STOCKHOLDER PROPOSALS AND COMPANY INFORMATION
Stockholder Proposals and Director Nominations
In accordance with Rule 14a-8 under the Exchange Act and the advance notice provisions of our
affiliates:Name and Principal Position | | Year | | Salary | | | Bonus | | | Option Awards(1) | | | Stock Awards(1) | | | Non-Equity Incentive Plan Compensation | | | All Other Compensation | | | Total | |
Brendan Kennedy | | 2018 | | $ | 425,000 | | | $ | 425,000 | | | $ | 25,147,534 | | | $ | 5,819,925 | | | $ | — | | | $ | — | | | $ | 31,817,459 | |
President and Chief Executive Officer | | 2017 | | | 375,000 | | | | — | | | — | | | | — | | | | — | | | | — | | | | 375,000 | |
Edward Wood Pastorius, Jr. | | 2018 | | | 265,000 | | | | 125,000 | | | | 1,562,171 | | | | 775,990 | | | | — | | | 43,200(2) | | | | 2,771,361 | |
Chief Revenue Officer | | 2017 | | 250,000(3) | | | | — | | | — | | | | — | | | | — | | | 36,000(3) | | | | 286,000 | |
Mark Castaneda | | 2018 | | | 230,000 | | | | 230,000 | | | | 2,482,929 | | | | 1,551,980 | | | | — | | | | — | | | | 4,494,909 | |
Chief Financial Officer and Treasurer (Secretary during 2018) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1)
| The amounts reported do not reflect the amounts actually received by our executive officers. Instead, these amounts reflect the aggregate grant date fair value of each stock option granted to our executive officers during 2017, as computed in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC 718. Assumptions used in the calculation of these amounts are included in Note 13 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Our executive officers who have received options will only realize compensation with regard to these options to the extent the trading price of our common stock is greater than the exercise price of such options.
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| (2)
| Includes: (a) $42,000 of reimbursement for living expenses and (b) $1,200 for cell phone reimbursement.
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| (3)
| Represents amounts received from Privateer Holdings, Inc.
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Outstanding Equity Awards at Fiscal year end
The following table showsBylaws, stockholder proposals and director nominations for the Annual Meeting of Stockholders for the fiscal year ended DecemberMay 31, 2018, certain information regarding outstanding equity awards2023 must be received by our Corporate Secretary at fiscal year-endour principal executive office on or before May 30, 2023.
In order for proposals submitted outside of Rule 14a-8 to be considered at the Annual Meeting of Stockholders for the
Named Executive Officers. | | | | | | Option Awards | | Stock Awards | | |
| | Grant Date | | Vesting Commencement Date | | Number of Securities Underlying Unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | | Option Exercise Price Per Share(1) | | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested | | | Market Value of Shares or Units of Stock That Have Not Vested(7) | | |
Brendan Kennedy | | 5/21/2018 | | 1/1/2017 | | | 1,312,500 | | | | 1,687,800 | | (2)(3) | $ | 7.76 | | | 5/20/2028 | | | | | | | | | |
| | 5/21/2018 | | 1/1/2017 | | | | | | | | | | | | | | | | | — | | | $ | 52,905,000 | | (2)(4)(5) |
| | 8/31/2018 | | 8/6/2018 | | | — | | | | 343,735 | | (2)(3) | | 65.20 | | | 8/30/2028 | | | | | | | | | |
Edward Wood Pastorius, Jr. | | 5/21/2018 | | 4/1/2018 | | | — | | | | 350,000 | | (2)(3) | | 7.76 | | | 5/20/2028 | | | | | | | | | |
| | 5/21/2018 | | 1/1/2017 | | | | | | | | | | | | | | | | | — | | | | 7,054,000 | | (2)(4)(5) |
Mark Castaneda | | 5/21/2018 | | 7/23/2018 | | | 300,000 | | | | 300,000 | | (2)(3) | | 7.76 | | | 5/20/2028 | | | | | | | | | |
| | 5/21/2018 | | 4/1/2018 | | | | | | | | | | | | | | | | | — | | | | 14,108,000 | | (2)(4)(5)(6) |
| (1)
| Prior to our IPO, the exercise price per share reflects the fair market value per share of our common stock on the date of grant as determined by our Board. Following our IPO, the exercise price reflects the closing price of our Class 2 common stock on the date of grant.
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| (2)
| Pursuant to the executive agreements between the named executive officer and us, the vesting of such named executive officer’s stock and option awards will accelerate under certain circumstances as described under “—Employment, Severance and Change of Control Arrangements.”
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| (3)
| The shares subject to the option are scheduled to vest as follows: 25% of the shares on the twelve (12) month anniversary of the Vesting Commencement Date and the remaining option shares will vest quarterly thereafter at the rate of 6.25% of the total number of shares on each quarterly anniversary of the Vesting Commencement Date thereafter for so long as the optionee remains in Continuous Service (as defined in the Company’s 2018 Amended and Restated Equity Incentive Plan (the “2018 Plan”)), such that the total number of shares shall be fully vested on the four-year anniversary of the Vesting Commencement Date.
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| (4)
| The shares subject to the RSU shall vest over a four-year period as follows: two vesting requirements must be satisfied for the RSU to vest - a time and service requirement and a Liquidity Event (as defined below) requirement. The time and service requirement is as follows: the RSUs shall vest at the rate of 25% of the RSUs on the twelve (12) month anniversary of the Vesting Commencement Date, and the remaining RSUs will vest quarterly thereafter at the rate of 6.25% of the total number of RSUs on each quarterly anniversary of the Vesting Commencement Date. The Liquidity Event requirement will be satisfied as to any then-outstanding RSU on the first to occur of: (1) a Change in Control (as defined in the 2018 Plan); or (2) the date following the effective date of a registration statement of the Company filed under the Securities Act for the sale of the Company’s common stock on which all shares of common stock issued or issuable under the 2018 Plan are not subject to the lock-up restrictions. The total number of RSUs shall be fully vested on the four-year anniversary of the Vesting Commencement Date, provided that the optionee has remained in Continuous Service (as defined in the 2018 Plan) through each applicable vesting date.
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| (6)
| The RSUs shall vest according to the vesting schedule described above, provided, however, the RSUs shall fully vest upon the one-year anniversary of the IPO, provided that the optionee remains in Continuous Service (as defined in the 2018 Plan) until such date.
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| (7)
| This amount reflects the fair market value of our Class 2 common stock of $70.54 per share, which was the closing price of our Class 2 common stock on December 31, 2018.
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Pension Benefits
Our named executive officers did not participate in, or otherwise receive any benefits under, any pension or defined benefit retirement plan sponsored by us in 2018.
Nonqualified Deferred Compensation
Our named executive officers did not participate in, or earn any benefits under, a nonqualified deferred compensation plan sponsored by us during 2018.
Emerging Growth Company Status
We are an “emerging growth company” as definedfiscal year ended May 31, 2023, stockholder proposals, including stockholder nominations for Director, must comply with the provisions in the JOBS Act. As an emerging growth company we will be exempt from certain requirements relatedBylaws. The Bylaws provide that stockholders are required to executive compensation, including, but not limitedgive advance notice to the Nasdaq requirementsCompany of any business to holdbe brought by a nonbinding advisory vote on executive compensation andstockholder before an annual stockholders’ meeting. For business to provide information relatingbe properly brought before an annual meeting by a stockholder, the stockholder must give timely written notice thereof to the ratioSecretary of total compensationthe Company at the principal executive offices of our Chief Executive Officerthe Company, 245 Talbot Street West, Leamington, Ontario N8H 4H3, Canada.
In order to be timely, a stockholder’s notice must be delivered not later than the 90th day prior to the
medianfirst anniversary of the
date of mailing of the notice for the preceding year’s annual
total compensationmeeting of
allstockholders nor earlier than the 120th day prior to the first anniversary of
our employees, each as requiredthe preceding year’s annual meeting. Therefore, any stockholder proposals, including nominations for Directors, submitted outside of Rule 14a-8 to be voted on at the Annual Meeting of Stockholders for the fiscal year ended May 31, 2023 must be received by the
Investor ProtectionCompany not earlier than May 29, 2023 and
Securities Reform Act of 2010, which is partnot later than May 29, 2023. However, in the event that the date of the
Dodd-Frank Wall Street ReformAnnual Meeting of Stockholders for the fiscal year ended May 31, 2023 is advanced by more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary date of the Annual Meeting, for notice by the stockholder to be timely it must be delivered as stated in the Bylaws. Such proposals and
Consumer Protection Act.Employment, Severancenominations must be made in accordance with, and Change in Control Arrangements
We have entered into offer letters with each of our named executive officers. The offer letters generally provide for at-will employment andinclude the information required to be set forth by, the executive’s initial base salary, target variable compensation, eligibilityBylaws. An untimely or incomplete proposal or nomination may be excluded from consideration at the Annual Meeting of Stockholders for employee benefits, the termsfiscal year ended May 31, 2023.
You are also advised to review our bylaws, which contain additional requirements about advance notice of initial equity grantsstockholder proposals and in some cases severance benefits on a qualifying termination. Each of our named executive officers has also executed our standard form of proprietary information agreement. Any potential paymentsdirector nominations.
Annual Report to Stockholders and
benefits due upon a termination of employment or a change of control of us are further described below.Brendan Kennedy
Mr. Kennedy serves as our President and Chief Executive Officer. In May 2018, we entered into an employment agreement with Mr. Kennedy, or the Kennedy Employment Agreement, pursuant to which he received an annual base salary of $425,000 with a target annual bonus equal to 100% of his annual base salary. Mr. Kennedy’s current base salary is $577,060. In addition, Mr. Kennedy was granted an option to purchase 3,000,000 shares of our Class 2 common stock and an additional option to purchase 343,735 shares of our Class 2 common stock. Additionally, Mr. Kennedy was granted 750,000 RSUs. If Mr. Kennedy is terminated without cause or resigns for good reason, as such terms are defined in the Kennedy Employment Agreement, he will receive a severance payment equal to three times his base salary and target annual bonus, as then in effect and 100% accelerated vesting of all his then unvested stock options, RSUs and other equity-based awards. Mr. Kennedy is also entitled to COBRA benefits for up to 36 months after termination without cause or resignation for good reason. Upon a change in control, as such term is defined in the Kennedy Employment Agreement, all of Mr. Kennedy’s unvested stock options, RSUs and other equity-based awards will vest in full.
Edward Wood Pastorius, Jr.
Mr. Pastorius serves as our Chief Revenue Officer. In May 2018, we entered into an employment agreement with Mr. Pastorius, or the Pastorius Employment Agreement, pursuant to which he received an annual base salary of $250,000 with a target annual bonus equal to 50% of his annual base salary. In addition, Mr. Pastorius was granted an option to purchase 350,000 shares of our Class 2 common stock and 100,000 RSUs. If Mr. Pastorius is terminated without cause or resigns for good reason, as such terms are defined in the Pastorius Employment Agreement, he will receive a severance payment equal to 18 months of his base salary and COBRA benefits for up to 18 months after such termination or resignation. Upon a change in control, as such term is defined in the Pastorius Employment Agreement, all of Mr. Pastorius’s unvested stock options, RSUs and other equity-based awards will vest in full.
Mark Castaneda
Mr. Castaneda serves as our Chief Financial Officer and Treasurer (Secretary during 2018). In May 2018, we entered into an employment agreement with Mr. Castaneda, or the Castaneda Employment Agreement, pursuant to which he received an annual base salary of $230,000 with a target annual bonus equal to 50% of his annual base salary. Mr. Castaneda’s current base salary is $402,000. In addition, Mr. Castaneda was granted an option to purchase 600,000 shares of our Class 2 common stock and 200,000 RSUs. If Mr. Castaneda is terminated without cause or resigns for
Form 10-K
good reason, as such terms are defined in the Castaneda Employment Agreement, he will receive a severance payment equal to 24 months of his base salary and COBRA benefits for up to 24 months after such termination or resignation. Upon a change in control, as such term is defined in the Castaneda Employment Agreement, all of Mr. Castaneda’s unvested stock options, RSUs and other equity-based awards will vest in full.
Director Compensation
Non-Employee Director Compensation Policy
Our non-employee directors are entitled to receive compensation for his or her service consisting of annual cash retainers and equity awards as described below. Our Board may revise the policy as it deems necessary or appropriate.
Cash Compensation. All non-employee directors are entitled to receive the following annual cash compensation:
Board of Directors | | $ | 35,000 | |
Chair of committee: | | | | |
Audit | | $ | 15,000 | |
Compensation | | $ | 10,000 | |
Nominating and Corporate Governance | | $ | 10,000 | |
Committee member: | | | | |
Audit | | $ | 7,500 | |
Compensation | | $ | 5,000 | |
Nominating and Corporate Governance | | $ | 4,000 | |
Equity Compensation. All non-employee directors are entitled to receive an annual RSU grant for 35,000 of our Class 2 common shares, vesting on a four-year vesting schedule, under which 25% of the shares vest after twelve months of service and the remaining shares vest quarterly thereafter. The Compensation Committee is currently in process of reviewing the non-employee director compensation policy and anticipates modifying such policy in the near future.
Director Compensation for Fiscal 2018
The following table sets forth information regarding compensation earned by or paid to our non-employee directors during 2018.
Name | | Cash Compensation | | | Option Awards(1) | | | Stock Awards(1) | | | Total | |
Michael Auerbach | | $ | 27,500 | | | $ | 223,167 | | | $ | 271,597 | | | $ | 522,264 | |
Rebekah Dopp | | | 23,750 | | | | — | | | | 271,597 | | | | 295,347 | |
Maryscott Greenwood | | | 25,750 | | | | — | | | | 271,597 | | | | 297,347 | |
Christine St.Clare | | | 27,000 | | | | — | | | | 271,597 | | | | 298,597 | |
(1)
| The amounts in this column reflect the aggregate grant date fair value of each equity award granted during the year, computed in accordance with FASB ASC Topic 718. The valuation assumptions used in determining such amounts are described in Note 13 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018. The table below lists the aggregate number of shares subject to outstanding equity awards held by each of our non-employee directors.
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Name
| | Number of
Shares
Subject to
Outstanding
Options as of
December 31,
2018
| | | Number of
Underlying
RSUs as of December 31, 2018
| |
Michael Auerbach
| | 50,000(1)
| | | | 35,000
| |
Rebekah Dopp
| | | —
| | | | 35,000
| |
Maryscott Greenwood
| | | —
| | | | 35,000
| |
Christine St.Clare
| | | —
| | | | 35,000
| |
(1)
| These options were granted to Mr. Auerbach for advisory services provided to the Company related to the IPO.
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Equity Compensation Plan Information
The following table provides certain information with respect to allA copy of the Company’s equity compensation plans in effect as of December 31, 2018.
Plan Category | | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | (b) Weighted-average exercise price of outstanding options, warrants and rights(1) | | (c)Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in column (a)) | |
Equity compensation plans approved by security holders | | | | | | | | | | |
Amended and Restated 2018 Equity Incentive Plan(2)(3) | | 7,902,263 | | | $13.02 | | 1,297,075 | |
Equity compensation plans not approved by security holders | | | — | | | N/A | | | — | |
Total | | 7,902,263 | | | $13.02 | | 1,297,075 | |
(1)
| Excludes RSU awards because they have no exercise price.
|
(2)
| Consists of 1,287,222 shares of our Class 2 common stock subject to RSU awards and options to purchase 6,615,041 shares of Class 2 common stock.
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(3)
| Our Amended and Restated 2018 Equity Incentive Plan includes provisions providing for an annual increase in the number of securities available for future issuance on the first day of each fiscal year, equal to the least of: (a) 4% of the outstanding shares of capital stock as of the last day of the immediately preceding fiscal year; and (b) such lesser amount as the Board may determine.
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Transactions With Related Persons
Certain Related-Person Transactions
The following is a summary of transactions since January 1, 2018Annual Report to which we have been a participant, in which:
the amount involved exceeded or will exceed $120,000;Securities and
any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest, other than compensation and other arrangements that are described in the section titled “Executive Compensation” or that were approved by our Compensation Committee.
We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable in arm’s-length transactions.
Sales of Common Stock
In January 2018, we issued an aggregate of 75,000,000 shares of our Class 1 common stock to Privateer Holdings, Inc. in exchange Exchange Commission on Form 10-K for the contribution of 100% of the outstanding equity interests of Decatur Holdings, BV, a Dutch private limited liability company to us. Decatur Holdings, BV owns all of the outstanding equity interests of our direct and indirect subsidiaries through which we operate our business and, prior to the above-mentioned transaction, was a wholly owned direct subsidiary of Privateer Holdings, Inc.
Investor Rights Agreement
In February 2018, we entered into an investor rights agreement with holders of our preferred stock and common stock, including certain holders of more than 5% of our capital stock and entities affiliated with certain of our directors. These holders are entitled to certain registration rights, including the right to demand that we file a registration statement orfiscal year ended May 31, 2022 is available without charge upon written request that their shares be covered by a registration statement that we are otherwise filing.
Indebtedness
In January 2016, a wholly owned subsidiary of ours entered into a revolving credit facility with Privateer Holdings, Inc. for up to $25.0 million, which facility is payable on demand and bears interest at a rate of 2.4 times the mid-term Applicable Federal Rate, compounded annually for advances made under this agreement prior to January 1, 2017. Advances made under this facility following January 1, 2017 bear interest at a floating rate of 2.54% for 2017. Effective April 1, 2018, we entered into an agreement with Privateer Holdings, Inc. for a demand revolving credit facility in an aggregate principal amount not to exceed $7 million. The facility bears interest at a floating rate of 2.62%.
In November 2017, a wholly owned subsidiary of ours entered into a demand revolving construction facility with Privateer Holdings, Inc. for up to $10.0 million, which facility is payable on demand and bears interest at a floating rate of 2.54% in 2017.
In December 2017, a wholly owned subsidiary of ours entered into an intercompany loan agreement with Privateer Holdings, Inc. pursuant to which Privateer Holdings, Inc. agreed to loan us up to $1.0 million, which bears interest at a floating rate of 2.54%. The term of the loan is two years with options to renew the loan for two-year periods.
In December 2017, Privateer Holdings loaned certain of our wholly owned subsidiaries an aggregate of $1.7 million pursuant to loan agreements, which loans are non-interest bearing and are payable upon demand.
In July 2018, we repaid $37 million of the outstanding Privateer Holdings, Inc. debt facility, which included repayment of the Privateer Holdings, Inc. credit facility, Privateer Holdings, Inc. construction facility and the Privateer Holdings, Inc. start-up loans.
to: 245 Talbot Street West, Leamington, Ontario N8H 4H3, Canada.
Corporate Services Agreement
In February 2018, we entered into an agreement with Privateer Holdings, Inc., pursuant to which Privateer Holdings, Inc. provides us with certain general administrative and corporate services on an as-requested basis. Pursuant to this agreement, we paid Privateer Holdings, Inc. a monthly services fee based on our proportional share of the actual costs incurred by Privateer Holdings, Inc. in performing the requested services. Personnel compensation was charged at cost plus a 3.0% markup and other services provided are charged at cost. This agreement was terminated in February 2019 when we entered into a new agreement with Ten Eleven Management LLC (doing business as “Privateer Management”) pursuant to which Ten Eleven Management LLC provides certain general and administrative and corporate services on an as-requested basis for a monthly cost of $25,000. This agreement will remain in effect until the earlier of December 31, 2019 or the date such agreement is terminated by either party on 90 days’ notice.
License Agreements
In February 2018, one of our wholly owned subsidiaries entered into a brand licensing agreement with a wholly owned subsidiary of Privateer Holdings, Inc., pursuant to which we obtained exclusive rights in Canada for adult use for the following brands: Marley Natural, Irisa, Goodship, Grail, Dutchy, Wallops and Head Light. Pursuant to the brand licensing agreement, we will pay to Privateer Holdings Inc.’s subsidiary royalties between 2.5% and 7.5% of the net revenue generated by the licensed products. This agreement is terminable for any reason by either party on six months’ notice prior to the expiration of each automatically renewing five-year term commencing from the first five-year period that ends in February 2023.
In February 2018, we entered into a data license agreement with a wholly owned subsidiary of Privateer Holdings, Inc. Pursuant to this agreement, we received a non-exclusive, perpetual license to use data on Canadian customers’ engagement of Leafly Holdings, Inc.’s website. This agreement will remain in effect until terminated by us or Leafly Holdings, Inc. on 90 days’ notice.
Indemnification
We enter into indemnification agreements with each of our directors and officers. These agreements, among other things, require us to indemnify an indemnitee to the fullest extent permitted by applicable law, including indemnification of expenses such as attorneys’ fees, judgments, fines and settlement amounts incurred by the indemnitee in any action or proceeding, including any action or proceeding by us or in our right, arising out of the person’s services as a director or officer.
Related-Party Transaction Policy
In July 2018, we adopted a formal written policy that our executive officers, directors, key employees, holders of more than 5% of any class of our voting securities, and any member of the immediate family of and any entity affiliated with any of the foregoing persons, are not permitted to enter into a related-party transaction with us without the prior consent of our Audit Committee, or other independent body of our Board in the event it is inappropriate for our Audit Committee to review such transaction due to a conflict of interest. Any request for us to enter into a transaction with an executive officer, director, principal stockholder or any of their immediate family members or affiliates in which the amount involved exceeds $120,000 will be required to first be presented to our Audit Committee for review, consideration and approval. In approving or rejecting any such proposal, our Audit Committee will consider the relevant facts and circumstances available and deemed relevant to our Audit Committee, including, but not limited to, whether the transaction will be on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction.
All of the transactions described in this section were entered into prior to the adoption of this policy. Although we have not had a written policy for the review and approval of transactions with related persons, our Board has historically reviewed and approved any transaction where a director or officer had a financial interest, including the transactions described above. Prior to approving such a transaction, the material facts as to a director’s or officer’s relationship or interest in the agreement or transaction were disclosed to our Board. Our Board took this information
into account when evaluating the transaction and in determining whether such transaction was fair to us and in the best interest of all our stockholders.
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