NovaBay Pharmaceuticals, Inc. (NYSEAM:NBY) entered into a Membership Unit Purchase Agreement to acquire DERMAdoctor, LLC from Jeff Kunin, Audrey Kunin and Midwest Growth Partners, LLLP, a fund managed by Midwest Growth Partners, LLLP, for $15 million on September 27, 2021. The purchase price of $15 million, comprised of $12 million in cash at closing and up to an additional $3 million in earnout payments contingent upon the DERMAdoctor business achieving predetermined financial targets for the 2022 and the 2023 fiscal years. An aggregate amount of $1.2 million of the closing cash consideration will be held in escrow for 12 months after the closing to secure certain payment and indemnification obligations of DERMAdoctor, the founders and the sellers, as applicable and in accordance with the terms of the Purchase Agreement. If earned, the sellers may elect for the earn out payments to be paid in cash or unregistered shares of the company's common stock, with the number of shares determined by dividing the applicable earn out payment by the average closing stock price of the company's common stock on the prior ten trading days before the earn out payment is finally determined. Such shares of the company's common stock would be issued pursuant to a private placement. Under the terms of the Purchase Agreement, Papillon and MGP will receive approximately 82.2% and 17.8%, respectively, of the closing cash consideration and subsequent earn out payments, if any. As of November 1, 2021, NovaBay has entered into a Securities Purchase Agreement with certain institutional investors in connection with a private placement of 15,000 shares of a newly created Series B Non-Voting Convertible Preferred Stock at a price of $1,000 per share and warrants exercisable to purchase up to an aggregate of 37,500,000 shares of common stock at an exercise price of $0.53 per share. The company expects to receive gross proceeds from the private placement of approximately $15.0 million and shall use it to fund the acquisition. NovaBay has closed the financing, private placement, that will allow NovaBay to complete the transaction. As a result of the acquisition, DERMAdoctor became a wholly-owned subsidiary of NovaBay. In case of termination, the sellers shall pay a termination fee in the amount of $0.12 million.

DERMAdoctor's co-founders, Audrey Kunin and Jeff Kunin, will continue in the executive leadership of DERMAdoctor after the transaction. Audrey Kunin will serve as NovaBay's Chief Product Officer for all new product development, Jeff Kunin will remain as DERMAdoctor's President and the entire 13-member DERMAdoctor team will continue with DERMAdoctor after the transaction. In addition, Audrey Kunin is expected to join the NovaBay board of directors after the closing of the transaction. NovaBay plans for the DERMAdoctor business to continue its operations from its current headquarters in Riverside, Missouri.

The transaction is subject to customary closing conditions, including regulatory and third party approvals, NovaBay board approval, the company completing a financing(s) to raise capital sufficient to fund the purchase price for the transaction, the resignation of DERMAdoctor directors, and the execution of escrow, employment, intellectual property assignment, non solicitation and non competition agreements. The parties are targeting a closing of the transaction in the fourth quarter 2021. NovaBay expects to complete the acquisition on November 5, 2021. NovaBay expects the acquisition of DERMAdoctor to be immediately accretive to its earnings.

Abby Brown of Squire Patton Boggs (US) LLP acted as legal advisor to NovaBay Pharmaceuticals, Inc. Thomas W. Van Dyke of Bryan Cave Leighton Paisner LLP acted as legal advisor to DERMAdoctor, LLC.