UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE
14A
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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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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[X]
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material under Rule 14a-12
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TOUGHBUILT
INDUSTRIES, INC.
(Name of Registrant as Specified in its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
[X]
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No
fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title
of each class of securities to which transaction applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
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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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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Fee
paid previously with preliminary materials.
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Check
box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
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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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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Filing
Party:
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Date
Filed:
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ToughBuilt
Industries, Inc.
25371
Commercentre Drive, Suite 200
Lake
Forest, CA 92630
(949)
528-3100
www.toughbuilt.com
May 3, 2021
To
Our Stockholders:
You
are cordially invited to join us for our 2021 Annual Meeting of Stockholders on June 11, 2021, at 2:00 p.m. PST (or 5:00 p.m.
EST). In light of continuing public health concerns regarding the coronavirus (COVID-19) outbreak, the Annual Meeting will be
held in a virtual format only. Holders of record of our common stock and Series E Non-Convertible Preferred Stock as of April
30, 2021, are entitled to notice and vote at the 2021 Annual Meeting of Stockholders.
The
following Notice of Annual Meeting of Stockholders and the proxy statement describe the business to be conducted at the Annual
Meeting and contain instructions on voting and attending the meeting. We may also report on matters of current interest to our
stockholders at that Annual Meeting.
You
are welcome to attend the Annual Meeting virtually. However, even if you plan to participate virtually, please vote your shares
promptly and before the meeting to ensure they are represented at the meeting. You may submit your proxy by Internet or telephone,
as described in the following materials, or, if you vote by mail, by completing and signing the proxy card enclosed therein and
returning it in the envelope provided. If you decide to participate in the meeting and wish to change your proxy, you may do so
automatically by voting at the meeting, provided you follow the instructions on how to register to attend the meeting.
If
your shares are held in the name of a broker, bank, trust, or another nominee, you may be asked for proof of ownership of these
shares to virtually participate in the Annual Meeting.
We
thank you for your support.
Sincerely,
/s/
Michael Panosian
Michael
Panosian
Chairperson
of the Board, Chief Executive Officer, and President
YOUR
VOTE IS IMPORTANT!
Your
vote is important! As described in your electronic proxy materials notice or on the enclosed paper proxy card and voting instructions,
please vote by: (1) accessing the Internet website, (2) calling the toll-free number, or (3) signing and dating the proxy card
as promptly as possible and returning it by mail if voting and delivering by mail. Even if you plan to attend the Annual Meeting,
we recommend that you vote your shares in advance so that your vote will be counted if you later decide not to attend online.
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE
ANNUAL MEETING TO BE HELD ON JUNE 11, 2021: THE PROXY STATEMENT, PROXY
CARD,
AND ANNUAL REPORT ARE AVAILABLE AT WWW.PROXYVOTE.COM.
NOTICE
OF 2021 ANNUAL MEETING OF STOCKHOLDERS
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DATE:
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Friday,
June 11, 2021
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TIME:
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2:00
p.m., Pacific Standard Time (or 5:00 p.m. Eastern Standard Time)
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PLACE:
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The
Annual Meeting will be held via virtually, live on the Internet at
www.virtualshareholdermeeting.com/TBLT2021.
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Instructions
on how to vote either before or at the Annual Meeting are contained on your notice and proxy card accompanying this proxy
statement. You will need the 16-digit control number from your notice or proxy card or notice to vote either way.
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ITEMS
OF BUSINESS:
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1.
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To
elect the five (5) nominees for directors as listed in this proxy statement.
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2.
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To
authorize our Board of Directors, in its discretion, to amend our articles of incorporation not later than December 31, 2021,
to effect a Reverse Stock Split of our common stock in a ratio of not less than 1-for-2 and not more than 1-for-10, to be
determined by the Board of Directors.
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3.
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To
approve an amendment to our articles of incorporation to increase the number of authorized common stock from 200 million (200,000,000)
to 500 million (500,000,000) shares.
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We
will also transact any other business that may properly come before the meeting or any adjournments thereof. We are not aware
of any other business to come before the meeting at this time.
Your
vote is important. Whether or not you plan to attend the Annual Meeting, we encourage you to read the proxy statement and to vote
as promptly as possible. For specific instructions on how to vote your shares, please refer to the instructions in the section
entitled “How to Vote” beginning on page 1 of the attached proxy statement.
This
notice, proxy statement, proxy card, and our 2020 Annual Report on Form 10-K are being distributed or made available on or about
May 7, 2021.
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By
Order of the Board of Directors,
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/s/
Michael Panosian
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Michael
Panosian
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Chairperson
of the Board, Chief Executive Officer, and President
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Lake
Forest, California
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May
3, 2021
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IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 11, 2021: THIS
PROXY STATEMENT AND TOUGHBUILT’S 2020 ANNUAL REPORT ON FORM 10-K ARE AVAILABLE AT WWW.TOUGHBUILT.COM. ADDITIONALLY,
AND IN ACCORDANCE WITH RULES OF THE U.S. SECURITIES AND EXCHANGE COMMISSION (“SEC”), YOU MAY ACCESS THESE MATERIALS
ONLINE BY VISITING WWW.PROXYVOTE.COM.
TOUGHBUILT
INDUSTRIES, INC.
PROXY
STATEMENT FOR 2021 ANNUAL MEETING OF STOCKHOLDERS
TABLE
OF CONTENTS
ToughBuilt
Industries, Inc.
25371
Commerce Centre Drive, Suite 200
Lake
Forest, CA 92630
(949)
528-3100
www.toughbuilt.com
General
The
Board of Directors of ToughBuilt Industries, Inc., or the Board, has made these materials available to you over the Internet or
has delivered printed versions of these materials to you by mail, in connection with the Board’s solicitation of proxies
for use at the 2021 Annual Meeting of Stockholders, or the Annual Meeting. The Annual Meeting is scheduled to be held on Friday,
June 11, 2021, at 2:00 p.m. Pacific Standard Time (or 5:00 p.m. Eastern Standard Time) via live webcast through www.virtualshareholdermeeting.com/TBLT2021.
You will need the 16- digit control number provided on the Notice of Annual Meeting or your proxy card. This solicitation is for
proxies for use at the Annual Meeting or any reconvened meeting after an adjournment or postponement of the Annual Meeting.
How
to Vote
Even
if you plan to attend the Annual Meeting, please vote as promptly as possible using one of the following voting methods. Make
sure you have your proxy/voting instruction card in hand and follow the instructions. You can vote in advance in one of the following
three ways – and in each case, votes must be received before the polls are closed during the annual meeting:
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VIA
THE INTERNET
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BY
TELEPHONE
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BY
MAIL
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Visit
www.proxyvote.com and
follow
the instructions.
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Call
1-800-454-8683 and
follow
the instructions.
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Mark,
sign and date proxy card and return it in the provided postage-paid envelope or return
it to:
Vote
Processing,
c/o
Broadridge
51
Mercedes Way
Edgewood,
NY 11717
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Please
follow the instructions for Internet or telephone voting on your Notice to vote your shares without attending the meeting. If
you request printed copies of the proxy materials by mail, you may also vote by signing and submitting your proxy card and returning
it by mail, if you are the stockholder of record, or by signing the voter instruction form provided by your bank or broker and
returning it by mail, if you are the beneficial owner but not the stockholder of record. This way your shares will be represented
whether or not you are able to attend the meeting.
Proxy
Summary
This
summary highlights information generally contained elsewhere in this proxy statement. This summary does not contain all of the
information you should consider, and you should read the entire proxy statement carefully before voting.
Date,
Time, and Place of Meeting
Date:
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Friday,
June 11, 2021
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Time:
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2:00
p.m. Pacific Standard Time (or 5:00 p.m. Eastern Standard Time)
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Place:
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The
Annual Meeting will be held via virtually, live on the Internet at www.virtualshareholdermeeting.com/TBLT2021.
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Record
Date:
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Stockholders
of record of our common stock and Series E Preferred Stock as of the close of business on April 30, 2021 are entitled to attend
and vote at the Annual Meeting (the “Record Date”).
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Admission
Requirements:
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You
are entitled to attend the virtual Annual Meeting only if you were a stockholder of record as of the Record Date or hold a
valid proxy for the Annual Meeting. You will your control number on your proxy card to enter the meeting. If you are not a
stockholder of record but hold shares as a beneficial owner in street name, you may be required to provide proof of beneficial
ownership, such as your most recent account statement as of the Record Date, a copy of the voting instruction form provided
by your broker, bank, trustee, or nominee, or other similar evidence of ownership. If you do not comply with the procedures
outlined above, you will not be admitted to the virtual Annual Meeting.
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Voting
Matters and Board Recommendations
The
following proposals will be considered at the Annual Meeting:
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1.
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To
elect the five (5) nominees for directors as listed in this proxy statement.
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2.
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To
authorize our Board of Directors, in its discretion, to amend our articles of incorporation not later than December 31, 2021,
to effect a Reverse Stock Split of our common stock in a ratio of not less than 1-for-2 and not more than 1-for-10, to be
determined by the Board of Directors.
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3.
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To
amend our articles of incorporation to increase
the number of authorized shares of common stock from 200,000,000 to 500,000,000.
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Our
Board recommends that you vote “FOR” each director nominee in Proposal 1 and “FOR” Proposals
2 and 3.
Other
Matters
The
management and Board of Directors know of no other matters to be brought before the meeting. If other matters are properly presented
to the stockholders for action at the meeting or any adjournments or postponements thereof, it is the intention of the proxy holders
named in this proxy to vote in their discretion on all matters on which the shares of common stock represented by such proxy are
entitled to vote. The entire cost of this solicitation of proxies will be borne by the Company, including expenses incurred in
connection with preparing, assembling and mailing the Notice. The Company may reimburse brokers or persons holding stock in their
names or in the names of their nominees for their expenses in sending the proxy materials to beneficial owners who request paper
copies. Certain officers, directors, and regular employees of the Company will receive no extra compensation for their services
and may solicit proxies by mail, telephone, facsimile, email, or personally.
BOARD
OF DIRECTORS AND CORPORATE GOVERNANCE
Board
of Directors Overview
The
current members of our Board of Directors are listed in the table below.
Board Member
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Independent
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Director
Since
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Board Committees
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Michael Panosian (1)
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2012
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—
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Joshua Keeler
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2019
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—
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Robert Faught
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2018
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Nominating and Corporate Governance (Chair), Audit, and Compensation
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Frederick D. Furry (2)
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2018
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Audit (Chair), Compensation, and Nominating and Corporate
Governance
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Linda Moossaian
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2019
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Compensation Committee (Chair), Audit, and Nominating and
Corporate Governance
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(1)
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Mr.
Michael Panosian serves as the Chairperson of the Board of Directors.
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(2)
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Mr.
Frederick Furry served on our Board of Directors for 2020 but has not nominated for re-election at the Annual Meeting.
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Role
and Composition of the Board
As
the date of this proxy statement, our Board of Directors is composed of five (5) members. Upon our Nominating and Corporate Governance
Committee’s recommendation, we are nominating Michael Panosian, Joshua Keeler, Robert Faught, and Linda Moossaian for re-election
to our Board of Directors. Mr. Frederick Furry served on our Board of Directors for 2020 but was not nominated for re-election
at the Annual Meeting. Upon the recommendation of our Nominating and Corporate Governance Committee, we are nominating Mr. William
Placke to replace Mr. Frederick B. Furry as a member of the Board. If elected, each director will hold office for a one (1) year
term until our Annual Meeting of Stockholders to be held in 2022.
Each
director’s term continues until the election and qualification of his or her successor or earlier death, resignation, or
removal. Our Board of Directors is responsible for, among other things, overseeing the conduct of our business, reviewing and,
where appropriate, approving our long-term strategic, financial and organizational goals and plans, and reviewing the performance
of our Chief Executive Officer and other members of senior management.
Board
Leadership Structure
Chairperson
of the Board
Our
Board of Directors currently has no established policy on whether the roles of Chief Executive Officer and Chairperson of the
Board of Directors should be separated. Our Board of Directors believes that it is most appropriate to make that determination
based on the Company’s circumstances. Mr. Panosian services as our Chief Executive Officer and Chairperson of our directors.
The Board of Directors believes its current structure is functioning effectively. The Board of Directors does not believe that
introducing an independent Chairperson would provide appreciably better direction for the Company.
Board
Risk Oversight
Our
Board of Directors as a whole has responsibility for risk oversight. Our Board of Directors exercises this risk oversight responsibility
directly and through its committees. The risk oversight responsibility of our Board of Directors and its committees are informed
by reports from our management teams to provide visibility to our Board of Directors about the identification, assessment, and
management of key risks and our management’s risk mitigation strategies. Our Board of Directors has primary responsibility
for evaluating strategic and operational risk, including related to significant transactions. Our Audit Committee has primary
responsibility for overseeing our major financial and accounting risk exposures and, among other things, discusses guidelines
and policies with respect to assessing and managing risk with management and our independent auditor. Our Compensation Committee
has responsibility for evaluating risks arising from our compensation and people policies and practices. Our Nominating and Corporate
Governance Committee has responsibility for evaluating risks relating to our corporate governance practices. Our committees and
management provide reports to our Board of Directors on these matters.
In
its governance role, and particularly in exercising its duty of care and diligence, our Board of Directors is responsible for
ensuring that appropriate risk management policies and procedures are in place to protect the Company’s assets and business.
Our Board of Directors has broad and ultimate oversight responsibility for our risk management processes and programs, and executive
management is responsible for the day-to-day evaluation and management of risks to the Company. We do not have a policy as to
whether our Chairperson and Chief Executive Officer’s roles should be separate. Instead, our Board of Directors makes this
determination based on what best serves our Company’s needs at any given time.
Director
Independence
Under
the rules of the NASDAQ Stock Market (“NASDAQ”), where our common stock trades, independent directors must constitute
a majority of a listed company’s Board of Directors. Also, the NASDAQ rules require that each member of a listed company’s
audit, compensation, and nominating and corporate governance committees be independent, subject to specified exceptions. Audit
Committee members must also satisfy the independence criteria outlined in Rule 10A-3 under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). Under the rules of NASDAQ, a director will only qualify as an “independent
director” of a company if such director is not an executive officer or employee of such company or, in the opinion of such
company’s Board of Directors, that person does not have a relationship that would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director.
In
order to be considered independent for purposes of Rule 10A-3, a member of an Audit Committee of a listed company may not, other
than in his or her capacity as a member of the Audit Committee, the Board of Directors, or any other board committee, accept,
directly or indirectly, any consulting, advisory or other compensatory fees from the listed company or any of its subsidiaries,
or be an affiliated person of the listed company or any of its subsidiaries.
Our
Board of Directors has undertaken a review of each director’s independence and considered whether any director has a material
relationship with us that could compromise the director’s ability to exercise independent judgment in carrying out his or
her responsibilities. As a result of this review, our Board of Directors determined that each member of the board, other than
Michael Panosian, the Chief Executive Officer of the Company, and Joshua Keeler, our VP of Research and Development, are “independent
directors” as defined in NASDAQ Listing Rules and SEC Rule 10A-3 promulgated under the Exchange Act. The board has also
determined that board nominee William Placke qualifies as an independent director under listing standards of NASDAQ and the SEC
rules and regulation. A majority of our directors are and will continue to be independent, as required under applicable NASDAQ
rules. As required under applicable NASDAQ rules, our independent directors have and will continue to meet in regularly scheduled
executive sessions at which only independent directors are present.
Our
Board of Directors also determined that each member of our Audit Committee, Compensation Committee, and Nominating and Corporate
Governance Committee satisfy the independence standards for those committees established by the SEC’s and NASDAQ’s
applicable rules and regulations.
In
making these determinations, our Board of Directors considered the relationships that each non-employee director has with our
Company and all other facts and circumstances our Board of Directors deemed relevant in determining their independence, including
each non-employee director’s beneficial ownership of our capital stock.
Executive
Sessions of Independent Directors
Independent
members of our Board of Directors convene executive sessions from time to time as deemed necessary or appropriate. These sessions
generally are without the presence of our non-independent directors or members of the Company’s management.
Board
Committees
Our
Board of Directors has three standing committees: an Audit Committee, a Compensation Committee, and a Nominating and Corporate
Governance Committee. As of this proxy statement’s date, the composition and primary responsibilities of each committee
are described below. Members serve on these committees until their resignation or until otherwise determined by our Board of Directors.
Audit
Committee
Our
Audit Committee currently consists of three independent directors, of which at least one, the Chairperson of the Audit Committee,
qualifies as a qualified financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Mr. Frederick Furry has served as
the Chairperson of the Audit Committee and financial expert, and Mr. Furry and Ms. Linda Moossaian are members of the Audit Committee.
Mr. Furry also qualifies as a qualified financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. The Audit Committee’s
duties are to recommend our Board of Directors the engagement of the independent registered public accounting firm to audit our
consolidated financial statements and review our accounting and auditing principles. The Audit Committee reviews the scope, timing,
and fees for the annual audit and the results of audit examinations performed by any internal auditors and independent public
accountants, including their recommendations to improve the system of accounting and internal controls. The Audit Committee will
at all times be composed exclusively of directors who are, in the opinion of our Board of Directors, free from any relationship
that would interfere with the exercise of independent judgment as a committee member and who possess an understanding of consolidated
financial statements and generally accepted accounting principles. Our Audit Committee operates under a written charter, which
is available on our website at www.toughbuilt.com.
Upon
board nominee William Placke’s election to the Board of Directors at the Annual Meeting, the board will appoint Mr. Placke
to serve on the Audit Committee, and Linda Moossaian will be appointed to replace Mr. Furry as such committee’s Chairperson.
The board has determined that Ms. Moossaian qualifies as a financial expert as defined under Item 407(d)(5)(ii) of Regulation
S-K.
Compensation
Committee
Our
Compensation Committee establishes our executive compensation policy, determines our executive officers’ salary and bonuses,
and recommends to the board stock option grants for our executive officers. Ms. Moossaian is the Compensation Committee Chair,
and Mr. Furry and Frederick have been serving as Compensation Committee members. Each of our Compensation Committee members is
independent under NASDAQ’s independence standards for Compensation Committee members. Our Chief Executive Officer often
makes recommendations to the Compensation Committee and the board concerning other executive officers’ compensation. The
Compensation Committee seeks input on certain compensation policies from the Chief Executive Officer. Our Compensation Committee
continues to engage third-party consultants regarding market compensation for our employees. Our Compensation Committee operates
under a written charter, which is available on our website at www.toughbuilt.com.
Upon
board nominee William Placke’s election to the Board of Directors at the Annual Meeting, the board will appoint Mr. Placke
to replace Mr. Furry as a Compensation Committee member.
Nominating
and Corporate Governance Committee
Our
Nominating and Corporate Governance Committee is responsible for matters relating to the corporate governance of our Company and
the nomination of members of the board and committees of the board. Mr. Furry is the Chairperson of the Nominating and Corporate
Governance Committee, and Ms. Moossaian and Mr. Furry are members of the Nominating and Corporate Governance Committee. Each of
the members of our Nominating and Corporate Governance Committee is independent under NASDAQ’s independence standards. The
Nominating and Corporate Governance Committee operates under a written charter, available on our website at www.toughbuilt.com.
Upon
board nominee William Placke’s election to the Board of Directors at the Annual Meeting, the board will appoint Mr. Placke
to replace Mr. Furry as a Nominating and Corporate Governance Committee member.
2020
Board Meetings and Committee Meetings
In
2020, our Board of Directors and each committee met four times. In 2020, each of our incumbent directors attended or participated
in at least 75% of the aggregate of (i) the total number of meetings of our Board of Directors held during the period for which
he or she has been a director and (ii) the total number of meetings held by all committees of our Board of Directors on which
he or she served during the time he or she was a member of such committee.
Compensation
Committee Interlocks and Insider Participation
The
current members of our Compensation Committee are Ms. Linda Moossaian and Messrs. Furry and Faught. None of our Compensation Committee
members is or was during 2020, an officer or employee of ours. None of our Compensation Committee members had any relationships
requiring disclosure by the Company under Item 404 of Regulation S-K in 2020. None of our executive officers currently serves,
or in the past year, has served as a member of the Board of Directors or Compensation Committee of any entity with one or more
executive officers serving on our Board of Directors or Compensation Committee.
Board
Attendance at Annual Meeting of Stockholders
Our
policy is to invite and encourage each member of our Board of Directors to be present at our Annual Meetings of stockholders.
All of our directors intend to attend the Annual Meeting.
Communication
with Directors
Stockholders
and interested parties who wish to communicate with our Board of Directors, non-management members of our Board of Directors as
a group, a committee of our Board of Directors or a specific member of our Board of Directors (including our Chairperson or lead
independent director, if any) may do so by letters addressed to the attention of our Corporate Secretary at our corporate executive
offices. All communications are reviewed by the Corporate Secretary and provided to our Board of Directors as appropriate. The
address for these communications is ToughBuilt Industries, Inc., 25371 Commercentre Drive, Suite 200, Lake Forest, CA 92630.
Code
of Business Conduct and Ethics
We
are committed to the highest standards of integrity and ethics in the way we conduct our business. Accordingly, we adopted a Code
of Business Conduct and Ethics that applies to our Board of Directors, officers, and employees, including our Chief Executive
Officer, Chief Financial Officer, and other executive and senior financial officers. Our Code of Business Conduct and Ethics establishes
our policies and expectations with respect to a wide range of business conduct, including preparation and maintenance of financial
and accounting information, compliance with laws, and conflicts of interest.
Under
our Code of Business Conduct and Ethics, each of our employees, officers and directors is required to report suspected or actual
violations to the extent permitted by law. Also, we have adopted separate procedures concerning the receipt and investigation
of complaints relating to accounting or audit matters. These procedures have been adopted and are administered by our Audit Committee.
Our
Code of Business Conduct and Ethics is available on our website at www.toughbuilt.com. We will
disclose any amendments to the Code of Business Conduct and Ethics on our website, as well as any waivers of the code that are
required to be disclosed by the SEC or NASDAQ rules.
Indemnification
of Officers and Directors
The
Nevada Revised Statutes (NRS) provides that a Nevada corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’
fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action,
suit or proceeding if he is not liable pursuant to NRS Section 78.138 or acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. NRS Chapter 78 further provides that a corporation similarly may indemnify
any such person serving in any such capacity who was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys’ fees) actually and reasonably incurred in connection with the defense or settlement of such
action or suit if he is not liable pursuant to NRS Section 78.138 or acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to
the extent that the court or other court of competent jurisdiction in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which the court or other court of competent jurisdiction shall deem proper.
Our
bylaws provide that we may indemnify our officers, directors, employees, agents, and any other persons to the maximum extent permitted
by the NRS.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”), may
be permitted to directors, officers or persons controlling us according to the preceding provisions, we have been informed that
in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore
unenforceable.
Considerations
in Identifying and Evaluating Director Nominees
The
Nominating and Corporate Governance Committee is responsible for recommending to the Board of Directors nominees for election
to our Board of Directors at each Annual Meeting of Stockholders and identifying one or more candidates to fill any vacancies
that may occur on our Board of Directors. New candidates may be identified through recommendations from existing directors or
management, consultants, or third-party search firms, discussions with other persons who may know of suitable candidates to serve
on our Board of Directors, and stockholder recommendations. Evaluations of prospective candidates typically include a review of
the candidate’s background and qualifications by the Nominating and Corporate Governance Committee, interviews with the
committee as a whole, one or more members of the committee, or one or more other board members, and discussions within the committee
and the board. The Nominating and Corporate Governance Committee then recommends candidates to the board, with the full Board
of Directors selecting the candidates to be nominated for election by the stockholders or appointed by the Board of Directors
to fill a vacancy.
The
Nominating and Corporate Governance Committee will consider director candidates proposed by stockholders and recommendations from
other sources. Additional information regarding the process for properly submitting stockholder nominations for nomination candidates
to our Board of Directors is outlined in the section titled “Stockholder Proposals for the 2022 Annual Meeting” on
page 35 of this proxy statement.
Board
Diversity
Our
Board of Directors seeks members from diverse professional backgrounds who combine a solid professional reputation and knowledge
of our business and industry with a reputation for integrity. Our Board of Directors does not have a formal policy concerning
diversity and inclusion but is in the process of establishing a policy on diversity. Diversity of experience, expertise, and viewpoints
is one of many factors the Nominating and Corporate Governance Committee considers when recommending director nominees to our
Board of Directors. Further, our Board of Directors is committed to actively seeking highly qualified women and individuals from
minority groups to include in the pool from which new candidates are selected. Our Board of Directors also seeks members that
have experience in positions with a high degree of responsibility or are, or have been, leaders in the companies or institutions
with which they are, or were, affiliated, but may seek other members with different backgrounds, based upon the contributions
they can make to our Company.
Compensation
of Non-Employee Directors
2020
Non-Employee Director Compensation
A
summary of compensation accrued or paid to our non-executive directors during the fiscal year ended December 31, 2020 is below.
Mr. Panosian, our Chief Executive Officer and President, and Mr. Keeler, our VP of Research & Development, received no compensation
for serving as directors and are not included in the table. The compensation Mr. Panosian and Mr. Keeler receive as an employee
of the Company is included in the section titled “EXECUTIVE COMPENSATION” on page 20 of this proxy statement.
Non-Employee
Director
Name
|
|
Fees
Earned
or
Paid
in
Cash
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Non-Equity
Incentive
Plan
Compensation
|
|
|
All
Other
Compensation
|
|
|
Total
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
Paul Galvin (1)
|
|
|
37,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,500
|
|
Robert Faught
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
Frederick Fury
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
Linda Moossaian
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
(1)
Mr. Galvin resigned from the Board of Directors on December 4, 2020.
Non-Employee
Director Remuneration Policy
Each
of our non-employee directors may receive up to 50,000 options to purchase shares of common stock (which we refer to as the “Annual
Director Options”) for each fiscal year. The Annual Director Options will be confirmed (together with the exercise price
for such options) at the first meeting of our Board of Directors for each fiscal year and shall vest quarterly in arrears. Annual
Director Options shall have a ten-year term and shall be issued under our equity plans.
Compensation
Committee Review
The
Compensation Committee shall, if it deems necessary or prudent in its discretion, reevaluate the cash and equity awards (amount
and manner or method of payment) to be made to non-employee directors for such fiscal year. In making this determination, the
Compensation Committee shall utilize such market standard metrics as it deems appropriate, including, without limitation, an analysis
of cash compensation paid to our peer group’s independent directors.
The
Compensation Committee shall also have the power and discretion to determine in the future whether non-employee directors should
receive Annual or other grants of options to purchase shares of common stock or other equity incentive awards in such amounts
and under such policies as the Compensation Committee may determine utilizing such market standard metrics as it deems appropriate,
including, without limitation, an analysis of equity awards granted to independent directors of our peer group.
Participation
of Employee Directors; New Directors
Unless
separately and specifically approved by the Compensation Committee in its discretion, no employee director of our Company shall
be entitled to receive any remuneration for serving as a director (other than expense reimbursement as per prevailing policy).
Messrs. Michael Panosian and Joshua Keeler are considered to employee directors because they are also executive officers of the
Company.
New
directors joining our Board of Directors shall be entitled to a prorated portion (based on months to be served in the fiscal year
in which they join) of cash and stock options or other equity incentive awards (if applicable) for the applicable fiscal year
at the time they join our Board of Directors.
PROPOSAL
1–ELECTION OF DIRECTORS
Board
Structure
Our
Board of Directors is currently composed of five (5) members. Directors hold office until the next Annual Meeting of Stockholders
or until their earlier death, resignation, or removal, or until their successors are elected and qualified.
Information
Regarding our Directors
Our
Nominating and Corporate Governance Committee recommended, and our Board of Directors nominated Ms. Linda Moossaian and Messrs.
Panosian, Keeler, Faught, and Placke as nominees for election as directors at the 2021 Annual Meeting to hold office for a one-year
term until our Annual Meeting of Stockholders to be held in 2022.
The
director nominees have consented to be named as nominees in this proxy statement and have agreed to serve as directors if elected.
Unless otherwise instructed, the proxy holders will vote the proxies received by them for the five (5) nominees named below. If
any director nominee of the Company is unable or declines to serve as a director at the Annual Meeting, the proxies will be voted
for any nominee designated by the present Board of Directors to fill the vacancy. The Board of Directors has no reason to believe
that any of the nominees will be unavailable for election. The elected directors will hold office until the next Annual Meeting
of Stockholders or until their earlier death, resignation, or removal, or until their successors are elected and qualified. There
are no arrangements or understandings between any of our directors and any other person under which any director was selected
to serve as a director of our Company. There are no family relationships among our directors or officers.
The
following sets forth the persons nominated by the Board of Directors for election and certain information concerning those individuals:
Director
Nominee
|
|
Age
|
|
Position
|
|
Director
Since
|
Michael
Panosian
|
|
58
|
|
President,
Chief Executive Officer, and Chairperson
|
|
January
1, 2012
|
Joshua
Keeler
|
|
42
|
|
VP
of Research & Development and Director
|
|
June
7, 2019
|
Robert
Faught (1)(2)
|
|
71
|
|
Director
|
|
November
14, 2018
|
Linda
Moossaian (1)(3)
|
|
51
|
|
Director
|
|
December
12, 2019
|
William
Placke (1)(4)
|
|
53
|
|
Director
Nominee
|
|
—
|
|
(1)
|
Independent
Director
|
|
(2)
|
Chairperson
of the Nominating and Corporate Governance Committee, Member of the Audit Committee, and Member of the Compensation Committee
|
|
(3)
|
Chairperson
of the Compensation Committee, Member of the Audit Committee; Member of the Nominating and Corporate Governance Committee.
The board will be appointed to replace Mr. Furry as such committee’s Chairperson after the Annual Meeting.
|
|
(4)
|
The
board will appoint Mr. Placke to serve as a Member of the Nominating and Corporate Governance Committee, Member of the Audit
Committee, and Member of the Compensation Committee upon his election at the Annual Meeting.
|
Biographies
of Director Nominees
Michael
Panosian, Co-Founder, President, CEO, and Director
Mr.
Panosian co-founded our Company in 2012 and has been our CEO, President, and Director since inception. In 2008, Mr. Panosian co-founded
Pandun, Inc., a manufacturer, and distributor of tools and tool accessories in Asia, and served as its CEO until 2012. Mr. Panosian
has over 24 years of extensive experience in innovation, design direction, product development, brand management, marketing, merchandising,
sales, supply chain, and commercialization experience in the hardware industry. He has launched several product projects spanning
several fields. Mr. Panosian has deep knowledge of doing business in China, where he managed a team of over 350 engineers, industrial
designers, and marketing professionals while stationed in Suzhou with his team for 4 years. Mr. Panosian is a graduate of Northrop
University in Aerospace engineering with numerous specializations; he holds numerous patents and trademarks shared with some of
his colleagues at our Company and other development teams.
Mr.
Panosian has been deemed to be suitable as a Director due to his intimate knowledge of the Company since inception and his business
and engineering expertise.
Joshua
Keeler, Co-Founder, Vice President of Research & Development, and Director
As
the Vice President of Research & Development at our Company, Mr. Keeler is responsible for all product development since its
inception. Mr. Keeler co-founded our Company in 2012 and works directly with Mr. Panosian in bringing innovative ideas to market.
Mr. Keeler is a graduate of Art Center College of Design with a Bachelor of Science (BS) in Industrial Design. Mr. Keeler has
over 12 years of product development experience, working on projects spanning several fields, including automotive, personal electronics,
sporting goods, and a wide expanse of tools. From 1999 to 2000, he was co-owner and Vice President of Oracle Industrial Design,
Co., a private company specializing in industrial design and product development. From August 2000 to April 2004, Mr. Keeler worked
for Positec Power Tool Co., a private company in Suzhou, China, designing and creating a large innovation library of numerous
power tool concepts. From August 2005 to April 2008, Mr. Keeler was the chief designer for Harbinger International, Inc. From
August 2008 to April 2012, he was chief designer for Pandun Inc, specializing in innovative tools and supporting products. He
has lived in China and has extensive experience working directly with manufacturers to get designs into production.
Mr.
Keeler is deemed suitable as a Director by our Board of Directors due to his depth of R&D knowledge and expertise in the industry.
Robert
Faught, Director
From
2003-2013, Mr. Faught was the Senior Vice President of Consumer Channels for Comcast. He created an industry-leading organization
of retail, digital marketing, and retail “store within a store’s” through a series of acquisitions and innovative
solutions selling and marketing cable, broadband, telephone, wireless, and home security a $4.5 billion division. From 2001-2003,
Mr. Faught was the President and CEO of Atlanta-based Enrev Power Solutions. In 1998, Mr. Faught was recruited by the Chairperson
of Philips Electronics to be the President of the Americas Region. He was brought in to lead a turnaround and assume accountability
for North and South America. He increased the distribution and sales of several consumer electronic products, which led to a $3.0
billion joint venture with Lucent Technologies. Before 1998, Mr. Faught worked in Los Angeles for L.A. Cellular and in Atlanta
for Bell South Cellular, where he managed consumer sales and marketing. Prior experiences also include leading Atari and Activision
in senior sales and marketing roles. At Faught Associates, Mr. Faught offers consulting, executive search, leadership development,
and outplacement to bring exceptional leadership and performance direction that provides growth and internal development. From
January 2014 to January 2016, he was the President and Chief Executive Officer of SmartHome Ventures and has served on its board
since January 2016.
The
Board has determined that Mr. Faught is suitable as a Director due to his long-standing leadership roles with Fortune 500 companies.
Linda
Moossaian, Director
Linda
Moossaian is an achievement-oriented financial strategist with an exceptional record of successful initiatives in financial planning,
profit optimization, joint venture accounting, and treasury management. She has a strong history of forging strategic partnerships
with senior management, including CEOs and CFOs, and key stakeholders to drive financial objectives, make strategic decisions,
and analyze value-added analytics. Ms. Moossaian has a sophisticated understanding of long-range budget preparation, GAAP accounting,
M&A, planning models, financial forecasting & analysis, decision support, accounting procedures, and continuous process
improvement. Her advanced critical thinking, analytical, qualitative, and quantitative analysis skills have been developed through
corporate and public accounting and consulting positions. She currently is the Director, Audit & Controls-WBTV Financial Administration
for Warner Bros. in Burbank, CA, a position she has held since July 2019. Ms. Moossaian has previously acted as a Director of
the Theatrical Production Finance (from July 2009 to April 2018) and Director of Financial Planning & Analysis (from April
2018 to July 2019) for Warner Bros.
The
ToughBuilt Board has determined that Ms. Moossaian’s finance expertise is well suited to the board’s support of the
Company during this rapid growth phase.
William
Placke, Board Nominee
William
“Bill” Placke has been serving as the Head of Strategic Partnerships and Business Development for Ericsson Wireless
Office, a publicly listed, global company with more than 100,000 employees operating in over 120 countries, since August 2020.
Before being acquired by Ericsson in August 2020, Bill served as the Executive Vice President of Corporate Development and Strategic
Alliances for StratusWorX, a Silicon Valley technology company, from June 2016. From June 2016 to June 2017, Bill served as Executive
Vice President of Corporate Development at Console Connect, a SaaS and network company in Silicon Valley acquired by PCCW in August
2017. Prior to this, he was the Executive Vice President, General Counsel, and Company Secretary of Digital Globe Services, a
London Stock Exchange-listed digital media company from January 2010 to July 2016. Bill has served in executive roles at Charter
Communications and in board positions, a member of the Investment Committee, and as Sr. Director of Legal Mergers & Acquisitions
at United Pan-Europe Communications/Liberty Global.
Bill
began his career as a Corporate, M&A (mergers and acquisitions), and IPO (initial public offering) attorney with the law firm
of Roberts, Sheridan & Kotel in New York (now Dickstein, Shapiro) and later as a Cross-Border Mergers and Acquisitions attorney
at Clifford Chance, LLP, one of the largest law firms in the world. Bill has served on the Board of Directors of companies in
the US, Netherlands, UK, Ireland, and France and has published articles and cited in multiple legal reviews and business reviews
on various topics from corporate governance to cross-border mergers and acquisitions and securities issues. Bill earned his law
degree (J.D.) from St. John’s University School of law in May 1994, a Diploma in European Union Law from King’s College
London in 2000, and his undergraduate degree in Business Administration from the University of Dayton in 1989. He has been licensed
to practice law in New York since November 1994 and is a member in good standing with the New York Bar.
ToughBuilt’s
Board of Directors has determined that Mr. Placke’s legal expertise and extensive international experience in corporate
finance, mergers and acquisitions, and securities offerings would be valuable to the Company’s growth during the Company’s
recent rapid growth.
Required
Vote
You
may vote “FOR,” “AGAINST,” or “ABSTAIN” for each director nominee. Directors
are elected by a plurality of the votes properly cast in person or by proxy. If a quorum is present and voting, the five (5) nominees
receiving the highest number of affirmative votes will be elected. A “plurality vote”
means that the winning candidate only needs to get more votes than a competing candidate. Because our directors are unopposed,
he or she only needs one vote to be elected.
Our
articles of incorporation do not permit stockholders to cumulate their votes for the election of directors. Shares represented
by executed proxies will be voted if authority is not withheld for the five (5) nominees’ election. Abstentions and broker
non-votes will not affect the outcome of the election of directors.
Broker
non-votes and abstentions will not affect the outcome of the election of directors, although they will be counted for purposes
of determining whether there is a quorum. Shares represented by executed proxies will be voted, if authority to do so is not expressly
withheld (as indicated on the proxy card), for the election of Ms. Moossaian, and Messrs. Panosian, Keeler, Faught, and Placke
to our Board of Directors
Proposal
1–Board Recommendation
Our
Board of Directors recommends a vote “FOR” the election Ms. Moossaian and Messrs. Panosian, Keeler, Faught,
and Placke to the Board of Directors.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
PROPOSAL
NUMBER 2–TO AUTHORIZE THE BOARD OF DIRECTORS, IN ITS DISCRETION, TO AMEND OUR ARTICLES OF INCORPORATION BY DECEMBER 31, 2021 TO EFFECT A
REVERSE STOCK SPLIT IN A RATIO OF NOT LESS THAN 1-FOR-2 AND NOT MORE THAN 1-FOR-10, TO BE DETERMINED BY THE BOARD OF
DIRECTORS
Background
On
April 13, 2021, our Board of Directors unanimously approved and recommended that our stockholders approve a proposal to authorize
the Board of Directors, in its discretion, to amend our articles of incorporation, as amended (the “Certificate Amendment”)
not later than December 31, 2021, to effect a Reverse Stock Split at a ratio of not less than 1-for-2 and not more than 1-for-10,
with the exact ratio to be set within this range by our Board of Directors in its sole discretion but not later than December
31, 2021 (the “Reverse Stock Split”). The final decision of whether to proceed with the Reverse Stock Split and the
effective time of the Reverse Stock Split is to be determined by the Board of Directors, at its sole discretion.
If
the stockholders approve the Reverse Stock Split, and the Board of Directors decides to implement it, the Reverse Stock Split
will become effective as of a date and time to be determined by the Board of Directors that will be specified in the Certificate
Amendment (the “Effective Time”). If the Board of Directors does not decide to implement the Reverse Stock Split by
December 31, 2021, the authority granted in this proposal to implement the Reverse Stock Split will automatically terminate.
The
Reverse Stock Split will be realized simultaneously for all outstanding common stock. The Reverse Stock Split will affect all
holders of common stock uniformly, and each stockholder will hold the same percentage of common stock outstanding immediately
following the Reverse Stock Split as that stockholder held immediately before the Reverse Stock Split, except for changes that
may result from the treatment of fractional shares, as described below. The Reverse Stock Split will not change our common stock’s
$0.0001 par value per share and will not reduce the number of authorized shares of common stock. Outstanding shares of common
stock resulting from the Reverse Stock Split will remain fully paid and non-assessable.
The
text of the proposed Certificate Amendment to effect the Reverse Stock Split is included as Appendix A to this proxy statement.
Any final Certificate Amendment will include the Reverse Stock Split ratio fixed by our Board of Directors, within the range approved
by our stockholders.
Criteria
to Be Used for Decision to Proceed with the Reverse Stock Split
If
our stockholders approve the Reverse Stock Split, our Board of Directors will be authorized to proceed with the Reverse Stock
Split. The exact ratio of the Reverse Stock Split, within the 1-for-2 to the 1-for-10 range, would be determined by our Board
of Directors, in its sole discretion, and publicly announced by us before the Effective Time. In determining whether to proceed
with the Reverse Stock Split and setting the appropriate ratio for the Reverse Stock Split, our Board of Directors will consider,
among other things, factors such as:
|
|
NASDAQ’s
minimum price per share requirements;
|
|
|
|
|
|
the
historical trading prices and trading volume of our common stock;
|
|
|
|
|
|
the
number of shares of our common stock outstanding;
|
|
|
|
|
|
the
then prevailing and expected trading prices and trading volume of our common stock and the anticipated impact of the Reverse
Stock Split on the trading market for our common stock;
|
|
|
|
|
|
the
anticipated impact of a particular ratio on our ability to reduce administrative and transactional costs;
|
|
|
|
|
|
business
developments affecting us; and
|
|
|
|
|
|
prevailing
general market and economic conditions.
|
Reasons
for the Reverse Stock Split
If
our stockholders approve the Reverse Stock Split, our Board of Directors will be authorized to proceed with the Reverse Stock
Split. The Board of Directors believes that the increased market price of the common stock expected as a result of implementing
the Reverse Stock Split could improve the marketability and liquidity of our common stock and will encourage interest and trading
in our common stock, and, importantly, would enable the common stock to continue to be listed on NASDAQ (if a company trades for
30 consecutive business days below the $1.00 minimum closing bid price requirement, NASDAQ will send a deficiency notice to the
company, advising that it has been afforded a “compliance period” of 180 calendar days to regain compliance with the
applicable requirements). The Reverse Stock Split could allow a broader range of institutions to invest in our common stock, potentially
increasing trading volume and our common stock’s liquidity. The Reverse Stock Split could also help increase analyst and
broker interest in our common stock as their policies can discourage them from following or recommending companies with low stock
prices.
The
Board of Directors (or any authorized committee of the Board of Directors) reserves the right to elect to abandon the Reverse
Stock Split, notwithstanding stockholder approval, if it determines, in its sole discretion, that the Reverse Stock Split is no
longer in the best interests of the Company.
Procedure
for Effecting Reverse Stock Split
If
the Company’s stockholders approve the Reverse Stock Split, and if at such time the Board of Directors still believes that
a Reverse Stock Split is in the best interests of the Company and its stockholders, the Board of Directors will determine the
exact timing of the filing of the Certificate Amendment. We will then file the Certificate Amendment, the form of which is attached
hereto as Appendix A, with the Secretary of State of the State of Nevada to effect the Reverse Stock Split. The Certificate
of Amendment text is subject to modification to include such changes as required by the Nevada Secretary of State and as the Board
of Directors deems necessary and advisable to effect the Reverse Stock Split.
All
shares of our common stock issued and outstanding immediately before the Effective Time would automatically be converted into
new shares of our common stock based on the Reverse Stock Split ratio by reclassifying and combining all of our outstanding shares
of common stock a proportionately smaller number of shares. For example, if the Board of Directors decides to implement a 1-for-10
Reverse Stock Split of common stock, then a stockholder holding 10,000 shares of common stock before the Reverse Stock Split would
instead hold 1,000 shares of common stock immediately after the Reverse Stock Split. If the Board of Directors does not decide
to implement the Reverse Stock Split by December 31, 2021, the authority granted in this proposal to implement the Reverse Stock
Split will terminate.
As
soon as practicable after the Effective Time of the Reverse Stock Split, stockholders of record who hold certificated shares at
the Effective Time would receive correspondence from our transfer agent asking them to return the outstanding certificates representing
pre-split shares of common stock, which would be canceled upon receipt by our transfer agent, and new certificates representing
the post-split shares of common stock would be sent to each of our stockholders. We will bear the costs of the issuance of the
new stock certificates. Stockholders who hold uncertificated shares, either as direct or beneficial owners, will have their holdings
electronically adjusted by the Company’s transfer agent (and, for beneficial owners, by their brokers or banks that hold
in “street name” for their benefit, as the case may be) to give effect to the Reverse Stock Split. Stockholders who
hold uncertificated shares as direct owners will be sent a statement of holding from the Company’s transfer agent that indicates
the number of shares owned in book-entry form.
Following
the Effective Time, each certificate representing shares of pre-split common stock will be deemed for all corporate purposes to
evidence ownership of post-split common stock.
STOCKHOLDERS
SHOULD NOT DESTROY ANY STOCK CERTIFICATES AND SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM
FROM OUR TRANSFER AGENT.
Principal
Effects of the Reverse Stock Split
If
the Reverse Stock Split is approved and our Board of Directors elects to effect the Reverse Stock Split, the number of outstanding
shares of common stock will be reduced in proportion to the ratio of the Reverse Stock Split chosen by our Board of Directors.
Common
Stock
Except
for the number of shares issued and outstanding and any adjustment that may occur due to the provisions for the treatment of fractional
shares, the rights and preferences of outstanding shares of common stock before and after the Reverse Stock Split would remain
the same. Holders of the Company’s common stock would continue to have no pre-emptive rights. Following the Reverse
Stock Split, each full share of the Company’s common stock resulting from the Reverse Stock Split would entitle the holder
thereof to one vote per share and would otherwise be identical to the shares of our common stock immediately before the Reverse
Stock Split. Following the Reverse Stock Split, our common stock will continue to be listed on NASDAQ, under the symbol “TBLT,”
although it would receive a new CUSIP number.
Because
the number of outstanding shares will be reduced due to the Reverse Stock Split, the number of shares available for issuance will
be increased. These shares may be used by us for various purposes in the future without further stockholder approval (subject
to NASDAQ listing rules), including, among other things, financings, strategic partnering arrangements, or the acquisitions of
assets or businesses. However, we currently have no specific plans, arrangements, or understandings, whether written or oral,
concerning the increase in shares available for issuance due to the Reverse Stock Split.
Series
E Preferred Stock
The
Reverse Stock Split will not affect the Series E Preferred Stock.
Effects
of the Reverse Stock Split on our Equity Plan and Outstanding Awards
If
the Reverse Stock Split is implemented, the number of shares reserved for awards granted under the 2016 Equity Incentive Plan
(“2016 Plan”) and 2018 Equity Incentive Plan (“2018 Plan,” and with the 2016 Plan, the “Plans”)
and the outstanding awards and unexercised options exercisable for shares of common stock under Plans will be automatically adjusted
to reflect the Reverse Stock Split.
Outstanding
Warrants
If
the Reverse Stock Split is implemented, the number of shares issuable upon the exercise of outstanding warrants and those warrants’
exercise price will be automatically adjusted to reflect the Reverse Stock Split.
Accounting
Matters
As
a result of the Reverse Stock Split, the stated capital on the Company’s balance sheet attributable to the common stock,
which consists of the $0.0001 par value per share of the common stock multiplied by the aggregate number of shares of common stock
issued and outstanding, will be reduced in proportion to the size of the Reverse Stock Split. Correspondingly, the Company’s
additional paid-in capital account consists of the difference between the Company’s stated capital and the aggregate amount
paid to the Company upon issuance of all currently outstanding shares of the common stock credited with the amount by which the
stated capital is reduced.
Fractional
Shares
No
fractional shares will be issued in connection with the Reverse Stock Split. Instead, the Company will issue one whole share of
the post-Reverse Stock Split common stock to any stockholder who would have been entitled to receive a fractional share of common
stock due to the Reverse Stock Split. Each holder of common stock will hold the same percentage of the outstanding common stock
immediately following the Reverse Stock Split as that stockholder did immediately before the Reverse Stock Split, except for adjustments
due to the additional net share fraction that will need to be issued as a result of the treatment of fractional shares.
Risks
Associated with the Reverse Stock Split
Before
voting on this proposal, you should consider the following risks associated with implementing the Reverse Stock Split.
The
Reverse Stock Split may contribute toward an ownership change under Section 382 of the Code.
If
the Company were to undergo an ownership change under Section 382 of the Code, the Company’s ability to use its net operating
loss carryovers incurred before the ownership change against income arising after the ownership change would be significantly
limited. In general, an “ownership change” under Section 382 of the Code occurs concerning the Company if, over a
rolling three-year period, the Company’s “5-percent stockholders” increase their aggregate stock ownership by
more than 50 percentage points over their lowest stock ownership during the rolling three-year period. Although we do not expect
the Reverse Stock Split to result in an ownership change concerning the Company, because we do not know the number of Company
stockholders that may become “five percent stockholders” as a result of the Reverse Stock Split, it is uncertain at
this time whether the Reverse Stock Split will result in an ownership change or the extent to which the Reverse Stock Split may
contribute toward an ownership change over the rolling three-year period following the Reverse Stock Split.
The
Reverse Stock Split could significantly devaluate the Company’s market capitalization and the common stock’s trading
price.
Although
we expect that the Reverse Stock Split will increase the market price of the common stock, we cannot assure you that the Reverse
Stock Split, if implemented, will increase the market price of the common stock in proportion to the reduction in the number of
shares of the common stock outstanding or result in a permanent increase in the market price. Accordingly, the total market capitalization
of the common stock after the Reverse Stock Split may be lower than the total market capitalization before the Reverse Stock Split
and, in the future, the market price of the common stock following the Reverse Stock Split may not exceed or remain higher than
the market price before the Reverse Stock Split.
The
effect the Reverse Stock Split may have upon the common stock market price cannot be predicted with any certainty. The market
price of the common stock is dependent on many factors, including our business and financial performance, general market conditions,
prospects for future success, and other factors detailed from time to time in the reports we file with the SEC.
The
Reverse Stock Split may result in some stockholders owning “odd lots” that may be more difficult to sell or require
significant transaction costs per share to sell.
The
Reverse Stock Split may result in some stockholders owning “odd lots” of less than 100 shares of common stock on a
post-split basis. These odd lots may be more challenging to sell or require significant transaction costs per share to sell than
shares in “round lots” of even multiples of 100 shares.
The
Reverse Stock Split may not generate additional investor interest.
While
the Board of Directors believes that a higher stock price may help generate investor interest, there can be no assurance that
the Reverse Stock Split will result in a per-share price that will attract institutional investors or investment funds or that
such share price will satisfy the investing guidelines of institutional investors or investment funds. As a result, the trading
liquidity of the common stock may not necessarily improve.
The
reduced number of issued shares of common stock resulting from a Reverse Stock Split could adversely affect the common stock’s
liquidity.
Although
the Board of Directors believes that the decrease in the number of shares of common stock outstanding as a consequence of the
Reverse Stock Split and the anticipated increase in the market price of common stock could encourage interest in the common stock
and possibly promote greater liquidity for our stockholders, such liquidity could also be adversely affected by the reduced number
of shares outstanding after the Reverse Stock Split.
Anti-Takeover
and Dilutive Effects
The
Reverse Stock Split is not to establish any barriers to a Change of Control or acquisition of the Company; rather, shares of common
stock that are authorized but unissued provide the Board with the flexibility to effect, among other transactions, public or private
financings, mergers, acquisitions, stock dividends, stock splits and the granting of equity incentive awards. However, the Board
may use these unissued shares to deter future attempts to gain control of us or make such actions more expensive and less desirable.
The Certificate Amendment would give the Board authority to issue additional shares from time to time without delay or further
action by the stockholders except as may be required by applicable law or NASDAQ rules. The Certificate Amendment is not being
recommended in response to any specific known effort or threat to obtain control of the Company, nor does the Board have any present
intent to use the authorized but unissued common stock to impede a takeover attempt. There are no plans or proposals to adopt
other provisions or enter into any arrangements that have material anti-takeover effects.
Also,
the issuance of additional shares of common stock for any of the corporate purposes listed above could have a dilutive effect
on earnings per share and the book or market value of the outstanding common stock, depending on the circumstances, and would
likely dilute a stockholder’s percentage voting power in the Company. Holders of common stock are not entitled to preemptive
rights or other protections against dilution. The Board intends to take these factors into account before authorizing any new
issuance of shares.
No
Going Private Transaction
The
Board of Directors does not intend for the Reverse Stock Split to be the first step in a “going private transaction”
within the meaning of Rule 13e-3 of the Exchange Act. The Company has no plan at the date of this proxy statement to take itself
private.
No
Appraisal Rights
Under
the NRS, our stockholders are not entitled to appraisal rights concerning the Reverse Stock Split, and we will not independently
provide our stockholders with any such rights.
Material
United States Federal Income Tax Consequences of the Reverse Stock Split
The
following discussion summarizes the material U.S. federal income tax consequences of the Reverse Stock Split to us and to U.S.
Holders (as defined below) that hold shares of our common stock as capital assets (i.e., for investment) for U.S. federal income
tax purposes. This discussion is based upon current U.S. tax law, which is subject to change, possibly with retroactive effect
and differing interpretations. Any such change may cause the U.S. federal income tax consequences of the Reverse Stock Split to
vary substantially from the consequences summarized below. We have not sought and will not seek any rulings from the Internal
Revenue Service (the “IRS”) regarding the matters discussed below, and there can be no assurance the IRS or a court
will not take a contrary position to that discussed below regarding the tax consequences of the Reverse Stock Split.
For
purposes of this discussion, a “U.S. Holder” is a beneficial owner of our common stock that, for U.S. federal income
tax purposes, is or is treated as (i) an individual who is a citizen or resident of the United States; (ii) a corporation (or
any other entity or arrangement treated as a corporation) created or organized under the laws of the United States, any state
thereof, or the District of Columbia; (iii) an estate, the income of which is subject to U.S. federal income tax regardless of
its source; or (iv) a trust if (1) its administration is subject to the primary supervision of a court within the United States
and all of its substantial decisions are subject to the control of one or more “United States persons” (within the
meaning of Section 7701(a)(30) of the Code, or (2) it has a valid election in effect under applicable U.S. Treasury regulations
to be treated as a United States person.
This
summary does not address all aspects of U.S. federal income taxation that may be relevant to U.S. Holders in light of their particular
circumstances or to stockholders who may be subject to special tax treatment under the Code, including, without limitation, dealers
in securities, commodities or foreign currency, persons who are treated as non-U.S. persons for U.S. federal income tax purposes,
certain former citizens or long-term residents of the United States, insurance companies, tax-exempt organizations, banks, financial
institutions, small business investment companies, regulated investment companies, real estate investment trusts, retirement plans,
persons whose functional currency is not the U.S. dollar, traders that mark-to-market their securities or persons who hold their
shares of our common stock as part of a hedge, straddle, conversion or other risk reduction transaction. If a partnership (or
other entity treated as a partnership for U.S. federal income tax purposes) is the beneficial owner of our common stock, the U.S.
federal income tax treatment of the partnership (or other entity treated as a partnership) and a partner in the partnership will
generally depend on the status of the partner and the activities of such partnership. Accordingly, partnerships (and other entities
treated as partnerships for U.S. federal income tax purposes) holding our common stock and the partners in such entities should
consult their tax advisors regarding the U.S. federal income tax consequences of the Reverse Stock Split to them.
The
state and local tax consequences, alternative minimum tax consequences, non-U.S. tax consequences, and U.S. estate and gift tax
consequences of the Reverse Stock Split are not discussed herein and may vary as to each U.S. Holder. Furthermore, the following
discussion does not address any tax consequences of transactions effectuated before, after, or at the same time as the Reverse
Stock Split, whether or not they are connected with the Reverse Stock Split. This discussion should not be considered as tax or
investment advice, and the tax consequences of the Reverse Stock Split may not be the same for all stockholders. U.S. Holders
should consult their tax advisors to understand their individual federal, state, local, and foreign tax consequences.
Tax
Consequences to the Company
We
believe that the Reverse Stock Split should constitute a reorganization under Section 368(a)(1)(E) of the Code. Accordingly, we
should not recognize taxable income, gain, or loss connected with the Reverse Stock Split.
Tax
Consequences to U.S. Holders
A
U.S. Holder should generally not recognize gain or loss due to the Reverse Stock Split for U.S. federal income tax purposes. A
U.S. Holder’s aggregate adjusted tax basis in the shares of our common stock received under the Reverse Stock Split should
equal the aggregate adjusted tax basis of the shares of our common stock exchanged therefor. The U.S. Holder’s holding period
in the shares of our common stock received under the Reverse Stock Split should include the holding period in the shares of our
common stock exchanged therefor. U.S. Treasury Regulations provide detailed rules for allocating the tax basis and holding period
of shares of common stock surrendered in a recapitalization to shares received in such recapitalization. A U.S. Holder that acquired
shares of our common stock on different dates and at different prices should consult their tax advisors regarding allocating the
tax basis and holding period from shares of common stock surrendered in the Reverse Stock Split to shares received in the Reverse
Stock Split.
Alternative
characterizations of the Reverse Stock Split are possible. For example, while the Reverse Stock Split would generally be treated
as a tax-free recapitalization under the Code, a U.S. Holder that receives a fractional share resulting from the Reverse Stock
Split being rounded up to the nearest whole share may recognize gain for federal income tax purposes equal to the value of the
additional fractional share. However, we believe that, in such case, the resulting tax liability may not be material given the
low value of such fractional interest. U.S. Holders should consult their tax advisors regarding alternative characterizations
of the Reverse Stock Split for U.S. federal income tax purposes.
YOU
SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE REVERSE
STOCK SPLIT IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES.
Reservation
of Right to Abandon Reverse Stock Split
The
Board of Directors reserves the right not to file the Certificate Amendment and to abandon any Reverse Stock Split without further
action by our stockholders at any time before the effectiveness of the filing of the Certificate Amendment with the Nevada Secretary
of State, even if our stockholders approve this proposal at the Annual Meeting. By voting in favor of this proposal, you expressly
authorize the Board of Directors to delay, not proceed with, or abandon, the proposed Certificate Amendment if it should so decide,
in its sole discretion, that such action is in the best interests of our stockholders.
Required
Vote
The
affirmative “FOR” vote of the holders of two-thirds of the outstanding shares (assuming a quorum is present)
is required for the approval of the Certificate Amendment to effect the Reverse Stock Split. Abstentions will act as a vote against
the Reverse Stock Split. Unless marked to the contrary, executed proxies received will be voted “FOR” Proposal
2.
Proposal
2–Board Recommendation
Our
Board of Directors unanimously recommends that you vote “FOR” providing the board with discretion authority
to amend our articles of incorporation to effect the Reverse Stock Split.
PROPOSAL
3–TO AMEND OUR ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED COMMON STOCK FROM 200 MILLION TO 500 MILLION
SHARES
General
Our
articles of incorporation currently authorize us to issue 200,000,000 shares of common stock, par value $0.0001 per share. Our
board has approved and is seeking stockholder approval to amend our articles of incorporation to increase the authorized number
of shares of common stock to 500,000,000 shares.
If
approved at the Annual Meeting, we intend to file the amendment with the Nevada Secretary of State as soon as practicable.
The
amendment will not modify the rights of existing stockholders in any material respect, and the additional authorized shares of
common stock would be identical to our currently outstanding common stock. Our stockholders do not currently have any preemptive
or similar rights to subscribe for or purchase any additional shares of common stock that may be issued in the future. Therefore,
future issuances of common stock may, depending on the circumstances, have a dilutive effect on the earnings per share, voting
power, and other interests of the existing stockholders.
The
Reverse Stock Split under Proposal 2 will not affect the Company’s authorized number of common stock.
Reasons
for the Proposed Increase in Authorized Common Stock
The
board believes that it is prudent to increase the authorized number of shares of common stock to maintain a reserve of shares
available for immediate issuance to meet business needs, such as a strategic acquisition opportunity or equity offering, promptly
as they arise. The Board of Directors believes that maintaining such a reserve will save time and money in responding to future
events requiring the issuance of additional shares of common stock, such as strategic acquisitions or future equity offerings.
Such increase is consistent with the Company’s registration statement of Form S-3 filed with the SEC on February 2, 2021,
and effective February 8, 2021 (the “Registered Offering”).
All
authorized but unissued shares of common stock will be available for issuance from time to time for any proper purpose approved
by the Board of Directors (including issuances in connection with issuances to raise capital, effect acquisitions, or stock-based
employee benefit plans), without a further vote of the stockholders, except as required under applicable law or the NASDAQ Marketplace
Rules. There are currently no arrangements, agreements, or understandings for issuing the additional shares of authorized common
stock except for issuances in the ordinary course of business and issuance under the Registered Offering. The Board of Directors
does not presently intend to seek further stockholder approval of any particular issuance of shares unless such approval is required
by law or the NASDAQ Marketplace Rules.
Vote
Required
The
affirmative vote of the holders of a majority of the shares of common stock outstanding is needed to approve an amendment to our
articles of incorporation to increase the number of authorized shares of common stock from 200 million to 500 million.
Proposal
3–Board Recommendation
The
board has unanimously determined that the amendment is advisable and in the Company’s best interests and our stockholders
and recommends that our stockholders “FOR” the amendment.
EXECUTIVE
OFFICERS
Directors
and Executive Officers
Our
executive officers’ names, ages, positions with us, and other biographical information as of the date of this proxy statement
are set forth below. The biographical information for each of Messrs. Michael Panosian and Joshua Keeler is included under Proposal
1 of this proxy statement.
There
are no family relationships among any of our directors or executive officers.
Name
|
|
Age
|
|
Position
|
Michael
Panosian
|
|
58
|
|
President,
Chief Executive Officer, and Chairperson
|
Martin
Galstyan
|
|
35
|
|
Chief
Financial Officer
|
Joshua
Keeler
|
|
42
|
|
Vice
President–Research & Development and Director
|
Zareh
Khachatoorian
|
|
62
|
|
Chief
Operating Officer and Secretary
|
Martin
Galstyan, Interim Chief Financial Officer
Mr.
Galstyan has been servicing as the Chief Financial Officer of the Company since July 2, 2020. Mr. Galstyan joined the Company
in 2012 as an account manager and became the controller of the Company in 2014. Mr. Galstyan set up the Enterprise Resource Planning
(“ERP”) system for the Company and EDI (Electronic Data Interchange) for the Company’s big-box retailers. Mr.
Galstyan has Bachelor’s in Accounting from Woodbury University in California.
Zareh
Khachatoorian, Chief Operating Officer and Secretary
Mr.
Khachatoorian has over 30 years of experience in corporate purchasing, product development, merchandising, and operations. Before
joining ToughBuilt in January 2016, Mr. Khachatoorian was the President of Mount Holyoke Inc. in Northridge, California, starting
in May 2014. Mr. Khachatoorian led Mount Holyoke Inc. in the servicing of its entire import and distribution operations. From
August 2008 to April 2014, Mr. Khachatoorian served as the Vice President of Operations at Allied International (“Allied”)
in Sylmar, California. At Allied, Mr. Khachatoorian was responsible for managing overseas and domestic office employees and departments
involved in procurement and purchasing, inventory management, product development, engineering, control and quality assurance,
and other related areas. Mr. Khachatoorian holds a BS degree in Industrial Systems Engineering from the University of Southern
California. Additionally, Mr. Khachatoorian has been credited as the inventor or co-inventor of more than 20 issued patents and
several pending patents with the USPTO. Mr. Khachatoorian is fluent in Armenian and Farsi.
Involvement
in Certain Legal Proceedings
To
the best of our knowledge, during the past ten (10) years, none of our directors or executive officers were involved in any of
the following: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two (2) years prior to that time; (2) any conviction in a criminal proceeding
or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to
any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking
activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission
or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment
has not been reversed, suspended or vacated.
EXECUTIVE
COMPENSATION
The
following table summarizes compensation for the years ended December 31, 2020, and 2019 for all individuals serving as the Company’s
principal executive officer or acting in a similar capacity during the last completed fiscal year (“PEO”), regardless
of compensation level, two most highly compensated executive officers other than the PEO who were serving as executive officers
at the end of the last completed fiscal year; and up to two additional individuals for whom disclosure would have been provided
under paragraph (m)(2)(ii) of Item 402 of Regulation S-K but for the fact that the individual was not serving as an executive
officer of the smaller reporting company at the end of the last completed fiscal year (each a “Named Executive Officer”).
Summary
Compensation Table
The
following table provides information regarding the compensation of our Named Executive Officers during the years ended December
31, 2020, and 2019:
Name and Position
|
|
Fiscal
Year
Ended
December 31,
|
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Compensation
|
|
|
Option
Awards
|
|
|
All
Other Compensation
(1)
|
|
|
Total
|
|
|
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
Michael Panosian
|
|
|
2020
|
|
|
|
423,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39,510
|
|
|
|
463,010
|
|
CEO (PEO)
|
|
|
2019
|
|
|
|
385,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
44,423
|
|
|
|
429,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin Galstyan
|
|
|
2020
|
|
|
|
219,315
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
219,315
|
|
Interim CFO (2)
|
|
|
2019
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joshua Keeler
|
|
|
2020
|
|
|
|
330,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36,826
|
|
|
|
366,826
|
|
VP of R&D
|
|
|
2019
|
|
|
|
285,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32,884
|
|
|
|
317,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zareh Khachatoorian
|
|
|
2020
|
|
|
|
230,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,846
|
|
|
|
238,836
|
|
COO
|
|
|
2019
|
|
|
|
230,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
230,000
|
|
|
(1)
|
Vacation
pay and other.
|
|
(2)
|
Martin
Galstyan was appointed as Interim Chief Financial Officer of the Company on July 2, 2020.
|
Employment
Agreements, Separation Agreements and Potential Payments upon Termination or Change of Control
Except
as set forth below, we currently have no other written employment agreements with any of our officers and directors. The following
is a description of our current executive employment agreements:
Employment
Agreement with Michael Panosian
We
entered into an employment agreement with Mr. Panosian on January 3, 2017, that governs the terms of his employment with us as
President and Chief Executive Officer. Under the agreement, Mr. Panosian received a “sign-on-bonus” of $50,000. The
agreement’s term is for five years, and Mr. Panosian is entitled to an Annual base salary of $350,000 beginning on January
1, 2017, and increasing by 10% each year commencing on January 1, 2018. Mr. Panosian was granted a stock option to purchase 125,000
shares of the Company’s common stock at an exercise price of $10.00 per share, which, because of the subsequent Reverse
Stock Splits, has been adjusted to 6,250 shares for $200 per share. The employment agreement also entitles Mr. Panosian to, among
other benefits, the following compensation: (i) eligibility to receive an Annual cash bonus at the sole discretion of the board
and as determined by the Compensation Committee commensurate with the policies and practices applicable to other senior executive
officers of the Company; (ii) an opportunity to participate in any stock option, performance share, performance unit or other
equity-based long-term incentive compensation plan commensurate with the terms and conditions applicable to other senior executive
officers and (iii) participation in welfare benefit plans, practices, policies, and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death,
and travel accident insurance plans and programs) to the extent available to our other senior executive officers.
Employment
Agreement with Joshua Keeler
We
entered into an employment agreement with Mr. Keeler on January 3, 2017, that governs the terms of his employment with us as Vice
President of Research & Development. Under the agreement, Mr. Keeler received a “sign-on-bonus” of $35,000. The
agreement’s term is for five years, and Mr. Keeler is entitled to an Annual base salary of $250,000 beginning on January
1, 2017, and increasing by 10% each year commencing on January 1, 2018. The employment agreement also entitles Mr. Keeler to,
among other benefits, the following compensation: (i) eligibility to receive an Annual cash bonus at the sole discretion of the
board and as determined by the Compensation Committee commensurate with the policies and practices applicable to other senior
executive officers of the Company; (ii) an opportunity to participate in any stock option, performance share, performance unit
or other equity-based long-term incentive compensation plan commensurate with the terms and conditions applicable to other senior
executive officers and (iii) participation in welfare benefit plans, practices, policies, and programs provided by the Company
and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life,
accidental death, and travel accident insurance plans and programs) to the extent available to our other senior executive officers.
Potential
Payments to Messrs. Panosian and Keeler upon Termination or Change in Control
According
to the employment agreements, regardless of how Messrs. Panosian and Mr. Keeler’s service terminates, each executive officer
is entitled to receive amounts earned during his term of service, including salary and other benefits. Also, each of them is eligible
to receive certain benefits under his agreement with us described above.
The
Company is permitted to terminate the employment of Mr. Panosian and Mr. Keeler for the following reasons: (1) death or disability,
(2) Termination for Cause (as defined below), or (3) for no reason.
Each
such officer is permitted Termination for Good Reason (as defined below) of such officer’s employment. Also, each such officer
may terminate his or her employment upon written notice to the Company 90 days prior to the effective date of such termination.
In
the event of such officer’s death during the employment period or termination due to such officer’s disability, such
officer or his or her beneficiaries or legal representatives shall be provided the sum of (a) an amount equal to two times the
officer’s then prevailing base salary and (b) the bonus that would have been payable to such officer subject to any performance
conditions and (c) certain other benefits provided for in the employment agreement.
In
the event of such officer’s Termination for Cause by the Company or the termination of such officer’s employment as
a result of such officer’s resignation other than a Termination for Good Reason, such officer shall be provided certain
benefits provided in the employment agreement and payment of all accrued and unpaid compensation and wages. However, such officer
shall have no right to compensation or benefits for any period after the effective date of termination.
Under
the employment agreements, “Cause” means: such officer willfully engages in an act or omission which is in bad faith
and to the detriment of the Company, engages in gross misconduct, gross negligence, or willful malfeasance, in each case that
causes material harm to the Company, breaches this agreement in any material respect, habitually neglects or materially fails
to perform his duties (other than any such failure resulting solely from such officer’s physical or mental disability or
incapacity) after a written demand for substantial performance is delivered to such officer which identifies the manner in which
the Company believes that such officer has not performed his duties, commits or is convicted of a felony or any crime involving
moral turpitude, uses drugs or alcohol in a way that either interferes with the performance of his duties or compromises the integrity
or reputation of the Company, or engages in any act of dishonesty involving the Company, disclosure of Company’s confidential
information not required by applicable law, commercial bribery, or perpetration of fraud; provided, however, that such officer
shall have at least forty-five (45) calendar days to cure, if curable, any of the events which could lead to his termination for
Cause.
Under
the employment agreements, “Termination for Good Reason” means any of the following that is undertaken without the
officer’s express written consent: (i) the assignment to such officer of principal duties or responsibilities, or the substantial
reduction of such officer’s duties and responsibilities, either of which is materially inconsistent with such officer’s
position as President and Chief Executive Officer of the Company and Director of Design & Development, respectively; (ii)
a material reduction by the Company in such officer’s Annual base salary, except to the extent the salaries of other executive
employees of the Company and any other controlled subsidiary of the Company are similarly reduced; (iii) such officer’s
principal place of business is, without his consent, relocated by a distance of more than thirty (30) miles from the center of
Glendale, California; or (iv) any material breach by the Company of any provision of this agreement.
Involuntary
Termination Other Than for Cause, Death or Disability or Voluntary Termination for Good Reason
Following
a Change of Control. If, within twenty-four (24) months following a Change of Control, the officer’s employment is terminated
involuntarily by the Company other than for Cause, death, or Disability or by such officer pursuant to a Voluntary Termination
for Good Reason, and such officer executes and does not revoke a general release of claims against the Company and its affiliates
in a form acceptable to the Company, then the Company shall provide such officer with, among other benefits, a lump sum payment
in the amount equal to four times such officer’s then prevailing base salary in the case of Mr. Panosian and three times
such officer’s then prevailing base salary in the case of Mr. Keeler, plus the officer’s target for the Annual short
term incentive portion of the corporate bonus program for such year as in effect immediately prior to such termination, in addition
to any other earned but unpaid base salary or vacation pay due through the date of such termination, as well as a pro rata portion
of the executive’s Annual short term incentive portion of the corporate bonus program for such year (if any) and a pro rata
portion of the executive’s long-term incentive portion of the corporate bonus program (if any).
Employment
Agreement with Zareh Khachatoorian
We
entered into an employment agreement with Mr. Khachatoorian on January 3, 2017, that governs the terms of his employment with
us as Chief Operating Officer and Secretary. The agreement’s term is for three years, and Mr. Khachatoorian is entitled
to an Annual base salary of $180,000 beginning on January 1, 2017, and increasing by 10% each year commencing on January 1, 2018.
The employment agreement also entitles Mr. Khachatoorian to, among other benefits, the following compensation: (i) eligibility
to receive an Annual cash bonus at the sole discretion of the board and as determined by the Compensation Committee commensurate
with the policies and practices applicable to other senior executive officers of the Company; (ii) an opportunity to participate
in any stock option, performance share, performance unit or other equity-based long-term incentive compensation plan commensurate
with the terms and conditions applicable to other senior executive officers and (iii) participation in welfare benefit plans,
practices, policies, and programs provided by the Company and its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death, and travel accident insurance plans and programs)
to the extent available to our other senior executive officers.
The
Company is permitted to terminate the employment of Mr. Khachatoorian for the following reasons: (1) death or disability, (2)
Termination for Cause (as defined above), or (3) for no reason. In the event of Mr. Khachatoorian’s (i) death or disability,
or (ii) Termination for Cause by the Company, Mr. Khachatoorian or his beneficiaries or legal representatives shall be entitled
to payment for all accrued and unpaid compensation and wages and in addition pay to Mr. Khachatoorian a sum equivalent to one
month’s salary, but shall have no right to compensation or benefits for any period after the effective date of his death
or disability.
In
the event of the termination of Mr. Khachatoorian’s employment for Good Reason, he shall be provided certain benefits listed
in the employment agreement and payment of all accrued and unpaid compensation and wages, but the executive shall have no right
to compensation or benefits for any period after the effective date of termination.
Outstanding
Equity Awards at December 31, 2020
The
following table presents information concerning outstanding equity awards held by our Named Executive Officers as of December
31, 2020:
Name
|
|
Number
of Securities Underlying Unexercised Options (Exercisable)
|
|
|
Number
of Securities Underlying Unexercised Options
(Unexercisable)
|
|
|
Number
of Securities Underlying Unexercised Unearned Options
|
|
|
Option
Exercise Price
|
|
|
Option
Expiration Date
|
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
($)
|
|
|
|
|
Michael
Panosian (PEO)
|
|
|
6,250
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
200.00
|
|
|
|
7/5/2026
|
|
|
|
|
16,472
|
(2)
|
|
|
3,528
|
|
|
|
—
|
|
|
$
|
42.90
|
|
|
|
6/30/2023
|
|
Joshua Keeler
|
|
|
16,472
|
(3)
|
|
|
3,528
|
|
|
|
—
|
|
|
$
|
42.90
|
|
|
|
6/30/2023
|
|
Zareh Khachatoorian
|
|
|
9,060
|
(4)
|
|
|
1,940
|
|
|
|
—
|
|
|
$
|
39.00
|
|
|
|
6/30/2023
|
|
|
(1)
|
On
January 3, 2017, the Company granted Michael Panosian an incentive stock option to purchase 125,000 shares of common stock
for $10.00 per share under the Company’s 2016 Equity Incentive Plan. The option vested in 25% equal increments commencing
on the first anniversary of the date of grant and expires on the fifth anniversary of the date of grant. Due to the 1-for-2
and 1-for 10 Reverse Stock Splits of the Company’s common stock on September 3, 2018, and April 15, 2020, respectively,
the number of shares issuable upon the exercise of the stock option was adjusted to 6,250, and the exercise price was adjusted
to $200 per share.
|
|
|
|
|
(2)
|
On
September 14, 2018, the Company granted Michael Panosian an incentive stock option to purchase 200,000 shares of common stock
for $4.29 per share under the Company’s 2018 Equity Incentive Plan. The option vests in 25% equal increments commencing
on the date of grant and each anniversary after that. Due to the 1-for 10 Reverse Stock Split of the Company’s common
stock on April 15, 2020, the number of shares issuable upon the stock option was adjusted to 20,000, and the exercise price
was adjusted to $42.90 per share.
|
|
|
|
|
(3)
|
On
September 14, 2018, the Company granted Joshua Keeler an incentive stock option to purchase 200,000 shares of common stock
for $4.29 per share under the Company’s 2018 Equity Incentive Plan. The option vests in 25% equal increments commencing
on the date of grant and each anniversary after that. Due to the 1-for 10 Reverse Stock Split of the Company’s common
stock on April 15, 2020, the number of shares issuable upon the stock option was adjusted to 20,000, and the exercise price
was adjusted to $42.90 per share.
|
|
|
|
|
(4)
|
On
September 14, 2018, the Company granted Zareh Khachatoorian an incentive stock option to purchase 110,000 shares of common
stock for $3.90 per share under the Company’s 2018 Equity Incentive Plan. The option vests in 25% equal increments commencing
on the date of grant and each anniversary after that. Due to the 1-for 10 Reverse Stock Split of the Company’s common
stock on April 15, 2020, the number of shares issuable upon the stock option was adjusted to 11,000, and the exercise price
was adjusted to $39.00 per share.
|
Equity
Plan Information
The
2016 Equity Incentive Plan
The
2016 Equity Incentive Plan (the “2016 Plan”) was adopted by the Board of Directors and approved by the stockholders
on July 6, 2016. The awards per the 2016 Plan may be granted through July 5, 2026, to the Company’s employees, consultants,
directors, and non-employee directors provided such consultants, directors, and non-employee directors render good faith services
not in connection with the offer and sale of securities in a capital-raising transaction. The awards (“Awards”) issuable
under the 2016 Plan consist of ISOs, nonqualified stock options (NQSOs and together with ISOs, the “Options”), restricted
stock awards, stock bonus awards, stock appreciation rights (SARs), restricted stock units (RSUs) and performance awards. The
2016 Plan shall be administered by the Compensation Committee or the Board of Directors.
ISO’s
may be granted only to employees. All other Awards may be granted to employees, consultants, directors, and non-employee directors
of the Company or any subsidiary of the Company provided such consultants, directors, and non-employee directors render bona fide
services not connected with the offer sale of securities in a capital-raising transaction.
Options
may be vested and exercisable within the times or upon the conditions as outlined in the Award agreement governing such Option;
provided, however, that no Option will be exercisable after the expiration of 10 years from the date the Option is granted; and
provided further that no ISO granted to a person who, at the time the ISO is granted, directly or by attribution owns more than
10 percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the
Company (“Ten Percent Stockholder”) will be exercisable after the expiration of five (5) years from the date the ISO
is granted. The Committee or Board also may provide for Options to become exercisable at one time or from time to time, periodically
or otherwise, in the number of shares or percentage of shares as the Compensation Committee or Board determines.
Under
the 2016 Plan, the exercise price of an Option will be determined by the Committee or if there is no committee, the Board of Directors,
when the Option granted; provided that: (i) the exercise price of an Option will be not less than 100% of the Fair Market Value
of the shares on the date of grant and (ii) the exercise price of an ISO granted to a Ten Percent Stockholder will not be less
than 110% of the Fair Market Value of the shares on the date of grant.
Under
the 2016 Plan, the term “Fair Market Value” is defined, as of any date, the value of a share of the Company’s
common stock determined as follows: (a) if such common stock is publicly traded and is then listed on a national securities exchange,
the closing price on the date of determination on the principal national securities exchange on which the common stock is listed
or admitted to trading as officially quoted in the composite tape of transactions on such exchange or such other source as the
Committee deems reliable for the applicable date; (b) if such common stock is publicly traded but is neither listed nor admitted
to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as
reported in The Wall Street Journal or such other source as the Committee deems reliable; (c) in the case of an Option or SAR
grant made on the effective date, the price per share at which shares of the Company’s common stock are initially offered
for sale to the public by the Company’s underwriters in the IPO of the Company’s common stock pursuant to a registration
statement filed with the SEC under the Securities Act; or
If
the number of outstanding shares of common stock is changed by a stock dividend, recapitalization, stock split, Reverse Stock
Split, subdivision, combination, reclassification or similar change in the capital structure of the Company, without consideration,
then (a) the number of shares reserved for issuance and future grant under the 2016 Plan, (b) the exercise prices of and number
of shares subject to outstanding Options and SARs, (c) the number of shares subject to other outstanding Awards, (d) the maximum
number of shares that may be issued as ISO’s set forth in the 2016 Plan, (e) the maximum number of shares that may be issued
to an individual or to a new employee in any one calendar year set forth in the 2016 Plan and (f) the number of shares that are
granted as Awards to Non-employee directors, shall be proportionately adjusted, subject to any required action by the board or
the stockholders of the Company and in compliance with applicable securities laws; provided that fractions of a share will not
be issued.
The
maximum number of shares of our common stock that may be issued under the 2016 Plan is 100,000 shares, which amount will be (a)
reduced by Awards granted under the 2016 Plan, and (b) increased to the extent that Awards granted under the 2016 Plan are forfeited,
expire or are settled for cash (except as otherwise provided in the 2016 Plan). No employee will be eligible to receive more than
12,500 shares of common stock in any calendar year under the 2016 Plan under the grant of Awards.
The
initial amount of shares of common stock authorized and reserved for issuance under the 2016 Plan was 12 million. The amount was
subsequently reduced to 2 million due to the Company’s one-for-six Reverse Stock Split on October 5, 2016, then to 1 million
for the Company’s 1-for-2 Reverse Stock Split on September 3, 2018, and then to 100,000 shares for the Company’s 1-for-10
Reverse Stock Split on April 15, 2020.
Michael
Panosian currently holds an ISO exercisable for 6,250 shares of common stock (as adjusted) at $200 per share, and there are 93,750
shares of common stock authorized and reserved for issuance pursuant to Awards granted under the 2016 Plan.
The
2018 Equity Incentive Plan
On
July 1, 2018, the Board of Directors and the Company’s stockholders approved and adopted the Company’s 2018 Equity
Incentive Plan (the “2018 Plan”). The 2018 Plan supplements and does not replace the existing 2016 Equity Incentive
Plan. Awards may be granted under the 2018 Plan through June 30, 2023, to the Company’s employees, officers, consultants,
and non-employee directors.
The
Awards issuable under the 2018 Plan consist of ISOs and NQSOs, restricted stock awards, stock bonus awards, SARs, restricted stock
and RSUs, performance awards, and other share-based awards. The board may delegate all or a portion of the administration of the
2016 Plan to a Committee. The board shall administer the 2018 Plan unless and until the Board delegates administration of the
2018 Plan to a Committee.
The
initial amount of common stock shares authorized and reserved for issuance under the 2018 Plan was 2 million. The amount was subsequently
reduced to 1 million due to the Company’s 1-for-2 Reverse Stock Split on September 3, 2018. On April 12, 2019, the board
and stockholders approved to increase the number of shares to 20 million and then, on February 14, 2020, to 35 million. The amount
was later reduced to 3.as a result of the Company’s 1-for 10 Reverse Stock Split on April 15, 2020.
The
number of shares of common stock that may be issued under the 2018 Plan will be (a) reduced by Awards granted under the 2018 Plan,
and (b) increased to the extent that Awards granted under the 2018 Plan are forfeited, expire, or are settled for cash (except
as otherwise provided in the 2018 Plan). Currently, no employee will be eligible to receive more than 350,000 shares of common
stock (10% of authorized shares under the 2018 Plan) in any calendar year under the 2018 Plan under the grant of Awards.
If
any shares of common stock subject to an Award are forfeited, an Award expires or otherwise terminates without the issuance of
shares of common stock, or an Award is settled for cash (in whole or in part) or otherwise does not result in the issuance of
all or a portion of the Shares of common stock subject to such Award (including on payment in shares of common stock on the exercise
of a Stock Appreciation Right), such shares of common stock shall, to the extent of such forfeiture, expiration, termination,
cash settlement or non-issuance, again be available for issuance under the Plan.
If
(i) any Option or other Award granted is exercised through the tendering of shares of common stock (either actually or by attestation)
or by the withholding of shares of common stock by the Company, or (ii) withholding tax liabilities arising from such Option or
other Award are satisfied by the tendering of shares of common stock (either actually or by attestation) or by the withholding
of shares of common stock by the Company, then the shares of common stock so tendered or withheld shall be available for issuance
under the Plan.
The
following provisions shall apply to Awards in the event of a Corporate Transaction unless otherwise provided in a written agreement
between the Company or any affiliate and the holder of the Award or unless otherwise expressly provided by the board at the time
of grant of an Award:
|
|
In
the event of a Corporate Transaction, any surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s
parent company) may assume or continue any or all Awards outstanding under the 2018 Plan or may substitute similar stock awards
for Awards outstanding under the 2018 Plan (including, but not limited to, Awards to acquire the same consideration paid to
the stockholders of the Company under the Corporate Transaction), and any reacquisition or repurchase rights held by the Company
in respect of common stock issued according to Awards may be assigned by the Company to the successor of the Company (or the
successor’s parent company, if any), in connection with such Corporate Transaction. A surviving corporation or acquiring
corporation may choose to assume or continue only a portion of a Stock Award or substitute a similar Stock Award for only
a portion of a Stock Award. The board shall set the terms of any assumption, continuation, or substitution under the provisions
of the 2018 Plan.
|
|
|
|
|
|
In
the event of a Corporate Transaction in which the surviving corporation or acquiring corporation (or its parent company) does
not assume or continue any or all outstanding Awards or substitute similar stock awards for such outstanding Awards, then
with respect to Awards that have not been assumed, continued or substituted and that are held by participants whose continuous
service has not terminated prior to the effective time of the Corporate Transaction (referred to as the “Current Participants”),
the vesting of such Awards (and, if applicable, the time at which such stock awards may be exercised) shall (contingent upon
the effectiveness of the Corporate Transaction) be accelerated in total to a date prior to the effective time of such Corporate
Transaction as the board shall determine (or, if the board shall not determine such a date, to the date that is five days
prior to the effective time of the Corporate Transaction), and such Awards shall terminate if not exercised (if applicable)
at or prior to the effective time of the Corporate Transaction, and any reacquisition or repurchase rights held by the Company
with respect to such Awards shall lapse (contingent upon the effectiveness of the Corporate Transaction). No vested Restricted
Stock Unit Award shall terminate pursuant to this Section 11.3(b) without being settled by delivery of shares of common stock,
their cash equivalent, any combination thereof, or in any other form of consideration, as determined by the board, prior to
the effective time of the Corporate Transaction.
|
In
the event of a Corporate Transaction in which the surviving corporation or acquiring corporation (or its parent company) does
not assume or continue any or all outstanding Awards or substitute similar stock awards for such outstanding Awards, then with
respect to Awards that have not been assumed, continued or substituted and that are held by persons other than Current Participants,
the vesting of such Awards (and, if applicable, the time at which such Award may be exercised) shall not be accelerated and such
Awards (other than an Award consisting of vested and outstanding shares of common stock not subject to the Company’s right
of repurchase) shall terminate if not exercised (if applicable) prior to the effective time of the Corporate Transaction; provided,
however, that any reacquisition or repurchase rights held by the Company with respect to such Awards shall not terminate and may
continue to be exercised notwithstanding the Corporate Transaction. No vested Restricted Stock Unit Award shall terminate without
being settled by delivery of shares of common stock, their cash equivalent, any combination thereof, or in any other form of consideration,
as determined by the board, prior to the effective time of the Corporate Transaction.
Notwithstanding
the foregoing, in the event an Award will terminate if not exercised prior to the effective time of a Corporate Transaction, the
board may provide, in its sole discretion, that the holder of such Award may not exercise such Award but will receive a payment,
in such form as may be determined by the board, equal in value to the excess, if any, of (i) the value of the property the holder
of the Award would have received upon the exercise of the Award immediately prior to the effective time of the Corporate Transaction,
over (ii) any exercise price payable by such holder in connection with such exercise.
The
term “Corporate Transaction” is defined in the 2018 Plan as the occurrence, in a single transaction
or in a series of related transactions, of any one or more of the following events:
|
|
a
sale or other disposition of all or substantially all, as determined by the board in its sole discretion, of the consolidated
assets of the Company and its Subsidiaries;
|
|
|
|
|
|
a
sale or other disposition of at least 90 percent (90%) of the outstanding securities of the Company;
|
|
|
|
|
|
the
consummation of a merger, consolidation, or similar transaction following which the Company is not the surviving corporation;
or
|
|
|
|
|
|
the
consummation of a merger, consolidation, or similar transaction following which the Company is the surviving corporation but
the shares of common stock outstanding immediately preceding the merger, consolidation or similar transaction are converted
or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities,
cash or otherwise.
|
Change
in Control. An Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control
(as defined in the 2018 Plan) as may be provided in the agreement for such Award or as may be provided in any other written agreement
between the Company or any Affiliate and the Participant. An Award may vest as to all or any portion of the shares subject to
the Award (i) immediately upon the occurrence of a Change in Control, whether or not such Award is assumed, continued, or substituted
by a surviving or acquiring entity in the Change in Control, or (ii) in the event a Participant’s Continuous Service is
terminated, actually or constructively, within a designated period following the occurrence of a Change in Control. In the absence
of such provisions, no such acceleration shall occur. Our Compensation Committee will: (i) interpret our Plans; and (ii) make
all other determinations and take all other actions that may be necessary or advisable to implement and administer our Plans.
The Plans provide that in the event of a Change of Control event, the Compensation Committee or our Board of Directors shall have
the discretion to determine whether and to what extent to accelerate the vesting, exercise, or payment of an award.
In
addition, our Board of Directors may amend our Plans at any time. However, without stockholder approval, our Plans may not be
amended in a manner that would:
|
|
increase
the number of shares that may be issued under the Plans;
|
|
|
|
|
|
materially
modify the requirements for eligibility for participation in the Plans;
|
|
|
|
|
|
materially
increase the benefits to participants provided by the Plans; or
|
|
|
|
|
|
disqualify
the Plans for an exemption under Rule 16b-3 promulgated under the Exchange Act.
|
Awards
previously granted under the Plans may not be impaired or affected by any amendment of the Plans without the consent of the affected
grantees.
Outstanding
Equity Awards
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:
|
|
2016
Equity Incentive Plan (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders
|
|
|
6,250
|
|
|
$
|
200.00
|
|
|
|
93,750
|
|
Equity compensation
plans not approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Subtotal
|
|
|
6,250
|
|
|
$
|
200.00
|
|
|
|
93,750
|
|
2018
Equity Incentive Plan (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans approved by security holders
|
|
|
51,000
|
|
|
$
|
42.06
|
|
|
|
3,349,000
|
(3)
|
Equity compensation
plans not approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Subtotal
|
|
|
51,000
|
|
|
$
|
42.06
|
|
|
|
3,349,000
|
(3)
|
Total
|
|
|
57,250
|
|
|
|
|
|
|
|
3,442,750
|
|
|
(1)
|
The
initial amount of common stock shares authorized and reserved for issuance under the 2016 Plan was 12 million. The amount
was subsequently reduced to 2 million due to the Company’s one-for-six Reverse Stock Split on October 5, 2016, then
to 1 million for the Company’s 1-for-2 Reverse Stock Split on September 3, 2018, and then to 100,000 shares for the
Company’s 1-for 10 Reverse Stock Split on April 15, 2020. Michael Panosian currently holds an incentive stock option
exercisable for 6,250 shares of common stock (as adjusted) at $200 per share, and there are 93,750 shares of common stock
authorized and reserved for issuance under awards granted under the 2016 Plan.
|
|
|
|
|
(2)
|
The
initial amount of common stock shares authorized and reserved for issuance under the 2018 Plan was 2 million. The amount was
later reduced to 1 million due to the Company’s 1-for-2 Reverse Stock Split on September 3, 2018. On April 12, 2019,
the board and stockholders approved to increase the number of shares to 20 million and then, on February 14, 2020, to 35 million.
The amount was later reduced to 3.5 million due to the Company’s 1-for 10 Reverse Stock Split on April 15, 2020.
|
|
|
|
|
(3)
|
The
amount does not include 100,000 restricted stock awards granted to certain employees on September 14, 2018, under the 2018
Plan.
|
Other
Compensation Matters and Policies
Tax
and Accounting Considerations
Internal
Revenue Code Section 162(m) generally limits the amount that we may deduct for compensation paid to our Chief Executive Officer,
Chief Financial Officer, and to each of our three most highly compensated officers to $1 million per person. Previously, exemptions
to this deductibility limit could be made for various forms of “performance-based” compensation. The exemption from
Section 162(m)’s deduction limit for performance-based compensation was repealed under the 2017 Tax Cuts and Jobs Act, effective
for taxable years beginning after December 31, 2017. As a result, compensation paid to our “covered employees” under
Section 162(m), including our Chief Executive Officer, Chief Financial Officer, and three other highest-paid officers, more than
$1 million will not be deductible unless it qualifies for transition relief which grandfathers compensation paid under written
binding contracts in effect on November 2, 2017. We expect that equity awards granted or other compensation provided under arrangements
entered into or materially modified after November 2, 2017, generally will not be deductible to the extent they result in compensation
to certain executive officers that exceeds $1 million in any one year for any such officer. Although the Compensation Committee
cannot predict how the deductibility limit may impact our compensation program in future years, the Compensation Committee intends
to maintain an approach to executive compensation that follows our pay-for-performance philosophy.
Section
409A of the Internal Revenue Code imposes significant additional taxes if an executive officer, director, or other service provider
receives “deferred compensation” that does not satisfy Section 409A. Although we do not maintain traditional nonqualified
deferred compensation plans, Section 409A may apply to specific arrangements we enter into with our executive officers, including
our Change of Control severance arrangements. Consequently, to assist in avoiding additional tax under Section 409A, we intend
to design any such arrangements to avoid the application of Section 409A.
Related
Person Transactions and Section 16(a) Beneficial Ownership Reporting Compliance
Policies
and Procedures for Related Person Transactions
We
have adopted a written related person transactions policy that sets forth our policies and procedures regarding the identification,
review, consideration, and oversight of “related party transactions.” For purposes of our policy only, a “related
party transaction” is a transaction, arrangement, or relationship (or any series of similar transactions, arrangements,
or relationships) in which we and any “related party” are participants involving an amount that exceeds $120,000.
Transactions
involving compensation for services provided to us as an employee or director are not considered related person transactions under
this policy. A related party is any executive officer, director, or holder of more than five percent of our common stock, including
any of their immediate family members and any entity owned or controlled by such persons.
Our
Interim Chief Financial Officer, Martin Galstyan, must present information regarding a proposed related party transaction to our
Board of Directors. Under the policy, where a transaction has been identified as a related party transaction, Mr. Galstyan must
present information regarding the proposed related party transaction to our Nominating and Corporate Governance Committee, once
the same is established, for review. The presentation must include a description of, among other things, the material facts, the
direct and indirect interests of the related parties, the benefits of the transaction to us, and whether any alternative transactions
are available. To identify related party transactions in advance, we rely on information supplied by our executive officers, directors,
and certain significant stockholders. In considering related party transactions, our Nominating and Corporate Governance Committee
will take into account the relevant available facts and circumstances including, but not limited to:
|
|
whether
the transaction was undertaken in the ordinary course of our business;
|
|
|
|
|
|
whether
the related party transaction was initiated by the related party or us;
|
|
|
|
|
|
whether
the transaction with the related party is proposed to be or was entered into on terms no less favorable to us than terms that
could have been reached with an unrelated third-party;
|
|
|
|
|
|
the
purpose of, and the potential benefits to us from the related party transaction;
|
|
|
|
|
|
the
approximate dollar value of the amount involved in the related party transaction, particularly as it relates to the related
party;
|
|
|
|
|
|
the
related party’s interest in the related party transaction, and
|
|
|
|
|
|
any
other information regarding the related party transaction or the related party that would be material to investors in light
of the particular transaction’s circumstances.
|
The
Nominating and Corporate Governance Committee shall then recommend the board, which will determine whether or not to approve of
the related party transaction, and if so, upon what terms and conditions. In the event a director has an interest in the proposed
transaction, the director must recuse himself or herself from the deliberations and approval.
Related
Party Transactions
There
have been no related party transactions during the last two fiscal years.
Delinquent
Section 16(a) Reports
According
to Section 16(a) of the Exchange Act, our officers and directors and persons who beneficially own more than 10% of a registered
class of our equity securities are required to file initial statements of beneficial ownership (Form 3) and statements of changes
in beneficial ownership (Forms 4 and 5) with the SEC. Such persons are required by the SEC’s rules to furnish us with copies
of all such forms they file. The Company prepares these reports for its directors and executive officers who request them based
on information obtained from them and the Company’s records. The Company believes that applicable Section 16(a) filing requirements
were met during 2020 by its directors and executive officers, except that due to inadvertent administrative errors, a Form 3 for
each of Martin Galstyan, Joshua Keeler, Zareh Khachatoorian, and Linda Moossaian, and a Form 4 for Zareh Khachatoorian were filed
late.
Security
Ownership of Directors, Officers and Principal Stockholders
The
following table presents information regarding beneficial ownership of our equity interests as of April 30, 2021 by:
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each
stockholder or group of stockholders known by us to be the beneficial owner of more than 5% of any class of our voting securities;
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our
Named Executive Officers;
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each
of our directors; and
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all
of our executive officers and directors as a group.
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Beneficial
ownership is determined under the SEC’s rules and, thus, represents voting or investment power concerning our securities
as of the Record Date of April 30, 2021. In computing the number and percentage of shares beneficially owned by
a person, shares that such person may acquire within 60 days of April 30, 2021, are counted as outstanding, while these
shares are not counted as outstanding for computing the percentage ownership of any other person. Unless otherwise indicated,
the principal address of each of the persons below is c/o ToughBuilt Industries, Inc., 25371 Commercentre Drive, Suite 200, Lake
Forest, CA 92630. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting
and sole investment power concerning all equity interests beneficially owned, subject to community property laws where applicable.
Name
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|
Number
of Shares Beneficially Owned
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Percentage
of
Class
(1)
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Named
Executive Officers and Directors
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Michael
Panosian—CEO, President and Chair of the Board
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203,381
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(2)
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*
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Martin Galstyan—CFO
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—
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-
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Joshua Keeler—VP
of R&D and Director
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79,793
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(3)
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*
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Zareh Khachatoorian—COO
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14,950
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(4)
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*
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Robert Faught—Director
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—
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-
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Frederick D.
Furry—Director
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—
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-
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Linda Moossaian—Director
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—
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-
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All Officers
and Directors as a group (7 persons)
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252,974
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*
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5%
or More Stockholders
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None
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*Less
than 1%
(1)
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Percentages
based on 81,624,587 shares of common stock issued and outstanding as of April 30, 2021 plus shares of common stock
the person has the right to acquire within 60 days thereafter.
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(2)
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Includes
21,250 shares of common stock issuable upon vested options.
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(3)
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Includes
15,000 shares of common stock issuable upon vested options.
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(4)
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Includes
9,350 shares of common stock issuable upon vested options.
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QUESTIONS
AND ANSWERS
More
Information about Proxies and Voting
A
proxy is your legal designation of another person to vote the stock you own. The person you designate is your “proxy,”
and you give the proxy authority to vote your shares by submitting the enclosed proxy card or, if available, voting by telephone
or over the Internet. We have designated our Chief Executive Officer, Michael Panosian, and our Chief Financial Officer, Martin
Galstyan, to serve as proxies for the Annual Meeting.
2.
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HOW
DO I RECEIVE PROXY MATERIALS?
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We
have elected to deliver our proxy materials electronically over the Internet as permitted by the SEC’s rules. As required
by those rules, we are distributing a notice of Internet availability of proxy materials to our stockholders of record and beneficial
owners as of the close of business on April 30, 2021. On the date of distribution of the notice, all stockholders and beneficial
owners will have the ability to access all of the proxy materials at the URL address included in the notice. Additionally, the
Notice of Annual Meeting, proxy statement, and Annual report are available on our website by visiting www.toughbuilt.com.
The Company’s website materials are not incorporated by reference into this proxy statement. These proxy materials are
also available at no charge upon request. Please refer to the information included in the notice of Internet availability of proxy
materials for additional information.
3.
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HOW
MANY VOTES CAN BE CAST?
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Each
share of our common stock and Series E Preferred Stock issued and outstanding as of the close of business on April 30, 2021, the
Record Date for the Annual Meeting of Stockholders, is entitled to vote on all items being considered at the Annual Meeting. You
may vote all shares owned by you as of the Record Date, including (i) shares held directly in your name as the stockholder of
record and (ii) shares held for you as the beneficial owner in street name through a broker, bank, or another nominee.
As
of the close of business on the Record Date, we had 81,624,587 shares of common stock, and nine shares of Series E Preferred
Stock issued and outstanding and entitled to notice of and to vote at the Annual Meeting.
For
all matters described in this proxy statement for which a vote is being solicited, each holder of common stock is entitled to
one vote for each share of common stock held by such holder as of the Record Date.
The
holder of a share of Series E Preferred Stock is entitled to a number of votes equal to 1% of the total number of votes that the
issued and outstanding shares of common stock and all other voting securities of the Company as of any such date of determination,
voting together as a single class, has on a fully diluted basis; provided, however, the Series E Preferred
Stock shall no more than 3,602,466 votes per share. Notwithstanding the foregoing, the voting power of every holder of the Series
E Preferred Stock together with such holder’s affiliates and Attribution Parties, together with any and all securities of
the Company owned by such parties, is limited to 4.99% of the voting power of the Company’s outstanding capital stock. “Attribution
Parties” consists of the following persons and entities: (i) any investment vehicle, including any funds, feeder funds,
or managed accounts, currently, or from time to time after the date the shares of Series E Preferred Stock are issued to the holder,
directly or indirectly managed or advised by the holder’s investment manager or any of its affiliates or principals, (ii)
any direct or indirect affiliates of the holder or any of the foregoing, (iii) any Person acting or who could be deemed to be
acting as a group together with the holder or any of the foregoing; and (iv) any other persons whose beneficial ownership of the
Corporation’s voting securities would or could be aggregated with the holder’s and the other Attribution Parties for
purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended.
Each
holder of common stock and Series E Preferred Stock is entitled to vote for each director nominee named in Proposal 1 and one
vote for Proposals 2 and 3.
4.
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WHAT
IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A STOCKHOLDER OF RECORD AND AS A BENEFICIAL
OWNER?
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Many
of our stockholders hold their shares as a beneficial owner in “street name” through a broker or other nominee rather
than directly in their name.
Stockholders
of Record
If
your shares are registered directly in your name with our transfer agent, VStock Transfer, you are considered the “stockholder
of record,” and these proxy materials were sent directly to you by us. As the “stockholder of record,”
you have the right to grant your voting proxy directly to our designated proxies or to vote at the Annual Meeting. You may vote
on the Internet or by telephone, or if you have requested paper materials be delivered to you, you may return the proxy card by
mail.
Beneficial
Owner
If
your shares are held in an account at a brokerage firm, bank, or other similar organization, you are considered the beneficial
owner of shares held in “street name,” and the Notice of Annual Meeting, proxy statement, and Annual report were
forwarded to you by that organization. As the beneficial owner, you have the right to direct your broker, bank, or another nominee
on how to vote your shares, and you are also invited to attend the Annual Meeting.
Because
a beneficial owner is not the stockholder of record, you may not vote your shares at the Annual Meeting unless you obtain
a legal proxy from the broker, bank, trustee, or nominee that holds your shares, giving you the right to vote the shares at the
meeting. If you are a beneficial owner and do not wish to vote at the Annual Meeting, you may vote by following the instructions
provided by your broker or another nominee.
5.
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WHO
IS THE COMPANY’S TRANSFER AGENT AND HOW DO I CONTACT THEM?
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You
may contact VStock Transfer, LLC, our transfer agent, by phone at (212) 828-8436 or in writing at VStock Transfer LLC, 18 Lafayette
Place, Woodmere, NY 11598.
6.
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HOW
DO I ATTEND AND VOTE AT THE ANNUAL MEETING?
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The
Annual Meeting is scheduled to be held on Friday, June 11, 2021, at 2:00 p.m. Pacific Standard Time (or 5:00 p.m. Eastern Standard
Time) via live webcast through www.virtualshareholdermeeting.com/TBLT2021. You will need the 16- digit
control number provided on the Notice of Annual Meeting or your proxy card. If you do not comply with the procedures outlined
above, you may not be admitted to the virtual Annual Meeting.
You
are entitled to attend the Annual Meeting only if you were a stockholder as of the Record Date or you hold a valid proxy for the
Annual Meeting. If you are not a stockholder of record but hold shares as a beneficial owner in street name, you should provide
proof of beneficial ownership as of the record date, such as your most recent account statement prior to April 30, 2021, together
with a copy of the voting instruction card provided by your broker, bank, or nominee, or other similar evidence of ownership.
Shares
held in your name as the stockholder of record may be voted by you at the Annual Meeting. Shares held beneficially in street name
may be voted by you at the Annual Meeting only if you obtain a legal proxy from the broker, bank, or nominee that holds your shares,
giving you the right to vote the shares. Even if you plan to attend the Annual Meeting, we recommend that you also submit your
proxy or voting instructions as described below so that your vote will be counted if you later decide not to vote at the meeting.
7.
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HOW
CAN I VOTE WITHOUT ATTENDING THE ANNUAL MEETING?
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By
telephone or on the Internet
If
you are a stockholder of record, you may vote by following the telephone or Internet voting instructions on your proxy card.
If
you are a beneficial owner of shares, your broker, bank, or other record holder may make telephone or Internet voting available
to you. The availability of telephone and Internet voting for beneficial owners will depend on the voting processes of your broker,
bank, or another nominee holder of record. Therefore, we recommend that you follow the voting instructions in the materials you
receive.
By
mail
Complete,
sign and date the proxy card or voting instruction card and return it in the return envelope provided (which is postage prepaid
if mailed in the United States). If you are a stockholder of record and return your signed proxy card but do not indicate your
voting preferences, the persons named in the proxy card will vote the shares represented by your proxy card in favor of our Board’s
recommendations.
If
you are a stockholder of record and requested paper materials, and the prepaid envelope is missing, please address and mail your
completed proxy card to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
If
you are a beneficial owner of shares, you should have received a proxy card and voting instructions with these proxy materials
from your broker, bank, or another nominee holder of record. Simply complete and mail the proxy card provided to the address provided
by your broker, bank, or another nominee holder of record.
You
may still participate in the Annual Meeting even if you have already voted by proxy.
8.
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IS
MY VOTE CONFIDENTIAL?
|
Proxy
instructions, ballots, and voting tabulations that identify individual stockholders are handled in a manner that protects your
voting privacy. Your vote will not be disclosed either within the Company or to third parties, except as necessary to meet applicable
legal requirements, allow for the tabulation of votes and certification of the vote, or facilitate a successful proxy solicitation.
9.
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WHAT
CAN I DO IF I CHANGE MY MIND AFTER I VOTE BEFORE THE ANNUAL MEETING?
|
You
may change your vote at any time before the taking of the vote at the Annual Meeting. If you are the stockholder of record, you
may change your vote by:
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granting
a new proxy bearing a later date (which automatically revokes the earlier proxy) using any of the methods described above
(until the polls are closed during the Annual Meeting);
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providing
written notice of revocation to our Corporate Secretary at ToughBuilt Industries, Inc., 25371 Commercentre Drive, Suite 200,
Lake Forest, CA 92630, before your shares being voted; or
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virtually
attending the Annual Meeting and voting at the meeting. Attendance at the meeting will not cause your previously granted proxy
to be revoked unless you specifically so request.
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For
shares you hold beneficially in street name, you may change your vote by submitting new voting instructions to your broker, bank,
or nominee following the instructions they provided or, if you have obtained a legal proxy from your broker, bank, or nominee
giving you the right to vote your shares, by virtually attending the Annual Meeting and voting at the meeting.
10.
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WHO
IS ENTITLED TO VOTE AT THE ANNUAL MEETING?
|
Only
stockholders of record as of the close of business on the Record Date, April 30, 2021, who have properly registered for
the meeting, are entitled to attend and vote at the Annual Meeting. The names of stockholders of record entitled to vote at the
Annual Meeting will be available at the Annual Meeting and ten days prior to the meeting for any proper purpose relating to the
meeting, between the hours of 9:00 a.m. and 4:30 p.m. Pacific Standard Time, by contacting our Corporate Secretary at our principal
executive offices.
11.
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WHAT
ARE THE QUORUM REQUIREMENTS FOR CONDUCTING BUSINESS AT THE ANNUAL MEETING?
|
A
majority of the issued and outstanding shares of common stock must be present or represented by proxy at our Annual Meeting in
order for the Annual Meeting to be held and business to be transacted.
Abstentions
and “broker non-votes” are counted as present and entitled to vote for purposes of determining a quorum. A “broker
non-vote” occurs when a broker, bank, or another holder of record holding shares for a beneficial owner does not vote on
a particular proposal because that holder does not have discretionary voting power for that particular item and has not received
voting instructions from the beneficial owner.
If
there is no quorum present in person or by proxy at the Annual Meeting, a majority of the votes present at the Annual Meeting
may adjourn the meeting to another date.
12.
|
WHAT
ARE THE BOARD’S RECOMMENDATIONS FOR VOTING AT THE ANNUAL MEETING?
|
Our
Board of Directors recommends that you vote your shares:
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“FOR”
each of the nominees for director named in this proxy statement.
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“FOR”
the amendment to our articles of incorporation to authorize the Board of Directors, in
its discretion, to amend our articles of incorporation by December 31, 2021, to effect
a Reverse Stock Split of our common stock at a ratio of not less than 1-for-2 and not
more than 1-for-10, as determined by the Board of Directors.
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|
“FOR”
the amendment to our articles of incorporation to increase the authorized common stock
from 200 million (200,000,000) to 500 million (500,000,000).
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13.
|
WHAT
ARE THE VOTING REQUIREMENTS TO APPROVE EACH OF THE PROPOSALS AT THE ANNUAL MEETING?
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Proposal
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Board’s
Recommendation
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|
Votes
Required
|
|
Effect
of Abstentions and
Broker Non-Votes
|
1
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|
To
elect the five (5) directors named in this proxy statement, each for a one-year term expiring in 2022
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FOR
EACH DIRECTOR NOMINEE
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Plurality
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Abstentions
and broker non-votes have no effect on the proposal
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2
|
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To
authorize the Board of Directors, in its discretion, to amend our articles of incorporation to effect a Reverse Stock Split
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FOR
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Majority
of votes represented at the meeting and entitled to vote thereon
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Abstentions
have the effect of a vote against the proposal; broker non-votes will have no effect on the proposal
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3
|
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To
amend our articles of incorporation to increase the authorized number of common stock from 200 million to 500 million shares
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FOR
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|
Majority
of votes represented at the meeting and entitled to vote thereon
|
|
Abstentions
have the effect of a vote against the proposal; broker non-votes will have no effect on the proposal
|
If
you are a beneficial owner, your broker, bank, or another nominee holder of record is permitted to vote your shares on the proposal
to authorize our Board of Directors to amend our articles of incorporation to effect a Reverse Stock Split of our common stock
at a ratio as determined by the Board of Directors and to increase the authorized common stock from 200,000,000 to 500,000,000
shares, even if the record holder does not receive voting instructions from you. Accordingly, if you are a beneficial owner, it
is particularly important that you provide your instructions to your broker, bank, or another nominee holder of record.
14.
|
WHAT
OTHER MATTERS CAN BE PRESENTED AT THE ANNUAL MEETING?
|
Other
than the business items described in this proxy statement, we are not aware of any other business to be acted upon at the Annual
Meeting. If you grant a proxy, the persons named as proxy holders, Michael Panosian and Martin Galstyan, or either of them, will
have the discretion to vote your shares on any additional matters properly presented for a vote at the meeting.
If
for any reason any of the nominees is not available as a candidate for director at the Annual Meeting, the persons named as proxy
holders will vote your proxy for such other candidate or candidates as may be nominated by the Board of Directors.
15.
|
HOW
ARE PROXIES SOLICITED AND WHAT IS THE COST?
|
We
will provide the Notice, proxy statement, the 2020 Annual Report on Form 10-K and a proxy card to stockholders of as of record
on April 30, 2021 beginning on or about May 7, 2021, in connection with the solicitation of proxies our Board on our Company’s
behalf to be used at our Annual Meeting. We will pay the cost of soliciting proxies. We have retained Kingsdale Advisors for certain
advisory and solicitation services at a fee of approximately $11,500. In addition to the mailing of these proxy materials, the
solicitation of proxies or votes may be made in person, by telephone, or by electronic communication by our directors, officers,
and employees, who will not receive any additional compensation for such solicitation activities. We may also reimburse brokerage
firms, banks, and other nominee holders of record for the cost of forwarding proxy materials to beneficial owners.
16.
|
WHAT
IF I ONLY RECEIVED ONE COPY OF THE PROXY MATERIALS, EVEN THOUGH MULTIPLE STOCKHOLDERS
RESIDE AT MY ADDRESS?
|
The
SEC previously adopted a rule concerning the delivery of Annual disclosure documents. The rule allows brokers or us holding your
shares on your behalf to send a single set of our Annual report and proxy statement to any household at which two or more of our
stockholders reside if either the brokers or we believe that the stockholders are members of the same family. This practice referred
to as “householding,” benefits both stockholders and us. It reduces the volume of duplicate information and our expenses
and lessens the impact on the environment. The rule applies to our Annual reports, proxy statements, and information statements.
Once stockholders receive notice from their brokers or us that communications to their addresses will be “householded,”
the practice will continue until stockholders are otherwise notified or until they revoke their consent to the practice. Each
stockholder will continue to receive a separate proxy card or voting instruction card.
Those
stockholders who either (i) do not wish to participate in “householding” and would like to receive their own sets
of our Annual disclosure documents in future years or (ii) who share an address with another one of our stockholders and who would
like to receive only a single set of our Annual disclosure documents should follow the instructions described below:
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|
stockholders
whose shares are registered in their name should contact our transfer agent, VStock Transfer, LLC, and inform them of their
request by calling them at (212) 828-8436 or writing them at VStock Transfer LLC, 18 Lafayette Place, Woodmere, NY 11598.
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|
|
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stockholders
whose shares are held by a broker or other nominee should contact such broker or another nominee directly and inform them
of their request. Stockholders should be sure to include their name, the name of their brokerage firm, and their account number.
|
Board
Communications, Stockholder Proposals, and Company Documents
17.
|
HOW
DO I COMMUNICATE WITH THE BOARD?
|
Stockholders
who wish to communicate with our Board of Directors are welcome to do in writing to our Corporate Secretary at ToughBuilt Industries,
Inc., 25371 Commercentre Drive, Suite 200, Lake Forest, CA 92630.
Communications
are distributed to our Board of Directors or to any individual directors as appropriate, depending on the facts and circumstances
outlined in the communication.
18.
|
WHO
CAN PROVIDE ME WITH ADDITIONAL INFORMATION AND HELP ANSWER MY QUESTIONS?
|
If
you would like additional copies, without charge, of this proxy statement or if you have questions about the proposals being considered
at the Annual Meeting, including the procedures for voting your shares, you should contact Michael Panosian, the Company’s
Chief Executive Officer in writing or by phone.
Stockholder
Proposals for the 2022 Annual Meeting
Stockholders
may present proper proposals for inclusion in our proxy statement and for consideration at the next Annual Meeting of Stockholders
by submitting their proposals in writing to our Corporate Secretary in a timely manner. For a stockholder proposal to be considered
for inclusion in our proxy statement for our 2022 Annual Meeting of Stockholders, our Corporate Secretary must receive the written
proposal at our principal executive offices no later than December 1, 2021. However, if we hold our 2022 Annual Meeting of Stockholders
more than 30 days before or 60 days after the one-year anniversary date of the 2021 Annual Meeting, we will disclose the new deadline
by which stockholders’ proposals must be received in our earliest possible Quarterly Report on Form 10-Q or, if impracticable,
by any means reasonably calculated to inform stockholders. In addition, stockholder proposals must otherwise comply with the requirements
of Rule 14a-8 of the Exchange Act. Proposals should be addressed to the Corporate Secretary at our executive offices.
Our
bylaws also establish an advance notice procedure for stockholders who wish to present a proposal before an Annual Meeting of
Stockholders but do not intend for the proposal to be included in our proxy statement. Our bylaws provide that the only business
that may be conducted at an Annual Meeting is business that is:
|
|
specified
in our proxy materials for such meeting;
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|
|
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|
otherwise
properly brought before the meeting by or at the direction of our Board of Directors; or
|
|
|
|
|
|
properly
brought before the meeting by a stockholder of record entitled to vote at the Annual Meeting who has delivered timely written
notice to our Corporate Secretary, which notice must contain the information specified in our bylaws.
|
To
be timely for our 2022 Annual Meeting of Stockholders, our Corporate Secretary must receive the written notice at our principal
executive offices by January 14, 2022. However, if the Company’s 2022 Annual Meeting is changed by more than 30 days from
the date of the 2021 Annual Meeting, then the deadline is a reasonable time before the Company begins to print and send its proxy
materials, which we deem to be no later than the:
|
|
90th
day before such Annual Meeting, or
|
|
|
|
|
|
10th
day following the day on which public announcement of the date of such meeting is first made.
|
If
a stockholder who has notified us of his or her intention to present a proposal at the 2022 Annual Meeting does not appear to
present his or her proposal at such meeting, we are not required to present the proposal for a vote at such meeting.
Director
Candidate Recommendations
You
may recommend director candidates for consideration by our Nominating and Corporate Governance Committee. Any such recommendations
should include the nominee’s name and qualifications for membership on our Board of Directors and should be directed to
our Corporate Secretary at our executive offices.
Availability
of Bylaws
Our
bylaws have been publicly filed with the SEC at www.sec.gov. You may also contact our Corporate Secretary at our principal executive
offices for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals and nominating
director candidates.
OTHER
MATTERS
Each
proxy solicited hereby also confers discretionary authority on the proxies named therein to vote the proxy with respect to the
election of any person as a director if a nominee is unable to serve or for good cause will not serve, matters incident to the
conduct of the meeting, and upon such other matters as may properly come before the Meeting. Management is not aware of any business
that may properly come before the Meeting other than the matters described above in this proxy statement. However, if any other
matters should properly come before the meeting, it is intended that the proxies solicited hereby will be voted with respect to
those other matters under the judgment of the persons voting the proxies.
YOUR
VOTE IS IMPORTANT! WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT TODAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
By
Order of the Board of Directors,
By:
|
/s/
Michael Panosian
|
|
Name:
|
Michael
Panosian
|
|
Title:
|
Chief
Executive Officer, President, and Chairperson of the Board
|
|
|
|
|
Lake
Forest, California
|
|
May
3, 2021
|
|
APPENDIX
A
Proposed
Amendment to ToughBuilt Industries, Inc. Articles of Incorporation
The
text of the proposed amendment to Article 3 of our Articles of Incorporation to effect the Reverse Stock Split of common stock
within a range of 1-for-2 to 1-for-10.
Article
3. The Number of Shares of the Corporation.
On
[DATE] at [TIME] [a.m./p.m.] (Pacific Standard Time) (the “Effective Time”),
each [NUMBER] ([NUMBER]) shares of the corporation’s Common Stock issued and outstanding or held in
treasury (if any) immediately prior to the Effective Time shall be automatically reclassified as and combined, without further
action, into one (1) validly issued, fully paid and nonassessable share of Common Stock, par value $0.0001 per share (the “Reverse
Stock Split”), subject to the treatment of fractional share interests as described below. No fractional shares will
be issued in connection with the Reverse Stock Split. Instead, the corporation will issue one whole share of the post-Reverse
Stock Split Common Stock to any stockholder who would have been entitled to receive a fractional share of Common Stock due to
the Reverse Stock Split. Each holder of Common Stock will hold the same percentage of the outstanding Common Stock immediately
following the Reverse Stock Split as that stockholder did immediately prior to the Reverse Stock Split, except for minor adjustments
due to the additional net share fraction that will need to be issued as a result of the treatment of fractional shares. Each certificate
that immediately prior to the Effective Time represented shares of Common Stock (“Old Certificates “) shall
thereafter represent that number of shares of Common Stock into which the shares of Common Stock represented by the Old Certificate
shall have been combined, subject to the treatment of fractional shares as described above.
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