8-K: NovaBay Issues Series E Non-Voting Convertible Preferred Stock

NovaBay Pharmaceuticals, Inc. has filed a Certificate of Designation for its new Series E Non-Voting Convertible Preferred Stock, outlining terms for up to 268,750 shares.

Summary

• NovaBay Pharmaceuticals, Inc. filed a Certificate of Designation for Series E Non-Voting Convertible Preferred Stock with the Delaware Secretary of State on October 16, 2025.
• The Series E Preferred Stock consists of up to 268,750 shares, each with a par value of $0.01 and a Stated Value of $8.00.
• Holders of Series E Preferred Stock will have no voting rights, except as required by law for certain adverse changes to their rights.
• Dividends on Series E Preferred Stock will be equal to Common Stock on an as-if-converted basis, but only after a 'Special Dividend' and 'Stockholder Approval'.
• In a liquidation event, Series E Preferred Stock holders are entitled to receive the Stated Value plus unpaid dividends, pari passu with Parity Securities and prior to Junior Securities.
• Each share of Series E Preferred Stock is convertible into 160 shares of Common Stock (the Conversion Ratio) at the holder's option, subject to a 'Share Issuance Limitation'.
• An automatic conversion of all outstanding Series E Preferred Stock will occur on the 30th Business Day after 'Stockholder Approval' is received.
• The 'Share Issuance Limitation' restricts conversion if the holder (and affiliates) would beneficially own more than the lower of the maximum percentage without stockholder vote under NYSE American rules or 19.99% of Common Stock outstanding as of the Purchase Agreement date; this limitation does not apply after Stockholder Approval and Automatic Conversion.
• The Series E Preferred Stock includes 'full ratchet protection', adjusting the Stated Value upwards if the company issues Common Stock or convertible securities at a pre-money imputed equity value of less than $10,000,000, subject to NYSE American stockholder approval limits.
• The terms of the Series E Preferred Stock are tied to a 'Purchase Agreement' dated August 19, 2025, and contemplate a 'Post-Investment Transaction' involving an investment and/or acquisition of an operating company.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive. While a capital raise is generally a good sign for a company needing funds, the terms, including potential dilution for common shareholders and the need for stockholder approval for full conversion, introduce complexities. The 'full ratchet protection' is a strong investor protection feature, and the mention of a 'Post-Investment Transaction' suggests strategic growth.

Positives

• The issuance of Series E Preferred Stock provides NovaBay Pharmaceuticals with a financing mechanism, indicating access to capital.
• The terms include 'full ratchet protection' for preferred stockholders, which can attract investors by safeguarding against significant future dilution below a $10 million valuation threshold.
• The filing references a 'Post-Investment Transaction', suggesting a strategic initiative or acquisition that could enhance the company's operational scope or market position.

Negatives

• The conversion of Series E Preferred Stock into Common Stock will result in dilution for existing common shareholders.
• The 'Share Issuance Limitation' and the requirement for 'Stockholder Approval' for automatic conversion introduce uncertainty and potential delays in the full conversion of the preferred shares.
• The non-voting nature of the preferred stock means holders have limited direct influence on corporate decisions, except for specific protective provisions.

Risks

• Potential for significant dilution of common stock upon conversion of the Series E Preferred Stock.
• Failure to obtain 'Stockholder Approval' could delay or complicate the automatic conversion of the preferred stock.
• The 'full ratchet protection' mechanism could lead to a substantial increase in the number of common shares issued upon conversion if future equity raises occur at a valuation below $10,000,000, further diluting existing common shareholders.
• If NovaBay fails to deliver conversion shares by the 'Share Delivery Date', it is obligated to pay liquidated damages of $0.50 per Trading Day for each $8.00 of Stated Value being converted, in addition to potential buy-in compensation.

Future Outlook

The company anticipates a 'Post-Investment Transaction' involving an investment and/or acquisition of an operating going concern. The full conversion of the Series E Preferred Stock is contingent upon 'Stockholder Approval', after which an 'Automatic Conversion' will occur.

Management Comments

• David Lazar, Chief Executive Officer, President, and Secretary, certified the Certificate of Designation.
• Tommy Law, Chief Financial Officer, signed the Form 8-K on behalf of NovaBay Pharmaceuticals, Inc.

Industry Context

The issuance of convertible preferred stock is a common financing strategy for biotechnology and pharmaceutical companies, particularly those in growth stages or seeking capital for strategic initiatives like acquisitions or product development. These instruments allow companies to raise capital while deferring immediate common stock dilution, often with protective provisions for investors.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to benchmark the terms of the Series E Preferred Stock against industry standards. However, the inclusion of 'full ratchet protection' and conversion limitations is typical for preferred stock issuances in growth-stage companies seeking capital, aiming to protect investors from significant future dilution.

Corporate Governance

Stakeholder Impact

• **Shareholders (Common Stock):** Potential for dilution upon conversion of Series E Preferred Stock, especially if the 'full ratchet protection' is triggered. Voting power may be indirectly affected by the existence of preferred stock with protective provisions.
• **Preferred Stock Holders (Series E):** Gain specific rights and preferences, including a liquidation preference, anti-dilution protection, and conversion rights, providing a structured return and downside protection. They have limited voting rights but strong protective covenants.
• **Company Management:** Gains access to capital for operations and strategic initiatives, such as the 'Post-Investment Transaction', but must manage the potential for dilution and adhere to the terms and conditions of the preferred stock, including seeking 'Stockholder Approval'.

Next Steps

• Obtain 'Stockholder Approval' for the conversion of all Series E Preferred Stock and issuance of Conversion Shares.
• Execute the 'Automatic Conversion' of all outstanding Series E Preferred Stock on the 30th Business Day after 'Stockholder Approval'.
• Complete the 'Post-Investment Transaction' involving an investment and/or acquisition of an operating going concern.

Key Dates

Recommendation

The filing details a financing event through the issuance of convertible preferred stock, which is a common strategy for companies seeking capital. While it provides necessary funding, the conversion feature introduces potential dilution for existing common shareholders. The 'full ratchet protection' and specific conversion limitations are significant terms that protect the preferred holders but could impact common stock value. The 'Post-Investment Transaction' suggests a strategic move, which could be positive, but its details are not yet known. Therefore, a 'hold' recommendation is appropriate until the impact of the conversion and the nature of the 'Post-Investment Transaction' become clearer, allowing investors to assess the long-term value creation versus dilution.

Keywords

NovaBay Pharmaceuticals, NBY, Series E Preferred Stock, Convertible Preferred Stock, Non-Voting Stock, SEC Filing, 8-K, Equity Financing, Corporate Finance, Dilution, Anti-Dilution, Stockholder Approval, Post-Investment Transaction