Exhibit 10.4
Executive Officer Cash Bonus Structure

 
For Dr. Najafi, the 2011 bonus is intended to be calculated as follows:
 
(40% of base salary at December 31, 2010) x Corporate Performance
 
For each other Executive Officer (unless otherwise designated by the
Compensation Committee or the Board), the bonus is intended to be calculated as
follows:
 

 
(30% of base salary at December 31, 2010) x [(0.8 x Corporate Performance) +
(0.2 x Individual Performance Multiplier)]

 
“Corporate Performance” is the percentage determined by adding corporate
performance against established goals with respect to business unit performance
(80%), research and development (10%), and financial performance (10%).  Within
each category set forth above:  if a minimum “threshold” is not achieved with
respect to the category, 0% of the percentage with respect to that category is
assigned; if a minimum “threshold” is achieved with respect to the category, 50%
of the percentage with respect to that category is assigned;  if the “target”
performance is achieved with respect to the category, 100% of the percentage
with respect to that category is assigned; and if “stretch” performance is
achieved with respect to the category, 125% of the percentage with respect to
that category is assigned.  The resulting percentages are then added together
which results in the Corporate Performance value.
 
“Threshold” goals are established generally at levels that are expected to be
attainable if management and NovaBay perform as expected, maintaining and
enhancing NovaBay’s business as expected, which includes solid performance by
the management team and, as appropriate by category, noteworthy progress on
clinical trials, business management and financial management.
 
“Target” goals are established generally at levels that are expected to be
attainable only if superior (meaning substantially in excess of expectations)
performance is attained by management and NovaBay, which includes superior
performance by the management team and, as appropriate by category, superior
progress on clinical trials, business management and financial management.  It
is not expected that all of these goals will be met.
 
“Stretch” goals are established generally at levels that are expected to be
attainable only if outstanding (meaning well in excess of expectations, which
may also not be attainable due to factors outside of management’s control
despite best efforts) performance is attained by management and NovaBay, which
includes outstanding performance by the management team and, as appropriate by
category, outstanding progress on clinical trials, business management and
financial management.  It is extremely unlikely that all of these goals will be
met.
 
“Individual Performance Multiplier” is the percentage determined by the
assessment of individual performance, the results of which will result in an
Individual Performance Multiplier of 125% (outstanding performance, exceeding
objectives), 100% (excellent performance, meeting or exceeding objectives),
75%  (acceptable performance, meeting most objectives) or 0% (less than
acceptable performance).
 
The amount and timing of award payments is at the discretion of the Compensation
Committee, and the Compensation Committee can modify the amount of the bonus
pool at its discretion, and may defer or cancel awards at its discretion.