aero-pre14a882008.htm
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 (Amendment No. )
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Filed
by the Registrant x
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by a Party other than the Registrant o
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Check
the appropriate box:
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §240.14a-12
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AeroGrow
International, Inc.
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(Name
of Registrant as Specified In Its Charter)
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_____________________________________________________________________
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(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment
of Filing Fee (Check the appropriate box):
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unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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maximum aggregate value of transaction:
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fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(This page is deliberately left
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AeroGrow
International, Inc.
6075
Longbow Drive, Suite 200, Boulder, Colorado 80301
303-444-7755
NOTICE
OF 2008 ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD OCTOBER 1, 2008
To the
Stockholders of
AeroGrow
International, Inc.
The 2008
Annual Meeting of Stockholders of AeroGrow International, Inc., a Nevada
corporation, will be held at the Radisson Conference Center, 1850
Industrial Circle, Longmont, Colorado, on Wednesday, October 1, 2008, at 10:00
a.m., mountain time.
The
Annual Meeting is being held for the following purposes:
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To
elect six directors to hold office until the 2009 Annual Meeting or until
their successors are elected and qualified. |
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2.
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To
approve an amendment to our 2005 Equity Compensation Plan to authorize the
issuance of an additional 2,000,000 shares under the Plan, and from those
shares, to ratify grants totaling 832,377 of those shares that have been
granted in advance of such approval.
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To
ratify the selection of Gordon, Hughes & Banks, LLP as our independent
auditors for the fiscal year ending March 31, 2009.
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To
transact such other business as may properly come before the Annual
Meeting or any postponement or adjournment
thereof. |
Only
stockholders of record at the close of business on August 20, 2008, are entitled
to notice of, and to vote at, the Annual Meeting or any postponement or
adjournment thereof. Even if you plan to attend the Annual Meeting in
person, please sign, date, and return your proxy in the enclosed
envelope.
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By
order of the Board of Directors, |
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Jack
J.
Walker
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Chairman
of the Board
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Boulder,
Colorado
August __,
2008
(This
page is deliberately left blank)
AeroGrow
International, Inc.
6075
Longbow Drive, Suite 200, Boulder, Colorado 80301
303-444-7755
This
Proxy Statement is furnished in connection with the solicitation of proxies by
the Board of Directors of AeroGrow International, Inc. for use at the 2008
Annual Meeting of Stockholders. The Board has fixed the close of business
on August 20, 2008, as the record date for determining the stockholders entitled
to notice of, and to vote at, the Annual Meeting. On the record date,
AeroGrow had __________shares of common stock, par value $.0001 per share,
outstanding. Each share of common stock is entitled to one vote on
each of the items being voted on at the meeting.
AeroGrow’s
Annual Report on Form 10-K, which includes audited financial statements for
the year ended March 31, 2008, and amendment on Form 10-K/A accompanies this
Proxy Statement. The approximate date on which the Proxy Statement and the
accompanying proxy are first being sent to stockholders is
____________.
The
following information regarding the meeting and the voting process is presented
in a question and answer format.
INTRODUCTION
AeroGrow
International Inc. (“AeroGrow”) was formed as a Nevada corporation on March 25,
2002. Wentworth I, Inc., a corporation (“Wentworth”) organized under the laws of
the State of Delaware on March 6, 2001, entered into an Agreement and Plan of
Merger with us (the “Merger Agreement”) on January 12, 2006, which merger was
consummated on February 24, 2006. Under the Merger Agreement, Wentworth merged
with and into AeroGrow, and AeroGrow was the surviving corporation (the
“Merger”). Our certificate of incorporation and by-laws prior to the
Merger are now those of the surviving company, and the surviving company is
governed by the corporate law of the State of Nevada.
In June
2006, AeroGrow was approved for listing on the NASDAQ Capital Market under the
symbol “AERO,” and trading began on June 13, 2006. AeroGrow is subject to the
rules of the NASDAQ Capital Market, including those pertaining to the
independence of directors.
Why
am I receiving this proxy statement and proxy card?
You are receiving a proxy statement and
proxy card from us because on August 20, 2008, you owned shares of AeroGrow’s
common stock. This proxy statement describes the matters that will be
presented for consideration by the stockholders at the Annual Meeting. It
also gives you information about these matters to assist you in making an
informed decision.
When you sign the enclosed proxy card,
you appoint the proxy holder as your representative at the meeting. The
proxy holder will vote your shares as you have instructed in the proxy card,
thereby ensuring that your shares will be voted whether or not you attend the
meeting. Even if you plan to attend the meeting, you should complete,
sign, and return your proxy card in advance of the meeting just in case your
plans change.
If you have signed and returned the
proxy card and an issue comes up for a vote at the meeting that is not
identified on the form, the proxy holder will vote your shares, pursuant to your
proxy, in accordance with his or her judgment.
What
matters will be voted on at the meeting?
You are being asked to vote on three
issues:
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The
election of six directors of AeroGrow for a term of one year expiring in
2009 or until their successors have been duly elected and
qualified;
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The
approval of an amendment to our 2005 Equity Compensation Plan to authorize
the issuance of an additional 2,000,000 shares under the Plan, and ratify
grants totaling 832,377 of those shares that have been granted in advance
of such approval; and
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To
ratify the selection of Gordon, Hughes and Banks, LLP as our independent
auditors for the fiscal year ending March 31,
2009.
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You may vote either by mail or in
person at the meeting. To vote by mail, complete and sign the enclosed
proxy card and mail it pursuant to the instructions on the proxy card. If
you mark your proxy card to indicate how you want your shares voted, your shares
will be voted as you instruct.
If you sign and return your proxy card
but do not mark the form to provide voting instructions, the shares represented
by your proxy card will be voted “for” all proposals named in this Proxy
Statement and by the appointed proxies in accordance with his or her judgment on
any other matter brought before the meeting.
If you want to vote in person, please
come to the meeting. We will distribute written ballots to anyone who
wants to vote at the meeting. Even if you plan to attend the meeting, you
should complete, sign and return your proxy card in advance of the meeting just
in case your plans change. Please note that if your shares are held in the
name of your broker (or in what is usually referred to as “street name”), you
will need to arrange to obtain a “legal proxy” from your broker in order to vote
in person at the meeting.
If
I hold shares in the name of a broker or fiduciary, who votes my
shares?
If you received this proxy statement
from your broker or a trustee or other fiduciary who may hold your shares, your
broker or fiduciary should have given you instructions for directing how they
should vote your shares. It will then be their responsibility to vote your
shares for you in the manner you direct. As discussed above, if you want
to vote in person at the meeting, you will need to arrange to obtain a “legal
proxy” from your broker or fiduciary in order to vote in person at the
meeting.
Under the rules of various national and
regional securities exchanges, brokers may generally vote on routine matters,
such as the election of directors, but cannot vote on non-routine matters, such
as an amendment to the Articles of Incorporation or the adoption or amendment of
a stock option plan, unless they have received voting instructions from the
person for whom they are holding shares. If your broker does not receive
instructions from you on how to vote particular shares on matters on which your
broker does not have discretionary authority to vote, your broker will return
the proxy form to us, indicating that he or she does not have the authority to
vote on these matters. This is generally referred to as a “broker
non-vote” and will affect the outcome of the voting as described below, under
“How many votes are needed for approval of each proposal?” Therefore, we
encourage you to provide directions to your broker as to how you want your
shares voted on all matters to be brought before the meeting. You should
do this by carefully following the instructions your broker gives you concerning
its procedures. This ensures that your shares will be voted at the
meeting.
What
does it mean if I receive more than one proxy card?
It means that you have multiple
holdings reflected in our stock transfer records and/or in accounts with
stockbrokers. Please sign and return ALL proxy cards to ensure that all
your shares are voted.
What
if I change my mind after I return my proxy?
If you
hold your shares in your own name, you may revoke your proxy and change your
vote at any time before the polls close at the meeting. You may do this
by:
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signing another proxy with a later date and returning that proxy
to:
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Corporate
Stock Transfer/AeroGrow
Attn: Rhonda
Singleton
3200
Cherry Creek Drive
Suite
4300
Denver,
CO 80209
Or fax to
Attention Rhonda Singleton at 303-282-5800
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sending notice to us that you are revoking your proxy;
or
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voting in
person at the meeting (attendance at the Annual Meeting will not in and of
itself constitute the revocation of a
proxy). |
If you
hold your shares in the name of a broker or fiduciary and desire to revoke your
proxy, you will need to contact your broker to revoke your proxy.
How
many votes do we need to hold the annual meeting?
A
majority of the shares that are outstanding and entitled to vote as of the
record date must be present in person or by proxy at the meeting in order to
hold the meeting and conduct business.
Shares
are counted as present at the meeting if the stockholder either:
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is present in person at the meeting;
or
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has properly submitted a signed proxy card or other
proxy.
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On August
20, 2008, the record date, there were ___________ shares of common stock issued
and outstanding. Therefore, at least ____________ shares need to be
present at the annual meeting.
What
happens if a nominee for director is unable to stand for
re-election?
The Board
may, by resolution, provide for a lesser number of directors or designate a
substitute nominee. In the latter case, shares represented by proxies may be
voted for a substitute nominee. You cannot vote for more than six nominees. The
Board has no reason to believe any nominee will be unable to stand for
re-election.
What
options do I have in voting on each of the proposals?
You may
vote “for” or “withhold authority to vote for” each nominee for director.
You may vote “for,” “against” or “abstain” on any other proposal that may
properly be brought before the meeting. Abstentions will be considered in
determining the presence of a quorum but will not affect the vote required for
election of directors.
How
many votes may I cast?
Generally,
you are entitled to cast one vote for each share of stock you owned on the
record date. The proxy card included with this proxy statement indicates the
number of shares owned by an account attributable to you.
How
many votes are needed for each proposal?
The
directors are elected by a plurality vote and the six individuals receiving the
highest number of votes cast “for” their election will be elected as directors
of AeroGrow. Broker non-votes will not be counted as entitled to vote, but
will count for purposes of determining whether or not a quorum is present on the
matter. Therefore, a broker non-vote has no effect on the election of
directors. Other issues are determined by a majority of votes
cast.
Where
do I find the voting results of the meeting?
We will
announce voting results at the meeting. The voting results will also be
disclosed in our Quarterly Report on Form 10-Q for the period ended September
30, 2008.
May
I propose actions for consideration at next year’s meeting of
stockholders?
Yes. For your proposal to be considered
for inclusion in our proxy statement for next year’s meeting, we must receive
your written proposal no later than April 29, 2009. If we change the date of
next year’s meeting by more than 30 days from the date of this year’s meeting,
then the deadline is a reasonable time before we begin to print and send our
proxy materials. You should also be aware that your proposal must comply with
SEC regulations regarding stockholder proposals.
For you to raise a proposal (including
a director nomination) from the floor at next year’s meeting, we must receive a
written notice of the proposal no later than July 3, 2009, and it must contain
the additional information required by our Amended Bylaws. If we change the date
of next year’s meeting by more than 30 days from the date of this year’s
meeting, then the deadline is a reasonable time before we begin to send our
proxy materials.
Who
bears the cost of soliciting proxies?
We will
bear the cost of soliciting proxies. In addition to solicitations by mail,
officers, directors, or employees of AeroGrow or its subsidiaries may solicit
proxies in person or by telephone. These persons will not receive any
special or additional compensation for soliciting proxies. We may
reimburse brokerage houses and other custodians, nominees and fiduciaries for
their reasonable out-of-pocket expenses for forwarding proxy and solicitation
materials to stockholders.
PROPOSAL
NO. 1
ELECTION
OF DIRECTORS
The six
nominees named below have been nominated by the Nominating and Corporate
Governance Committee of the Board for election as directors for a term of one
year or until their successors have been duly elected and
qualified.
It is
intended that the proxies received in response to this solicitation will be
voted for the election of the six persons so nominated, unless otherwise
specified. If, for any reason, any nominee becomes unavailable for
election or declines to serve, persons named in the proxy may exercise
discretionary authority to vote for a substitute proposed by the Board. No
circumstances are presently known which would render a nominee named herein
unavailable.
Set forth
below is certain biographical information concerning each nominee for director,
including principal occupation and age as of August 20, 2008, the record date
for the Annual Meeting. Unless otherwise noted, nominees for director have
been employed in their principal occupation with the same organization for at
least the last five years.
The Board
of Directors recommends a vote FOR each of the
nominees.
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Name
(Age)
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Director
since
(1)
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Position
with AeroGrow and
Principal
Occupation for the last five years
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Jack.
J. Walker
(Age
74)
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2006
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Jack J. Walker has been
a director since the February 23, 2006 annual meeting of
shareholders, and became Chairman as of July 23, 2008. He has
served as president of English & Continental Properties, Inc., a
real estate investment and development company, since 1980. From
1976 to 1985, Mr. Walker was president of March Trade &
Finance, Inc., a private investment company. From 1974 to 1976,
Mr. Walker was the controlling shareholder of Charles Spreckly
Industries, Town & Commercial Properties, and Associated
Development Holdings. In 1961 he founded English &
Continental Property Company, and served as joint Managing Director of
this commercial development company until 1976. Mr. Walker
began his career in 1957 as a lawyer in London, England, specializing in
real estate, financing, international tax, and corporate
affairs. Mr. Walker served as a director of Megafoods
Stores Inc. from 1984 to 1993. From 1975 through the present,
he has served as a venture capital consultant to companies on financial
and pre-IPO strategies. In addition, Mr. Walker created
the Walker Foundation for Charitable Activities, and has served as a
director of various professional, civic, and charitable
organizations.
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Jervis
B. Perkins
(Age
53)
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2008
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Jervis B. Perkins has
been Chief Executive Officer and a director of AeroGrow since March 2008,
and President and Chief Operating Officer since November
2007. From January 2003 to May 2006, Mr. Perkins
served as President and Chief Operating Officer of Johnson Outdoors, Inc.,
a publicly-traded global manufacturer of outdoor recreation products with
revenue of approximately $400 million per year. At Johnson
Outdoors, Mr. Perkins was directly responsible for all aspects
of sales, marketing, product development, manufacturing, and
distribution. From 1995 to 2003, Mr. Perkins served as
Executive Vice President and General Manager at Brunswick Corporation, a
leading consumer brands company. Prior to Brunswick, Mr.
Perkins worked at Quaker Oats for 17 years, serving in a variety of
general management and senior marketing roles.
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Linda
Graebner
(Age
58)
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2008
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Linda Graebner, has been
a director since July 2, 2008. From June 1993 to January 2007, Ms.
Graebner served as President and CEO of Tilia Inc., a leading manufacturer
of premier lines of small electric kitchen appliances (FoodSaver ® and
VillaWare ® brands) with annual revenues in excess of $200 million. She
managed the sale of this privately held company to Jarden Corporation in
2002. Ms. Graebner has served on multiple boards, including Bradshaw
International Inc., Wine.com, Inc., the Association of Corporate Growth,
and Pacific Community Ventures, and as Chairman of the International
Housewares Association.
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Peter
A. Michel
(Age
65)
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2008
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Peter A. Michel has been
a director since July 2, 2008. Since 2006, Mr. Michel has been
employed as President and CEO of iSECUREtrac Corporation, a leading
provider of electronic monitoring systems. From 2005 to 2006, he was
an operations team member of Cerberus Capital Management, L.P., where he
provided operations turnaround/enhancement advice and services and served
as fulltime interim CEO when required for portfolio companies of this
private investment firm. Mr. Michel was previously President
and CEO of General Fiber Communications, Inc. on an interim basis from May
23, 2005 to July 8, 2005. The Company filed for Chapter 7 Bankruptcy
on July 8, 2005. From 2003 to 2004 he served as President and CEO of
NEP Broadcasting, L.L.C. where he led the sale of the business to private
equity investors. He has led four companies as CEO, including
Brink's Home Security, a $258 million leader in high-tech home protection
services supporting over 700,000 households in more than 100 markets and
42 states. Mr. Michel is currently on the board of iSECUREtrac
Corporation, ISEC.OB.
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Suresh
Kumar
(Age
53)
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2008
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Suresh Kumar has been a
director since July 2, 2008. Mr. Kumar has been the President
and Managing Partner of KaiZen Innovation, LLC, a management advisory firm
that specializes in installing global marketing processes and programs,
since January of 2004. From 2006 to 2007, he was special
advisor to the Clinton Foundation working closely with the principals and
governments to establish private-public partnerships that stimulate
international economic development. From 1999 to 2003, Mr.
Kumar served as head of Worldwide Consumer Pharmaceuticals for Johnson
& Johnson, where he was responsible for all aspects of a $580 million
(revenue) consumer medicines business in Asia, Latin America, and
Europe. From 1993 to 1999, Mr. Kumar served as the Marketing
Director, Consumer Healthcare, then Vice President, Consumer Products,
Latin America & Asia, for Warner Lambert, USA.
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Michael
D.
Dingman,
Jr.
(Age
54)
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2006
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Michael D. Dingman,
Jr . has been a director since July 2, 2008. Mr. Dingman
has served as Chief Investment Administration Officer for Spencer Trask
& Co, a venture capital firm based in New York City, since April 24,
2008, where he is responsible for restructurings, recapitalizations, and
the development and implementation of strategies to enhance the value and
liquidity of individual portfolio companies. From June 2006 to
July 2007, Mr. Dingman was chief financial officer of Local Matters, Inc.,
a pre-IPO software and media services company supporting yellow pages and
delivery assistance providers, where he was responsible for the financial
and capital markets strategies, budgeting, and
forecasting. From September 2000 until April 2006, Mr. Dingman
served as the chief financial officer of Intrado Inc., a provider of 911
information services and systems to telecommunications companies, where he
was responsible for budgeting, forecasting, investor relations, capital
market and financial strategy development and all aspects of the
accounting/financial reporting functions. Prior to joining
Intrado, from March 1999 to August 2000, Mr. Dingman was the chief
financial officer and treasurer of Internet Commerce and Communication
(formerly RMI NET, Inc.). Mr. Dingman's prior work experience
includes five years of banking in merger and acquisitions with Lazard
Freres in New York during the late 1980s, three years as an independent
consultant specializing in debt restructuring and workouts during the
early 1990s, and five years as an investment advisor specializing in
corporate retirement plans and high-net-worth accounts.
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BOARD
OF DIRECTORS
Currently,
there are six directors serving on our Board of Directors. There are no
arrangements or understandings between any of the directors or any other person
pursuant to which any of AeroGrow’s directors or the nominees for the Board have
been selected for their respective positions.
Generally,
the Board oversees our business and monitors performance of our management. In
accordance with our corporate governance procedures, the Board does not involve
itself in the day-to-day operations of AeroGrow, which is monitored by our
executive officers and management. Our directors fulfill their duties and
responsibilities by attending regular meetings of the full Board, which are held
on a quarterly basis, and special meetings held from time to time and through
committee membership, which is discussed below. Our directors also discuss
business and other matters with our key executives and our principal external
advisers (legal counsel, auditors, and other consultants).
A
majority of our directors are considered independent as defined by NASDAQ.
Generally, the Board undertakes an annual review of director independence.
This process consists of an oral question and answer session at a board meeting
at which all directors hear the responses of each director and have an
opportunity to evaluate the facts presented. This independence review is
further supplemented by an annual questionnaire that directors are required to
complete that contains a number of questions designed to ascertain the facts
necessary to determine independence, as well as facts regarding any related
party transactions.
Because
Mr. Walker or his affiliates received fees subsequent to the fiscal year end
from AeroGrow for services other than as a member of the Board, he is not now
considered independent under the rules established by NASDAQ. During Fiscal 2008
Mr. Walker was considered an independent director. Because of his current or
past positions as an executive officer of AeroGrow, Mr. Perkins is not
considered “independent” under the rules established by NASDAQ.
During
Fiscal 2008, the Board held three meetings. All directors attended 100% of the
meetings of the Board and the committees on which they served during 2008,
except Kenneth C. Leung, a former director, who missed one meeting while out of
the country. AeroGrow’s independent directors met three times in executive
session in 2008 and will meet a minimum of three times in executive session in
Fiscal 2009. AeroGrow’s policy with respect to director attendance is that
each director attend the Board meetings and the Annual Meeting of
Stockholders. It is each director’s intention, at this time, to attend the
2008 Annual Meeting.
Any
stockholder who wishes to contact the full Board or any individual director may
do so (1) in writing, in care of AeroGrow International, Inc., 6075 Longbow
Drive, Suite 200, Boulder Colorado 80301 or (2) electronically, through the
hyperlink available at our website at www.aerogrow.com/investor.
Governance, Compensation and
Nominating Committee. The current members of the Governance,
Compensation and Nominating committee are Mr. Michel (chairman), Mr. Kumar,
and Ms. Graebner. The Board has affirmatively determined that each of
these persons is an independent director as defined by applicable securities law
and NASDAQ corporate governance guidelines. The members were elected to the
committee, and the chairman was appointed, by the
Board.
The primary
purpose of the Governance, Compensation and Nominating Committee, as defined by
its charter, provides that the committee shall:
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recommend
to the Board the corporate governance guidelines to be
followed;
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review
and recommend the nomination of Board
members;
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set
the compensation for the chief executive officer and other officers;
and
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administer
the equity-based performance compensation plans of
AeroGrow.
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During
Fiscal 2008 the Governance, Compensation and Nominating Committee met three
times. Each member attended all of the meetings held by the Committee
during the period that he or she served as a director of AeroGrow, except
Kenneth C. Leung, a former director, who missed one meeting while out of the
country.
The
Governance, Compensation and Nominating Committee has a Charter which may be
viewed at http://www.aerogrow.com/investors
at “Committees.” The Committee does not yet have policy regarding the submission
by shareholders of nominations for the Board of Directors, but intends to adopt
one prior to the 2009 annual shareholder meeting. In evaluating candidates for
the Board of Director, the Committee has considered the past business and
educational background of candidates, including experience as executive officers
in rapidly growing, publicly registered consumer product companies who market
their products through retail outlets, by direct marketing or both. The
Committee attempts to locate persons who collectively demonstrate experience in
marketing, finance, production, and general management skills. The Committee may
employ a variety of methods to locate suitable candidates, including industry
contacts, recommendations by investors (which must be received at least 120 days
before the annual meeting), use of professional search firms or other methods.
Each director nominee named in this Proxy was recommended by former Board
Chairman, Michael Bissonnette and the President, Jervis B. Perkins, and was
interviewed by each of the non-management directors on the Governance,
Compensation and Nominating Committee at that time.
Audit Committee.
The current members of our Audit Committee are Mr. Dingman
(chairman), Mr. Kumar, and Mr. Michel. The members were elected
to the committee, and the chairman was appointed, by the Board. Mr.
Dingman is considered a financial expert and Messrs Kumar and Michel are
considered financially literate under the rules of the SEC for audit committee
members. The Board has affirmatively determined that each of these persons
is an independent director as defined by applicable securities law and NASDAQ
corporate governance guidelines.
The
primary purpose of the Audit Committee, as defined in its charter, provides
that the committee shall:
|
|
·
|
oversee
the accounting and financial reporting processes and audits of the
financial statements;
|
|
|
·
|
assist
the Board with oversight of the integrity of our financial statements, the
Company’s compliance with legal and regulatory requirements, its
independent auditors’ qualifications, and independence and the performance
of the independent auditors; and
|
|
|
·
|
provide
the Board with the results of its
monitoring.
|
A copy of
the Audit Committee’s charter is available in the “Investor” section of our
website at www.aerogrow.com.
During
Fiscal 2008 the Audit Committee met four times. Each member attended all
of the meetings held by the Committee during the period that he or she served as
a director of AeroGrow, except Kenneth C. Leung, a former director, who missed
one meeting while out of the country.
Policy
on Accounting Matters; Pre-Approval of Audit and Non-Audit Services of
Independent Registered Public Accounting Firm
The
primary purpose of the Audit Committee is to assist the Board in monitoring (i)
the integrity of our financial statements and disclosures, including oversight
of the accounting and financial reporting processes and the audits of our
financial statements, (ii) compliance with our legal, ethical, and regulatory
requirements, and (iii) the independence and performance of our independent
registered public accounting firm.
The Audit
Committee policy is to pre-approve all audit and non-audit services, other than
de minimis non-audit
services, provided by the independent registered public accounting
firm. These services may include, among others, audit services,
audit-related services, tax services, and other
services. Pre-approval is generally provided for up to one year and
any pre-approval is detailed as to particular services or categories of services
and is generally subject to a specific budget. The independent
registered public accounting firm and management are required to periodically
report to the full Board regarding the extent of services provided by the
independent registered public accounting firm in accordance with this
pre-approval, and the fees for the services performed to date.
The Audit
Committee considers the provision of non-audit services by our independent
registered public accounting firm compatible with its
independence. The Audit Committee will continue to approve all audit
and permissible non-audit services provided by our independent registered public
accounting firm.
The Audit
Committee has selected Gordon, Hughes & Banks, LLP to continue to serve as
our independent auditor for the fiscal year ending March 31, 2009. A
representative of Gordon, Hughes & Banks, LLP is expected to be present at
the Annual Meeting and will have the opportunity to make a statement if he or
she desires to do so and will be available to respond to appropriate
questions.
DIRECTOR
COMPENSATION
Current
and Historical Compensation Program
Commencing
July 2008, director compensation is $5,000 per year for general service, plus
$1,000 for each Board meeting attended; reimbursement of travel expenses and an
annual grant of 18,000 options to purchase our common stock, exercisable in
whole or in part within five years from the date of grant at an exercise price
equal to the market closing price on the day of grant. The
compensation for the Chairman is $10,000 per year for general service, plus
$2,000 for each Board meeting attended; reimbursement of travel expenses and an
annual grant of 36,000 options to purchase our common stock exercisable in whole
or in part within five years from the date of grant at an exercise price equal
to the market closing price on the date of grant. The Chairman of the
Audit Committee receives an additional $5,000 per year in compensation. Each
member of the Audit Committee receives an option to purchase 3,000 shares of
common stock for membership on the committee and each member of the Governance,
Compensation and Nominating Committee receives an option to purchase 2,000
shares of common stock for membership on that committee. Director
options vest pro rata monthly (one-twelfth per month) on the last day of each
month throughout the term of service. If a director is unable to
finish his or her term of service by reason of death or disability, the director
options vest immediately. The Company maintains $10 million of
director and officer insurance, and has entered into an agreement indemnifying
each director against liabilities under certain
circumstances.
In 2004
and 2005 each non-employee director received 2,000 shares of common stock for
his service as director. Outside directors were compensated $500 for attending
meetings and reimbursed for out-of-pocket expenses for attending meetings. On
March 28, 2006, we granted to each of our four outside directors 2,500
shares of our common stock at a value of $5.00 per share for a total of $12,500
for each director, or an aggregate total of $50,000, and 10,000 fully-vested
five-year options to purchase our common stock at an exercise price of $5.00 per
share for services for Fiscal 2007. In addition, Mr. Walker, and former
directors Wayne Harding and Kenneth C. Leung received grants of 1,250
shares for service on the Audit Committee and 750 shares for service on the
Governance, Compensation and Nominating Committee. On March 22, 2007, we
granted to three of our four outside directors, current Chairman Walker, and
former directors Mr. Leung and Mr. Kranitz, 2,500 shares of our common stock at
a market value of $5.90 per share for a total of $14,750 for each director, or
an aggregate total of $59,000, and 10,000 fully vested five-year options to
purchase our common stock at an exercise price of $5.90 per share, the price per
share equal to the fair market value of the common stock on the date of the
option grant, for services on the Board for the calendar year ending December
31, 2007. In addition, on March 22, 2007, Chairman Walker and former director
Mr. Leung received grants of 1,250 shares for service on the Audit Committee and
750 shares for service on the Governance, Compensation and Nominating Committee.
Also, Mr. Harding, the previous Chairman of the Audit and Governance Committees,
received a grant on March 22, 2007 for services rendered of 3,500 shares of our
common stock at a market value of $5.90 per share for a total of $20,650 and
5,000 fully vested five-year options to purchase our common stock at an exercise
price of $5.90 per share, the price per share equal to the fair market value of
the common stock on the date of the option grant.
The following table sets forth
information regarding all forms of compensation received by persons who served
as directors of the Company during Fiscal 2008:
Director
Compensation
|
Name
|
|
Directors
Fees
Earned
or
Paid
in Cash
|
|
|
Stock
Awards
|
|
|
Option Awards
|
|
|
All
Other Compensation
|
|
|
Total
|
|
|
W.
Michael Bissonnette, Chairman
and Director
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
Jervis
B. Perkins, Director
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
Dennis
A. Channer, Director
|
|
$
|
1,500
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
1,500
|
|
|
Richard
A. Kranitz, Director
|
|
$
|
1,500
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
24,000
|
(1)
|
|
$
|
25,500
|
|
|
Kenneth
C. Leung, Director
|
|
$
|
1,000
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
1,000
|
|
|
Jack
J. Walker, Director
|
|
$
|
1,500
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
20,000
|
(2)
|
|
$
|
21,500
|
|
|
(1)
|
Represents
fees for legal services paid to Kranitz and Philip, a law firm of which
Mr. Kranitz is a
partner.
|
|
(2)
|
Represents
consulting fees paid to Mr. Walker.
|
REPORT
OF THE AUDIT COMMITTEE
In
accordance with its written charter adopted by the Board, the Audit Committee of
the Board assists the Board in fulfilling its responsibility for the oversight
of the quality and integrity of the accounting, auditing, and financial
reporting practices of AeroGrow. During 2008, the Committee met three times and
also reviewed and discussed the interim financial information contained in each
quarterly earnings announcement with management and the independent auditors
prior to public release.
In
discharging its oversight responsibility as to the audit process for the fiscal
year ending March 31, 2009, the Committee obtained from the independent
auditors a formal written statement describing all relationships between the
auditors and AeroGrow that might bear on the auditors’ independence consistent
with Independence Standards Board Standard No. 1, “Independence Discussions
with Audit Committees,” discussed with the auditors any relationships that may
impact their objectivity and independence, and satisfied itself as to the
auditors’ independence. The Committee also discussed with management, the
internal auditors and the independent auditors the quality and adequacy of
AeroGrow’s internal controls and internal audit function’s organization,
responsibilities, budget, and staffing. The Committee reviewed with both the
independent and internal auditors their audit plans, scope, and identification
of audit risk areas.
The
Committee discussed and reviewed with the independent auditors all
communications required by auditing standards generally accepted in the United
States of America including those described in Statement on Auditing Standards
No. 61, as amended, “Communication with Audit Committees,” and discussed and
reviewed the results of the independent auditors’ examination of the financial
statements. The Committee also discussed the results of the internal audit
examinations.
The
Committee reviewed the audited financial statements of AeroGrow as of and for
the year ended March 31, 2008, with management and the independent
auditors. Management has the responsibility for the preparation of
AeroGrow’s financial statements and the independent auditors have the
responsibility for the audit of those statements.
Based
upon the above-mentioned review and discussions with management and the
independent auditors, the members of the Committee as of May 28, 2008,
recommended to the Board that AeroGrow’s audited financial statements be
included in its Annual Report on Form 10-K for the year ended March 31, 2008,
for filing with the Securities and Exchange Commission.
|
|
Audit
Committee (as of May 28, 2008)
|
|
|
Dennis
Channer (Chairman)
|
The
following table sets forth certain information regarding our common stock
beneficially owned on July 24, 2008 by:
· each shareholder we
know to be the beneficial owner of 5% or more of our outstanding common
stock;
· each of our Named
Executive Officers for whom disclosure is provided in “Executive Compensation,”
and each of our directors; and
· all Named Executive
Officers and directors as a group.
In general, a
person is deemed to be a “beneficial owner” of a security if that person has or
shares the power to vote or direct the voting of such security, or the power to
dispose or to direct the disposition of such security. A person is
also deemed to be a beneficial owner of any securities of which the person has
the right to acquire beneficial ownership within 60 days. To the best
of our knowledge, subject to community and marital property laws, all persons
named have sole voting and investment power with respect to such shares except
as otherwise noted. The table assumes a total of 12,115,992 shares of
common stock outstanding.
|
Name
of Beneficial Owner (1)
|
|
Amount
of
Beneficial
Ownership
|
|
|
Percent
Beneficial
Ownership
|
|
|
Enable
Capital Management LLC and affiliated holders (2)
|
|
|
1,293,055
|
|
|
|
9.99
|
%
|
|
W. Michael
Bissonnette
|
|
|
956,297
|
|
|
|
7.90
|
%
|
|
Eliot
Rose Asset Management LLC (3)
|
|
|
605,689
|
|
|
|
5.00
|
%
|
|
Jack
J. Walker (4), (9)
|
|
|
270,408
|
|
|
|
2.22
|
%
|
|
Randal
L. Seffren (5)
|
|
|
215,320
|
|
|
|
1.76
|
%
|
|
Jeffrey
M. Brainard (6)
|
|
|
143,331
|
|
|
|
1.17
|
%
|
|
Richard
A. Kranitz (7)
|
|
|
84,496
|
|
|
|
0.70
|
%
|
|
Jervis
B. Perkins (8), (9)
|
|
|
38,834
|
|
|
|
0.32
|
%
|
|
Michael
D. Dingman, Jr. (9)
|
|
|
--
|
|
|
|
--
|
%
|
|
Linda
Graebner (9)
|
|
|
--
|
|
|
|
--
|
%
|
|
Suresh
Kumar (9)
|
|
|
--
|
|
|
|
--
|
%
|
|
Peter
A. Michel (9)
|
|
|
--
|
|
|
|
--
|
%
|
|
|
|
|
|
|
|
|
|
|
|
All
AeroGrow Named Executive Officers and Directors as a Group (8
Persons)
|
|
|
667,893
|
|
|
|
5.35
|
%
|
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the SEC, which
include holding voting and investment power with respect to the
securities. Shares of common stock subject to options or
warrants currently exercisable, or exercisable within 60 days, are deemed
outstanding for computing the percentage of the total number of shares
beneficially owned by the designated person, but are not deemed
outstanding for computing the percentage for any other
person.
|
|
(2)
|
As
of December 31, 2007, based on information provided in Schedule 13G/As
filed February 20, 2008. According to these filings, Enable
Capital Management, LLC ("ECM") is the beneficial owner of 465,545 shares
of our common stock and warrants to purchase up to 840,000 shares of our
common stock (the "Warrants"). The exercise of the Warrants is
subject to restrictions (the "Warrant Restrictions") that limit exercise
to the number of Warrants that, after giving effect to such exercise,
would not cause the holder of the Warrants to beneficially own in excess
of 9.99% of the total number of issued and outstanding shares of our
common stock (including for such purposes the shares of our common stock
issued upon such exercise). Assuming 12,115,995 shares of common stock
outstanding, the Warrant Restrictions limit the number of Warrants that
may be exercised to 827,510. ECM is located at One Ferry
Building, Suite 255, San Francisco, CA 94111. Mr. Mitchell S.
Levine is the managing member and majority owner of ECM. Mr.
Levine’s address is One Ferry Building, Suite 255, San Francisco, CA
94111. ECM acts as the general partner and/or investment
manager of Enable Growth Partners, L.P. Enable Growth Partners
L.P. is located at One Ferry Building, Suite 255, San Francisco, CA
94111.
|
|
(3)
|
As
of December 31, 2007, based on information provided in a Schedule 13G/A
filed January 25, 2008. According to this filing, Eliot Rose
Asset Management LLC holds 605,689 shares of our common
stock. Eliot Rose Asset Management LLC’s address is 10
Weybosset Street, Suite 401, Providence,
RI 02903.
|
|
(4)
|
Includes
76,122 shares held of record by March Trade & Finance, Inc. of which
Mr. Walker is a controlling person, and 34,286 shares issued
under a convertible note in principal amount of $120,000 that was
converted on March 28, 2007 and 24,000 shares underlying immediately
exercisable warrants at $5.00 per share and 24,000 shares underlying
warrants issuable and exercisable upon conversion of the note at $6.00 per
share. March Trade & Finance, Inc. holds 42,000
of these shares on behalf of an unrelated third party. Also
includes 12,000 shares underlying immediately exercisable warrants at
$6.25 per share, 10,000 fully-vested five-year options to purchase our
common stock at an exercise price of $5.00 per share and 2,500 shares of
common stock valued at $5.00 per share granted as of March 28, 2006 and
2,000 shares of common stock valued at $5.00 per share granted for
services on the audit and compensation committees. Also
includes 10,000 fully vested five-year options to purchase our common
stock at an exercise price of $5.90 per share and 4,500 shares of common
stock valued at $5.90 per share granted as of March 22, 2007. Mr.
Walker was also granted 4,500 shares of common stock valued at $2.07 per
share on July 1, 2008.
|
|
(5)
|
Includes
fully-vested options granted on March 28, 2006, to purchase 125,000 shares
of our common stock at an exercise price of $5.00 per
share.
|
|
(6)
|
Includes
fully-vested options granted on March 28, 2006, to purchase 125,000 shares
of our common stock at an exercise price of $5.00 per share and options
granted on December 14, 2006 to purchase 2,331 shares of our common stock
at an exercise price of $5.00 per
share.
|
|
(7)
|
Mr.
Kranitz is the Company’s non-employee Corporate Secretary. He
is a former director. Includes 46,546 shares owned by Cedar
Creek Ventures, LLC, of which Mr. Kranitz is a 50% owner and managing
member. Also includes 10,000 fully vested five-year options to
purchase our common stock at an exercise price of $5.00 per share and
2,500 shares of common stock valued at $5.00 per share granted as of March
28, 2006, 10,000 fully-vested five-year options to purchase our common
stock at an exercise price of $5.90 per share, 2,500 shares of common
stock valued at $5.90 per share granted as of March 22, 2007, and warrants
to purchase 4,000 shares of common stock at an exercise price of $2.07 per
share issued on July 1, 2008.
|
|
(8)
|
Includes
33,334 fully-vested five year options to purchase our common stock at an
exercise price of $5.85 per share granted as of February 1,
2008.
|
|
(9)
|
Does
not include options that have been granted, but are subject to shareholder
approval at the next annual shareholders’ meeting: 216,666 options to Mr.
Perkins, 36,000 options to Mr. Walker, 21,000 options to Mr. Dingman,
20,000 options to Ms. Graebner, 23,000 options to Mr. Kumar, and 23,000
options to Mr. Michel.
|
Section 16(a) of the Exchange Act requires our executive officers and
directors, and persons who own more than 10% of our common stock (herein
collectively, our “Section 16 insiders”) to file certain forms reporting
their ownership and changes in ownership of our stock with the SEC and the
NASDAQ Capital Market, and to furnish us with copies of these
filings.
Based
solely on our review of the copies of such forms that we received and written
representations from our Section 16 insiders, we believe that all of our
Section 16 insiders complied with their Section 16(a) reporting obligations
for Fiscal 2008 with a few exceptions. Dennis A. Channer became a
director on April 16, 2007 and filed his Form 3 late on May 9,
2007. Jack J. Walker filed an amended Form 3 on June 28, 2007 to
correct an error in the number of shares reported on his Form 3 filed on March
6, 2006. Mr. Walker filed an amended Form 4 on June 28, 2007 to
correct an error in the Form 4 filed on July 7, 2006 relating to the number of
common stock and warrants purchased in conjunction with the Company’s 2006
Offering (as defined in the Company’s Original Annual Report).
COMPENSATION
DISCUSSION AND ANALYSIS
Compensation
Philosophy
The Governance,
Compensation and Nominating Committee, of our Board is responsible for guiding
and overseeing the formulation and application of the compensation and benefit
programs for our executive officers. The Committee acts pursuant to a
charter that has been approved by our Board. None of our executive
officers are members of the Governance, Compensation and Nominating
Committee.
The
Governance, Compensation and Nominating Committee believes that the most
effective compensation program is one that is designed to reward the achievement
of specific annual, long-term, and strategic goals by AeroGrow, and which aligns
executives’ interests with those of the stockholders by rewarding performance
above established goals, with the ultimate objective of increasing stockholder
value. The Governance, Compensation and Nominating Committee
evaluates both performance and compensation to ensure that AeroGrow maintains
its ability to attract and retain superior employees in key positions and that
compensation provided to key employees remains competitive relative to the
compensation paid to similarly situated executives of our peer
companies. Accordingly, the Governance, Compensation and Nominating
Committee believes executive compensation packages provided by AeroGrow to its
executives, including the executive officers, should include salary
compensation, annual cash incentives based on fundamental measures of financial
performance, and longer-term stock-based compensation.
Compensation
Objectives
The
Governance, Compensation and Nominating Committee has worked with AeroGrow’s
management to design compensation programs that encourage high performance,
promote accountability and assure that employee interests are aligned with the
interests of AeroGrow’s stockholders. The primary objectives of our
executive compensation policies are to:
|
·
|
attract,
retain, and motivate highly qualified executives utilizing a mix of
compensation opportunities that include fixed short-term as well as
performance-related medium and long-term incentives tied to measurable
results;
|
|
·
|
reward
executives based upon our financial performance at levels competitive with
peer companies;
|
|
·
|
ensure
that the compensation amounts do not exceed what the company can
reasonably afford by regularly measuring total compensation for all
employees against a variety of financial metrics, including net income;
and
|
|
·
|
align
a significant portion of the executives’ compensation with AeroGrow’s
performance and stockholder value, by using performance-based executive
bonuses and long-term equity
incentives.
|
We
compensate our executives through a mix of base salary, bonus, and equity
compensation designed to be competitive with comparable employers and to align
management’s incentives with the long-term interests of our
stockholders.
Competitive
Benchmarking
In making
compensation decisions, the Governance, Compensation and Nominating Committee,
may compare certain elements of total compensation against other comparable
publicly-traded and privately-held companies that compete in our markets
(“Compensation Peers”). The Compensation Peers consist of companies
which the Governance, Compensation and Nominating Committee believes to be
comparable in terms of size and market composition (primarily in AeroGrow’s
market area), and in certain instances, which compete for talent and for
stockholder investment. The Compensation Peers are not utilized by
the Governance, Compensation and Nominating Committee strictly as a formal peer
group, but are instead used as a reference source, from time to time, as to
certain specific compensation issues, such as the extent of usage of stock
options as a compensation component.
A
significant percentage of total compensation is allocated to incentive
compensation as a result of the philosophy mentioned above. There is
no pre-established policy or target for the allocation between either cash and
non-cash or short-term and long-term incentive compensation. Rather,
the Governance, Compensation and Nominating Committee reviews information such
as that referenced above with respect to the Compensation Peers to determine the
appropriate level and mix of incentive compensation. Income from such
incentive compensation is realized as a result of the performance of AeroGrow or
the individual, depending on the type of award.
Compensation
Process
The
Governance, Compensation and Nominating Committee reviews the benchmarking and
performance results presented by management in determining the appropriate
aggregate and individual compensation levels for the performance
year. In conducting its review, the Governance, Compensation and
Nominating Committee considers quantitative performance results, the overall
need of the organization to attract, retain and motivate the executive team, and
the total cost of compensation programs.
Generally,
base salaries and annual incentive awards will be reviewed at the end of each
fiscal year with changes made to the base salaries effective April 1 of the
following fiscal year.
Stock
options and other stock grants are reviewed and approved at meetings of the
Governance, Compensation and Nominating Committee and the full
Board. By establishing the meeting schedule and agenda for these
grants in advance, AeroGrow diminishes any opportunity for manipulation of
exercise prices on option grants to the extent any recipients are in possession
of non-public information at the time of the meetings. Approval of
grants for any newly-hired or promoted executives during the course of the year
generally occurs at the Governance, Compensation and Nominating Committee’s
meeting immediately following the hiring or promotion.
Role
of Executive Officers in Compensation Decisions
The
Governance, Compensation and Nominating Committee makes all compensation
decisions for the executive officers and approves recommendations regarding
equity awards to all elected officers of AeroGrow. The Chief
Executive Officer annually reviews the performance of each Named Executive
Officer (other than the Chief Executive Officer, whose performance is reviewed
by the Governance, Compensation and Nominating Committee). “Named
Executive Officers” are the Company’s (i) Chief Executive Officer and (ii) other
two most highly compensated executive officers based on SEC regulations. The
conclusions reached and recommendations based on these reviews, including with
respect to salary adjustments and annual award amounts, are presented to the
Governance, Compensation and Nominating Committee. The Governance,
Compensation and Nominating Committee can exercise its discretion in modifying
any recommended adjustments or awards to executives. The committee
has the authority to form and delegate responsibilities to subcommittees as
appropriate.
Components
of Total Compensation
For
Fiscal 2008, the principal components of compensation for executive officers
were:
|
·
|
base
salary;
|
|
·
|
annual
incentive compensation;
|
|
·
|
stock
options; and
|
|
·
|
benefits
and other perquisites.
|
Each
component is designed to achieve a specific purpose and to contribute to a total
package that is competitive, appropriately performance-based, and valued by
AeroGrow’s executives.
Base
Salaries
AeroGrow
provides executive officers and other employees with base salary to compensate
them for services rendered during the fiscal year. Base salary ranges
for executive officers are determined for each executive based on his or her
position and responsibility. During its review of base salaries for
executives, the Governance, Compensation and Nominating Committee primarily
considers:
|
·
|
individual
scope of responsibility;
|
|
·
|
years
of experience;
|
|
·
|
market
data, such as that obtained from a review of our Compensation
Peers;
|
|
·
|
internal
review of the executive’s compensation, both individually and relative to
other officers; and
|
|
·
|
individual
performance of the executive.
|
Salary
levels are typically considered annually as part of AeroGrow’s performance
review process as well as upon a promotion or other change in job
responsibility.
Performance-Based
Annual Incentive Compensation
Though
markets dictate that base salaries must be competitive, AeroGrow is moving
towards basing a greater proportion of its executive compensation on the
achievement of measurable individual and company results through the award of
annual incentive bonuses. These bonuses are often tied to a
percentage of the Company’s EBITDA as well as to other financial goals and
metrics. By increasing variable pay as a percentage of total
compensation, AeroGrow can better align executive compensation with value
delivered to its shareholders. This limits fixed costs and also
results in higher pay occurring only in years when merited by high
performance.
Long
Term Stock-based Compensation
This category of awards covers options
granted to executives out of the Company’s 2005 Equity Compensation Program, and
that vest over time, at different rates for different
executives. Because these awards vest over time and become more
valuable to the recipient only as AeroGrow’s stock price increases, the
Governance, Compensation and Nominating Committee believes these are a useful
form of long-term incentive compensation, with the potential to directly align
the interests of shareholders and management.
Securities
Authorized for Issuance Under Equity Compensation Plans
2003 Stock Option
Plan. On January 3, 2003, our Board adopted a stock
option plan (the “2003 Plan”) for key employees (including key employees who are
directors), non-employee directors, consultants, and investors. An
aggregate of 400,000 shares of our common stock were available for grants under
the 2003 Plan. Upon shareholder approval on February 23, 2006, the
2003 Plan was merged into the 2005 Equity Compensation Plan (as defined below)
and ceased to exist separately. The 195,131 options still available
for grants under the 2003 Plan as of that date were contributed to the 2005
Equity Compensation Plan The options for the 204,869 shares
originally issued under the 2003 Plan continue to be governed by their grant
agreements but are administered under the 2005 Equity Compensation
Plan. All grants under the 2003 Plan were fully vested as of December
2005.
Administration. The
2003 Plan was administered by our Governance, Compensation and Nominating
Committee, and in the past was administered by the Board. The plan
provided that it could be administered by either the committee or Board, and in
its administration, it could:
|
|
·
|
determine
the type and number of awards to be
granted;
|
|
|
·
|
determine
the exercise or purchase price, vesting periods and any performance
goals;
|
|
|
·
|
determine
and later amend the terms and conditions of any
award;
|
|
|
·
|
interpret
the rules relating to the plan; and
|
|
|
·
|
otherwise
administer the plan.
|
2005 Equity Compensation Plan.
In August 2005 we adopted the 2005 Equity Compensation Plan (the
“2005 Plan”) to promote our interests and the interests of our shareholders by
attracting, retaining, and motivating our key officers, employees, directors,
and consultants. The 2005 Plan was approved by our stockholders at
the annual meeting of stockholders held on February 23, 2006. A total
of 1,505,000 shares of our common stock were originally available for grant
under the 2005 Plan in the form of stock options or awards of shares of
restricted stock, in addition to the available options remaining to be granted
under the 2003 Plan. In November 2007, our Board approved a
resolution authorizing an additional 1 million shares for issuance under the
2005 Plan, subject to shareholder approval. In July 2008, our Board
revised this resolution to authorize a total of 2 million additional shares for
issuance under the 2005 Plan, subject to shareholder
approval. Included in the options granted for Fiscal 2008 were
234,577 options above the current 1,505,000 shares eligible for issuance issued
under the 2005 Plan. These awards are subject to shareholder
approval. As of March 31, 2008, we had issued 1,561,034 options, net
of expirations that have been added back to the plan, to purchase common stock
at exercise prices ranging from $4.74 to $5.90 and 339,123 shares of common
stock at valued at prices ranging from $5.00 to $5.90. Between March
31, 2008 and July 24, 2008, we issued 594,300 options to purchase common stock
at exercise prices ranging from $1.80 to $2.96 and no shares of common
stock. These options are also subject to shareholder approval at the
next annual meeting.
Shares Available for
Awards. Shares subject to an award that is cancelled, expired,
unexercised, forfeited, settled in cash, or otherwise terminated remain
available for awards under the 2005 Plan. Shares issued under the
2005 Plan may be either newly issued shares or shares which we have
reacquired. The 2005 Plan imposes individual limitations on the
amount of certain awards in order to comply with Section 162(m) of the
Internal Revenue Code of 1986. Under these limitations, no single
participant may generally receive awards in any calendar year that represent
more than $1 million. The Governance, Compensation and Nominating
Committee may adjust awards to prevent dilution or enlargement of benefits when
certain events occur such as a stock dividend, reorganization, recapitalization,
stock split, combination, merger, or consolidation.
Eligibility. Our
employees, directors, and consultants may be granted awards under the
plan. As of March 31, 2008, approximately 82 individuals were
eligible to participate.
Administration. The
plan is administered by the Governance, Compensation and Nominating
Committee. Awards to directors serving on the Governance,
Compensation and Nominating Committee are determined and administered by the
full Board. The Governance, Compensation and Nominating Committee
may:
|
|
·
|
determine
the type and number of awards to be
granted;
|
|
|
·
|
determine
the exercise or purchase price, vesting periods and any performance
goals;
|
|
|
·
|
determine
and later amend the terms and conditions of any
award;
|
|
|
·
|
interpret
the rules relating to the plan; and
|
|
|
·
|
otherwise
administer the plan.
|
Stock Options. The
Governance, Compensation and Nominating Committee may grant both incentive stock
options, which can result in potentially favorable tax treatment to the
participant, and non-qualified stock options. The Governance,
Compensation and Nominating Committee determines the terms and individual
vesting schedules for each grant including the exercise price, which may not be
less than the fair market value of a share of common stock on the date of the
grant .
Restricted
Shares. The Governance, Compensation and Nominating Committee
may grant restricted shares of common stock. Restricted shares are
shares of common stock with transfer restrictions. These restrictions
lapse on the basis of performance and/or continued employment as determined in
advance by the committee. They may be forfeited by participants as
specified by the committee in the award agreement. A participant who
has received a grant of restricted shares will be eligible to receive dividends
and have the right to vote those shares. Restricted shares may not be
transferred, encumbered or disposed of during the restricted period or until
after the restrictive conditions are met.
Other Terms. All
outstanding awards vest, become exercisable or payable, and have all
restrictions lifted upon a change in control of the Company. The
Board may amend or terminate the plan subject to applicable stockholder
approval. The Governance, Compensation and Nominating Committee may
not amend the terms of previously granted options to reduce the exercise price
or cancel options and grant substitute options with a lower exercise price than
the cancelled options. The Governance, Compensation and Nominating
Committee also may not adversely affect the rights of any award holder without
the award holder’s consent.
During Fiscal 2008 we
issued 277,911 options under the plan, 234,577 of which are subject to
shareholder approval. In addition to a total of 222,131 options
granted during Fiscal 2007, we granted under the 2005 Plan a total of 98,194
shares of common stock at a value of $5.00 to $5.90 per share consisting of
5,000 shares issued to our former Chief Financial Officer, 5,000 shares issued
to our Vice President of Engineering and Manufacturing, 18,044 shares issued to
other employees, 49,150 shares granted to consultants for services, and 21,000
shares granted to directors for service on the Audit Committee and on
the Governance, Compensation and Nominating Committee.
As
of March 31, 2008
|
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
|
Weighted
average exercise price of outstanding options, warrants and
rights
|
|
Number
of securities remaining available
for future issuance
|
|
Equity
compensation plans approved by security holders
|
|
1,326,457
|
|
$
|
4.73
|
|
-
|
|
Equity
compensation plans not approved by security holders
|
|
234,577
|
|
$
|
4.74
|
|
-
|
|
Total
|
|
1,561,034
|
|
$
|
4.73
|
|
-
|
At March
31, 2008, we had granted options for 206,428 shares of our common stock that are
unvested that will result in $463,903 of compensation expense in future periods
if fully vested.
EXECUTIVE
OFFICERS AND MANAGEMENT
Below you can find information,
including biographical information, about our executive officers (other than Mr.
Perkins, whose biographical information is included with those of our nominees
for director under Proposal 1).
| Name
(Age) |
|
Position
with Aerogrow |
|
H.
Mac Gregor Clarke
(Age
47)
|
|
H. MacGregor Clarke
became Chief Financial Officer on May 23, 2008. From 2007 to
2008, Mr. Clarke was president and chief executive officer, and from 2006
to 2007, chief financial officer, of Ankmar, LLC, a garage door
manufacturer, distributor and installer. From 2003 to 2006, Mr.
Clarke was a senior investment banker with FMI Corporation, a management
consulting and investment banking firm serving the building and
construction industry. At FMI Corporation, Mr. Clarke was
responsible for delivering consulting and investment banking services to
clients, and for marketing to prospective clients in the financial
services industry. From 1997 to 2002, Mr. Clarke served as an
operating group chief financial officer, then vice president and general
manager for Johns Manville Corporation, a subsidiary of Berkshire Hathaway
Inc. Mr. Clarke also served as vice president, corporate
treasurer, and international division chief financial officer for The
Coleman Company, Inc. Prior to Coleman, Mr. Clarke was with
PepsiCo, Inc. for over nine years and served in a range of financial
roles, including director of corporate strategic planning, where he led
strategy and planning related to the worldwide beverage
sector.
|
| |
|
|
|
Randal
L. Seffren
(Age
50)
|
|
Randal L. Seffren has
been Chief Marketing Officer of AeroGrow since July 2006. From
April 2004 through July 2006, Mr. Seffren provided services as a marketing
consultant to us through Prometheus Communications Group, a company of
which he is the principal owner. From 1999 to 2004, Mr. Seffren
headed the marketing efforts for healthcare communications companies,
including Orbis Broadcast Group and MedEd Architects. From 1993
to 1999, he was executive vice president with Reebok Home Fitness/DP
Fitness/Body By Jake Fitness/Kent & Spiegel Direct. From
1989 to 1993, Mr. Seffren led the marketing, communications, and product
development efforts as director of marketing communications with Life
Fitness, a fitness equipment company.
|
| |
|
|
|
Jeffrey
M. Brainard
(Age
54)
|
|
Jeffrey M. Brainard has
been Vice President of Sales at AeroGrow since joining the Company in
March 2006. From 2003 to 2006, Mr. Brainard was vice president
of sales and marketing for Tensor Lighting, a manufacturer and marketer of
task and functional lighting. From 2000 to 2002 he
was senior vice president of sales for The Holmes Group, a manufacturer
and marketer of kitchen appliances and seasonal appliances, including
products under the brand names Holmes, Pollenex, Bionaire, Rival, and
Family Care. Previously, Mr. Brainard held various positions in
sales and marketing with Brita Water Filters, a division of the Clorox
Company, over an 11-year period.
|
Executive
Compensation
Employment
Contracts
We have
entered into employment agreements with our Named Executive Officers, Jervis B.
Perkins, Randal L. Seffren, and Jeffrey M. Brainard.
Jervis
B. Perkins
The
employment agreement for Mr. Perkins, dated as of March 1, 2008 (the “Perkins
Agreement”), provides that he will be employed as the Chief Executive Officer of
the Company. He must devote his entire business time to the affairs
of the Company. The initial term is one year and renewable for successive
one year terms. Mr. Perkins is entitled to receive base compensation of
$300,000 per year, and an annual bonus of not less than 2.0% of EBITDA
.. Mr. Perkins may be eligible to receive an additional annual cash
bonus based upon an increase in the stock price of the Company over the previous
year (as calculated under the Agreement). Under this provision, an
increase of less than 33% will yield no bonus, an increase of 33% to 49% will
yield a bonus of $50,000, an increase of 50% to 99% will yield a bonus of
$100,000, and an increase of 100% or greater will yield a bonus of
$200,000. Mr. Perkins is entitled to reimbursement for car
expenses at the rate of $1,000 per month. The agreement also provides
for medical, vacation and other benefits commensurate with the policies and
programs adopted by us for our senior executives. If the Company
terminates the employment of Mr. Perkins without cause (as determined under the
Perkins Agreement), then Mr. Perkins will be entitled to receive his base salary
for 12 months following the date of termination, and a pro rated portion of his
annual cash bonus. During the first three months of the Perkins
Agreement, the Company paid Mr. Perkins’s reasonably incurred commuting expenses
from Chicago, Illinois to Boulder, Colorado, including airline travel, rental
housing or hotel charges, and rental cars or car service. Mr. Perkins
was granted five-year options, subject to shareholder approval at the next
annual meeting, to purchase 216,666 shares of the Company’s common stock on
March 1, 2008, under the Company’s 2005 Equity Compensation Plan. The
exercise price is $4.74, the price of the Company’s common stock at market close
on the day of the grant. On March 1, 2008, 43,334 of the options
vested. One quarter of the remaining options will vest every six
months thereafter, starting on September 1, 2008, and ending on March 1,
2010. Under his previous employment agreement, dated November 12,
2007, Mr. Perkins was granted five-year options to purchase 33,334 shares of the
Company’s common stock on February 1, 2008, under the Company’s 2005 Equity
Compensation Plan. The options have a $5.85 exercise price, which was
the price of the Company’s common stock at market close on the day of grant, and
were fully vested on the day of grant. For Fiscal 2008, the Company
paid Mr. Perkins $95,664 in cash compensation and $87,002 in equity
compensation.
Randal
L. Seffren
The employment agreement for Mr. Seffren, dated as of July 24, 2006 (the
“Seffren Agreement”), provides that he will be employed as Chief Marketing
Officer of the Company. He must devote all of his business time to the affairs
of the Company working half time from an office in Chicago, Illinois and the
balance of his time traveling on Company business. The initial term is two years
ending July 31, 2008, and renewable for successive one-year
terms. The Seffren Agreement has been renewed through July 31,
2009. Mr. Seffren is entitled to receive base compensation of
$200,000 per year and an annual bonus of not less than 1.5% of the EBITDA of the
Company, as determined by our annual financial statements and pro rated for any
portion of such annual period covered under the Seffren Agreement. The bonus is
subject to adjustment so that it is no less favorable than that granted to other
senior executives. The Seffren Agreement also provides for medical, vacation,
and other benefits commensurate with the policies and programs as adopted by us
for our senior executives. Further, the Seffren Agreement confirms the option
grant awarded to Mr. Seffren as of March 28, 2006, consisting of an option to
purchase 125,000 shares of our common stock under our 2005 Equity Compensation
Plan at an exercise price of $5.00 per share, which were fully vested as of that
grant date and are subject to other standard terms and conditions under the 2005
Equity Compensation Plan. Mr. Seffren has agreed to regular confidentiality and
inventions assignment provisions and agreed not to compete with us during
employment and for 24 months thereafter. If his employment is terminated, he
will be entitled to receive severance pay equal to six months of his base salary
as in effect immediately before his termination, the payment by the Company of
medical benefits until the twelfth month following termination, and the pro rata
portion of his bonus as of the nearest quarter end financial statements of the
Company. During Fiscal 2008, Mr. Seffren was paid $225,959 in cash
compensation by the Company.
Jeffrey M. Brainard
The employment agreement for Mr. Brainard, dated as of March 31, 2006
(the “Brainard Agreement”), provides that he will be employed as the Vice
President of Sales of the Company. He must devote his entire business time
to the affairs of the Company, working from his home office in Lexington,
Massachusetts. The initial term was two years and renewable for successive one
year terms. Mr. Brainard is entitled to receive base compensation of $150,000
per year and an annual bonus in an amount not less than the greater of:
(i) $50,000; (ii) 0.5 per cent of retail net sales, net of all
customer deductions including but not limited to returns, allowances, bad debts
and other deductions; or (iii) 1.5% of the EBITDA of the Company as
determined by our annual financial statements and pro rated for any portion of
such annual period covered under this agreement. The bonus amount due
for Fiscal 2007 was paid in installments in accordance with the terms of the
Brainard Agreement. The Brainard Agreement also provides for medical,
vacation, and other benefits commensurate with the policies and programs adopted
by us for our senior executives. Further, pursuant to the Brainard Agreement,
Mr. Brainard was granted 125,000 options to purchase our common stock under
our 2005 Plan at an exercise price of $5.00. The options will: (i) vest
pursuant to a schedule that provides for vesting of at least of 33% of the
amount of the grant at the date granted and 33% per each 12-month period from
the date of grant; (ii) not expire in less than five years from the date of
grant; and (iii) be subject to other standard terms and conditions under
the 2005 Plan. Under the Brainard Agreement, Mr. Brainard was also entitled to
grants of shares of our common stock equal in value to $25,000 semi-annually
until such time as his salary reached a rate of $200,000 annually. The first
5,000 shares (valued at a price of $5.00 per share) were granted immediately
upon Mr. Brainard’s joining AeroGrow, and 5,000 additional shares were granted
six months thereafter. Effective March 31, 2007, Mr. Brainard’s salary was
increased to $200,000 annually. Mr. Brainard has agreed to regular
confidentiality and inventions assignment provisions and agreed not to compete
with AeroGrow for a period equal to the term employed after the termination of
employment. If Mr. Brainard is terminated without cause by us or
Mr. Brainard terminates under certain circumstances constituting a breach
of the agreement by us, Mr. Brainard shall be entitled to receive severance
compensation equivalent to six months base salary and a pro rata bonus. In
addition, if Mr. Brainard is terminated in the event of a change in control of
AeroGrow, including a change in chief executive officer, Mr. Brainard shall
be entitled to receive severance equal to his base salary for one
year. Mr. Brainard received $227,189 in cash compensation from the
Company during Fiscal 2008.
Other
Company officers who do not qualify as Named Executive Officers are employed on
an “at will” basis subject to varying lengths of employment agreements and
severance agreements.
GOVERNANCE,
COMPENSATION AND NOMINATING COMMITTEE REPORT
Notwithstanding
anything to the contrary set forth in any of AeroGrow’s filings under the
Securities Act of 1933, as amended, or the Exchange Act that might incorporate
other filings with the SEC, including this Proxy Statement, in whole or in part,
the following Governance, Compensation and Nominating Committee Report shall
not be deemed to be incorporated by reference into any such
filings.
The
Committee discharges the Board’s responsibilities relating to compensation of
AeroGrow’s executive officers. The Governance, Compensation and Nominating
Committee approves and evaluates all compensation of executive officers,
including salaries, bonuses, and compensation plans, policies and programs of
AeroGrow.
The
Compensation Discussion and Analysis portion of the Proxy Statement has been
prepared by management of AeroGrow. AeroGrow is responsible for the
Compensation Discussion and Analysis and for the disclosure controls relating to
executive compensation. The Compensation Discussion and Analysis is not a report
or disclosure of the Governance, Compensation and Nominating
Committee.
The
Committee met with management of AeroGrow to review and discuss the Compensation
Discussion and Analysis. Based on the foregoing review and discussions,
the Governance, Compensation and Nominating Committee recommended to the Board
that the Compensation Discussion and Analysis be included in this Proxy
Statement, and the Board approved that recommendation.
|
|
Governance,
Compensation and
|
|
|
|
Nominating
Committee (as of May 28, 2008)
|
|
|
|
Dennis
Channer (Chairman)
|
|
|
|
Jack
J. Walker
|
|
|
|
Kenneth
Leung
|
|
COMPENSATION
TABLES FOR NAMED EXECUTIVE OFFICERS
The
following tables quantify and discuss the components of compensation for the
Named Executive Officers. All tables should be read in conjunction with the
Compensation Discussion and Analysis section above. The Summary Compensation
Table should be read in conjunction with the footnotes and narrative that
follow.
Summary
Compensation Table
The
following table sets forth information regarding all forms of compensation
received by the Named Executive Officers during Fiscal 2008 and the fiscal year
ended March 31, 2007 (“Fiscal 2007”):
|
Name
and Principal Position
|
|
Fiscal
Year
|
|
Salary
|
|
Bonus
|
|
Stock
Awards
|
|
Option
Awards
|
|
|
All
Other Compensation
|
|
Total
|
|
Jervis
B. Perkins,
CEO,
President and Director (1)
|
|
2008
|
|
$
|
94,447
|
|
$
|
217
|
(2
|
)
|
$
|
--
|
|
|
$
|
87,002
|
(3
|
)
|
$
|
--
|
|
|
$
|
181,666
|
|
|
|
2007
|
|
$
|
--
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
W. Michael
Bissonnette,
Former
CEO, President, Chairman and Director (1)
|
|
2008
|
|
$
|
225,000
|
|
$
|
203
|
(2
|
)
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
14,599
|
(5
|
)
|
$
|
239,802
|
|
|
|
2007
|
|
$
|
225,000
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
23,063
|
(5
|
)
|
$
|
248,063
|
|
Randal
L. Seffren,
Chief
Marketing Officer
|
|
2008
|
|
$
|
200,000
|
|
$
|
203
|
(2
|
)
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
26,352
|
(6
|
)
|
$
|
226,555
|
|
|
|
2007
|
|
$
|
150,000
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
53,828
|
(7
|
)
|
$
|
203,828
|
|
Jeffrey
M. Brainard,
Vice
President of Sales
|
|
2008
|
|
$
|
200,000
|
|
$
|
27,189
|
(2
|
)(8)
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
227,189
|
|
|
|
2007
|
|
$
|
150,000
|
|
$
|
63,462
|
|
|
$
|
25,000
|
(9)
|
|
$
|
9,604
|
(9
|
)
|
$
|
--
|
|
|
$
|
248,066
|
|
(1)
|
Mr.
Perkins and Mr. Bissonnette did not receive compensation for their service
on the Board of Directors.
|
|
(2)
|
All
employees were given a holiday bonus on December 21, 2007 of $200, net of
taxes.
|
|
(3)
|
Pursuant
to Mr. Perkins’ employment agreement dated November 12, 2007,
he was granted 33,334 five year options to purchase our common stock at an
exercise price of $5.85 per share, which vested upon date of
grant. In accordance with Mr. Perkins’ employment
agreement entered into as of March 1, 2008, the company granted him
216,666 five year options to purchase our common stock at an exercise
price of $4.74 per share. 43,334 of these options vested on the
grant date and the rest will vest at a rate of 25% per six months over a
two year period. The 216,666 options were issued subject to
shareholder approval at the company’s next annual
meeting. Their compensation value will be determined at the
time of their approval by our shareholders, in accordance with Financial
Accounting Standards Board Statement No. 123 (revised 2004), Share-Based
Payment.
|
|
(4)
|
Mr.
Bissonnette was the Company’s founding shareholder and served as Chief
Executive Officer, President and a director of AeroGrow from July 2002
until November 2007, at which time he resigned as President. In
March 2008, he resigned as Chief Executive Officer. On July 23,
2008, Mr. Bissonnette resigned as Chairman of the Board of Directors, a
director, and as an employee of the Company. Mr. Bissonnette
may continue to consult for the Company for the foreseeable
future.
|
|
(5)
|
In
accordance with an employment agreement entered into as of March 1, 2006,
Mr. Bissonette had a non-accountable expense allowance of $2,500 per month
as reimbursement for his auto expenses, home office expenses and other
expenses.
|
|
(6)
|
In
accordance with Mr. Seffren’s employment agreement, we reimbursed him for
home office expenses and auto
expenses.
|
|
(7)
|
Represents
consulting fees paid to Prometheus Communications Group, LLC (“PCG”) of
which Mr. Seffren is the 100% owner and managing member prior to the
effective date of Mr. Seffren’s employment
agreement.
|
|
(8)
|
Mr. Brainard
was paid a $1,986 bonus and a bonus installment payment of $25,000, in
addition to the holiday bonus awarded to all
employees.
|
|
(9)
|
In
accordance with Mr. Brainard’s employment agreement, we issued 5,000
shares of our common stock on January 3, 2007 valued by us at $5.00 per
share. In addition, in December 2006, Mr. Brainard was granted five year
options to purchase our common stock at an exercise price of $5.00 per
share, which will vest monthly pro-rata over a two year
period.
|
The
following table provides information with respect to the Named Executive
Officers concerning unexercised stock options held by them at July 24,
2008. All options granted to date to the Named Executive Officers are
unexercised.
Outstanding
Equity Awards as
of July 24, 2008
|
Name
|
|
Number
of Securities Underlying
Unexercised
Options
(Exercisable)
|
|
|
Number
of Securities Underlying
Unexercised
Options
(Unexercisable)
|
|
Exercise
Price
per Share
|
|
Expiration
Date
|
|
W.
Michael Bissonnette
|
|
|
--
|
|
|
|
--
|
|
|
--
|
|
n/a
|
|
Jervis
B. Perkins
|
|
|
33,334
|
|
|
|
|
|
$
|
5.85
|
|
28-Feb-2013
|
|
Jervis
B. Perkins
|
|
|
43,334
|
(1)
|
|
|
173,332
|
(1)(2)
|
$
|
4.74
|
|
1-Mar-2013
|
|
Randal
L. Seffren
|
|
|
125,000
|
|
|
|
--
|
|
$
|
5.00
|
|
27-Mar-2011
|
|
Jeffrey
M. Brainard
|
|
|
125,000
|
|
|
|
|
|
$
|
5.00
|
|
27-Mar-2011
|
|
Jeffrey
M. Brainard
|
|
|
2,331
|
|
|
|
|
|
$
|
5.00
|
|
14-Dec-2011
|
|
(1)
|
The
options are granted, but subject to shareholder approval at the next
annual shareholder meeting.
|
|
(2)
|
Mr.
Perkin’s unexercisable options will vest as follows: 43,333 options will
vest on September 1, 2008; 43,333 options will vest on March 1, 2009;
43,333 options will vest on September 1, 2009 and 43,333 options will vest
on March 1, 2010.
|
GOVERNANCE, COMPENSATION AND
NOMINATING COMMITTEE
INTERLOCKS AND INSIDER
PARTICIPATION
The
following individuals currently serve as members of the Governance, Compensation
and Nominating Committee: Mr. Michel (chairman), Mr. Kumar, and Ms.
Graebner. None of these individuals has served as an officer or employee of
AeroGrow or any of our subsidiaries or has any relationships with AeroGrow or
any of our subsidiaries requiring disclosure under “Certain Relationships and
Related Transactions” below. The Governance, Compensation and Nominating
Committee members have no interlocking relationships requiring disclosure under
the rules of the Securities and Exchange Commission
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
In
February, 2006, the Board adopted a policy for review, approval and monitoring
of transactions involving AeroGrow and “related persons” (directors and
executive officers or their immediate family members, or stockholders owning
five percent or more of our outstanding stock). The policy covers any related
person transaction that meets the minimum threshold for disclosure in the proxy
statement under the relevant Securities and Exchange Commission rules
(generally, transactions (i) involving amounts exceeding the lesser of $120,000
or one percent of the average of AeroGrow’s total assets at year end for the
last two completed fiscal years and (ii) in which a related person has a direct
or indirect interest).
Under the
policy, the Audit Committee is responsible for reviewing and approving all
reportable transactions with any related party. In considering the transaction,
the Audit Committee will take into account all relevant factors including
whether the transaction is on terms comparable to those available to an
unaffiliated third party. In connection with any approval or ratification of a
transaction, the Audit Committee will also determine whether any such
transaction impairs the independence of a director or presents a conflict of
interest on the part of a director or executive officer. The Board has delegated
to the chairman of the Audit Committee the authority to pre-approve or ratify
any transaction with a related person up to $120,000. The policy also provides
that transactions involving competitive bids, the rendering of services by a
regulated entity, and certain ordinary course of business banking transactions
shall be deemed to be pre-approved by the Audit Committee.
The
following transactions were entered into with our executive officers, directors
and 5% or greater shareholders since April 1, 2006.
Richard
Kranitz, one of our former directors, is a member of the law firm of Kranitz and
Philipp, which provides legal services to us. During the fiscal years ended
March 31, 2008 and March 31, 2007 we paid $24,000 and $44,472, respectively to
this firm for legal services.
During
the year ended March 31, 2007, we paid consulting fees totaling $81,238 to Wayne
Harding, a former director, for services related to the development of an
international channel of distribution for our products and other consulting
services.
In
January and February 2008, the Company paid Jack J. Walker, one of our
directors, $20,000 in consulting fees.
On May
19, 2008, we entered into a Business Loan Agreement (the “Business Loan
Agreement”) with Jack J. Walker as co-borrower, and First National Bank, for a
loan to the Company for the principal amount of up to $1,000,000 (the “First
National Loan”). Pursuant to the Business Loan Agreement, the Company
and Mr. Walker provided First National Bank with a promissory note for a
principal amount of up to $1,000,000 (the “First National Note”). The
First National Note has an initial interest rate of 5.5% and matures on May 19,
2009. We paid Mr. Walker $50,000 as compensation for entering
into the Business Loan Agreement and First National Note. As of July
24, 2008, we owed $1,000,000 in principal amount on the First National
Note. During Fiscal 2008, we paid no principal or interest on the
First National Note.
On May
22, 2008, we also entered into a Loan Agreement (the “WLoans Loan Agreement" and
associated Promissory Note with WLoans, LLC, a Colorado limited liability
company, ("WLLC") as lender, and Jack J. Walker. The
WLoans Loan Agreement provides for a loan up to a maximum of $1,500,000, for
business purposes, at an annual interest rate of 12% (the "WLLC
Loan"). Mr. Walker is the manager of WLLC and owns a 73.3% membership
interest in WLLC, with the remaining membership interest owned by other AeroGrow
employees, directors and former directors including Sylvia Bernstein, W. Michael
Bissonnette, Jeffrey M. Brainard, Jervis B. Perkins, W. Terry Robertson, Randal
L. Seffren, John Thompson, Frederic Wiedemann, and J. Michael
Wolfe. As a condition of the WLLC Loan, we paid WLLC a non-refundable
availability commitment fee of $37,500 in June 2008. Further, in
consideration of WLLC holding available funds equal to the principal amount not
yet disbursed, we must pay a non-refundable fee of 1% of the retained funds as a
holding fee, payable quarterly. In June 2008, we paid WLLC an
availability fee of $15,000. As of July 24, 2008, we owed $600,000 in
principal amount on the WLLC loan. During Fiscal 2008, we paid no
principal or interest on the WLLC Loan.
On
June 23, 2008, the Company entered into a Loan and Security Agreement with FCC,
LLC, d/b/a First Capital for a revolving credit facility in the amount of
$12,000,000 (the “Revolving Credit Facility”). Jack J. Walker
provided a guarantee against certain contingent liabilities under the Revolving
Credit Facility. In return for this guarantee, the Company paid Mr.
Walker a fee of $7,500.
See our
Original Annual Report filed with our Form 10-K annexed as an Exhibit to this
Proxy, Item 7. Management’s Discussion And Analysis Of Operations -
Liquidity and Capital Resources, and Note 12 to our financial statements –
Subsequent Events, for additional information.
During
the year ended March 31, 2007, we incurred fees totaling $640,186 for various
video and web projects, including production of our infomercial to promote our
products, to MedEd Architects LLC a video production company owned 33% by Mr.
Seffren. During Fiscal 2008, we paid fees totaling $785,045 for
various video and web projects to MedEd Architects LLC.
Director
Independence
Our
Board of Directors comprises Jack J. Walker, Linda Graebner, Peter Michel,
Suresh Kumar, Michael D. Dingman, Jr., and Jervis B. Perkins. Our
Board of Directors has determined that Mr. Dingman, Ms. Graebner, Mr. Michel and
Mr. Kumar are independent as that term is defined by NASDAQ. Under
the NASDAQ definition, an independent director is a person who is not an
executive officer or employee of the Company and who does not have a
relationship with the Company that, in the opinion of our Board of Directors,
would interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. All Audit Committee and Governance,
Compensation and Nominating Committee members are independent directors as that
term is defined by NASDAQ.
During
Fiscal 2008, the following individuals served as directors of AeroGrow: W.
Michael Bissonnette, Jack J. Walker, Dennis E. Channer, Wayne Harding, Richard
A. Kranitz, and Kenneth C. Leung. Messrs. Channer, Harding and Leung
were independent as defined by NASDAQ. In addition, Mr. Walker was an
independent director throughout Fiscal Year 2008. All Audit Committee
and Governance, Compensation and Nominating Committee members during Fiscal Year
2008 were independent directors.
Code of Ethics. We have
adopted a Code of Ethics that applies to each of our employees, executive
officers, and directors. A copy is available free of charge in the
“Investor” section of our website at www.aerogrow.com. Any
amendment to or waiver of the Code of Ethics will be disclosed promptly
following the date of such amendment or waiver in a Current Report on Form
8-K.
PROPOSAL
2:
APPROVAL
OF AN AMENDMENT TO THE 2005 EQUITY COMPENSATION PLAN TO
AUTHORIZE AN ADDITIONAL 2,000,000 SHARES FOR ISSUANCE UNDER THE PLAN, AND
FROM THOSE SHARES, TO RATIFY GRANTS TOTALING 832,377 OF THOSE SHARES THAT HAVE
BEEN GRANTED IN ADVANCE OF SUCH APPROVAL
Description
of the Proposal
You are being asked to vote on a
proposal to approve an amendment of our 2005 Equity Compensation Plan (“2005
Plan”). Subject to stockholder approval, on July 23, 2008, our Board of
Directors approved an amendment to the Plan to increase the number of shares
authorized for issuance under the Plan by 2,000,000 shares.
The purpose of the Plan is to attract,
motivate and retain highly qualified employees and members of our Board of
Directors. We issue options to provide our employees and directors an
opportunity to acquire or increase their ownership stake in us, creating a
stronger incentive to expend maximum effort for our growth and success, to
better align employees’ interests with those of our shareholders and to
encourage our employees and directors to continue their service with us. Our
Board of Directors believes that stock-based incentives will continue to play a
vital role in our success. These 2,000,000 shares will be governed by the rules
of the 2005 Equity Compensation Plan and administered by our Governance,
Compensation, and Nominating Committee.
As of August 5, 2008, there were
options outstanding for a total of 2,132,014 shares of common stock outstanding
under the Plan and 339,123 shares of common stock. As our business
continues to develop, we will need the flexibility to provide grants to key
employees to provide incentives for them to manage expanded levels of operations
and achieve our growth targets. The additional authorized shares will
be utilized if, as, and when deemed appropriate by the Governance, Compensation,
and Nominating Committee.
We believe that in a business that is
as heavily human-capital intensive as ours, options and other types of stock
awards are an important factor in hiring and retaining talented personnel. While
we recognize the possible dilutive effect to our stockholders, we believe, on
balance, the incentive that is provided by the opportunity to participate in our
growth and earnings through the granting of awards to acquire our common stock
is important to our success and, accordingly, will benefit us and our
stockholders. We believe it is in the best interests of our stockholders to
approve these amendments to, and the restatement of, the Plan.
Principal
Provisions of the 2005 Equity Compensation Plan
A summary of the 2005 Plan appears in
this Proxy Statement under “COMPENSATION DISCUSSION AND ANALYSIS – Securities
Authorized for Issuance Under Equity Compensation Plans ”; the summary is not a
complete description of all of the provisions of the 2005 Plan and is qualified
in its entirety by reference to the full text of the proposed amended Plan that
is attached hereto as Appendix A.
The following tabulation reflects the
awards granted, subject to shareholder approval, to each of the Named Executive
Officers, all current executive officers, all current non-executive directors,
and all employees as of August 5, 2008:
NEW
PLAN BENEFITS
2005
Equity Compensation Plan
|
Name and
Position
|
|
Dollar
Value (1)
(2)
|
|
|
Number
of Stock Options (1)
|
|
|
Jervis
B. Perkins, President and Chief Executive Officer (3)
|
|
$ |
1,026,997 |
|
|
|
216,666 |
|
|
Randal
L. Seffren, Chief Marketing Officer (4)
|
|
|
-- |
|
|
|
-- |
|
|
Jeffrey
M. Brainard, Vice President of Sales (5)
|
|
|
-- |
|
|
|
-- |
|
|
Executive
Officer Group (6)
|
|
$ |
1,229,197 |
|
|
|
306,666 |
|
|
Non-Executive
Director Group (7)
|
|
$ |
245,550 |
|
|
|
123,000 |
|
|
Employee
Group,
Excluding Executive Officers (8)
|
|
$ |
1,091,691 |
|
|
|
402,711 |
|
|
Total
Options Granted Subject to Shareholder Approval
|
|
$ |
2,566,438 |
|
|
|
832,377 |
|
|
(1)
|
Future
awards under the 2005 Plan are indeterminable. All grants are
determined by the Governance, Compensation and Nominating Committee in its
discretion and no arrangements have been made at this time with respect to
the shares reserved for issuance under the 2005
Plan.
|
|
(2)
|
Amounts
shown in the Dollar Value column represent the number of stock options
granted multiplied by the exercise price of such
options.
|
|
(3)
|
In
accordance with Mr. Perkins’ employment agreement entered into
as of March 1, 2008, the company granted him 216,666 five year options to
purchase our common stock at an exercise price of $4.74 per
share. 43,334 of these options vested on the grant date and the
rest will vest at a rate of 25% per six months over a two year
period. The 216,666 options were issued subject to shareholder
approval at the company’s next annual meeting. Based on the August
5, 2008 market closing price of $1.70 per share, the market value of the
shares underlying the options is
$368,332.
|
|
(4)
|
Mr.
Seffren has not been granted any options subject to shareholder
approval.
|
|
(5)
|
Mr.
Brainard has not been granted any options subject to shareholder
approval.
|
|
(6)
|
The
Executive Officer Group includes the Named Executive Officers and other
officers of the Company. The options awarded to this group
include the above mentioned grant to Mr. Perkins and two additional
grants. On June 1, 2008, 30,000 five year options to purchase
our common stock at an exercise price of $2.60 per share were granted to
another executive. The options were fully vested upon the date
of grant. On July 1, 2008, an executive was granted 60,000 five
year options to purchase our commons stock at an exercise price of
$2.07. These options will vest at a rate of 50% per six months
for a one year period. The market value of the shares
underlying the options is calculated by multiplying the number of options
by the August 5, 2008 market closing price of $1.70 per
share. Using that calculation, the market value of the shares
underlying the options granted to the Executive Officer Group is
$521,332.
|
|
(7)
|
Five
year options were awarded to the Non-Executive Director Group on two
dates. On July 1, 2008, 105,000 options to purchase our common
stock at an exercise price of $2.03 per share were granted to the
directors. The options vest monthly over a twelve month
period. On July 23, 2008, additional grants were made to
directors for 18,000 options to purchase our common stock at an exercise
price of $1.80 per share. The market value of the shares
underlying the options is calculated by multiplying the number of options
by the August 5, 2008 market closing price of $1.70 per
share. Using that calculation, the market value of
the shares underlying Non-Executive Director Group’s options is
$209,100.
|
|
(8)
|
All
options included in the Employee Group will expire 90 days after the
termination of the recipient’s employment with the Company. On
March 1, 2008, 17,911 options to purchase our common stock were granted at
an exercise price of $4.74 per share and were fully vested on the date of
grant. On April 1, 2008, 237,423 options to purchase our common
stock were granted to employees at an exercise price of $2.96 per
share. These options vest quarterly over a two year period. On
July 1, 2008, 143,877 options to purchase our common stock were granted to
employees at an exercise price of $2.07 per share. 20,000 of
these options vest at a rate of 50% per year over a two year
period. The remaining 123,877 options vest quarterly over a two
year period. On July 25, 2008, 3,500 options were granted to an
employee at an exercise price of $1.77 per share, the market closing price
on that date. These options vest monthly over a two year
period. The market value of the shares underlying the options
is calculated by multiplying the number of options by the August 5, 2008
market closing price of $1.70 per share. Using that
calculation, the market value of the shares underlying the options granted
to the Employee Group is $684,609.
|
Federal Income Tax
Consequences
Option
Grants
Options
granted under the 2005 Plan may be either incentive stock options which satisfy
the requirements of Section 422 of the Internal Revenue Code or
non-qualified options which are not intended to meet such requirements. The
federal income tax treatment for the two types of options differs as
follows:
Incentive Options. No taxable
income is recognized by the optionee at the time of the option grant, and no
taxable income is generally recognized at the time the option is exercised. The
optionee will, however, recognize taxable income in the year in which the
purchased shares are sold or otherwise transferred. For federal tax purposes,
dispositions are divided into two categories: (i) qualifying and
(ii) disqualifying. A qualifying disposition occurs if the sale or other
disposition is made after the optionee has held the shares for more than two
(2) years after the option grant date and more than one (1) year after
the exercise date. If either of these two holding periods is not satisfied, then
a disqualifying disposition will result. If the optionee makes a qualifying
disposition, the taxable income recognized by the optionee will be treated as a
long-term capital gain and we will not be entitled to an income tax deduction.
If the optionee makes a disqualifying disposition of the purchased shares, then
for the taxable year in which such disposition occurs, the optionee will
recognize ordinary income, and we will be entitled to an income tax deduction,
in an amount generally equal to the excess of (i) the fair market value of
such shares on the option exercise date over (ii) the exercise price paid
for the shares.
Non-Qualified Options. No
taxable income is recognized by an optionee upon the grant of a non-qualified
option. The optionee will in general recognize ordinary income in the year in
which the option is exercised, in an amount equal to the excess of the fair
market value of the purchased shares on the exercise date over the exercise
price paid for the shares.
We will
generally be entitled to an income tax deduction equal to the amount of ordinary
income recognized by the optionee with respect to the exercised non-qualified
option. The deduction will in general be allowed for the taxable year of the
Company in which such ordinary income is recognized by the
optionee.
Stock
Issuances
Generally,
the issuance of unvested stock will not result in taxable income to the
employee. Instead, upon vesting, the fair market value of such shares, less cash
or other consideration paid (if any), will be included in the participant’s
ordinary income as compensation. Any cash dividends or other distributions paid
with respect to the stock prior to vesting will also be included in the holder’s
ordinary income as compensation when paid. The participant may however, elect
under Section 83(b) of the Internal Revenue Code, to include in his ordinary
income at the time the stock is issued the fair market value of such shares less
any amount paid. Any cash dividends paid thereafter will be treated as dividend
income.
We will
generally be entitled to an income tax deduction equal to the amount of ordinary
income recognized by the participant with respect to the stock issuance. The
deduction will in general be allowed for the taxable year of the Company in
which such ordinary income is recognized by the participant.
Deductibility of Executive
Compensation
We
anticipate that any compensation deemed paid by the Company in connection with
the disqualifying dispositions of incentive stock option shares or the exercise
of non-qualified options with exercise prices equal to the fair market value of
the option shares on the grant date will qualify as performance-based
compensation for purposes of Code Section 162(m) and will not have to be taken
into account for purposes of the $1 million limitation per covered
individual on the deductibility of the compensation paid to certain of our
executive officers. Accordingly, all compensation deemed paid with respect to
those options will remain deductible by the Company without limitation under
Code Section 162(m). Compensation attributable to stock issuances granted
under the 2005 Plan may or may not qualify for the performance-based
compensation exception, depending upon the specific terms of each
grant.
Required
Vote and Board Recommendation
The affirmative vote of the holders of
a majority of the votes cast on this proposal in person or by proxy at the
Annual Meeting is required to approve the amendment of the 2005
Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE “FOR” THE PROPOSAL TO APPROVE THE AMENDMENT OF THE 2005 EQUITY
COMPENSATION PLAN TO AUTHORIZE AN ADDITIONAL 2,000,000 SHARES FOR ISSUANCE UNDER
THE 2005 PLAN.
RATIFICATION
OF SELECTION OF INDEPENDENT AUDITORS
On
February 24, 2006, we dismissed Hein & Associates LLP (“Hein”) as our
independent certified public accountants, the former accountants for Wentworth,
the company which merged with and into AeroGrow. The decision was approved by
our Board of Directors. We are the “successor issuer” to Wentworth I, Inc.
within the meaning of Rule 12(g)-3 under the Securities Exchange Act of 1934, as
amended (“Exchange Act”) and became a Section 12(g) reporting company under the
Exchange Act.
The
reports of Hein on Wentworth’s financial statements for the fiscal years ended
December 31, 2005 did not contain an adverse opinion or disclaimer of opinion
and were not modified as to uncertainty, audit scope, or accounting principles,
except the report did contain an explanatory paragraph related to Wentworth’s
ability to continue as a going concern. During Wentworth’s fiscal
year ended December 31, 2005, there were no disagreements with Hein on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Hein would have caused Hein to make reference to the subject
matter of the disagreements in connection with its report on the financial
statements for such years. Wentworth requested that Hein furnish it with a
letter addressed to the Securities and Exchange Commission ("SEC") stating
whether or not it agrees with Wentworth’s statements in this Item 4.01(a). A
copy of the letter furnished by Hein in response to that request, dated February
27, 2006 which was filed as Exhibit 16.1 to the Form 8-K reporting the
change.
Gordon,
Hughes & Banks, LLP (“GHB”) have audited our financial statements annually
since inception through March 31, 2008. At a shareholder’s meeting held on
February 21, 2006, our shareholder’s ratified the appointment of GHB as auditors
for fiscal year ending March 31, 2007. During the years ended December 31, 2005
and 2004, and the period from January 1, 2006 through March 31, 2007 there were
no disagreements with GHB on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of GHB, would have caused GHB
to make reference to the subject matter of the disagreements in connection with
its reports on the our financial statements. In addition, none of the events
described in Item 304(a)(1)(iv) of Regulation S-K occurred during such
periods.
Our Board of Directors has selected GHB
as our principal accountant for the fiscal year ending March 31, 2009 and has
further directed that management submit the selection of the principal
accountant for ratification by the stockholders at the annual meeting. The audit
committee recommended the appointment of GHB to the Board. GHB has acted as our
principal accountant starting with fiscal year 2002.
Fees
Aggregate
fees billed by Gordon, Hughes & Banks, LLP (“GHB”), our current independent
registered public accounting firm, for Fiscal 2008 and Fiscal 2007, and for the
three month transition period ended March 31, 2006 (the “Transition Period”),
are as follows:
|
|
Fiscal
2008
|
|
Fiscal
2007
|
|
|
Transition
Period
2006
|
|
|
Audit
Fees
|
$
|
35,728
|
|
|
$
|
26,000
|
|
|
$
|
18,000
|
|
|
All
Other Fees
|
$
|
24,387
|
|
|
$
|
15,564
|
|
|
$
|
11,300
|
|
|
Total
Fees
|
$
|
60,105
|
|
|
$
|
41,564
|
|
|
$
|
29,300
|
|
Other
fees paid to GHB were for review of SEC filings during these
periods.
Tax
Fees
Tax fees
consist of fees for tax compliance, including the preparation of tax returns,
tax advice, and tax planning services. Tax advice and tax planning
services relate to advice regarding mergers and acquisitions and assistance with
tax audits and appeals. We use a firm other than GHB for these
services. We paid $3,448 in tax fees during Fiscal 2008 and no tax
fees in Fiscal 2007. We paid $3,375 for tax related services during
the Transition Period.
General
Representatives of Gordon, Hughes &
Banks, LLP are expected to be present at the annual meeting, will have an
opportunity to make a statement if they so desire, and will be available to
respond to appropriate questions.
The affirmative vote of the holders of
a majority of the votes cast on this proposal in person or by proxy at the
Annual Meeting is required to ratify the selection of our independent
auditors. Stockholder ratification of the selection of Gordon, Hughes
& Banks, LLP as our independent auditors is not required by our bylaws or
otherwise. However, the Board of Directors is submitting the selection of
Gordon, Hughes & Banks, LLP the stockholders for ratification as a matter of
good corporate practice. If the stockholders fail to ratify the selection, the
Board of Directors will reconsider whether to retain that firm. Even if the
selection is ratified, the Board of Directors, in its discretion, may direct the
appointment of a different independent accounting firm at any time during the
year if the Board determines that such a change would be in the best interests
of AeroGrow and its stockholders.
THE
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO RATIFY THE
SELECTION OF GORDON, HUGHES & BANKS, LLP AS OUR INDEPENDENT
AUDITORS.
Stockholder
Proposals for 2009 Annual Meeting
The
Company’s Bylaws provide that the annual meeting of the Company’s stockholders
shall be held each year. The Company must receive any AeroGrow stockholder
proposal for the Annual Meeting of stockholders in 2009 before June 30, 2009,
for the proposal to be included in the AeroGrow proxy statement and form of
proxy for that meeting. If notice of a proposal for which a stockholder will
conduct his or her own proxy solicitation is not received by the Company by June
30, 2009, proxy holders may use their discretionary voting authority when the
matter is raised at the meeting, and there will be no obligation to include any
discussion of the matter in the proxy statement.
ANNUAL
REPORT ON FORM 10-K
This
proxy statement incorporates by reference our Form 10-K and Form 10-K/A for the
fiscal year ended March 31, 2008. These forms are included in the
annual report mailed with this proxy statement and which contains important
information about the Company and its financial condition that is not included
in this proxy statement.
HOUSEHOLDING
OF PROXY MATERIALS
In an
effort to reduce printing costs and postage fees, we have adopted a practice
called “householding.” Under this practice, stockholders who have the same
address and last name will receive only one set of proxy-related materials
unless one or more of these people notifies us that he or she wishes to continue
to receive individual copies.
If you
share an address with another stockholder and receive only one set of
proxy-related materials and would like to request a separate copy for this
year’s annual meeting or for any future meetings, please: (1) call our office at
303-444-7755; (2) send an email message proxy@aerogrow.com; or (3) mail your
request to AeroGrow International, Inc., 6075 Longbow Dr., Suite 200, Boulder,
CO 80301. Additional copies of the materials will be sent within 15 days
after receipt of your request. Similarly, you may also contact us through any of
these methods if you receive multiple copies of the materials and would prefer
to receive a single copy in the future.
The Board of Directors does not know of
any other matters to be brought before the annual meeting of stockholders. If
any other matters not mentioned in this proxy statement are properly brought
before the meeting, the individuals named in the enclosed proxy intend to use
their discretionary voting authority under the proxy to vote the proxy in
accordance with their best judgment on those matters.
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By
Order of the Board of Directors
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August
___, 2008
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_______________________
Jack J. Walker
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Chairman
of the Board
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page is deliberately left blank)
AEROGROW
INTERNATIONAL, INC.
KNOW ALL
PERSONS BY THESE PRESENTS, THAT I, the undersigned shareholder of AeroGrow
International, Inc. (“Company”) having received notice of the Annual Meeting of
Stockholders, do hereby nominate, constitute and appoint, each of Jack J. Walker
and Richard A. Kranitz, my true and lawful attorney and proxy, with full power
of substitution, for me and in my name, place and stead to vote all of the
shares of common stock, $.0001 par value (“Common Stock”) of the Company
standing in my name on its books on August 20, 2008 at the Annual Meeting of
Stockholders of the Company, to be held at the Radisson Conference Center, 1850
Industrial Circle, Longmont, Colorado, on October 1, 2008 at 10:00 a.m., local
time, and at any postponement or adjournment thereof, with all powers the
undersigned would possess if personally present, as follows:
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A.
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Election
of Directors.
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1.
o FOR all nominees
listed below to serve as directors of the Company until the next Annual Meeting
of Shareholders (exept as marked to the contrary below)
o WITHHOLD AUTHORITY
to vote for all nominees listed below
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Jack
J. Walker
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Jervis
B. Perkins
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Michael
D. Dingman, Jr.
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Linda
Graebner
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Suresh
Kumar
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Peter
A. Michel
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B.
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To
approve an amendment to our 2005 Equity Compensation Plan to authorize the
issuance of an additional 2,000,000 shares under the Plan, and from those
shares, to ratify grants totaling 823,377 of those shares that have been
granted in advance of such
approval.
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2. The
Board of Directors recommends a vote FOR the amendment to the 2005 Equity
Compensation Plan to authorize the issuance of 2,000,000 shares under the Plan,
and from those shares, to ratify grants totaling 832,377 of those shares that
have been granted in advance of such approval.
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C
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Ratify
appointment of Gordon, Hughes & Banks, LLP as independent
auditors for Fiscal 2009
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3. The
Board of Directors recommends a vote FOR the appointment of Gordon, Hughes &
Banks, LLP as independent auditors for Fiscal 2009.
In their
discretion, the proxies are authorized to vote upon such other business as may
properly come before the Annual Meeting.
This
proxy will be voted as directed, or if no instructions are given, it will be
voted “FOR” all proposals named in this Proxy Statement by the appointed proxies
in accordance with his or her judgment on any other matter brought before the
meeting. Also, this proxy will be voted at the Annual Meeting in
accordance with the Board of Directors’ recommendations on any other matters
which may come before the Annual Meeting or any postponement or adjournment
thereof.
This proxy is solicited on behalf of
the Board of Directors and may be revoked prior to its exercise.
Your vote is important. Any previously
submitted proxies will not be used at the Annual Meeting. Accordingly, even if
you plan to attend the Annual Meeting, please mark, sign, date and fold this
proxy and return to the reply address.
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______________________________
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Date
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______________________________
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Date
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Please
sign your name or names exactly as they appear on the stock certificate.
Each joint tenant must sign. When signing as attorney, administrator,
guardian, executor or trustee or as an officer of a corporation, please
give full title. If more than one trustee, all should
sign.
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page is deliberately left blank)
Appendix
A
AEROGROW
INTERNATIONAL, INC.
2005
EQUITY COMPENSATION PLAN
SECTION 1. PURPOSE
This
plan shall be known as the "AeroGrow International, Inc. 2005 Equity
Compensation Plan" (the "Plan"). The purpose of the Plan is to promote the
interests of AeroGrow International, Inc. (the "Company") and the Company's
stockholders by (i) attracting and retaining key officers, employees and
directors of, and consultants to, the Company; (ii) motivating such individuals
by means of performance-related incentives to achieve long-range performance
goals; (iii) enabling such individuals to participate in the long-term growth
and financial success of the Company; (iv) encouraging ownership of stock in the
Company by such individuals; and (v) linking their compensation to the long-term
interests of the Company and its stockholders. With respect to any awards
granted under the Plan that are intended to comply with the requirements of
"performance-based compensation" under Section 162(m) of the Code, the Plan
shall be interpreted in a manner consistent with such requirements.
SECTION 2. DEFINITIONS
As
used in the Plan, the following terms shall have the meanings set forth
below:
(a)
"AWARD" shall mean any Option or Restricted
Share Award granted under the Plan to a Participant by the Committee (or the
Board) pursuant to such terms, conditions, restrictions and/or limitations, if
any, as the Committee (or the Board) may establish.
(b)
"AWARD AGREEMENT" shall mean any written
agreement, contract or other instrument or document evidencing any Award, which
may, but need not, be executed or acknowledged by a Participant.
(c)
"BOARD" shall mean the board of directors of
the Company.
(d)
"CHANGE IN CONTROL" shall mean, unless
otherwise defined in the applicable Award Agreement, any of the following
events:
(i)
An acquisition (other than directly from the
Company) of any voting securities of the Company (the "Voting Securities") by
any "Person" (as the term Person is used for purposes of Section 13(d) or 14(d)
of the Exchange Act) immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of forty percent (40%) or more of the combined voting power of the then
outstanding Voting Securities; provided, however, that in determining whether a
Change in Control has occurred, Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control Acquisition"
shall mean an acquisition by (i) an employee benefit plan (or a trust forming a
part thereof) maintained by the Company;
(ii)
The individuals who, as of the date hereof, are members
of the Board (the "Incumbent Board"), cease for any reason to constitute at
least a majority of the Board; provided, however, that if the election or
nomination for election by the Company's stockholders of any new director was
approved by a vote of a majority of the Incumbent Board, such new director
shall, for purposes of this Agreement, be considered as a member of the
Incumbent Board; provided, further, however, that no individual shall be
considered a member of the Incumbent Board if (1) such individual initially
assumed office as a result of either an actual or threatened "Election Contest"
(as described in Rule 14a-11 promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board (a "Proxy Contest") including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest or (2) such
individual was designated by a Person who has entered into an agreement with the
Company to effect a transaction described in clause (i) or (iii) of this
paragraph; or
(iii)
Approval by stockholders of the Company
of:
(A)
A merger, consolidation or reorganization
involving the Company, unless,
(1)
The stockholders of the Company immediately
before such merger, consolidation or reorganization, own, directly or
indirectly, immediately following such merger, consolidation or reorganization,
at least seventy-five percent (75%) of the combined voting power of the
outstanding Voting Securities of the corporation (the "Surviving Corporation")
in substantially the same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization;
(2)
The individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement providing
for such merger, consolidation or reorganization constitute at least two-thirds
of the members of the board of directors of the Surviving Corporation;
and
(3)
No Person (other than the Company, any employee
benefit plan (or any trust forming a part thereof) maintained by the Company or
the Surviving Corporation, or any Person who, immediately prior to such merger,
consolidation or reorganization, had Beneficial Ownership of forty percent (40%)
or more of the then outstanding Voting Securities) has Beneficial Ownership of
forty percent (40%) or more of the combined voting power of the Surviving
Corporation's then outstanding Voting Securities.
(B)
A complete liquidation or dissolution of the
Company; or
(C)
An agreement for the sale or other disposition
of all or substantially all of the assets of the Company to any
Person.
Notwithstanding
the foregoing, a Change in Control shall not be deemed to occur solely because
any Person (the "Subject Person") acquired Beneficial Ownership of more than the
permitted amount of the outstanding Voting Securities as a result of the
acquisition of Voting Securities by the Company which, by reducing the number of
Voting Securities outstanding, increased the proportional number of shares
Beneficially Owned by the Subject Person, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and after such share
acquisition by the Company, the Subject Person becomes the Beneficial Owner of
any additional Voting Securities Beneficially Owned by the Subject Person, then
a Change in Control shall occur.
(e)
"CODE" shall mean the Internal Revenue Code of
1986, as amended from time to time.
(f)
"COMMITTEE" shall mean a committee of the Board
which shall eventually be composed entirely of Non-Employee Directors, each of
whom shall be a "Non-Employee Director" for purposes of Exchange Act Section 16
and Rule 16b-3 thereunder and an "outside director" for purposes of Section
162(m) and the regulations promulgated under the Code.
(g)
"CONSULTANT" shall mean any consultant to the
Company.
(h)
"DIRECTOR" shall mean a member of the
Board.
(i)
"EMPLOYEE" shall mean a current or prospective
officer or employee of the Company.
(j)
"EXCHANGE ACT" shall mean the Securities
Exchange Act of 1934, as amended from time to time.
(k)
"FAIR MARKET VALUE" with respect to the Shares,
shall mean, for purposes of a grant of an Award as of any date, (i) the closing
sales price of the Shares on the Nasdaq SmallCap Market, or any other exchange
or quotation system on which the Shares are traded, on such date, or in the
absence of reported sales on such date, the closing sales price on the
immediately preceding date on which sales were reported or (ii) in the event
there is no public market for the Shares on such date, the fair market value as
determined, in good faith, by the Committee in its sole discretion, and for
purposes of a sale of a Share as of any date, the actual sales price on that
date.
(l)
"INCENTIVE STOCK OPTION" shall mean an option
to purchase Shares from the Company that is granted under Section 6 of the Plan
and that is intended to meet the requirements of Section 422 of the Code or any
successor provision thereto.
(m)
"NON-QUALIFIED STOCK OPTION" shall mean an
option to purchase Shares from the Company that is granted under Section 6 or 8
of the Plan and is not intended to be an Incentive Stock Option.
(n)
"NON-EMPLOYEE DIRECTOR" shall mean a member of
the Board who is not an officer or employee of the Company.
(o)
"OPTION" shall mean an Incentive Stock Option
or a Non-Qualified Stock Option.
(p)
"OPTION PRICE" shall mean the purchase price
payable to purchase one Share upon the exercise of an Option.
(q)
"PARTICIPANT" shall mean any Employee,
Director, Consultant or other person who receives an Award under the
Plan.
(r)
"PERSON" shall mean any individual,
corporation, partnership, limited liability company, associate, joint-stock
company, trust, unincorporated organization, government or political subdivision
thereof or other entity.
(s)
"RESTRICTED SHARE" shall mean any Share granted
under Section 7 or 8 of the Plan.
(t)
"SEC" shall mean the Securities and Exchange
Commission or any successor thereto.
(u)
"SECTION 16" shall mean Section 16 of the
Exchange Act and the rules promulgated thereunder and any successor provision
thereto as in effect from time to time.
(v)
"SECTION 162(M)" shall mean Section 162(m) of
the Code and the regulations promulgated thereunder and any successor or
provision thereto as in effect from time to time.
(w)
"SHARES" shall mean shares of the common
stock, $0.001 par value, of the Company.
SECTION 3. ADMINISTRATION
3.1
Authority
of Committee. The Plan shall be administered by the Committee, which
shall be appointed by and serve at the pleasure of the Board; provided, however,
with respect to Awards to Directors who are members of the Committee, all
references in the Plan to the Committee shall be deemed to be references to the
Board. Subject to the terms of the Plan and applicable law, and in addition to
other express powers and authorizations conferred on the Committee by the Plan,
the Committee shall have full power and authority in its discretion to: (i)
designate Participants; (ii) determine the type or types of Awards to be granted
to a Participant; (iii) determine the number of Shares to be covered by, or with
respect to which payments, rights, or other matters are to be calculated in
connection with Awards; (iv) determine the timing, terms, and conditions of any
Award; (v) accelerate the time at which all or any part of an Award may be
settled or exercised; (vi) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited, or suspended
and the method or methods by which Awards may be settled, exercised, canceled,
forfeited, or suspended; (vii) determine whether, to what extent, and under what
circumstances cash, Shares, other securities, other Awards, other property, and
other amounts payable with respect to an Award shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(viii) interpret and administer the Plan and any instrument or agreement
relating to, or Award made under, the Plan; (ix) except to the extent prohibited
by Section 6.2, amend or modify the terms of any Award at or after grant with
the consent of the holder of the Award; (x) establish, amend, suspend, or waive
such rules and regulations and appoint such agents as it shall deem appropriate
for the proper administration of the Plan; and (xi) make any other determination
and take any other action that the Committee deems necessary or desirable for
the administration of the Plan, subject to the exclusive authority of the Board
under Section 11 hereunder to amend or terminate the Plan.
3.2
Committee
Discretion Binding. Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other decisions under or with
respect to the Plan or any Award shall be within the sole discretion of the
Committee, may be made at any time and shall be final, conclusive, and binding
upon all Persons, including the Company, any Participant and any holder or
beneficiary of any Award.
3.3
Action by
the Committee. The Committee shall select one of its members as its
Chairperson and shall hold its meetings at such times and places and in such
manner as it may determine. A majority of its members shall constitute a quorum.
All determinations of the Committee shall be made by not less than a majority of
its members. Any decision or determination reduced to writing and signed by all
of the members of the Committee shall be fully effective as if it had been made
by a majority vote at a meeting duly called and held. The exercise of an Option
or receipt of an Award shall be effective only if an Award Agreement shall have
been duly executed and delivered on behalf of the Company following the grant of
the Option or other Award. The Committee may appoint a secretary and may make
such rules and regulations for the conduct of its business, as it shall deem
advisable.
3.4
Delegation. Subject
to the terms of the Plan and applicable law, the Committee may delegate to one
or more officers or managers of the Company, or to a Committee of such officers
or managers, the authority, subject to such terms and limitations as the
Committee shall determine, to grant Awards to, or to cancel, modify or waive
rights with respect to, or to alter, discontinue, suspend, or terminate Awards
held by Participants who are not officers or directors of the Company for
purposes of Section 16 or who are otherwise not subject to such
section.
3.5
No
Liability. No member of the Board or Committee shall be liable for any
action taken or determination made in good faith with respect to the Plan or any
Award granted hereunder.
SECTION 4. SHARES AVAILABLE FOR
AWARDS
4.1
Shares
Available. Subject to the provisions of Section 4.2 hereof, the stock to
be subject to Awards under the Plan shall be the Shares of the Company and the
maximum number of Shares with respect to which Awards may be granted under the
Plan shall be 1,505,000, which includes 195,131 Shares with respect to which
awards under the AeroGrow International, Inc. 2003 Stock Option Plan ("2003
Plan") were authorized but not granted. Notwithstanding the foregoing and
subject to adjustment as provided in Section 4.2, the maximum number of Shares
with respect to which Awards may be granted under the Plan shall be increased by
the number of Shares with respect to which Options or other Awards were granted
under the 2003 Plan, as of the effective date of this Plan, but which terminate,
expire unexercised, or are settled for cash, forfeited or canceled without the
delivery of Shares under the terms of the 2003 Plan after the effective date of
this Plan. The number of Shares to which Awards may be granted under the Plan
may not be increased unless such increase is approved by at least a majority of
the outstanding Shares.
If, after
the effective date of the Plan, any Shares covered by an Award granted under
this Plan, or to which such an Award relates, are forfeited, or if such an Award
is settled for cash or otherwise terminates, expires unexercised, or is canceled
without the delivery of Shares, then the Shares covered by such Award, or to
which such Award relates, or the number of Shares otherwise counted against the
aggregate number of Shares with respect to which Awards may be granted, to the
extent of any such settlement, forfeiture, termination, expiration, or
cancellation, shall again become Shares with respect to which Awards may be
granted. In the event that any Option or other Award granted hereunder is
exercised through the delivery of Shares or in the event that withholding tax
liabilities arising from such Award are satisfied by the withholding of Shares
by the Company, the number of Shares available for Awards under the Plan shall
be increased by the number of Shares so surrendered or withheld.
4.2
Adjustments. In the
event that the Committee determines that any dividend or other distribution
(whether in the form of cash, Shares, other securities, or other property)
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Shares or other securities of the Company, issuance of warrants or other rights
to purchase Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that an adjustment is
determined by the Committee, in its sole discretion, to be appropriate, then the
Committee shall, in such manner as it may deem equitable (and, with respect to
Incentive Stock Options, in such manner as is consistent with Section 422 of the
Code and the regulations thereunder): (i) adjust any or all of (1) the aggregate
number of Shares or other securities of the Company (or number and kind of other
securities or property) with respect to which Awards may be granted under the
Plan; (2) the number of Shares or other securities of the Company (or number and
kind of other securities or property) subject to outstanding Awards under the
Plan; and (3) the grant or exercise price with respect to any Award under the
Plan, provided that the number of Shares subject to any Award shall always be a
whole number; (ii) if deemed appropriate, provide for an equivalent award in
respect of securities of the surviving entity of any merger, consolidation or
other transaction or event having a similar effect; or (iii) if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Award.
4.3
Sources
of Shares Deliverable Under Awards. Any Shares delivered pursuant to an
Award may consist, in whole or in part, of authorized and unissued Shares or of
issued Shares that have been reacquired by the Company.
SECTION 5. ELIGIBILITY
Any
Employee, Director or Consultant shall be eligible to be designated a
Participant; provided, however, that Non-Employee Directors shall only be
eligible to receive Awards granted consistent with Section 8.1.
SECTION 6. STOCK OPTIONS
6.1
Grant. Subject to the
provisions of the Plan, the Committee shall have sole and complete authority to
determine the Participants to whom Options shall be granted, the number of
Shares subject to each Award, the exercise price and the conditions and
limitations applicable to the exercise of each Option. The Committee shall have
the authority to grant Incentive Stock Options or Non-Qualified Stock Options or
to grant both types of Options. In the case of Incentive Stock Options, the
terms and conditions of such grants shall be subject to and comply with such
rules as may be prescribed by Section 422 of the Code, as from time to time
amended, and any regulations implementing such statute. A person who has been
granted an Option under this Plan may be granted additional Options under the
Plan if the Committee shall so determine; provided, however, that to the extent
the aggregate Fair Market Value (determined at the time the Incentive Stock
Option related thereto is granted) of the Shares with respect to which all
Incentive Stock Options related to such Option are exercisable for the first
time by an Employee during any calendar year (under all plans described in
subsection (d) of Section 422 of the Code of the Company) exceeds $100,000 (or
such higher amount as is permitted in the future under Section 422(d) of the
Code), such Options shall be treated as Non-Qualified Stock
Options.
6.2
Price. The Committee
in its sole discretion shall establish the Option Price at the time each Option
is granted. The Option Price of an Option may not be less than 100% of the Fair
Market Value of the Shares with respect to which the Option is granted on the
date of grant of such Option. Notwithstanding the foregoing and except as
permitted by the provisions of Section 4.2 and Section 11 hereof, the Committee
shall not have the power to (i) amend the terms of previously granted Options to
reduce the Option Price of such Options, or (ii) cancel such Options and grant
substitute Options with a lower Option Price than the canceled
Options.
6.3
Term. Subject to the
Committee's authority under Section 3.1 and the provisions of Section 6.5, each
Option and all rights and obligations thereunder shall expire on the date
determined by the Committee and specified in the Award Agreement. The Committee
shall be under no duty to provide terms of like duration for Options granted
under the Plan. Notwithstanding the foregoing, no Option that relates to such
Option shall be exercisable after the expiration of five (5) years from the date
such Option was granted.
6.4
Exercise.
(a)
Each Option shall be exercisable at such times
and subject to such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Award Agreement or thereafter. The
Committee shall have full and complete authority to determine, subject to
Section 6.5 herein, whether an Option will be exercisable in full at any time or
from time to time during the term of the Option, or to provide for the exercise
thereof in such installments, upon the occurrence of such events and at such
times during the term of the Option as the Committee may determine.
(b)
The Committee may impose such conditions with
respect to the exercise of Options, including without limitation, any relating
to the application of federal, state or foreign securities laws or the Code, as
it may deem necessary or advisable. The exercise of any Option granted hereunder
shall be effective only at such time as the sale of Shares pursuant to such
exercise will not violate any state or federal securities or other
laws.
(c)
An Option may be exercised in whole or in part
at any time, with respect to whole Shares only, within the period permitted
thereunder for the exercise thereof, and shall be exercised by written notice of
intent to exercise the Option, delivered to the Company at its principal office,
and payment in full to the Company at the direction of the Committee of the
amount of the Option Price for the number of Shares with respect to which the
Option is then being exercised.
(d)
Payment of the Option Price shall be made in
cash or cash equivalents, or, at the discretion of the Committee, (i) in whole
Shares valued at the Fair Market Value of such Shares on the date of exercise,
together with any applicable withholding taxes, or (ii) by a combination of such
cash (or cash equivalents) and such Shares; provided, however, that the optionee
shall not be entitled to tender Shares pursuant to successive, substantially
simultaneous exercises of an Option or any other stock option of the Company.
Subject to applicable securities laws, an Option may also be exercised by (i)
delivering a notice of exercise of the Option and simultaneously selling the
Shares thereby acquired, pursuant to a brokerage or similar agreement approved
in advance by proper officers of the Company, using the proceeds of such sale as
payment of the Option Price, together with any applicable withholding taxes, or
(ii) any other exercise method (including attestation of shares) approved by the
Committee. Until the optionee has been issued the Shares subject to such
exercise, he or she shall possess no rights as a stockholder with respect to
such Shares.
6.5
Ten
Percent Stock Rule. Notwithstanding any other provisions in the Plan, if
at the time an Option is otherwise to be granted pursuant to the Plan the
optionee or rights holder owns directly or indirectly (within the meaning of
Section 424(d) of the Code) Shares of the Company possessing more than ten
percent (10%) of the total combined voting power of all classes of Stock of the
Company, then any Incentive Stock Option to be granted to such optionee or
rights holder pursuant to the Plan shall satisfy the requirement of Section
422(c)(5) of the Code, and the Option Price shall be not less than 110% of the
Fair Market Value of the Shares of the Company, and such Option by its terms
shall not be exercisable after the expiration of five (5) years from the date
such Option is granted.
SECTION
7. RESTRICTED SHARES
7.1
Grant.
(a)
Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Participants
to whom Restricted Shares shall be granted, the number of Restricted Shares to
be granted to each Participant, the duration of the period during which, and the
conditions under which, the Restricted Shares may be forfeited to the Company,
and the other terms and conditions of such Awards. The Restricted Shares shall
be evidenced by Award Agreements in such form as the Committee shall from time
to time approve, which agreements shall comply with and be subject to the terms
and conditions provided hereunder and any additional terms and conditions
established by the Committee that are consistent with the terms of the
Plan.
(b)
Each Restricted Share made under the Plan shall
be for such number of Shares as shall be determined by the Committee and set
forth in the Award Agreement containing the terms of such Restricted Share
Award. The Award Agreement for employees may set forth a period of time during
which the grantee must remain in the continuous employment of the Company in
order for the forfeiture and transfer restrictions to lapse. If the Committee so
determines, the restrictions may lapse during such restricted period in
installments with respect to specified portions of the Shares covered by the
Restricted Share Award. The Award Agreement may also, in the discretion of the
Committee, set forth performance or other conditions that will subject the
Shares to forfeiture and transfer restrictions. The Committee may, at its
discretion, waive all or any part of the restrictions applicable to any or all
outstanding Restricted Share Awards.
7.2
Delivery
of Shares and Transfer Restrictions. At the time of a Restricted Share
Award, a certificate representing the number of Shares awarded thereunder shall
be registered in the name of the grantee. Such certificate shall be held by the
Company or any custodian appointed by the Company for the account of the grantee
subject to the terms and conditions of the Plan, and shall bear such a legend
setting forth the restrictions imposed thereon as the Committee, in its
discretion, may determine. The grantee shall have all rights of a stockholder
with respect to the Restricted Shares, including the right to receive dividends
and the right to vote such Shares, subject to the following restrictions: (i)
the grantee shall not be entitled to delivery of the stock certificate until the
expiration of the restricted period and the fulfillment of any other restrictive
conditions set forth in the Award Agreement with respect to such Shares; (ii)
none of the Shares may be sold, assigned, transferred, pledged, hypothecated or
otherwise encumbered or disposed of during such restricted period or until after
the fulfillment of any such other restrictive conditions; and (iii) except as
otherwise determined by the Committee at or after grant, all of the Shares shall
be forfeited and all rights of the grantee to such Shares shall terminate,
without further obligation on the part of the Company, unless any restrictive
conditions set forth in the Award Agreement relating to the Restricted Share
Award are met. Any Shares, any other securities of the Company and any other
property (except for cash dividends) distributed with respect to the Shares
subject to Restricted Share Awards shall be subject to the same restrictions,
terms and conditions as such restricted Shares.
7.3
Termination of
Restrictions. At the end of the restricted period and provided that any
other restrictive conditions of the Restricted Share Award are met, or at such
earlier time as otherwise determined by the Committee, all restrictions set
forth in the Award Agreement relating to the Restricted Share Award or in the
Plan shall lapse as to the restricted Shares subject thereto, and a stock
certificate for the appropriate number of Shares, free of the restrictions and
restricted stock legend, other than any legends required by applicable
securities laws, shall be delivered to the Participant or the Participant's
beneficiary or estate, as the case may be.
SECTION 8. DIRECTOR AWARDS
8.1
Awards to
Non-Employee Directors. The Board may provide that all or a portion of a
Non-Employee Director's annual retainer, meeting fees and/or other awards or
compensation as determined by the Board, be payable (either automatically or at
the election of a Non-Employee Director) in the form of Non-Qualified Stock
Options or Restricted Shares. The Board shall determine the terms and conditions
of any such Awards, including the terms and conditions which shall apply upon a
termination of the Non-Employee Director's service as a member of the Board, and
shall have full power and authority in its discretion to administer such Awards,
subject to the terms of the Plan and applicable law.
8.2
Awards of
Restricted Shares to Directors. Grants of Restricted Shares to Directors
in lieu of cash stipends, in whole or in part, shall have no minimum vesting
period or restrictive period as may be determined in the sole discretion of the
Committee.
SECTION 9. TERMINATION
The
Committee shall have the full power and authority to determine the terms and
conditions that shall apply to any Award upon a termination of employment,
consulting arrangement or directorship with the Company, including a termination
by the Company with or without cause, by a Participant voluntarily, or by reason
of death, disability or retirement, and may provide such terms and conditions in
the Award Agreement or in such rules and regulations as it may
prescribe.
SECTION 10. CHANGE IN CONTROL
Upon a
Change in Control, all outstanding Awards shall vest, become immediately
exercisable or payable and have all restrictions lifted.
SECTION 11. AMENDMENT AND
TERMINATION
11.1
Amendments to the
Plan. The Board may amend, alter, suspend, discontinue, or terminate the
Plan or any portion thereof at any time; provided that no such amendment,
alteration, suspension, discontinuation or termination shall be made without
stockholder approval if such approval is necessary to comply with any tax or
regulatory requirement for which or with which the Board deems it necessary or
desirable to comply; provided that any such waiver, amendment, alteration,
suspension, discontinuance or termination that would adversely affect the rights
of any Participants, or any holder or beneficiary, under any Award theretofore
granted, shall not to that extent be effective without the consent of the
affected Participant, holder, or beneficiary.
11.2
Amendments to Awards.
Subject to the restrictions of Section 6.2, the Committee may waive any
conditions or rights under, amend any terms of, or alter, suspend, discontinue,
cancel or terminate, any Award theretofore granted, prospectively or
retroactively; provided that any such waiver, amendment, alteration, suspension,
discontinuance, cancellation or termination that would adversely affect the
rights of any Participants, or any holder or beneficiary of any Award
theretofore granted, shall not to that extent be effective without the consent
of the affected Participant, holder, or beneficiary.
11.3
Adjustments of Awards Upon
the Occurrence of Certain Unusual or Nonrecurring Events. The Committee
is hereby authorized to make adjustments in the terms and conditions of, and the
criteria included in, Awards in recognition of unusual or nonrecurring events
(including, without limitation, the events described in Section 4.2 hereof)
affecting the Company or the financial statements of the Company, or of changes
in applicable laws, regulations, or accounting principles, whenever the
Committee determines that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan.
SECTION 12. GENERAL
PROVISIONS
12.1
Limited
Transferability of Awards. Except as otherwise provided in the Plan, no
Award shall be assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by a Participant, except by will or the laws of
descent and distribution and/or as may be provided by the Committee in its
discretion, at or after grant, in the Award Agreement. No transfer of an Award
by will or by laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished with written notice thereof
and an authenticated copy of the will and/or such other evidence as the
Committee may deem necessary or appropriate to establish the validity of the
transfer.
12.2
Dividend
Equivalents. In the sole and complete discretion of the Committee, an
Award may provide the Participant with dividends or dividend equivalents,
payable in cash, Shares, other securities or other property on a current or
deferred basis. All dividend or dividend equivalents which are not paid
currently may, at the Committee's discretion, accrue interest, be reinvested
into additional Shares and paid to the Participant if and when, and to the
extent that, payment is made pursuant to such Award. The total number of Shares
available for grant under Section 4 shall not be reduced to reflect any
dividends or dividend equivalents that are reinvested into additional
Shares.
12.3
No Rights
to Awards. No Person shall have any claim to be granted any Award, and
there is no obligation for uniformity of treatment of Participants or holders or
beneficiaries of Awards. The terms and conditions of Awards need not be the same
with respect to each Participant.
12.4
Share
Certificates. All certificates for Shares or other securities of the
Company delivered under the Plan pursuant to any Award or the exercise thereof
shall be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the Plan or the rules, regulations and other
requirements of the SEC or any state securities commission or regulatory
authority, any stock exchange or other market upon which such Shares or other
securities are then listed, and any applicable Federal or state laws, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
12.5
Withholding. A
Participant may be required to pay to the Company and the Company shall have the
right and is hereby authorized to withhold from any Award, from any payment due
or transfer made under any Award or under the Plan, or from any compensation or
other amount owing to a Participant the amount (in cash, Shares, other
securities, other Awards or other property) of any applicable withholding or
other taxes in respect of an Award, its exercise, or any payment or transfer
under an Award or under the Plan and to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes. The Committee may provide for additional cash payments to
holders of Options to defray or offset any tax arising from the grant, vesting,
exercise or payment of any Award.
12.6
Award
Agreements. Each Award hereunder shall be evidenced by an Award Agreement
that shall be delivered to the Participant and may specify the terms and
conditions of the Award and any rules applicable thereto. In the event of a
conflict between the terms of the Plan and any Award Agreement, the terms of the
Plan shall prevail.
12.7
No Limit
on Other Compensation Arrangements. Nothing contained in the Plan shall
prevent the Company from adopting or continuing in effect other compensation
arrangements, which may, but need not, provide for the grant of Options,
Restricted Shares or other types of Awards provided for hereunder.
12.8
No Right
to Employment. The grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ of the Company. Further, the
Company may at any time dismiss a Participant from employment, free from any
liability or any claim under the Plan, unless otherwise expressly provided in an
Award Agreement.
12.9
No Rights
as Stockholder. Subject to the provisions of the Plan and the applicable
Award Agreement, no Participant or holder or beneficiary of any Award shall have
any rights as a stockholder with respect to any Shares to be distributed under
the Plan until such person has become a holder of such Shares. Notwithstanding
the foregoing, in connection with each grant of Restricted Shares hereunder, the
applicable Award Agreement shall specify if and to what extent the Participant
shall not be entitled to the rights of a stockholder in respect of such
Restricted Shares.
12.10
Governing
Law. The validity, construction and effect of the Plan and any rules and
regulations relating to the Plan and any Award Agreement shall be determined in
accordance with the laws of the State of Colorado without giving effect to
conflicts of laws principles.
12.11
Severability. If any
provision of the Plan or any Award is, or becomes, or is deemed to be invalid,
illegal, or unenforceable in any jurisdiction or as to any Person or Award, or
would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to the
applicable laws, or if it cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent of the Plan or
the Award, such provision shall be stricken as to such jurisdiction, Person or
Award and the remainder of the Plan and any such Award shall remain in full
force and effect.
12.12
Other
Laws. The Committee may refuse to issue or transfer any Shares or other
consideration under an Award if, acting in its sole discretion, it determines
that the issuance or transfer of such Shares or such other consideration might
violate any applicable law or regulation (including applicable non-U.S. laws or
regulations) or entitle the Company to recover the same under Exchange Act
Section 16(b), and any payment tendered to the Company by a Participant, other
holder or beneficiary in connection with the exercise of such Award shall be
promptly refunded to the relevant Participant, holder, or
beneficiary.
12.13
No Trust
or Fund Created. Neither the Plan nor any Award shall create or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company and a Participant or any other Person. To the
extent that any Person acquires a right to receive payments from the Company
pursuant to an Award, such right shall be no greater than the right of any
unsecured general creditor of the Company.
12.14
No
Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash, other securities, or other property shall be paid or transferred in lieu
of any fractional Shares or whether such fractional Shares or any rights thereto
shall be canceled, terminated or otherwise eliminated.
12.15
Headings. Headings
are given to the sections and subsections of the Plan solely as a convenience to
facilitate reference. Such headings shall not be deemed in any way material or
relevant to the construction or interpretation of the Plan or any provision
thereof.
SECTION 13. TERM OF THE PLAN
13.1
Effective
Date. The Plan shall be effective as of August 22, 2005.
13.2
Expiration Date. No
new Awards shall be granted under the Plan after the tenth (10th) anniversary of
the Effective Date. Unless otherwise expressly provided in the Plan or in an
applicable Award Agreement, any Award granted hereunder may, and the authority
of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Award or to waive any conditions or rights under any such
Award shall, continue after the tenth (10th) anniversary of the Effective
Date.