UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934
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Inc.
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1
GROWLIFE,
INC.
11335 NE 122nd Way, Suite 105
Kirkland, WA 98034
(866)
781-5559
September
23, 2021
Dear
Stockholders:
We are
pleased to invite you to attend our 2021 Annual Meeting of
Stockholders (“Annual Meeting”) to be held on Friday,
November 5, 2021 at 12:00 p.m., local time, at 895 Dove Street,
Suite 300, Newport Beach, CA 92660.
Details
regarding admission to the Annual Meeting and the business to be
conducted are described in the Notice of Internet Availability of
Proxy Materials (Notice) you received in the mail and in this proxy
statement. We have also made available a copy of our 2020 Annual
Report to Stockholders (the “Annual Report”) with this
proxy statement. We encourage you to read our Annual Report. It
includes our audited financial statements and provides information
about our business.
We have
elected to provide access to our proxy materials over the Internet
under the U.S. Securities and Exchange Commission’s
“notice and access” rules. We are constantly focused on
improving the ways people connect with information and believe that
providing our proxy materials over the Internet increases the
ability of our stockholders to connect with the information they
need, while reducing the environmental impact of our Annual
Meeting. If you want more information, please see the Questions and
Answers section of this proxy statement or visit the 2021 Annual
Meeting section of our website.
Your
vote is important. Whether or not you plan to attend the Annual
Meeting, we hope you will vote as soon as possible. You may vote
over the Internet, as well as by telephone, or, if you requested to
receive printed proxy materials, by mailing a proxy or voting
instruction form. Please review the instructions on each of your
voting options described in this proxy statement, as well as in the
Notice you received in the mail.
Also,
please let us know if you plan to attend our Annual Meeting by
marking the appropriate box on the enclosed proxy card, if you
requested to receive printed proxy materials, or, if you vote by
telephone or over the Internet, by indicating your plans when
prompted.
Thank
you for your ongoing support of, and continued interest in
Growlife, Inc. We look forward to seeing you at our Annual
Meeting.
Sincerely,
Michael
E. Fasci
Secretary
GROWLIFE,
INC.
11335 NE 122nd Way, Suite 105
Kirkland, WA 98034
(866)
781-5559
Notice
of the 2021 Annual Meeting of Stockholders
Date:
November 5,
2021,
Time:
12:00 P.M. Local
Time
Location:
895 Dove Street,
Suite 300, Newport Beach, CA 92660
Proposals:
1. To elect three
nominees to serve on the Board until the 2022 Annual Meeting of
Stockholders;
2.
To
adopt and approve the Second Amended and Restated 2017 Stock
Incentive Plan to increase the shares issuable under the plan from
1,333,333 to 75,000,000 shares;
3. To approve an amendment to our
Certificate of Incorporation to effect a reverse stock split of our
common stock, by a ratio of not less than 1-for-10 and not more
than 1-for-150, such ratio and the implementation and timing of
such reverse stock split to be determined in the discretion of our
board of directors;
4. To approve an amendment to the
Company’s Certificate of Incorporation to increase the
authorized shares of common stock (“Common Stock”) from
120,000,000 to 750,000,000 shares;
5. To ratify the appointment of BPM
LLP of Walnut Creek, California as the Company’s independent
registered public accounting firm for the fiscal year ending
December 31, 2020;
6. To transact such
other business that may properly come before the Annual Meeting and
at any adjournments thereof.
Who Can Vote:
Stockholders of
record at the close of business on [_], 2021.
How
You Can Vote:
IMPORTANT
NOTICE REGARDING INTERNET AVAILABILITY OF PROXY
MATERIALS
This
proxy statement and our 2020 Annual Report to Stockholders, which
includes our Annual Report on Form 10-K for fiscal year ended
December 31, 2020, are available at www.growlifeinc.com
Who May Attend:
Only persons with
evidence of stock ownership or who are guests of the Company may
attend the Annual Meeting. Photo identification is required (a
valid driver’s license or passport is
preferred).
●
If your shares are
registered in your name, you must bring the proxy
card.
●
If your shares are
registered in the name of a broker, trust, bank or other nominee,
you will need to bring a proxy or a letter from that broker, trust,
bank or other nominee or your most recent brokerage account
statement, that confirms that you are the beneficial owner of such
shares.
By
authorization of the Board of Directors,
Michael
E. Fasci
Secretary
Kirkland,
WA
September 23 , 2021
This notice of Annual Meeting and proxy
statement and form of proxy are being distributed and made
available on or about September 24,
2021.
In this
proxy statement, the words “Growlife” “the
company,” “we,” “our,”
“ours,” “us” and similar terms refer to
Growlife, Inc. and its subsidiaries, unless the context indicates
otherwise,
|
Your Vote Is
Important. Whether You Own One Share or Many,
Your Prompt
Cooperation in Voting Proxy is Greatly
Appreciated.
|
PROXY
STATEMENT FOR THE
2021
ANNUAL MEETING OF STOCKHOLDERS OF
GROWLIFE,
INC.
TO
BE HELD ON NOVEMBER 5, 2021
Solicitation
This
Proxy Statement, the accompanying proxy card and the Annual Report
to Stockholders of Growlife, Inc. (the “Company”) are
being distributed and made available on or about September 23,
2021. The Board of Directors (the “Board”) of the
Company is soliciting your proxy to vote your shares at the 2021
Annual Meeting of Stockholders (the “Annual Meeting”)
on all matters that will be presented at the Annual Meeting. This
Proxy Statement provides you with information on these matters to
assist you in voting your shares.
Important
Notice Regarding the Availability of Proxy Materials for the Annual
Meeting of Stockholders to be Held November 5, 2021.
IMPORTANT
NOTICE REGARDING INTERNET AVAILABILITY OF PROXY
MATERIALS
This
Proxy Statement and Growlife, Inc.’s Annual Report to
stockholders, which includes our Annual Report on Form 10-K for the
fiscal year ended December 31, 2020 are both available at
www.growlifeinc.com.
What
is a proxy and why am I receiving these materials?
A proxy
is your legal designation of another person or persons (the
“proxy”) to vote on your behalf. By completing and
returning the enclosed proxy card, you are giving the Company the
authority to vote your shares in the manner you indicate on your
proxy card.
Our
Board of Directors has made these materials available to you on the
Internet, or, upon your request, has delivered printed proxy
materials to you, in connection with the solicitation of proxies
for use at Growlife’s 2021 Annual Meeting of Stockholders
(Annual Meeting), which will take place on Friday, November 5, 2021
at 12:00 p.m., local time, at 895 Dove Street, Suite 300, Newport
Beach, CA 92660. You are invited to attend the Annual Meeting if
you were a Growlife stockholder as of the close of business on
September 23, 2021, the Record Date for the Annual Meeting, or hold
a valid proxy for the Annual Meeting. This proxy statement includes
information that we are required to provide to you under the U.S.
Securities and Exchange Commission (SEC) rules and that is designed
to assist you in voting your shares.
What
is included in the proxy materials?
The
proxy materials include:
●
Our proxy statement
for the Annual Meeting;
●
Our 2020 Annual
Report to Stockholders (Annual Report), which includes our Annual
Report on Form 10-K for the fiscal year ended December 31, 2020;
and
●
The proxy card or a
voting instruction form for the Annual Meeting.
What
information is contained in this proxy statement?
The
information in this proxy statement relates to the proposals to be
voted on at the Annual Meeting, the voting process, an amendment to
our Certificate of Incorporation to increase authorized stock, a
reverse split, ratification of the appointment of our auditor, and
certain other required information.
Why
did I receive a notice in the mail regarding the internet
availability of proxy materials instead of a full set of proxy
materials?
In
accordance with rules adopted by the SEC, we may furnish proxy
materials, including this proxy statement and our Annual Report, to
our stockholders by providing access to such documents on the
Internet instead of mailing printed copies. Most stockholders will
not receive printed copies of the proxy materials unless they
request them. Instead, the Notice of Internet Availability of Proxy
Materials (Notice), which was mailed to most of our stockholders,
will instruct you as to how you may access and review all of the
proxy materials on the Internet. The Notice also instructs you as
to how you may submit your proxy on the Internet. If you would like
to receive a paper or email copy of our proxy materials, you should
follow the instructions for requesting such materials in the
Notice.
Why
did I receive more than one proxy card?
You
will receive multiple proxy cards if you hold your shares in
different ways (e.g., joint tenancy, trusts, and custodial
accounts) or in multiple accounts. If your shares are held by a
broker (i.e., in “street name”), you will receive your
proxy card or other voting information from your broker, and you
will return your proxy card or cards to your broker. You should
vote on and sign each proxy card you receive.
I
share an address with another stockholder and we received only one
copy of the proxy materials. How may I obtain an additional copy of
the proxy materials?
We have
adopted a procedure called “householding,” which the
SEC has approved. Under this procedure, we deliver a single copy of
the Notice and, if applicable, the proxy materials to multiple
stockholders who share the same address unless we received contrary
instructions from one or more of the stockholders. This procedure
reduces our printing costs, mailing costs, and fees. Stockholders
who participate in householding will continue to be able to access
and receive separate proxy cards. Upon written request, we will
deliver promptly a separate copy of the Notice and, if applicable,
the proxy materials to any stockholder at a shared address to which
we delivered a single copy of any of these documents. To receive a
separate copy of the Notice and, if applicable, the proxy
materials, stockholders may contact us as follows:
|
|
|
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| Investor Relations: |
Email:
info@growlifeinc.com
|
(866) 781-5559 |
| Growlife, Inc. |
|
|
| 11335 NE 122nd Way, Ste105, |
|
|
| Kirkland, WA 98034 |
|
Stockholders
who hold shares in street name (as described below) may contact
their brokerage firm, bank, broker-dealer, or other similar
organization to request information about
householding.
How
can I access the proxy materials over the Internet?
The
Notice, proxy card or voting instruction form will contain
instructions on how to:
●
View our proxy
materials for the Annual Meeting on the Internet and vote your
shares; and
●
Instruct us to send
our future proxy materials to you electronically by
email.
Our
proxy materials are also available on our Investor Relations
website at https://www.growlifeinc.com/investors/
Choosing to receive
your future proxy materials by email will save us the cost of
printing and mailing documents to you, and will reduce the impact
of printing and mailing these materials on the environment. If you
choose to receive future proxy materials by email, you will receive
an email next year with instructions containing a link to those
materials and a link to the proxy voting site. Your election to
receive proxy materials by email will remain in effect until you
revoke it.
Voting
Information
Who
is qualified to vote?
You are
qualified to receive notice of and to vote at the Annual Meeting if
you own shares of common stock of the Company at the close of
business on our record date of September 20, 2021.
How
many shares of Common Stock may vote at the Meeting?
As of
September 20, 2021, there were 95,149,997 shares of common stock
outstanding and entitled to vote. We do not anticipate any material
changes in the number of common stock shares issued and outstanding
as of September 20, 2021 entitled to vote. Each share of common
stock is entitled to one vote on each matter
presented.
What
is the difference between a “stockholder of record” and
a “street name” holder?
These
terms describe how your shares are held. If your shares are
registered directly in your name with Direct Transfer LLC, the
Company’s transfer agent, you are a “stockholder of
record.” If your shares are held in the name of a brokerage,
bank, trust or other nominee as a custodian, you are a
“street name” holder.
How
do I vote my shares?
Whether
you hold shares directly as the stockholder of record or
beneficially in street name, you may direct how your shares are
voted without attending the Annual Meeting.
If you
are a stockholder of record, you may vote by proxy. You can vote by
proxy over the Internet by following the instructions provided in
the Notice, or, if you requested to receive printed proxy
materials, you can also vote by mail or telephone pursuant to
instructions provided on the proxy card.
If you
hold shares beneficially in street name, you may also vote by proxy
over the Internet by following the instructions provided in the
Notice, or, if you requested to receive printed proxy materials,
you can also vote by telephone or mail by following the voting
instruction form provided to you by your broker, bank, trustee, or
nominee.
Can
I vote my shares in person at the Annual Meeting?
If you
are a “stockholder of record,” you may vote your shares
in person at the Annual Meeting. If you hold your shares in
“street name,” you must obtain a proxy from your
broker, banker, trustee or nominee, giving you the right to vote
the shares at the Annual Meeting.
What
are the Board’s recommendations on how I should vote my
shares?
The
Board recommends that you vote your shares as follows:
Proposal 1
—
✓ FOR the
election of all three nominees to serve on the Board until the 2022
Annual Meeting of Stockholders;
Proposal 2
—
✓ FOR the
adoption of the Second Amended and Restated 2017 Stock Incentive
Plan to increase the shares issuable under the plan from 1,333,333
to 75,000,000 shares;
Proposal 3
—
✓ FOR the
amendment to the Company’s Certificate of Incorporation to
effect a reverse stock split of the common stock, by a ratio of not
less than 1-for-10 and not more than 1-for-150, such ratio and the
implementation and timing of such reverse stock split to be
determined in the discretion of our board of
directors;
Proposal 4
—
✓ FOR the
amendment to the Company’s Certificate of Incorporation to
increase the authorized shares of Common Stock from 240,000,000 to
750,000,000shares;
Proposal 5
—
✓ FOR
ratifying the appointment of BPM LLP of Walnut Creek, California as
the Company’s independent registered public accounting firm
for the fiscal year ending December 31, 2020;
Proposal 6
—
✓ To
transact such other business that may properly come before the
Annual Meeting and at any adjournments thereof.
What are my choices when voting?
Proposal 1
—
You may cast your
vote in favor of electing the nominees as directors or vote against
or withhold your vote with respect to one or more individual
nominees.
Proposal 2 to 5
—
You may cast your
vote in favor of or against each proposal, or you may abstain from
voting your shares.
How
would my shares be voted if I do not specify how they should be
voted?
If you
sign and return your proxy card without indicating how you want
your shares to be voted, the named proxies will vote your shares as
follows, in accordance with the recommendations of the
Board:
Proposal 1
—
FOR the election of
all three nominees to serve on the Board until the 2022 Annual
Meeting of Stockholders;
Proposal 2
—
FOR the adoption of
the First Amended and Restated 2017 Stock Incentive Plan to
increase the shares issuable under the plan from 1,333,333 to
75,000,000 shares;
Proposal 3
—
FOR the amendment
to the Company’s Certificate of Incorporation to effect a
reverse stock split of the common stock, by a ratio of not less
than 1-for-10 and not more than 1-for-150, such ratio and the
implementation and timing of such reverse stock split to be
determined in the discretion of our board of
directors;
Proposal 4
—
FOR the amendment
to the Company’s Certificate of Incorporation to increase the
authorized shares of Common Stock from 240,000,000 to 750,000,000
shares
Proposal 5
—
FOR ratifying the
appointment of BPM LLP of Walnut Creek, California as the
Company’s independent registered public accounting firm for
the fiscal year ending December 31, 2020;
Can
I change my vote after I have mailed in my proxy card?
You may
revoke your proxy by doing one of the following:
●
By sending a
written notice of revocation to the Secretary of the Company that
is received prior to the Annual Meeting, stating that you revoke
your proxy;
●
By signing a
later-dated proxy card and submitting it so that it is received
prior to the Annual Meeting in accordance with the instructions
included in the proxy card(s); or
●
By attending the
Annual Meeting and voting your shares in person.
What
vote is required to approve or ratify each proposal? How are votes
withheld, abstentions and broker non-votes treated?
Proposal 1 requires
a plurality of the votes cast to elect a director. Only votes “FOR” will affect the
outcome. Withheld votes or broker non-votes will not affect the
outcome of the vote on this proposal.
Proposals 3 and 4
require the affirmative vote of a majority of the outstanding
shares. Abstentions and broker
non-votes are not counted in determining the number of shares voted
for or against this proposal. However, abstentions and broker
non-votes will be counted as entitled to vote and will, therefore,
have the same effect as a vote “against” this
proposal.
Proposal 2 and 5
require the affirmative vote of a
majority of the votes cast by the stockholders present in person or
represented by proxy at the 2021 Annual Meeting. Abstentions and
broker non-votes will not be counted for voting purposes, and thus,
will not affect the outcome of the vote on this
proposal.
Who
will count the votes?
Representatives
from the Company will count the votes and serve as our Inspector of
Election. The Inspector of Election will be present at the Annual
Meeting.
Who
pays the cost of this proxy solicitation?
Proxies
will be solicited by mail, and we will pay all expenses of
preparing and soliciting such proxies. We have also arranged for
reimbursement, at the rates suggested by brokerage houses,
nominees, custodians and fiduciaries for the forwarding of proxy
materials to the beneficial owners of shares held of
record.
Is
this Proxy Statement the only way that proxies are being
solicited?
No. We
have also arranged for brokerage houses, nominees, custodians and
fiduciaries to forward proxy materials to the beneficial owners of
shares held of record. Our directors, officers and employees may
also solicit proxies but such persons will not be specifically
compensated for such services.
If
you have any further questions about voting your shares or
attending the Annual Meeting, please call the Company’s
Investor Relations department at (866) 781-5559.
DIRECTORS
AND EXECUTIVE OFFICERS
The
following table sets forth, as of September 9, 2021, the name, age,
and position of each executive officer and director and the tenure
in office of each director of the Company.
Business
Experience Descriptions
Set
forth below is certain biographical information regarding each of
our executive officers and directors.
Marco Hegyi – Mr. Hegyi joined
GrowLife as its President and a Member of its Board of Directors on
December 9, 2013 and was appointed as Chairman of the Nominations
and Governance Committee and a member of the Compensation Committee
on June 3, 2014. Mr. Hegyi was appointed as CEO and Chairman
of GrowLife effective on April 1, 2016. On October 23, 2017, Mr.
Hegyi was appointed as Chairman of GrowLife, Chairman of the
Nominations and Governance Committee or a member of the
Compensation Committee. Effective December 6, 2018, Mr. Hegyi
serves as Chairman of the Board, a Member of the Board of
Directors, Chief Executive Officer, President, Interim Audit
Committee Chairman and as a Member of the Compensation and
Nominations and Governance Committees.
Mr.
Hegyi served as an independent director of Know Labs, Inc., fka
Visualant, Inc. from February 14, 2008 and as Chairman of the Board
from May 2011 and served at the Chairman of the Audit and
Compensation committees until his departure on February 2015. Mr.
Hegyi was a principal with the Chasm Group from 2006 to January
2014, where he provided business consulting services. As a
management consultant, Mr. Hegyi applied his extensive technology
industry experience to help early-stage companies and has been
issued 10 US patents.
Prior
to working as a consultant in 2006, Mr. Hegyi served as Senior
Director of Global Product Management at Yahoo! Prior to Yahoo!,
Mr. Hegyi was at Microsoft from 2001 to 2006 leading program
management for Microsoft Windows and Office beta releases aimed at
software developers. While at Microsoft, he formed new
software-as-a-service concepts and created operating programs to
extend the depth and breadth of the company’s unparalleled
developer eco-system, including managing offshore, outsource teams
in China and India, and being the named inventor of an issued
Microsoft patent for a business process in service
delivery.
During
Mr. Hegyi’s career, he has served as President and CEO of
private and public companies, Chairman and director of boards,
finance, compensation and audit committee chair, chief operating
officer, vice-president of sales and marketing, senior director of
product management, and he began his career as a systems software
engineer.
Mr.
Hegyi earned a Bachelor of Science degree in Information and
Computer Sciences from the University of California, Irvine, and
has completed advanced studies in innovation marketing, advanced
management, and strategy at Harvard Business School, Stanford
University, UCLA Anderson Graduate School of Management, and MIT
Sloan School of Management.
Mr.
Hegyi’s prior experience as Chairman and Chief Executive
Officer of public companies, combined with his advanced studies in
business management and strategy, were the primary factors in the
decision to add Mr. Hegyi to the Company’s Board of
Directors.
Michael E. Fasci – Mr. Fasci
joined GrowLife as a Member of its Board of Directors on October
27, 2015 and was appointed Audit Committee Chairman on November 11,
2015. On April 1, 2016, Mr. Fasci was appointed as the Secretary of
the Company, but resigned on February 14, 2017. On October 23,
2017, Mr. Fasci was appointed Chairman of the Board. In December
2018, Mr. Fasci resigned from the Board of Directors. Mr. Fasci was
appointed Chief Financial Officer on January 1, 2021. On January 5,
2021 Mr. Fasci was appointed to the Company’s Board of
Directors as well as to the Company’s Compensation Committee.
On January 12, 2021 Mr. Fasci was appointed Secretary of the
Company.
Mr.
Fasci is a 30-year veteran in the finance sector having served as
an officer and director of many public and private companies. From
2013 to 2017, Mr. Fasci owns and operated Process Engineering
Services, Inc., an engineering consulting company as well as worked
as a financial consultant for TCA Global Fund, a Mutual Fund
located in Aventura, Florida. Mr. Fasci is a seasoned operator
across various industries and has served in both CEO and CFO
capacities for both growth and turnaround situations. Mr. Fasci
began his career as a field engineer and then manager of various
remediation filtration and environmental monitoring projects
globally before focusing his efforts on the daily operations,
accounting and financial reporting and SEC compliance of the
numerous companies he has served. Mr. Fasci resides in Bonita
Springs, Florida and studied Electrical Engineering at Northeastern
University.
Mr.
Fasci was appointed to the Board of Directors based on his
financial, SEC and governance skills.
Thom Kozik- Thom Kozik joined GrowLife
as a Member of its Board of Directors on October 5, 2017 and was
appointed a member of the Audit Committee on October 23, 2017. Mr.
Kozik was appointed to the Nominations & Governance and
Compensation Committees and serves on the Audit Committee as of
December 6, 2018. From 2013 through 2014, Mr. Kozik served as Chief
Operating Office of Omnia Media in Los Angeles, a leading YouTube
Multichannel Network delivering over 1 billion monthly video views,
and almost 70 million global Millennial subscribers. Thom assisted
the company’s CEO/founder in building the team, refining
product strategy, and securing additional funding. In December
2014, Mr. Kozik took on the role of VP, Global Marketing/Loyalty
for Marriott International, having been recruited to fundamentally
transform the hospitality industry’s longest-running loyalty
program. Thom also led the merging of two of the industry’s
most powerful programs with Marriott’s acquisition of
Starwood Hotels & Resorts in 2016. From March 1, 2018 to
January 2020, Mr. Kozik served as Chief Commercial Officer of
Loyyal Corporation, a technology firm providing services to
enterprise clients in the Travel & Hospitality sector. In his
decades of experience with corporations such as Marriott
International, Microsoft, Yahoo, and Atari, along with several
startups, he has held executive roles in marketing, business
development, and product development. Over the past decade
Kozik’s core focus has been the behavioral economics of
online consumers and communities, and methods to maximize their
lifetime value, and leveraging technology to reduce acquisition
costs while increasing retention.
Mr.
Kozik was appointed to the Board of Directors based on his
marketing and product brand skills.
Joseph Barnes- Mr. Barnes was appointed
President of GrowLife Hydroponics, Inc. on August 16, 2017 and was
appointed Senior Vice President of Business Development for
GrowLife, Inc. on October 10, 2014. Mr. Barnes joined GrowLife in
2010 and is responsible for all GrowLife Hydroponics
operations.
Mr.
Barnes made the progressive and entrepreneurial decision to work
with GrowLife after seeing the agricultural benefits of indoor
growing. He is deeply passionate about clean and sustainable grows
and has deep relationships with many trusted cultivators. He holds
extensive knowledge of indoor growing methods with concentrating on
maximizing the yields for clean and healthy crops.
Certain
Significant Employees
There
are no significant employees required to be disclosed under Item
401(c) of Regulation S-K.
Family
Relationships
There
are no family relationships among our directors and executive
officers.
Involvement
in Certain Legal Proceedings
None of
our directors or executive officers has, during the past ten years,
to the best of our knowledge:
●
Had any petition
under the federal bankruptcy laws or any state insolvency law filed
by or against, or had a receiver, fiscal agent, or similar officer
appointed by a court for the business or property of such person,
or any partnership in which he was a general partner at or within
two years before the time of such filing, or any corporation or
business association of which he was an executive officer at or
within two years before the time of such filing;
●
Been convicted in a
criminal proceeding or a named subject of a pending criminal
proceeding (excluding traffic violations and other minor
offenses);
●
Been the subject of
any order, judgment, or decree, not subsequently reversed,
suspended, or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining him from, or otherwise
limiting, the following activities:
●
Acting as a futures
commission merchant, introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage transaction
merchant, any other person regulated by the Commodity Futures
Trading Commission, or an associated person of any of the
foregoing, or as an investment adviser, underwriter, broker or
dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity;
●
Engaging in any
type of business practice; or
●
Engaging in any
activity in connection with the purchase or sale of any security or
commodity or in connection with any violation of federal or state
securities laws or federal commodities laws;
●
Been the subject of
any order, judgment, or decree, not subsequently reversed,
suspended, or vacated, of any federal or state authority barring,
suspending, or otherwise limiting for more than 60 days the right
of such person to engage in any activity described in (i) above, or
to be associated with persons engaged in any such
activity;
●
Been found by a
court of competent jurisdiction in a civil action or by the SEC to
have violated any federal or state securities law, where the
judgment in such civil action or finding by the SEC has not been
subsequently reversed, suspended, or vacated; or
●
Been found by a
court of competent jurisdiction in a civil action or by the
Commodity Futures Trading Commission to have violated any federal
commodities law, where the judgment in such civil action or finding
by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended, or vacated.
CORPORATE
GOVERNANCE
Code
of Conduct and Ethics
We have
adopted conduct and ethics standards titled the Code of Conduct and
Ethics (the “Code of Conduct”) on May 15, 2014, which
are available at www.growlifeinc.com. The Code of Conduct was also
filed as an exhibit to the Company’s Form 8-K filed and with
the SEC on June 9, 2014. These standards were adopted by the Board
to promote our transparency and integrity. The standards apply to
the Board, executives and employees. Waivers of the requirements of
the Code of Conduct or associated polices with respect to members
of the Board or executive officers are subject to approval of the
full Board.
Our
Code of Conduct includes the following:
-
promotes honest and
ethical conduct, including the ethical handling of actual or
apparent conflicts of interest;
-
promotes the full,
fair, accurate, timely and understandable disclosure of the
Company’s financial results in accordance with applicable
disclosure standards, including, where appropriate, standards of
materiality;
-
promotes compliance
with applicable SEC and governmental laws, rules and
regulations;
-
deters wrongdoing;
and
-
requires prompt
internal reporting of breaches of, and accountability for adherence
to, the Code of Conduct.
On an
annual basis, each director and executive officer is obligated to
complete a Director and Officer Questionnaire which requires
disclosure of any transactions with the Company in which the
director or executive officer, or any member of his or her
immediate family, have a direct or indirect material interest.
Pursuant to the Code of Conduct, the Audit Committee and the Board
are charged with resolving any conflict of interest involving
management, the Board and employees on an ongoing
basis.
Review
and Approval of Related Person Transactions
We have
operated under a Code of Conduct for many years. Our Code of
Conduct requires all employees, officers and directors, without
exception, to avoid the engagement in activities or relationships
that conflict, or would be perceived to conflict, with our
interests or adversely affect its reputation. It is understood,
however, that certain relationships or transactions may arise that
would be deemed acceptable and appropriate upon full disclosure of
the transaction, following review and approval to ensure there is a
legitimate business reason for the transaction and that the terms
of the transaction are no less favorable to the Company than could
be obtained from an unrelated person.
The
Audit Committee is responsible for reviewing and approving all
transactions with related persons. We have not adopted a written
policy for reviewing related person transactions. We review all
relationships and transactions in which we and our directors and
executive officers or their immediate family members are
participants to determine whether such persons have a direct or
indirect material interest. As required under SEC rules,
transactions that are determined to be directly or indirectly
material to us or a related person are disclosed.
Director
Independence
The
Board has affirmatively determined that Thom Kozik is an
independent director as of December 31, 2020 and September 20,
2021. For purposes of making that determination, the Board used
NASDAQ’s Listing Rules even though the Company is not
currently listed on NASDAQ.
Communication
with the Board or Members Thereof
Our
directors are easily accessible by postal mail. Any matter intended
for the Board, or for any individual member or members of the
Board, can be directed to our Chief Executive Officer or Chief
Financial Officer with a request to forward the same to the
intended recipient. Alternatively, stockholders can direct
correspondence to the Board, or any of its members, in care of the
Company at 11335 NE 122nd Way, Suite 105, Kirkland, WA 98034. The
Company will direct the correspondence to the directors. All such
communications will be forwarded to the intended recipient
unopened.
Nominations
for Directors
Identifying Candidates
The
Nominations and Governance Committee is responsible for screening
potential director candidates and recommending qualified candidates
to the Board for nomination. The Nominations and Governance
Committee considers recommendations of potential candidates from
current directors, management and stockholders. Stockholders’
nominations for directors must be made in writing and include the
nominee’s written consent to the nomination and sufficient
background information on the candidate to enable the Nominations
and Governance Committee to assess his or her qualifications.
Nominations must be addressed to the Chairman of the Nominations
and Governance Committee in care of the Secretary of the Company at
the Company’s headquarters address listed below, and must be
received no later than December 31, 2021, in order to be included
in the proxy statement for the next annual election of
directors.
Chairman of the Nominations and Governance
Committee, ,GrowLife, Inc. at 11335 NE 122nd Way,
Suite 105, Kirkland, WA 98034
Qualifications
The
Nominations and Governance Committee has not established specific
minimum age, education, and years of business experience or
specific types of skills for potential director candidates, but, in
general, expects qualified candidates will have ample experience
and a proven record of business success and
leadership.
The
Board has developed a group of criteria, which are designed to
describe what qualities and characteristics are desired for the
Board as a whole. The full Board conducts an annual self-evaluation
of its membership with respect to the criteria. The purpose of this
evaluation is to help ensure the Board remains comprised of members
fulfilling the desired complement of talents and expertise for the
Board as a whole. No single director is expected to have each
criterion. There is no difference in the manner in which the Board
evaluates persons recommended by directors, officers or employees
and persons recommended by stockholders in selecting Board
nominees.
The
criteria are reviewed annually by the Nominations and Governance
Committee and the Board to ensure they remain pertinent and robust.
In general, they require that each director:
●
have the highest
personal and professional ethics, integrity and
values;
●
be able and willing
to represent the shareholders’ short and long term economic
interests;
●
consistently
exercise sound and objective business judgment;
●
be willing to take
the necessary time to properly prepare for Board and Committee
meetings, at least based upon a thorough review of the material
supplied before each Board meeting; and
●
have experience in
the areas of business that the Company operates in.
In
addition, it is anticipated that the Board as a whole will have
individuals with:
●
significant
appropriate senior management and leadership
experience;
●
a comfort with
technology;
●
a long-term and
strategic perspective; and
●
the ability to
advance constructive debate and a global perspective.
Further, it is
important for the Board as a whole to operate in an atmosphere
where the chemistry between and among the members contributes to
the Board’s success.
Candidate Selection Process
Upon
receipt of a stockholder-proposed director candidate, the Chairman
of the Nominations and Governance Committee assesses the
Board’s needs, primarily whether or not there is a current or
pending vacancy or a possible need to be filled by adding or
replacing a director. A director profile is prepared by comparing
the current list of criteria with the desired state and with the
candidate’s qualifications. The profile and the
candidate’s submitted information are provided to the
Nominations and Governance Committee and the Chairman of the Board
for discussion and review at the next Nominations and Governance
Committee meeting. During the past fiscal year, the Company did not
receive any stockholder-proposed director candidate.
Similarly, if at
any time the Nominations and Governance Committee or the Board
determines there may be a need to add or replace a director, the
Corporate Secretary, the Nominations and Governance Committee
Chairman and the Chairman of the Board develop a director profile
by comparing the current list of criteria with the desired state.
If no candidates are apparent from any source, the Nominations and
Governance Committee will determine the appropriate method to
conduct a search.
Regardless of how a
candidate is brought to the Nominations and Governance
Committee’s attention, qualified candidates are asked to
conduct one or more personal interviews with appropriate members of
the Board. Chosen candidates are extended invitations to join the
Board. If a candidate accepts, he or she is formally nominated.
There is no difference in the manner in which the Board evaluates
persons recommended by directors, officers or employees and persons
recommended by stockholders in selecting Board
nominees.
There
is no controlling shareholder group.
MEETINGS
AND COMMITTEES OF THE BOARD
The
Board of Directors
The
Board has three standing committees to facilitate and assist the
Board in the execution of its responsibilities. The committees are
currently the Audit Committee, the Nominations and Governance
Committee, and the Compensation Committee. The Committees were
formed on June 3, 2014 by the current board of directors. The Audit
Committee, Compensation and Nominations and Governance Committees
each have one management directors and two independent directors.
The table below shows current membership for each of the standing
Board committees.
Committees
of the Board of Directors
The
Board has three standing committees to facilitate and assist the
Board in the execution of its responsibilities. The committees are
currently the Audit Committee, the Nominations and Governance
Committee and the Compensation Committee. The Committees were
formed June 3, 2014. The table below shows current membership for
each of the standing Board committees.
|
Audit
|
|
Compensation
|
|
Nominations
and Governance
|
|
Marco
Hegyi (Interim Chairman)
Thom
Kozik
|
|
Thom
Kozik (Chairman)
Marco
Hegyi
Michael
E. Fasci(1)
|
|
Marco
Hegyi (Chairman)
Thom
Kozik
|
|
Audit Committee
|
|
|
|
|
(1)
joined committee on January 5, 2021
The
current Audit Committee has one independent director, and the
Chairman is an interim Named Executive Officer. I.
The
Audit Committee’s responsibilities, discussed in detail in
the charter include, among other duties, the responsibility
to:
-
appoint the
independent registered accounting firm;
-
review the
arrangements for and scope of the audit by independent registered
accounting firm;
-
review the
independence of the independent registered accounting
firm;
-
consider the
adequacy and effectiveness of the system of internal accounting and
financial controls and review any proposed corrective
actions;
-
review and monitor
our policies regarding business ethics and conflicts of interest,
audit function and internal audit review;
-
discuss with
management and the independent auditors our draft quarterly interim
and annual financial statements and key accounting and reporting
matters, including earnings releases and review of financial
statements; and
-
review the
activities and recommendations of our accounting
department
Nominations and Governance Committee
The
Nominations and Governance Committee currently has two members and
met two times during the fiscal year that ended on December 31,
2020. Nominations and Governance Committee is comprised of Marco
Hegyi (Chairman) our CEO and Thom Kozik, an independent director.
The Committee was formed on June 3, 2014. The Amended and Restated
Nominations and Governance Committee charter can be found on the
Company’s website at www.growlifeinc.com and
was filed as Exhibit 99.2 to our Form 8-K filed with the SEC on
October 25, 2015.
The
Nominations and Governance Committee’s responsibilities,
discussed in detail in the charter include, among other duties, the
responsibility to:
●
assist the Board in
identifying individuals qualified to become Board members, and
recommend to the Board the nominees for election as directors at
the next annual meeting of stockholders;
●
Assist the Board in
determining the size and composition of the Board
committees;
●
develop and
recommend to the Board the corporate governance principles
applicable to the Company; and
●
serve in an
advisory capacity to the Board and Chairman of the Board on matters
of organization, management succession plans, major changes in the
organizational structure of the Company and the conduct of board
activities.
Compensation Committee
The
Compensation Committee currently has three members and met four times during the fiscal year
ended December 31, 2020. The Committee was formed on June 3, 2014.
The Compensation Committee is comprised of Marco Hegyi, Michael E. Fasci, and Thom Kozik.
The Compensation committee charter can be found on the
Company’s website at www.growlifeinc.com and
was filed as Exhibit 99.2 to our Form 8-K filed with the SEC on
June 9, 2014.
The
Compensation Committee’s responsibilities, which are
discussed in detail in its charter, include, among other duties,
the responsibility to:
●
Review and approve
corporate goals and objectives relevant to compensation and
benefits for the CEO and all other executive officers, evaluating
the CEO’s and all other executive officer’s
performances in light of those goals and objectives, and
recommending to the Board the level of compensation of the CEO and
all other executive officers based on such
evaluations;
●
Administering the
Company’s stock incentive plans, including the review and
approval of all stock option, restricted stock or other award
grants to executive officers, non-employee directors and
consultants/advisors, and the aggregate number of stock options or
other awards to be granted to employees;
●
Reviewing,
commenting on and recommending to the Board executive compensation
plans, programs and policies of the Company or that the Company
proposes to adopt;
●
Reviewing and
recommended the annual compensation for the Company’s
non-employee directors; and
●
Administering the
Company’s Stock Incentive Plan, including the review of all
stock option, restricted stock, or other award grants pursuant to
the plan.
Compensation
Committee Interlocks and Insider Participation
Currently, Thom
Kozik, independent director, serves as chairman of the Compensation
committee. Additionally, each of our executive officers Marco Hegyi
and Mike Fasci serve as a members of the board of directors and as
members of the compensation committee, until such time as we can
identify qualified candidates to occupy the vacancies.
Board
Structure and Role in Risk Oversight
The
entire Board is responsible for risk oversight. Mr. Marco Hegyi is
Chairman of the Board. There is no lead independent director. The
Company believes this structure provides acceptable risk oversight
by utilizing the skills of each director.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis; Overview of Compensation
Program
This
Compensation Discussion and Analysis describes the material
elements of compensation awarded to, earned by or paid to each of
our executive officers named in the Compensation Table on page 18
under “Remuneration of Executive Officers” (the
“Named Executive Officers”) who served during the year
ended December 31, 2020. This compensation discussion primarily
focuses on the information contained in the following tables and
related footnotes and narrative for the last completed fiscal year.
We also describe compensation actions taken after the last
completed fiscal year to the extent that it enhances the
understanding of our executive compensation disclosure. The
principles and guidelines discussed herein would also apply to any
additional executive officers that the Company may hire in the
future.
The
Compensation Committee of the Board has responsibility for
overseeing, reviewing and approving executive compensation and
benefit programs in accordance with the Compensation
Committee’s charter. The members of the Compensation
Committee are Thom Kozik and Marco Hegyi as of December 31, 2021;
on January 5, 2021, Mr. Michael Fasci joined the committee. We
expect to appoint one to two independent Directors to serve on the
Compensation Committee during 2021-2022.
Compensation
Philosophy and Objectives
The
major compensation objectives for the Company’s executive
officers are as follows:
●
to attract and
retain highly qualified individuals capable of making significant
contributions to our long-term success;
●
to motivate and
reward named executive officers whose knowledge, skills, and
performance are critical to our success;
●
to closely align
the interests of our named executive officers and other key
employees with those of its shareholders; and
●
to utilize
incentive-based compensation to reinforce performance objectives
and reward superior performance.
Role
of Chief Executive Officer in Compensation Decisions
The
Board approves all compensation for the chief executive officer.
The Compensation Committee makes recommendations on the
compensation for the chief executive officer and approves all
compensation decisions, including equity awards, for our executive
officers. Our chief executive officer makes recommendations
regarding the base salary and non-equity compensation of other
executive officers that are approved by the Compensation Committee
in its discretion.
Setting
Executive Compensation
The
Compensation Committee believes that compensation for the
Company’s executive officers must be managed to what we can
afford and in a way that allows for us to meet our goals for
overall performance. During 2020 and 2019, the Compensation
Committee and the Board compensated its Chief Executive Officers,
President and Chief Financial Officer at the salaries indicated in
the compensation table. This compensation reflected our financial
condition. The Compensation Committee does not use a peer group of
publicly-traded and privately-held companies in structuring the
compensation packages.
Executive
Compensation Components for the Year Ended December 31,
2020
The
Compensation Committee did not use a formula for allocating
compensation among the elements of total compensation during the
year that ended December 31, 2020. The Compensation Committee
believes that in order to attract and retain highly effective
people it must maintain a flexible compensation structure. For the
year that ended December 31, 2020, the principal components of
compensation for named executive officers were base
salary.
Base Salary
Base
salary is intended to ensure that our employees are fairly and
equitably compensated. Generally, base salary is used to
appropriately recognize and reward the experience and skills that
employees bring to the Company and provides motivation for career
development and enhancement. Base salary ensures that all employees
continue to receive a basic level of compensation that reflects any
acquired skills which are competently demonstrated and are
consistently used at work.
Base
salaries for the Company’s named executive officers are
initially established based on their prior experience, the scope of
their responsibilities and the applicable competitive market
compensation paid by other companies for similar positions. Our
officers were compensated as described above based on the financial
condition of the Company.
Performance-Based Incentive Compensation
The
Compensation Committee believes incentive compensation reinforces
performance objectives, rewards superior performance and is
consistent with the enhancement of stockholder value. All of the
Company’s Named Executive Officers are eligible to receive
performance-based incentive compensation. The Compensation
Committee did not recommend or approve payment of any performance-
based incentive compensation to the Named Executive Officers during
the year ended December 31, 2020 based on our financial
condition.
Ownership
Guidelines
The
Compensation Committee does not require our executive officers to
hold a minimum number of our shares. However, to directly align the
interests of executive officers with the interests of the
stockholders, the Compensation Committee encourages each executive
officer to maintain an ownership interest in the
Company.
Stock
Option Program
Stock
options are an integral part of our executive compensation program.
They are intended to encourage ownership and retention of the
Company’s common stock by named executive officers and
employees, as well as non-employee members of the Board. Through
stock options, the objective of aligning employees’ long-term
interest with those of stockholders may be met by providing
employees with the opportunity to build a meaningful stake in the
Company.
The
Stock Option Program assists us by:
-
enhancing the link
between the creation of stockholder value and long-term executive
incentive compensation;
-
providing an
opportunity for increased equity ownership by executive officers;
and
-
maintaining
competitive levels of total compensation.
Stock
option award levels are determined by the Compensation Committee
and vary among participants’ positions within the Company.
Newly hired executive officers or promoted executive officers are
generally awarded stock options, at the discretion of the
Compensation Committee, at the next regularly scheduled
Compensation Committee meeting on or following their hire or
promotion date. In addition, such executives are eligible to
receive additional stock options on a discretionary basis after
performance criteria are achieved.
Options
are awarded at the closing price of our common stock on the date of
the grant or last trading day prior to the date of the grant. The
Compensation Committee’s policy is not to grant options with
an exercise price that is less than the closing price of our common
stock on the grant date.
Generally, the
majority of the options granted by the Compensation Committee vest
quarterly over two to three years of the 5-10-year option term.
Vesting and exercise rights cease upon termination of employment
and/or service, except in the case of death (subject to a one year
limitation), disability or retirement. Stock options vest
immediately upon termination of employment without cause or an
involuntary termination following a change of control. Prior to the
exercise of an option, the holder has no rights as a stockholder
with respect to the shares subject to such option, including voting
rights and the right to receive dividends or dividend
equivalents.
The
Named Executive Officers received stock option grants and warrants
during the year ended December 31, 2020 as outlined
below.
Retirement
and Other Benefits
We have
no other retirement, savings, long-term stock award or other type
of plans for the Named Executive Officers.
Perquisites
and Other Personal Benefits
During
the year ended December 31, 2020, we provided the Named Executive
Officers with medical insurance and nominal health club benefits.
The Company paid $10,273 in life insurance for Mr. Hegyi and
$27,688 in insurance for Mr. Scott. No other perquisites or other
personal benefits were provided to Named Executive Officers. The
committee expects to review the levels of perquisites and other
personal benefits provided to Named Executive Officers
annually.
Employment and
consulting agreements are discussed below.
Tax
and Accounting Implications
Deductibility of Executive Compensation
Subject
to certain exceptions, Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code") generally denies a deduction to
any publicly held corporation for compensation paid to its chief
executive officer and its three other highest paid executive
officers (other than the principal financial officer) to the extent
that any such individual's compensation exceeds $1 million.
“Performance-based compensation” (as defined for
purposes of Section 162(m)) is not taken into account for purposes
of calculating the $1 million compensation limit, provided certain
disclosure, shareholder approval and other requirements are met. We
periodically review the potential consequences of Section 162(m)
and may structure the performance-based portion of our executive
compensation to comply with certain exceptions to Section 162(m).
However, we may authorize compensation payments that do not comply
with the exceptions to Section 162(m) when we believe that such
payments are appropriate and in the best interests of the
stockholders, after taking into consideration changing business
conditions or the officer's performance
Accounting for Stock-Based Compensation
We
account for stock-based payments including its Stock Option Program
in accordance with the requirements of ASC 718,
“Compensation-Stock Compensation.”
COMPENSATION
COMMITTEE REPORT
The
Compensation Committee, sets and administers policies that govern
the Company's executive compensation programs, and incentive and
stock programs. The Compensation Committee of the Company has
reviewed and discussed the Compensation Discussion and Analysis
required by Item 402(b) of Regulation S-K with management and,
based on such review and discussions, the Compensation Committee
recommended to the Board that the Compensation Discussion and
Analysis be included in this Proxy Statement.
THE
COMPENSATION COMMITTEE
Thom
Kozik (Chairman)
Marco
Hegyi
Michael
Fasci
EXECUTIVE
COMPENSATION
REMUNERATION
OF EXECUTIVE OFFICERS
The
following table provides information concerning remuneration of the
chief executive officer, the chief financial officer and another
named executive officer for the years ended December 31, 2020 and
2019:
Summary
Compensation Table
|
|
|
|
|
Stock
|
Non-Equity
Incentive Plan
|
Option
|
Other
|
|
|
|
|
Salary
|
Bonus
|
Awards
|
Compensation
|
Awards
|
Compensation
|
Total
|
|
Principal
Position
|
|
($)
|
($)
|
($) (1)
|
($)
|
($)
|
($)
|
($)
|
|
Marco
Hegyi, Chief Executive Officer,
|
12/31/2020
|
$275,000
|
$-
|
$-
|
$-
|
$-
|
$88,273
|
$363,273
|
|
Chairman
of the Board and Director (2)
|
12/31/2019
|
$275,000
|
$20,227
|
$-
|
$-
|
$-
|
$106,273
|
$401,500
|
|
|
|
|
|
|
|
|
|
|
|
Mark
E. Scott, Former Chief Financial Officer
|
12/31/2020
|
$165,000
|
$-
|
$-
|
$-
|
$-
|
$27,668
|
$192,668
|
|
and
Director (3)
|
12/31/2019
|
$165,000
|
$20,227
|
$-
|
$-
|
$-
|
$27,357
|
$212,584
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Barnes,
|
12/31/2020
|
$165,000
|
$-
|
$-
|
$-
|
$-
|
$-
|
$165,000
|
|
President
of GrowLife Hydroponics, Inc. (4)
|
12/31/2019
|
$165,000
|
$20,227
|
$-
|
$-
|
$-
|
$-
|
$185,227
|
(1)
These amounts
reflect the grant date market value as required by Regulation S-K
Item 402(n)(2), computed in accordance with FASB ASC Topic
718.
(2)
Mr. Hegyi was paid
a salary of $275,000 during the years ended December 31, 2020 and
2019, respectively. Mr. Hegyi received a discretionary bonus of
$20,227 during the year ended December 31, 2019. We paid life
insurance of $10,273 for Mr. Hegyi during the years ended December
31, 2020 and 2019, respectively. On October 15, 2018, Mr. Hegyi
received Warrants to purchase up to 320,000 shares of our common
stock at an exercise price of $1.80 per share and which vest on
October 15, 2018, 2019 and 2020. The Warrants are exercisable for 5
years. The warrants were valued at $192,000. The Company recorded
compensation expense of $78,000 and $96,000 for the years ended
December 31, 2020 and 2019, respectively.
(3)
Mr. Scott
resigned from the Board of Directors effective December 15, 2020
and as Chief Financial Officer as of December 31, 2020. Mr. Scott
was paid a salary of $165,000 during the years ended December 31,
2020 and 2019, respectively. Mr. Scott received a discretionary
bonus of $20,227 during the year ended December 31, 2019. Mr. Scott
was reimbursed $27,668 and $27,357 for insurance expenses during
the years ended December 31, 2020 and 2019,
respectively.
(4)
Mr. Barnes was paid
a salary of $165,000 during the years ended December 31, 2020 and
2019, respectively. Mr. Barnes received a discretionary bonus of
$20,227 during the year ended December 31, 2019.
Grants
of Stock Based Awards during the year ended December 31,
2020
The
Compensation Committee did not grant any stock-based awards or
performance-based incentive compensation to the Named Executive
Officers for the year ended December 31, 2020.
Outstanding
Equity Awards as of December 31, 2020
The Named Executive Officers had the following
outstanding equity awards as of December 31,
2020:
(1)
These amounts
reflect the grant date market value as required by Regulation S-K
Item 402(n)(2), computed in accordance with FASB ASC Topic
718.
(2)
On October 15,
2018, an entity controlled by Mr. Scott was granted an option to
purchase 133,333 shares of common stock at an exercise price of
$1.80 per share. The stock option grant vests quarterly over three
years and is exercisable for 5 years. The stock option grants were
valued at $40,000. Mr. Scott resigned from the Board of Directors
effective December 15, 2020 and as Chief Financial Officer as of
December 31, 2020.
(3)
On October 15,
2018, Mr. Barnes was granted an option to purchase 120,000 shares
of common stock at an exercise price of $1.80 per share. The stock
option grant vests quarterly over three years and is exercisable
for 5 years. The stock option grant was valued at
$36,000.
Option
Exercises and Stock Vested for the year ended December 31,
2020
Mssrs.
Hegyi, Scott and Barnes did not have any option exercised during
the year ended December 31, 2020.
Pension
Benefits
We do
not provide any pension benefits.
Nonqualified
Deferred Compensation
We do
not have a nonqualified deferral program.
EMPLOYMENT
AND CONSULTING AGREEMENTS
Employment Agreement with Marco Hegyi
On
October 15, 2018, the Board of Directors approved an Employment
Agreement with Marco Hegyi pursuant to which we engaged Mr. Hegyi
as its Chief Executive Officer through October 15,
2021.
Mr.
Hegyi’s annual compensation is $275,000. Mr. Hegyi is also
entitled to receive an annual bonus equal to four percent (4%) of
the Company’s EBITDA for that year. The annual bonus shall be
paid no later than 31 days following the end of each calendar
year.
Mr.
Hegyi received 320,000 warrants in October 2018 as follows: (i)
Warrant to purchase up to 106,667 shares of our common stock at an
exercise price of $1.80 per share which vested immediately: and
(ii) two Warrants to purchase up to 106,667 shares of our common
stock at an exercise price of $1.80 per share. One warrant for
106,667 shares of our common stock vested on October 15, 2019.
Additional warrants for 106,667 shares of our common stock vest on
October 15, 2020 and 2021, respectively. The Warrants are
exercisable for 5 years.
Mr.
Hegyi is entitled to participate in all group employment benefits
that are offered by us to its senior executives and management
employees from time to time, subject to the terms and conditions of
such benefit plans, including any eligibility requirements. In
addition, we will purchase and maintain during the Term an
insurance policy on Mr. Hegyi’s life in the amount of
$2,000,000 payable to Mr. Hegyi’s named heirs or estate as
the beneficiary.
If we
terminate Mr. Hegyi’s employment at any time prior to the
expiration of the Term without Cause, as defined in the Employment
Agreement, or if Mr. Hegyi terminates his employment at any time
for “Good Reason” or due to a “Disability”,
Mr. Hegyi will be entitled to receive (i) his Base Salary amount
through the end of the Term; and (ii) his Annual Bonus amount for
each year during the remainder of the Term.
Employment Agreement with Michael Fasci
On
January 1, 2021, the Compensation Committee of the GrowLife, Inc.
(the “Company”) entered into an Employment Agreement
with Michael Fasci to serve as the Company’s Chief Financial
Officer through December 31, 2023. Mr. Fasci formerly served as
Chairman of the Board.
Mr.
Fasci’s shall receive an annual salary of $165,000 and may
earn an annual bonus equal to two percent (2%) of the
Company’s EBITDA for that year. Mr. Fasci was also granted an
option to purchase 500,000 shares of the Company’s Common
Stock under the Company’s 2018 Stock Incentive Plan at an
exercise price of $0.12 per share (“Option”). The
Option vests quarterly over three years, has a five-year life and
allows for a cashless exercise. The stock option grant is subject
to the terms and conditions of the Company’s Stock Incentive
Plan, including vesting requirements.
In
the event that Mr. Fasci’s continuous status as employee to
the Company is terminated by the Company without Cause or Mr. Fasci
terminates his employment with the Company for Good Reason as
defined in the Fasci Agreement, in either case upon or within
twelve months after a Change in Control as defined in the
Company’s Stock Incentive Plan, then 100% of the total number
of Shares shall immediately become vested.
Mr.
Fasci is entitled to participate in all group employment benefits
that are offered by the Company to the Company’s senior
executives and management employees from time to time, subject to
the terms and conditions of such benefit plans, including any
eligibility requirements.
If
the Company terminates Mr. Fasci’s employment at any time
prior to the expiration of the Term without Cause, as defined in
the Employment Agreement, or if Mr. Fasci terminates his employment
at any time for “Good Reason” or due to a
“Disability”, Mr. Fasci will be entitled to receive (i)
his Base Salary amount for ninety days; and (ii) his Annual Bonus
amount for each year during the remainder of the Term.
Other
terms and conditions are included in and the foregoing description
are qualified in their entirety by reference to the full text of
the agreements, copies of which are attached to this Current Report
on Form 8-K filed January 7, 2021.
Employment Agreement with Joseph Barnes
On
October 15, 2018, the Compensation Committee approved an Employment
Agreement with Joseph Barnes pursuant to which we engaged Mr.
Barnes as President of the GrowLife Hydroponics Company through
October 15, 2021. Mr. Barnes’s previous Agreement was
cancelled.
Mr.
Barnes’s annual compensation is $165,000. Mr. Barnes is also
entitled to receive an annual bonus equal to two percent (2%) of
the Company’s EBITDA for that year. The annual bonus shall be
paid no later than 31 days following the end of each calendar
year.
The
Board of Directors granted Mr. Barnes an option to purchase 120,000
shares of our Common Stock under the Company’s 2017 Amended
and Restated Stock Incentive Plan at an exercise price of $1.80 per
share. The Shares vest quarterly over three years. All options will
have a five-year life and allow for a cashless exercise. The stock
option grant is subject to the terms and conditions of our Amended
and Restated Stock Incentive Plan, including vesting requirements.
In the event that Mr. Barnes’s continuous status as employee
to us is terminated by us without Cause or Mr. Barnes terminates
his employment with us for Good Reason as defined in the Barnes
Agreement, in either case upon or within twelve months after a
Change in Control as defined in our Amended and Restated Stock
Incentive, then 100% of the total number of Shares shall
immediately become vested.
Mr.
Barnes is entitled to participate in all group employment benefits
that are offered by us to our senior executives and management
employees from time to time, subject to the terms and conditions of
such benefit plans, including any eligibility requirements. In
addition, the Company is required purchase and maintain an
insurance policy on Mr. Barnes’s life in the amount of
$2,000,000 payable to Mr. Barnes’s named heirs or estate as
the beneficiary. Finally, Mr. Barnes is entitled to twenty days of
vacation annually and also has certain insurance and travel
employment benefits.
If we
terminate Mr. Barnes’s employment at any time prior to the
expiration of the Term without Cause, as defined in the Employment
Agreement, or if Mr. Barnes terminates his employment at any time
for “Good Reason” or due to a “Disability”,
Mr. Barnes will be entitled to receive (i) his Base Salary amount
for ninety days; and (ii) his Annual Bonus amount for each year
during the remainder of the Term.
Potential Payments upon Termination or Change in
Control
The
Company’s Employment Agreement with Marco Hegyi has
provisions providing for severance payments as detailed
below.
|
Executive Payments Upon
Separation
|
For Cause
Termination
|
Early or Normal
Retirement
|
Not for Good Cause
Termination 12/31/2020
|
Change in Control
Termination
|
Disability or
Death
|
|
Compensation:
|
|
|
|
|
|
|
Base salary
(1)
|
$-
|
$-
|
$455,208
|
$455,208
|
$-
|
|
Performance-based
incentive compensation
|
$-
|
$-
|
$-
|
$-
|
$-
|
|
Stock
options
|
$-
|
$-
|
$-
|
$-
|
$-
|
|
Benefits and
Perquisites: Health and welfare benefits
|
$-
|
$-
|
$-
|
$-
|
$-
|
|
Accrued vacation
pay
|
$-
|
$-
|
$-
|
$-
|
$-
|
|
Total
|
$-
|
$-
|
$455,208
|
$455,208
|
$-
|
(1)
Reflects amounts to be paid upon termination without cause and upon
termination in a change of control. There outstanding stock options
vests fully vest under certain conditions.
DIRECTOR
COMPENSATION
We
primarily use stock options grants to incentive compensation to
attract and retain qualified candidates to serve on the Board. This
compensation reflected the financial condition of the Company. In
setting director compensation, we consider the significant amount
of time that Directors expend in fulfilling their duties to the
Company as well as the skill-level required by our members of the
Board. On February 1, 2018, a director compensation program was
implemented. The directors are compensated at up to $60,000
annually and the annual share award is based on the close price on
January 31 of that year.
During
year ended December 31, 2020, Marco Hegyi and Mr. Scott did not
receive any compensation for their service as directors. Mr. Scott
resigned from the Board of Directors effective December 15, 2020;
Katherine McLain resigned January 5, 2021. The compensation
disclosed in the Summary Compensation Table represents the total
compensation.
Director
Summary Compensation
(1)
These amounts
reflect the grant date market value as required by Regulation S-K
Item 402(n)(2), computed in accordance with FASB ASC Topic
718.
(2)
Ms. McLain
resigned from the Board of Directors on January 5, 2021. On April
16, 2020, we issued 20,000 shares of our common stock to Katherine
McLain that was valued at $0.295 per share or $5,900.
(3)
On April 16, 2020,
we issued 20,000 shares of our common stock to Thom Kozik that was
valued at $0.295 per share or $5,900.
Compensation
Paid to Board Members
Our
independent non-employee directors are not compensated in cash. The
only compensation has been in the form of stock awards. There is no
stock compensation plan for independent non-employee
directors.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The
following table sets forth certain information regarding the
ownership of our common stock as of September 20, 2021
by:
●
each director and
nominee for director;
●
each person known
by us to own beneficially 5% or more of our common
stock;
●
each officer named
in the summary compensation table elsewhere in this report;
and
●
all directors and
executive officers as a group.
The
amounts and percentages of common stock beneficially owned are
reported on the basis of regulations of the SEC governing the
determination of beneficial ownership of securities. Under the
rules of the SEC, a person is deemed to be a “beneficial
owner” of a security if that person has or shares voting
power,” which includes the power to vote or to direct the
voting of such security, or “investment power,” which
includes the power to dispose of or to direct the disposition of
such security. A person is also deemed to be a beneficial owner of
any securities of which that person has the right to acquire
beneficial ownership within 60 days. Under these rules more than
one person may be deemed a beneficial owner of the same securities
and a person may be deemed to be a beneficial owner of securities
as to which such person has no economic interest.
Unless
otherwise indicated below, each beneficial owner named in the table
has sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable. The address of each beneficial owner is 11335 NE 122nd
Way, Suite 105, Kirkland, WA 98034 and the address of more than 5%
of common stock is detailed below.
|
|
Shares Beneficially
Owned
|
|
|
Name of Beneficial
Owner
|
Number
|
Percentage
(1)
|
|
Directors and Named Executive
Officers-
|
|
|
|
Marco Hegyi
(2)
|
520,000
|
*%
|
|
Michael E. Fasci
(3)
|
365,260
|
*
|
|
Thom Kozik
(4)
|
20,000
|
*
|
|
Joseph Barnes
(5)
|
212,000
|
*
|
|
Total Directors and
Officers (4 in total)
|
1,117,260
|
1.2%
|
|
* Less
than 1%.
|
|
|
|
(1)
Based on 95,149,997 shares of common stock outstanding as of
September 20, 2021.
(2)
Reflects the shares beneficially owned by Marco Hegyi, including
warrants to purchase 503,333 shares of our common
stock.
(3)
Reflects the shares beneficially owned by Michael E.
Fasci.
(4)
Reflects the shares beneficially owned by Thom Kozik.
(5)
Reflects the shares beneficially owned by Joseph Barnes, including
stock option grants totaling 210,000 shares that Mr. Barnes has the
right to acquire.
There
were no persons known by us who owns beneficially 5% or more of our
common stock as of September 20, 2021.
PROPOSAL
1
Election
of Directors
Composition
of the Board
Currently, the
Board consists of three directors. If elected, each of the director
nominees will serve on the Board until the 2022 Annual
Meeting
of Stockholders, or until their successors are duly elected and
qualified in accordance with the Company’s Bylaws. If any of
the three nominees should become unable to serve upon his or her
election, the persons named on the proxy card as proxies may vote
for other person(s) nominated by the Board. Management has no
reason to believe that any of the three nominees for election named
below will be unable to serve.
Note
About New Rules Relating to Broker Voting
Under
rules approved by the Securities and Exchange Commission effective
as of January 1, 2010, brokers are no longer entitled to use their
discretion to vote uninstructed proxies in uncontested director
elections. In other words, if your shares are held by your broker
in “street name” and you do not provide your broker
with instructions about how your shares should be voted in
connection with this proposal, your shares will not be voted and a
“broker non-vote” will result. Therefore, if you desire that your shares be
voted in connection
with the election of our Board, it is imperative that you provide
your broker with voting instructions.
The
nominees for Director are:
●
Marco
Hegyi
●
Michael E.
Fasci
●
Thom
Kozik
The
section titled “Directors and Executive Officers”
beginning on page 10 of this proxy statement contain information
about the experience and qualifications that caused the Nominations
and Governance Committee and the Board to determine that these
nominees should serve as directors of the Company.
|
Your Board
Recommends That Stockholders Vote
FOR
All 3 Nominees
Listed Above
|
PROPOSAL
2
To
adopt the Growlife, Inc. Second Amended and Restated 2017 Stock
Incentive Plan
The
Company is asking the shareholders to approve the Growlife, Inc.
Second Amended and Restated 2017 Stock Incentive Plan (the
“Plan”), the material
terms of which are more fully described below. The Board of
Directors approved the Second Amended and Restated Plan on
September 11, 2021, subject to the shareholder approval solicited
by this proxy statement. The Second Amended and Restated Plan will
restate the Company’s former 2017 Stock Incentive Plan in its
entirety, however, any outstanding awards issued under the 2017
Plan, or any former plan, will continue to be governed by the plan
under which they were issued. The purpose of the Second Amended and
Restated Plan is to increase the amount of shares reserved for
issuance from 1,333,333 to 75,000,000 shares on a presplit basis
and to assist the Company and its affiliates in attracting,
retaining and providing incentives to employees, directors,
consultants and independent contractors who serve the Company and
its affiliates by offering them the opportunity to acquire or
increase their proprietary interest in the Company and to promote
the identification of their interests with those of the
shareholders of the Company.
The Second Amended and Restated 2017
Stock Incentive Plan. All terms of the Plan shall remain the
same with the exception of the amount of shares reserved for
issuance under the Plan which shall be increased from 1,333,333 to
75,000,000 shares.
Description of the 2017 Plan
The
Plan permits the grant of Options, Restricted Stock, Restricted
Stock Units (“RSUs”) Performance Awards
and Other Stock-Based Awards (each, an “Award”). The following
summary of the material features of the Plan is entirely qualified
by reference to the full text of the Plan, a copy of which is
attached hereto as Annex 1. Unless otherwise specified, capitalized
terms used in this summary have the meanings assigned to them in
the Plan.
Eligibility
All
Employees, Non-Employee Directors, consultants and independent
contractors of the Company and its Affiliates (“Eligible Persons”) are
eligible to receive grants of Awards under the Plan. As of
September 20, 2021, the number of employees eligible to participate
in the Plan was three, the number of consultants and independent
contractors eligible to participate in the Plan was four, and the
number of non- employee directors eligible to participate in the
Plan was one.
Administration
Except
with respect to Awards granted to Non-Employee Directors, the Plan
is administered by the Compensation Committee, and if no such
committee exists then the Board (the “Committee”). With respect
to Awards granted to Non-Employee Directors, the Board of Directors
serves as the Committee, unless the Board of Directors appoints
another committee or person(s) for such purpose. The Committee has
plenary authority and discretion to determine the Eligible Persons
to whom Awards are granted (each a “Participant”) and
the terms of all Awards under the Plan. Subject to the provisions
of the Plan, the Committee has authority to interpret the Plan and
agreements under the Plan and to make all other determinations
relating to the administration of the Plan.
Stock Subject to the Plan
The
maximum number of shares of Common Stock that may be issued under
the Plan is seventy five million (75,000,000), provided that no
more than seven million five hundred thousand (7,500,000) shares
may be issued pursuant to Awards that are not Options, and (b) the
maximum number of Shares with respect to which an Employee may be
granted Awards under the Plan during a fiscal year is seven million
five hundred thousand (7,500,000) shares. Shares issued under the
Plan may, in whole or in part, be authorized but unissued Shares or
Shares that shall have been, or may be, reacquired by the Company
in the open market, in private transactions, or otherwise. If any
shares of Restricted Stock are forfeited, or if any Award
terminates, expires or is settled without all or a portion of the
shares of Common Stock covered by the Award being issued, such
shares will again be available for the grant of additional Awards.
Further, if an Option is surrendered pursuant to a “net
issuance” as described below, the number of shares covered by
the surrendered Option, reduced by the number of shares of Common
Stock issued pursuant to the net issuance, will be available for
the grant of additional Awards.
Options
The
Plan authorizes the grant of Nonqualified Stock Options and
Incentive Stock Options. Incentive Stock Options are stock options
that satisfy the requirements of Section 422 of the Code and may be
granted only to Section 422 Employees. A Section 422 Employee is an
Employee who is employed by the Company or a “parent
corporation” or “subsidiary corporation” (defined
in Sections 424(e) and (f) of the Code) with respect to the
Company, including a “parent corporation” or
“subsidiary corporation” that becomes such after the
adoption of the Plan. Nonqualified Stock Options are stock options
that do not satisfy the requirements of Section 422 of the Code.
The exercise of an Option permits the Participant to purchase
shares of Common Stock from the Company at a specified exercise
price per share. Options granted under the Plan are exercisable
upon such terms and conditions as the Committee shall determine.
The exercise price per share and manner of payment for shares
purchased pursuant to Options are determined by the Committee,
subject to the terms of the Plan. The per share exercise price of
Options granted under the Plan may not be less than the fair market
value (110% of the fair market value in the case of an Incentive
Stock Option granted to a Ten-Percent Stockholder) per share on the
date of grant. The Plan provides that the term during which Options
may be exercised is determined by the Committee, except that no
Option may be exercised more than ten years (five years in the case
of an Incentive Stock Option granted to a Ten-Percent Stockholder)
after its date of grant. The Committee may permit the exercise of
an Option on a “net issuance” basis pursuant to which
the Participant surrenders an Option and receives in exchange
shares of Common Stock with a fair market value on the date of
surrender equal to the difference between (i) the fair market value
of the shares subject to the surrendered Option, and (ii) the
exercise price of the surrendered Option. The Committee may
condition the grant or vesting of an Option on the achievement of
one or more Performance Goals, as described below.
Restricted Stock Awards
The
Plan authorizes the Committee to grant Restricted Stock Awards.
Shares of Common Stock covered by a Restricted Stock Award are
restricted against transfer and subject to forfeiture and such
other terms and conditions as the Committee determines. Such terms
and conditions may provide, in the discretion of the Committee, for
the vesting of awards of Restricted Stock to be contingent upon the
achievement of one or more Performance Goals, as described
below.
RSUs
The
Plan authorizes the Committee to grant RSU Awards. RSU Awards
granted under the Plan are contingent awards of Common Stock (or
the cash equivalent thereof). Pursuant to such Awards, shares of
Common Stock are issued subject to such terms and conditions as the
Committee deems appropriate, including terms that condition the
issuance of the shares upon the achievement of one or more
Performance Goals, as described below. Unlike in the case of awards
of Restricted Stock, shares of Common Stock are not issued
immediately upon the award of RSUs, but instead shares of Common
Stock (or the case equivalent thereof) are issued upon the
satisfaction of such terms and conditions as the Committee may
specify, including the achievement of one or more Performance
Goals.
Performance Awards
The
Plan authorizes the grant of Performance Awards. Performance Awards
provide for payments in cash, shares of Common Stock or a
combination thereof contingent upon the attainment of one or more
Performance Goals established by the Committee. For purposes of the
limit on the number of shares of Common Stock with respect to which
an Employee may be granted Awards during any fiscal year, a
Performance Award is deemed to cover the number of shares of Common
Stock equal to the maximum number of shares that may be issued upon
payment of the Award. The maximum cash amount that may be paid to
any Employee pursuant to all Performance Awards granted to such
Employee during a fiscal year may not exceed $250,000.
Other Stock-Based Awards
The
Plan authorizes the grant of Other Stock-Based Awards. Other
Stock-Based Awards shall cover such number of shares of Common
Stock and have such terms and conditions as the Committee shall
determine, including terms that condition the payment or vesting
the Other Stock-Based Award upon the achievement of one or more
Performance Goals.
Dividends and Dividend Equivalents
The
terms of an Award may, at the Committee’s discretion, provide
a Participant with the right to receive dividend payments or
dividend equivalent payments with respect to shares of Common Stock
covered by the Award. Such payments may either be made currently or
credited to any account established for the Participant, and may be
settled in cash or shares of Common Stock.
Performance Goals
The
terms and conditions of an Award may provide for the grant, vesting
or payment of the Award to be contingent upon the achievement of
one or more specified Performance Goals established by the
Committee. For this purpose, “Performance Goals” means
performance goals established by the Committee which may be based
on earnings or earnings growth, sales, return on assets, cash flow,
total shareholder return, equity or investment, regulatory
compliance, satisfactory internal or external audits, improvement
of financial ratings, achievement of balance sheet or income
statement objectives, implementation or completion of one or more
projects or transactions, or any other objective goals established
by the Committee, and may be absolute in their terms or measured
against or in relationship to other companies comparably, similarly
or otherwise situated. Such Performance Goals may be particular to
an Eligible Person or the department, branch, Affiliate, or
division in which the Eligible Person works, or may be based on the
performance of the Company, one or more Affiliates, or the Company
and one or more Affiliates, and may cover such period as may be
specified by the Committee.
Capital Adjustments
If the
outstanding Common Stock of the Company changes as a result of a
stock dividend, stock split, reverse stock split, spin-off,
recapitalization, reclassification, combination or exchange of
shares, merger, consolidation or liquidation or the like, the
Committee shall substitute or adjust: (a) the number and class of
securities subject to outstanding Awards, (b) the type of
consideration to be received upon exercise or vesting of an Award,
(c) the exercise price of Options, (d) the aggregate number and
class of securities for which Awards may be granted under the Plan,
and/or (e) the maximum number of Shares with respect to which an
Employee may be granted Awards during the fiscal year.
Withholding
The
Company is generally required to withhold tax on the amount of
income recognized by a Participant with respect to an Award.
Withholding requirements may be satisfied, as provided in the
agreement evidencing the Award, by (a) tender of a cash payment to
the Company, (b) withholding of shares of Common Stock otherwise
issuable, or (c) delivery to the Company by the Participant of
unencumbered shares of Common Stock.
Termination and Amendment
The
Board of Directors may amend or terminate the Plan at any time.
However, after the Plan has been approved by the stockholders of
the Company, the Board of Directors may not amend or terminate the
Plan without the approval of (a) the Company’s stockholders
if stockholder approval of the amendment is required by applicable
law, rules or regulations, and (b) each affected Participant if
such amendment or termination would adversely affect such
Participant’s rights or obligations under any Awards granted
prior to the date of the amendment or termination.
Term of the Plan
Unless
sooner terminated by the Board of Directors, the Plan will
terminate on March 31, 2027. Once the Plan is terminated, no
further Awards may be granted or awarded under the Plan.
Termination of the Plan will not affect the validity of any Awards
outstanding on the date of termination.
Summary of Certain Federal Income Tax Consequences
The
following discussion briefly summarizes certain United States
federal income tax aspects of Awards granted pursuant to the Plan.
State, local and foreign tax consequences may differ.
Incentive Stock Options. Generally, a
Participant who is granted an Incentive Stock Option will not
recognize income on the grant or exercise of the Option. However,
the difference between the exercise price and the fair market value
of the stock on the date of exercise is an adjustment item for
purposes of the alternative minimum tax. If a Participant does not
exercise an Incentive Stock Option within certain specified periods
after termination of employment, the Participant will recognize
ordinary income on the exercise of the Incentive Stock Option in
the same manner as on the exercise of a Nonqualified Stock Option,
as described below.
The
general rule is that gain or loss from the sale or exchange of
shares of Common Stock acquired on the exercise of an Incentive
Stock Option will be treated as capital gain or loss. If certain
holding period requirements are not satisfied, however, the
Participant generally will recognize ordinary income at the time of
the disposition. Gain recognized on the disposition in excess of
the ordinary income resulting therefrom will be capital gain, and
any loss recognized will be a capital loss.
Nonqualified Stock Options, RSUs, Performance
Awards and Other Stock-Based Awards. A Participant generally
is not required to recognize income on the grant of a Nonqualified
Stock Option, RSU, Performance Award or Other Stock-Based Award.
Instead, ordinary income generally is required to be recognized on
the date the Nonqualified Stock Option is exercised, or in the case
of an RSU, Performance Award or Other Stock-Based Award, on the
date of payment of such Award in cash and/or shares of Common
Stock. In general, the amount of ordinary income required to be
recognized is: (a) in the case of a Nonqualified Stock Option, an
amount equal to the excess, if any, of the fair market value of the
shares of Common Stock on the date of exercise over the exercise
price; and (b) in the case of an RSU, Performance Award or Other
Stock-Based Award, the amount of cash and the fair market value of
any shares of Common Stock received.
Restricted Stock. Unless a Participant
who is granted shares of Restricted Stock makes an election under
Section 83(b) of the Code as described below, the Participant
generally is not required to recognize ordinary income on the award
of Restricted Stock. Instead, on the date the shares vest
(i.e. become transferable
or no longer subject to a substantial risk of forfeiture), the
Participant will be required to recognize ordinary income in an
amount equal to the excess, if any, of the fair market value of the
shares of Restricted Stock on such date over the amount, if any,
paid for such shares. If a Participant makes a Section 83(b)
election to recognize ordinary income on the date the shares of
Restricted Stock are awarded, the amount of ordinary income
required to be recognized is an amount equal to the excess, if any,
of the fair market value of the shares on the date of award over
the amount, if any, paid for such shares. In such case, the
Participant will not be required to recognize additional ordinary
income when the shares vest.
Gain or Loss on Sale or Exchange of
Shares. In general, gain or loss from the sale or exchange
of shares of Common Stock granted or awarded under the Plan will be
treated as capital gain or loss, provided that the shares are held
as capital assets at the time of the sale or exchange. However, if
certain holding period requirements are not satisfied at the time
of a sale or exchange of shares of Common Stock acquired upon
exercise of an Incentive Stock Option (a “disqualifying
disposition”), a Participant generally will be required to
recognize ordinary income upon such disposition.
Deductibility by Company. The Company
generally is not allowed a deduction in connection with the grant
or exercise of an Incentive Stock Option. However, if a Participant
is required to recognize ordinary income as a result of a
disqualifying disposition, the Company generally will be entitled
to a deduction equal to the amount of ordinary income so
recognized. In general, in the case of a Nonqualified Stock Option
(including an Incentive Stock Option that is treated as a
Nonqualified Stock Option, as described above), a Restricted Stock
Award, an RSU, a Performance Award or an Other Stock-Based Award,
the Company will be allowed a deduction in an amount equal to the
amount of ordinary income recognized by the Participant, provided
that certain income tax reporting requirements are
satisfied.
Parachute Payments. Where payments to
certain persons that are contingent on a change in control exceed
limits specified in the Code, the person generally is liable for a
20 percent excise tax on, and the corporation or other entity
making the payment generally is not entitled to any deduction for,
a specified portion of such payments. Under the Plan, the Committee
has plenary authority and discretion to determine the vesting
schedule of Awards. Any Award under which vesting is accelerated by
a change in control of the Company, would be relevant in
determining whether the excise tax and deduction disallowance rules
would be triggered.
Performance-Based Compensation. Subject
to certain exceptions, Section 162(m) of the Code disallows federal
income tax deductions for compensation paid by a publicly-held
corporation to certain executives to the extent the amount paid to
an executive exceeds $1 million for the taxable year. The Plan has
been designed to allow the grant of Awards that qualify under an
exception to the deduction limit of Section 162(m) for
“performance-based compensation.”
Tax Rules Affecting Nonqualified Deferred
Compensation Plans. Section 409A of the Code imposes tax
rules that apply to “nonqualified deferred compensation
plans.” Failure to comply with, or to qualify for an
exemption from, the new rules with respect to an Award could result
in significant adverse tax results to the Award recipient including
immediate taxation upon vesting, an additional income tax of 20
percent of the amount of income so recognized, plus a special
interest payment. The Plan is intended to comply with Section 409A
of the Code to the extent applicable, and the Committee will
administer and interpret the Plan and Awards
accordingly.
Securities Authorized for Issuance under Equity Compensation
Plans
Description of 2011 Stock Option Plan
In
fiscal year 2011, the Company authorized a Stock Incentive Plan
whereby a maximum of 18,870,184 shares of the Company’s
common stock could be granted in the form of Non-Qualified Stock
Options, Incentive Stock Options, Stock Appreciation Rights,
Restricted Stock, Restricted Stock Units, and Other Stock-Based
Awards. On April 18, 2013, the Company’s Board of Directors
voted to increase to 35,000,000 the maximum allowable shares of the
Company’s common stock allocated to the 2011 Stock Incentive
Plan. The Company had outstanding unexercised stock option grants
totaling 12,010,000 shares as of December 31, 2016. All grants are
non-qualified as the plan was not approved by the shareholders
within one year of its adoption.
Description of Amended and Restated
2017 Stock Option Plan (before Second Amendment and
Restatement)
On
October 23, 2017, the Company’s Shareholders authorized a
Stock Incentive Plan whereby a maximum of 100,000,000 shares of the
Company’s common stock could be granted in the form of
Non-Qualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock, Restricted Stock Units, and
Other Stock-Based Awards. On December 6, 2018, the Company’s
shareholders authorized the Amended and Restated 2017 Stock Option
plan, which increased the maximum to 200,000,000 shares of the
Company’s common stock could be granted in the form of
Non-Qualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock, Restricted Stock Units, and
Other Stock-Based Awards. The Company
has 1,333,333 shares available for issuance under the First Amended
and Restated 2017 Stock Incentive Plan. The Company has outstanding
unexercised stock option grants totaling 766,666 shares at an
average exercise price of $0.608 per share as of March 31, 2021.
The Company filed registration statements on Form S-8 to register
1,333,333 shares of our common stock related to the 2017 Stock
Incentive Plan and First Amended and Restated 2017 Stock Incentive
Plan.
Determining Fair Value under ASC
505
The
Company records compensation expense associated with stock options
and other equity-based compensation using the Black-Scholes- Merton
option valuation model for estimating fair value of stock options
granted under our plan. The Company amortizes the fair value of
stock options on a ratable basis over the requisite service
periods, which are generally the vesting periods. The expected life
of awards granted represents the period of time that they are
expected to be outstanding. The Company estimates the volatility of
our common stock based on the historical volatility of its own
common stock over the most recent period corresponding with the
estimated expected life of the award. The Company bases the
risk-free interest rate used in the Black Scholes-Merton option
valuation model on the implied yield currently available on U.S.
Treasury zero-coupon issues with an equivalent remaining term equal
to the expected life of the award. The Company has not paid any
cash dividends on our common stock and does not anticipate paying
any cash dividends in the foreseeable future. Consequently, the
Company uses an expected dividend yield of zero in the
Black-Scholes-Merton option valuation model and adjusts share-based
compensation for changes to the estimate of expected equity award
forfeitures based on actual forfeiture experience. The effect of
adjusting the forfeiture rate is recognized in the period the
forfeiture estimate is changed.
Stock Option Activity
The
Company had the following stock option transactions during the six
months ended June 30, 2021:
On
January 1, 2021, Mr. Fasci was also granted an option to
purchase 500,000 shares of the Company’s Common
Stock under the Company’s 2018 Stock Incentive Plan at an
exercise price of $0.12 per share. The Option vests quarterly
over three years, has a five-year life and allows for a cashless
exercise.
During
the six months ended June 30, 2021, executives and employees
forfeited stock option grants for 266,667 shares with an
exercise price of $1.47 per share.
There
are currently 740,000 options to purchase common stock at
an average exercise price of $0.576 per share outstanding as
of June 30, 2021 under 2017 Stock Incentive Plan and First Amended
and Restated 2017 Stock Incentive Plan. The Company recorded
$10,559 and $26,879 of compensation expense, net of
related tax effects, relative to stock options for the six months
ended June 30, 2021 and 2020 and in accordance with ASC 718. As of
June 30, 2021, there is approximately $21,408net of forfeitures, of
total unrecognized costs related to employee granted stock options
that are not vested. These costs are expected to be recognized over
a period of approximately 3.92 years.
Stock option activity for the years ended December 31, 2020 and
2019 were as follows:
The following table summarizes information about stock
options outstanding and exercisable at June 30, 2021:
Stock option grants totaling 740,000 shares of common
stock had no intrinsic value as of June 30, 2021.
|
Your
Board Recommends That Stockholders Vote
FOR
To
Adopt the Growlife, Inc. Second Amended and Restated 2017 Stock
Incentive Plan
|
PROPOSAL
3
To
amend the Company’s Certificate of Incorporation to effect a
reverse stock split of the common stock, by a ratio of not less
than 1-for-10 and not more than 1-for-150, such ratio and the
implementation and timing of such reverse stock split to be
determined in the discretion of our board of directors
We are
seeking stockholder approval for a proposal to adopt an amendment
to our Certificate of Incorporation to effect a reverse stock split
(the “Reverse Stock Split”) of our issued common stock
by a ratio of not less than 1-for-10 and not more than 1-for-150,
and such ratio and the implementation and timing of such Reverse
Stock Split to be determined in the discretion of our board of
directors. As further described below, if this proposal is
approved, our board of directors may determine to effect the
Reverse Stock Split at any time after prior to September 1,
2022.
The
Board of Directors strongly believes that the Reverse Stock Split
is necessary for the following reasons:
1.
To provide us with resources and flexibility
with respect to our capital sufficient to execute our business
plans and strategy – we do not have sufficient capital
with which to run our business and meet our obligations and will
need to raise further capital through sale of our equity
securities.
2.
To enable repayment of certain convertible
debts in shares of Common Stock – we are permitted to
repay amounts due under certain debts in shares of our Common Stock
based upon certain formulae set forth in the instruments, and in
the future we may not have sufficient authorized and unissued
shares available with which to repay those obligations with shares
of our common stock.
Accordingly, the
Board of Directors has unanimously approved a resolution proposing
an amendment to our Certificate of Incorporation to allow for the
Reverse Stock Split on 240,000,000 to 750,000,000 and directed that
it be voted on by our shareholders during the 2021 Annual
Meeting.
Our
board of directors reserves the right to elect to abandon the
Reverse Stock Split, including any or all proposed ratios for the
Reverse Stock Split, if it determines, in its sole discretion, that
the Reverse Stock Split is no longer in the best interests of our
company and our stockholders.
The
Reverse Stock Split will not reduce the number of authorized shares
of common stock. The Reverse Split will not change the number of
authorized shares of common stock or preferred stock, and it will
not change the par value of the common stock or the preferred
stock.
The
form of the amendment to our Certificate of Incorporation to effect
the Reverse Stock Split is attached as Annex B to this proxy
statement. Approval of the proposal would permit (but not require)
our board of directors to effect the Reverse Stock Split by a ratio
of not less than 1-for-10 and not more than 1-for-150 with the
exact ratio to be set within this range as determined by our board
of directors in its sole discretion, provided that the board of
directors must determine to effect the Reverse Stock Split and such
amendment must be filed with the Secretary of State of the State of
Delaware no later than September 1, 2022. The exact ratio of the
Reverse Stock Split will be determined by the board of directors
prior to the effective time of the Reverse Stock Split and will be
publicly announced by us prior to such effective time. We believe
that enabling our board of directors to set the ratio of the
Reverse Stock Split within the stated range will provide us with
the flexibility to implement the Reverse Stock Split in a manner
designed to maximize the anticipated benefits for our stockholders.
In determining a ratio of the Reverse Stock Split, if any,
following the receipt of stockholder approval, our board of
directors may consider, among other things, factors such
as:
●
the historical
trading prices and trading volume of our common stock;
●
the number of
shares of our common stock outstanding;
●
the then-prevailing
trading price and trading volume of our common stock and the
anticipated or actual impact of the Reverse Stock Split on the
trading price and trading volume for our common stock;
●
the anticipated
impact of a particular ratio on our ability to reduce
administrative and transactional costs; and
●
prevailing general
market and economic conditions.
Reasons
for the Reverse Stock Split
The
Board of Directors believes that the increased market price of the
Common Stock expected as a result of implementing a reverse stock
split could improve the marketability and liquidity of the Common
Stock and will encourage interest and trading in the Common Stock.
However, other factors, such as our financial results, market
conditions and the market perception of our business may adversely
affect the market price of our common stock. As a result, there can
be no assurance that the Reverse Stock Split, if completed, will
result in the intended benefits described above, that the market
price of our common stock will increase following the Reverse Stock
Split or that the market price of our common stock will not
decrease in the future. Additionally, we cannot assure you that the
market price per share of our common stock after a Reverse Stock
Split will increase in proportion to the reduction in the number of
shares of our common stock outstanding before the Reverse Stock
Split. Accordingly, the total market capitalization of our common
stock after the Reverse Stock Split may be lower than the total
market capitalization before the Reverse Stock Split
A
reverse stock split could allow a broader range of institutions to
invest in our stock (namely, funds that are prohibited from buying
stocks whose price is below a certain threshold), potentially
increasing trading volume and liquidity of our Common Stock. A
reverse stock split could help increase analyst and broker interest
in our stock as their policies can discourage them from following
or recommending companies with low stock prices. Because of the
trading volatility often associated with low-priced stocks, many
brokerage houses and institutional investors have internal policies
and practices that either prohibit them from investing in
low-priced stocks or tend to discourage individual brokers from
recommending low-priced stocks to their customers. Some of those
policies and practices may make the processing of trades in
low-priced stocks economically unattractive to
brokers.
Additionally, the
Board of Directors strongly believes that the Reverse Stock Split
is necessary for the following reasons:
To provide us with resources and flexibility
with respect to our capital sufficient to execute our business
plans and strategy – we do not have sufficient capital
with which to run our business and meet our obligations and will
need to raise further capital through sale of our equity
securities. The Board of Directors wishes to increase the number of
unused authorized common shares by decreasing the outstanding
shares through the reverse stock split without a corresponding
decrease in the number of authorized shares. This increase in
unused authorized common shares will provide us greater flexibility
with respect to our capital structure for various purposes as the
need may arise from time to time. These purposes may include:
raising capital, establishing strategic relationships with other
companies, expanding our business through the acquisition of other
businesses or products and providing equity incentives to
employees, officers or directors. As we expect that we will seek to
raise significant additional capital in future years to fund our
operations, we may need to issue a substantial number of shares in
connection therewith.
To enable repayment of certain convertible
debts in shares of Common Stock – we are permitted to repay
amounts due under certain debts in shares of our Common Stock based
upon certain formulae set forth in the instruments, and in the
future we may not have sufficient authorized and unissued shares
available with which to repay those obligations with shares of our
common stock.
The
Board of Directors does not intend for this transaction to be the
first step in a series of plans or Actions of a “going
private transaction” within the meaning of Rule 13e-3 of the
Securities Exchange Act.
Procedure
for Implementing the Reverse Stock Split
The
Reverse Stock Split would become effective upon the filing of a
certificate of amendment to our Certificate of Incorporation with
the Secretary of State of the State of Delaware and receipt of a
notice of effectiveness from FINRA. The exact timing of the filing
of the certificate of amendment that will effect the Reverse Stock
Split will be determined by our board of directors, in its sole
discretion, provided that in no event shall the filling of the
certificate of amendment effecting the Reverse Stock Split occur
after June 30, 2019. In addition, our board of directors reserves
the right, notwithstanding stockholder approval of this Proposal 3
and without further action by the stockholders, to elect not to
proceed with the Reverse Stock Split if, at any time prior to
filing the amendment to our Certificate of Incorporation to effect
the Reverse Stock Split, or, in the event that the amendment is not
effective until a later time, such later time, our board of
directors, in its sole discretion, determines that it is no longer
in our company’s best interests and the best interests of our
stockholders to proceed with the Reverse Stock Split. If a
certificate of amendment effecting the Reverse Stock Split has not
been filed with the Secretary of State of the State of Delaware on
or before September 1, 2022, our board of directors will be deemed
to have abandoned the Reverse Stock Split.
Effect
of the Reverse Stock Split on Holders of Outstanding Common
Stock
After
the effective date of the proposed Reverse Stock Split, each
stockholder will own a reduced number of shares of Common Stock.
Depending on the ratio for the Reverse Stock Split determined by
our board of directors a minimum of every 10 and a maximum of every
150 shares of issued common stock will be combined into one new
share of common stock. Based on approximately 95,149,997 shares of
common stock outstanding as of September 20, 2021, the record date
for our annual meeting, immediately following the Reverse Stock
Split we would have approximately 9,515,000 shares of common stock
issued and outstanding if the ratio for the Reverse Stock Split is
1- for-10, and 634,334 shares of common stock issued and
outstanding if the ratio for the Reverse Stock Split is 1-for-50.
Any other ratio selected within such range would result in a number
of shares of common stock outstanding of between 634,334 and
9,515,000 shares.
The
actual number of shares issued and outstanding after giving effect
to the Reverse Stock Split, if implemented, will depend on the
ratio for the Reverse Stock Split that is ultimately determined by
our board of directors.
The
Reverse Stock Split will affect all holders of our common stock
uniformly and will not affect any stockholder’s percentage
ownership interest in our company, except that, as described below
under “Treatment of Fractional Shares.”
The
Reverse Stock Split may result in some stockholders owning
“odd lots” of less than 10 shares of common stock. Odd
lot shares may be more difficult to sell, and brokerage commissions
and other costs of transactions in odd lots may be higher than the
costs of transactions in “round lots” of even multiples
of 10 shares.
After
the effective time of the Reverse Stock Split, our common stock
will have a new Committee on Uniform Securities Identification
Procedures (CUSIP) number, which is a number used to identify our
equity securities, and stock certificates with the older CUSIP
numbers will need to be exchanged for stock certificates with the
new CUSIP numbers by following the procedures described below.
After the Reverse Stock Split, we will continue to be subject to
the periodic reporting and other requirements of the Securities
Exchange Act of 1934, as amended. The proposed reverse stock split
will not affect the registration of the Common Stock under the
Securities Exchange Act. Our Common Stock would continue to be
reported on OTCQB under the symbol “PHOT”.
Beneficial
Holders of Common Stock (i.e. stockholders who hold in street
name)
For
purposes of implementing the Reverse Stock Split, we intend to
treat shares held by stockholders through a bank, broker, custodian
or other nominee in the same manner as registered stockholders
whose shares are registered in their names. Banks, brokers,
custodians or other nominees will be instructed to effect the
Reverse Stock Split for their beneficial holders holding our common
stock in street name. However, these banks, brokers, custodians or
other nominees may have different procedures than registered
stockholders for processing the Reverse Stock Split. Stockholders
who hold shares of our common stock with a bank, broker, custodian
or other nominee and who have any questions in this regard are
encouraged to contact their banks, brokers, custodians or other
nominees.
Treatment
of Fractional Shares
No
fractional shares would be issued if, as a result of the reverse
stock split, a registered stockholder would otherwise become
entitled to a fractional share. Instead, stockholders who otherwise
would be entitled to receive fractional shares because they hold a
number of shares not evenly divisible by the ratio of the reverse
stock split will automatically be entitled to receive an additional
share of Common Stock. In other words, any fractional share will be
rounded up to the nearest whole number.
Effect
of the Reverse Stock Split on Employee Plans, Options and
Restricted Stock Awards
Pursuant to the
various instruments governing our then outstanding restricted stock
and stock option awards to purchase common stock, in connection
with any Reverse Stock Split, our board of directors will reduce
the number of shares of common stock issuable upon the exercise of
such restricted stock awards and stock options in proportion to the
ratio of the Reverse Stock Split and proportionately increase the
exercise price of our outstanding stock options. In connection with
such proportionate adjustments, the number of shares of common
stock issuable upon exercise or conversion of outstanding stock
awards and stock options will be rounded down to the nearest whole
share and the exercise prices will be rounded up to the nearest
cent, and no cash payment will be made in respect of such
rounding.
U.S.
Federal Income Tax Consequences of the Reverse Stock
Split
The
Company will not seek an opinion of counsel or a ruling from the
Internal Revenue Service regarding the federal income tax
consequences of the Reverse Stock Split. The Company, however,
believes that the Reverse Stock Split will have, among others, the
following material federal income tax effects:
●
A stockholder will
not recognize gain or loss on the exchange of Common Stock as a
result of the Reverse Stock Split. In the aggregate, the
stockholder’s basis in shares will be the same as his or her
basis in shares prior to the Reverse Stock Split (including any
fractional share deemed received).
●
A
stockholder’s holding period for tax purposes for shares of
Common Stock will be the same as the holding period for tax
purposes of the shares of Common Stock exchanged therefor as a
result of the Reverse Stock Split.
●
The Reverse Stock
Split will constitute a reorganization within the meaning of
Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as
amended, or will otherwise qualify for general non-recognition
treatment, and the Company will not recognize any gain or loss as a
result of the Reverse Stock Split.
The
above summary does not discuss any state, local, foreign or other
tax consequences. The summary is for general information only and
does not discuss consequences which may apply to special classes of
taxpayers. The tax treatment of a stockholder may vary depending
upon the particular facts and circumstances of such
stockholder.
Accordingly,
stockholders are urged to consult with their tax advisers as to the
particular tax consequences to them of the reverse stock split,
including the federal, state, local, foreign and other tax
consequences and of potential changes in applicable tax
laws.
Procedure
for Exchange of Stock Certificates
The
Reverse Stock Split will become effective as determined by the
Board in its discretion at any time after our 2021 Annual Meeting
and before September 1, 2022. Upon the effectiveness of the Reverse
Stock Split, each certificate representing pre-reverse split shares
will be deemed for all corporate purposes to evidence ownership of
post-reverse split shares.
Our
transfer agent Direct Transfer, LLC, One Glenwood Avenue, Suite
1001, Raleigh, NC, 27603, Phone: 919.744.2722, will act as exchange
agent for purposes of implementing the exchange of stock
certificates. We refer to such person as the “Exchange
Agent.” Holders of pre-reverse split shares are asked to
surrender to the Exchange Agent certificates representing
pre-reverse split shares in exchange for certificates representing
post-reverse split shares. No new certificates will be issued to a
stockholder until that stockholder has surrendered the
stockholder's outstanding certificate(s).
YOU
SHOULD NOT SEND YOUR OLD CERTIFICATES NOW. YOU SHOULD SEND THEM
ONLY AFTER YOU RECEIVE A LETTER OF TRANSMITTAL FROM OUR TRANSFER
AGENT.
|
Your
Board Recommends That Stockholders Vote
FOR
Amendment
of the Company’s Certificate of Incorporation to effect a
reverse stock split of the common stock, by a ratio of not less
than 1-for-10 and not more than 1-for-150
|
PROPOSAL
4
To
amend the Company’s Certificate of Incorporation to increase
the authorized Common Stock shares from 240,000,000 to
750,000,000shares
The
Company has authorized 130,000,000 shares of capital stock, of
which 120,000,000 are shares of voting common stock, par value
$0.0001 per share, and 10,000,000 are shares of preferred stock,
par value $0.0001 per share. As of September 20, 2021, there were
95,149,997 shares of our common stock issued and outstanding. We do
not anticipate any material changes in the number of common stock
shares issued and outstanding between now and the Record
Date.
The
approval of the amendment of our certificate of incorporation to
authorize the increase of the number of authorized shares of our
common stock requires board approval and the affirmative vote of a
majority of the outstanding shares of our common stock. On
September 11, 2021, the Board of Directors approved a proposal to
amend the Company’s Certificate of Incorporation to increase
the number of authorized shares of the Company’s Common Stock
from 240,000,000 to 750,000,000shares and the implementation and
timing of the increase in authorized stock to be determined in the
discretion of our board of directors. As further described below,
if this proposal is approved, our board of directors may determine
to effect the amendment to reduce the authorized stock at any time
after prior to September 1, 2022, in connection with the Reverse
Stock Split timing. The form of the Certificate of Amendment of the
Certificate of Incorporation of Growlife, Inc. setting forth the
amendment is attached to this Information Statement as Annex
3.
In
connection with the ongoing operation of our business we will
likely be required to issue shares of our common stock, options,
awards and warrants in connection with employee benefit and
incentive plans and employment arrangements, for financing our
future operations, for acquiring other businesses, for forming
strategic partnerships and alliances, and for stock dividends and
stock splits; however, if we implement the Reverse Split, there
will be an excess of unauthorized stock. No specific issuances are
currently anticipated; however, to the extent such issuances occur,
they will result in dilution to our current
stockholders.
Accordingly, our
board of directors believes it is in our best interests and the
best interests of our stockholders to increase the number of
authorized shares of our common stock to provide a sufficient
number of authorized but unreserved shares to allow for the
issuance of shares of our common stock or other securities in
connection with employee benefit and incentive plans and
arrangements, the financing of our operations, the acquisition of
other businesses, the establishment of joint ventures, and such
other purposes as our board of directors determines.
The
increase in the number of authorized shares of our common stock to
a level that continues to provide a meaningful number of authorized
but unreserved shares will permit our board of directors to issue
additional shares of our common stock without further approval of
our stockholders, and our board of directors does not intend to
seek stockholder approval prior to any issuance of the authorized
capital stock unless stockholder approval is required by applicable
law or stock market or exchange requirements. Our issuance of
additional shares of our common stock may result in substantial
dilution to our existing stockholders, and such issuances may not
require stockholder approval.
Although from
time to time we review various transactions that could result in
the issuance of shares of our common stock, we have not reviewed
any specific transaction to date that we presently anticipate will
result in a further issuance of shares of our common
stock.
The
DGCL expressly permits our board of directors, when evaluating any
proposed tender or exchange offer, any merger, consolidation or
sale of substantially all of our assets, or any similar
extraordinary transaction, to consider all relevant factors
including, without limitation, the social, legal, and economic
effects on the employees, customers, suppliers, and other
constituencies of our company and its subsidiaries, and on the
communities and geographical areas in which they operate. Our board
of directors may also consider the amount of consideration being
offered in relation to the then current market price for our
outstanding shares of common stock and our then current value in a
freely negotiated transaction. Our board of directors believes such
provisions are in our long-term best interests and the long-term
best interests of our stockholders.
We are
subject to the Delaware control share acquisitions statute. This
statute is designed to afford stockholders of public corporations
in Delaware protection against acquisitions in which a person,
entity or group seeks to gain voting control. With enumerated
exceptions, the statute provides that shares acquired within
certain specific ranges will not possess voting rights in the
election of directors unless the voting rights are approved by a
majority vote of the public corporation’s disinterested
stockholders. Disinterested shares are shares other than those
owned by the acquiring person or by a member of a group with
respect to a control share acquisition, or by any officer of the
corporation or any employee of the corporation who is also a
director. The specific acquisition ranges that trigger the statute
are: acquisitions of shares possessing one-fifth or more but less
than one-third of all voting power; acquisitions of shares
possessing one- third or more but less than a majority of all
voting power; or acquisitions of shares possessing a majority or
more of all voting power. Under certain circumstances, the statute
permits the acquiring person to call a special stockholders meeting
for the purpose of considering the grant of voting rights to the
holder of the control shares. The statute also enables a
corporation to provide for the redemption of control shares with no
voting rights under certain circumstances.
Other
than the provisions noted above, we do not have in place provisions
which may have an anti-takeover effect. The increase in
the number of authorized shares of our common stock to provide a
sufficient number of authorized but unreserved shares to allow for
the issuance of shares of our common stock under various scenarios
may be construed as having an anti-takeover effect by permitting
the issuance of shares of our common stock to purchasers who might
oppose a hostile takeover bid or oppose any efforts to amend or
repeal certain provisions in our certificate of incorporation or
bylaws. The increase in the authorized number of shares
of our common stock did not result from our knowledge of any
specific effort to accumulate our securities or to obtain control
of us by means of a merger, tender offer, proxy solicitation in
opposition to management or otherwise, and we did not take such
action to increase the authorized shares of our common stock to
enable us to frustrate any efforts by another party to acquire a
controlling interest or to seek representation on our board of
directors.
The
issuance of additional shares of our common stock may have a
dilutive effect on earnings per share and on the equity and voting
power of existing holders of our common stock. It may
also adversely affect the market price of our common
stock. However, if additional shares are issued in
transactions whereby favorable business opportunities are provided
which allow us to pursue our business plans, the market price of
our common stock may increase.
The
holders of our common stock are entitled to one vote for each share
held of record on all matters to be voted on by our
stockholders.
The
holders of our common stock are entitled to receive dividends when,
as, and if declared by our board of directors out of funds legally
available therefor. We do not intend to declare and pay dividends
in the near future. In the event of our liquidation, dissolution or
winding up, the holders of the shares of our common stock are
entitled to share ratably in all assets remaining available for
distribution to them after payment of liabilities and after
provision has been made for each class of stock, if any, having
preference over our common stock. Holders of shares of our common
stock have no conversion, preemptive or other subscription rights,
and there are no redemption provisions applicable to our common
stock.
|
Your
Board Recommends That Stockholders Vote
FOR
To
amend the Company's Certificate of Incorporation to increase the
authorized Common Stock shares from 240,000,000 to 750,000,000
shares
|
PROPOSAL
5
Ratification
of the Appointment of BPM LLP as the Company’s Independent
Registered Public Accounting Firm for the fiscal years ended
December 31, 2020
On October 3, 2019, the Audit Committee recommended and approved
the appointment of BPM LLP as the Company’s independent
registered public accounting firm (independent auditors) to examine
the consolidated financial statements of the Company for the fiscal
year ended December 31, 2019. The Board is seeking the
stockholders’ ratification of such action and approval for
the audit for the fiscal year ended December 31, 2019 and
2020.
Action by our stockholders is not required by law in connection
with the appointment of the Company’s independent
accountants. If the Company’s stockholders do not ratify this
appointment, the appointment will be reconsidered by the Audit
Committee.
SD Mayer has no direct or indirect financial interest in the
Company or in any of its subsidiaries, nor has it had any
connection with the Company or any of its subsidiaries in the
capacity of promoter, underwriter, voting trustee, director,
officer or employee. It is expected that representatives of SD
Mayer will not attend the Annual Meeting and therefore will not be
available to answer questions.
Dismissal of SD Mayer and Associates, LLP
On October 3, 2019, we dismissed SD Mayer and Associates, LLP as
our independent registered public accounting firm. The decision to
change accountants was approved by the Company’s Audit
Committee.
The SD Mayer reports on our consolidated financial statements for
the past two fiscal years did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles, except that the
audit report of SD Mayer on the Company’s financial
statements for fiscal years 2017 and 2018 contained an explanatory
paragraph which noted that there was substantial doubt about the
Company’s ability to continue as a going
concern.
During the Company’s fiscal years ended December 31, 2017 and
2018 and through October 3, 2019, (i) there were no disagreements
with SD Mayer on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to SD Mayer’s
satisfaction, would have caused SD Mayer to make reference to the
subject matter of such disagreements in its reports on the
Company’s consolidated financial statements for such years,
and (ii) there were no reportable events as defined in Item
304(a)(1)(v) of Regulation S-K.
Audit Committee
On June
3, 2014, we formed an Audit Committee and appointed an audit
committee financial expert as defined by SEC and as adopted under
the Sarbanes-Oxley Act of 2002. Prior to this, we did not have an
Audit Committee to oversee financial reporting and used external
service providers to ensure compliance with the SEC requirements.
The current Audit Committee has one independent director and one
management director serving as chairman
Audit
Committee Pre-Approval Policy
The
Audit Committee has established a pre-approval policy and
procedures for audit, audit-related and tax services that can be
performed by the independent auditors without specific
authorization from the Audit Committee subject to certain
restrictions. The policy sets out the specific services
pre-approved by the Audit Committee and the applicable limitations,
while ensuring the independence of the independent auditors to
audit the Company's financial statements is not impaired. The
pre-approval policy does not include a delegation to management of
the Audit Committee’s responsibilities under the Exchange
Act. During the year ended December 31, 2020, the Audit Committee
pre- approved all audit and permissible non-audit services provided
by our independent auditors.
Service
Fees Paid to the Independent Registered Public Accounting
Firm
The Audit Committee engaged BPM LLP to perform an annual audit of
the Company’s financial statements for the fiscal years ended
December 31, 2020 and 2019, respectively. BPM also performed a
review of the Company’s financial statements for the three
months ended September 30, 2019. BPM did not perform any services
prior to September 30, 2019. Previously the Audit Committee engaged
SD Mayer and Associates, LLP to perform a review of the
Company’s financial statements for the three months ended
June 30, 2019 and March 31, 2019. The following is the breakdown of
aggregate fees billed for and during the last two fiscal years. The
following is the breakdown of aggregate fees paid for the last two
fiscal years:
|
|
Year
Ended
|
Year
Ended
|
|
|
December
31,
|
December
31,
|
|
|
2020
|
2019
|
|
Audit
fees
|
$87,626
|
$87,450
|
|
Audit related
fees
|
49,220
|
39,795
|
|
Tax
fees
|
18,890
|
13,150
|
|
All other
fees
|
-
|
35,971
|
|
|
$155,736
|
$176,366
|
-
“Audit
Fees” are fees paid for professional services for the audit
of our financial statements.
-
“Audit-Related
fees” are fees paid for professional services not included in
the first two categories, specifically, PCAOB interim reviews for
quarterly filings, and accounting consultations on matters
addressed during the audit.
-
“Tax
Fees” are fees primarily for tax compliance paid to S.D.
Mayer in connection with filing US income tax returns.
-
“All other
fees” related to the reviews of Registration Statements on
Form S-1.
|
Your
Board and the Audit Committee Recommend That Stockholders
Vote
FOR
Ratification
of the Appointment of BPM LLP as the Company's Independent
Registered Public Accounting Firm for the fiscal year ended
December 31, 2020
|
STOCKHOLDER
PROPOSALS FOR THE 2022 ANNUAL MEETING OF STOCKHOLDERS
If any
stockholder intends to submit a proposal to be considered for
inclusion in the Company’s proxy statement for the 2022
Annual Meeting of Stockholders, the proposal must be submitted to
the Secretary of the Company (addressed to Growlife, Inc., Attn:
Corporate Secretary, 11335 NE 122nd Way, Suite 105, Kirkland, WA
98034in proper form (per SEC Regulation 14A, Rule
14a-8—Stockholder Proposals) and received by the Secretary on
or before May 1, 2022. If, however, the date of the 2022 Annual
Meeting of Stockholders is not within 30 days before or after
December 1, 2022, any stockholder proposal must be received by the
Secretary of the Company a reasonable time before we begin to print
and send our proxy materials.
In
accordance with the provisions of the Company’s Second
Amended and Restated Bylaws, any stockholder proposals for the 2022
Annual Meeting of Stockholders that are submitted outside the
processes of Rule 14a-8 (i.e., proposals that are not submitted for
inclusion in the Company’s proxy statement) will be
considered untimely if they are received by the Secretary of the
Company after December 31, 2021. If, however, the date of the 2022
Annual Meeting of Stockholders is not within 30 days before or
after December 1, 2022, any such proposal will be considered
untimely if it is received (i) after the date that is 45 days prior
to the date of the 2022 Annual Meeting of Stockholders (if at least
60 days’ advance notice of the meeting is given to
stockholders), or, if less than 60 days’ advance notice is
given to stockholders, (ii) after the date that is 15 days after
the date on which notice of the 2022 Annual Meeting of Stockholders
is given to stockholders.
OTHER
BUSINESS
The
Company’s management does not know of any other matter to be
presented for action at the Annual Meeting. If any other matter
should be properly presented at the Annual Meeting, however, it is
the intention of the persons named in the accompanying proxy to
vote said proxy in accordance with their best
judgment.
INCORPORATION
BY REFERENCE OF ANNUAL REPORT ON FORM 10-K
A
copy of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2020, as filed with the SEC, accompanies this Proxy
Statement. Any exhibit to the Form 10-K will be made available,
free of charge, upon written request. Written requests should be
addressed to Growlife, Inc., Attn: Investor Relations, 11335 NE
122nd Way, Suite
105, Kirkland, WA 98034. Copies of these documents may also be
accessed electronically via the SEC’s website at
http://www.sec.gov. The Company’s Form 10-K is not part of
these proxy solicitation materials.
Michael
E. Fasci
Secretary
Kirkland,
WA
September 23,
2021
Annex
1
GROWLIFE,
INC.
SECOND
AMENDED AND RESTATED 2017 STOCK INCENTIVE PLAN
1.
Definitions. In the Plan,
except where the context otherwise indicates, the following
definitions shall apply:
1.1.
“Affiliate”
means a corporation, partnership, business trust, limited liability
company or other form of business organization at least a majority
of the total combined voting power of all classes of stock or other
equity interests of which is owned by the Company, either directly
or indirectly, and any other entity, designated by the Committee,
in which the Company has a significant interest.
1.2.
“Agreement”
means a written agreement or other document evidencing an Award
that shall be in such form as the Committee may specify. The
Committee in its discretion may, but not need, require a
Participant to sign an Agreement.
1.3.
“Award”
means a grant of an Option, Restricted Stock, Restricted Stock
Unit, Performance Award or Other Stock-Based Award.
1.4.
“Board”
means the Board of Directors of the Company.
1.5.
“Code”
means the Internal Revenue Code of 1986, as amended.
1.6.
“Committee”
means the Compensation Committee of the Board or such other
committee(s) appointed by the Board to administer the Plan or to
make and/or administer specific Awards hereunder. If no such
appointment is in effect at any time, “Committee” shall
mean the Board. Notwithstanding the foregoing,
“Committee” means the Board for purposes of granting
Awards to Non-Employee Directors and administering the Plan with
respect to those Awards, unless the Board determines
otherwise.
1.7.
“Common
Stock” means the Company’s common stock, par value
$0.0001 per share.
1.8.
“Company”
means GrowLife, Inc., and any successor thereto.
1.9.
“Date of
Exercise” means the date on which the Company receives notice
of the exercise of an Option in accordance with Section
7.1.
1.10.
“Date of
Grant” means the date on which an Award is granted under the
Plan.
1.11.
“Eligible
Person” means any person who is (a) an Employee (b) a
Non-Employee Director or (c) a consultant or independent contractor
to the Company or an Affiliate.
1.12.
“Employee”
means any individual determined by the Committee to be an employee
of the Company or an Affiliate.
1.13.
“Exercise
Price” means the price per Share at which an Option may be
exercised.
1.14.
“Fair Market
Value” means an amount equal to the then fair market value of
a Share as determined by the Committee pursuant to a reasonable
method adopted in good faith for such purpose, or, unless otherwise
determined by the Committee, if the Common Stock is traded on a
securities exchange or automated dealer quotation system, fair
market value shall be the last sale price for a Share, as of the
relevant date, on such securities exchange or automated dealer
quotation system as reported by such source as the Committee may
select; provided, however, that in the case of an Option, in all
events Fair Market Value shall be determined pursuant to a method
permitted by Section 409A of the Code for determining the fair
market value of stock subject to a nonqualified stock option that
does not provide for a deferral of compensation within the meaning
of Section 409A of the Code.
1.15.
“Incentive
Stock Option” means an Option that the Committee designates
as an incentive stock option under Section 422 of the
Code.
1.16.
“Non-Employee
Director” means any member of the Board, or of an
Affiliate’s board of directors, who is not an
Employee.
1.17.
“Nonqualified
Stock Option” means an Option that is not an Incentive Stock
Option.
1.18.
“Option”
means an option to purchase Shares granted pursuant to Section
6.
1.19.
“Option
Period” means the period during which an Option may be
exercised.
1.20.
“Other
Stock-Based Award” means an Award granted pursuant to Section
12.
1.21.
“Participant”
means an Eligible Person who has been granted an
Award.
1.22.
“Performance
Award” means a performance award granted pursuant to
Section
1.23.
“Performance
Goals” means performance goals established by the Committee
which may be based on earnings or earnings growth, sales, return on
assets, cash flow, total shareholder return, equity or investment,
regulatory compliance, satisfactory internal or external audits,
improvement of financial ratings, achievement of balance sheet or
income statement objectives, implementation or completion of one or
more projects or transactions, or any other objective goals
established by the Committee, and which may be absolute in their
terms or measured against or in relationship to other companies
comparably, similarly or otherwise situated. Such performance goals
may be particular to an Eligible Person or the department, branch,
Affiliate, or division in which the Eligible Person works, or may
be based on the performance of the Company, one or more Affiliates,
or the Company and one or more Affiliates, and may cover such
period as may be specified by the Committee.
1.24.
“Plan”
means this GrowLife, Inc. Second Amended and Restated 2017 Stock
Incentive Plan, as amended from time to time.
1.25.
“Restricted
Stock” means Shares granted pursuant to Section
8.
1.26.
“Restricted
Stock Units” means an Award providing for the contingent
grant of Shares (or the cash equivalent thereof) pursuant to
Section 9.
1.27.
“Section 422
Employee” means an Employee who is employed by the Company or
a “parent corporation” or “subsidiary
corporation” (each as defined in Sections 424(e) and (f) of
the Code) with respect to the Company, including a “parent
corporation” or “subsidiary corporation” that
becomes such after adoption of the Plan.
1.28.
“Share”
means a share of Common Stock.
1.29.
“Ten-Percent
Stockholder” means a Section 422 Employee who (applying the
rules of Section 424(d) of the Code) owns stock possessing more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or a “parent
corporation” or “subsidiary corporation” (each as
defined in Sections 424(e) and (f) of the Code) with respect to the
Company.
2. Purpose. The Plan is intended
to assist the Company and its Affiliates in attracting and
retaining Eligible Persons of outstanding ability and to promote
the identification of their interests with those of the
stockholders of the Company and its Affiliates.
3. Administration. The Committee
shall administer the Plan and shall have plenary authority, in its
discretion, to grant Awards to Eligible Persons, subject to the
provisions of the Plan. The Committee shall have plenary authority
and discretion, subject to the provisions of the Plan, to determine
the Eligible Persons to whom Awards shall be granted, the terms
(which terms need not be identical) of all Awards, including
without limitation the Exercise Price of Options, the time or times
at which Awards are granted, the number of Shares covered by
Awards, whether an Option shall be an Incentive Stock Option or a
Nonqualified Stock Option, any exceptions to nontransferability,
any Performance Goals applicable to Awards, any provisions relating
to vesting, and the period during which Options may be exercised
and Restricted Stock shall be subject to restrictions. In making
these determinations, the Committee may take into account the
nature of the services rendered or to be rendered by Award
recipients, their present and potential contributions to the
success of the Company and its Affiliates, and such other factors
as the Committee in its discretion shall deem relevant. Subject to
the provisions of the Plan, the Committee shall have plenary
authority to interpret the Plan and Agreements, prescribe, amend
and rescind rules and regulations relating to them, and make all
other determinations deemed necessary or advisable for the
administration of the Plan and Awards granted thereunder. The
determinations of the Committee on the matters referred to in this
Section 3 shall be binding and final. The Committee may delegate
its authority under this Section 3 and the terms of the Plan to
such extent it deems desirable and is consistent with the
requirements of applicable law.
4. Eligibility. Awards may be granted
only to Eligible Persons; provided that (a) Incentive Stock Options
may be granted only Eligible Persons who are Section 422 Employees;
and (b) Options may be granted only to persons with respect to whom
Shares constitute stock of the service recipient (within the
meaning of Section 409A of the Code and the applicable Treasury
Regulations thereunder).
5.
Stock Subject to
Plan. Subject to adjustment as provided in Section 13, (a)
the maximum number of Shares that may be issued under the Plan is
seventy five million (75,000,000) shares, provided that no more
than seven million five hundred thousand (7,500,000) shares may be
issued pursuant to Awards that are not Options, and (b) the maximum
number of Shares with respect to which an Employee may be granted
Awards under the Plan during a fiscal year is seven million five
hundred thousand (7,500,000) shares. Shares issued under the Plan
may, in whole or in part, be authorized but unissued Shares or
Shares that shall have been, or may be, reacquired by the Company
in the open market, in private transactions, or
otherwise.
5.1. If
an Option expires or terminates for any reason without having been
fully exercised or is surrendered pursuant to Section 6.4, if
shares of Restricted Stock are forfeited, or if Shares covered by a
Performance Award are not issued or are forfeited, the unissued or
forfeited Shares that had been subject to the Award shall be
available for the grant of additional Awards; provided, however,
that in the case of Shares that are withheld to pay withholding
taxes with respect to an Award, no such withheld Shares shall again
be available for the grant of Awards hereunder.
6.
Options.
6.1. Options
granted under the Plan to Eligible Persons shall be either
Incentive Stock Options or Nonqualified Stock Options, as
designated by the Committee; provided, however, that Incentive
Stock Options may be granted only to Eligible Persons who are
Section 422 Employees on the Date of Grant. Each Option granted
under the Plan shall be identified as either a Nonqualified Stock
Option or an Incentive Stock Option and shall be evidenced by an
Agreement that specifies the terms and conditions of the Option.
Notwithstanding such designation, to the extent that the aggregate
Fair Market Value of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by the optionee
during any calendar year (under all plans of the Company and any
parent or subsidiary corporation) exceeds USD $100,000, such
Incentive Stock Options shall be treated as Nonqualified Stock
Options. For purposes of this Section 6.1, Incentive Stock Options
shall be taken into account in the order in which they were
granted. The Fair Market Value of the Shares shall be determined as
of the time the Option with respect to such Shares was granted.
Options shall be subject to the terms and conditions set forth in
this Section 6 and such other terms and conditions not inconsistent
with the Plan as the Committee may specify. The Committee, in its
discretion, may condition the grant or vesting of an Option upon
the achievement of one or more specified Performance
Goals.
6.2. The
Exercise Price of an Option granted under the Plan shall not be
less than 100% of the Fair Market Value of the Common Stock on the
Date of Grant. Notwithstanding the foregoing, in the case of an
Incentive Stock Option granted to an Employee who, on the Date of
Grant is a Ten-Percent Shareholder, the Exercise Price shall not be
less than 110% of the Fair Market Value of a Share on the Date of
Grant.
6.3. The
Committee shall determine the Option Period for an Option, which
shall be specifically set forth in the Agreement; provided that an
Option shall not be exercisable after ten years (five years in the
case of an Incentive Stock Option granted to an Employee who on the
Date of Grant is a Ten-Percent Stockholder) from its Date of
Grant.
6.4. To
the extent provided in an Agreement, a Participant may surrender to
the Company an Option (or a portion thereof) that has become
exercisable and to receive upon such surrender, without any payment
to the Company (other than required tax withholding amounts), that
number of Shares (equal to the highest whole number of Shares)
having an aggregate Fair Market Value as of the date of surrender
equal to that number of Shares subject to the Option (or portion
thereof) being surrendered multiplied by an amount equal to the
excess of (a) the Fair Market Value on the date of surrender over
(b) the Exercise Price, plus an amount of cash equal to the fair
market value of any fractional Share to which the Participant would
be entitled but for the parenthetical above relating to whole
number of Shares. Any such surrender shall be treated as the
exercise of the Option (or portion thereof).
7.
Exercise of
Options.
7.1. Subject
to the terms of the applicable Agreement, an Option may be
exercised, in whole or in part, by delivering to the Company a
notice of the exercise, in such form as the Committee may
prescribe, accompanied, in the case of an Option, by (a) a full
payment for the Shares with respect to which the Option is
exercised or (b) to the extent provided in the applicable
Agreement, irrevocable instructions to a broker to deliver promptly
to the Company cash equal to the exercise price of the Option. To
the extent provided in the applicable Agreement, payment may be
made by (a) delivery (including constructive delivery) of Shares
(provided that such Shares, if acquired pursuant to an Option or
other Award granted hereunder or under any other compensation plan
maintained by the Company or any Affiliate, have been held by the
Participant for at least six months, or such other period, if any,
as may be required by the Committee), valued at Fair Market Value
on the Date of Exercise or (b) delivery of a promissory note as
provided in Section 7.2.
7.2. To
the extent provided in the applicable Agreement and permitted by
applicable law, the Committee may accept as payment of all or a
portion of the Exercise Price a promissory note executed by the
Participant evidencing the Participant’s obligation to make
future cash payment thereof. Promissory notes made pursuant to this
Section 7.2 shall (a) be secured by a pledge of the Shares received
upon exercise of the Option, (b) bear interest at a rate fixed by
the Committee, and (c) contain such other terms and conditions as
the Committee may determine in its discretion.
8. Restricted Stock Awards. Each
grant of Restricted Stock under the Plan shall be subject to an
Agreement specifying the terms and conditions of the Award.
Restricted Stock granted under the Plan shall consist of Shares
that are restricted as to transfer, subject to forfeiture, and
subject to such other terms and conditions as the Committee may
specify. Such terms and conditions may provide, in the discretion of the
Committee, for the lapse of such transfer restrictions or
forfeiture provisions to be contingent upon the achievement of one
or more specified Performance Goals.
9. Restricted Stock Unit Awards.
Each grant of Restricted Stock Units under the Plan shall be
evidenced by an Agreement that (a) provides for the issuance of
Shares to a Participant at such time(s) as the Committee may
specify and (b) contains such other terms and conditions as the
Committee may specify, including without limitation, terms that
condition the issuance of Restricted Stock Unit Awards upon the
achievement of one or more specified Performance
Goals.
10. Performance Awards. Each
Performance Award granted under the Plan shall be evidenced by an
Agreement that (a) provides for the payment of cash and/or issuance
of Shares to a Participant contingent upon the attainment of one or
more specified Performance Goals, and (b) contains such other terms
and conditions as may be determined by the Committee. For purposes
of Section 5.1(b) hereof, a Performance Award shall be deemed to
cover a number of Shares equal to the maximum number of Shares that
may be issued upon payment of the Award. The maximum cash amount
payable to any Employee pursuant to all Performance Awards granted
to an Employee during a fiscal year shall not exceed
$250,000.
11. Dividends and Dividend
Equivalents. The terms of an Award may provide a Participant
with the right, subject to such terms and conditions as the
Committee may specify, to receive dividend payments or dividend
equivalent payments with respect to Shares covered by the Award,
which payments may be either made currently or credited to an
account established for the Participant, and may be settled in cash
or Shares, as determined by the Committee.
12. Other Stock-Based Awards. The
Committee may in its discretion grant stock-based awards of a type
other than those otherwise provided for in the Plan, including the
issuance or offer for sale of unrestricted Shares (“Other
Stock-Based Awards”). Other Stock-Based Awards shall cover
such number of Shares and have such terms and conditions as the
Committee shall determine, including terms that condition the
payment or vesting the Other Stock-Based Award upon the achievement
of one or more Performance Goals.
13. Capital Events and Adjustments.
In the event of any change in the outstanding Common Stock by
reason of any stock dividend, stock split, reverse stock split,
spin-off, recapitalization, reclassification, combination or
exchange of shares, merger, consolidation, liquidation or the like,
the Committee shall provide for a substitution for or adjustment in
(a) the number and class of securities subject to outstanding
Awards or the type of consideration to be received upon the
exercise or vesting of outstanding Awards, (b) the Exercise Price
of Options, (c) the aggregate number and class of Shares for which
Awards thereafter may be granted under the Plan and
(d) the
maximum number of Shares with respect to which an Employee may be
granted Awards during the period specified in Section
5.1(b).
14. Termination or Amendment. The
Board may amend or terminate the Plan in any respect at any time;
provided, however, that, after the Plan has been approved by the
stockholders of the Company, the Board shall not amend or terminate
the Plan without approval of
(a) the
Company’s stockholders to the extent stockholder approval of
the amendment is required by applicable law or regulations or the
requirements of the principal exchange or interdealer quotation
system on which the Common Stock is listed or quoted, if any, and
(b) each affected Participant if such amendment or termination
would adversely affect such Participant’s rights or
obligations under any Award granted prior to the date of such
amendment or termination.
15.
Modification, Substitution of
Awards.
15.1. Subject
to the terms and conditions of the Plan, the Committee may modify
the terms of any outstanding Awards; provided, however, that (a) no
modification of an Award shall, without the consent of the
Participant, alter or impair any of the Participant’s rights
or obligations under such Award and (b) subject to Section 13, in
no event may (i) an Option be modified to reduce the Exercise Price
of the Option, or (ii) an Option be cancelled or surrendered in
consideration for the grant of a new Option with a lower Exercise
Price.
15.2. Anything
contained herein to the contrary notwithstanding, Awards may, at
the discretion of the Committee, be granted under the Plan in
substitution for stock options and other awards covering capital
stock of another corporation which is merged into, consolidated
with, or all or a substantial portion of the property or stock of
which is acquired by, the Company or an Affiliate. The terms and
conditions of the substitute Awards so granted may vary from the
terms and conditions set forth in the Plan to such extent as the
Committee may deem appropriate in order to conform, in whole or
part, to the provisions of the awards in substitution for which
they are granted. Such substitute Awards shall not be counted
toward the Share limit imposed by Section 5.1(b), except to the
extent the Committee determines that counting such Awards is
required in order for Awards granted hereunder to be eligible to
qualify as “performance-based compensation” within the
meaning of Section 162(m) of the Code.
15.3. Any
provision of the Plan or any Agreement to the contrary
notwithstanding, in the event of a merger or consolidation to which
the Company is a party, the Committee shall take such actions, if
any, as it deems necessary or appropriate to prevent the
enlargement or diminishment of Participants’ rights under the
Plan and Awards granted hereunder, and may, in its discretion,
cause any Award granted hereunder to be canceled in consideration
of a cash payment equal to the fair value of the canceled Award, as
determined by the
Committee in its discretion. Unless the Committee determines
otherwise, the fair value of an Option shall be deemed to be equal
to the product of (a) the number of Shares the Option covers (and
has not previously been exercised) and (b) the excess, if any, of
the Fair Market Value of a Share as of the date of cancellation
over the Exercise Price of the Option.
16. Foreign Employees. Without
amendment of the Plan, the Committee may grant Awards to Eligible
Persons who are subject to the laws of foreign countries or
jurisdictions on such terms and conditions different from those
specified in the Plan as may in the judgement of the Committee be
necessary or desirable to foster and promote achievement of the
purposes of the Plan. The Committee may make such modifications,
amendments, procedures, sub-plans and the like as may be necessary
or advisable to comply with provisions of laws of other countries
or jurisdictions in which the Company or any Affiliate operates or
has employees.
17. Stockholder Approval. The Plan,
and any amendments hereto requiring stockholder approval pursuant
to Section 14, are subject to approval by vote of the stockholders
of the Company at an annual or special meeting of the stockholders
within twelve (12) months of the date of its adoption by the
Board.
18. Withholding. The
Company’s obligation to issue or deliver Shares or pay any
amount pursuant to the terms of any Award granted hereunder shall
be subject to satisfaction of applicable federal, state, local, and
foreign tax withholding requirements. To the extent provided in the
applicable Agreement and in accordance with rules prescribed by the
Committee, a Participant may satisfy any such withholding tax
obligation by one or any combination of the following means: (a)
tendering a cash payment, (b) authorizing the Company to withhold
Shares otherwise issuable to the Participant, or (c) delivering to
the Company already-owned and unencumbered Shares.
19. Term of Plan. Unless sooner
terminated by the Board pursuant to Section 14, the Plan shall
terminate on the date that is ten years after the earlier of that
date that the Plan is adopted by the Board or approved by the
Company’s stockholders, and no Awards may be granted or
awarded after such date. The termination of the Plan shall not
affect the validity of any Award outstanding on the date of
termination.
20. Indemnification of Committee.
In addition to such other rights of indemnification as they may
have as members of the Board or Committee, members of the Committee
shall be indemnified by the Company against all reasonable
expenses, including attorneys’ fees, actually and reasonably
incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they
or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any Award
granted thereunder, and against all amounts reasonably paid by them
in settlement thereof or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, if such members acted in
good faith and in a manner which they believed to be in, and not
opposed to, the best interests of the Company.
21.
General
Provisions.
21.1. The
establishment of the Plan shall not confer upon any Eligible Person
any legal or equitable right against the Company, any Affiliate or
the Committee, except as expressly provided in the Plan.
Participation in the Plan shall not give an Eligible Person any
right to be retained in the service of the Company or any
Affiliate.
21.2. Neither
the adoption of the Plan nor its submission to the Company’s
stockholders shall be taken to impose any limitations on the powers
of the Company or its Affiliates to issue, grant or assume options,
warrants, rights, restricted stock or other awards otherwise than
under the Plan, or to adopt other stock option, restricted stock,
or other plans, or to impose any requirement of stockholder
approval upon the same.
21.3. The
interests of any Eligible Person under the Plan are not subject to
the claims of creditors and may not, in any way, be assigned,
alienated or encumbered except to the extent provided in an
Agreement.
21.4. The
Plan shall be governed, construed and administered in accordance
with the laws of the State of Delaware, without giving effect to
the conflict of law principles.
21.5. The
Committee may require each person acquiring Shares pursuant to
Awards granted hereunder to represent to and agree with the Company
in writing that such person is acquiring the Shares without a view
to distribution thereof. The certificates for such Shares may
include any legend which the Committee deems appropriate to reflect
any restrictions on transfer. All certificates for Shares issued
pursuant to the Plan shall be subject to such stock transfer orders
and other restrictions as the Committee may deem advisable under
the rules, regulations and other requirements of the Securities and
Exchange Commission, any stock exchange upon which the Common Stock
is then listed or interdealer quotation system upon which the
Common Stock is then quoted, and any applicable federal or state
securities laws. The Committee may place a legend or legends on any
such certificates to make appropriate reference to such
restrictions.
21.6. The
Company shall not be required to issue any certificate or
certificates for Shares with respect to Awards granted under the
Plan, or record any person as a holder of record of such Shares,
without obtaining, to the complete satisfaction of the Committee,
the approval of all regulatory bodies deemed necessary by the
Committee, and without complying, to the Board’s or
Committee’s complete satisfaction, with all rules and
regulations under federal, state or local law deemed applicable by
the Committee.
21.7. To
the extent that the Plan provides for issuance of stock
certificates to reflect the issuance of Shares, the issuance may be
effected on a noncertificated basis, to the extent not prohibited
by applicable law or the rules of any stock exchange or automated
dealer quotation system on which the Shares are traded. No
fractional Shares shall be issued or delivered pursuant to the Plan
or any Award. The Committee shall determine whether cash, other
Awards, or other property shall be issued or paid in lieu of any
fractional Shares or whether any fractional Shares or any rights
thereto shall be forfeited or otherwise eliminated.
21.8. Notwithstanding
any other provision of the Plan to the contrary, to the extent any
Award (or a modification of an Award) under the Plan results in the
deferral of compensation (for purposes of Section 409A of the
Code), the terms and conditions of the Award shall comply with
Section 409A of the Code.
ANNEX
2
STATE
OF DELAWARE
CERTIFICATE
OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
The
corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware does hereby
certify:
FIRST: That at a meeting of the Board of
Directors of GROWLIFE, INC. resolutions were duly adopted setting
forth a proposed amendment of the Certificate of Incorporation of
said corporation, declaring said amendment to be advisable and
calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, That upon the effectiveness of this
Certificate of Amendment, Article FOURTH of the Certificate of
Incorporation, is hereby amended by
adding the following two paragraphs as the last two paragraphs of
such Article FOURTH:
“Reverse
Split: Effective upon the filing of this Certificate of Amendment
to the Certificate of Incorporation with the Secretary of State of
the State of Delaware (the “Effective Time”), a
one-for-[ ] reverse stock split of the Corporation’s common
stock,
$0.0001
par value per share (the “Common Stock”), shall become
effective, pursuant to which each [ ] shares of Common Stock issued
or outstanding immediately prior to the Effective Time shall be
reclassified and combined into one validly issued, fully paid and
nonassessable share of Common Stock automatically and without any
action by the holder thereof upon the Effective Time and shall
represent one share of Common Stock from and after the Effective
Time (such reclassification and combination of shares, the
“Reverse Stock Split”). The par value of the Common
Stock following the Reverse Stock Split shall remain at $0.0001 par
value per share. No fractional shares of Common Stock shall be
issued as a result of the Reverse Stock Split and, in lieu thereof,
each resulting fractional share shall be rounded up to the nearest
whole share of Common Stock.
Each
stock certificate that, immediately prior to the Effective Time,
represented shares of Common Stock that were issued and outstanding
immediately prior to the Effective Time shall, from and after the
Effective Time, automatically and without the necessity of
presenting the same for exchange, represent that number of whole
shares of Common Stock after the Effective Time into which the
shares formerly represented by such certificate have been
reclassified; provided, however, that each person of record holding
a certificate that represented shares of Common Stock that were
issued and outstanding immediately prior to the Effective Time
shall receive, upon surrender of such certificate, a new
certificate evidencing and representing the number of whole shares
of Common Stock after the Effective Time into which the shares of
Common Stock formerly represented by such certificate shall have
been reclassified.”
SECOND: That thereafter, pursuant to
resolution of its Board of Directors, a special meeting of the
stockholders of said corporation was duly called and held upon
notice in accordance with Section 222 of the General Corporation
Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly
adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said corporation has
caused this certificate to be signed on this day of ,
20__.
By:
Marco
Hegyi, Chief Executive Officer
ANNEX
3
STATE
OF DELAWARE
CERTIFICATE
OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
The
corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware does hereby
certify:
FIRST: That at a meeting of the Board of
Directors of GROWLIFE, INC. resolutions were duly adopted setting
forth a proposed amendment of the Certificate of Incorporation of
said corporation, declaring said amendment to be advisable and
calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this
Corporation be amended by striking out the first paragraph of the
Article thereof numbered "FOURTH" and by substituting in lieu of
said first paragraph the following new first paragraph of the
Fourth Article:
“The
aggregate number of shares of all classes of stock which the
Corporation shall have the authority to issue is 750,000,000 shares, of which
740,000,000 shares
shall be classified as common stock, $0.0001 par value per share
(“Common Stock”), and 10,000,000 shares shall be
classified as preferred stock, $0.0001 par value per share
(“Preferred Stock”), issuable in series as may be
provided from time to time by resolution of the Board of
Directors.”
SECOND: That thereafter, pursuant to
resolution of its Board of Directors, a special meeting of the
stockholders of said corporation was duly called and held upon
notice in accordance with Section 222 of the General Corporation
Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly
adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said corporation has
caused this certificate to be signed on this day of ,
2021.
By:
Marco
Hegyi, Chief Executive Officer
41