Incorporation by Reference	73
Other Business	74
ANNEX A - ASSET PURCHASE AGREEMENT BETWEEN NOVABAY PHARMACEUTICALS, INC. AND PRN PHYSICIAN RECCOMENDED NUTRICEUTICALS, LLC, DATED AS OF SEPTEMBER 19, 2024	A-1
ANNEX B - FAIRNESS OPINION OF HEMMING MORSE, LLC	B-1
ANNEX C - PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION OF NOVABAY PHARMACEUTICALS, INC.	C-1

    

 

 

2000 Powell Street, Suite 1150

Emeryville, California 94608

 

PROXY STATEMENT

FOR THE 2024 SPECIAL MEETING OF STOCKHOLDERS

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This proxy statement (“Proxy Statement”), the accompanying Notice of the Special Meeting of Stockholders and proxy card are being furnished in connection with the solicitation of proxies by the Board of Directors of NovaBay Pharmaceuticals, Inc., a Delaware corporation (“NovaBay,” the “Company,” “we,” “our,” or “us”), to be voted at the 2024 Special Meeting of Stockholders to be held on Friday, November 22, 2024 (the “Special Meeting”), and at any adjournment or postponement of the Special Meeting. This Special Meeting will be held at 11:00 a.m. Pacific Time and will be a virtual meeting of stockholders. You will be able to participate in the 2024 Special Meeting, vote, and submit your questions during the meeting via live webcast by visiting www.virtualshareholdermeeting.com/NBY2024SM. You must have your 16-digit control number on your proxy card to enter and participate in the virtual meeting. This Proxy Statement and the accompanying proxy card are being made available over the Internet or delivered by mail on or about October 16, 2024, to stockholders of record as of October 15, 2024 (the “Record Date”).

 

This Proxy Statement is available for viewing, printing and downloading by following the instructions at www.proxyvote.com.

 

 

QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING

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The following questions and answers are intended to address briefly some possible questions regarding the Special Meeting, the Asset Sale Proposal and the Dissolution Proposal. These questions and answers may not address all questions that may be important to you as a stockholder of the Company. Please refer to the more detailed information contained elsewhere in this Proxy Statement, the annexes to this Proxy Statement and the documents referred to in this Proxy Statement. Also see “Where You Can Find More Information”, beginning on page 73.

 

Questions and Answers Related to the Special Meeting

 

Q:	Why am I receiving these proxy materials?

A:

We have sent you this Proxy Statement and the enclosed form of proxy card because our Board of Directors is soliciting your proxy to vote at the Special Meeting. You are invited to attend our virtual Special Meeting to vote on the proposals described in this Proxy Statement. However, you do not need to attend the Special Meeting to vote your shares of common stock. Instead, you may simply complete, sign and return the enclosed proxy card, follow the instructions below to submit your proxy over the telephone or on the Internet, or follow the instructions received from your broker, bank or other nominee if you hold your shares of common stock in “street” name. Refer to “How do I vote?” below.

 

Under rules adopted by the SEC, we have mailed the full set of our proxy materials, including this Proxy Statement and the proxy card, to our stockholders of record as of the close of business on the Record Date of October 15, 2024, on or around October 16, 2024. The proxy materials are also available to view and download at www.proxyvote.com.

 

Q:	What do I need to do now?

A:

We urge you to carefully read and consider this entire Proxy Statement and the annexes to this Proxy Statement, along with all of the documents that we refer to in this Proxy Statement, as they contain important information about, among other things, the current financial condition of the Company, the efforts of the Board of Directors and the Company’s management to maximize stockholder value, and the Asset Sale Proposal and the Dissolution Proposal and how both affect you as a stockholder.

 

Even if you plan to attend the Special Meeting, if you hold your shares in your own name as the stockholder of record, please vote your shares by signing, dating and returning, as promptly as possible, the enclosed proxy card in the accompanying reply envelope, or grant your proxy electronically over the Internet or by telephone (using the instructions provided in the enclosed proxy card), so that your shares of common stock can be voted at the Special Meeting. If you hold your shares in “street name,” please refer to the voting instruction forms provided by your broker, bank or other nominee to vote your shares.

 

Q:	How do I attend and participate in the Special Meeting online?

A:

The Special Meeting will be a completely virtual meeting of stockholders. You will not be able to attend the Special Meeting in person. Stockholders attending the Special Meeting virtually will be afforded the same rights and opportunities to participate as they would at an in-person meeting. Any stockholder can attend the virtual Special Meeting live online at www.virtualshareholdermeeting.com/NBY2024SM. The webcast will start at 11:00 a.m. Pacific Time. Stockholders as of the Record Date may vote and submit questions while attending the Special Meeting online. If you encounter any difficulties accessing the virtual Special Meeting, please refer to the technical support information located at www.virtualshareholdermeeting.com/NBY2024SM.

 

In order to enter the Special Meeting, you will need the control number, which is included in your proxy materials if you are a stockholder of record of shares of common stock, or included with your voting instructions and materials received from your broker, bank or other nominee if you hold your shares of common stock in a “street name.” Instructions on how to attend and participate are available at www.virtualshareholdermeeting.com/NBY2024SM. We recommend that you log in fifteen (15) minutes before 11:00 a.m. Pacific Time to ensure you are logged in when the Special Meeting starts. The webcast will open fifteen (15) minutes before the start of the Special Meeting.

 

If you would like to submit a question during the Special Meeting, you may log in to www.virtualshareholdermeeting.com/NBY2024SM using your control number, type your question into the “Ask a Question” field, and click “Submit.”

 

 

Q:	When and where is the Special Meeting?

A:	The Special Meeting will be held virtually at www.virtualshareholdermeeting.com/NBY2024SM, on Friday, November 22, 2024 at 11:00 a.m. Pacific Time.

 

Q:	Who is entitled to vote at the Special Meeting?

A:

Only stockholders of the Company’s common stock held by such stockholder as of the close of business on the Record Date (October 15, 2024) are entitled to receive notice of the Special Meeting and to vote the shares of our common stock that they held at that time at the Special Meeting. On the Record Date, there were 4,885,693 shares of common stock outstanding and entitled to vote.

 

Stockholder of Record: Shares of Common Stock Registered in Your Name

 

If, on the Record Date, your shares of common stock were registered directly in your name with our transfer agent, Equinti Trust Company, LLC, then you are a stockholder of record. As a stockholder of record, you may vote online during the Special Meeting or vote by proxy. Whether or not you plan to attend the Special Meeting, we urge you to vote by proxy to ensure your vote is counted. Refer to “How do I vote?” below.

 

Beneficial Owner: Shares of Common Stock Registered in the Name of a Broker, Bank or Other Agent

 

If, on the Record Date, your shares of common stock were held in an account at a broker, bank or other nominee, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered to be the stockholder of record for purposes of voting at the Special Meeting. As a beneficial owner, you have the right to direct your broker, bank or other nominee regarding how to vote the shares in your account. You are also invited to attend the virtual Special Meeting. However, since you are not the stockholder of record, you may not vote your shares online during the Special Meeting unless you request and obtain a valid proxy from your broker, bank or other nominee.

 

Q:	What am I being asked to vote on at the Special Meeting?

A:	You will be asked to consider and vote upon the following proposals:

1.

To approve the Asset Sale Proposal.

2.

To approve the Dissolution Proposal.

3.

To approve the Adjournment Proposal.

 

Q:	How does the Board of Directors recommend that I vote?

A:	The Board of Directors unanimously recommends that the stockholders vote:

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“FOR” the Asset Sale Proposal;

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“FOR” the Dissolution Proposal; and

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“FOR” the Adjournment Proposal.

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You should read the sections titled “Proposal One: The Asset Sale Proposal—Reasons for the Asset Sale” beginning on page 31 of this Proxy Statement and “Proposal Two: The Dissolution Proposal — Reasons for the Dissolution” beginning on page 55 of this Proxy Statement for a discussion of the factors that our Board of Directors considered in deciding to recommend approval of the Asset Sale Proposal and the Dissolution Proposal.

 

In addition, when considering the recommendation of our Board of Directors, you should be aware that some of our directors and executive officers may have interests in the Asset Sale and the Dissolution that are different from, or in addition to, the interests of our stockholders more generally. For a discussion of these interests, please refer to the sections titled “Interests of Directors and Executive Officers in Approval of the Asset Sale and Plan of Dissolution” beginning on page 68 of this Proxy Statement.

 

Q:	How do I vote?

A:	For each proposal, you may vote “FOR” or “AGAINST” or abstain from voting. The procedures for voting are described below.

 

 

Stockholder of Record: Shares of Common Stock Registered in Your Name

 

If you are a stockholder of record, you may vote online during the virtual Special Meeting, or you may vote by proxy using the enclosed proxy card. Whether or not you plan to attend the Special Meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the Special Meeting and vote online, even if you have already voted by proxy.

 

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To vote online during the Special Meeting, follow the provided instructions to join the Special Meeting at www.virtualshareholdermeeting.com/NBY2024SM, starting at 11:00 a.m. Pacific Time on November 22, 2024. The webcast will open 15 minutes before the start of the Special Meeting.

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To vote in advance of the Special Meeting through the Internet, go to www.proxyvote.com to complete an electronic proxy card. You will be asked to provide the company number and control number from the enclosed proxy card. Your Internet vote must be received by 11:59 p.m. Eastern Time on November 21, 2024 to be counted.

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To vote in advance of the Special Meeting by telephone, dial 1-800-690-6903 using a touch-tone phone and follow the recorded instructions. You will be asked to provide the company number and control number from the enclosed proxy card. Your telephone vote must be received by 11:59 p.m. Eastern Time on November 21, 2024 to be counted.

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To vote using the enclosed proxy card, complete, sign and date the enclosed proxy card and return it promptly in the accompanying postage-paid envelope. If you return your signed proxy card to us before the Special Meeting, we will vote your shares as you direct.

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Beneficial Owner: Shares Common Stock Registered in the Name of Broker, Bank or Other Agent

 

If you are a beneficial owner of shares of common stock registered in the name of your broker, bank or other nominee, you should have received a voting instruction form with these proxy materials from that organization rather than from us. Complete and mail the voting instruction form to ensure that your vote is counted. Alternatively, you may vote by telephone or over the Internet if so instructed by your broker, bank or other nominee. To vote online at the Special Meeting, you must obtain a valid proxy from your broker, bank or other nominee. Follow the instructions from your broker, bank or other nominee included with these proxy materials, or contact your broker, bank or other nominee to request a proxy form. Internet proxy voting may be provided to allow you to vote your shares online, with procedures designed to ensure the authenticity and correctness of your proxy vote instructions.

 

Q:	How many votes do I have?

A:	On each matter to be voted upon, you have one vote for each share of common stock you owned as of the close of business on the Record Date.

 

Q:	How many votes are needed to approve each proposal?

A:

Asset Sale Proposal — The affirmative vote of the holders of a majority of the voting power of all outstanding shares of our common stock entitled to vote at the Special Meeting is required to approve the Asset Sale Proposal. If you fail to authorize a proxy or vote online at the Special Meeting, abstain from voting at the Special Meeting, or fail to instruct your broker, bank or other nominee on how to vote, such failure will have the same effect as a vote cast “AGAINST” this proposal.

 

Dissolution Proposal — The affirmative vote of the holders of a majority of the voting power of all outstanding shares of our common stock entitled to vote at the Special Meeting is required to approve the Dissolution Proposal. If you fail to authorize a proxy or vote online at the Special Meeting, abstain from voting at the Special Meeting, or fail to instruct your broker, bank or other nominee on how to vote, such failure will have the same effect as a vote cast “AGAINST” this proposal.

 

Adjournment Proposal — Approval of the Adjournment Proposal requires either (i) if a quorum is present, the affirmative vote of the majority of the shares of common stock present by remote communication or represented by proxy duly authorized at the Special Meeting and entitled to vote generally on the subject matter or (ii) if a quorum is not present, the vote of the holders of a majority of the shares of common stock represented at the Special Meeting.

 

 

Q:	What happens if I abstain from voting or if I do not vote on the proposals?

A:

An abstention represents a stockholder’s affirmative choice to decline to vote on a proposal. If you abstain from voting after submitting your proxy or voting at the Special Meeting, that abstention will have the same effect as if you voted “AGAINST” the Asset Sale Proposal and the Dissolution Proposal. However, abstentions are counted as shares present or represented by proxy at the Special Meeting for purposes of determining whether a quorum is present at the Special Meeting. Failure to vote your shares of common stock (including a failure of your broker, bank or other nominee to vote shares held on your behalf) will also count as a vote “AGAINST” the Asset Sale Proposal and the Dissolution Proposal.

 

Q:	What if I return a proxy card or otherwise vote but do not make specific choices?

A:	If you return a signed and dated proxy card or otherwise vote without marking voting selections, your shares of common stock will be voted, as applicable:

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“FOR” the Asset Sale Proposal;

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​“FOR” the Dissolution Proposal; and

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“FOR” the Adjournment Proposal.

 

Q:	Can I change or revoke my vote after I have delivered my proxy?

A:	Stockholder of Record: Shares of Common Stock Registered in Your Name

 

Yes, you can change your vote or revoke your proxy at any time before the final vote at the Special Meeting. If you are the record holder of your shares of common stock, you may change your vote or revoke your proxy in any one of the following ways:

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You may submit another properly completed proxy card with a later date.

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You may grant a subsequent proxy by telephone or through the Internet.

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You may send a timely written notice that you are revoking your proxy to NovaBay Pharmaceuticals, Inc., Attn: Chief Executive Officer, General Counsel and Corporate Secretary at 2000 Powell Street, Suite 1150, Emeryville, California 94608.

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You may virtually attend the Special Meeting and vote online. Attending the Special Meeting will not, by itself, revoke your proxy. You must specifically vote at the Special Meeting in order for your previous proxy to be revoked.

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Your most current proxy card is the one that is counted.

 

Beneficial Owner: Shares of Common Stock Registered in the Name of Broker, Bank or Other Agent

 

If your shares of common stock are held by your broker, bank or other nominee, you should follow the instructions provided by your broker, bank or other agent regarding how to change your vote.

 

Q:	If my broker holds my shares of common stock in “street name,” will my broker vote my shares of common stock for me?

A:

No. Your broker, bank or other nominee is permitted to vote your shares of common stock on any proposal currently scheduled to be considered at the Special Meeting only if you instruct your broker, bank or other nominee how to vote. You should follow the procedures provided by your broker, bank or other nominee to vote your shares. Without instructions, your shares will not be voted on any proposals, which will have the same effect as if you voted “AGAINST” the Asset Sale Proposal and the Dissolution Proposal.

 

Q:	Who will bear the cost of this solicitation?

A:

We will pay for the entire cost of soliciting proxies. In addition to these proxy materials, our directors, executive officers and employees may also solicit proxies in person, by telephone or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. We may also reimburse brokers, banks or other nominees for the cost of forwarding proxy materials to beneficial owners. In addition, we have engaged Sodali & Co (“Sodali”) to assist in the solicitation of proxies and provide related advice and informational support, for a services fee of $15,000, plus an additional fee based on the number of phone calls made to stockholders.

 

Q:	What do I do if I receive more than one proxy or set of voting instructions?

A:	If you receive more than one set of proxy materials, your shares of common stock may be registered in more than one name or in different accounts. Please follow the voting instructions on the proxy card in each set of proxy materials to ensure that all of your shares are voted.

 

 

Q:	What is the quorum requirement?

A:

The presence, in person or by proxy duly authorized, of the holders of record of one-third of the voting power of all outstanding shares of our common stock entitled to vote at the Special Meeting shall constitute a quorum for the transaction of business at the Special Meeting. The Special Meeting will be held virtually; therefore only shares present virtually or represented by proxy at the Special Meeting will be counted in determining whether a quorum is present. Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee), if you vote at the Special Meeting or if you attend the Special Meeting but abstain from voting. The Special Meeting may be adjourned whether or not a quorum is present. If you hold your shares of common stock in “street name” and do not give any instruction to your broker, bank or other nominee as to how your shares of common stock should be voted at the Special Meeting, those shares of common stock will not be entitled to vote on any proposal at the Special Meeting and will not be counted for purposes of establishing a quorum.

 

Q:	How can I find out the results of the voting at the Special Meeting?

A:	We expect to file a Current Report on Form 8-K with the SEC disclosing the final voting results, or otherwise post the final voting results following the Special Meeting on our website.

 

Q:	Who can help answer any other questions that I have?

A:

If you have additional questions about the Asset Sale, the Asset Purchase Agreement, the Dissolution, the Plan of Dissolution, the Special Meeting or this Proxy Statement, or need assistance in submitting your proxy or voting your shares of our common stock, or need additional copies of this Proxy Statement or the enclosed proxy card, please contact Sodali, our proxy solicitor:

 

Sodali & Co

333 Ludlow Street – 5th Floor

South Tower

Stamford, CT  06902

nby.info@investor.morrowsodali.com

800-662-5200

 

Questions and Answers Related Generally to the Asset Sale and the Dissolution

 

Q:	Are there any risks related to the Asset Sale or the Plan of Dissolution?

A:	Yes. You should carefully review the section entitled “Risk Factors” beginning on page 20 of this Proxy Statement.

 

Q:	Do the Company’s directors and executive officers have any interest in the Asset Sale and the Dissolution?

A:

The Company’s directors and executive officers may have interests in the Asset Sale and the Dissolution that are different from the interests of NovaBay stockholders, including related to consulting/service arrangements and indemnifying and insuring our directors and executive officers. See “Interests of Directors and Executive Officers in the Approval of the Asset Sale and Plan of Dissolution” beginning on page 68 of this Proxy Statement.

 

Q:	Will the Company continue to be publicly traded in connection with completing the Asset Sale and effecting the Dissolution?

A:

Under the NYSE American continued listing requirements, the completion of the sale of substantially all of our assets may cause the NYSE American to delist our shares. To the extent the NYSE American does not delist our shares once we have completed the Asset Sale and the Board of Directors determines to effect the Dissolution, we plan to notify FINRA of our impending dissolution and request that our common stock stop trading on the NYSE American on the effective date of the Dissolution or as soon thereafter as is reasonably practicable. Whether or not the Asset Sale or the Dissolution is completed, and regardless of whether our shares of common stock are delisted from the NYSE American, we will have an obligation to continue to comply with the applicable reporting requirements of the Exchange Act until we have exited from such reporting requirements. We plan to initiate steps to exit from such reporting requirements in order to curtail expenses as soon as practicable in connection with effecting the Dissolution. See “Risk Factors — General Risks Related to the Asset Sale and the Dissolution” in this Proxy Statement.

 

Q:	Am I entitled to appraisal rights in connection with the Asset Sale or the Dissolution of the Company?

A:	No. Delaware law does not provide for stockholder appraisal or dissenters’ rights in connection with the Asset Sale or the Dissolution.

 

 

Questions and Answers Related to the Asset Sale

 

Q:	Why did the Company approve the Asset Sale pursuant to the Asset Purchase Agreement?

A:

As a result of the Company’s financial condition, including its operating losses over the majority of its corporate history and the substantial doubt about its ability to continue as a going concern, as well as the increasing difficulty the Company has faced in raising additional capital to fund operations, the Board of Directors considered at length potential strategic alternatives available to the Company, including a merger, sale of assets, strategic partnership or other business combination transactions, to maximize stockholder value. As a result of such evaluation, the Board of Directors unanimously determined that effecting the Asset Sale pursuant to the Asset Purchase Agreement is in the best interests of the Company and our stockholders, and maximizes potential stockholder return. Please read “Proposal One: The Asset Sale—Reasons for the Asset Sale” for a discussion of the factors that our Board of Directors considered in deciding to recommend stockholder approval of the Asset Sale pursuant to the Asset Purchase Agreement.

 

Q:	Who is buying the Avenova Business and for what price?

A:

If the Asset Sale is approved by our stockholders and the other closing conditions are satisfied and completed, then at the closing PRN will buy the Avenova Business for a purchase price of $9.5 million in cash, as may be adjusted pursuant to a Net Working Capital Adjustment (with $500,000 to be held in escrow for six months after the Asset Sale is completed for both any potential Net Working Capital Adjustment and any indemnification claims) and assume certain liabilities and obligations associated with the Avenova Business. PRN is a nutriceuticals company that partners with ophthalmologists and optometrists to provide patients with evidence-based nutriceuticals to support their long-term ocular health.

 

Q:	What assets are being sold by the Company and what liabilities will be assumed by PRN?

A:

We propose to sell to PRN the Avenova Business and the related assets, which will include, among the other assets of the Avenova Business, the intellectual property, accounts receivable, equipment, contracts and goodwill of Avenova. In addition, PRN will assume certain liabilities of the Avenova Business, limited to our liabilities for trade accounts payable, certain accrued liabilities, post-Closing product returns and obligations under contracts assigned to PRN.

 

Q:	What is the impact of the Alternative Unsolicited Offer?

A:

There is no impact to the Asset Sale or the Board of Directors’ recommendation to stockholders to approve the Asset Sale as a result of the Alternative Unsolicited Offer at this time. As further described in “Proposal One: The Asset Sale—Background for the Asset Sale and the Dissolution”, NovaBay received the Alternative Unsolicited Offer on September 25, 2024 to acquire the Avenova Business on terms substantially similar to the Asset Sale with a base purchase price of $11.5 million. The Board of Directors is currently evaluating the non-binding Alternative Unsolicited Offer in accordance with the terms and specific procedures of the Asset Purchase Agreement, including to account for various factors such as the proposed base purchase price, timing delays, transaction certainty, increased expenses (including payment of the termination fee to PRN) and other risks related to completing such transaction, to determine whether or not such offer would constitute a Superior Proposal. The Board of Directors has not made any determination of whether or not the Alternative Unsolicited Offer constitutes a Superior Proposal. Accordingly, notwithstanding the receipt of the Alternative Unsolicited Offer, the Board of Directors continues to support the Asset Sale, believes it is in the best interests of the Company and its stockholders and unanimously recommends stockholders approve the Asset Sale as provided in Proposal One of this Proxy Statement.

 

Q:	Will any of the proceeds from the Asset Sale be distributed to me as a stockholder at the closing?

A:

We do not intend to distribute the net proceeds of the Asset Sale to our stockholders at the closing of the Asset Sale; rather, the proceeds received from the Asset Sale will be an asset of the Company, which we plan to distribute to our stockholders and others in connection with the Dissolution (to the extent the Dissolution is approved by stockholders at this Special Meeting) pursuant to the Plan of Dissolution. More specifically, the net proceeds from the Asset Sale will be received by the Company, not our stockholders (or any other form of equity holder such as holders of warrants, preferred stock, convertible notes, options, restricted stock awards, etc.). We intend to use some of the proceeds from the Asset Sale to pay off certain liabilities and obligations that we are obligated to pay in connection with the operation of our business as well as transaction costs associated with the proposed Asset Sale with the remainder of the funds (with other remaining asset values) distributed in connection with the Dissolution (including to stockholders).

 

Q:	Why am I being asked to consider and cast a vote on the Asset Sale?

A:

The Company is incorporated under Delaware law, which requires that a corporation obtain approval from its stockholders for the sale of “all or substantially all” of its property and assets. The Asset Sale of the Avenova Business will be deemed to constitute such a sale as the Avenova Business has been responsible for the majority of our revenue since 2015, including accounting for approximately 89% of our revenue for the six months ended June 30, 2024. We are therefore seeking stockholder approval for the Asset Sale at this Special Meeting. Approval by our stockholders of the Asset Sale is also a condition to closing under the Asset Purchase Agreement.

 

Q:	What will happen if the Asset Sale is not approved by the Company’s stockholders or is not completed for any other reason?

A:

If the Asset Sale is not approved by the Company’s stockholders but the Dissolution is approved, the Board of Directors can elect to proceed with the Dissolution and sell the Company’s assets, including the Avenova Business, as part of the Dissolution. If the Asset Sale is not approved by our stockholders, or if the Asset Sale is not completed due to closing conditions not satisfied by either party or for any other reason, (i) we may be required to pay a termination fee of $500,000 to PRN under certain circumstances as described in the Proxy Statement, (ii) we will have expended significant costs in connection with negotiating the Asset Sale and submitting the Asset Sale for approval of stockholders at this Special Meeting, (iii) our relationships with our customers, suppliers and employees with respect to the Avenova Business and our other business lines may be damaged and our business may be harmed and (iv) the market price for our common stock may decline, making any capital raise transaction difficult.

 

 

If the Asset Sale is not completed, we will have limited capital remaining to operate the Avenova Business and our other business lines and we will need to pursue capital raising options that may be available to us, if any, as well as explore our other strategic alternatives including other potential transactions, including a sale of NovaBay or the Avenova Business to another party on such terms as our Board of Directors may approve. The terms of an alternative transaction may be less favorable to us than the terms of the Asset Sale and there can be no assurance that we will be able to reach agreement with or complete an alternative transaction with another party on the necessary timing before our operating cash runs out. If we are not able to efficiently complete the Asset Sale or another transaction such as a financing transaction, the Company may not have enough funds to continue operating its business, which may require the Company to file for bankruptcy.

 

Notwithstanding approval of the Asset Sale and/or the Plan of Dissolution by our stockholders at the Special Meeting, our Board of Directors may, subject to the terms and conditions of the Asset Purchase Agreement, abandon the Asset Sale without further action by our stockholders.

 

Q:	When is the Asset Sale expected to be completed?

A:

If the Asset Sale is approved by our stockholders, we expect to complete the Asset Sale as soon as reasonably practicable after all of the closing conditions in the Asset Purchase Agreement have been satisfied or waived. We currently anticipate that the Asset Sale will be completed in the fourth quarter of 2024, subject to the satisfaction or waiver of all closing conditions. The exact timing of the completion of the Asset Sale, however, cannot be predicted. See “Proposal One: The Asset Sale Proposal—Principal Terms and Conditions of the Asset Purchase Agreement—Closing” and “Proposal One: The Asset Sale Proposal—Principal Terms and Conditions of the Asset Purchase Agreement—Conditions to the Closing”.

 

Questions and Answers Related to the Dissolution

 

Q:	Is the Dissolution of the Company, as contemplated in the Plan of Dissolution, conditioned upon the completion of the Asset Sale?

A:

No. If stockholders do not approve the Asset Sale but do approve the Dissolution, the Board of Directors will evaluate all strategic options available to the Company on the necessary timing before the Company’s operating cash runs out, which may include proceeding with the Dissolution even if the Asset Sale is not first completed. The Board of Directors does not intend to effect the Dissolution unless it first sells substantially all of its assets in the Asset Sale; however, it retains the discretion to do so. Notably, if the Company does proceed with the Dissolution without first completing the Asset Sale, the Company can sell its assets, including the Avenova Business, as part of the Dissolution process (even if the Asset Sale is not separately approved by our stockholders).

 

Q:	What will happen under the Plan of Dissolution?

A:

Under the Plan of Dissolution, the Company will file a Certificate of Dissolution with the Delaware Secretary of State, the Company’s jurisdiction of incorporation, to dissolve the Company as a legal entity. The Company’s Board of Directors, in its sole discretion, will determine whether to proceed with the Dissolution and the timing for this filing. The Company intends to rely on the “safe harbor” procedures under Sections 280 and 281(a) of the DGCL where the Company would obtain an order from the Delaware Court of Chancery establishing the amount and form of security for contested known, contingent and potential future claims that are likely to arise or become known. Further, in connection with the Dissolution, the Company may sell any of its remaining assets (such as the Company’s wound care, urology or dermatology businesses). We expect to distribute all of our remaining assets, in excess of the amount to be used by us to pay claims and fund the reserves required by the court order from the Delaware Court of Chancery and pay our operating expenses through the completion of the Dissolution and winding-up process, to our stockholders.

 

 

Q:	If the Asset Sale Proposal and the Dissolution Proposal are approved and the Asset Sale is consummated on the terms contained in the Asset Purchase Agreement, what does the Company estimate that the holders of common stock will receive?

A:

The amount of cash that may ultimately be received by the Company’s stockholders is not yet known. However, the Company currently estimates that the Company’s stockholders will receive between $0.01 and $0.91 per share of the Company’s common stock. There are many factors that may affect the amounts available for distribution to the Company’s stockholders, including, among other things, the amount of taxes, transaction fees, expenses relating to the Asset Sale and the Dissolution, the sale of any remaining assets of the Company after the Asset Sale (including the Company’s wound care, urology or dermatology businesses), and unanticipated or contingent liabilities that may arise. No assurance can be given as to the amounts the Company’s stockholders will ultimately receive. If the Company has underestimated its existing obligations and liabilities or if unanticipated or contingent liabilities arise, the amount ultimately distributed to the Company’s stockholders could be less than the range set forth above and could even result in no payout to the Company’s stockholders.

 

Q:	When will the Dissolution and winding up of the Company be completed?

A:

If stockholder approval is received for the Asset Sale Proposal and the Dissolution Proposal, the Board of Directors plans to commence the Dissolution of the Company pursuant to the Plan of Dissolution as soon as practicable after the closing of the Asset Sale (although the timing to commence the Dissolution is at the sole discretion of the Board of Directors). We intend to rely on the “safe harbor” procedures under Sections 280 and 281(a) of the DGCL and completing the Dissolution and winding up of the Company as soon as practicable. Upon filing the Certificate of Dissolution, we will cease conducting our business and exist for only limited purposes related to winding up the Company, which we expect to complete within three (3) years of the effective time of the Dissolution. We expect initial distributions to stockholders to occur during that window, and likely within nine (9) to twelve (12) months from the Effective Time of the Dissolution.

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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This Proxy Statement and the documents referenced herein contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Exchange Act, including, but not limited to, statements that are based upon NovaBay’s current expectations, assumptions, estimates, projections and beliefs, including statements about the Asset Sale, the Asset Purchase Agreement, the Dissolution, the Plan of Dissolution, Proposal One (the Asset Sale Proposal) and Proposal Two (the Dissolution Proposal). Forward-looking statements are predictions based on expectations and projections about future events, are not statements of historical fact, are subject to risks, uncertainties and assumptions that are difficult to predict and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The use of words such as, but not limited to, “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “likely,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” and similar words or expressions are intended to identify forward-looking statements. These statements and related risks, uncertainties, factors and assumptions, include, but are not limited to: statements regarding the financial and business impact and effect of the completed Asset Sale and Dissolution, the expected timing of, our ability to complete, and impact of the Asset Sale and the Dissolution, any determinations or action by the Company with respect to any Qualifying Acquisition Proposals (including the Alternative Unsolicited Offer), the amount of distributions to stockholders (if any) in connection with effecting the Dissolution, and any impact to the Company’s products, as well as the Company’s expected future financial results, as a result of failing to complete the Asset Sale and/or the Dissolution. These statements involve risks, uncertainties and other factors that may cause actual results or achievements to be materially different and adverse from those expressed in, or implied by, these forward-looking statements. No representations or warranties (expressed or implied) are made about the accuracy of any such forward-looking statements. New risks and uncertainties may emerge from time to time, and it is not possible to predict all risks and uncertainties. Other risks relating to the Company’s business, including risks that could cause results to differ materially from those projected in the forward-looking statements in this Proxy Statement, are detailed in the Company’s latest Annual Report on Form 10-K, as amended, and subsequent Quarterly Reports on Form 10-Q and/or Current Reports on Form 8-K filings with the SEC, especially under the heading “Risk Factors.” The forward-looking statements in this Proxy Statement and the documents referenced herein represent our current beliefs, estimates and assumptions as of the date of this Proxy Statement, and the Company disclaims any intent or obligation to revise or update publicly any forward-looking statement contained in this Proxy Statement, except as required by law.

 

 

RISK FACTORS

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You should carefully consider the risk factors described below, which are specific risks related to the Asset Sale and the Dissolution, in addition to the other information contained in this Proxy Statement and the annexes attached to this Proxy Statement. The special risk considerations described below are not the only ones that we face. Please also consider the risk factors generally associated with our business contained in our Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2023, and our subsequent SEC filings, in deciding how to vote on the Asset Sale Proposal and the Dissolution Proposal. Also, our actual outcomes could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this Proxy Statement. See the section titled “Cautionary Note Regarding Forward-Looking Statements” beginning on page 19 and “Where You Can Find More Information” beginning on page 73 of this Proxy Statement.

 

General Risks Related to the Asset Sale and the Dissolution

 

The Avenova Business that we propose to sell to PRN has, since 2015, been responsible for the majority of our revenue and without it, we will not be able to continue our operations.

 

The Avenova Business has been responsible for a majority of our revenue since 2015. Currently, even with the Avenova Business, we would need to generate other significant revenue to achieve and maintain profitability, which we have not been able to achieve to date. Historically, our continued operations have been financed primarily by the Avenova Business and regular capital raise transactions. Our capital raise transactions have, with time, become harder, more complicated and more expensive to effect, with less interest by investors and resulting in raising less funds. As a result, our operating cash flow currently is not sufficient to support our ongoing operations, we have limited revenue options, and we expect to continue incurring operating losses and negative cash flows. Accordingly, our existing current cash resources are not sufficient to fund operations at the expected level of activity beyond the fourth quarter of 2024. Although our Board of Directors believes the Asset Sale is in the best interests of NovaBay and our stockholders, the Asset Sale of the Avenova Business will materially adversely affect our financial condition as we do not expect to be able to generate significant revenue from our remaining businesses or from other sources following the closing of the Asset Sale. As a result, our Board of Directors believes the Dissolution, after the Asset Sale is complete, is also in the best interests of our stockholders.

 

There can be no guarantees that the Asset Sale and/or the Dissolution will be completed and, if not completed, it would be very difficult for us to continue our business operations.

 

The consummation of the Asset Sale is subject to the satisfaction or waiver of various conditions, including the approval of the Asset Sale by our stockholders and PRN securing financing to pay for the Asset Sale. Although we have endeavored to minimize execution and closing risk through partnering with PRN, an entity well known to us and known within our industry, and negotiating to limit the scope of Closing conditions in the Asset Purchase Agreement, we cannot control some of the Closing conditions and we cannot assure you that such conditions will be satisfied to close the Asset Sale or that PRN will waive any conditions that are not satisfied. If we are unable to satisfy the Closing conditions favorably or if other mutual Closing conditions are not satisfied, PRN will not be obligated to complete the Asset Sale. Separately, the Dissolution is also subject to approval by our stockholders.

 

If the Asset Sale or the subsequent Dissolution are not completed, we may have to continue our business operations while exploring other strategic alternatives from a difficult position after large amounts of time and expense have been incurred to secure the Asset Sale opportunity. Particularly in light of the Company’s limited capital available and our announced intent to complete the Asset Sale and the Dissolution, our efforts to identify other business strategies may be hindered because we may not be able to identify an alternate transaction on the necessary timing before our cash runs out, or if an alternate transaction is identified, such alternate transaction is unlikely to result in a greater (or even equivalent) price to what is proposed in the Asset Sale.

 

As a result of such risks, there is a high probability that, in such situation, we may have to cease all operations, make an assignment for the benefit of any creditors, turn NovaBay over to a third-party management company or liquidator or file for bankruptcy protection.

 

 

While the Asset Sale and the Dissolution are pending, it creates uncertainty about our future, which could materially and adversely affect our business, financial condition and results of operations.

 

Although the Board of Directors and the Company’s management believe the Asset Sale and the Dissolution are in the best interests of the Company and the best course of action to maximize stockholder return, there are actions that must occur before such transactions can be effected (such as stockholder approval) that take time and, while the Asset Sale and the Dissolution are pending, it creates uncertainty about our future. Therefore, although PRN is a business partner we have known for years and also well-known in our industry, there is still a risk that our current or potential customers and suppliers may decide to delay, defer or cancel entering into new business arrangements with us pending consummation of the Asset Sale, or termination of the Asset Purchase Agreement or otherwise pending completion of the Dissolution. In addition, while the Asset Sale is pending (and whether or not consummated), we are subject to a number of other risks, including:

●

the diversion of management and employee attention from our day-to-day business;

●

adverse effects to the trading price of our common stock; and

●

the loss of employees who may depart due to their concern about losing their jobs following the Asset Sale or a shift in loyalty of employees of the businesses to be sold who view PRN as their de facto employer even before the consummation of the Asset Sale.

 

The occurrence of any of these events individually or in combination could materially and adversely affect our business, financial condition and results of operations. If certain of these events give rise to a material adverse effect, then it could preclude the closing of the Asset Sale. We have also incurred substantial transaction costs in connection with the Asset Sale, and we will continue to do so until the Asset Sale is approved by our stockholders and completed or is otherwise terminated.

 

We may be subject to litigation, which is expensive and could divert our attention.

 

As a result of the Asset Sale and/or the Dissolution, we may be subject to litigation, including securities class action litigation. Litigation against us could result in substantial costs and divert our management’s attention from closing the Asset Sale or completing the Dissolution in a timely manner, which could harm our business, increase our expenses, ultimately decrease the amount available for distribution (if any) to our stockholders as part of the Dissolution and possibly force us into a bankruptcy situation.

 

As a result of completing the Asset Sale, our common stock will likely be delisted from the NYSE American, and in connection with the Dissolution we plan to initiate steps to exit from certain reporting requirements under the Exchange Act. If the exit process is protracted, we will continue to bear the expense of being a public reporting company despite having no source of revenue.

 

Our common stock is currently registered under the Exchange Act, which requires that we comply with certain public reporting and proxy statement requirements. Compliance with these requirements is costly and time-consuming; however, it aids in information being widely publicly available to our stockholders and has historically been beneficial in capital raise transactions.

 

Under the NYSE American continued listing requirements, the completion of the sale of substantially all of our assets may cause the NYSE American to delist our shares. To the extent the NYSE American does not delist our shares and we complete the Asset Sale, we plan to notify FINRA of our impending dissolution and request that our common stock stop trading on the NYSE American on the effective date of the Dissolution or as soon thereafter as is reasonably practicable. Whether or not the Asset Sale or the Dissolution are completed, and regardless of whether our shares are delisted from the NYSE American, we will have an obligation to continue to comply with the applicable reporting requirements of the Exchange Act until we have exited from such reporting requirements. We plan to initiate steps to exit from such reporting requirements in order to curtail expenses; however, such process may be protracted and we may be required to continue to make certain filings with the SEC. Accordingly, we will continue to incur expenses that will reduce any amount available for distribution, including expenses of complying with public company reporting requirements and paying our service providers, among others. If our reporting obligations cease, publicly available information about us will be substantially reduced.

 

To the extent the NYSE American delists our common stock from trading on its exchange as a result of the Asset Sale or otherwise and the Dissolution is not approved or implemented or is otherwise delayed, we will not be eligible to apply to list our securities (like a new company) on the NYSE American or on another national securities exchange due to our inability to currently meet the initial listing standards applicable to a newly listed company, and we could face significant material adverse consequences including during any period between such delisting and the effective date of the Dissolution, such as reduced liquidity for our securities, limited availability of market quotations for our securities and a determination that our common stock is a “penny stock,” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities.

 

 

Certain of NovaBay’s directors and executive officers may have interests in the Asset Sale and the Dissolution that may be different from, or in addition to, the interests of our stockholders.

 

Certain of NovaBay’s directors and executive officers may have interests in the Asset Sale and the Dissolution that are different from, or in addition to, the interests of NovaBay stockholders. These interests include NovaBay’s obligations related to certain consulting and service arrangements and indemnifying and insuring our directors and executive officers. As a result of these interests, NovaBay’s directors and executive officers could be more likely to recommend a vote in favor of the Asset Sale and the Dissolution than if they did not hold these interests, and may have reasons for doing so that are not the same as the interests of our other stockholders. See “Interests of Directors and Executive Officers in the Approval of the Asset Sale and Plan of Dissolution” beginning on page 68 of this Proxy Statement.

 

Risks Related to the Asset Sale

 

You are not guaranteed any of the proceeds from the Asset Sale.

 

You should not vote in favor of the Asset Sale based upon the assumption that you will receive any portion of the net proceeds from the Asset Sale. The proceeds will be an asset of the Company and only subject to distribution to stockholders, to the extent any proceeds remain, as part of an orderly and efficient voluntary dissolution pursuant to the Plan of Dissolution (if approved by our stockholders pursuant to Proposal Two of this Proxy Statement and effected by our Board of Directors) or as a result of bankruptcy proceedings if ever applicable, which may occur as a result of our stockholders not approving the Dissolution. Our Board of Directors has evaluated options to maximize the value of our assets and recommends voting for the Asset Sale as part of its efforts to maximize stockholder value in connection with the Dissolution.

 

We will incur significant expenses and effort in connection with the Asset Sale, regardless of whether the Asset Sale is completed.

 

We expect to incur significant expenses related to the Asset Sale. These expenses include, but are not limited to, legal fees, accounting fees and expenses (including those related to evaluating Qualifying Acquisition Proposals), certain consultant expenses including our financial advisor, filing fees, printing expenses and other related fees and expenses. Many of these expenses will be payable by us regardless of whether the Asset Sale is completed. In addition, if the Asset Sale is not consummated, our directors, executive officers and other employees will have expended extensive time and effort and will have experienced significant distractions from their work during the pendency of the transaction without any material financial return to the Company and its stockholders.

 

The Asset Purchase Agreement will expose us to contingent liabilities after the closing of the Asset Sale that could have a material adverse effect on our financial condition and the amount of proceeds available (if any) in the Dissolution.

 

We have agreed to indemnify PRN for breaches of any representation, warranty, or covenant made by us in the Asset Purchase Agreement, for losses arising out of or in connection with excluded assets or excluded liabilities, and for certain other matters. Indemnification claims by PRN would first reduce the $500,000 that will be held in escrow after the closing for six (6) months, and thereafter, NovaBay would be directly responsible for any indemnification claims subject to the limits set forth in the Asset Purchase Agreement. Other than in the event of fraud or with respect to Fundamental Representations (as defined in the Asset Purchase Agreement), we will not be obligated to indemnify PRN for any breach of the representations or warranties made by us under the Asset Purchase Agreement until the aggregate amount of claims for indemnification exceeds $50,000. In the event that such claims for indemnification for breach of the representations or warranties exceed this threshold (except related to fraud or Fundamental Representations), we will be obligated to indemnify PRN for any damages or loss resulting from such breach up to $500,000. See “Proposal One: The Asset Purchase Agreement—Principal Terms and Conditions of the Asset Purchase Agreement—Indemnification”. We have also agreed to a Net Working Capital Adjustment pursuant to the Asset Purchase Agreement, which could reduce the $500,000 that will be held in escrow if such Net Working Capital Adjustment is in favor of PRN.

 

Any claims for indemnification made by PRN and any Net Working Capital Adjustment in favor of PRN and paid from the Escrow, or otherwise due to PRN in excess of the Escrow (as relates to certain indemnification claims), will reduce the amount of the aggregate purchase price actually received by the Company and the amount of cash ultimately available for distribution to our stockholders in the Dissolution (if any). There can be no assurance that the Escrow will not be used to satisfy indemnification claims and any Net Working Capital Adjustment, which could effectively reduce the Purchase Price for the Avenova Business to $9.0 million rather than $9.5 million.  

 

 

PRN is not assuming the Excluded Liabilities (as defined under the Asset Purchase Agreement).

 

Under the Asset Purchase Agreement, PRN is assuming only limited pre-Closing liabilities of the Avenova Business, and otherwise all liabilities of the business will remain with us after the Asset Sale. While the Company believes that it has adequately accrued for these liabilities or is adequately insured against certain of the risks associated with such retained liabilities, there can be no assurances that additional expenditures will not be incurred in resolving these liabilities.

 

The Asset Purchase Agreement provides that PRN will obtain financing in order to fund the purchase price, and there can be no guarantee that PRN will be able to complete such financing when all other closing conditions for the Asset Sale have been satisfied.

 

Although PRN has obtained, and the Board of Directors has reviewed, a debt commitment letter reflecting certain lenders’ intent to provide PRN with adequate financing to fund the purchase price in connection with the Closing of the Asset Sale, there is otherwise no guarantee that PRN will be able to complete, and obtain, such financing when needed to close the Asset Sale. To the extent all closing conditions under the Asset Purchase Agreement have been satisfied but PRN fails to close the transaction, we can notify PRN of our willingness and ability to close, and, if PRN is unable or does not close the Asset Sale within three business days (including as a result of being unable to obtain financing), PRN would owe NovaBay a termination fee of $500,000, which would be our only recourse against PRN in such circumstances except for fraud or a willful breach by PRN.

 

The Asset Purchase Agreement limits our ability to pursue alternatives to the Asset Sale.

 

Having entered into a contract with PRN to sell the Avenova Business, the Asset Purchase Agreement understandably contains provisions that make it substantially more difficult for us to sell the Avenova Business or engage in another type of acquisition transaction with a party other than PRN, although we would be allowed to do so in certain situations to permit the Board of Directors to comply with its fiduciary duties. Specifically, we may not solicit any Acquisition Proposal (as defined in the Asset Purchase Agreement) until the valid termination of the Asset Purchase Agreement, except with respect to certain actions of the Company related to Qualifying Acquisition Proposals and Superior Proposals (both as defined in the Asset Purchase Agreement), and we pay a termination fee of $500,000 if the Asset Purchase Agreement is correspondingly terminated in specified circumstances. On September 25, 2024, the Company received the Alternative Unsolicited Offer that the Board of Directors determined is a Qualifying Acquisition Proposal. While the Board of Directors is continuing to evaluate the Alternative Unsolicited Offer, there is no assurance that the Board of Directors will ultimately determine such transaction is a Superior Proposal and terminate the Asset Sale. See “Proposal One: The Asset Purchase Agreement—Principal Terms and Conditions of the Asset Purchase Agreement—Acquisition Proposals” and “Proposal One: The Asset Purchase Agreement—Principal Terms and Conditions of the Asset Purchase Agreement—Termination Fee”. These provisions, among others contained in the Asset Purchase Agreement, could discourage other third parties that might have an interest in acquiring all or substantially all of our assets or our common stock from considering or proposing such an acquisition, even if such parties were prepared to pay consideration with a higher value than the consideration to be paid by PRN.

 

Risks Related to the Dissolution

 

We cannot assure you as to the amount of distributions, if any, to be made to our stockholders.

 

We cannot predict with certainty the timing, amount, or number of distributions, if any, to our stockholders. As of September 30, 2024, we had approximately $776 thousand in cash and cash equivalents. We currently estimate that we will expend between $3.5 million and $4.4 million after September 30, 2024, which will be used to pay all expenses (including operating expenses up until the filing of the Certificate of Dissolution) and other known, non-contingent liabilities, and which also includes reasonable provision for expenses of liquidation and potential, contingent or unknown liabilities as required by Delaware law. Based on this estimated reserve, if the Asset Sale is consummated, for which NovaBay will receive upfront consideration of $9.0 million (plus the Escrow of $500,000 to be held for six months post-Closing), we currently estimate that the aggregate amount of liquidating distributions to stockholders will be between $64 thousand and $4.5 million, or between $0.01 and $0.91 per share of common stock (based on 4,907,651 shares of common stock and other equity outstanding as of October 14, 2024). This amount may be paid in one or more distributions. Any such distributions will not occur until after the Certificate of Dissolution is filed, and we cannot predict the timing or amount of any such distributions, or whether any such distributions will occur, as uncertainties as to the ultimate amount of our liabilities, the operating costs and amounts to be set aside for claims, obligations and provisions during the liquidation and winding-up process, and the related timing to complete such transactions, make it impossible to predict with certainty the actual net cash amount, if any, that will ultimately be available for distribution to stockholders or the timing of any such distributions. Examples of uncertainties that could reduce the value of distributions to our stockholders include: (i) the incurrence by the Company of expenses relating to the Dissolution being different than estimated; (ii) unanticipated costs relating to the defense, satisfaction or settlement of lawsuits or other claims that may be threatened against us or our current or former directors or officers; (iii) amounts necessary to resolve claims, including unforeseen claims, of any creditors or other third parties; and (iv) delays in the Dissolution or other winding up process. In addition, as we wind down, we will continue to incur expenses from the remaining operations, such as operating costs, severance payments, payments to any continuing employees or consultants, lease rental payments, directors’ and officers’ insurance, taxes, legal, accounting and financial advisory fees and expenses related to our filing obligations with the SEC, which will reduce amounts that will be available for distribution to our stockholders, if any. We have attempted to estimate reasonable reserves for such liabilities, obligations, expenses and claims against us. However, those estimates may be inaccurate. Accordingly, stockholders may receive substantially less than the amount that we currently estimate that they may receive, or they may receive no distribution at all.

 

 

We intend to rely on the “safe harbor” procedures under Sections 280 and 281(a) of the DGCL to, among other things, obtain an order from the Delaware Court of Chancery establishing the amount and form of security for pending claims for which the Company is a party, contingent or unmatured contract claims for which the holder declined the Company’s offer of a security, and unknown claims that, based on facts known to the Company, are likely to arise or become known within three years of filing of the Certificate of Dissolution (or such longer period of time as the Delaware Court of Chancery may determine) (the “Court Order”), and pay or make reasonable provision for our uncontested known claims and expenses and establish reserves for other claims as required by the Court Order and the DGCL. We expect to distribute all of our remaining assets in excess of the amount to be used by us to pay claims and fund the reserves required by the Court Order and pay our operating expenses through the completion of the dissolution and winding-up process to our stockholders. The Court Order will reflect the Delaware Court of Chancery’s own determination as to the amount and form of security reasonably likely to be sufficient to provide compensation for all known, contingent and potential future claims against us. There can be no assurances that the Delaware Court of Chancery will not require us to withhold additional amounts in excess of the amounts that we believe are sufficient to satisfy our potential claims and liabilities. Accordingly, our stockholders may not receive any distributions of our remaining assets for a substantial period of time, if at all, after satisfaction of all claims.

 

As a result of these and other factors, we cannot assure you as to any amounts, if any, to be distributed to our stockholders if the Board of Directors proceeds with the Dissolution. If our stockholders do not approve the Dissolution Proposal, we will not be able to proceed with the Dissolution and no liquidating distributions will be made. See the section entitled “Proposal Two: The Dissolution Proposal—Estimated Liquidating Distributions to Stockholders” beginning on page 63 of this Proxy Statement for a description of the assumptions underlying, and sensitivities of, our estimate of the total cash distributions to our stockholders in the Dissolution.

 

We cannot predict the timing of the distributions to stockholders.

 

Our current intention is that, if the Dissolution Proposal is approved by our stockholders, the Certificate of Dissolution would be filed promptly after the Asset Sale is completed; however, ultimately, the decision of whether or not to proceed with the Dissolution will be made by the Board of Directors in its sole discretion. If our stockholders approve the Plan of Dissolution, the Board of Directors has not set a deadline to make its decision to proceed with the effectiveness of the Dissolution. No further stockholder approval would be required to effect the Dissolution.

 

Under the DGCL, before a dissolved corporation may make any distribution to its stockholders, it must pay or make reasonable provision to pay all of its claims and obligations, including all contingent, conditional or unmatured contractual claims known to the corporation, as determined by the Board of Directors and pursuant to the “safe harbor” procedures approved by the Court Order. We can provide no assurance as to if or when any such distribution will be made, and we cannot provide any assurance as to the amount to be paid to each stockholder in any such distribution, if one is made. The Board of Directors intends to seek to distribute funds to our stockholders as quickly as possible, as permitted by the DGCL, and will take all reasonable actions to optimize the distributable value to our stockholders. We anticipate that distributions, if any, to our stockholders will be made in cash, and may be made at any time with initial distributions to stockholders anticipated to occur in nine (9) to twelve (12) months from the effective time of the Dissolution.

 

The precise timing of any distributions to our stockholders will depend on and could be delayed due to many factors, including without limitation, the time it takes to obtain the Court Order and whether a creditor or other third party seeks an injunction against the making of additional distributions to stockholders on the basis that the amounts to be distributed are needed to satisfy our liabilities or other obligations to the extent not previously reserved for. As a result of these and other factors, we are unable to predict the timing of distributions, if any are made, to our stockholders.

 

 

The Board of Directors may determine not to proceed with the Dissolution.

 

Even if the Dissolution Proposal is approved by our stockholders, the Board of Directors may determine, in the exercise of its fiduciary duties, not to proceed with the Dissolution. If our Board of Directors elects to pursue any alternative to the Plan of Dissolution, our stockholders may not receive any of the funds that might otherwise be available for distribution to our stockholders. The decision of whether or not to proceed with the Dissolution will be made by the Board of Directors in its sole discretion and the Board of Directors has not set a deadline to make its decision to proceed with or abandon the Dissolution after stockholder approval.

 

Our stockholders may be liable to our creditors for part or all of the amount received from us in our liquidating distributions if reserves are inadequate.

 

Under the DGCL, we are required, in connection with the Dissolution, to pay or make reasonable provision for payment of our liabilities and obligations. We will establish a reserve, consisting of cash or other assets that we believe will be adequate for the satisfaction of all of our current known expenses and unknown, contingent and/or conditional claims and liabilities. The estimated amount of the reserve is established by the Board of Directors, and approved by the Delaware Court of Chancery; however, such estimated amount may not be adequate to cover all of our claims and obligations. Under the DGCL, if we fail to create an adequate contingency reserve for payment of our expenses, claims and obligations, each stockholder could be held liable for payment to our creditors for claims. However, to the extent the “safe harbor” procedures under Sections 280 and 281(a) of the DGCL are followed as we plan to, a stockholder will not be liable for any claim in excess of the lesser of (a) the stockholder’s pro rata share of the claim and (b) the amount distributed to the stockholder, and only with respect to claims that began before the expiration of the Survival Period.

 

If stockholders vote against the Dissolution, we may pursue other alternatives, but there can be no assurance that any of these alternatives would result in greater (or even equivalent) stockholder value than the proposed Dissolution, and any alternative we select may entail additional risks.

 

If our stockholders do not approve the Dissolution Proposal, the Company will continue its corporate existence and the Board of Directors will continue to explore what, if any, alternatives are available to return capital to stockholders in a manner intended to maximize value in light of its discontinued business activities to the extent the Asset Sale is completed; however, those alternatives are likely limited to seeking bankruptcy protection or protection under other insolvency laws. It is unlikely that these alternatives would result in greater stockholder value than the proposed Plan of Dissolution and the Dissolution.

 

Our stockholders will not be able to buy or sell shares of our common stock after we close our stock transfer books at the effective time of the Certificate of Dissolution.

 

If the Board of Directors determines to proceed with the Dissolution, we intend to close our stock transfer books and discontinue recording transfers of our common stock at the effective time of the Dissolution as set forth in the Certificate of Dissolution. After we close our stock transfer books, we will not record any further transfers of our common stock on our books except by will, intestate succession or operation of law. Therefore, shares of our common stock will not be freely transferable after such date. As a result of the closing of the stock transfer books, all liquidating distributions in the Dissolution will be made pro rata to the stockholders of record as of the effective time of the Certificate of Dissolution, with distribution (if any) anticipated to occur in nine (9) to twelve (12) months from the Effective Time.

 

Stockholders may not be able to recognize a loss for U.S. federal income tax purposes until they receive a final distribution from us.

 

Distributions made pursuant to the Plan of Dissolution are intended to be treated as received by a stockholder in exchange for the stockholder’s shares of our common stock. Accordingly, the amount of any such distribution allocable to a block of shares of our common stock owned by a U.S. stockholder will reduce the stockholder’s tax basis in such shares, but not below zero. Any excess amount allocable to such shares will be taxable as capital gain. Such gain generally will be taxable as long-term capital gain if the shares have been held for more than one year. Any tax basis remaining in a share of our common stock following the final liquidating distribution by the Company will be treated as a capital loss. The deductibility of capital losses is subject to limitations. For a more detailed discussion, see “Certain U.S. Federal Income Tax Consequences” beginning on page 65 of this Proxy Statement. You should consult your tax advisor as to the particular tax consequences of the Dissolution to you, including the applicability of any U.S. federal, state, local and non-U.S. tax laws.

 

 

Further stockholder approval will not be required in connection with the implementation of the Plan of Dissolution, including the sale or disposition of all or substantially all of the Company’s assets following the effective time of the Dissolution pursuant to the Plan of Dissolution.

 

The approval of the Dissolution Proposal by the requisite vote of our stockholders will grant full and complete authority to our Board of Directors and executive officers, without further stockholder action, to proceed with the Dissolution pursuant to the Plan of Dissolution in accordance with any applicable provision of Delaware law. However, we intend to continue to explore alternatives for returning capital to stockholders in a manner intended to maximize value. Following the Effective Time, we may sell, distribute or otherwise dispose of our remaining non-cash assets without further stockholder approval, including our wound care, urology or dermatology businesses as well as the Avenova Business to the extent stockholders do not approve the Asset Sale or the Asset Sale is not otherwise completed. As a result, stockholders will no longer have the opportunity to approve or reject a sale of all or substantially all of our assets after the Certificate of Dissolution has been filed. Also, after the Effective Time, the Board of Directors may, in order to maximize value for our stockholders and creditors, authorize actions in implementing the Plan of Dissolution, including the specific terms and prices for the sales and dispositions of its remaining assets, with which stockholders may not agree.

 

 

THE SPECIAL MEETING

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Purpose of Meeting

 

The Proposals to be considered and acted upon at the Special Meeting are summarized in the Notice of Special Meeting and the Summary of the Proxy Statement and are described in more detail below and in the description of each of the three proposals that has been included elsewhere in this Proxy Statement.

 

Attendance at the Special Meeting

 

As permitted by Delaware law and our Bylaws, the Special Meeting will be held solely as a virtual meeting live via the Internet. You will be able to attend the Special Meeting via live webcast by visiting our virtual meeting website (www.virtualshareholdermeeting.com/NBY2024SM) at the meeting time. Upon visiting the meeting website, you will be prompted to enter your 16-digit control number provided on your proxy card if you receive proxy materials by mail. Your unique control number allows us to identify you as a stockholder and will enable you to securely log on, vote and submit questions during the Special Meeting on the meeting website.

 

Shares that you hold as a beneficial owner but not the stockholder of record also may be voted electronically during the Special Meeting if you have a 16-digit control number. If there is no 16-digit control number included on your instructions, please refer to the information provided by your broker, bank or other holder of record for voting information and/or instruction on how to attend the Special Meeting.

 

Even if you plan to attend the Special Meeting virtually, we recommend that you vote your shares in advance, so that your vote will be counted if you later decide not to attend the Special Meeting.

 

Voting; Quorum

 

The Record Date for determining those stockholders who are entitled to notice of, and to vote at, the Special Meeting has been fixed as October 15, 2024. Only stockholders of record at the close of business on the Record Date are entitled to notice of, and to vote at, the Special Meeting and any adjournment or postponement thereof. Each stockholder is entitled to one vote for each share of common stock held by such stockholder as of the Record Date. The holder of the Series B Non-Voting Convertible Preferred Stock has no voting rights in relation to the Proposals, and, therefore, will not vote at the Special Meeting. As of the Record Date, 4,885,693 shares of common stock were outstanding, and 131 shares of Series B Non-Voting Convertible Preferred Stock were outstanding.

 

The presence at the Special Meeting, either in person or by duly authorized proxy, of holders of one-third of the voting power of all the outstanding shares of common stock entitled to vote will constitute a quorum for the transaction of business at the Special Meeting. Stockholders who log on and vote at our virtual meeting of stockholders with their 16-digit control number are considered present in person at the meeting. Proxies voted “ABSTAIN” are counted as present for purposes of determining the presence of a quorum. Shares of our common stock that are not voted or represented by broker non-votes will not be counted as shares present for purposes of determining the presence of a quorum at the Special Meeting.

 

A broker non-vote occurs when the broker, bank or other nominee holding shares for a beneficial owner does not vote on a particular proposal because such broker, bank or other nominee does not have discretionary voting power to vote on that proposal without specific voting instructions from the beneficial owner. If a quorum is not present, we expect to then adjourn the Special Meeting until a quorum is obtained.

 

Required Votes and Effects of Abstentions and Broker Non-Votes

 

Votes Generally.  Votes will be counted by the inspector of election appointed for the Special Meeting, who will separately count, for each proposal, votes “FOR,” “AGAINST,” “ABSTAIN,” and broker non-votes as applicable.

 

Abstentions and Broker Non-Votes.  Abstentions will count towards the quorum. Shares not voted and broker “non-votes” will have the effect of a vote against Proposal One and Proposal Two and will not be counted or deemed to be present or represented for the purposes of determining whether a quorum exists at the Special Meeting.

 

 

Required Vote.  The following table summarizes the minimum vote needed to approve each proposal and the effect of abstentions and broker non-votes.

 

Proposal No.		Proposal Description		Vote Required for Approval		Effect of Abstentions (Non-votes)		Effect of Broker Non-Votes
One		The Asset Sale Proposal To approve the Asset Sale (or a sale of substantially all of the assets of the Company), pursuant to the Asset Purchase Agreement, by and between the Company and PRN.		“FOR” votes of the holders of a majority of our outstanding shares of common stock outstanding on the Record Date.		Against		Against
Two		The Dissolution Proposal To approve the Dissolution, pursuant to the Plan of Dissolution, which, if approved, will authorize the Company to liquidate and dissolve in accordance with the Plan of Dissolution, and pursuant to the discretion of the Board of Directors to proceed with the Dissolution.		“FOR” votes of the holders of a majority of our outstanding shares of common stock outstanding on the Record Date.		Against		Against
Three		The Adjournment Proposal  To grant discretionary authority to our Board of Directors to adjourn the Special Meeting from time to time, if necessary or appropriate, to establish a quorum or, even if a quorum is present, to permit further solicitation of proxies if there are not sufficient votes cast at the time of the Special Meeting in favor of Proposal One and/or Proposal Two.		“FOR” votes from a majority of the shares present in person or represented by proxy and entitled to vote at the Special Meeting.		No effect		No effect

 

Voting at this Special Meeting as a stockholder on all three proposals is very important to the future of NovaBay and your investment. If either the Asset Sale Proposal or the Dissolution Proposal is not approved by our stockholders, our Board of Directors and management will continue to explore other strategic alternatives so long as we have operating capital to continue our operations, which is currently only projected to last into the fourth quarter of 2024. Due to the fact that our Board of Directors and management believe that the Company has exhausted all reasonable and viable strategic alternatives, if the Asset Sale Proposal and the Dissolution Proposal are not approved by our stockholders, it is likely that we will cease all operations, make an assignment for the benefit of any creditors, turn the Company over to a third-party management company or liquidator or file for bankruptcy protection. Even if our stockholders approve the Dissolution Proposal, our Board of Directors has reserved the right, in its discretion, to the extent permitted by Delaware law, to abandon or delay implementation of the Dissolution, in order, for example, to permit the Company to pursue any new business opportunities or strategic transactions that may unexpectedly arise. We may seek to sell our remaining non-cash assets without further stockholder approval, which could include our wound care, urology or dermatology businesses as well as the Avenova Business to the extent our stockholders do not approve the Asset Sale or the Asset Sale is not otherwise completed.

 

Effect of Not Voting

 

Stockholder of Record; Shares Registered in Your Name

 

If you are a stockholder of record and do not vote by completing your proxy card, by telephone, over the Internet or in person at the Special Meeting, your shares of common stock will not be counted for purposes of determining whether a quorum is present at the Special Meeting, and will have the same effect as a vote “AGAINST” the Asset Sale Proposal and the Dissolution Proposal and no effect on the Adjournment Proposal. If you are a stockholder of record, voting virtually at the Special Meeting will revoke any proxy that you previously submitted.

 

 

Beneficial Owner; Shares Registered in the Name of a Broker, Bank or Other Nominee

 

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 under its rules. Brokers, banks or other nominees can use their discretion to vote “uninstructed” shares with respect to matters that are considered to be “routine,” but are not able to use their discretion to vote 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 they are management supported. Proposal One (the Asset Sale Proposal), Proposal Two (the Dissolution Proposal) and Proposal Three (the Adjournment Proposal) are deemed to be “non-routine” matters. Accordingly, your broker, bank or other nominee may not vote your shares on Proposal One, Proposal Two or Proposal Three without voting instructions from you.

 

Voting Methods

 

If you were a stockholder of record on the Record Date, you may vote your shares at the virtual Special Meeting, www.virtualshareholdermeeting.com/NBY2024SM, which contains voting instructions. You may also vote your shares by telephone by calling (toll free within the United States and Canada) 1-800-690-6903 and following the voting instructions read to you by the automated operator. 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 October 16, 2024. Internet and telephone voting will close promptly at 11:59 p.m. Eastern Time on November 21, 2024. After that time, you will only be able to vote by attending the Special Meeting via live webcast and voting at the Special Meeting. The meeting starts at 11:00 a.m. (Pacific Time). 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.

 

Upon visiting the meeting website or calling the telephone number provided above, you will be prompted to enter your 16-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.

 

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” Proposal One, Proposal Two and Proposal Three as described in the Notice of the Special Meeting and this Proxy Statement. The proxy card also grants the proxy holder 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 their intent to present a stockholder proposal at the Special Meeting.

 

Revoking Proxies

 

If your shares of common stock 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), (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) filing a notice of revocation or another signed proxy card with a later date with our Corporate Secretary, Mr. Justin Hall, Esq., at our principal executive offices at 2000 Powell Street, Suite 1150, Emeryville, California 94608.

 

 

Solicitation

 

We will bear the entire cost of proxy solicitation, including the costs of preparing, assembling, printing and mailing this Proxy Statement, the Notice of Special Meeting, the proxy card and any additional solicitation materials furnished to our 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, email or any other means by our directors, executive officers or employees. No additional compensation will be paid to these individuals for any such services. In addition, we have engaged Sodali to assist in the solicitation of proxies and to provide related advice and informational support. For additional information about this engagement, please see “Method of Proxy Solicitation” below.

 

Results of Voting at the Special Meeting

 

We expect to announce preliminary voting results at the Special Meeting. In addition, we expect that final voting results will be filed with the SEC on a Current Report on Form 8-K within four business days after the Special Meeting, or that we will otherwise post the final voting results following the Special Meeting on our website.

 

 

MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING

 

 

PROPOSAL ONE:

 

THE ASSET SALE PROPOSAL

 

General

 

Over NovaBay’s corporate history, and in particular in recent years, we have faced meaningful operational and financial challenges. Since 2022, based on the amount of capital and liquidity available for continuing operations, NovaBay has publicly disclosed in its periodic filings with the SEC that its planned operations raised substantial doubt about its ability to continue as a going concern. We have worked diligently to fund our operations over the years through capital raise transactions, including our most recently completed public offering of NovaBay common stock and common stock warrants that closed in July 2024 and the divestiture of our former subsidiary, DERMAdoctor, in March 2024. The capital raised in these transactions resulted in proceeds that were important to continuing to maintain our operations to date; however, such amounts are not sufficient to continue to fund our current operations beyond the fourth quarter of 2024, especially given the exceptionally high costs of being a publicly-traded company on the NYSE American.

 

As a result of the imminent need for capital in the near term and capital raise transactions having become increasingly difficult to identify and close, we have continued to evaluate our current business plan and our overall strategic direction, including a potential strategic transaction such as a divestiture of certain businesses or product lines and related assets. After diligently evaluating our strategic options available to us in the near- and long-term, and our current cash position, and in an effort to maximize stockholder value, our Board of Directors has determined that it is in the best interests of stockholders to seek a divestiture of the Avenova Business, which represents substantially all of the assets of NovaBay. In furtherance of these efforts, our Board of Directors is presenting the Asset Purchase Agreement for approval by our stockholders at the Special Meeting.

 

The Asset Purchase Agreement was unanimously approved by our Board of Directors, subject to stockholder approval, on September 19, 2024. A copy of the Asset Purchase Agreement is attached as Annex A to this Proxy Statement. All material terms of the Asset Purchase Agreement are summarized below. All capitalized, undefined terms used in this Proposal One shall have the meanings ascribed to such terms in the Asset Purchase Agreement. We encourage you to read the Asset Purchase Agreement in its entirety.

 

The Parties to the Asset Sale

 

About NovaBay

 

NovaBay is focused on the development and sale of scientifically-created and clinically-proven eyecare and wound care products. Our leading product, Avenova® Lid and Lash Solution, or Avenova Spray, is proven in laboratory testing to have broad antimicrobial properties as it removes foreign material including microorganisms and debris from the skin around the eye, including the eyelid.

 

NovaBay was originally incorporated as a California corporation on January 19, 2000, and converted to a Delaware corporation in June 2010. NovaBay’s principal executive offices are located at 2000 Powell Street, Suite 1150, Emeryville, California 94608, and our telephone number is (510) 899-8800. Our website address is www.novabay.com.

 

About PRN

 

PRN owns and operates several brands focused on the eyecare industry. PRN partners with ophthalmologists and optometrists to provide patients with specialty oral supplements to support long-term ocular health. Importantly, PRN is an industry leader with a leading physician recommended nutraceutical dry eye product and a synergistic business model to the Avenova Business. PRN is committed to assisting its partner eye health professionals to support the health, education, and well-being of its patients, through superior customer service and the application of peer-reviewed clinical research.

 

 

PRN was formed as a Delaware limited liability company on July 2, 2014. Its principal executive offices are located at 960 Harvest Drive, Suite B205, Blue Bell, Pennsylvania 19422. Its telephone number is (844) 776-4968 and its website address is www.prnvision.com.

 

Summary of Key Deal Terms of the Asset Purchase Agreement

 

The following is a summary of the key deal terms of the Asset Purchase Agreement that provides for the Asset Sale:

 

●

Pursuant to the Asset Purchase Agreement, NovaBay will sell and assign all of the assets, properties and rights of NovaBay used in the conduct of its eyecare business (including Avenova) to PRN, and PRN shall assume certain liabilities relating to or arising out of the ownership, use or operation of such acquired assets of the Avenova Business from and after the Closing. The Asset Sale will not include the sale of NovaBay’s wound care, urology or dermatology businesses.

 

●

The total consideration for the purchase and sale of the Avenova Business and the assumption by PRN of specified liabilities as summarized in the first bullet above and discussed below is $9.5 million, as adjusted for the Net Working Capital Adjustment with $500,000 to be held in escrow for six (6) months for any post-Closing indemnification by NovaBay or any post-Closing Net Working Capital Adjustment.

 

●

Until the Closing, NovaBay is prohibited from, directly or indirectly, engaging in any solicitation or similar activities related to another Acquisition Proposal for the Avenova Business, as set forth in the Asset Purchase Agreement, subject to agreed upon exceptions. However, NovaBay may, under limited circumstances, consider and potentially pursue unsolicited, alternative transaction proposals from third parties that are Qualifying Acquisition Proposals (as defined below and such as the Alternative Unsolicited Offer), including those that become Superior Proposals (as defined below). NovaBay must give PRN an opportunity to revise its proposal through a counteroffer or an amendment to the Asset Purchase Agreement to allow for any alternative Qualifying Acquisition Proposal to no longer be a Superior Proposal.

 

●

The closing of the Asset Sale is subject to a number of other closing conditions, including NovaBay obtaining the stockholder approval being sought by this Proposal One and there being no material adverse effect having occurred through the Closing, as well as PRN obtaining financing to fund the purchase price.

 

●

NovaBay shall, in certain specified circumstances (as described in more detail below), including if PRN terminates the Asset Purchase Agreement due to an Adverse Recommendation Change being effected or if NovaBay terminates the Asset Purchase Agreement to effect a Superior Proposal, pay a termination fee of $500,000 to PRN. PRN is required to pay NovaBay a termination fee of $500,000 if NovaBay has provided notice to PRN that all of NovaBay’s closing conditions have been met and PRN is not able to, or does not, close the Asset Sale (including due to PRN’s failure to obtain financing).

 

The summary of selected information from this Proxy Statement regarding the Asset Sale Proposal may not contain all the information that is important to you. To understand the Asset Sale Proposal and the Asset Purchase Agreement fully, we encourage you to carefully read this entire Proxy Statement, including, but not limited to, the Asset Purchase Agreement which is included in this Proxy Statement as Annex A.

 

Background for the Asset Sale and the Dissolution

 

NovaBay’s business includes developing and selling scientifically-created and clinically-proven eyecare and wound care products. Our leading eyecare product, Avenova Spray, is proven in laboratory testing to have broad antimicrobial properties as it removes foreign material including microorganisms and debris from the skin around the eye, including the eyelid. We began selling Avenova in the United States in 2014, and, over the past ten years, we have grown Avenova’s customers through both an over-the-counter market and a prescription market. The Company also sells certain wound care products, and in 2021, the Company diversified its product offerings through the acquisition of DERMAdoctor to offer certain dermatology and skincare products. However, in March of 2024, the Company sold DERMAdoctor as part of its strategic direction to concentrate on its eyecare business and the continued commercialization of the Avenova Business.

 

 

The Avenova Business is the Company’s primary product offerings and business. Revenue from the Avenova Business accounted for approximately 89% of the Company’s total product revenue for the six months ended June 30, 2024 with over-the-counter being our leading sales channel by unit sales and net revenue. Over the past decade, NovaBay has committed significant business and financial resources to operate the Avenova Business and continue the commercialization of its eyecare products; however, notwithstanding these efforts, revenue from the Avenova Business has not been sufficient to support the immense overhead of a publicly-traded company. Because of these fixed general and administrative costs, NovaBay has sustained operating losses for the majority of its corporate history and the Company has continued to experience significant operating losses and negative cash flows. While operating losses have improved, recent forecasts indicate that profitability is still several fiscal years away given the fixed costs of operating a publicly listed company on the NYSE American. The Company has thus determined, most recently as relates to the quarter ended June 30, 2024, that its planned operations, including the continued operation of the Avenova Business, continues to raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company is continuing to utilize its remaining cash and cash equivalents, which were $776 thousand at September 30, 2024 (unaudited), in order to maintain the Company’s operations; however, the Company’s cash and cash equivalents, which includes the proceeds from (a) the divestiture of DERMAdoctor (gross proceeds of $1.07 million), (b) the Company’s recent warrant reprice transaction completed in June 2024 (gross proceeds of approximately $226 thousand) (the “2024 Warrant Reprice Transaction”) and (c) the Company’s recent public offering of Company common stock, pre-funded common stock warrants, and three series of common stock warrants, completed in July 2024 (gross proceeds of approximately $3.87 million) (the “2024 Public Offering”), are not expected to be sufficient to continue to fund the operations of the Company’s business beyond the fourth quarter of 2024. The Company’s ability to raise capital has become increasingly difficult, as evidenced most recently with the Company receiving reduced proceeds from the 2024 Warrant Reprice Transaction and lower than expected gross proceeds and increased dilution with the issuance of three series of common stock warrants in the 2024 Public Offering.

 

As a result of the financial outlook of the Company, and the increasing difficulty in raising additional capital to fund ongoing operations, the Board of Directors and management have considered and evaluated a variety of strategic alternatives, including offers received from third parties for the potential sale of the Company or the sale of its assets, including the Avenova Business. The Board of Directors has weighed and evaluated whether such strategic options are in the best interests of the Company and its stockholders when compared to the Company’s prospects and strategic plans (both in the short- and long-term).

 

As relates to a potential sale of the entire Company, NovaBay explored several go-private transactions and stock-for-stock transactions, including entering into a non-disclosure agreement in February 2023 with a public wound care company to discuss a potential merger which was ultimately abandoned in June 2023 for various reasons. The Company then explored a go-private transaction during the third quarter of 2023 with a synergistic investor with such negotiations ending when the other party reduced their offered purchase price from $15.0 million to $4.5 million. Subsequently, NovaBay entered into a non-disclosure agreement in October 2023 and non-binding term sheet in December 2023 with a public pharmaceutical company to explore a merger, for which the other company ultimately ended negotiations. In the above-described cases, negotiations and substantial due diligence were conducted, and cost and time incurred, but none of such processes ultimately resulted in the closing of a transaction. Such non-disclosure agreements included a standstill provision with appropriate caveats to request a waiver and an exception when NovaBay enters into a definitive agreement providing for a sale of substantially all assets or 50% or more of its equity securities being sold.

 

While evaluating these large transaction options, NovaBay engaged Hemming Morse to conduct an informal valuation of NovaBay, which was then presented to the Board of Directors at a meeting on January 12, 2024. Such valuation discussions early this year have further informed the Board of Directors and management team as it has continued to evaluate strategic options during 2024.

 

In 2024 to date, NovaBay has received offers from five companies for acquisition transactions, including equity and asset acquisitions. Such offers include those from PRN and Party A to purchase the Avenova Business on April 18, 2024 (as described further below) and June 24, 2024, respectively.

 

PRN and NovaBay principals have been in periodic communications about various potential transactions, dating back to January 2020 with discussions regarding a potential divestiture or similar transaction beginning in January 2021 with a non-disclosure agreement initially executed on February 6, 2023 (which included a standstill provision with appropriate caveats to request a waiver and an exception when NovaBay enters into a definitive agreement providing for a sale of substantially all assets or 50% or more of its equity securities being sold). PRN submitted indications of interest on July 22, 2022 and March 16, 2023, which the Board of Directors decided not to pursue at such times. PRN most recently approached management of the Company early in 2024 to express interest in the Avenova Business. PRN submitted an indicative offer, dated April 18, 2024,  to acquire the Avenova Business, including its products and assets and certain liabilities, on a cash-free, debt free basis via an asset purchase transaction for a purchase price of $9,500,000 (the “Proposed Transaction”). On April 26, 2024, the Board of Directors met to discuss PRN’s indicative offer to acquire the Avenova Business, and determined to authorize management to further explore the Proposed Transaction with PRN. Accordingly, on April 27, 2024, the parties extended their confidentiality agreement to the shorter of one year or the execution of a definitive agreement. Simultaneously, exclusivity was granted to PRN through May 20, 2024 to conduct due diligence on NovaBay. Although outside counsels were engaged and had an introductory call on April 25, 2024, no legal negotiations or deal documents were exchanged at that time.

 

 

After approximately a month of due diligence efforts, in May 2024, the Company decided to no longer pursue active discussions regarding the Proposed Transaction due to its cash situation, and instead determined to pursue a capital raise transaction for the Company, which involved completing the 2024 Warrant Reprice Transaction and the 2024 Public Offering, both during June and July 2024. During this time period, on July 30, 2024, NovaBay received an unsolicited increased offer from Party A to purchase the Avenova Business for $10.0 million.

 

As a result of the proceeds from the Company’s capital raising strategy not resulting in sufficient capital to fund the Company’s ongoing operations and following extensive discussions of the Board and management, including the evaluation of all offers presented this year, the Company determined to further consider the sale of the Avenova Business. The Board carefully considered both the existing PRN offer and the Party A offer, ultimately determining to resume discussions with PRN to continue negotiations of the Proposed Transaction. The Board of Directors determined that its prior work, business discussions and due diligence with PRN resulted in a much higher degree of certainty of execution based on the needed timeline given NovaBay’s cash situation, as compared to beginning the initial stages of discussion and negotiation with Party A. Further, the Board also took into account NovaBay’s long-standing relationship with PRN for the last three (3) years and its brand and familiarity with, and significant engagement in, the eyecare industry, which the Board determined further enhanced both the likelihood of deal certainty and the best transaction terms to the benefit of NovaBay and its stockholders. On July 24, 2024, PRN provided an outline of its due diligence efforts to date and a timeline to reaffirm its interest, and the parties shortly thereafter executed an amendment to the indicative offer to extend exclusivity through August 31, 2024 (the “Amended Offer”).

 

On August 7, 2024, NovaBay’s management met with PRN’s management in person at NovaBay’s headquarters to discuss the Proposed Transaction, and to offer an opportunity for PRN to meet the larger NovaBay team.

 

Upon entering into the Amended Offer, PRN’s outside counsel, Sidley Austin LLP (“Sidley”) provided a draft Asset Purchase Agreement to the Company’s legal counsel, Squire Patton Boggs (US) LLP (“Squire Patton Boggs”), on August 12, 2024. For the next five (5) weeks, the parties and their counsels reviewed and negotiated a form of Asset Purchase Agreement, including the schedules and exhibits thereto, in substantially the form attached hereto as Annex A and the ancillary agreements to effect the Proposed Transaction. During this time, in mid-August, NovaBay management reached out to half a dozen financial advisory firms to request price and timing proposals for a formal valuation and fairness opinion for the Proposed Transaction. Ultimately, in particular given its prior work and familiarity with the Company’s business, on August 26, 2024, the Company’s management engaged Hemming Morse to review and consider whether the Purchase Price to be received in the Proposed Transaction is fair, from a financial point of view, to the Company and provide certain other related services.

 

On August 29, 2024, the Company’s legal counsel, Squire Patton Boggs, provided the Board with a presentation of legal considerations with respect to the Proposed Transaction. At such meeting, the Board also discussed and determined that it was advisable and in the best interests of the Company to evaluate a potential liquidation and dissolution of the Company after closing the Proposed Transaction. The Board authorized Company management to engage Delaware counsel to provide support in connection with a potential liquidation and dissolution, and the Company’s management subsequently engaged Chipman Brown Cicero & Cole, LLC (“Chipman Brown”) as Delaware counsel on September 3, 2024. The Board of Directors also authorized Company management to continue pursuing the Asset Sale with PRN for the further consideration of the Board of Directors.

 

On September 12, 2024, representatives of Hemming Morse provided a presentation to the Board of Directors regarding the financial implications of the Proposed Transaction and the fairness to the Company, from a financial perspective, of the Purchase Price, which the Board of Directors had the opportunity to discuss and ask questions regarding the same. At this meeting, representatives of Hemming Morse reviewed Hemming Morse’s financial analyses of the Purchase Price to be received by us pursuant to the Asset Purchase Agreement and delivered to our Board of Directors an oral opinion, which was confirmed by delivery of a written opinion dated September 19, 2024, to the effect that, as of that date and based on and subject to the assumptions and other matters set forth in the written opinion, the consideration to be received by NovaBay in the Asset Sale pursuant to the Asset Purchase Agreement was fair to NovaBay from a financial point of view.

 

 

Thereafter, on September 16, 2024, Squire Patton Boggs provided another presentation to the Board of Directors regarding the Proposed Transaction, including the close to final terms of the Asset Purchase Agreement and changes made to the Asset Purchase Agreement since the August 29, 2024 meeting of the Board of Directors. Chipman Brown also attended the meeting with the Board of Directors to answer inquiries regarding a potential liquidation and dissolution of the Company. Members of our Board of Directors were provided with the opportunity to direct questions to representatives of Squire Patton Boggs and Chipman Brown. At such meeting, the Board of Directors, after considering and deliberating on the relevant facts and circumstances as determined by the Board of Directors in its sole discretion and the interests of the stockholders, unanimously determined that: (i) the Proposed Transaction, as contemplated by the Purchase Agreement and the other transaction documents, is advisable and in the best interests of the Company and its stockholders at this time; (ii) to approve the Asset Purchase Agreement and the transactions contemplated thereby; (iii) the Board of Directors should take the necessary action to authorize and approve the Asset Sale, including authorizing, empowering and directing management to negotiate and enter into the transaction documents and to take such other actions in order to effectuate the Proposed Transaction; and (iv) the Board of Directors will recommend to our stockholders to vote in favor of the Asset Sale and to take the necessary action to submit to our stockholders the Proposed Transaction and the Dissolution, with the Board of Directors retaining discretion to continue evaluating and determine if and when the Dissolution should be effected.

 

On the afternoon of September 19, 2024, following the approval of our Board of Directors, the Company and PRN executed the Asset Purchase Agreement. On September 20, 2024, NovaBay issued a press release publicly announcing the Proposed Transaction.

 

Subsequently, on September 25, 2024, NovaBay received an unsolicited and non-binding offer from Party A to purchase the Avenova Business on terms substantially similar to the Asset Sale with a proposed base purchase price of $11.5 million (the “Alternative Unsolicited Offer”). Thereafter, in accordance with the terms and specific procedures of the Asset Purchase Agreement (as further described in “Proposal One: The Asset Sale Proposal—Principal Terms and Conditions of the Asset Purchase Agreement—Acquisition Proposals” below), our Board of Directors determined the Alternative Unsolicited Offer is a Qualifying Acquisition Proposal on September 27, 2024 and entered into an Acceptable Confidentiality Agreement (as defined in the Asset Purchase Agreement) with Party A on October 1, 2024. Party A is currently conducting due diligence with respect to the Avenova Business, and our Board of Directors is evaluating the Alternative Unsolicited Offer in order to determine whether or not, after taking into account various factors such as the proposed base purchase price, timing delays, transaction certainty, increased expenses (including payment of the termination fee to PRN) and other risks related to completing such transaction, such offer would constitute a Superior Proposal. The Board of Directors has not made any determination of whether or not the Alternative Unsolicited Offer constitutes a Superior Proposal. Accordingly, notwithstanding the receipt of the Alternative Unsolicited Offer, the Board of Directors continues to support the Asset Sale, believes it is in the best interests of the Company and its stockholders and unanimously recommends stockholders approve the Asset Sale as provided in Proposal One of this Proxy Statement.

 

Reasons for the Asset Sale

 

As described above, as a result of our need for capital in the near-term and the difficulty of identifying and closing capital raise transactions, we have been continuing to evaluate our strategic direction. After diligently evaluating our strategic options available to us in the near- and long-term, our Board of Directors unanimously determined that effecting the Asset Sale and that the form, terms and provisions of the Asset Purchase Agreement are advisable and in the best interests of NovaBay and our stockholders, including to maximize stockholder value in connection with the Dissolution being separately proposed to stockholders in Proposal Two of this Proxy Statement.

 

The decision of our Board of Directors to seek our stockholders’ approval for the Asset Sale pursuant to the Asset Purchase Agreement followed a thorough process during which our Board of Directors consulted with management and financial, accounting, legal and tax advisors and carefully considered the terms of the Asset Purchase Agreement and the risks, timing, viability and potential impact to our stockholders of the strategic alternatives potentially available to us. Based on such consideration and analysis, our Board of Directors determined that the best strategic proposal available to us was the Asset Sale and that, upon consummation of the Asset Sale, we intend to effect the Dissolution pursuant to the Plan of Dissolution, subject to the approval of our stockholders pursuant to Proposal Two of this Proxy Statement.

 

In reaching its decision to unanimously approve the Asset Purchase Agreement and to recommend that our stockholders vote to approve the Asset Sale at this Special Meeting, our Board of Directors, after careful consideration with Hemming Morse and our management and accounting, legal and tax advisors, determined that the Asset Sale was in the best interests of the Company's stockholders based on:

 

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Strategic Review Process. The Board of Directors considered the active and lengthy process (which began in June 2023) through which NovaBay has explored strategic alternatives, including the sale of NovaBay and sale of the Avenova Business. In this regard, the Board of Directors noted that NovaBay and its Board of Directors had evaluated approximately ten (10) strategic transactions since June 2023.

 

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Risks Related to Other Alternatives for the Avenova Business. The Board of Directors considered its familiarity with NovaBay’s business, financial condition, results of operations, management and competitive position and prospects, as well as current industry, economic and stock and credit market conditions. Based on such familiarity and discussions with management, the Board of Directors noted the Company raised substantial doubt about its ability to continue as a going concern, its immediate need for capital to fund ongoing operations beyond the fourth quarter of 2024 and the Company’s limited options to raise additional capital. The Board of Directors also considered certain strategic alternatives to the Asset Sale, as well as the possibility of not engaging in a transaction at all. In that regard, the Board of Directors considered NovaBay’s long- and short-term strategic plan and initiatives, including proposals to enhance the overall performance of the Avenova Business. The Board of Directors also considered the benefits and potential risks, including execution risks, of pursuing other strategic alternatives available to NovaBay within the short time period allowed by NovaBay’s cash position.

 

 

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Potential for Bankruptcy. The Board of Directors considered and evaluated the risk that if NovaBay is unable to consummate the Asset Sale, the Company may have to cease all operations, make an assignment for the benefit of any creditors, turn NovaBay over to a third-party management company or liquidator or file for bankruptcy protection, which would be unlikely to result in any funds being available for distribution to stockholders.

 

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Stockholder Approval. The Board of Directors noted that the Asset Sale is subject to approval by at least a majority of the voting power of all outstanding shares of NovaBay common stock entitled to vote on the Record Date, which does not include any large, controlled block of shares by any stockholders or the Company’s Board of Directors and management team (who collectively hold less than 1% of shares of common stock outstanding on the Record Date). Such stockholder approval ensures that the Board of Directors will not take action without the support of a significant portion of our stockholders.

 

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Certainty of Value. The Board of Directors considered that the purchase price to be received by NovaBay will consist entirely of cash, which provides NovaBay with the potential opportunity to return cash to stockholders in connection with the Dissolution after satisfying creditors and other liabilities of NovaBay. The Board of Directors believes this certainty of value is compelling compared to the long-term value creation potential of the Avenova Business and that, based upon all of the other factors considered by the Board of Directors after discussion with NovaBay’s management, financial advisors and legal counsel, the Asset Sale is the best reasonably attainable value for the Avenova Business.

 

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Ability to Consider Alternative Transactions and to Terminate the Asset Purchase Agreement. The Board of Directors noted that, although the Asset Purchase Agreement contains customary provisions prohibiting NovaBay from soliciting an alternative Acquisition Proposal from a third party for the Avenova Business or entering into negotiations or discussions regarding an alternative Acquisition Proposal, the Board of Directors is permitted to terminate the Asset Purchase Agreement and accept the Superior Proposal, subject to the payment of the termination fee, as described under the heading “Principal Terms and Conditions of the Asset Purchase Agreement—Termination Fee” and certain procedures being followed including the Board of Directors making a good faith determination (after consultation with outside counsel and its independent financial advisor) that pursuing any such unsolicited Acquisition Proposal would reasonably be expected to lead to a Superior Proposal and taking any such action is pursuant to the Board of Directors’ fiduciary duties, as well as providing PRN with required notice.

 

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Termination Fee. The Board of Directors considered the $500,000 termination fee to be paid to PRN if the Asset Purchase Agreement is terminated under certain circumstances specified in the Asset Purchase Agreement (as described below). The Board of Directors also noted that the $500,000 termination fee was negotiated down from the $650,000 initially sought by PRN. Accordingly, the Board of Directors believes that a termination fee of this size for the Asset Sale would not, in and of itself, unduly deter a third party from making a Superior Proposal or inhibit the Board of Directors from evaluating, negotiating and, if appropriate, terminating the Asset Purchase Agreement and approving a Superior Proposal in order to satisfy its fiduciary duties to our stockholders under applicable law.

 

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Remedies Available to NovaBay. The Board of Directors noted that NovaBay could terminate the Asset Purchase Agreement if PRN were to breach or fail to perform any of the representations, warranties, covenants or other agreements contained in the Asset Purchase Agreement, which breach has prevented or would prevent the satisfaction of any condition to the Closing.

 

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Terms of the Asset Purchase Agreement. The Board of Directors considered the terms and conditions of the Asset Purchase Agreement, including the limited number and nature of the conditions to PRN’s obligation to consummate the transaction and the likelihood that those conditions would be satisfied.

 

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Likelihood of Consummation. The Board of Directors considered the likelihood that the Asset Sale will be completed, including its belief that there would not be regulatory impediments to the transaction. The Board of Directors noted the fact that it understands PRN’s ability to raise funds to pay the purchase price, including the Board of Directors’ review of the commitment letter PRN received for such financing, to be likely.

 

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Identity of PRN. The Board of Directors considered the fact that PRN is a nutraceuticals company already operating in the eye care business that has pre-existing relationships and partners with ophthalmologists and optometrists. The Board of Directors also noted that PRN completed an extensive due diligence review of the Avenova Business and accordingly is very familiar with the business.

 

 

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Opinion of Hemming Morse. The Board of Directors considered the financial analyses presented by Hemming Morse as well as Hemming Morse’s oral opinion that was delivered to the Board of Directors on September 12, 2024, which was subsequently confirmed in writing on September 19, 2024 that, as of that date and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Hemming Morse as set forth in its written opinion, the consideration to be received by NovaBay in the Asset Sale pursuant to the Asset Purchase Agreement was fair to NovaBay from a financial point of view. Hemming Morse’s opinion is further described under the heading “Proposal One: The Asset Sale—Fairness of the Asset Sale: Opinion of Hemming Morse”. The full text of Hemming Morse’s opinion is attached as Annex B to this Proxy Statement and is incorporated herein by reference.

 

Our Board of Directors also considered potential drawbacks or risks relating to the Asset Sale, including the following risks and potentially negative factors, but determined that these potential risks and factors were outweighed by the expected benefits of the Asset Sale:

 

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Future Growth and Risk Profile. The Board of Directors considered the fact that if the transaction is consummated, NovaBay will have limited operations and related assets. Further, NovaBay and its stockholders will no longer participate in the future growth of the Avenova Business, including any growth resulting from efforts already undertaken by NovaBay related to the continued development of the Avenova Business. The Board of Directors believes that a sale of the Avenova Business provides more certain value for NovaBay and its stockholders.

 

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Risk of Non-Completion. The Board of Directors considered the risk that the transaction might not be completed, including if we are not able to obtain stockholder approval of this Proposal One or if PRN is not able to obtain financing. The Board of Directors also considered the effect of the resulting public announcement of termination of the Asset Purchase Agreement on:

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The market price of NovaBay’s common stock. In that regard, the market price could be affected by many factors, including (i) the reason why the Asset Purchase Agreement was terminated and whether such termination resulted from factors adversely affecting NovaBay or the Avenova Business and (ii) the possibility that, as a result of the termination of the Asset Purchase Agreement, the marketplace would consider the Avenova Business to be an unattractive acquisition candidate; and

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NovaBay’s relationships with its customers and suppliers, as well as its ability to attract and retain key personnel.

 

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Transaction Costs of the Asset Sale. The Board of Directors considered that pursuing the Asset Sale, even if not completed in which case the purchase price proceeds would not be received by NovaBay, included the incurrence of, and continues to incur, significant costs and expenses, including legal, accounting, financial advisor and other costs.

 

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Possible Payment of Termination Fee. The Board of Directors considered the termination fee that would be payable by us to PRN if the Asset Purchase Agreement was to be terminated in certain circumstances. The Board of Directors believes that the termination fee is customary and reasonable and would not unduly preclude a third party from making a Superior Proposal.

 

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Possible Disruption of the Business. The Board of Directors considered the possible disruption to the Avenova Business that might result from the announcement of the transaction and the resulting distraction of the attention of NovaBay management and employees. The Board of Directors also considered the fact that the Asset Purchase Agreement contains certain customary limitations regarding the operation of the Avenova Business during the period between the signing of the Asset Purchase Agreement and the completion of the transaction. See “Principal Terms and Conditions of the Asset Purchase Agreement—Conduct of the Business Prior to Closing.” The Board of Directors believes that such limitations are customary for transactions similar to the Asset Sale and appropriately tailored to the specific requirements of the operation of the Avenova Business.

 

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Non-Competition/Non-Solicitation Restrictions. The Board of Directors considered the non-competition and non-solicitation obligations that would be imposed on NovaBay as a result of the transaction. Based on the fact that NovaBay will have a limited operating business post-closing and plans to effect the Dissolution (subject to the stockholder approval being sought in Proposal Two of this Proxy Statement), NovaBay does not expect such prohibitions to be harmful and the Board of Directors concluded that the restrictions in the non-compete agreement were reasonable under the circumstances.

 

 

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Indemnification Obligations. The Board of Directors considered that the Asset Purchase Agreement imposes certain indemnification obligations on NovaBay relating to the Avenova Business and that $500,000 of the purchase price would be placed into escrow for six (6) months (negotiated from twelve (12) months) to satisfy potential post-Closing indemnification obligations and any Net Working Capital Adjustment. The Board of Directors considered the customary nature of such indemnification obligations in a sale of assets and the risk of liability to NovaBay following the closing.

 

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Transaction Consideration Taxable. The Board of Directors considered that the cash consideration to be received by NovaBay would be taxable.

 

In addition, the Board of Directors was aware of and considered the interests that certain of our directors and executive officers may have with respect to the Asset Sale that differ from, or are in addition to, their interests as stockholders of NovaBay, as described under the heading “Interests of Directors and Executive Officers in the Approval of the Asset Sale and Plan of Dissolution”.

 

The preceding discussion summarizes and is not intended to be an exhaustive description of the information and factors considered by our Board of Directors, but it summarizes and addresses the material information and factors considered by the Board of Directors in its consideration of the Asset Sale. In view of the wide variety of factors considered by the Board of Directors, and the complexity of these matters, in connection with its evaluation of the Asset Purchase Agreement, our Board of Directors did not find it practical and did not quantify or otherwise attempt to assign relative weight to the specific factors considered in reaching its conclusions. In considering the factors described above, individual members of our Board of Directors may have given different weight to different factors. The Board of Directors approved the Asset Purchase Agreement and the transactions contemplated thereby and recommended the approval of the Asset Sale based upon the totality of the information presented to and considered by it.

 

Fairness of the Asset Sale: Opinion of Hemming Morse

 

We retained Hemming Morse to act as our financial advisor in connection with the Board of Directors’ evaluation of the Asset Sale and to render an opinion as to the fairness, from a financial point of view, to NovaBay of the consideration to be received by NovaBay pursuant to the Asset Purchase Agreement. On September 12, 2024, Hemming Morse delivered its oral opinion to our Board of Directors, which it subsequently confirmed in a written opinion provided to the Board of Directors, dated September 19, 2024, that, as of that date and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Hemming Morse as set forth in its written opinion, the consideration to be received by NovaBay in the Asset Sale pursuant to the Asset Purchase Agreement was fair to NovaBay from a financial point of view. As discussed above, the Purchase Price to be received by NovaBay is $9.5 million in cash, which is subject to a post-Closing Net Working Capital Adjustment, which may result in higher or lower proceeds to NovaBay, and an Escrow of $500,000 that will be maintained in an escrow account and available to satisfy NovaBay’s indemnification obligations under the Asset Purchase Agreement or payment obligations to PRN as a result of the Net Working Capital Adjustment.  

 

Hemming Morse’s opinion was directed to the Board of Directors for the purpose of the Board of Directors’ evaluation of the transactions contemplated by the Asset Purchase Agreement, and addressed only the fairness from a financial point of view, as of the date of the written opinion, of the consideration to be received by NovaBay pursuant to the Asset Purchase Agreement, which was determined through arm’s-length negotiations between us and PRN. Hemming Morse’s opinion does not address any other aspect of the Asset Sale and did not, and does not, constitute a recommendation to any stockholder of NovaBay as to how that stockholder should vote or act on any matter relating to the Asset Sale at this Special Meeting. Hemming Morse’s opinion does not express any opinion as to the value of our common stock or the prices at which our common stock will actually trade at any time.

 

 

The full text of Hemming Morse’s written opinion to the Board of Directors, dated September 19, 2024, is attached as Annex B to this Proxy Statement and is hereby incorporated into this Proxy Statement by reference in its entirety. Holders of shares of NovaBay common stock should read the opinion in its entirety for a discussion of the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken by Hemming Morse in rendering its opinion. This summary of Hemming Morse’s opinion is qualified in its entirety by reference to the full text of such opinion.

 

Review for, and Assumptions Underlying, Hemming Morse’s Opinion. In arriving at its opinion, Hemming Morse:

 

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Reviewed the following agreements and documents:

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The non-binding indicative offer, dated April 18, 2024, by PRN to acquire the Avenova Business from NovaBay.

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A draft of the Asset Purchase Agreement, dated August 12, 2024.

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A draft of the Asset Purchase Agreement, dated September 5, 2024.

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Executed version of the Asset Purchase Agreement, dated September 19, 2024.

 

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Reviewed certain publicly available business and financial information relating to the Company that Hemming Morse deemed to be relevant;

 

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Reviewed certain information relating to the historical, current and future operations, financial condition and prospects of the Company made available to Hemming Morse by the Company, including financial projections prepared by the management of the Company relating to (i) the Avenova Business for the fiscal years ending 2024 through 2027 and (ii) the Company’s historical financial statements for the fiscal years ending 2019 through 2023, and interim period ended July 31, 2024;

 

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Discussed with senior executives of the Company the past and current operations of the Company and the Avenova Business, the financial condition and prospects of the Company, the Asset Sale and related matters;

 

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Considered publicly available financial terms of certain transactions that Hemming Morse deemed to be relevant;

 

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Considered indications of interest or offers that were communicated to the Company to acquire all or a portion of the Company’s assets;

 

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Reviewed the reported prices and trading activity for the Company’s common stock, and the implied value of other securities and derivatives in the Company that were not publicly traded;

 

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Compared the financial performance of the Company and the prices and trading activity of the Company’s common stock with that of certain other publicly traded companies, and their securities that Hemming Morse deemed to be relevant; and

 

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Conducted such other financial studies, analyses and inquiries and considered such other information and factors as Hemming Morse deemed appropriate.

 

In arriving at its opinion, Hemming Morse assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to Hemming Morse by NovaBay and formed a substantial basis for its opinion. With respect to NovaBay’s financial projections reviewed, Hemming Morse assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of NovaBay of the future financial performance of NovaBay. In addition, Hemming Morse assumed that the Asset Sale will be consummated in accordance with the terms set forth in the Asset Purchase Agreement without any waiver, amendment or delay of any terms or conditions. Hemming Morse assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the Asset Sale, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the Asset Sale. Hemming Morse noted that it is not a legal, tax or regulatory advisor. Hemming Morse is a financial advisor only and relied upon, without independent verification, the assessment of NovaBay and its legal, tax, and regulatory advisors with respect to legal, tax or regulatory matters. Hemming Morse expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of NovaBay’s officers, directors or employees, or any class of such persons, relative to the consideration to be received by NovaBay in the Asset Sale. Hemming Morse did not make any independent valuation or appraisal of the assets or liabilities of NovaBay and was not furnished with any such valuations or appraisals. Hemming Morse’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to, Hemming Morse as of September 19, 2024. Events occurring after such date may affect Hemming Morse’s opinion and the assumptions used in preparing it, and Hemming Morse did not assume any obligation to update, revise or reaffirm its opinion. Hemming Morse assumed that the portion of the consideration which under the terms of the Asset Purchase Agreement will be held in escrow will be fully payable to NovaBay, and that adjustments will be made to the amount of the consideration pursuant to the terms of the Asset Purchase Agreement based on amounts estimated by our management.

 

 

We imposed no limitations on Hemming Morse with respect to the investigations made or procedures followed by Hemming Morse in rendering its opinion.

 

Summary of Financial Analyses. The following is a summary of the material financial analyses performed by Hemming Morse in connection with its oral opinion and the preparation of its written opinion to the Board of Directors. The following paragraphs summarize the material financial analyses performed by Hemming Morse in arriving at its opinion. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by Hemming Morse, the tables must be read together with the full text of each summary. Unless stated otherwise, the following quantitative information, to the extent that it is based on market data, is based on market data as of August 31, 2024 and is not necessarily indicative of current market conditions. In performing its financial analyses summarized below and in arriving at its opinion, with the consent of the Board of Directors, Hemming Morse used and relied upon the following financial projections: (i) the Base Case and (ii) the Best Case (each as defined and more fully described below).

 

Discounted Cash Flow Method Analysis. Hemming Morse performed a discounted cash flow analysis of the Avenova Business which is designed to provide an implied value of a company by calculating the present value of the estimated future cash flows and terminal value of that company.

 

Hemming Morse calculated a range of implied values of the Avenova Business based on estimates of future cash flows for fiscal years 2024 through 2034. Hemming Morse performed this analysis on the estimated future cash flows contained in the forecasts representing the Base Case and Best Case scenarios. Hemming Morse first calculated the estimated unlevered free cash flows (calculated as tax-affected earnings before interest and taxes and after stock-based compensation expense, plus depreciation and amortization, less capital expenditures, and adjusted for changes in working capital, in each case based on guidance from NovaBay’s management). 

 

The Base Case scenario (“Base Case”) is based on certain historical financial results and future financial projections reflecting NovaBay’s management forecast for the Avenova Business (both as set forth below). Management’s forecast assumes 12% to 15% annual sales growth rates for 2025 to 2028, and then moderating thereafter to 4% by 2034. The Base Case also assumes historically negative EBITDA margin for the Avenova Business will become positive by 2027 and will stabilize at 15% of sales by 2029.

 

		2024E				2025E				2026E				2027E				2028E				2029E
		(in thousands)
Total Sales, net		$	9,894			$	11,081			$	12,743			$	14,655			$	16,853			$	18,538
Annual Sales Growth			9	%			12	%			15	%			15	%			15	%			10	%
EBITDA		$	(4,219	)		$	(1,365	)		$	(722	)		$	407			$	1,817			$	2,777
EBITDA Margin			-43	%			-12	%			-6	%			3	%			11	%			15	%
Unlevered cash flow		$	(3,331	)		$	(3,311	)		$	(891	)		$	137			$	1,451			$	2,346
Cash flow margin			-34	%			-30	%			-7	%			1	%			9	%			13	%

 

 

		2030E				2031E				2032E				2033E				2034E
		(in thousands)
Total Sales, net		$	20,392			$	22,431			$	24,113			$	25,922			$	26,959
Annual Sales Growth			10	%			10	%			8	%			8	%			4	%
EBITDA		$	3,055			$	3,360			$	3,612			$	3,883			$	4,039
EBITDA Margin			15	%			15	%			15	%			15	%			15	%
Unlevered cash flow		$	2,453			$	2,699			$	2,967			$	3,189			$	3,424
Cash flow margin			12	%			12	%			12	%			12	%			13	%

 

⁽¹⁾ EBITDA is calculated as total sales, net, minus cost of goods sold, research and development expense, sales and marketing expense, and general and administrative expense, excluding depreciation and amortization. EBITDA margin is calculated as EBITDA divided by total sales, net.

 

The Base Case further assumes that NovaBay’s net operating loss carryforwards can be applied to reduce taxable income in future years (although such net operating loss carryforwards are not part of the Asset Sale); however, the ability to apply net operating loss carryforwards may be limited under Section 382 of the Internal Revenue Code of 1986, as amended, or other provisions of federal tax regulations. The Base Case applies additional optimistic forecast assumptions by management regarding revenue growth, EBITDA margins, and free cash flows of the Avenova Business relative to its historical results from 2019 through June 2024. As shown below, the actual annual sales growth rates of the Avenova Business have averaged 1% over the last four years, and EBITDA margins have consistently shown operating losses.

 

																						6 Months
																						Ended June
		2019A				2020A				2021A				2022A				2023A				2024A
		(in thousands)
Total Sales, net		$	6,347			$	9,152			$	8,898			$	8,679			$	9,078			$	4,785
Annual Sales Growth							44	%			-3	%			-2	%			5	%			5	%
EBITDA		$	(9,480	)		$	(6,689	)		$	(8,799	)		$	(5,425	)		$	(4,029	)		$	(2,830	)
EBITDA Margin			-149	%			-73	%			-99	%			-63	%			-44	%			-59	%

 

 

The Best Case scenario (“Best Case”) reflects a more optimistic forecast than the Base Case, based on NovaBay’s management forecast. The Best Case assumes a synergistic buyer that will successfully accelerate the sales growth of the Avenova Business (e.g. through new distribution channels, etc.), and that such buyer will also realize immediate cost synergies such that the historically unprofitable operations of the Avenova Business will become profitable in 2025, with 17% EBITDA margins at the third quartile of industry levels (as published in the Risk Management Association 2023 – 2034 Annual Statement Studies). The Best Case excludes the application of net operating loss carryforwards to projected taxable income, consistent with such net operating loss carryforwards not being part of the Asset Sale.

 

		2024E				2025E				2026E				2027E				2028E				2029E
Total Sales, net		$	9,894			$	11,081			$	12,743			$	14,655			$	16,853			$	18,538
Annual Sales Growth			9	%			12	%			15	%			15	%			15	%			10	%
EBITDA		$	(4,477	)		$	1,931			$	2,220			$	2,553			$	2,936			$	3,230
EBITDA Margin			-45	%			17	%			17	%			17	%			17	%			17	%
Unlevered cash flow		$	(3,375	)		$	513			$	1,277			$	1,473			$	1,699			$	1,964
Cash flow margin			-34	%			5	%			10	%			10	%			10	%			11	%

 

 

		2030E				2031E				2032E				2033E				2034E
Total Sales, net		$	20,392			$	22,431			$	24,113			$	25,922			$	26,959
Annual Sales Growth			10	%			10	%			8	%			8	%			4	%
EBITDA		$	3,553			$	3,908			$	4,201			$	4,516			$	4,697
EBITDA Margin			17	%			17	%			17	%			17	%			17	%
Unlevered cash flow		$	2,167			$	2,386			$	2,630			$	2,828			$	3,047
Cash flow margin			11	%			11	%			11	%			11	%			11	%

 

The Base Case and Best Case projections intentionally adopted optimistic assumptions (as summarized above) in order to estimate an upper bound to the value of the Avenova Business, and to compare this upper bound to the Purchase Price offered by PRN.

 

Hemming Morse then selected a range of Weighted Average Cost of Capital discount rates based on the Modified Capital Asset Pricing Model (“MCAPM”) (to the Base Case) and Venture Capital rates of return studies (to the Best Case), in each case the discount rate was selected based on Hemming Morse’s analysis, experience and professional judgment. Hemming Morse selected a lower range of discount rates for the Base Case comparted to the Best Case scenario, due to the assumption that to realize the higher cash flows in the Best Case scenario, a synergistic buyer would need to aggressively reduce operating costs of the Avenova Business within the next year of the forecasts and leverage its own operation, distribution, and sales channels, as compared to the Base Case scenario. The unlevered free cash flows from fiscal years 2024 through 2034 and the terminal values were discounted to present values using a range of discount rates of 17.0% to 19.0% for the Base Case and 19.0% to 21.0% for the Best Case, to calculate an implied aggregate value for the Avenova Business. Hemming Morse then adjusted the total implied aggregate value by the excluded assets and liabilities as detailed in the Asset Purchase Agreement.

 

The Base Case discount rate was derived based on a MCAPM that included a risk free rate of return, a levered beta of 1.18, a supply side equity risk premium of 6.2%, a 10th decile beta adjusted size premium of 4.7%, and a risk premium of 3.0%. NovaBay’s cost of debt for the Avenova Business was estimated at a mezzanine-based interest rate of 15.5%, resulting in a midpoint weighted average cost of capital of 18%. The Best Case discount rate was selected from published rates of return by Cambridge Associates of venture capital funds as of June 30, 2020, which averaged 20.5% over time periods of 2 to 15 years, for early stage and expansion stage companies. The terminal values in 2034 under the Base Case and Best Case were $3.748 million and $3.297 million, respectively, when discounted to present value as of August 31, 2024. Terminal values were calculated through the use of a standard perpetuity formula, which assumed growth of forecasted 2034 free cash flow at a constant annual rate of 4% thereafter. The resulting value was reduced by $277.0 thousand for NovaBay’s management estimate due to the exclusion of certain accounts receivable and prepaid assets, and increased by $527.0 thousand of estimated excluded accrued liabilities in the Asset Sale.

 

Based on the above-described analysis, Hemming Morse derived the following range of implied invested capital values for the Avenova Business as of August 31, 2024:

 

Forecast Scenario		Implied Invested Capital Value Range for the Avenova Business ($M)
Base Case			$3.330	–	$5.370
Best Case		$6.580		–	$8.130

 

 

NovaBay does not as a matter of course make public projections as to future sales, earnings, or other results. However, NovaBay’s management prepared the financial forecast information set forth above to provide to Hemming Morse in connection with the Asset Sale. Such forecast information was prepared based on an assessment that took into account: (1) actual historical and year to date results; (2) continued growth in our customer base; and (3) EBITDA margin expansion.

 

The financial forecast information of the Avenova Business was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of NovaBay management, was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of NovaBay management's knowledge and belief, the expected course of action and the expected future financial performance of the Avenova Business. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this Proxy Statement are cautioned not to place undue reliance on this financial forecast information. Neither NovaBay’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the financial forecast information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the financial forecast information.

 

Readers of this Proxy Statement are cautioned not to place undue reliance on the specific portions of the financial forecast information set forth above. Although the financial forecast information are presented with numerical specificity, such financial forecast information reflect numerous assumptions and estimates as to future events made by NovaBay management that they believed were reasonable at the time the financial forecast information was prepared, taking into account the relevant information available to NovaBay management at the time. However, this information is not fact and should not be relied upon as being necessarily indicative of actual future results. The financial forecast information does not take into account any circumstances or events occurring after the date that they were prepared and do not give effect to the Asset Sale. As a result, there can be no assurance that the financial forecast information will be realized, and actual results may be materially better or worse than those contained in the financial forecast information. The inclusion of this information should not be regarded as an indication that the Board of Directors, NovaBay or any other recipient of this information considered, or now considers, the financial forecast information to be predictive of actual future results. The financial forecast information are not included in this Proxy Statement in order to induce any NovaBay stockholder to vote in favor of the proposal to approve the Asset Sale or any of the other proposals to be voted on at the Special Meeting. NovaBay does not intend to update or otherwise revise the financial forecast information to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the financial forecast information are shown to be in error or no longer appropriate.

 

Guideline Comparable Company Method Analysis. Hemming Morse performed a guideline comparable company method analysis, which provides an implied value of a company by comparing it to similar companies that are publicly traded. Hemming Morse reviewed and compared, using publicly available information, certain current and historical financial information for the Avenova Business with corresponding current and historical financial information, ratios and public market multiples for publicly traded companies in the pharmaceutical preparation manufacturing and cosmetics, beauty and perfume store industry segments and which shared certain similar business and operating characteristics to the Avenova Business.

 

These companies were chosen based on Hemming Morse’s knowledge of the industry and because they have businesses that may be considered similar to the Avenova Business. Although none of such companies are identical or directly comparable to the Avenova Business, these companies are publicly traded companies with operations and/or other criteria, such as lines of business, markets, business risks, growth prospects, maturity of business and size and scale of business, that for purposes of its analysis Hemming Morse considered similar to NovaBay.

 

The companies included in the comparable companies analysis were:

 

●     AVITA Medical, Inc.; ●     Crescita Therapeutics Inc.; ●     Verrica Pharmaceuticals, Inc.; ●     Fortress Biotech, Inc.; ●     Arcutis Biotherapeutics, Inc.; ●     Ocular Therapeutix, Inc.;

●     The Beauty Health Company; ●     Sonoma Pharmaceuticals, Inc.; ●     USANA Health Sciences, Inc.; ●     Harrow, Inc.; ●     Sunny Pharmtech Inc.;  and ●     Journey Medical Corporation.

 

 

For purposes of this analysis, Hemming Morse analyzed the ratio of market value of invested capital, which Hemming Morse defined as fully-diluted market capitalization plus total financing debt, less cash and cash equivalents, less short-term investments (“MVIC”) to last twelve months of revenue (“LTM Revenue”), which, for purposes of this analysis, as of August 31, 2024, of the Avenova Business and each of these comparable companies was based on publicly available financial information for comparison purposes. The MVIC / LTM Revenue multiples for the comparable companies ranged from 0.10x to 16.21x.

 

Based on its analysis of the relevant metrics for each of the comparable companies and upon the application of its professional judgment and experience, Hemming Morse selected representative ranges of MVIC to LTM Revenue and applied these ranges of multiples to the estimated relevant metric for the Avenova Business based on its LTM Revenue as of August 31, 2024. Hemming Morse then adjusted the total implied aggregate value for excluded assets and liabilities as detailed in the Asset Purchase Agreement.

 

Based on the above-described analysis, Hemming Morse derived the following range of implied invested capital value for Avenova as of August 31, 2024:

 

Comparable Company Multiples

Financial Statistic		Selected Comparable Company Revenue Multiple Ranges		Implied Invested Capital Value Range for the Avenova Business ($M)
MVIC to LTM/Revenue		0.40x – 0.60x		$4.050 – $5.960

 

No company utilized in the comparable company analysis is identical to the Avenova Business. In evaluating comparable companies, Hemming Morse made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Avenova Business. These include, among other things, comparable company growth, the impact of competition on the businesses of the Avenova Business and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of the Avenova Business or the industry, or in the financial markets in general. Mathematical analysis (such as determining the mean or median) is not in itself a meaningful method of using comparable company data.

 

Merger and Acquisition Method Analysis. Hemming Morse performed a merger and acquisition method analysis, which is designed to imply the value of a company based on publicly available financial terms of selected transactions that share some characteristics with the Avenova Business. Hemming Morse compared publicly available statistics for fifty-five (55) selected merger and acquisition transactions (with invested capital value ranging between $0.5 million and $845 million) involving businesses that Hemming Morse judged to be similar in certain respects to NovaBay’s business and aspects thereof based on Hemming Morse’s experience and familiarity with NovaBay’s industry. Hemming Morse selected such comparable transactions because they shared certain characteristics with the Avenova Business, most notably because they were in the pharmaceutical preparation manufacturing and cosmetics, beauty and perfume store industry segments, and based on their annual revenue range.

 

 

For the following precedent transactions, Hemming Morse reviewed the Purchase Price and calculated the ratio of the MVIC for each transaction to the estimated LTM/Revenue, based on publicly available financial information.

 

Transaction Multiples

 

Acquiror		Target		Year of Announcement				MVIC to LTM Revenue Range
Various		Various			2014-2024				0.21x – 11.27	x
Buyer		Avenova			2024				0.56x – 0.84	x*

*	Implied multiple

 

These transactions varied significantly based upon company scale, financial metrics, product mix and geography. Based on its professional judgment and taking into consideration, among other things, the observed multiples for the selected transactions listed above, Hemming Morse selected representative ranges of financial multiples of the transactions and applied these ranges of financial multiples to the relevant financial statistic for the Avenova Business. Hemming Morse applied an MVIC to LTM Revenue multiple range from 0.56x to 0.84x to the Avenova Business’ LTM Revenue of $9.509 million as of August 31, 2024.  Based on this analysis, Hemming Morse derived a range of implied values for the Avenova Business of $5.580 million to $8.240 million.

 

No company or transaction utilized in the precedent transactions analysis is identical to the Avenova Business or the Asset Sale, respectively. In evaluating the precedent transactions, Hemming Morse made judgments and assumptions with regard to industry performance, general business, market and financial conditions and other matters, many of which are beyond the control of the Avenova Business, such as the impact of competition on the business of the Avenova Business or the industry generally, industry growth and the absence of any adverse material change in the financial condition of the Avenova Business or the industry or in the financial markets in general, which could affect the public trading value of the companies and the aggregate value and equity value of the transactions to which they are being compared. Hemming Morse considered a number of factors in analyzing the consideration. The fact that points in the range of implied values of the Avenova Business derived from the valuation of precedent transactions were less than or greater than the consideration to be received in the Asset Sale was not necessarily dispositive in connection with Hemming Morse’s analysis of the consideration but was one of many factors Hemming Morse considered.

 

Implied Value Market Traded Price Method Analysis. Hemming Morse performed an implied value market traded price method analysis, which estimates an implied value of a company by allocating the publicly traded market price of a company’s common shares to all outstanding securities comprising the capitalization of the Company. NovaBay’s equity capitalization includes outstanding convertible notes, preferred shares, common stock, warrants, and options. As a result, to estimate NovaBay’s total implied equity value, Hemming Morse conducted the following calculations:

 

1.

Analyzed the common share price of NBY based on a 1-month range.

2.

Calculated the implied value of the Company’s outstanding common shares.

3.

Calculated the implied value of the Series B Preferred Stock on a fully converted to common shares basis.

4.

Calculated the value of the outstanding unsecured convertible notes including their conversion right to common shares.

5.

Calculated the value of options outstanding based on application of the Black-Scholes Option Pricing Model to value each grant. Inputs included current per share price, volatility, risk-free rate, exercise price at grant, and the remaining term to maturity.

6.

Calculated the value of warrants outstanding using the same input variables described above, with additional consideration of anti-dilution rights attributable to certain warrants that will take effect September 27, 2024.

 

The value calculated represented the value to all NovaBay equity stockholders. Hemming Morse adjusted the implied value to represent the portion of NovaBay attributed to the Avenova Business, which is approximately 87% based on the Avenova Business’ relative proportion of sales and gross margin in NovaBay.

 

Based on these calculations, this analysis implied the following invested capital value ranges for the Avenova Business:

 

Method		Common Per Share Range		Implied Value Value Range for Avenova $(M)
Implied Value – Market Trade Price		$0.45 – $0.59		$4.680 – $5.930

 

 

The summary set forth above is not a complete description of Hemming Morse’s opinion, or the financial analyses performed, and factors considered by Hemming Morse in connection with its opinion, nor does the order of analyses described represent the relative importance or weight given to those analyses by Hemming Morse. The preparation of a fairness opinion is a complex, analytical process involving various determinations as to the most appropriate and relevant quantitative and qualitative methods of financial analyses and the application of those methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary description. Accordingly, Hemming Morse believes that its analyses must be considered as a whole and that selecting portions of its analyses or the factors that it considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying its analyses and opinion.

 

In performing its analyses, Hemming Morse made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of NovaBay or PRN. Any estimates contained in or underlying these analyses, including estimates of the future performance of the Avenova Business, are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those estimates. Additionally, analyses relating to the values of businesses or assets do not purport to be appraisals or necessarily reflect the prices at which businesses or assets may actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. Hemming Morse’s opinion and its related analyses were only one of many factors considered by the members of our Board of Directors in their evaluation of the Asset Sale and should not be viewed as determinative of the views of the Board of Directors or management with respect to the consideration to be received by NovaBay pursuant to the Asset Purchase Agreement or the Asset Sale.

 

Under the terms of its engagement letter with Hemming Morse, NovaBay has paid or agreed to pay Hemming Morse a nonrefundable fee of $50,000 with no further compensation to be paid after, or contingent upon, the closing of the Asset Sale. Whether or not the Asset Sale is consummated, NovaBay has agreed to reimburse Hemming Morse for certain of its out-of-pocket expenses and to indemnify Hemming Morse and related persons against various liabilities.

 

NovaBay selected Hemming Morse to act as its financial advisor based on Hemming Morse’s qualifications, expertise and reputation, its knowledge of recent transactions in NovaBay’s industry and its knowledge of the business and affairs of NovaBay. Hemming Morse is one of the nation’s leading financial advisory firms with a strategic focus on business valuation, merger & acquisition advisory, and forensic consulting services. As part of its advisory services, Hemming Morse is regularly engaged in the valuation of businesses in connection with transactions and acquisitions, offerings, private placements and other purposes. Within the past two years, Hemming Morse was engaged to provide valuation services relating to another potential strategic transaction involving NovaBay that was unrelated to its current engagement, and paid Hemming Morse fees for such services aggregating to $52,500 in calendar year 2024. In addition, Hemming Morse provided impairment testing and derivative valuation services to NovaBay for financial reporting purposes in the past two years with fees totaling $66,270. Neither Hemming Morse nor any of its affiliates has in the past two years provided investment banking or financial advisory services to PRN or any of PRN’s affiliates for which it has received or is entitled to receive compensation. Hemming Morse may, in the future, provide financial advisory services to NovaBay unrelated to its engagement that covers the Asset Sale, for which services Hemming Morse would expect to receive compensation.

 

Principal Terms and Conditions of the Asset Purchase Agreement

 

The summary of the material terms of the Asset Purchase Agreement below and elsewhere in this Proxy Statement is qualified in its entirety by reference to the Asset Purchase Agreement, a copy of which is attached as Annex A to this Proxy Statement. We encourage you to carefully read the Asset Purchase Agreement in its entirety because this summary may not contain all the information about the Asset Sale that is important to you. The rights and obligations of the parties are governed by the express terms of the Asset Purchase Agreement and not by this summary or any other information contained in this Proxy Statement.

 

The representations, warranties and covenants described below and contained in the Asset Purchase Agreement were made only for purposes of the Asset Purchase Agreement as of specific dates and may be subject to more recent developments. Such representations, warranties and covenants were made solely for the benefit of the parties to the Asset Purchase Agreement, may be subject to qualifications, limitations and supplemental information agreed upon by the contracting parties in connection with negotiating the Asset Purchase Agreement, including in some cases being qualified by confidential disclosures in connection with the Asset Purchase Agreement, and may apply standards of materiality in a way that is different from those generally applicable to reports and documents NovaBay files with the SEC. In addition, the representations and warranties may have been included in the Asset Purchase Agreement for the purpose of allocating contractual risk between NovaBay and PRN rather than to establish matters as facts, and may be subject to standards of materiality applicable to such parties that differ from those that may be viewed as material by you or other investors. Further, the representations and warranties were negotiated with the principal purpose of establishing the circumstances in which a party to the Asset Purchase Agreement may have the right not to consummate the Asset Sale if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise. NovaBay stockholders are not third-party beneficiaries under the Asset Purchase Agreement and should not rely on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of NovaBay or PRN or any of their respective affiliates or businesses. The Asset Purchase Agreement has been described below, and included as Annex A, only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding NovaBay or PRN or their respective businesses. Accordingly, the representations, warranties, covenants and other agreements in the Asset Purchase Agreement should not be read alone, and you should read the information provided elsewhere in this Proxy Statement and in our filings with the SEC regarding NovaBay and our business.

 

 

General. Under the terms of the Asset Purchase Agreement, PRN will buy the Purchased Assets and assume certain liabilities and obligations associated with the Avenova Business at Closing for the Purchase Price of $9.5 million in cash, subject to a post-Closing Net Working Capital Adjustment with the Escrow of $500,000 to be held in a third party escrow account, as provided below.

 

Assets to be Sold to PRN. The Asset Purchase Agreement provides that we will sell to PRN all of the assets, properties, goodwill, contractual and other related rights of NovaBay primarily used in the conduct of the Avenova Business (the “Purchased Assets”), which includes:

●

NovaBay’s hypochlorous acid-based eyecare products such as the Avenova Spray and all other eyecare products (the “Products”), including all sales, marketing and distribution rights;

●

all of the intellectual property of the Products and social media assets that relate to the Avenova Business;

●

all books, documents, instruments, records, data and files related to the Avenova Business;

●

all accounts receivable for the Avenova Business and outstanding Product purchase orders;

●

all contracts to which NovaBay is a party that are related to the Avenova Business (“Assumed Contracts”);

●

all inventory of the Products owned by NovaBay;

●

all permits and Product registrations held by NovaBay that relate to the Avenova Business;

●

all goodwill associated with the Avenova Business or the Purchased Assets;

●

all of NovaBay’s rights, claims, credits, causes of action and rights of set-off against third parties related to the Avenova Business (other than those that relate to excluded liabilities maintained by NovaBay or any Excluded Assets (as defined below)); and

●

refunds of certain taxes for which the PRN is liable, including taxes for any tax period beginning after the Closing.

 

Excluded Assets to Remain with NovaBay. The following assets will not be sold by NovaBay to PRN (collectively, the “Excluded Assets”):

●

all cash, cash equivalents, marketable securities, short-term investments and deposits of NovaBay;

●

all assets, properties, and interest rights primarily used in connection with NovaBay’s wound care and urology businesses;

●

all rights under specified contracts that relate to the NovaBay businesses not being sold in the Asset Sale (excluding any Assumed Contracts);

●

all NovaBay employee benefit plans;

●

any NovaBay intellectual property not related to the Avenova Business;

●

NovaBay’s organizational corporate documents and minute and equity ownership books and records of NovaBay having to do with corporate organization and our corporate seal;

●

all rights, claims, credits, causes of action or rights of set-off that NovaBay may have arising under the Asset Purchase Agreement or as a result of the consummation of the Asset Sale;

●

any refunds of taxes for any pre-Closing tax period or for which NovaBay is liable under the Asset Purchase Agreement;

●

the tax returns and tax records and reports of NovaBay, other than those that are Purchased Assets;

●

all insurance policies of NovaBay and any claims or benefits under any express or implied warranties from suppliers of goods or services relating to the inventory sold by NovaBay prior to the Closing;

●

all of NovaBay’s intercompany account balances, including those related to the Products;

●

all assets, properties and interest rights primarily used in or held for use in connection with the operation of Seller’s wound care and urology business;

●

the rights that accrue or will accrue to NovaBay under the Asset Purchase Agreement and the other transaction documents; and

 

 

●

certain other assets, including those relating to tangible personal property of NovaBay and its IT systems.

 

Assumed Liabilities of the Avenova Business. Pursuant to the Asset Purchase Agreement, the following liabilities of NovaBay will be assumed by PRN at the Closing (the “Assumed Liabilities”):

●

liabilities for the accounts payable and accrued liabilities of the Avenova Business as of the Closing to the extent included in the calculation of the Net Working Capital (as defined in the Asset Purchase Agreement);

●

liabilities for any Product returns that occur after the Closing;

●

liabilities under Assumed Contracts to be paid or performed after the Closing that relate to the period after the Closing, except those liabilities or obligations arising from any breach or default by NovaBay under any Assumed Contract that occur or arise prior to the Closing; and

●

liabilities under permits that are part of the Purchased Assets.

 

Excluded Liabilities. Under the terms of the Asset Purchase Agreement, other than the Assumed Liabilities, PRN will not assume any liabilities of NovaBay (“Excluded Liabilities”). NovaBay shall retain, pay, satisfy, perform or discharge the Excluded Liabilities, which include, among other liabilities:

●

all liabilities and obligations of NovaBay existing or accrued prior to the Closing, excluding only the Assumed Liabilities;

●

all liabilities and obligations of NovaBay arising from the execution, delivery and performance of the Asset Purchase Agreement or from the closing of the Asset Sale;

●

all indebtedness of NovaBay;

●

all liabilities and obligations relating to any current or former employees, agents or independent contractors of NovaBay;

●

all liabilities, obligations, claims, causes of action or action, including any product liability and warranty claims or any claim for injury to any person or property, arising out of any Products, manufactured, sold, donated or otherwise disposed of by or on behalf of NovaBay;

●

all of NovaBay’s tax liabilities, including liability for taxes related to the Asset Sale pursuant to the Asset Purchase Agreement;

●

all liabilities and obligations relating to any Excluded Assets; and

●

all liabilities and obligations in respect of any Company employee benefit or compensation plans or arrangements.

 

Purchase Price. At the Closing of the Asset Sale as contemplated by the Asset Purchase Agreement, NovaBay will sell the Purchased Assets to PRN and PRN will assume the specified Assumed Liabilities for the Purchase Price or an aggregate cash purchase price of (i) $9,500,000 in cash, plus or minus (ii) the Net Working Capital Adjustment (i.e., an amount equal to the difference between the Net Working Capital (as defined below) immediately prior to the Closing (the “Net Working Capital Amount”) and the target working capital value of $800,000 (the “Target Working Capital Value”)). The Net Working Capital Amount will be determined by PRN and NovaBay commencing ninety (90) days after the Closing, with such calculation applying accounting principles agreed upon by the parties. If the Net Working Capital Amount is less than the Target Working Capital Value, then the amount of such difference shall be paid by NovaBay to PRN solely from the Escrow, and if the Net Working Capital Amount is greater than the Target Working Capital Value, then such greater amount shall be paid by PRN to NovaBay subject to a limitation of $500,000. “Net Working Capital” means (i) the sum of the current assets of the Avenova Business included in the Purchased Assets as calculated based on the agreed upon accounting principles and (ii) the sum of the current liabilities of the Avenova Business to the extent included in Assumed Liabilities, both of which are calculated in accordance with agreed upon accounting principles.

 

Escrow. At the Closing, NovaBay and PRN will also enter into an Escrow Agreement, pursuant to which the Escrow of $500,000 will be placed and held in an escrow account for a period of up to six (6) months following the Closing to satisfy amounts payable by NovaBay for any post-Closing Net Working Capital Adjustment, as provided above, or for indemnification claims. The escrow agent will release any remaining portion of the outstanding Escrow on the six (6)-month anniversary of the Closing, except that the escrow agent will retain any or all of the Escrow necessary to satisfy unresolved claims for indemnification, if any. The initial administration fees, costs and expenses of the Escrow will initially all be paid by PRN, with any other fees, costs and expenses being divided equally between us and PRN.

 

Closing. The Closing of the Asset Sale will take place remotely by the exchange of documents and signatures at 10:00 am Chicago time on the third business day after our stockholders approve the Asset Sale and the satisfaction or waiver of all of the other closing conditions under the Asset Purchase Agreement (or such other date as we and PRN may agree).

 

 

Representations and Warranties. The Asset Purchase Agreement contains a number of representations and warranties of NovaBay to PRN relating to, among other things corporate organization, authority, board approval for the Asset Sale, title to the Purchased Assets, public reporting requirements and disclosures, financial statements and liabilities, intellectual property, litigation, tax matters, regulatory matters, product liability and warranty, inventory, material contracts, compliance with laws, the sale process, brokers and the opinion of the financial advisor.

 

The Asset Purchase Agreement contains a number of representations and warranties of PRN to NovaBay relating to, among other things corporate organization, authority, absence of conflicts, brokers, litigation, debt financing to pay the purchase price, ownership of NovaBay’s common stock, financial sufficiency to meet its obligations under the Asset Purchase Agreement and non-reliance (except with respect to NovaBay’s representations and warranties).

 

Many of the representations and warranties contained in the Asset Purchase Agreement are qualified by a knowledge standard, a general materiality standard, reference to our disclosure schedules or a material adverse effect standard (that is, they will not be deemed to be untrue or incorrect without such qualification or reference included in our disclosure schedules). Except for the representations and warranties contained in the Asset Purchase Agreement (including the disclosure schedules), neither NovaBay nor any other person has made or makes any representation or warranty, on behalf of NovaBay, as to the Avenova Business, the Purchased Assets or the Assumed Liabilities.

 

Survival of Representations and Warranties. The representations and warranties in the Asset Purchase Agreement will survive the Closing: (i) until sixty (60) days after the expiration of the statute of limitations, with respect to representations and warranties regarding organization, due authorization, sufficiency of the Purchased Assets, brokers, the opinion of the financial advisor, the process for sale of the Purchased Assets, intellectual property matters, and tax matters or (ii) until twelve (12) months after the Closing, with respect to all other representations and warranties and the rights of the parties to seek indemnification under the Asset Purchase Agreement.

 

Conduct of the Business Prior to Closing. Under the Asset Purchase Agreement, we have agreed that, until the Closing and except as otherwise provided in the Asset Purchase Agreement or consented to in writing by PRN, we will:

●

conduct the Avenova Business in the ordinary course of business;

●

use commercially reasonable efforts to maintain and preserve intact our business organization and operations; and

●

preserve the rights, goodwill and relationships of our employees, customers, suppliers, regulators and others having relationships related to the Avenova Business.

 

We have also agreed that, until the Closing and except as contemplated by the Asset Purchase Agreement or consented to in writing by PRN, we will not:

●

adopt a plan of or effect any complete or partial liquidation or dissolution or effect any dissolution, merger, consolidation, restructuring, recapitalization or reorganization that involves the Avenova Business or the Purchased Assets, other than (i) the Dissolution and the related Plan of Dissolution that has been submitted for stockholder approval at this Special Meeting and (ii) with respect to any other business or products that will continue to be owned and operated by NovaBay after the Closing;

●

make any change in accounting methods, principles or practices affecting the reported consolidated assets, liabilities or results of operations of the Avenova Business, except insofar as may be required by a change in the accounting principles generally accepted in the United States (“GAAP”);

●

write up or down the value of any material asset of the Avenova Business, except as required by GAAP;

●

sell, lease (as lessor), transfer or otherwise dispose of, or mortgage, pledge encumber any of the Purchased Assets, other than in the ordinary course of business;

●

prepare or file any tax returns inconsistent with prior practice, make or change any material tax election, adopt or change a material accounting method in respect of taxes, enter into certain tax-related agreements, settle or comprise a tax claim or assessment, and consent to an extension or waiver of the statutory limitation period applicable to a claim or assessment (other than any automatic extension of time in which to file a tax return), in each case, in respect of taxes with respect to the Purchased Assets or the Avenova Business;

●

initiate, waive, release, assign, settle or compromise any legal proceeding with respect to the Avenova Business or the Purchased Assets;

●

modify, waive, terminate, extend, assign any rights under or make any material amendments to any contract with respect to the Avenova Business;

●

cancel, abandon or permit to lapse or expire any intellectual property rights relating to the Products or the Avenova Business;

 

 

●

accelerate or delay outside the ordinary course of business (i) collections of any note or accounts receivable or (ii) payment of any account payable or other liability or (iii) sales to customers, in each case as they relate to the Avenova Business;

●

sell any of the Products on terms or conditions that are not materially consistent with past terms and conditions; or

●

fail to maintain insurance in such amounts and against such risks and losses as is maintained by it at present with respect to the Avenova Business.

 

Financing. PRN will obtain debt financing in order to facilitate the Closing of the Asset Sale and to provide NovaBay with the payment of the Purchase Price. PRN shall use commercially reasonable efforts to obtain such debt financing as promptly as reasonably practicable prior to the Closing. Prior to obtaining such debt financing, PRN has delivered to us an executed commitment letter, by and among PRN and its affiliates as co-borrowers and Capital One National Association and CIBC Bank USA, to NovaBay for review. The commitment letter, with the full amount of the debt financing required for the Asset Sale, provides standard terms and does not include any due diligence contingencies.

 

Conditions to the Closing. Each party’s obligation to effectuate the Asset Sale is subject to the satisfaction or waiver of the following conditions:

●

The stockholders of NovaBay shall have approved the Asset Sale as set forth in this Proposal One.

●

Certain commercial agreements identified by the parties shall remain in effect.

●

No governmental order shall be in place that makes the Asset Sale illegal or otherwise prohibits the transactions contemplated by the Asset Purchase Agreement.

 

PRN’s obligation to effectuate the Asset Sale is subject to the satisfaction or waiver of the following additional conditions:

●

Our representations and warranties with respect to (i) corporate organization, due authorization, sufficiency of assets, intellectual property, brokers, the opinion of the financial advisor and sale process that are not qualified by materiality, material adverse effect or similar, shall be true and correct in all material respects as of the date of the Asset Purchase Agreement and the Closing, as if made on such date; however, such representations and warranties that are qualified by materiality, material adverse effect or similar qualifications, shall be true and correct as of the date of the Asset Purchase Agreement and the Closing, as if made on such date (except to the extent expressly made as of an earlier date, in which case as of such date), (ii) absence of changes of NovaBay and the Avenova Business shall be true and correct in all respects as of the date of the Asset Purchase Agreement and as of the Closing, as if made on such date and (iii) all other representations and warranties shall be true and correct both as of the date of the Asset Purchase Agreement and the Closing, as if made on such date (except to the extent expressly made as of an earlier date, in which case as of such date), except where failure of such representation and warranty to be so true and correct (without giving effect to any qualification of materiality or similar qualification), individually or in the aggregate, has not had and would not reasonably be expected to have a material adverse effect.

●

We shall have performed and complied in all material respects with all of our agreements, covenants and conditions in the Asset Purchase Agreement and the related transaction documents.

●

We do not have any material adverse effect that has occurred after the date of the Asset Purchase Agreement that is continuing.

●

We shall have executed and/or delivered certain related agreements and closing documents.

●

There shall be no action threatened or commenced before any Governmental Authority prohibiting the Asset Sale or making it illegal.

 

NovaBay’s obligation to effectuate the Asset Sale is subject to the satisfaction or waiver of the following additional conditions:

●

PRN’s representations and warranties shall be true and correct as of the date of the Asset Purchase Agreement and the Closing, as if made on such date (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any qualification of materiality or similar qualification) does not prevent or materially delay the consummation of the Asset Sale.

●

PRN shall have performed or complied in all material respects with all of its agreements and covenants in the Asset Purchase Agreement.

●

PRN shall have executed and/or delivered certain related agreements and closing documents.

 

 

Termination of the Asset Purchase Agreement. The Asset Purchase Agreement may be terminated at any time prior to the Closing as follows:

●

by mutual written consent of NovaBay and PRN; or

●

by either NovaBay or PRN if:

○

any court of competent jurisdiction or other governmental authority shall have issued a governmental order, or taken any other action that restrains, enjoins or otherwise prohibits or makes illegal the consummation of the transactions and such governmental order or other action shall have become final and nonappealable;

○

upon a vote taken at this Special Meeting (or any adjournment or postponement) for approval of the Asset Sale and stockholder approval is not obtained; provided that neither party may terminate the Asset Purchase Agreement for this reason if (i) such party seeking termination has materially breached any of its obligations under the Asset Purchase Agreement that was the primary cause of such stockholder approval having not been obtained or (ii) in the case of just NovaBay, NovaBay may not terminate if it has not complied in all material respects with its obligations relating to the restrictions upon solicitation during the No Shop Period (as defined below) and its other obligations relating to Acquisition Proposals or with respect to this Proxy Statement and calling this Special Meeting; or

○

if the Closing has not occurred by December 31, 2024, provided that the party seeking the termination has not breached the Asset Purchase Agreement which is a substantial cause of the Closing not occurring by such date.

 

●

By PRN if:

○

(i) any of the representations and warranties of NovaBay are untrue or inaccurate on the date of the Asset Purchase Agreement or become untrue or inaccurate or (ii) if NovaBay breaches or fails to perform any of its covenants or agreements under the Asset Purchase Agreement, in each case such that any of the conditions to Closing required to be completed by NovaBay would not be satisfied due to such covenant breach or non performance, unless such untruth, inaccuracy or breach is not cured within thirty (30) days after NovaBay’s receipt of written notice, provided; however, that PRN will not be able to terminate the Asset Purchase Agreement if PRN was in material breach of any its covenants therein; or

○

after signing the Asset Purchase Agreement and prior to receipt of stockholder approval, the NovaBay Board of Directors or a committee thereof shall have affected an Adverse Recommendation Change. Such an Adverse Recommendation Change would occur as a result of our Board of Directors determining to instead accept a Superior Proposal from a third party, rather than consummating the Asset Sale. The description of what constitutes an Adverse Recommendation Change by our Board of Directors, and the Board of Directors’ possible considerations for doing so is further described in “Proposal One: The Asset Sale Proposal—Principal Terms and Conditions of the Asset Purchase Agreement—Recommendation Withdrawal/Termination in Connection with a Superior Proposal”.

 

●

By NovaBay if:

○

(i) any of the representations and warranties of PRN are untrue or inaccurate on the date of the Asset Purchase Agreement or become untrue or inaccurate or (ii) if PRN breaches or fails to perform any of its covenants or agreements under the Asset Purchase Agreement, in each case such that any of the conditions to Closing required to be completed by PRN would not be satisfied due to such covenant breach or non performance, unless such untruth, inaccuracy or breach is not cured within thirty (30) days after NovaBay’s receipt of written notice; provided, however, that NovaBay will not be able to terminate the Asset Purchase Agreement if PRN was in material breach of any its covenants;

○

prior to receipt of stockholder approval at this Special Meeting, NovaBay enters into an agreement to effect a Superior Proposal in accordance with the process and procedures set forth in the Asset Purchase Agreement and pays a termination fee. See “Proposal One: The Asset Sale Proposal—Principal Terms and Conditions of the Asset Purchase Agreement—Termination Fees and Transaction Expenses” for a further discussion of such fees and the circumstances under which they become due; or

○

all of the Closing conditions under the Asset Purchase Agreement have been satisfied or waived and NovaBay advises PRN that its conditions have been satisfied and is ready to close the Asset Sale and PRN does not complete the Closing within three (3) business days of such notice; provided that no party may terminate the Asset Purchase Agreement due to stockholder approval having not been obtained at the Special Meeting.

 

 

In the event that the Asset Purchase Agreement is terminated pursuant to the termination rights above, written notice thereof will be given to the other party specifying the provisions of the Asset Purchase Agreement relied upon for such termination, and the Asset Purchase Agreement will become void and of no effect without liability or obligation of any party thereto (or any of its representatives), except the confidentiality agreement entered into between the parties shall survive, as well as certain obligations pursuant to sections of the Asset Purchase Agreement. Notwithstanding the previous sentence, no termination of the Asset Purchase Agreement will relieve either party from liability for resulting from a willful breach prior to the termination of the Asset Purchase Agreement or fraud.

 

Acquisition Proposals. In connection with the Asset Purchase Agreement, we have agreed from the date of the Asset Purchase Agreement until the earlier to occur of the termination or closing of the Asset Sale (the “No Shop Period”) not to:

●

solicit, initiate, facilitate or knowingly encourage or knowingly induce an Acquisition Proposal or related inquiry or offer that would reasonably be expected to lead to an Acquisition Proposal;

●

provide non-public information about NovaBay in connection with or in response to an Acquisition Proposal or any inquiry or offer that would reasonably be expected to lead to an Acquisition Proposal;

●

engage, facilitate or participate in discussions or negotiations with any person with respect to an Acquisition Proposal or any inquiry or offer that would reasonably be expected to lead to an acquisition proposal;

●

approve, endorse or recommend an Acquisition Proposal or any inquiry or offer that would reasonably be expected to lead to an Acquisition Proposal;

●

make or authorize any statement, recommendation or solicitation in support of an Acquisition Proposal or any inquiry or offer that would reasonably be expected to lead to an Acquisition Proposal;

●

enter into any letter of intent or similar agreement in connection with any Acquisition Proposal or any inquiry or offer that would reasonably be expected to lead to an Acquisition Proposal, subject to specified exceptions;

●

reimburse or agree to reimburse the expenses of any other person (other than NovaBay’s representatives) in connection with an Acquisition Proposal or any inquiry or offer that would reasonably be expected to lead to an Acquisition Proposal; or

●

resolve or agree to do any of the foregoing.

 

Notwithstanding these restrictions, if we receive a Qualifying Acquisition Proposal, then prior to obtaining stockholder approval at this Special Meeting, NovaBay may (i) make information available with respect to NovaBay, the Purchased Assets and the Avenova Business and access to books and records and personnel to the person and its representatives who make a Qualifying Acquisition Proposal, provided such information has been also provided to PRN and (ii) participate in discussions or negotiations with such person making the Qualifying Acquisition Proposal.

 

We have agreed to notify PRN in writing promptly (and within, at most, 24 hours) following receipt of any Acquisition Proposals or any inquiry or offer that would reasonably be expected to lead to an Acquisition Proposal, identifying the person and the material terms of any Acquisition Proposals or inquiries or offers. We have also agreed to keep PRN informed, on a reasonably current basis, of the status and terms of any such proposals or offers, including any amendments. NovaBay has followed these procedures with respect to the Alternative Unsolicited Offer, as further described in “Proposal One: The Asset Sale—Background for the Asset Sale and the Dissolution”.

 

An “Acquisition Proposal” means any proposal or offer from a third party with respect to any (i) a merger, share exchange or other business combination that involves NovaBay, the Avenova Business or the Purchased Assets, but expressly excluding any assets of NovaBay that exclusively relate to the assets not being sold to PRN, (ii) the sale, lease, contribution or other disposition of any business or assets of NovaBay that represent more than 15% or more of the combined revenues, net income or assets of the Avenova Business, but expressly excluding any assets of NovaBay that exclusively relate to the assets not being sold to PRN, (iii) issuance, sale or other disposition to any person or group of NovaBay securities representing 15% or more of our voting common stock, other than solely in connection with the exercise or conversion of NovaBay securities already issued, (iv) transaction with any person where NovaBay stockholders will own 85% or less of the voting power of NovaBay, (v) transaction where a person shall acquire 10% or more beneficial ownership of our equity, other than solely in connection with the exercise or conversion of NovaBay securities already issued, or (vii) a combination of any of the preceding transactions listed in (i) through (vi).

 

A “Qualifying Acquisition Proposal” is an unsolicited and bona fide Acquisition Proposal prior to approval of the Asset Sale by our stockholders at this Special Meeting that did not result from a breach of our obligations under the Asset Purchase Agreement and our Board of Directors determines in good faith (after consultation with outside counsel and its independent financial advisor) that such Acquisition Proposal constitutes or would reasonably be expected to lead to a Superior Proposal and also determines in good faith that engaging with such person is required in order to satisfy their fiduciary duties under applicable law.

 

 

A “Superior Proposal” means any bona fide written offer made by a third party where such third party would acquire substantially all of the assets of the Avenova Business, taken as a whole, that is (i) on terms which the NovaBay Board of Directors determines in good faith (after consultation with outside counsel and its independent financial advisor) to be more favorable from a financial point of view to the NovaBay stockholders than the Asset Sale, taking into account relevant factors including the termination fee and any revised terms and conditions offered by PRN and (ii) reasonably likely to be completed and (iii) funded by fully committed financing.

 

Recommendation Withdrawal/Termination in Connection with a Superior Proposal. Our Board of Directors has resolved to unanimously recommend that our stockholders approve the Asset Sale. However, if prior to obtaining stockholder approval for the Asset Sale our Board of Directors determines in good faith, after consultation with outside legal counsel and independent financial advisor, that a Qualifying Acquisition Proposal constitutes a Superior Proposal and in order to satisfy its fiduciary duties to our stockholders under applicable law, it may:

●

implement an Adverse Recommendation Change (i.e. modify, qualify or withdraw, in a manner adverse to the PRN, its recommendation that our stockholders approve the Asset Sale); or

●

terminate the Asset Purchase Agreement (and pay the $500,000 termination fee to PRN) and concurrently enter into a binding definitive agreement with respect to the Superior Proposal.

 

However, prior to any Adverse Recommendation Change or termination of the Asset Purchase Agreement to pursue a Superior Proposal, we must (i) give PRN written notice of a Qualifying Acquisition Proposal that constitutes a Superior Proposal, including specifying the terms and copies of any agreements to effect a Superior Proposal, (ii) negotiate in good faith with PRN during the five (5) business day period following PRN’s receipt of written notice to enable PRN to make a counteroffer or amendment to the Asset Purchase Agreement such that such offer no longer constitutes a Superior Proposal and (iii) reaffirm the determination of a Superior Proposal in light of such counteroffer or proposed amendment to the Asset Purchase Agreement. NovaBay has not made any determination with respect to whether or not the Alternative Unsolicited Offer would constitute a Superior Proposal, as further described in “Proposal One: The Asset Sale—Background for the Asset Sale and the Dissolution”.

 

Termination Fees and Transaction Expenses. We must pay a termination fee of $500,000 in cash to PRN if the Asset Purchase Agreement is terminated under the following circumstances:

●

if we terminate the Asset Purchase Agreement in order to enter a definitive agreement with respect to a Superior Proposal;

●

if PRN terminates the Asset Purchase Agreement after our Board has effected an Adverse Recommendation Change; or

●

if all three of the following events occur:

○

an Acquisition Proposal is communicated to us or our stockholders or announced publicly;

○

the Asset Purchase Agreement has been terminated (i) by PRN as the result of our representations and warranties being untrue or inaccurate or breach or non-performance of our covenants and agreements or (ii) by either party if stockholder approval of the Asset Sale is not obtained at the Special Meeting; and

○

within 12 months after the date of such termination we enter into a definitive agreement with respect to any Acquisition Proposal and such Acquisition Proposal is thereafter consummated.

 

PRN will be required to pay a termination fee of $500,000 in cash if all of the Closing conditions under the Asset Purchase Agreement have been satisfied or waived and we have advised PRN in writing that our conditions have been satisfied and are ready to close the Asset Sale and PRN does not complete the Closing within three (3) business days of such notice; provided that no party may terminate the Asset Purchase Agreement due to stockholder approval having not been obtained at the Special Meeting during such three (3) business day period.

 

Such termination fee will be provided as liquidated damages in lieu of all other damages and as PRN’s (or NovaBay’s, as the case may be) sole remedy in such event, subject to agreed upon exceptions, including as a result of a willful breach.

 

Each of PRN and NovaBay will incur expenses in connection with the Asset Sale. Except as expressly set forth in the Asset Purchase Agreement, all costs and expenses incurred in connection with the Asset Purchase Agreement will be paid by the party incurring such costs and expenses, whether or not the Asset Sale is completed.

 

Non-Compete and Non-Solicitation. Pursuant to the Asset Purchase Agreement, NovaBay agreed that for a period of five (5) years following the Closing of the Asset Sale, it will not compete in the Avenova Business or invest or contract with a third party that competes anywhere in the United States or anywhere outside of the United States where Avenova products are offered for sale as of the Closing. NovaBay also agreed not to (i) solicit, induce or persuade any distributor, supplier or other business relation of the Avenova Business during the twelve (12) months prior to the Closing to cease doing business with PRN or (ii) take any actions to persuade any employee, independent contractor, representative or agent of the Avenova Business to terminate their services, subject to specified exceptions.

 

 

Confidentiality. The Asset Purchase Agreement contains standard language regarding confidentiality, pursuant to which NovaBay agrees that it will keep confidential the proprietary information regarding the Avenova Business, the Purchased Assets, and confidential information submitted by PRN to NovaBay (in either written or oral form) in connection with the Asset Purchase Agreement (excluding any publicly available information). PRN also agrees to keep confidential all proprietary information (in either written or oral form) relating to NovaBay’s businesses and assets that will not be acquired in the Asset Sale and continue to be owned by NovaBay after the Closing (excluding any publicly available information). In each case, neither of the above restrictions will prevent either party from disclosing such information in accordance with applicable laws and pursuant to the disclosure obligations of a public company, as long as notice of any such disclosure is provided promptly to the other party in writing. Either party may disclose any information to the extent necessary to comply with tax authorities and PRN may communicate and disclose to its potential financing sources the confidential information described above to receive the debt financing for the transaction, as long as such affiliated parties and their representatives are subject to customary confidentiality agreements.

 

Indemnification. After the Closing, we will indemnify PRN against all losses arising from (i) any breach of or inaccuracy in the representations or warranties of NovaBay contained in the Asset Purchase Agreement; (ii) any breach by NovaBay of any of the covenants or agreements set forth in the Asset Purchase Agreement; (iii) any Excluded Liability or Excluded Assets; or (iv) any action by NovaBay’s stockholders or holders of preferred stock and warrants arising out of the Asset Sale.

 

After the Closing, PRN will indemnify NovaBay against all losses arising from (i) any breach of the representations or warranties by PRN contained in the Asset Purchase Agreement; (ii) any breach by PRN of any of the covenants or agreement set forth in the Asset Purchase Agreement; or (iii) any Assumed Liability.

 

The indemnification obligations of both parties are subject to the following limitations:

 

●

Each party is only required to indemnify the other non-breaching party for losses that occur for a breach of representations or warranties of such breaching party if the aggregate amount of all such losses for which such party exceeds $50,000 (the “Deductible”), and then only to the extent such amount exceeds the Deductible. The Deductible shall not apply to either party in the event of fraud, and in the case of NovaBay only for a breach of specified Fundamental Representations (as defined in the Asset Purchase Agreement) by NovaBay in the Asset Purchase Agreement.

●

The aggregate liability of a breaching party for indemnification for losses that occur for a breach of representations and warranties is capped at $500,000 (the “Cap”). The Cap shall not apply to either party in the event that such losses arise out of fraud, and in the case of NovaBay only for a breach of specified Fundamental Representations.

●

The amount of losses for which a party is entitled to indemnification shall be reduced by the amount of insurance proceeds actually received (net of deductibles).

●

The aggregate liability of either party for indemnification to the other party for losses that occur for their respective breaches of representations and warranties and breach of covenants and agreements as provided in the Asset Purchase Agreement shall not exceed the amount of the Purchase Price (“Overall Cap”). The Overall Cap shall not apply to either party in the event that such losses arise out of fraud. All other indemnification obligations of NovaBay and PRN to each other will not have a cap on liability for losses.

 

Governing Law and Venue. The Asset Purchase Agreement is governed by the laws of the State of Delaware. The parties have agreed that any legal proceeding with respect to the Asset Purchase Agreement brought by another party thereto may be brought and determined in the Court of Chancery of the State of Delaware and any appellate court located in the State of Delaware.

 

Transition Services Agreement. In connection with the Closing of the Asset Sale, NovaBay and PRN will enter into the Transition Services Agreement in which NovaBay has agreed to provide services to PRN with respect to specified accounting, marketing, sales, customer service, regulatory and operational support for a period of four (4) months after the Closing. In exchange for providing such services, PRN and NovaBay agreed upon fees to be paid to NovaBay, which shall be invoiced to PRN with payment to be made within 10 business days after receipt. As part of the Transition Services Agreement, PRN also agreed to enter into a consulting agreement with Tommy Law, the Company’s Interim Chief Financial Officer, for certain services with a one-time payment of $85,000 to be made when all such services are complete.

 

 

Accounting Treatment of the Asset Sale

 

The Asset Sale is expected to be accounted for as a “sale” by NovaBay, as that term is used under GAAP, for accounting and financial reporting purposes. Accordingly, at Closing, any excess of purchase price received by us, less transaction expenses, over the book value of the Purchased Assets sold will be recognized as a gain for financial accounting purposes. In subsequent reporting periods, the Avenova Business for the current and prior years, including any gain on the sale of the Purchased Assets, will be presented as a discontinued operation for financial reporting purposes in our filings with the SEC.

 

No Appraisal Rights in Respect of the Asset Sale

 

Neither Delaware law nor our Certificate of Incorporation provides for stockholder appraisal or dissenters’ rights in connection with the Asset Sale.

 

Certain U.S. Federal Income Tax Consequences of the Asset Sale

 

The Asset Sale will be a taxable event to us for U.S. federal income tax purposes. We do not, however, anticipate that we will incur significant U.S. federal income tax liabilities as a result of the transaction due to the availability of net operating loss carryforwards. We anticipate that the Asset Sale will result in alternative minimum tax and state income taxes to us, but we do not expect that the Asset Sale will result in any U.S. federal income tax consequences to our stockholders.

 

Stockholder Approval of the Asset Sale

 

The affirmative vote of a majority of the shares of common stock outstanding as of the Record Date is required for approval of this Proposal One. Abstentions and broker non-votes will have the same effect as votes “AGAINST” the Asset Sale Proposal.

 

Unanimous Recommendation of the Board of Directors

 

For the reasons described in this Proxy Statement, the Board of Directors unanimously recommends that you vote “FOR” this Proposal One to approve of the sale of the Avenova Business, which represents substantially all of the assets of NovaBay, pursuant to the Asset Purchase Agreement, by and between NovaBay and PRN.

 

 

PROPOSAL TWO:

 

THE DISSOLUTION PROPOSAL

 

General

 

At the Special Meeting, we are asking our stockholders to authorize and approve the voluntary liquidation and dissolution of the Company pursuant to the Plan of Dissolution. Our Board of Directors has determined that the Dissolution is advisable and in the best interests of the Company and its stockholders, has approved the Dissolution and adopted the Plan of Dissolution effective September 19, 2024, subject to stockholder approval.

 

In general terms, if NovaBay dissolves pursuant to the Plan of Dissolution, we will cease conducting our business, wind up our affairs, dispose of our non-cash assets, pay or otherwise provide for our obligations, and distribute our remaining assets, if any, during the Survival Period (i.e., a post-dissolution period of at least three (3) years (or longer as the Delaware Court of Chancery shall in its discretion direct)), as required by the DGCL. Within the Survival Period and subject to the discretion of the Delaware Court of Chancery, we expect initial distributions to stockholders to occur in nine (9) to twelve (12) months following the Effective Time of the Dissolution. The Effective Time of the Dissolution will be when the Certificate of Dissolution is filed with the office of the Secretary of State or such later date and time that is stated in the Certificate of Dissolution. With respect to the Dissolution, we will follow the dissolution and winding up procedures prescribed by the DGCL, as described in further detail under the heading “Proposal Two: The Dissolution Proposal —Dissolution Under Delaware Law” beginning on page 57 of this Proxy Statement. You should carefully consider the risk factors relating to the Dissolution and described under “Risk Factors — Risks Related to the Dissolution” in this Proxy Statement.

 

If the stockholders approve the Dissolution Proposal, the Company currently plans to file the Certificate of Dissolution with the Secretary of State as soon as practical following the Special Meeting and the closing of the Asset Sale; however, such filing may be delayed or not filed at all as determined by the Board of Directors in its sole discretion, as described in more detail below. If our stockholders do not approve the Asset Sale or the Asset Sale is not otherwise completed, the Board will evaluate all strategic options available to the Company on the necessary timing before the Company’s operating cash runs out, which may include proceeding with the Dissolution (if the Dissolution Proposal is approved by our stockholders) even if the Asset Sale is not first completed. If the Company does proceed with the Dissolution without first completing the Asset Sale, the Company can still sell its assets, including the Avenova Business, as part of the Dissolution process.

 

The Dissolution and the Plan of Dissolution were unanimously approved by our Board of Directors, subject to stockholder approval, effective September 19, 2024. A copy of the Plan of Dissolution is attached as Annex C to this Proxy Statement. All material terms of the Plan of Dissolution are summarized below. We encourage you to read the Plan of Dissolution in its entirety.

 

Summary of the Dissolution

 

Following the filing of the Certificate of Dissolution with the Secretary of State, in accordance with the applicable provisions of the DGCL, the Board will proceed to wind up the Company’s affairs. Authorization of the Dissolution by the holders of a majority of the outstanding stock of the Company shall constitute the authorization of the sale, exchange or other disposition in liquidation of all of the remaining property and assets of the Company after the Effective Time, whether the sale, exchange or other disposition occurs in one transaction or a series of transactions, and shall constitute ratification of any and all contracts for sale, exchange or other disposition that are conditioned on stockholder approval. If our stockholders do not approve the Dissolution Proposal, we will continue our corporate existence and the Board of Directors will continue to explore alternatives for returning capital to stockholders in a manner intended to maximize value or, to the extent any viable alternatives are not available, the Company may need to file for bankruptcy protection or commence a similar state law proceeding.

 

The Company intends to rely on the “safe harbor” procedures under Sections 280 and 281(a) of the DGCL to, among other things, obtain an order from the Delaware Court of Chancery establishing the amount and form of security for contested known, contingent and potential future claims that are likely to arise or become known within five years of filing of the Certificate of Dissolution (or such longer period of time as the Delaware Court of Chancery may determine not to exceed ten years), or the “Court Order”.

 

 

Subject to the requirements of the DGCL and the Plan of Dissolution, as further described below, we will use the proceeds from the Asset Sale and our existing cash to pay for our winding up procedures, including without limitation:

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income, corporate and other taxes;

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the costs associated with the Dissolution and winding up over the Survival Period, as well as expenses in connection with the Asset Sale, which may include, among others, expenses necessary for the implementation and administration of the Plan of Dissolution and fees and other amounts payable to professional advisors (including legal counsel, financial advisors and others) and to employees, consultants and others assisting us with the Dissolution;

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any claims by others against us that we do not reject as part of the dissolution process, including any settlements or judgments;

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any amounts owed by us under contracts with third parties, including pursuant to the Asset Purchase Agreement and any equity holders such as holders of our warrants;

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the funding of any cash reserves or other security we are required to establish, or deem appropriate to establish, to pay for asserted claims (including lawsuits) and possible future claims, as further described below; and

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solely to the extent remaining after provision for the above-described payments, liquidating distributions to be made to our stockholders (including our common stockholders and preferred stock holder), which distributions, if any, may be made from time to time as available and in accordance with the DGCL procedures described below.

 

Background for the Dissolution

 

See “Proposal One: The Asset Sale—Background for the Asset Sale and the Dissolution” for a background regarding the Dissolution.

 

Reasons for the Dissolution

 

As described elsewhere in this Proxy Statement, the Board of Directors has diligently evaluated NovaBay’s strategic options in the near- and long-term and determined that the Dissolution, pursuant to the terms and provisions of the Plan of Dissolution, after completing the Asset Sale is advisable and in the best interests of NovaBay and our stockholders. The Board of Directors’ evaluation has included the Company’s efforts to pursue potential strategic alternatives available to the Company such as financings, mergers, reverse mergers, asset sales or dispositions, strategic partnerships, out-licensing and sub-licensing transactions, and other business combination transactions, and, following the results of such review, believes that completing the Asset Sale and subsequently pursuing the Dissolution and wind-up of the Company in accordance with the Plan of Dissolution provides the best opportunity and most flexibility to optimize value for our stockholders.

 

In reaching its decision to unanimously approve the Dissolution and to recommend that our stockholders vote to approve the Dissolution pursuant to the Plan of Dissolution at this Special Meeting, our Board of Directors, after careful consideration with our management and accounting, legal and tax advisors, determined that the Dissolution was in the best interests of the Company's stockholders based on the following factors (in addition to other pertinent factors):

 

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Capital Raise Opportunities. The Board of Directors considered the fact that we would require substantial additional capital to maintain our operations and obtain profitability and that NovaBay has historically relied on capital raise transactions to fund its operations which have become increasingly difficult to identify and close. Such consideration included the Company’s recently completed public offering of NovaBay common stock and common stock warrants that closed in July 2024 and the divestiture of DERMAdoctor in March 2024, which in the aggregate are not sufficient to continue to fund our current operations beyond the fourth quarter of 2024.

 

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Limited Operations and Continuing Expenses. The Board of Directors considered that after the Asset Sale (subject to the approval of our stockholders as is being separately proposed to stockholders in Proposal One of this Proxy Statement) the Company will maintain limited operations consisting primarily of its wound care business. However, NovaBay will continue to incur substantial accounting, legal and other expenses associated with being a public company with no adequate source of revenue or financing alternatives.

 

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Strategic Alternatives. The Board of Directors considered its efforts to evaluate and identify remaining strategic alternatives such as financings, mergers, reverse mergers, asset sales or dispositions, strategic partnerships, out-licensing and sub-licensing transactions, and other business combination transactions, that could have a reasonable likelihood of providing value to our stockholders in excess of the amount the stockholders may be able to receive in the Dissolution after the completion of the Asset Sale. Further, the Board of Directors considered that if stockholders approve the Dissolution but do not approve the Asset Sale or the Asset Sale is not otherwise completed, the Board of Directors may proceed with the Dissolution without first completing the Asset Sale, whereby the Company can sell its assets, including the Avenova Business, as part of the Dissolution process.

 

 

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Potential for Bankruptcy. The Board of Directors considered and evaluated the risk that if NovaBay is unable to consummate the Asset Sale and complete the Dissolution, the Company may have to cease all operations, make an assignment for the benefit of any creditors, turn NovaBay over to a third-party management company or liquidator or file for bankruptcy protection, which would be unlikely to result in any funds being available for distribution to stockholders.

 

Our Board of Directors also considered potential drawbacks or risks relating to the Dissolution, including those described in “Risk Factors — Risks Related to the Dissolution” in this Proxy Statement.

 

In addition, the Board of Directors was aware of and considered the interests that certain of our directors and executive officers may have with respect to the Dissolution that differ from, or are in addition to, their interests as stockholders of NovaBay, as described under the heading “Interests of Directors and Executive Officers in the Approval of the Asset Sale and Plan of Dissolution”.

 

As a result of its evaluation, the Board concluded that the Dissolution, after completing the Asset Sale, provides the best opportunity to maximize any remaining value for the Company and its stockholders among the alternatives currently available and is therefore in the best interests of the Company and its stockholders.

 

The preceding discussion summarizes and is not intended to be an exhaustive description of the information and factors considered by our Board of Directors, but it summarizes and addresses the material information and factors considered by the Board of Directors in its consideration of the Dissolution. In view of the wide variety of factors considered by the Board of Directors, and complexity of these matters, in connection with its evaluation of the Plan of Dissolution, our Board of Directors did not find it practical and did not quantify or otherwise attempt to assign relative weight to the specific factors considered in reaching its conclusions. In considering the factors described above, individual members of our Board of Directors may have given different weight to different factors. The Board of Directors approved the Dissolution pursuant to the Plan of Dissolution based upon the totality of the information presented to and considered by it.

 

Dissolution Under Delaware Law

 

We are a corporation organized under the laws of the State of Delaware and accordingly the Dissolution will be governed by the DGCL. The following is a brief summary of some of the relevant provisions of the DGCL applicable to the Dissolution. The following summary is qualified in its entirety by Sections 275 through 283 of the DGCL.

 

Authorization of Board and Stockholders. Pursuant to the DGCL, if a corporation’s board of directors deems it advisable that the corporation should dissolve, it may adopt a resolution to that effect by a majority vote of the whole board and notify the corporation’s stockholders entitled to vote on the dissolution of the adoption of the resolution and the calling of a meeting of stockholders to act on the resolution. Our Board of Directors has unanimously adopted a resolution approving the Dissolution and the Plan of Dissolution and declared them advisable and recommended them to our stockholders. The Dissolution and the Plan of Dissolution must be authorized and approved by the holders of a majority of our outstanding shares of common stock on the Record Date entitled to vote on the Dissolution Proposal.

 

Possible Permitted Abandonment of Dissolution. The resolution authorizing a dissolution adopted by a corporation’s board of directors may provide that, notwithstanding authorization of the dissolution by the corporation’s stockholders, the board of directors may abandon the dissolution without further action by the stockholders. While we do not currently foresee any reason that our Board of Directors would abandon the proposed Dissolution once it is authorized by our stockholders, to provide our Board of Directors with the maximum flexibility to act in the best interests of our stockholders, the resolutions adopted by our Board of Directors include language providing the Board of Directors with the flexibility to abandon the Dissolution without further action of our stockholders at any time prior to the filing of the Certificate of Dissolution.

 

Certificate of Dissolution. If a corporation’s stockholders authorize its dissolution, to consummate the dissolution, the corporation must file a certificate of dissolution with the Secretary of State. If our stockholders authorize the Dissolution at the Special Meeting, we intend to file the Certificate of Dissolution with the Secretary of State as soon as practical following the Special Meeting and the closing of the Asset Sale. However, the timing of such filing is subject to the discretion of the Board of Directors.

 

 

Time of Dissolution. When a corporation’s certificate of dissolution is filed with the Secretary of State and has become effective, along with the corporation’s tender of all taxes (including Delaware franchise taxes) and fees authorized to be collected by the Secretary of State, the corporation will be dissolved.

 

Continuation of Corporation After Dissolution. Section 278 of the DGCL provides that after a corporation is dissolved, its existence continues for the Survival Period for the limited purpose of prosecuting and defending suits by or against the corporation and to enable the corporation to settle and close its business and dispose of and convey its remaining assets. A dissolved corporation may not, however, continue the business for which it was organized. Any action, suit or proceeding begun by or against the corporation before or during this survival period does not abate by reason of the dissolution, and for the purpose of any such action, suit or proceeding, the corporation will continue beyond the Survival Period until any related judgments, orders or decrees are fully executed, without the necessity for any special direction by the Delaware Court of Chancery. The Plan of Dissolution will govern our winding up process after Dissolution. See the section entitled “—Principal Terms and Conditions of the Plan of Dissolution” in this Proxy Statement.

 

Payments and Distributions to Claimants and Stockholders. A dissolved corporation must make provision for the payment (or reservation of security for payment) of current and certain potential future claims against the corporation in accordance with the applicable provisions of the DGCL and the distribution of remaining assets to the corporation’s stockholders. The dissolved corporation may do this by following one of two procedures, as described below. We currently plan to elect to follow the Safe Harbor Procedures (as defined below) as the Delaware Court of Chancery generally approves payout amounts and it accordingly affords greater protection to our stockholders and directors than the Alternative Procedures. The Safe Harbor Procedures limit our stockholders’ liability from claims against NovaBay once dissolved and protect our directors from personal liability to NovaBay’s claimants once dissolved. However, our Plan of Dissolution permits our Board the discretion to decide to modify, amend or abandon the Plan of Dissolution, which would include deciding to follow the Alternative Procedures (as defined below) as permitted by the DGCL.

 

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Safe Harbor Procedures under DGCL Sections 280 and 281(a) (the “Safe Harbor Procedures”). A dissolved corporation may elect to give notice of its dissolution to persons having a claim against the corporation (other than claims against the corporation in any pending actions, suits or proceedings to which the corporation is a party) (“Current Claimants”) and to persons with contractual claims contingent on the occurrence or nonoccurrence of future events or otherwise conditional or unmatured contractual claims (“Contingent Contractual Claimants”), and after giving these notices, following the procedures set forth in the DGCL, as described below. The Plan of Dissolution adopted by the Board of Directors and proposed to the stockholders for approval constitutes the plan of distribution for purposes of the Safe Harbor Procedures, although the Plan of Dissolution provides that our Board of Directors has the discretion to decide to modify, amend or abandon the Plan of Dissolution.

 

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Liabilities of Stockholders and Directors. If a dissolved corporation follows the Safe Harbor Procedures, then a stockholder of the dissolved corporation will not be liable for any claim against the dissolved corporation in an amount in excess of the lesser of (a) the stockholder’s pro rata share of the claim and (b) the amount distributed to the stockholder. If a dissolved corporation follows the Safe Harbor Procedures, then a stockholder of the dissolved corporation will not be liable for any claim against the dissolved corporation on which an action, suit or proceeding is not begun before the expiration of the Survival Period. In no event will the aggregate liability of a stockholder of a dissolved corporation for claims against the dissolved corporation exceed the amount distributed to the stockholder in dissolution. If a dissolved corporation fully complies with the Safe Harbor Procedures, then the dissolved corporation’s directors will not be personally liable to the dissolved corporation’s claimants.

 

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Alternative Procedures under DGCL Section 281(b) (the “Alternative Procedures”). If a dissolved corporation does not elect to follow the Safe Harbor Procedures, it must adopt a plan of distribution pursuant to which it will (i) pay or make reasonable provision to pay all claims and obligations, including all contingent, conditional or unmatured contractual claims known to the corporation, (ii) make such provision as will be reasonably likely to be sufficient to provide compensation for any claim against the dissolved corporation that is the subject of a pending action, suit or proceeding to which the dissolved corporation is a party, and (iii) make such provision as will be reasonably likely to be sufficient to provide compensation for claims that have not been made known to the dissolved corporation or that have not arisen but that, based on facts known to the dissolved corporation, are likely to arise or to become known to the dissolved corporation within ten years after the date of dissolution. If there are insufficient assets to make these payments and provisions, then they will be satisfied ratably in accordance with legal priorities, to the extent assets are available.

 

 

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Current Claimants.

 

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Notices and Publication. The notice to Current Claimants must state (i) that all such claims must be presented to the corporation in writing and must contain sufficient information reasonably to inform the corporation of the identity of the claimant and the substance of the claim; (ii) the mailing address to which the claim must be sent; (iii) the date (the “Claim Date”) by which the claim must be received by the corporation, which must be no earlier than sixty (60) days from the date of the corporation’s notice; (iv) that the claim will be barred if not received by the Claim Date; (v) that the corporation may make distributions to other claimants and the corporation’s stockholders without further notice to the Current Claimant; and (vi) the aggregate annual amount of all distributions made by the corporation to its stockholders for each of the three years before the date of dissolution. The notice must be published at least once a week for two consecutive weeks in a newspaper of general circulation in the county in which the corporation’s registered agent in Delaware is located and in the corporation’s principal place of business and, in the case of a corporation having $10.0 million or more in total assets at the time of dissolution, at least once in all editions of a daily newspaper with a national circulation. On or before the date of the first publication of the notice, the corporation must also mail a copy of the notice by certified or registered mail, return receipt requested, to each known claimant of the corporation, including persons with claims asserted against the corporation in a pending action, suit or proceeding to which the corporation is a party.

 

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Effect of Non-Responses to Notices. If the dissolved corporation does not receive a response to the corporation’s notice by the Claim Date from a Current Claimant who was given actual notice according to the prior paragraph, then the claimant’s claim will be barred.

 

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Treatment of Responses to Notices. If the dissolved corporation receives a response to the corporation’s notice by the Claim Date, the dissolved corporation may accept or reject, in whole or in part, the claim. If the dissolved corporation rejects a claim, it must mail a notice of the rejection to the Current Claimant by certified or registered mail, return receipt requested, within ninety (90) days after receipt of the claim (or, if earlier, at least one hundred fifty (150) days before the expiration of the Survival Period). The notice must state that any claim so rejected will be barred if the Current Claimant does not commence an action, suit or proceeding with respect to the claim within one hundred twenty (120) days of the date of the rejection.

 

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Effect of Non-Responses to Rejections of Claims. If the dissolved corporation rejects a claim and the Current Claimant does not commence an action, suit or proceeding with respect to the claim within the 120-day post-rejection period, then the Current Claimant’s claim will be barred.

 

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Contingent Contractual Claims.

 

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Notices. The notice to Contingent Contractual Claimants (persons with contractual claims contingent on the occurrence or nonoccurrence of future events or otherwise conditional or unmatured) must be in substantially the same form and sent and published in the same manner as notices to Current Claimants and shall request that Contingent Contractual Claimants present their claims in accordance with the terms of such notice.

 

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Responses to Contractual Claimants. If the dissolved corporation receives a response by the date specified in the notice by which the claims from Contingent Contractual Claimants must be received by the corporation, which must be no earlier than sixty (60) days from the date of the corporation’s notice to Contingent Contractual Claimants, the dissolved corporation must offer to the Contingent Contractual Claimant such security as the dissolved corporation determines is sufficient to provide compensation to the claimant if the claim matures. This offer must be mailed to the Contingent Contractual Claimant by certified or registered mail, return receipt requested, within ninety (90) days of the dissolved corporation’s receipt of the claim (or, if earlier, at least one hundred fifty (150) days before the expiration of the post-dissolution survival period). If the Contingent Contractual Claimant does not deliver to the dissolved corporation a written notice rejecting the offer within one hundred twenty (120) days after receipt of the offer for security, the claimant is deemed to have accepted the security as the sole source from which to satisfy the claim against the dissolved corporation.

 

 

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Determinations by Delaware Court of Chancery. A dissolved corporation that has complied with the Safe Harbor Procedures must petition the Delaware Court of Chancery to determine the amount and form of security that will be (i) reasonably likely to be sufficient to provide compensation for any claim against the dissolved corporation that is the subject of a pending action, suit or proceeding to which the dissolved corporation is a party, other than a claim barred pursuant to the Safe Harbor Procedures, (ii) sufficient to provide compensation to any Contingent Contractual Claimant who has rejected the dissolved corporation’s offer for security for such person’s claims made pursuant to the Safe Harbor Procedures, and (iii) reasonably likely to be sufficient to provide compensation for claims that have not been made known to the dissolved corporation or that have not arisen but that, based on facts known to the dissolved corporation, are likely to arise or to become known to the dissolved corporation within five years after the date of dissolution or such longer period of time as the Delaware Court of Chancery may determine, not to exceed ten years after the date of dissolution. The Delaware Court of Chancery may appoint a guardian ad litem in respect of any such proceeding brought upon the petition of a dissolved corporation that has complied with the Safe Harbor Procedures, in which case the reasonable fees and expenses of any court-appointed guardian (including all reasonable expert witness fees) would be paid by the dissolved corporation and potentially reduce the remaining assets, if any, available for distribution to stockholders.

 

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Payments and Distributions. If a dissolved corporation has followed the Safe Harbor Procedures, then it will (i) pay the current claims made but not rejected, (ii) post the security offered and not rejected for contractual claims that are contingent, conditional or unmatured, (iii) post any security ordered by the Delaware Court of Chancery in response to the dissolved corporation’s petition to the court described above, and (iv) pay or make provision for all other claims that are mature, known and uncontested or that have been finally determined to be owing by the dissolved corporation. If there are insufficient assets to make these payments and provisions, then they will be satisfied ratably in accordance with legal priorities, to the extent that assets are available. All remaining assets will be distributed to the dissolved corporation’s stockholders, but not earlier than one hundred fifty (150) days after the date of the last notice of rejection given by the dissolved corporation to a Current Claimant pursuant to the Safe Harbor Procedures.

 

Principal Terms and Conditions of the Plan of Dissolution

 

The Dissolution will be conducted in accordance with the Plan of Dissolution. This section of this Proxy Statement describes material aspects of the proposed Plan of Dissolution. While we believe that the description covers the material terms of the Plan of Dissolution, this summary may not contain all of the information that is important to you. You should carefully read this entire Proxy Statement, including the Plan of Dissolution attached as Annex C to this Proxy Statement for a more complete understanding of the Dissolution. Our Plan of Dissolution may be modified, amended, or abandoned by action by our Board of Directors at any time and from time to time, as further described below including that the Board of Directors retains the discretion to opt to dissolve the Company in accordance with the Alternative Procedures.

 

Authorization and Effectiveness. Our Plan of Dissolution will be deemed approved if the holders of a majority of the outstanding shares of our common stock as of the Record Date entitled to vote on the Dissolution Proposal approve the Dissolution and the Plan of Dissolution. Our Plan of Dissolution will constitute our authorized plan and will evidence our authority to take all actions described in the Plan of Dissolution. Following the authorization of the Dissolution and the Plan of Dissolution by our stockholders, at such time as the Board determines to be appropriate, we will file the Certificate of Dissolution with the Secretary of State and ensure that all relevant taxes (including Delaware franchise taxes) and fees are paid, unless the Dissolution is abandoned by the Board of Directors prior to that time. The Effective Time will be when the Certificate of Dissolution is filed with the Secretary of State or such later date and time that is stated in the Certificate of Dissolution (within ninety (90) days).

 

Survival Period. For the Survival Period (i.e., three years after the Effective Time) (or such longer period as the Delaware Court of Chancery may direct), we will continue as a corporate entity for the limited purpose of prosecuting and defending suits by or against us and enabling us to settle and close our business and dispose of and convey our remaining assets. We will no longer engage in any business activities, except to the extent deemed necessary by the Board of Directors and the Company’s executive officers, in their business judgement, to preserve the value of the Company’s assets, comply with all laws and regulatory requirements, wind up the Company’s business affairs, and distribute the Company’s assets in accordance with the Plan of Distribution. Subject to the approval of the Delaware Court of Chancery, we anticipate that distributions, if any, to our stockholders will be made in cash, and may be made at any time (with initial distributions to stockholders anticipated to occur in nine (9) to twelve (12) months from the Effective Time), from time to time, in any number of distributions in accordance with the DGCL and the Plan of Dissolution.

 

 

General Liquidation, Winding Up and Distribution Process. We intend to elect to follow the Safe Harbor Procedures described under the section entitled “—Dissolution Under Delaware Law—Safe Harbor Procedures under DGCL Sections 280 and 281(a)” in this Proxy Statement. The Board of Directors intends to seek to distribute funds, if any, to our stockholders expeditiously, as permitted by the DGCL and the Plan of Dissolution and intends to take all reasonable actions deemed advisable by the Board of Directors to optimize the distributable value to our stockholders.

 

Continuing Employees and Consultants. During the Survival Period, we may hire or retain employees, consultants and advisors (including legal counsel, accountants and financial advisors), as the Board of Directors deems necessary or desirable, from time to time, to supervise or facilitate the Dissolution and winding up of the Company, including to perform any post-Closing obligations under the Transition Services Agreement (as described above). The Board of Directors also expects that outside legal and financial advisors will continue to advise on and assist with the Dissolution. After filing the Certificate of Dissolution, the Board of Directors expects it will reduce the size of the Board of Directors. We may, in the absolute discretion of the Board of Directors, pay the Company’s executive officers, directors, employees, agents and representatives compensation or additional compensation above their regular compensation, including pursuant to severance and retention agreements, in money or other property, in recognition of the extraordinary efforts they will be required to undertake in connection with the implementation of the Plan of Dissolution. However, given the Company’s already streamlined operations, the Board of Directors does not expect to need to hire any employees or otherwise expand the team of advisors and consultants currently in place. Adoption of the Dissolution pursuant to the Plan of Dissolution by the requisite vote of the stockholders will constitute approval by the stockholders of any such cash or non-cash compensation.

 

Sale, Exchange, or Disposition of Our Remaining Assets. The Plan of Dissolution contemplates the sale, exchange, or other disposition of all of our remaining property and assets (which could include our wound care, urology or dermatology businesses, and the Avenova Business to the extent the Asset Sale is not completed prior to the Dissolution), if and at such time as the Board of Directors may approve, without further stockholder approval. The proceeds of any such sale will also be paid out to stockholders, pursuant to the Plan of Dissolution and as permitted by the DGCL. The Plan of Dissolution does not specify the manner in which we may sell, exchange or dispose of our property and assets, and we may not be able to sell quickly or at all any or all of our remaining assets. The remaining assets may be sold or disposed of to one or more acquirors in one transaction or a series of transactions over a period of time. It is not anticipated that any further stockholder votes will be solicited with respect to the approval of the specific terms of any particular sales or other dispositions of assets approved by the Board of Directors. We do not anticipate amending or supplementing this Proxy Statement to reflect any such agreement, transaction, or sale, should any materialize, unless required by applicable law, or selling or otherwise disposing, monetizing, or transferring any additional assets in the future. See the section entitled “Risk Factors — Risks Related to the Dissolution” in this Proxy Statement.

 

Fees and Expenses. We will pay all fees and expenses that may be determined from time to time to be necessary or advisable, in the absolute discretion of the Board of the Directors, to implement and assure completion of the Dissolution in accordance with the Plan of Dissolution. These fees and expenses may include, without limitation, brokerage, agency, professional, and other fees and expenses of persons rendering services to the Company in connection with the matters described in the Plan of Dissolution.

 

Indemnification. We will continue to indemnify our executive officers, directors, employees, agents and trustees in accordance with, and to the extent required or permitted by, the DGCL, our Certificate of Incorporation, our Bylaws and any contractual arrangements, whether these arrangements existed before the Dissolution or were entered into after the Dissolution. During the Survival Period, acts and omissions of any indemnified or insured person in connection with the implementation of the Plan of Dissolution and the winding up of the affairs of the Company will be covered by the Company’s existing directors’ and officers’ liability insurance policy and applicable law. The Board of Directors is authorized to obtain and maintain insurance as may be necessary to cover the Company’s indemnification obligations.

 

Stockholder Approval. Approval of the Dissolution and the Plan of Dissolution by the holders of a majority of the outstanding shares of common stock of the Company as of the Record Date entitled to vote on the Dissolution Proposal, to the fullest extent permitted by law, constitutes approval of all matters described in this Proxy Statement relating to the Dissolution, including our Plan of Dissolution. Approval of the Dissolution by the holders of a majority of the outstanding stock of the Company shall constitute the authorization of the sale, exchange or other disposition in liquidation of all of the remaining property and assets of the Company after the Effective Time, whether the sale, exchange or other disposition occurs in one transaction or a series of transactions, and shall constitute approval and ratification of any and all contracts for sale, exchange or other disposition whether or not conditioned on stockholder approval.

 

 

Legal Claims. We will defend any claims against us, our current or former officers or directors or our subsidiaries, whether a claim exists before the Effective Time or is brought during the Survival Period, based on advice and counsel of our legal and other advisors and in such manner, at such time and with such costs and expenses as we or our Board of Directors may approve from time to time. During the Survival Period, we may continue to prosecute any claims that we had against others before the Effective Time and may institute any new claims against any person as may be determined to be necessary or advisable to protect the Company and its assets and rights or to implement the Plan of Dissolution. At our discretion, we may defend, prosecute, and/or settle any lawsuits, as applicable.

 

Effective Time; Stock of the Company. The Effective Time will be specified by the Certificate of Dissolution as filed with the Delaware Secretary of State. From and after the Effective Time, and subject to applicable law, each holder of shares of our common stock shall cease to have any rights in respect of that stock, except the right to receive distributions, if any, pursuant to and in accordance with the Plan of Dissolution and the DGCL. After the Effective Time, our stock transfer books shall be closed, and we will not record or recognize any transfer of our common stock occurring after the Effective Time, and thereafter certificates representing shares of stock of the Company will not be assignable or transferable on the books of the Company except by will, intestate succession, or operation of law. As a condition to receipt of the liquidating distribution, the Board of Directors, in its absolute discretion, may require the stockholders to: (i) surrender to the Company any certificates evidencing their shares of stock; or (ii) furnish the Company with evidence satisfactory to the Board of Directors  of the loss, theft or destruction of such certificates, together with such surety bond or other security or indemnity as may be required by and satisfactory to the Board of Directors. We expect the Effective Time to be as soon as reasonably practicable after the Dissolution is approved by our stockholders and the Asset Sale is complete.

 

Unclaimed Distributions. If any distribution to a stockholder cannot be made, whether because the stockholder cannot be located, has not surrendered a certificate evidencing ownership of the common stock as required in the Plan of Dissolution or for any other reason, the distribution to which the stockholder is otherwise entitled will be transferred, at such time as the final liquidating distribution is made by us, to the official of such state or other jurisdiction authorized by applicable law to receive the proceeds of the distribution. The proceeds of such distribution will thereafter be held solely for the benefit of and for ultimate distribution to the stockholder as the sole equitable owner of the distribution and will be treated as abandoned property and escheat to the applicable state or other jurisdiction in accordance with applicable law. The proceeds of any such distribution will not revert to, or become the property of, us or any other stockholder.

 

Liquidating Trust. While we do not currently propose transferring our assets to a liquidating trust, we may do so if deemed appropriate by our Board of Directors, based on advice of our legal, tax and accounting advisors. We may, for example, transfer assets to a liquidating trust if we are unable to complete the Dissolution within the initial three (3) years of the Survival Period.

 

Abandonment, Modifications and Amendments. Notwithstanding the authorization of the Dissolution by our stockholders as described in this Proxy Statement, our Board of Directors will have the right, as permitted by the DGCL, to modify, amend or abandon the Dissolution at any time before the Effective Time and terminate our Plan of Dissolution, without any action by our stockholders.

 

Our Certificate of Incorporation and our Bylaws and the DGCL. During the Survival Period, we will continue to be governed by our Certificate of Incorporation and our Bylaws, insofar as their terms apply and insofar as necessary or appropriate to implement our Plan of Dissolution. Our Board of Directors will continue to have the authority to amend our Bylaws as it may deem necessary or advisable. To any extent that the provisions of our Plan of Dissolution conflict with any provision of the DGCL, the provisions of the DGCL shall prevail.

 

Authority of the Board. Our Board of Directors, without further action by our stockholders, is authorized to take, or cause the officers of the Company to take, all actions as they deem necessary or advisable to implement the Plan of Dissolution, if it is approved by our stockholders pursuant to this Proposal Two. All determinations and decisions to be made by our Board of Directors will be at the absolute discretion of our Board of Directors.

 

 

Estimated Liquidating Distributions

 

MANY OF THE FACTORS INFLUENCING THE AMOUNT OF CASH DISTRIBUTED TO STOCKHOLDERS AS A LIQUIDATING DISTRIBUTION CANNOT CURRENTLY BE QUANTIFIED WITH CERTAINTY AND ARE SUBJECT TO CHANGE. ACCORDINGLY, YOU WILL NOT KNOW THE EXACT AMOUNT OF ANY LIQUIDATING DISTRIBUTIONS YOU MAY RECEIVE AS A RESULT OF THE PLAN OF DISSOLUTION WHEN YOU VOTE ON THE DISSOLUTION PROPOSAL. YOU MAY RECEIVE NO DISTRIBUTION AT ALL.

 

After the completion of the Asset Sale, we intend to liquidate our cash assets and sell or dispose of our remaining non-cash assets (including the Company’s wound care business) for the best price available and to maximize the potential stockholder distribution amount as soon as reasonably practicable after the Effective Time. The amount of any contingency reserve established by the Board of Directors, and approved by the Delaware Court of Chancery, will be deducted before determining amounts available for distribution to stockholders. Based on the foregoing, we estimate that the aggregate amount of cash distributions to our stockholders will be in the range of $0.01 and $0.91 per share of common stock. Calculating such an estimate is inherently uncertain and requires that we make a number of assumptions regarding future events, many of which are unlikely to ultimately be true.

 

THE FOLLOWING ESTIMATES ARE NOT GUARANTEES, DO NOT REFLECT THE TOTAL RANGE OF POSSIBLE OUTCOMES AND HAVE NOT BEEN AUDITED OR REVIEWED BY OUR INDEPENDENT CERTIFIED PUBLIC ACCOUNTING FIRM. YOU MAY NOT RECEIVE ANY LIQUIDATING DISTRIBUTIONS EVEN IF OUR STOCKHOLDERS APPROVE THE PLAN OF DISSOLUTION.

 

Estimated Liquidating Distributions to Stockholders

 

 

		Low				High
Payroll and Liabilities/ Expenses to Continue Operating:
Opening balance (September 30, 2024)		$	776			$	776
Return of certain deposits			477				477
Payroll/operational spend (estimated through December 31, 2024)			(741	)			(741	)
Sell Avenova Business and Liquidate:
Proceeds from the Asset Sale			9,500				9,500
Net Working Capital Adjustment			(500	)			500
Sale of other assets, including the wound care business			500				1,000
Sale fees and wind-down expenses			(1,443	)			(1,113	)
Taxes, including estimated tax on sale			(756	)			(857	)
Pay-off of Unsecured Convertible Notes			(525	)			(525	)
Wages and severance (estimated for after December 31, 2024 until the Dissolution is completed)			(850	)			(590	)
Final D&O run-off policy			(663	)			(265	)
Other general and administrative costs(1)			(719	)			(719	)
Contingency reserve (estimate)			(2,500	)			(500	)
Cash distributions to warrant holders(2)			(2,492	)			(2,492	)
Estimated cash to distribute to stockholders		$	64			$	4,451
Fully diluted shares (including common shares outstanding, options outstanding and the Series B Non-Voting Convertible Preferred Stock (on a fully diluted basis), both as of October 14, 2024)			4,907,651				4,907,651
Estimated liquidating distribution(s) per share		$	0.01			$	0.91

 

(1)	Includes other general and administrative costs such as the Company’s outstanding balance of accounts payable and the forfeiture cost on the Company’s current facility lease, both as of September 30, 2024.

 

(2)	Includes estimated amounts payable to certain holders of the Company’s common stock purchase warrants with an exercise price below the estimated liquidating distributions per share amount (based on a net exercise amount that assumes no such warrants are exercised prior to a cash distribution).

 

Distributions, if any, to our stockholders may be paid in one or more distributions over a period of several years. Such distributions will not occur until after the Certificate of Dissolution is filed, and we cannot predict the timing or amount of any such distributions, as uncertainties as to the ultimate amount of our liabilities, the operating costs and amounts to be set aside for claims, obligations and provisions during the liquidation and winding-up process, and the related timing to complete such transactions, make it impossible to predict with certainty the actual net cash amount that will ultimately be available for distribution to stockholders or the timing of any such distributions. Examples of uncertainties that could reduce the value of distributions to our stockholders include: (i) the receipt of no, or lower than expected, proceeds related to the Asset Sale and/or the sale of the Company’s other assets, including the Company’s wound care business; (ii) the incurrence by the Company of expenses relating to the Dissolution being different than estimated; (iii) unanticipated costs relating to the defense, satisfaction or settlement of lawsuits or other claims threatened against us or our current or former directors or officers; (iv) amounts necessary to resolve claims of any creditors or other third parties; and (v) delays in the Dissolution or other winding up process.

 

 

Our estimate of the anticipated initial distribution amounts is preliminary and many of the factors that are necessary to determine how much, if any, we will be able to distribute to our stockholders in liquidation are subject to change and outside of our control. While we intend to pursue matters related to our liquidation, dissolution, and winding up promptly if we obtain approval from our stockholders, the timing of many elements of this process after our Dissolution will not be entirely within our control and, therefore, we are unable to estimate when we would be able to begin making any post-Dissolution liquidating distributions to our stockholders and over what time period and number of distributions might be involved. See the section entitled “Risk Factors — Risks Related to the Dissolution” in this Proxy Statement.

 

Contingency Reserve

 

Under the DGCL, we are required, in connection with the Dissolution, to pay or make reasonable provision for payment of our liabilities and obligations. We will pay all of our expenses (including operating and wind-up expenses to be incurred throughout the Dissolution and wind-up process) and other known, non-contingent liabilities. We have used and anticipate continuing to use cash until the end of the Survival Period for a number of items, including, but not limited to, the following:

●

ongoing operating, reporting and listing expenses;

●

expenses, including retention amounts, incurred in connection with extending our directors’ and officers’ insurance coverage;

●

expenses incurred in connection with the Dissolution;

●

taxes imposed upon us and any of our assets; and

●

professional fees, including legal, consulting and accounting.

 

We will establish a reserve, consisting of cash or other assets that we believe will be adequate for the satisfaction of all of our current known expenses and unknown, contingent and/or conditional claims and liabilities. We may also take other steps to provide for the satisfaction of the reasonably estimated amount of such claims and liabilities, including acquiring insurance coverage with respect to certain claims and liabilities. We currently expect to reserve between approximately $0.5 million and $2.5 million in cash for current known expenses as well as unknown, contingent and/or conditional liabilities during the Survival Period.

 

The estimated amount of the reserve is established by the Board of Directors, and approved by the Delaware Court of Chancery, based upon certain estimates and assumptions and a review of our estimated operating expenses and future estimated liabilities, including, without limitation, estimated operating costs, directors’ and officers’ insurance, legal, accounting and consulting fees and miscellaneous expenses, costs to address, litigate, settle and resolve potential future unknown claims and litigation, and accrued expenses reflected in our financial statements. There can be no assurance that the reserve will be sufficient. If any of our estimates regarding the expenses to be incurred in the liquidation process, including expenses of personnel required and other operating expenses (including legal, accounting and consulting fees) necessary to dissolve and liquidate the Company and the expenses to satisfy outstanding obligations, liabilities and claims during the liquidation process, are inaccurate, we may be required to increase the amount of the reserve. After the liabilities, expenses and obligations for which the reserve is established have been satisfied in full (or determined not to be owed), we will distribute to our stockholders any remaining portion of the reserve.

 

In the event we fail to create an adequate reserve and amounts have been distributed to the stockholders under the Plan of Dissolution, our creditors may be able to pursue claims against our stockholders directly. However, to the extent the Safe Harbor Procedures are followed as we plan to, a stockholder will not be liable for any claim in excess of the lesser of (a) the stockholder’s pro rata share of the claim and (b) the amount distributed to the stockholder, and only with respect to claims that began before the expiration of the Survival Period. See the section entitled “Risk Factors—Risks Related to the Dissolution” in this Proxy Statement.

 

 

Reporting Requirements & Cessation of Trading of Common Stock

 

Whether or not the Dissolution is approved, we will have an obligation to continue to comply with the applicable reporting requirements of the Exchange Act until we have exited from such reporting requirements. We plan to initiate steps to exit from certain reporting requirements under the Exchange Act. However, such process may be protracted and we may be required to continue to file Current Reports on Form 8-K to disclose material events, including those related to the Dissolution. Accordingly, we will continue to incur expenses that will reduce the amount available for distribution, including expenses of complying with public company reporting requirements and paying our service providers, among others.

 

We anticipate that we will notify FINRA of our impending dissolution and request that our common stock stop trading on the NYSE American on the Effective Date or as soon thereafter as is reasonably practicable. As noted above, we also currently expect to close our stock transfer books on or around the Effective Date and to discontinue recording transfers and issuing stock certificates at that time. Accordingly, it is expected that trading in our shares of common stock will cease on or very soon after the Effective Date.

 

Regulatory Approvals

 

We are not aware of any U.S. federal or state regulatory requirements or governmental approvals or actions that may be required to consummate the Dissolution, except for compliance with applicable SEC regulations in connection with this Proxy Statement and compliance with the DGCL. We intend to file our Certificate of Dissolution with the Secretary of State as soon as reasonably practicable after completing the Asset Sale.

 

Accounting Treatment of the Dissolution

 

Upon our dissolution, we plan to change our basis of accounting from the going-concern basis, which contemplates realization of assets and satisfaction of liabilities in the normal course of business, to the liquidation basis. Under the liquidation basis of accounting, assets are stated at the lower of their carrying value or their estimated net realizable values and liabilities are stated at their estimated settlement amounts. Recorded liabilities will include the estimated costs associated with carrying out the Plan of Dissolution. For periodic reporting, a statement of net assets in liquidation will summarize the liquidation value per outstanding share of common stock. Valuations presented in the statement will represent management’s estimates, based on then present facts and circumstances, of the net realizable values of assets and costs associated with carrying out the Plan of Dissolution based upon management’s assumptions.

 

The valuation of assets and liabilities will require many estimates and assumptions, and there will be substantial uncertainties in carrying out the provisions of the Plan of Dissolution. The estimated net realizable value of the Company’s assets and the estimated settlement amounts for liabilities are expected to differ from estimates recorded in interim financial statements.

 

No Appraisal Rights in Respect of the Asset Sale

 

No stockholder or beneficial owner shall have any appraisal rights in connection with our Dissolution and winding-up.

 

Certain U.S. Federal Income Tax Consequences of the Dissolution

 

Certain U.S. Federal Income Tax Consequences. The following discussion is a general summary of certain material U.S. federal income tax consequences of the proposed Dissolution to our stockholders. The following discussion is based on the Internal Revenue Code of 1986, as amended, its legislative history, the Treasury Regulations and published rulings and decisions, all as currently in effect as of the date of this proxy statement, and all of which are subject to change, possibly with retroactive effect. Tax considerations under state and local laws, federal laws other than those pertaining to income tax, or non-U.S. tax laws are not addressed in this proxy statement. The following discussion has no binding effect on the IRS or the courts. No ruling has been requested from the IRS with respect to the anticipated tax treatment of the Dissolution, and we will not seek an opinion of counsel with respect to the anticipated tax treatment summarized below. This discussion does not address all of the U.S. federal income tax consequences that may be relevant to our stockholders in light of their individual circumstances. The discussion below does not address any U.S. federal income tax consequences to our stockholders who, for U.S. federal tax purposes, are subject to special rules, such as:

●

banks, financial institutions or insurance companies;

●

tax-exempt entities;

 

 

●

persons who hold shares as part of a straddle, hedge, integrated transaction or conversion transaction;

●

persons who have been, but are no longer, citizens or residents of the United States;

●

persons holding shares through a partnership or other fiscally transparent entity;

●

dealers or traders in securities, commodities or currencies, or other persons who have elected mark-to-market accounting;

●

grantor trusts;

●

U.S. persons whose “functional currency” is not the U.S. dollar;

●

regulated investment companies or real estate investment trusts;

●

persons who are not U.S. holders;

●

persons who received the shares of our common stock through the exercise of incentive stock options or through the issuance of restricted stock under an equity incentive plan or through a tax-qualified retirement plan; or

●

persons who own (directly or through attribution) five percent or more (by voting power or value) of our common stock.

 

For purposes of this discussion, a “U.S. holder” is a beneficial owner of shares of common stock that for U.S. federal income tax purposes is:

●

an individual citizen or resident of the United States;

●

a corporation (or other entity treated as a corporation for U.S. federal tax purposes) created or organized in or under the laws of the United States or any state thereof or the District of Columbia;

●

an estate the income of which is subject to U.S. federal income tax regardless of its source; or

●

a trust, if the trust has validly elected to be treated as a U.S. person for U.S. federal tax purposes or if (i) a U.S. court can exercise primary supervision over its administration and (ii) one or more U.S. persons have authority to control all of the substantial decisions of the trust.

 

If a partnership (or other entity or arrangement treated as a partnership for U.S. federal tax purposes) is a beneficial owner of shares of our common stock, the tax treatment of a partner in that partnership will generally depend on the status of the partner and the activities of the partnership. HOLDERS OF OUR COMMON STOCK THAT ARE NOT U.S. HOLDERS, INCLUDING PARTNERSHIPS AND PARTNERS IN THOSE PARTNERSHIPS, SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES TO THEM OF THE PROPOSED LIQUIDATION AND DISSOLUTION.

 

U.S. Federal Income Tax Consequences to the Company. Until all of our remaining assets, if any, have been distributed to our stockholders or a liquidating trust and the liquidation is complete, we will continue to be subject to U.S. federal income tax on our income, if any, such as interest income. We will recognize gain or loss, if any, upon the sale of any assets held directly by us in connection with the Dissolution in an amount equal to the difference between (i) the fair market value of the consideration received for each asset sold and (ii) our adjusted tax basis in the asset sold. We may also recognize income from the liquidation and dissolution of our subsidiary that will occur as part of the Dissolution. We should not recognize any gain or loss upon the distribution of cash to our stockholders as part of the Dissolution. We currently do not anticipate making distributions of property other than cash to stockholders as part of the Dissolution. If we do make a liquidating distribution to our stockholders of property other than cash, we generally will recognize gain or loss upon the distribution of the property as if the property were sold to our stockholders for its fair market value on the date of the distribution. Any tax liability resulting from the Dissolution will reduce the cash available for distribution to our stockholders.

 

U.S. Federal Income Tax Consequences to U.S. Holders. Stockholders that receive any distributions made by us pursuant to the Plan of Dissolution will be treated as receiving those amounts as full payment in exchange for their shares of common stock. A stockholder generally will recognize gain or loss on a share-by-share basis equal to the difference between (i) the sum of the amount of cash and the fair market value of property, if any, distributed to the stockholder with respect to each share (including distributions to any liquidating trust, as discussed below), less any known liabilities assumed by the stockholder or to which the distributed property (if any) is subject, and (ii) the stockholder’s adjusted tax basis in each share of our common stock. A stockholder’s tax basis in his or her shares generally will equal the stockholder’s cost for the common stock. A stockholder may determine gain or loss on a block-by-block basis if the stockholder holds blocks of our common stock (generally as a result of acquiring a block of common stock at the same time and at the same price). Each stockholder must allocate liquidating distributions proportionately to each share of common stock, or, if applicable, each block of common stock, held by the stockholder. Liquidating distributions are first applied against, and reduce, the stockholder’s adjusted tax basis with respect to a share or a block before recognizing any gain or loss. A stockholder will recognize gain to the extent the aggregate distributions allocated to the share of common stock or, if applicable, block of common stock exceeds the stockholder’s adjusted tax basis with respect to such share or such block. A stockholder will recognize loss only to the extent the stockholder has an adjusted tax basis with respect to a share or a block after taking into account all liquidating distributions allocated to the share or the block. Any loss can only be recognized in the tax year that a stockholder receives our final liquidating distribution.

 

 

Generally, gain or loss recognized by a stockholder in connection with the Dissolution will be capital gain or loss, and will be long-term capital gain or loss if the stockholder has held a share or block for more than one year or short-term capital gain or loss if the stockholder has held the share or block for one year or less. Long-term capital gain recognized by a stockholder that is an individual, estate or trust generally is taxed at a maximum current U.S. federal income tax rate of 20%. Additionally, certain U.S. stockholders who are individuals, trusts or estates are required to pay the net investment income tax of 3.8% (in addition to taxes they would otherwise be subject to) on investment income. In the case of a stockholder that is a corporation, capital gains are currently taxed at the same rate as ordinary income. The deductibility of capital losses is subject to certain limitations. While we do not anticipate distributing any contingent claims to our stockholders or a liquidating trust as part of the Dissolution, amounts, if any, received by a stockholder upon the resolution of a contingent claim that has been distributed could be considered ordinary income rather than capital gain. Stockholders should consult their own tax advisors with respect to the tax consequences of receiving a contingent claim as part of the Dissolution.

 

If we effect the Dissolution, we intend to provide stockholders and the IRS with statements indicating the amount of cash, and, as applicable, our best estimates of the fair market value of any other property, distributed to our stockholders (or transferred to the liquidating trust, as discussed below) at such time and in such manner as required by applicable Treasury Regulations.

 

Backup Withholding. Distributions to any stockholder that fails to provide the appropriate certification in accordance with applicable Treasury Regulations generally will be reduced by backup withholding at the rate applicable at the time of the distributions. The backup withholding tax is currently imposed at a rate of 24%. Backup withholding generally will not apply to payments made to certain exempt recipients, such as corporations. Backup withholding is not an additional tax. Amounts that are withheld under backup withholding rules may be refunded or credited against the stockholder’s U.S. federal income tax liability, if any, provided that certain required information is furnished to the IRS in a timely manner. Stockholders should consult their own tax advisors regarding the application of backup withholding in their particular circumstances.

 

THE U.S. FEDERAL INCOME TAX CONSEQUENCES SUMMARIZED ABOVE ARE FOR GENERAL INFORMATION ONLY. STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR CONSEQUENCES THAT MAY APPLY TO THEM.

 

Stockholder Approval of the Dissolution

 

The affirmative vote of a majority of the shares of common stock outstanding as of the Record Date is required for approval of this Proposal Two. Abstentions and broker non-votes will have the same effect as votes “AGAINST” the Dissolution Proposal.

 

Unanimous Recommendation of the Board of Directors

 

For the reasons described in this Proxy Statement, the Board of Directors unanimously recommends that you vote “FOR” this Proposal Two to approve the Dissolution, pursuant to the Plan of Dissolution, which, if approved, will authorize the Company to liquidate and dissolve the Company in accordance with the Plan of Dissolution, and pursuant to the discretion of the Board of Directors to proceed with the Dissolution.

 

 

INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE APPROVAL OF THE ASSET SALE AND PLAN OF DISSOLUTION

---

 

Certain directors and executive officers of the Company may have interests in the approval of the Asset Sale and the Dissolution that are different from, or in addition to, those of our stockholders generally. These interests may create potential conflicts of interest. Our Board of Directors was aware that these interests existed when it approved the Asset Sale and the Dissolution. Except as described below, such persons have, to the knowledge of NovaBay, no material other interests in the Asset Sale or the Dissolution apart from those of stockholders generally.

 

Continuing Service and Compensation of our Directors

 

After the Asset Sale, including after the Dissolution, we expect that Justin M. Hall will continue in his position for the purpose of the Dissolution and winding up our business and affairs, pursuant to a consulting agreement after the expiration of his current employment agreement on December 31, 2024.

 

As part of the Transition Services Agreement, PRN agreed to enter into a consulting agreement with Tommy Law, the Company’s Interim Chief Financial Officer, for certain services with a one-time payment of $85,000 to be made when all such services are complete.

 

After the Asset Sale, including after the Dissolution, we expect that our Board of Directors will be reduced to one (1) director for the purpose of winding up our business and affairs. We expect to compensate such individual at a level substantially consistent with his or her compensation level prior to the Effective Time.

 

Equity Ownership

 

In connection with our liquidating distributions, if any, the members of our Board of Directors and our executive officers will be entitled to the same cash distributions as our stockholders based on their beneficial ownership of our common stock. Members of our Board of Directors and our executive officers own, as of October 15, 2024, an aggregate of 1,190 shares of common stock as follows:

 

Name	Number of Shares of Common Stock Beneficially Owned
Justin M. Hall, Esq.	582
Tommy Law	26
Paul E. Freiman, Ph.D.	176
Julie Garlikov	50
Swan Sit	92
Mijia (Bob) Wu, M.B.A.	122
Yenyou (Jeff) Zheng, Ph.D.	92
Yongxiang (Sean) Zheng	50

 

Please refer to the section titled “Security Ownership of Certain Beneficial Owners and Management” of this Proxy Statement for additional information regarding our directors’ and executive officers’ beneficial ownership.

 

Indemnification and Insurance

 

The Company has entered into indemnification agreements with each of its current directors and executive officers. These agreements require the Company to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to the Company, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.

 

In connection with the Dissolution, we will continue to indemnify our directors and executive officers to the maximum extent permitted in accordance with applicable law, our Certificate of Incorporation and our Bylaws, and any contractual arrangements, for actions taken in connection with the Plan of Dissolution and the winding up of our business and affairs. Our Board of Directors is authorized to obtain and maintain insurance as may be necessary, appropriate, or advisable to cover such indemnification obligations, including seeking an extension in time and coverage of our insurance policies currently in effect.

 

As a result of these benefits, our directors and executive officers generally could be more likely to vote to approve the Asset Sale, the Asset Purchase Agreement, the Plan of Dissolution, and the Dissolution contemplated thereby, than our other stockholders.

 

 

PROPOSAL THREE:

 

THE ADJOURNMENT PROPOSAL

 

Overview

 

A proposal will be submitted to the stockholders at the Special Meeting to grant discretionary authority to our Board of Directors to adjourn the Special Meeting from time to time, if necessary or appropriate, to establish a quorum or, even if a quorum is present, to permit further solicitation of proxies if there are not sufficient votes cast at the time of the Special Meeting in favor of Proposal One and/or Proposal Two. Any adjournment of the Special Meeting may be made by an announcement made at the Special Meeting. Any adjournment of the Special Meeting for the purpose of soliciting additional proxies will allow stockholders who have already sent in their proxies to revoke them at any time prior to the time that the proxies are used.

 

For the avoidance of doubt, any proxy authorizing the adjournment of the Special Meeting shall also authorize successive adjournments thereof, at any meeting so adjourned, to the extent necessary for us to solicit additional proxies in favor of the adoption of any such proposal.

 

Stockholder Approval of the Adjournment Proposal

 

The affirmative vote of the holders of a majority of the shares of common stock present or represented and entitled to vote at the Special Meeting is required for approval. Unless otherwise instructed in the proxy or unless authority to vote is withheld, shares represented by executed proxies will be voted “FOR” this proposal. Abstentions, if any, with respect to this proposal will have the effect of a vote against this Proposal Three. Broker non-votes, if any, with respect to this Proposal Three, will have no effect.

 

Unanimous Recommendation of the Board of Directors

 

The Board of Directors recommends unanimously that you cast your vote “FOR” the approval of the adjournment of the Special Meeting, if necessary or appropriate, to establish a quorum or to solicit additional proxies in the event that there are not sufficient votes at the time of the Special Meeting to approve Proposal One and/or Proposal Two.

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

---

 

The following table indicates information as of October 15, 2024 regarding the beneficial ownership of our securities by:

●

our current executive officers;

●

each of our directors; and

●

all of our directors and executive officers as a group.

 

The percentage of shares beneficially owned is based on 4,885,693 shares of common stock outstanding as of October 15, 2024. Based upon information contained in certain Schedule 13G filings, the Company’s current outstanding shares of common stock and the beneficial ownership limitations related to the Company’s outstanding warrants, the Series B Non-Voting Convertible Preferred Stock and the Unsecured Convertible Notes, the Company is not aware of any person beneficially owning more than five percent (5%) of our securities as of October 15, 2024. Except as indicated in the footnotes to this table, and as affected by applicable community property laws, all persons listed have sole voting and investment power for all shares shown as beneficially owned by them and no shares are pledged. 

 

Name and Address of Beneficial Owner (1)		Number of Shares Beneficially Owned				Percent of Class
Executive Officers and Directors
Justin M. Hall, Esq. (2)			582				*
Tommy Law (3)			26				*
Paul E. Freiman, Ph.D. (4)			176				*
Julie Garlikov (5)			50				*
Swan Sit (6)			92				*
Mijia (Bob) Wu, M.B.A. (7)			122				*
Yenyou (Jeff) Zheng, Ph.D. (8)			92				*
Yongxiang (Sean) Zheng (9)			50				*
All directors and executive officers as a group (8 persons)			1,190				*	%

 

---

*	Less than one percent (1%).

 

(1)	The address for each director and executive officer of NovaBay listed is c/o NovaBay Pharmaceuticals, Inc., 2000 Powell Street, Suite 1150, Emeryville, CA 94608. The number of shares beneficially owned and percent of class is calculated in accordance with SEC rules. A beneficial owner is deemed to beneficially own shares the beneficial owner has the right to acquire within sixty (60) days of October 15, 2024. For purposes of calculating the percent of class held by a single beneficial owner, the shares that such beneficial owner has the right to acquire within sixty (60) days of October 15, 2024 are also deemed to be outstanding; however, such shares are not deemed to be outstanding for purposes of calculating the percentage ownership of any other beneficial owner.
(2)	Consists of (i) 68 shares of common stock held directly by Mr. Hall and (ii) 514 shares issuable upon the exercise of outstanding options that are exercisable as of October 15, 2024 or within 60 days after such date.
(3)	Consists of 26 shares of common stock issuable upon exercise of outstanding stock options that are exercisable as of October 15, 2024 or within 60 days after such date.
(4)	Consists of (i) 75 shares of common stock held directly by Dr. Freiman; (ii) 2 shares of common stock held by the Paul Freiman and Anna Mazzuchi Freiman Trust, of which Dr. Freiman and his spouse are trustees (with sole voting power over 1 share, shared voting power over 1 share, sole investment power over no shares and shares investment power over 2 shares); and (iii) 99 shares of common stock issuable upon exercise of outstanding stock options that are exercisable as of October 15, 2024 or within 60 days after such date.
(5)	Consists of 50 shares of common stock held directly by Ms. Galikov as of October 15, 2024.
(6)	Consists of (i) 75 shares of common stock held directly by Ms. Sit and (ii) 17 shares issuable upon exercise of outstanding stock options that are exercisable as of October 15, 2024 or within 60 days after such date.
(7)	Consists of (i) 75 shares of common stock held directly by Mr. Wu and (ii) 47 shares issuable upon exercise of outstanding stock options that are exercisable as of October 15, 2024 or within 60 days after such date.
(8)	Consists of (i) 75 shares of common stock held directly by Dr. Jeff Zheng and (ii) 17 shares issuable upon exercise of outstanding stock options that are exercisable as of October 15, 2024 or within 60 days after such date.
(9)	Consists of 50 shares of common stock held directly by Mr. Sean Zheng as of October 15, 2024.

 

 

ADDITIONAL INFORMATION

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Description of Business

 

NovaBay is focused on the development and sale of scientifically-created and clinically-proven eyecare and wound care products. Our leading product, Avenova® Lid and Lash Solution, or Avenova Spray, is proven in laboratory testing to have broad antimicrobial properties as it removes foreign material including microorganisms and debris from the skin around the eye, including the eyelid. On September 20, 2024, we announced, after extensive consideration of potential strategic alternatives, that our Board of Directors had unanimously approved, on September 19, 2024, the Asset Sale pursuant to the Asset Purchase Agreement and the Dissolution pursuant to the Plan of Dissolution, each of which are subject to stockholder approval pursuant to this Proxy Statement.

 

Market Price and Dividend Data

 

Our common stock is listed on the NYSE American under the symbol “NBY”. As of October 15, 2024, there were 4,885,693 shares of common stock outstanding held by approximately 104 stockholders of record. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners, but whose shares are held in “street name” by brokers, banks or other nominees. As of October 15, 2024, there were 131 shares of Series B Non-Voting Convertible Preferred Stock outstanding held by one stockholder of record. On October 15, 2024, the latest practicable trading day before the printing of this Proxy Statement, the closing price for our common stock was $0.61 per share. You are encouraged to obtain current market quotations for our common stock.

 

We anticipate that we will request that our common stock stop trading on the NYSE American on the Effective Time or as soon thereafter as is reasonably practicable. As noted above, we also currently expect to close our stock transfer books on or around the Effective Time and to discontinue recording transfers and issuing stock certificates at that time. Accordingly, it is expected that trading in our shares of common stock will cease on or very soon after the Effective Time.

 

We have never declared or paid any cash dividends on our capital stock. In the event that the Dissolution is not consummated, our payment of any future dividends would be at the discretion of our Board of Directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects, and other factors our Board of Directors may deem relevant.

 

Deadlines for Receipt of Future Stockholder Proposals and Nominations for Our 2025 Annual Meeting

 

We do not intend to hold future annual meetings of stockholders, including the 2025 Annual Meeting, if each of the Asset Sale Proposal and the Dissolution Proposal are approved, and the Certificate of Dissolution is filed with the Delaware Secretary of State.

 

Deadline for submitting stockholder proposals for inclusion in the Company’s 2025 Annual Meeting of Stockholders Proxy Statement

 

However, if we do not file a Certificate of Dissolution and do hold our 2025 Annual Meeting, then stockholder proposals submitted for inclusion in the Company’s 2025 Annual Meeting proxy statement and proxy pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, as amended, must be received by us no later than 120 days prior to the date the Company’s proxy statement was provided to stockholders the prior year, which for next year’s 2025 Annual Meeting, would be December 19, 2024. If the 2025 Annual Meeting is scheduled to be held on a date more than 30 calendar days from May 28, 2025, then the deadline will be a reasonable time prior to the time we begin to print, mail or electronically deliver our proxy materials. If notice is received after December 19, 2024, it will be considered untimely, and we will not be required to present the matter at the stockholders meeting. All stockholder proposals must comply with applicable rules and regulations adopted by the SEC.

 

 

Due Date for Receipt of Advance Notice of Stockholder Nominations and Proposals for 2025 Annual Meeting of Stockholders

 

Further, if we do not file a Certificate of Dissolution and do hold our 2025 Annual Meeting, pursuant to our Bylaws, if you wish to bring certain business or nominate a director, you must comply with the advance notice provisions in our Bylaws and do so no earlier than the close of business on the 120th day, and not later than the close of business on the 90th day, prior to the first anniversary of the preceding year’s annual meeting. For our 2025 Annual Meeting, this would require notice between January 29, 2025 and February 28, 2025, respectively; provided, however, that in the event that the date of the 2025 Annu