ex10_9.htm


    
      

    

    EXHIBIT
10.9

     

    RETIREMENT
AND CONSULTING AGREEMENT

    


    THIS RETIREMENT AND CONSULTING
AGREEMENT (this "Agreement"), is made,
entered into and effective as of January 1, 2009, by and between NovaBay
Pharmaceuticals, Inc. (hereinafter referred to as ”NovaBay or Company"), located
at 5980 Horton Street, Suite 550, Emeryville, California, 94608 and John “Jack”
O’Reilly ("JOR"), residing at 736 Southampton Drive, Palo Alto, California,
94303..

    


    WITNESSETH:

    


    WHEREAS, JOR has
given  seven years of dedicated, faithful and valued service to
NovaBay, and has served NovaBay well and dutifully in numerous capacities
including Chief Executive Officer and, most recently, as the SVP for Business
and Corporate Development and a member of the Board of Directors of the Company;
and

    


    WHEREAS, JOR has determined
that, effective December 31, 2008, he wishes to retire from his employment with
NovaBay due to hearing loss that has been increasingly preventing him from
playing a full role within the company.; and

    


    WHEREAS, JOR has determined
that he shall also resign from the directorship of NovaBay;

    


    WHEREAS, NovaBay desires to
retain JOR, because of his vast experience and knowledge of NovaBay’s business,
markets and products, after his retirement to provide consulting services, and
JOR agrees to provide such consulting services as described more fully herein;
and

    


    WHEREAS, NovaBay and JOR
desire to set forth the payments and benefits that JOR will be entitled to
receive from NovaBay for his valuable services as consultant;

    


    WHEREAS, JOR’s benefits in
connection with the cessation of his employment with NovaBay shall be governed
by the Executive Agreement dated January 1, 2007.

    


    NOW, THEREFORE, in
consideration of the promises and agreements contained herein and intending to
be legally bound, NovaBay and JOR hereby agree as follows:

    


    
      1.   RETIREMENT. As of December 31,
2008 (the "Retirement Date"), JOR is resigning as an employee, Board member and
officer of the Company, and from all positions JOR may hold with the Company and
any affiliated entities.

    

    


    
      2.  
ACCRUED
SALARY AND PAID TIME OFF.

    

    


    A.   ACCRUED SALARY.
On the Retirement Date, the Company has paid all accrued salary and vacation,
with standard payroll deductions and withholdings.

    


    
      3.   CONSULTING.  NovaBay
agrees to retain JOR, and JOR agree to make himself available and perform, as a
consultant, under the terms specified below.

    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    
      	
               
      

            	
              A.

            	
              As
      requested by NovaBay in writing or e-mail and at times of mutual
      convenience, JOR will provide up to 40 days of consulting and advice,
      including time spent working on the on-going business of Galderma, KCI,
      Pathogenics and Alcon (but not including time spent on agreements on
      indications or uses not currently in discussion or currently covered by
      agreements).  Any agreements relating to such new indications
      would fall under Section 3.B of this Agreement. Any additional time beyond
      40 days requested by NovaBay and accepted by JOR shall be charged at a
      daily rate of $1,500.  JOR will submit weekly records of time
      spent under Sections 3.A, 3.B and 3.C hereof.  From the onset of
      a transaction that NovaBay wishes JOR to work on, NovaBay must inform JOR
      in writing whether the compensation will be time (daily rate of $1,500 per
      hour) or success based pursuant to Section 3.B
  hereof.

            


    

    
      	
               
      

            	
              B.

            	
              JOR
      will provide support for NovaBay at NovaBay’s request in writing or by
      e-mail from the CEO of the Company on new transactions, other than
      transactions mentioned in Section 3.A hereof, on a success fee
      basis.  On any transaction that is closed by NovaBay where JOR
      has provided support, JOR will receive success fees as set forth
      below.  The “Value” of the transaction shall only include
      amounts received by NovaBay as upfront fees or upon the signing of the
      agreement or upon milestones achieved, and only as, if and when received,
      and shall not include amounts received as royalties or upon the sale of
      active ingredients or compounds.  The amount of the Success Fee
      for any applicable transaction shall
be:

            


    

    
      
        
          	
                	
                  a.

                	
                  For
      the first Value received for that transaction:   $20,000

                


        

      

    

    
      	
               
      

            	
              b.

            	
              On
      Value received exceeding $1,000,000 for that
      transaction:      $10,000

            


    

    
      	
               
      

            	
              c.

            	
              On
      Value received exceeding $3,000,000 for that
      transaction:      $20,000

            


    

    
      	
               
      

            	
              d.

            	
              On
      Value received exceeding $5,000,000 for that
      transaction:      $25,000

            


    

    
      	
               
      

            	
              e.

            	
              In
      addition:

            


    

    
      	
               
      

            	
              i.

            	
              on
      the first transaction for which any amounts are payable pursuant to this
      Section 3.B there shall be an additional one-time only payment of
      $20,000

            


    

    
      	
               
      

            	
              ii.

            	
              on
      the first transaction where Value received exceeds $1,000,000, there shall
      be a one-time only additional payment of
$30,000

            


    

    
      	
               
      

            	
              iii.

            	
              on
      the first transaction where the Value received exceeds $3,000,000, there
      shall be an additional one-time only payment of
  $10,000.

            


    

    The
methodology of these payments is illustrated in Exhibit 1.

    Success
Fees shall be due on any transaction in which JOR has been involved in the
twelve months prior to termination under Section 3.F.  In the event
that JOR is providing support on a potential transaction that is being used for
competitive or back-up purposes to a like transaction that closes with another
party on which JOR is not providing support then Success Fees shall be due on
the Value of whichever transaction is entered into by NBY.

    If, after
JOR has commenced working on a transaction with a specific
company,  NovaBay requests JOR to cease working on such transaction,
then the success fee shall only be due if a transaction closes with that
specific company (or a competitive or back-up company) within 12 months of the
cessation request.

    
      	
               
      

            	
              C.

            	
              In
      addition to the services under Section 3.A and Section 3.B hereof, JOR
      will continue as a general strategic advisor to NovaBay until the expiry
      of the last to expire options under Section 4 hereof and shall make
      himself available for a minimum of two days per year at times of mutual
      convenience commencing January 1, 2010 for such purposes.  Days
      beyond two days shall be charged at $1,500 per
  day.

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               
      

            	
              D.

            	
              NovaBay
      will reimburse JOR for all reasonable travel, hotel and out of pocket
      expenses incurred in connection with Sections 3.A, 3.B and 3.C hereof
      including conference fees as may be agreed in
  advance.

            


    

    
      	
               
      

            	
              E.

            	
              NovaBay
      will continue to pay for cell phone and data card expenses, and will
      provided suitable access to a PC, GoTo My PC, NovaBay’s data network and
      the Recap database to enable JOR to effectively provide the services under
      Sections 3.A, and 3.B hereof.

            


    

    
      	
               
      

            	
              F.

            	
              NovaBay
      may terminate the Advisory Agreement except for Section 3.A, 3.C, for
      expenses incurred under 3.D prior to the termination and Section 5 hereof
      at any time, except that any payments due under Section 3.B will continue
      to be due as earned for transactions where JOR has provided support prior
      to the termination.

            


    

    


    
      
        
          	
                	
                  G. 

                	
                   NovaBay
      will not deduct or withhold any amount for taxes and other applicable
      deductions from any compensation paid pursuant to the Advisory Agreement
      (“Advisory Fees”), but will instead issue JOR an IRS Form 1099 with
      respect to the Advisory fees. JOR acknowledges that in performing Advisory
      services, JOR will be serving as an independent contractor, not a NovaBay
      employee, and JOR will be entirely responsible for the payment of all
      taxes due and owing as a result of the Advisory
  Fees.

                


        

      

    

    


    4.   STOCK OPTIONS. The
Company acknowledges and agrees that all of JOR’s existing options will continue
to remain outstanding and exercisable until the expiration of such options.
Subject to Board approval, the option for 53,191 shares expiring in January 2009
will be replaced with a fully-vested option for a like number of shares with an
option expiring in January 2014 having an exercise price equal to the market
price of the NBY common stock on the grant date of the new
option.  All ISOs will convert to NQOs.  Such options shall
remain exercisable for as long as JOR is willing and able to provide on-going
advisory services in accordance with Section 3 and for a period of three (3)
months thereafter.  Unvested options will continue to vest for as long
as JOR continues to provide services to the company.

    


    JOR
acknowledges that NovaBay is not making any representation regarding the tax
treatment of JOR’s stock options and that JOR had been advised by NovaBay to
seek independent tax advice on that matter.

    


    5.   INDEMNIFICATION. NovaBay
acknowledges that JOR does not carry indemnity insurance and agrees to hold JOR
harmless from any claims arising out of services provided under the Advisory
Agreement except claims resulting from or arising out of or in connection with
any negligent, willful or bad faith act or omission by JOR.

    


    6.   LIFE INSURANCE
POLICY. JOR acknowledges that the Company’s current life insurance policy
of $500,000 is portable.  JOR can call 1-800-523-5065 for
details.

    


    7.   LONG TERM
DISABILITY INSURANCE.  JOR acknowledge that he was covered by a
long-term disability insurance plan under the Company’s coverage with ADP
Total Source until December 31, 2008.  JOR acknowledges that he is
responsible for exploring the possibility of claiming under the insurance
plan.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    8. RETURN OF COMPANY PROPERTY. At
the termination of the Consulting Period, JOR agrees to return to the Company
all Company documents (and all copies thereof) and other Company property that
JOR have had in his possession at any time, including, but not limited to,
Company files, notes, notebooks, memoranda, correspondence drawings, books and
records, plans and forecasts, financial information, personnel information,
sales and marketing information, research and development information,
specifications, computer-recorded information, tangible property (including, but
not limited to, computers, credit cards, entry cards, identification badges and
keys); and any materials of any kind that contain or embody any proprietary or
confidential information of the Company (and all reproductions
thereof).

    


    9. PROPRIETARY INFORMATION
OBLIGATIONS.  JOR agrees to maintain in confidence and not to
use or disclose any confidential or proprietary information of the Company which
JOR may obtain or develop during the Consulting Period, except as expressly
authorized by the Company.

    


    10. NON-SOLICITATION. JOR agrees that
for five (5) years following the termination of this Agreement, JOR will not
directly or indirectly solicit, entice, induce, or encourage any employee,
consultant or independent contractor of the Company to terminate his or her
relationship with the Company in order to become an employee, consultant or
independent contractor to or for any other person or entity.

    


    11.   CONFIDENTIALITY.  
JOR  will keep in strict confidence, and will not, directly or
indirectly, at any time, disclose, furnish, disseminate, make available, use or
suffer to be used in anymanner any Confidential Information of NovaBay without
limitation as to when or how JOR may have acquired such Confidential
Information. JOR  specifically acknowledges that Confidential
Information includes any and all information, whether reduced to writing (or in
a form from which information can be obtained, translated, or derived into
reasonably usable form), or maintained in the mind or memory of JOR and whether
compiled or created by NovaBay, which derives independent economic value from
not being readily known to or ascertainable by proper means by others who can
obtain economic value from the disclosure or use of such information, that
reasonable efforts have been put forth by NovaBay to maintain the secrecy of
confidential or proprietary or trade secret information, that such information
is and will remain the sole property of  NovaBay.

    


    At the
conclusion of the Advisory Agreement, JOR will immediately return to NovaBay (to
the extent he has not already returned), equipment, software, electronic files,
computers, including any laptop, in good condition, all property of NovaBay,
including, without limitation, property, documents and/or all other materials
(including copies, reproductions, summaries and/or analyses) which constitute,
refer or relate to Confidential Information of NovaBay.

    


    JOR
further acknowledges that his obligation of confidentiality shall survive,
regardless of any other breach of this Advisory Agreement or any other
agreement, by any party hereto, until and unless such Confidential Information
of NovaBay shall have become, through no fault of JOR generally known to the
public or JOR is required by law (after providing NovaBay with notice and
opportunity to contest such requirement) to make disclosure.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    


    12.
CONTINUED AVAILABILITY AND COOPERATION.

    


                    A.
JOR shall cooperate fully with the Company and with the Company's counsel in
connection with any present and future actual or threatened litigation or
administrative proceeding involving the Company that relates to events,
occurrences or conduct occurring (or claimed to have occurred) during the period
of JOR’s employment by the Company or during the e Consulting Period. This
cooperation by JOR shall include, but not be limited to making himself
reasonably available for discussions with the Company's CEO about the current
and potential deals;

    


                    B.
JOR shall be reimbursed by the Company for reasonable travel, lodging, telephone
and similar expenses incurred in connection with such cooperation, which the
Company shall reasonably endeavor to schedule at times not conflicting with the
reasonable requirements of any third party with whom JOR has a business
relationship permitted hereunder that provides remuneration to JOR. JOR shall
not unreasonably withhold his availability for such cooperation.

    


                   C.
JOR will update the Company as to the status of all pending matters for which
JOR was responsible or otherwise involved. During the Consulting Period, JOR
will perform such services and provide such consultations as the Company shall
reasonably request.

    


    13.   NONDISPARAGEMENT.
Both JOR and the Company agree not to disparage

    the other
party, and the other party's officers, directors, employees, shareholders and
agents, in any manner likely to be harmful to them or their business, business
reputation or personal reputation; provided that both JOR and the Company will
respond accurately and fully to any question, inquiry or request for information
when required by legal process.

    


    14.   ARBITRATION.
To ensure rapid and economical resolution of any and all disputes that may arise
in connection with this Agreement, JOR and the Company agree that any and all
disputes, claims, causes of action, in law or equity, arising from or relating
to this Agreement or its enforcement,  performance, breach, or
interpretation will be resolved by final and binding confidential arbitration
held in San Francisco, California and conducted by Judicial Arbitration &
Mediation Services ("JAMS"), under its then-existing Rules and Procedures.
Nothing in this Section is intended to prevent either JOR or the Company from
obtaining injunctive relief in court to prevent irreparable harm pending the
conclusion of any such arbitration.

    


    15.  MISCELLANEOUS.
This Agreement, including all exhibits, constitutes the complete, final
and exclusive embodiment of the entire agreement between JOR and NovaBay with
regard to this subject matter. It is entered into without reliance on any
promise or representation, written or oral, other than those expressly contained
herein, and it supersedes any other such promises, warranties or
representations. This Advisory Agreement may not be modified or amended except
in a written agreement signed by both JOR and a duly authorized officer of
NovaBay. This Advisory Agreement will bind the heirs, personal representatives,
successors and assigns of both JOR and the Company, and inure to the benefit of
both JOR and NovaBay, their heirs, successors and assigns. If any provision of
this Advisory Agreement is determined to be invalid or unenforceable, in whole
or in part, this determination will not affect any other provision of this
Agreement and the provision in question will be modified by the court so as to
be rendered enforceable in a manner consistent with the intent of the parties
insofar as possible. This Advisory Agreement will be deemed to have been entered
into and will be construed and enforced in accordance with the laws of the State
of California as applied to contracts made and to be performed entirely within
California.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective
as of January 1, 2009.

    
    

     

    
      
        
          
            
              
                
                  
                    
                      	
                              NovaBay
      Pharmaceuticals, Inc.

                            	 	
                              
                                Advisor

                              

                            	 
	 
      	 
      	 	 
      	 
	 
      	 
      	 	 
      	 
	
                              By:

                            	
                              /s/Ron Najafi

                            	 	
                              /s/ Jack O’Reilly

                            	 
	 
      	
                              Ron
      Najafi

                            	 	
                              Jack
      O’Reilly

                            	 
	 
      	
                              Chairman
      and CEO

                            	 	
                              Advisor

                            	 


                    

                  

                

              

            

          

        

      


      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    EXHIBIT
1

    


    


    


    
      	
               
      

            	
              A.

            	
              NovaBay
      enters into a transaction with ABC Company and this is the first
      transaction under the Advisory
Agreement.

            


    

    
      	
               
      

            	
              B.

            	
              NovaBay
      receives an upfront payment of $800,000.  NovaBay would pay
      $40,000 to JOR ($20,000 under Section 3.Ba. and $20,000 under
      3.B.e.i.)

            


    

    
      	
               
      

            	
              C.

            	
              NovaBay
      enters into a transaction with XYZ Company and receives an upfront payment
      of $4,000,000.  NovaBay would pay $90,000 to JOR ($20,000 under
      3.B.a., $10,000 under 3.B.b., $20,000 under 3.B.c., $30,000 under 3.B.e.ii
      and $10,000 under 3.B.e.iii.

            


    

    
      	
               
      

            	
              D.

            	
              NovaBay
      receives a $3,000,000 milestone payment from XYZ.  NovaBay pays
      JOR $25,000 under 3.B.d.

            


    

    
      	
               
      

            	
              E.

            	
              NovaBay
      receives a milestone payment of $5,000,000 from ABC.  NovaBay
      pays JOR $55,000 under 3.B.b., 3.B.c.,
3.B.d.

            


    

    
      	
               
      

            	
              F.

            	
              Novabay
      receives a second milestone of $10,000,000 from ABC.  No payment
      is due to JOR.

            


    

    
      	
               
      

            	
              G.

            	
              NovaBay
      receives a second milestone payment of $5,000,000 from XYZ.  No
      payment is due to JOR.