Exhibit 10.3

 

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.

 

SECURED CONVERTIBLE PROMISSORY NOTE 

 

Effective Date: March 26, 2019   U.S. $2,215,000.00

 

FOR VALUE RECEIVED, NovaBay Pharmaceuticals, Inc., a Delaware corporation
(“Borrower”), promises to pay to Iliad Research and Trading, L.P., a Utah
limited partnership, or its successors or assigns (“Lender”), $2,215,000.00 and
any interest, fees, charges, and late fees accrued hereunder on the date that is
eighteen (18) months after the Purchase Price Date (the “Maturity Date”) in
accordance with the terms set forth herein and to pay interest on the
Outstanding Balance at the rate of ten percent (10%) per annum from the Purchase
Price Date until the same is paid in full. All interest calculations hereunder
shall be computed on the basis of a 360-day year comprised of twelve (12) thirty
(30) day months, shall compound daily and shall be payable in accordance with
the terms of this Note. This Secured Convertible Promissory Note (this “Note”)
is issued and made effective as of March 26, 2019 (the “Effective Date”). This
Note is issued pursuant to that certain Securities Purchase Agreement dated
March 26, 2019, as the same may be amended from time to time, by and between
Borrower and Lender (the “Purchase Agreement”). Certain capitalized terms used
herein are defined in Attachment 1 attached hereto and incorporated herein by
this reference.

 

This Note carries an OID of $200,000.00. In addition, Borrower agrees to pay
$15,000.00 to Lender to cover Lender’s legal fees, accounting costs, due
diligence, monitoring and other transaction costs incurred in connection with
the purchase and sale of this Note (the “Transaction Expense Amount”), all of
which amount is fully earned and included in the initial principal balance of
this Note. The purchase price for this Note shall be $2,000,000.00 (the
“Purchase Price”), computed as follows: $2,215,000.00 original principal
balance, less the OID, less the Transaction Expense Amount. The Purchase Price
shall be payable by Lender by wire transfer of immediately available funds.

 

1. Payment; Prepayment.

 

1.1. Payment. All payments owing hereunder shall be in lawful money of the
United States of America or Conversion Shares (as defined below), as provided
for herein, and delivered to Lender at the address or bank account furnished to
Borrower for that purpose. All payments shall be applied first to (a) costs of
collection, if any, then to (b) fees and charges, if any, then to (c) accrued
and unpaid interest, and thereafter, to (d) principal.

 

1.2. Prepayment. Notwithstanding the foregoing, Borrower shall have the right to
prepay all or any portion of the Outstanding Balance (less such portion of the
Outstanding Balance for which Borrower has received a Lender Conversion Notice
(as defined below) or a Redemption Notice (as defined below) from Lender where
the applicable Conversion Shares have not yet been delivered). If Borrower
exercises its right to prepay this Note, Borrower shall make payment to Lender
of an amount in cash equal to 115% multiplied by the portion of the Outstanding
Balance Borrower elects to repay.

 

2. Security. This Note is secured by that certain Security Agreement of even
date herewith (the “Security Agreement”), executed by Borrower in favor of
Lender encumbering all of Borrower’s assets, as more specifically set forth in
the Security Agreement, all the terms and conditions of which are hereby
incorporated into and made a part of this Note.

 

 

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3. Lender Optional Conversion.

 

3.1. Lender Conversions. Lender has the right at any time after the Purchase
Price Date until the Outstanding Balance has been paid in full, at its election,
to convert (“Lender Conversion”) all or any portion of the Outstanding Balance
into shares (each instance of conversion is referred to herein as “Lender
Conversion Shares”) of fully paid and non-assessable common stock, $0.01 par
value per share (“Common Stock”), of Borrower as per the following conversion
formula: the number of Lender Conversion Shares equals the amount being
converted (the “Conversion Amount”) divided by the Lender Conversion Price (as
defined below). Conversion notices in the form attached hereto as Exhibit A
(each, a “Lender Conversion Notice”) may be effectively delivered to Borrower by
any method set forth in the “Notices” Section of the Purchase Agreement, and all
Lender Conversions shall be cashless and not require further payment from
Lender. Borrower shall deliver the Lender Conversion Shares from any Lender
Conversion to Lender in accordance with Section 9 below.

 

3.2. Lender Conversion Price. Subject to adjustment as set forth in this Note,
the price at which Lender has the right to convert all or any portion of the
Outstanding Balance into Common Stock is $1.65 per share of Common Stock (the
“Lender Conversion Price”).

 

4. Defaults and Remedies.

 

4.1. Defaults. The following are events of default under this Note (each, an
“Event of Default”): (a) Borrower fails to pay any principal, interest, fees,
charges, or any other amount when due and payable hereunder; (b) Borrower fails
to deliver any Lender Conversion Shares in accordance with the terms hereof; (c)
Borrower fails to deliver any Redemption Conversion Shares (as defined below) in
accordance with the terms hereof; (d) a receiver, trustee or other similar
official shall be appointed over Borrower or a material part of its assets and
such appointment shall remain uncontested for twenty (20) days or shall not be
dismissed or discharged within sixty (60) days; (e) Borrower becomes insolvent
or generally fails to pay, or admits in writing its inability to pay, its debts
as they become due, subject to applicable grace periods, if any; (f) Borrower
makes a general assignment for the benefit of creditors; (g) Borrower files a
petition for relief under any bankruptcy, insolvency or similar law (domestic or
foreign); (h) an involuntary bankruptcy proceeding is commenced or filed against
Borrower and is not dismissed within sixty (60) days; (i) Borrower or any
pledgor, trustor, or guarantor of this Note defaults or otherwise fails to
observe or perform any covenant, obligation, condition or agreement of Borrower
or such pledgor, trustor, or guarantor contained herein or in any other
Transaction Document (as defined in the Purchase Agreement), other than those
specifically set forth in this Section 4.1 and Section 4 of the Purchase
Agreement and such default or failure remains uncured for a period of ten (10)
days after written notice to Company by Lender of such default or failure; (j)
any representation, warranty or other statement made or furnished by or on
behalf of Borrower or any pledgor, trustor, or guarantor of this Note to Lender
herein, in any Transaction Document, or otherwise in connection with the
issuance of this Note is false, incorrect, incomplete or misleading in any
material respect when made or furnished; (k) the occurrence of a Fundamental
Transaction without Lender’s prior written consent; (l) Borrower fails to
maintain the Share Reserve (as defined in the Purchase Agreement) and such
failure continues for five (5) days after written notice to Company by Lender of
such failure; (m) Borrower effectuates a reverse split of its Common Stock
without twenty (20) Trading Days prior written notice to Lender; (n) a final and
non-appealable judgment is entered against Borrower or any subsidiary of
Borrower or any of its property or other assets for more than $100,000.00, and
shall remain unvacated, unbonded or unstayed for a period of twenty (20)
calendar days unless otherwise consented to by Lender; (o) Borrower fails to be
DWAC Eligible at any time after the six (6) month anniversary of the Closing;
(p) Borrower fails to observe or perform any covenant set forth in Section 4 of
the Purchase Agreement; or (q) Borrower, any affiliate of Borrower, or any
pledgor, trustor, or guarantor of this Note breaches any covenant or other term
or condition contained in any Other Agreements.

 

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4.2. Remedies. At any time and from time to time after Lender becomes aware of
the occurrence of any Event of Default, Lender may accelerate this Note by
written notice to Borrower, with the Outstanding Balance becoming immediately
due and payable in cash at the Mandatory Default Amount. Notwithstanding the
foregoing, at any time following the occurrence of any Event of Default, Lender
may, at its option, elect to increase the Outstanding Balance by applying the
Default Effect (subject to the limitation set forth below) via written notice to
Borrower without accelerating the Outstanding Balance, in which event the
Outstanding Balance shall be increased as of the date of the occurrence of the
applicable Event of Default pursuant to the Default Effect, but the Outstanding
Balance shall not be immediately due and payable unless so declared by Lender
(for the avoidance of doubt, if Lender elects to apply the Default Effect
pursuant to this sentence, it shall reserve the right to declare the Outstanding
Balance immediately due and payable at any time and no such election by Lender
shall be deemed to be a waiver of its right to declare the Outstanding Balance
immediately due and payable as set forth herein unless otherwise agreed to by
Lender in writing). Notwithstanding the foregoing, upon the occurrence of any
Event of Default described in clauses (d), (e), (f), (g) or (h) of Section 4.1,
the Outstanding Balance as of the date of acceleration shall become immediately
and automatically due and payable in cash at the Mandatory Default Amount,
without any written notice required by Lender. At any time following the
occurrence of any Event of Default, upon written notice given by Lender to
Borrower, interest shall accrue on the Outstanding Balance beginning on the date
the applicable Event of Default occurred at an interest rate equal to the lesser
of eighteen percent (18%) per annum or the maximum rate permitted under
applicable law (“Default Interest”). For the avoidance of doubt, Lender may
continue making Lender Conversions and Redemption Conversions (as defined below)
at any time following an Event of Default until such time as the Outstanding
Balance is paid in full. In connection with acceleration described herein,
Lender need not provide, and Borrower hereby waives, any presentment, demand,
protest or other notice of any kind, and Lender may immediately and without
expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law. Such
acceleration may be rescinded and annulled by Lender at any time prior to
payment hereunder and Lender shall have all rights as a holder of the Note until
such time, if any, as Lender receives full payment pursuant to this Section 4.2.
No such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon. Nothing herein shall limit Lender’s right
to pursue any other remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief
with respect to Borrower’s failure to timely deliver Conversion Shares upon
Conversion of the Note as required pursuant to the terms hereof.

 

5. Unconditional Obligation; No Offset. Borrower acknowledges that this Note is
an unconditional, valid, binding and enforceable obligation of Borrower not
subject to offset, deduction or counterclaim of any kind. Borrower hereby waives
any rights of offset it now has or may have hereafter against Lender, its
successors and assigns, and agrees to make the payments or Conversions called
for herein in accordance with the terms of this Note.

 

6. Waiver. No waiver of any provision of this Note shall be effective unless it
is in the form of a writing signed by the party granting the waiver. No waiver
of any provision or consent to any prohibited action shall constitute a waiver
of any other provision or consent to any other prohibited action, whether or not
similar. No waiver or consent shall constitute a continuing waiver or consent or
commit a party to provide a waiver or consent in the future except to the extent
specifically set forth in writing.

 

7. Adjustment of Lender Conversion Price upon Subdivision or Combination of
Common Stock. Without limiting any provision hereof, if Borrower at any time on
or after the Effective Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Lender Conversion Price in
effect immediately prior to such subdivision will be proportionately reduced.
Without limiting any provision hereof, if Borrower at any time on or after the
Effective Date combines (by combination, reverse stock split or otherwise) one
or more classes of its outstanding shares of Common Stock into a smaller number
of shares, the Lender Conversion Price in effect immediately prior to such
combination will be proportionately increased. Any adjustment pursuant to this
Section 7.2 shall become effective immediately after the effective date of such
subdivision or combination. If any event requiring an adjustment under this
Section 7.2 occurs during the period that a Redemption Conversion Price (as
defined below) is calculated hereunder, then the calculation of such Redemption
Conversion Price shall be adjusted appropriately to reflect such event.

 

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8. Borrower Redemptions.

 

8.1. Redemption Conversion Price. Subject to the adjustments set forth herein,
the conversion price for each Redemption Conversion (the “Redemption Conversion
Price”) shall be the lesser of (a) the Lender Conversion Price, and (b) the
Market Price.

 

8.2. Redemption Conversions. Beginning on the date that is six (6) months from
the Purchase Price Date, Lender shall have the right, exercisable at any time in
its sole and absolute discretion, to redeem any portion of the Note up to
$200,000.00 per calendar month (such amount, the “Redemption Amount”) by
providing Borrower with a notice substantially in the form attached hereto as
Exhibit B (each, a “Redemption Notice”, and each date on which Lender delivers a
Redemption Notice, a “Redemption Date”). For the avoidance of doubt, Lender may
submit to Borrower one (1) or more Redemption Notices in any given calendar
month so long as the aggregate amount redeemed does not exceed $200,000.00 (the
“Redemption Cap”). The Redemption Cap shall automatically terminate following
the occurrence of an Event of Default. Payments of each Redemption Amount may be
made (a) in cash, or (b) by converting such Redemption Amount into shares of
Common Stock (“Redemption Conversion Shares”, and together with the Lender
Conversion Shares, the “Conversion Shares”) in accordance with this Section 8.2
(each, a “Redemption Conversion”) per the following formula: the number of
Redemption Conversion Shares equals the portion of the applicable Redemption
Amount being converted divided by the Redemption Conversion Price, or (c) by any
combination of the foregoing, so long as the cash is delivered to Lender on the
third (3rd) Trading Day immediately following the applicable Redemption Date and
the Redemption Conversion Shares are delivered to Lender on or before the
applicable Delivery Date (as defined below). Notwithstanding the foregoing,
Borrower will not be entitled to elect a Redemption Conversion with respect to
any portion of any applicable Redemption Amount and shall be required to pay the
Redemption Amount in cash, if on the applicable Redemption Date there is an
Equity Conditions Failure, and such failure is not waived in writing by Lender.
For the avoidance of doubt, Borrower shall still be obligated to honor
Redemption Notices following an Event of Default.

 

8.3. Allocation of Redemption Amounts. Following its receipt of a Redemption
Notice, Borrower may either ratify Lender’s proposed allocation in the
applicable Redemption Notice or elect to change the allocation by written notice
to Lender by email or fax within twenty-four (24) hours of its receipt of such
Redemption Notice, so long as the sum of the cash payments and the amount of
Redemption Conversions equal the applicable Redemption Amount. If Borrower fails
to notify Lender of its election to change the allocation prior to the deadline
set forth in the previous sentence, it shall be deemed to have ratified and
accepted the allocation set forth in the applicable Redemption Notice prepared
by Lender. Borrower acknowledges and agrees that the amounts and calculations
set forth thereon are subject to correction or adjustment because of error,
mistake, or any adjustment resulting from an Event of Default or other
adjustment permitted under the Transaction Documents (an “Adjustment”).
Furthermore, no error or mistake in the preparation of such notices, or failure
to apply any Adjustment that could have been applied prior to the preparation of
a Redemption Notice may be deemed a waiver of Lender’s right to enforce the
terms of any Note, even if such error, mistake, or failure to include an
Adjustment arises from Lender’s own calculation. Borrower shall deliver the
Redemption Conversion Shares from any Redemption Conversion to Lender in
accordance with Section 9 below on or before each applicable Delivery Date.

 

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9. Method of Conversion Share Delivery. On or before the close of business on
the fifth (5th) Trading Day following each Redemption Date or the fifth (5th)
Trading Day following the date of delivery of a Lender Conversion Notice, as
applicable (the “Delivery Date”), Borrower shall, provided it is DWAC Eligible
at such time and such Conversion Shares are eligible for delivery via DWAC,
deliver or cause its transfer agent to deliver the applicable Conversion Shares
electronically via DWAC to the account designated by Lender in the applicable
Lender Conversion Notice or Redemption Notice. If Borrower is not DWAC Eligible
or such Conversion Shares are not eligible for delivery via DWAC, it shall
deliver to Lender or its broker (as designated in the Lender Conversion Notice
or Redemption Notice), via reputable overnight courier, a certificate
representing the number of shares of Common Stock equal to the number of
Conversion Shares to which Lender shall be entitled, registered in the name of
Lender or its designee. For the avoidance of doubt, Borrower has not met its
obligation to deliver Conversion Shares by the Delivery Date unless Lender or
its broker, as applicable, has actually received the certificate representing
the applicable Conversion Shares no later than the close of business on the
relevant Delivery Date pursuant to the terms set forth above. Moreover, and
notwithstanding anything to the contrary herein or in any other Transaction
Document, in the event Borrower or its transfer agent refuses to deliver any
Conversion Shares without a restrictive securities legend to Lender on grounds
that such issuance is in violation of Rule 144 under the Securities Act of 1933,
as amended (“Rule 144”), Borrower shall deliver or cause its transfer agent to
deliver the applicable Conversion Shares to Lender with a restricted securities
legend, but otherwise in accordance with the provisions of this Section 9. In
conjunction therewith, Borrower will also deliver to Lender a written
explanation from its counsel or its transfer agent’s counsel opining as to why
the issuance of the applicable Conversion Shares violates Rule 144; provided,
Lender acknowledges that any Conversion Shares issued prior to the six (6) month
anniversary of the Closing Date will bear a restrictive securities legend, and
Borrower shall have no obligation to deliver any such opinion letter for any
Conversion occurring prior to the six (6) month anniversary of the Closing Date.

 

10. Conversion Delays. If Borrower fails to deliver Conversion Shares in
accordance with the timeframe stated in Section 9, Lender may at any time prior
to receiving the applicable Conversion Shares rescind in whole or in part such
Conversion, with a corresponding increase to the Outstanding Balance (any
returned amount will tack back to the Purchase Price Date for purposes of
determining the holding period under Rule 144). In addition, for each Lender
Conversion, in the event that Lender Conversion Shares are not delivered by the
fifth (5th) Trading Day (inclusive of the day of the Conversion), a late fee
equal to 2% of the applicable Conversion Share Value rounded to the nearest
multiple of $100.00 but with a floor of $500.00 per day (but in any event the
cumulative amount of such late fees for each Conversion shall not exceed 200% of
the applicable Conversion Share Value) will be assessed for each day after the
fifth (5th) Trading Day (inclusive of the day of the Conversion) until Lender
Conversion Share delivery is made; and such late fee will be added to the
Outstanding Balance (such fees, the “Conversion Delay Late Fees”).

 

11. Ownership Limitation. Notwithstanding anything to the contrary contained in
this Note or the other Transaction Documents, Borrower shall not effect any
conversion of this Note, and Lender shall not have the right to convert any
portion of this Note, and shall not deliver a Lender Conversion Notice, to the
extent that after giving effect to such conversion would cause Lender (together
with its affiliates) to beneficially own a number of shares exceeding 4.99% of
the number of shares of Common Stock outstanding on such date (including for
such purpose the shares of Common Stock issuable upon such issuance) (the
“Maximum Percentage”). For purposes of this section, beneficial ownership of
Common Stock will be determined pursuant to Section 13(d) of the 1934 Act.
Notwithstanding the forgoing, the term “4.99%” above shall be replaced with
“9.99%” at such time as the Market Capitalization is less than $10,000,000.00.
Notwithstanding any other provision contained herein, if the term “4.99%” is
replaced with “9.99%” pursuant to the preceding sentence, such increase to
“9.99%” shall remain at 9.99% until increased, decreased or waived by Lender as
set forth below. By written notice to Borrower, Lender may increase, decrease or
waive the Maximum Percentage as to itself but any such waiver will not be
effective until the 61st day after delivery thereof. The foregoing 61-day notice
requirement is enforceable, unconditional and non-waivable and shall apply to
all affiliates and assigns of Lender.

 

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12. Issuance Cap. Notwithstanding anything to the contrary contained in this
Note or the other Transaction Documents, Borrower and Lender agree that the
total cumulative number of shares of Common Stock issued to Lender hereunder
together with all other Transaction Documents may not exceed the requirements of
NYSE American Company Guide Section 713(a) (“NYSE American 19.99% Cap”), except
that such limitation will not apply following Approval (defined below). If the
number of shares of Common Stock issued to Lender reaches the NYSE American
19.99% Cap, so as not to violate the 20% limit established in NYSE American
Company Guide Section 713(a), Borrower will use reasonable commercial efforts to
obtain stockholder approval of the Note and the issuance of additional
Conversion Shares, if necessary, in accordance with the requirements of NYSE
American Company Guide Section 713(a) (the “Approval”), and until the Approval
has been obtained, Lender shall not submit any Conversion Notice to the extent
after giving effect to such conversion would exceed the NYSE American 19.99%
Cap. If Borrower is unable to obtain such Approval, any remaining Outstanding
Balance of this Note must be repaid in cash.

 

13. Opinion of Counsel. In the event that an opinion of counsel is needed for
any matter related to this Note, Lender has the right to have any such opinion
provided by its counsel.

 

14. Governing Law; Venue. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of Utah, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Utah or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Utah. The provisions set forth in the Purchase Agreement
to determine the proper venue for any disputes are incorporated herein by this
reference.

 

15. Arbitration of Disputes. By its issuance or acceptance of this Note, each
party agrees to be bound by the Arbitration Provisions (as defined in the
Purchase Agreement) set forth as an exhibit to the Purchase Agreement.

 

16. Cancellation. After repayment or conversion of the entire Outstanding
Balance, this Note shall be deemed paid in full, shall automatically be deemed
canceled, and shall not be reissued.

 

17. Amendments. The prior written consent of both parties hereto shall be
required for any change or amendment to this Note.

 

18. Assignments. Borrower may not assign this Note without the prior written
consent of Lender. Subject to compliance with any applicable securities laws and
the immediately following sentence, this Note and any shares of Common Stock
issued upon conversion of this Note may be offered, sold, assigned or
transferred by Lender without the consent of Borrower. If at the time of any
transfer of this Note or any shares of Common Stock issued upon conversion of
this Note, the transfer of such Securities shall not be either (i) registered
pursuant to an effective registration statement under the 1933 Act and under
applicable state securities or blue sky laws or (ii) eligible for resale without
volume or manner-of-sale restrictions or current public information requirements
pursuant to Rule 144, the Company may require, as a condition of allowing such
transfer, that Lender or transferee, as the case may be, to comply with the
transfer restrictions set forth on the restrictive legend on the face of such
Security.

 

19. Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with the
subsection of the Purchase Agreement titled “Notices.”

 

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20. Liquidated Damages. Lender and Borrower agree that in the event Borrower
fails to comply with any of the terms or provisions of this Note, Lender’s
damages would be uncertain and difficult (if not impossible) to accurately
estimate because of the parties’ inability to predict future interest rates,
future share prices, future trading volumes and other relevant factors.
Accordingly, Lender and Borrower agree that any fees, balance adjustments,
Default Interest or other charges assessed under this Note are not penalties but
instead are intended by the parties to be, and shall be deemed, liquidated
damages (under Lender’s and Borrower’s expectations that any such liquidated
damages will tack back to the Purchase Price Date for purposes of determining
the holding period under Rule 144).

 

21. Severability. If any part of this Note is construed to be in violation of
any law, such part shall be modified to achieve the objective of Borrower and
Lender to the fullest extent permitted by law and the balance of this Note shall
remain in full force and effect.

 

[Remainder of page intentionally left blank; signature page follows]

 

 

 

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IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the
Effective Date.

 

 

BORROWER:

 

NovaBay Pharmaceuticals, Inc.

 

 

 

 

 

 

 

 

 

 

By:

/s/

Justin Hall 

 

 

Name: Justin Hall

Title:   Interim Chief Executive Officer and

President & General Counsel

 

 

ACKNOWLEDGED, ACCEPTED AND AGREED:

 

LENDER:

 

Iliad Research and Trading, L.P.

 

By: Iliad Management, LLC, its General Partner

 

By: Fife Trading, Inc., its Manager

 

 

By: /s/ John M. Fife                                 

      John M. Fife, President      

 

 

 

[Signature Page to Convertible Promissory Note]

 

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ATTACHMENT 1

DEFINITIONS

 

For purposes of this Note, the following terms shall have the following
meanings:

 

A1. “Bloomberg” means Bloomberg L.P. (or if that service is not then reporting
the relevant information regarding the Common Stock, a comparable reporting
service of national reputation selected by Lender and reasonably satisfactory to
Borrower).

 

A2. “Closing Bid Price” and “Closing Trade Price” means the last closing bid
price and last closing trade price, respectively, for the Common Stock on its
principal market, as reported by Bloomberg, or, if its principal market begins
to operate on an extended hours basis and does not designate the closing bid
price or the closing trade price (as the case may be) then the last bid price or
last trade price, respectively, of the Common Stock prior to 4:00:00 p.m., New
York time, as reported by Bloomberg, or, if its principal market is not the
principal securities exchange or trading market for the Common Stock, the last
closing bid price or last trade price, respectively, of the Common Stock on the
principal securities exchange or trading market where the Common Stock is listed
or traded as reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price or last trade price, respectively, of the Common Stock in the
over-the-counter market on the electronic bulletin board for the Common Stock as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for the Common Stock by Bloomberg, the average of the
bid prices, or the ask prices, respectively, of any market makers for the Common
Stock as reported by OTC Markets Group, Inc., and any successor thereto. If the
Closing Bid Price or the Closing Trade Price cannot be calculated for the Common
Stock on a particular date on any of the foregoing bases, the Closing Bid Price
or the Closing Trade Price (as the case may be) of the Common Stock on such date
shall be the fair market value as mutually determined by Lender and Borrower.
All such determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during such period.

 

A3. “Conversion” means a Lender Conversion under Section 3 or a Redemption
Conversion under Section 8.

 

A4. “Conversion Factor” means 85%.

 

A5. “Conversion Share Value” means the product of the number of Lender
Conversion Shares deliverable pursuant to any Lender Conversion Notice
multiplied by the Closing Trade Price of the Common Stock on the Delivery Date
for such Lender Conversion.

 

A6. “Default Effect” means multiplying the Outstanding Balance as of the date
the applicable Event of Default occurred by (a) fifteen percent (15%) for an
occurrence of any Major Default, or (b) five percent (5%) for each occurrence of
any Minor Default, and then adding the resulting product to the Outstanding
Balance as of the date the applicable Event of Default occurred, with the sum of
the foregoing then becoming the Outstanding Balance under this Note as of the
date the applicable Event of Default occurred; provided that (i) the Default
Effect may only be applied one (1) time hereunder with respect to Major Defaults
and three (3) times hereunder with respect to Minor Defaults, and (ii) the
application of the Default Effect shall not cause the Outstanding Balance to be
increased by more than fifteen percent (15%) in the aggregate; and provided
further that the Default Effect shall not apply to any Event of Default pursuant
to Section 4.1(b) hereof.

 

A7. “DTC” means the Depository Trust Company or any successor thereto.

 

A8. “DTC/FAST Program” means the DTC’s Fast Automated Securities Transfer
program.

 

A9. “DWAC” means the DTC’s Deposit/Withdrawal at Custodian system.

 

A10. “DWAC Eligible” means that (a) Borrower’s Common Stock is eligible at DTC
for full services pursuant to DTC’s operational arrangements, including without
limitation transfer through DTC’s DWAC system; (b) Borrower has been approved
(without revocation) by DTC’s underwriting department; (c) Borrower’s transfer
agent is approved as an agent in the DTC/FAST Program; (d) the Conversion Shares
are otherwise eligible for delivery via DWAC other than due to the actions or
status of Lender; and (e) Borrower’s transfer agent does not have a policy
prohibiting or limiting delivery of the Conversion Shares via DWAC.

 

 

Attachment 1 to Convertible Promissory Note, Page 1

 

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A11. “Equity Conditions Failure” means that any of the following conditions has
not been satisfied on any given Redemption Date: (a) with respect to the
applicable date of determination all of the Conversion Shares would be freely
tradable under Rule 144 or without the need for registration under any
applicable federal or state securities laws (in each case, disregarding any
limitation on conversion of this Note); (b) no Event of Default shall have
occurred or be continuing hereunder; (c) the average and median daily dollar
volume of the Common Stock on its principal market for the previous forty (40)
Trading Days shall be greater than $50,000.00; (d) the five (5) day VWAP of the
Common Stock is greater than or equal to $0.75; and (e) the Market
Capitalization is greater than or equal to $10,000,000.00.

 

A12. “Fundamental Transaction” means that (a)(i) Borrower shall, directly or
indirectly, in one or more related transactions, consolidate or merge with or
into (whether or not Borrower is the surviving corporation) any other person or
entity, or (ii) Borrower shall, directly or indirectly, in one or more related
transactions, sell, lease, license, assign, transfer, convey or otherwise
dispose of all or substantially all of its respective properties or assets to
any other person or entity, or (iii) Borrower shall, directly or indirectly, in
one or more related transactions, allow any other person or entity to make a
purchase, tender or exchange offer that is accepted by the holders of more than
50% of the outstanding shares of voting stock of Borrower (not including any
shares of voting stock of Borrower held by the person or persons making or party
to, or associated or affiliated with the persons or entities making or party to,
such purchase, tender or exchange offer), or (iv) Borrower shall, directly or
indirectly, in one or more related transactions, consummate a stock or share
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with any
other person or entity whereby such other person or entity acquires more than
50% of the outstanding shares of voting stock of Borrower (not including any
shares of voting stock of Borrower held by the other persons or entities making
or party to, or associated or affiliated with the other persons or entities
making or party to, such stock or share purchase agreement or other business
combination), or (v) Borrower shall, directly or indirectly, in one or more
related transactions, reorganize, recapitalize or reclassify the Common Stock,
other than an increase in the number of authorized shares of Borrower’s Common
Stock, or (b) any “person” or “group” (as these terms are used for purposes of
Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations
promulgated thereunder) is or shall become the “beneficial owner” (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding voting stock of
Borrower.

 

A13. “Major Default” means any Event of Default occurring under Sections 4.1(a),
4.1(c), 4.1(l), or 4.1(p).

 

A14.  “Mandatory Default Amount” means the Outstanding Balance following the
application of the Default Effect.

 

A15. “Market Capitalization” means a number equal to (a) the average VWAP of the
Common Stock for the immediately preceding fifteen (15) Trading Days, multiplied
by (b) the aggregate number of outstanding shares of Common Stock as reported on
Borrower’s most recently filed Form 10-Q or Form 10-K.

 

A16. “Market Price” means the Conversion Factor multiplied by the lowest Closing
Bid Price during the twenty (20) Trading Days immediately preceding the
applicable measurement date.

 

A17. “Minor Default” means any Event of Default that is not a Major Default.

 

A18. “OID” means an original issue discount.

 

A19. “Other Agreements” means, collectively, (a) all existing and future
agreements and instruments between, among or by Borrower (or an affiliate), on
the one hand, and Lender (or an affiliate), on the other hand, and (b) any
financing agreement or a material agreement that affects Borrower’s ongoing
business operations.

 

A20. “Outstanding Balance” means as of any date of determination, the Purchase
Price, as reduced or increased, as the case may be, pursuant to the terms hereof
for payment, Conversion, offset, or otherwise, plus the OID, the Transaction
Expense Amount, accrued but unpaid interest, collection and enforcements costs
(including attorneys’ fees) incurred by Lender, transfer, stamp, issuance and
similar taxes and fees related to Conversions, and any other fees or charges
(including without limitation Conversion Delay Late Fees) incurred under this
Note.

 

A21. “Purchase Price Date” means the date the Purchase Price is delivered by
Lender to Borrower.

 

A22. “Trading Day” means any day on which the New York Stock Exchange (or such
other principal market for the Common Stock) is open for trading.

 

A23. “VWAP” means the volume weighted average price of the Common Stock on the
principal market for a particular Trading Day or set of Trading Days, as the
case may be, as reported by Bloomberg.

 

[Remainder of page intentionally left blank]

 

 

Attachment 1 to Convertible Promissory Note, Page 2 

 

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EXHIBIT A

 

Iliad Research and Trading, L.P.

303 East Wacker Drive, Suite 1040

Chicago, Illinois 60601

 

NovaBay Pharmaceuticals, Inc. Date:                                       

Attn: Justin Hall

2000 Powell Street, Suite 1150

Emeryville, California 94608

 

LENDER CONVERSION NOTICE

 

The above-captioned Lender hereby gives notice to NovaBay Pharmaceuticals, Inc.,
a Delaware corporation (the “Borrower”), pursuant to that certain Secured
Convertible Promissory Note made by Borrower in favor of Lender on March 26,
2019 (the “Note”), that Lender elects to convert the portion of the Note balance
set forth below into fully paid and non-assessable shares of Common Stock of
Borrower as of the date of conversion specified below. Said conversion shall be
based on the Lender Conversion Price set forth below. In the event of a conflict
between this Lender Conversion Notice and the Note, the Note shall govern, or,
in the alternative, at the election of Lender in its sole discretion, Lender may
provide a new form of Lender Conversion Notice to conform to the Note.
Capitalized terms used in this notice without definition shall have the meanings
given to them in the Note.

 

A.     Date of Conversion:      ____________

B.     Lender Conversion #:    ____________

C.     Conversion Amount:      ____________

D.     Lender Conversion Price: _______________

E.     Lender Conversion Shares: _______________ (C divided by D)

F.     Remaining Outstanding Balance of Note: ____________*

 

* Subject to adjustments for corrections, defaults, interest and other
adjustments permitted by the Transaction Documents (as defined in the Purchase
Agreement), the terms of which shall control in the event of any dispute between
the terms of this Lender Conversion Notice and such Transaction Documents.

 

Please transfer the Lender Conversion Shares electronically (via DWAC) to the
following account:

Broker:     Address:  

DTC#:        

Account #:        

Account Name:        

 

To the extent the Lender Conversion Shares are not able to be delivered to
Lender electronically via the DWAC system, deliver all such certificated shares
to Lender via reputable overnight courier after receipt of this Lender
Conversion Notice (by facsimile transmission or otherwise) to:

                 

 

 

[Signature Page Follows]

 

 

 

Exhibit A to Convertible Promissory Note, Page 1

 

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Sincerely,

 

Lender:

 

Iliad Research and Trading, L.P.

 

By: Iliad Management, LLC, its General Partner

 

By: Fife Trading, Inc., its Manager

 

 

By:                                                            

      John M. Fife, President      

 

 

 

Exhibit A to Convertible Promissory Note, Page 2

 

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EXHIBIT B

 

Iliad Research and Trading, L.P.

303 East Wacker Drive, Suite 1040

Chicago, Illinois 60601

 

NovaBay Pharmaceuticals, Inc. Date:                                     

Attn: Justin Hall

2000 Powell Street, Suite 1150

Emeryville, California 94608

 

REDEMPTION NOTICE

 

The above-captioned Lender hereby gives notice to NovaBay Pharmaceuticals, Inc.,
a Delaware corporation (the “Borrower”), pursuant to that certain Secured
Convertible Promissory Note made by Borrower in favor of Lender on March 26,
2019 (the “Note”), that Lender elects to redeem a portion of the Note in
Redemption Conversion Shares or in cash as set forth below. In the event of a
conflict between this Redemption Notice and the Note, the Note shall govern, or,
in the alternative, at the election of Lender in its sole discretion, Lender may
provide a new form of Redemption Notice to conform to the Note. Capitalized
terms used in this notice without definition shall have the meanings given to
them in the Note.

 

REDEMPTION INFORMATION

 

A.     Redemption Date: ____________, 201_

B.     Redemption Amount:      ____________

C.     Portion of Redemption Amount to be Paid in Cash: ____________

D.     Portion of Redemption Amount to be Converted into Common Stock:
____________ (B minus C)

E.     Redemption Conversion Price: _______________ (lower of (i) Lender
Conversion Price in effect and (ii) Market Price as of Redemption Date)

F.     Redemption Conversion Shares: _______________ (D divided by E)

G.    Remaining Outstanding Balance of Note: ____________ *

 

* Subject to adjustments for corrections, defaults, interest and other
adjustments permitted by the Transaction Documents (as defined in the Purchase
Agreement), the terms of which shall control in the event of any dispute between
the terms of this Redemption Notice and such Transaction Documents.

 

Please transfer the Redemption Conversion Shares, if applicable, electronically
(via DWAC) to the following account:

Broker:     Address:  

DTC#:        

Account #:        

Account Name:        

 

To the extent the Redemption Conversion Shares are not able to be delivered to
Lender electronically via the DWAC system, deliver all such certificated shares
to Lender via reputable overnight courier after receipt of this Redemption
Notice (by facsimile transmission or otherwise) to:

                 

 

 

 

Exhibit B to Convertible Promissory Note, Page 1

 

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Sincerely,

 

Lender:

 

Iliad Research and Trading, L.P.

 

By: Iliad Management, LLC, its General Partner

 

By: Fife Trading, Inc., its Manager

 

 

By:                                                           

      John M. Fife, President    

 

 

Exhibit B to Convertible Promissory Note, Page 2