EX-99.136 137 a18-26052_1ex99d136.htm EX-99.136

Exhibit 99.136

 

 

NOTICE OF MEETING

 

AND

 

MANAGEMENT INFORMATION CIRCULAR

 

FOR THE

 

ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

 

to be held on November 2, 2018

 

September 24, 2018

 



 

APHRIA INC.

NOTICE OF ANNUAL AND SPECIAL SHAREHOLDER MEETING

 

NOTICE AND ACCESS

 

NOTICE IS HEREBY GIVEN that an annual and special meeting (the “Meeting”) of shareholders of Aphria Inc. (“Aphria” or the “Company”) will be held on Friday, November 2, 2018 at 2:00 p.m. (Eastern Daylight Time) at 199 Bay St., Suite 5300, Toronto, ON, M5L 1B9, Ontario for the following purposes:

 

1.

 

to receive the annual audited financial statements of the Company for the financial year ended May 31, 2018, together with the report of the auditor thereon;

2.

 

to elect directors of the Company to hold office until the close of the next annual meeting of the shareholders of the Company or until their successors shall be elected or appointed;

3.

 

to appoint the auditor of the Company, to hold office until the close of the next annual meeting of the shareholders of the Company or until a successor is appointed, and to authorize the directors of the Company to fix the remuneration of the auditor;

4.

 

to consider and, if thought fit, approve a new Omnibus Long-Term Incentive Plan for the Company;

5.

 

considering other business that may properly come before the Meeting or any adjournment thereof.

 

As a shareholder of Aphria, it is very important that you read this material carefully and then vote your common shares, either by proxy or in person at the Meeting. The voting procedure is explained in detail in the accompanying management’s information circular in respect of the Meeting to be held on November 2, 2018 (the “Circular”).

 

This Notice of Meeting, and the Circular and the annual financial statements for the year ended May 31, 2018, along with the related management discussion and analysis (the “Financial Statements and MD&A”) have been posted on the Company’s website at https://aphria.com/investors/documents and on Aphria’s profile on www.SEDAR.com. In lieu of mailing the Notice of Meeting and Circular and our Financial Statements and MD&A, we are using the notice-and-access mechanism under National Instrument 54-101 — Communications with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”) to provide access to an electronic copy of these documents to registered holders and beneficial owners of Aphria’s common shares by posting them on the websites noted above. Notice-and-access allows issuers to post electronic versions of proxy-related materials (such as proxy circulars and annual financial statements) on-line, via the System for Electronic Data Analysis and Retrieval (“SEDAR”) and one other website, rather than mailing paper copies of such materials to shareholders. Shareholders who have previously provided standing instructions will receive a paper copy of these documents.

 

Shareholders with questions about notice-and-access can call the Company’s transfer agent Computershare Investor Services Inc. (“Computershare”) toll free at 1-866-962-0498. Shareholders may also obtain paper copies of this Circular, the Financial Statements and MD&A free of charge by contacting Computershare at the same toll-free number or upon request to the Corporate Secretary of the Company. A request for paper copies which are required in advance of the Meeting should be sent so that they are received by Computershare or the Company, as applicable, by Friday October 25, 2018, in order to allow sufficient time for Shareholders to receive their paper copies and to return a) their form of proxy to Computershare or the Company, or b) their voting instruction form to their intermediaries by its due date.

 

The record date for determining the shareholders entitled to receive notice of and vote at the Meeting, is the close of business (5:00 p.m. (EDT) on September 19, 2018 (the “Record Date”). Only shareholders whose names have been entered in the register of Aphria shareholders as of close of business on the Record Date are entitled to receive notice of and vote at the Meeting.

 

Registered shareholders may attend the Meeting in person or may be represented by proxy. Shareholders who are unable to attend the Meeting, or any adjournment or postponement thereof, in person are requested to date, sign

 



 

and return the accompanying form of proxy for use at the Meeting or any adjournment or postponement thereof. To be effective, the form of proxy must be received by Aphria’s transfer agent Computershare Investor Services Inc. at its offices at 100 University Avenue, 8th Floor, North Tower, Toronto, ON, M5J 2Y1 (according to the instructions on the proxy), not less than forty-eight (48) hours (other than a Saturday, Sunday or holiday) immediately preceding the date of the Meeting (as it may be adjourned or postponed from time to time).

 

If you are a nonregistered holder of common shares and have received these materials through your broker or through another intermediary, please follow the instructions set out in the voting instruction form or other instructions received from the financial intermediary to ensure that your common shares will be voted at the Meeting.

 

Dated this 24th day of September 2018.

 

 

BY ORDER OF THE BOARD OF DIRECTORS

 

 

 

 

 

“Vic Neufeld”

 

 

 

 

 

Vic Neufeld

 

Chief Executive Officer and Chair of the Board of Directors

 



 

TABLE OF CONTENTS

 

MANAGEMENT INFORMATION CIRCULAR

2

 

 

PROXY RELATED MATTERS

2

 

 

NON-IFRS MEASURES

5

 

 

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

5

 

 

BUSINESS OF THE MEETING

6

Election of Directors

6

Appointment of Auditors

7

Approval of Omnibus Incentive Plan

8

 

 

DIRECTOR NOMINEES

15

 

 

COMPENSATION DISCUSSION AND ANALYSIS

26

 

 

Executive Compensation Components

29

Option Based Awards and Share Based Awards

37

Employment Agreements, Termination and Change of Control Benefits

41

Compensation of Directors

44

Securities Authorized for Issuance

48

 

 

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

48

 

 

ADDITIONAL INFORMATION

55

 

 

APPROVAL

56

 

 

Exhibit “A”

A-1

Exhibit “B”

B-1

Exhibit “C”

C-1

 

1



 

MANAGEMENT INFORMATION CIRCULAR

 

In this document, “you” and “your” refer to the shareholder. “We”, “us”, “our”, the “Company” and “Aphria” refer to Aphria Inc. The information in this document is presented on September 24, 2018, unless otherwise indicated.

 

This management information circular (this “Circular”) is for the annual and special meeting (the “Meeting”) of shareholders of Aphria (“Shareholders”) to be held on Friday, November 2, 2018 at 2:00 pm (Eastern Daylight Time) at 199 Bay St., Suite 5300 Toronto, Ontario. Provided you are a Shareholder as of the Record Date (defined below) you have the right to vote the common shares of the Company (the “Common Shares”) for the approval of the Company’s Annual Consolidated Financial Statements, appointment of auditors, election of directors, the approval of an Omnibus Long-Term Incentive Plan of Aphria, and any other items that may properly come before the Meeting or any adjournment of the Meeting.

 

To help you make an informed decision, please read this Circular and our financial statement and Management’s Discussion & Analysis for the year ended May 31, 2018. This Circular gives you valuable information about the Company and the matters to be dealt with at the Meeting. Financial information is provided in our comparative annual financial statements and related management discussions and analysis for the financial year ended May 31, 2018. All currency amounts referred to in this Circular are expressed in Canadian dollars, unless stated otherwise.

 

Record date and quorum

 

The record date for determining the shareholders entitled to receive notice of and vote at the Meeting is the close of business (5:00 p.m. (EDT) on September 19, 2018 (the “Record Date”). If you held Common Shares as of the close of business on the Record Date, you have the right to cast one vote per Common Share on any resolution to be voted upon at the Meeting.

 

Pursuant to the by-laws of Aphria, subject to the OBCA in respect of a majority shareholder, a quorum for the transaction of business at any meeting of Shareholders is two persons present in person or representing by proxy, at least 10% of the issued and outstanding Common Shares entitled to vote at the Meeting.

 

PROXY RELATED MATTERS

 

Solicitation of proxies

 

This Circular is provided in connection with the solicitation of proxies by the management of Aphria for use at the Meeting for the purposes set forth in the accompanying Notice of Meeting and the associated costs will be borne by the Company. The solicitation of proxies will be conducted primarily by mail. However, directors, officers and regular employees of Aphria may also solicit proxies by telephone, facsimile, e-mail or in person without special compensation.

 

Appointment of proxies

 

Shareholders who are unable to attend the Meeting and vote in person may still vote by appointing a proxyholder. The enclosed form of proxy names Vic Neufeld, Chief Executive Officer of the Company and Cole Cacciavillani, Co-Founder and Vice-President — Growing Operations of the Company.

 

2



 

A Shareholder has the right to appoint a person or company (who need not be a Shareholder) other than the persons designated in the form of proxy provided by Aphria to represent the Shareholder at the Meeting. To exercise this right, the Shareholder should strike out the names of management designees in the enclosed form of proxy and insert the name of the desired representative in the blank space provided in the form of proxy or submit another appropriate form of proxy. Make sure that the person you appoint is aware that he or she has been appointed and attends the meeting. In order to be effective, Shareholders must send their proxy to Aphria’s registrar and transfer agent, Computershare Investor Services Inc. (“Computershare”) at its offices at 100 University Avenue, 8th Floor, Toronto, ON, M5J 2Y1 or by telephone at 1-866-732-8683 (according to the instructions on the proxy), not less than forty-eight (48) hours (excluding Saturdays, Sundays and holidays) before the time fixed for the Meeting, being Friday, November 2, 2018 (subject to any adjournment or postponement). The chair of the Meeting may waive this cut-off at his discretion without notice but proxies will not be accepted by the chair at the Meeting. The proxy shall be in writing and executed by the respective Shareholder or such Shareholder’s attorney authorized in writing, or if such Shareholder is a Company, under its corporate seal or by a duly authorized officer or attorney.

 

Revocation of Proxy

 

A Registered Shareholder who has submitted a proxy may revoke it at any time prior to the exercise thereof. If a Registered Shareholder who has given a proxy attends the meeting in person at which such proxy is to be voted, such person may revoke the proxy and vote in person. In addition to revocation in any other manner permitted by law, a proxy may be revoked by instrument in writing executed by the Registered Shareholder or his attorney authorized in writing or, if the Registered Shareholder is a Company, under its corporate seal or by an officer or attorney thereof duly authorized and deposited either at the head office of the Company at any time up to and including the last business day preceding the day of the meeting, or any adjournment thereof, at which the proxy is to be used, or with the Chairman of the meeting on the day of the meeting, or any adjournment thereof, and upon either of such deposits, the proxy is revoked.

 

If you are a beneficial Shareholder, please contact your intermediary for instructions on how to revoke your voting instructions.

 

Persons making the Solicitation

 

The solicitation is made on behalf of management of the Company. The costs incurred in the preparation and mailing of the proxy-related materials for the meeting will be borne by the Company. In addition to solicitation by mail, proxies may be solicited by personal interviews, telephone or other means of communication and by officers and employees of the Company, who will not be specifically remunerated therefor.

 

Voting of Proxies

 

The Common Shares represented by an effective proxy will be voted or withheld from voting in accordance with the instructions specified therein on any ballot that may be called. Where no choice is specified, the Common Shares will be voted in favour of the matters set forth therein. The enclosed form of proxy confers discretionary authority in respect of amendments or variations to matters identified in the Notice of Meeting and with respect to other matters which may properly come before the Meeting, or any adjournment or postponement thereof. As at the date of this Circular, management is not aware of any amendments, variations, or other matters which may be brought before the Meeting. If such

 

3



 

should occur, the persons designated by management will vote in accordance with their best judgment, exercising discretionary authority.

 

Advice to Nonregistered Shareholders

 

You are a “nonregistered shareholder” if your shares are registered in the name of a nominee, such as a brokerage firm, through which you purchased the shares; a bank, trust company, trustee or administrator of self-administered RRSP’s, RRIF’s, RESP’s and similar plans. In Canada, the vast majority of such shares held by nonregistered shareholders are registered under the name of CDS & Co., the registration name for The Canadian Depository for Securities Inc., which company acts as a nominee of many Canadian brokerage firms. Shares held by brokers or their nominees can only be voted for or against resolutions upon the instructions of the nonregistered shareholder. Without specific instructions, brokers/nominees are prohibited from voting shares for their clients. The directors and officers of Aphria do not know for whose benefit the Common Shares registered in the name of CDS & Co. are held.

 

Applicable regulatory policy requires intermediaries/brokers to seek voting instructions from nonregistered shareholders in advance of shareholders’ meetings. Every intermediary/broker has its own mailing procedures and provides its own return instructions, which should be carefully followed by nonregistered shareholders in order to ensure that their shares are voted at the Meeting. Often the form of proxy supplied to a nonregistered shareholder by its broker is identical to the form of proxy provided by Aphria to the registered shareholders. However, its purpose is limited to instructing the registered shareholder how to vote on behalf of the nonregistered shareholder. Many brokers delegate responsibility for obtaining instructions from clients to Broadridge Financial Solutions, Inc. (“Broadridge”). Broadridge will mail the voting instruction forms or proxy forms to the nonregistered shareholders and asks the nonregistered shareholders to return the proxy of voting instruction forms to Broadridge. Broadridge then tabulates the results of all instructions received and provides appropriate instructions respecting the voting of shares to be represented at the Meeting. A nonregistered shareholder receiving a proxy or voting instruction form from Broadridge cannot use that proxy to vote shares directly at the Meeting - the proxy must be returned to Broadridge well in advance of the Meeting in order to have the shares voted.

 

If you are a nonregistered shareholder and wish to vote in person at the Meeting, please contact your broker or agent well in advance of the Meeting to determine how you can do so.

 

Notice and Access

 

The use of the Notice-and-Access Provisions reduces paper waste and mailing costs to the Company. In order for the Company to utilize the Notice-and-Access Provisions to deliver proxy-related materials by posting the Circular electronically on a website that is not SEDAR, the Company must send a notice to shareholders, including nonregistered shareholders, indicating that the Circular has been posted and explaining how a shareholder can access it or obtain a paper copy of the Circular from the Company. This Circular has been posted in full on the Company’s website at https://aphria.ca/investors-3/documents-2/ and under the Company’s SEDAR profile at www.sedar.com.

 

The Company has determined that those registered and beneficial shareholders with existing instructions on their account to receive printed materials will receive a printed copy of the Circular together with the Notice of Meeting and form of proxy or voting instruction form.

 

4



 

The Company will deliver copies of the applicable proxy-related materials directly to registered shareholders and non-objecting beneficial owners, through the services of its registrar and transfer agent, Computershare Investor Services Inc. The Company does not intend to pay for the intermediaries to deliver these materials to objecting beneficial owners.

 

Any registered shareholder who wishes to receive a paper copy of the Circular must contact the Company’s transfer agent, Computershare Investor Services Inc., toll-free, within North America - 1-866-962-0498 or direct, from Outside of North America - (514) 982-8716 and entering your 15-digit control number as indicated on your Voting Instruction Form or Proxy. Any beneficial shareholder who wishes to receive a paper copy of the Circular must contact Broadridge, toll-free, within North America - 1-877-907-7643 or direct, from Outside of North America - (905) 507-5450 and entering your 16-digit control number as indicated on your Voting Instruction Form. In order to ensure that a paper copy of the Circular can be delivered to a requesting shareholder in time for such shareholder to review the Circular and return a proxy or voting instruction form prior to the deadline to receive proxies, it is strongly suggested that a shareholder ensure their request is received no later than October 25, 2018.

 

NON-IFRS MEASURES

 

In this Circular, reference is made to adjusted gross profit and EBITDA, neither of which are measures of financial performance under IFRS. The Company calculates gross profit before fair value adjustments and adjusted EBITDA as follows:

 

·                  Gross profit before fair value adjustments is equal to gross profit less the non-cash increase (plus the non-cash decrease) in the fair value adjustments on sale of inventory and on growth of biological assets, if any. Management believes this measure provides useful information as it removes fair value metrics tied to increasing stock levels (decreasing stock levels) required by IFRS;

 

·                  Adjusted EBITDA is net income (loss), plus (minus) income taxes (recovery) plus (minus) finance income, net, plus amortization, plus share-based compensation, plus (minus) non-cash fair value adjustments on sale of inventory and on growth of biological assets, plus impairment of intangible assets, plus transaction costs, plus (minus) loss (gain) on disposal of capital assets, plus (minus) loss (gain) on foreign exchange, plus (minus) loss (gain) on marketable securities, plus (minus) loss (gain) from equity investee, minus deferred gain recognized, plus (minus) loss (gain) on dilution of ownership in equity investee, plus (minus) unrealized loss (gain) on embedded derivatives, plus (minus) loss (gain) on long-term investments and certain one-time non-operating expenses, as determined by management. Management believes this measure provides useful information as it is a commonly used measure in the capital markets and as it is a close proxy for repeatable cash generated by operations.

 

Further information on the Company’s reconciliation of these non-IFRS measures are included in its management’s discussion and analysis for the fiscal year ended May 31, 2018 available on SEDAR.

 

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

 

The authorized capital of the Company consists of an unlimited number of Common Shares. There were 233,776,032 Common Shares of the Company outstanding as of the Record Date, each share carrying the

 

5



 

right to one vote. Each shareholder of record at the close of business on the Record Date is entitled to vote at the Meeting the shares registered in his or her name on that date.

 

The Company is not aware of any persons who, to the knowledge of the directors or officers, directly or indirectly, had beneficial ownership or control over, as of the Record Date, more than 10% of the Common Shares.

 

BUSINESS OF THE MEETING

 

Receipt of financial statements and auditors report

 

The audited consolidated financial statements of the Aphria for the financial year ended May 31, 2018 and the report of the auditors thereon will be placed before the Meeting. Approval of the Shareholders is not required in relation to the financial statements.

 

Election of directors

 

The articles of the Company provide that the board of directors (the “Board”) shall consist of a minimum of 3 directors and a maximum of 15, with the actual number to be determined from time to time by the Board. The Board has determined that, at the present time, the number of directors seated on the Board shall be increased from 7 directors to 9 directors.

 

Directors appointed at the Meeting will serve, subject to the by-laws of the Company and applicable corporate law, until the end of the next annual shareholder meeting or until their successor is elected or appointed, unless their office is earlier vacated. Phillip Waddington has chosen not to stand as a director of the Board and Shlomo Bibas, Tom Looney and Michael Serruya are new nominees in fiscal 2019.

 

The Board recommends that Shareholders vote FOR the election of the nominees whose names are set forth below. If you do not specify how you want your shares voted, the directors named as proxyholders in the enclosed proxy form intend to cast the votes represented by proxy at the Meeting FOR the election as directors of the nominee directors in this circular. Management does not anticipate that any of the nominees for election as a director will be unable to serve as a director, but if that should occur for any reason prior to the Meeting, the persons named in the enclosed form of proxy reserve the right to vote for another nominee in their discretion.

 

This Circular sets forth certain information regarding the nominees, including a brief biography, their position with the Company, their principal occupation or employment during the last five years, date first elected or appointed as a director of the Company, Board and Committee attendance, Board compensation for the previous fiscal year, the number of Common Shares and other Aphria securities beneficially owned, controlled or directed, indirectly or directly by each nominee, the total value of the securities as at the Company’s year-end date and whether or not they met the requirements of the Company’s minimum stock ownership guidelines. See “Director Nominees”.

 

If, for any reason, any of the proposed nominees does not stand for election or is unable to serve as such, the management designees named in the form of proxy reserve the right to vote for any other nominee in their sole discretion unless the shareholder has specified therein that its Common Shares are to be withheld from voting on the election of directors.

 

6



 

As part of its ongoing review of corporate governance practices and in accordance with the provisions of the TSX Company Manual (the “Manual”), the Board has adopted a majority voting policy providing that in an uncontested election of directors, any nominee who receives a greater number of votes ‘‘withheld’’ than votes ‘‘for’’ shall tender his or her resignation to the Chair of the Board promptly following the Shareholders’ meeting. The Compensation, Nominating and Governance Committee (the “CNG Committee”) will consider the offer of resignation and will make a recommendation to the Board on whether to accept such offer. In considering whether or not to accept the resignation, the CNG Committee will consider all factors deemed relevant by the members of the CNG Committee. The CNG Committee will be expected to recommend acceptance of the resignation except in situations where “exceptional circumstances” (as provided in the TSX Company Manual and issued by the Toronto Stock Exchange (the “TSX”)) would warrant the applicable director continuing to serve on the Board. The Board will make the final decision as to whether or not to accept the recommendation and announce it in a press release, a copy of which shall be concurrently delivered to the TSX, within ninety (90) days following the date of the Shareholders’ meeting. Should the Board decline to accept the resignation, such press release will state the reasons for the Board’s decision. The resignation of a director will be effective when accepted by the Board. A director who tenders his or her resignation pursuant to this policy will not participate in any meeting of the Board or the CNG Committee at which his or her resignation is considered.

 

Notwithstanding a director’s election at the Meeting, the election of any director is subject to regulatory approval. Any director that does not obtain the necessary regulatory approval shall tender his or her resignation to the Chair of the Board.

 

The Board unanimously recommends that the shareholders vote FOR the election of each of the director nominees and unless instructed otherwise, the persons named in the form of proxy will vote FOR the election of each of the director nominees.

 

Each nominee has confirmed his or her eligibility and willingness to serve as a Director if elected and, in the opinion of the Board and management of Aphria, the proposed nominees are qualified to act as directors of the Company.

 

Appointing auditors

 

The Board, on the advice of the audit committee, recommends that the Shareholders vote FOR PricewaterhouseCoopers LLP to be appointed as auditors of Aphria until the next annual meeting of Shareholders. PricewaterhouseCoopers LLP has been the auditors of Aphria since October 27, 2016.

 

The persons named in the enclosed form of proxy intend to cast the votes to which the shares represented by such proxy are entitled FOR the appointment of PricewaterhouseCoopers LLP as auditors of Aphria for the term expiring with the next annual meeting of Shareholders, and to authorize the Board to fix their remuneration.

 

Unless specifically instructed to vote against the approval of the auditors, the persons named in the form of proxy accompanying the Notice of Meeting intend to vote FOR the approval of the auditors. In order to be effected, this ordinary resolution must be approved by a majority of the votes cast in respect thereof.

 

The following table sets forth, by category, the fees for all services rendered by PricewaterhouseCoopers LLP for the financial year ended May 31, 2017 and May 31, 2018, are as set out below (including estimates).

 

7



 

 

 

May 2017

 

May 2018

 

Audit Fees(1)

 

$

99,000

 

$

285,000

 

Audit Related Fees(2)

 

$

61,200

 

$

179,872

 

Tax Fees(3)

 

 

 

All Other Fees

 

$

107,500

 

$

464,872

 

 


Notes:

 

(1)         Includes fees necessary to perform the annual audit and quarterly reviews of the Company’s financial statements. Audit Fees include fees for review of tax provisions and for accounting consultations on matters reflected in the financial statements. Audit Fees also include audit or other attest services required by legislation or regulation, such as comfort letters, consents, reviews of securities filings and statutory audits.

(2)         Includes services that are traditionally performed by the auditor. These audit-related services include employee benefit audits, due diligence assistance, accounting consultations on proposed transactions, internal control reviews and audit or attest services not required by legislation or regulation.

(3)         Includes fees for all tax services other than those included in “Audit Fees” and “Audit-Related Fees”. This category includes fees for tax compliance, tax planning and tax advice. Tax planning and tax advice includes assistance with tax audits and appeals, tax advice related to mergers and acquisitions, and requests for rulings or technical advice from tax authorities.

 

Approval of an Omnibus Incentive Plan

 

At the Meeting, Shareholders will be asked to consider and if thought fit, approve a resolution in the form attached as Exhibit “A” hereto, approving a new Omnibus Long-Term Incentive Plan (the “Omnibus Incentive Plan”). A copy of the Omnibus Incentive Plan is attached hereto as Schedule “A-1” to Exhibit “A”. Capitalized terms used herein in this section and not otherwise defined shall have the meanings given to them in the Omnibus Incentive Plan.

 

Omnibus Incentive Plan

 

Under the Omnibus Incentive Plan, directors, officers, employees of the Company and/or its affiliates (“Aphria Personnel”) are eligible to receive a variety of equity-based awards that provide different types of incentives. The Omnibus Incentive Plan will facilitate granting of common share purchase options (“Options”), restricted share units (“RSUs”) and deferred share units (“DSUs” and collectively with the Options and RSUs, the “Awards”), representing the right to receive one Common Share in accordance with the terms of the Omnibus Incentive Plan. The following discussion is qualified in its entirety by the text of the Omnibus Incentive Plan.

 

The Omnibus Incentive Plan is considered an “evergreen” plan, since the Common Shares covered by grants which have been exercised shall be available for subsequent grants under the Omnibus Incentive Plan and the number of Common Shares available to grant increases as the number of issued and outstanding Common Shares increases.

 

The Company’s existing compensation program (prior to giving effect to the adoption of the Omnibus Incentive Plan) provided for total compensation for Aphria Personnel in various roles that comprised of base salary (fixed cash amount), short-term performance incentives (variable cash award) and long-term equity-based incentives (stock options and deferred share units). The ability to issue restricted share units (including performance-based restricted share units) is the primary differentiating factor between the two compensation programs.

 

Under the Omnibus Incentive Plan, the maximum number of shares issuable from treasury pursuant to Awards shall not exceed 10% of the total outstanding Common Shares from time to time less the number of Common Shares issuable pursuant to all other security-based compensation arrangements of

 

8



 

the Company (consisting of (i) the existing Amended and Restated Stock Option Plan (the “Existing Option Plan”) and the existing Amended and Restated DSU Plan (the “Existing DSU Plan”), each approved at the Company’s annual general meeting in 2017); and (ii) legacy options issuable in connection with Company’s acquisition of Nuuvera Inc. (“Nuuvera”) in March of this year)).

 

The number of Common Shares issuable to insiders, at any time, under all security-based compensation arrangements of the Company, may not exceed 10% of the Company’s issued and outstanding shares; and the number of Common Shares issued to insiders within any one-year period, under all security based compensation arrangements of the Company, may not exceed 10% of the Company’s issued and outstanding Common Shares.

 

Eligible Directors” (defined as any Board member who, at the time of execution of a grant agreement, and at all times thereafter while they continue to serve as a member of the Board, are not officers, senior executives or other employees of the Company or consultants or service providers providing ongoing services to the Company and its affiliates) shall not be entitled to any grant or issuance of Options pursuant to the Omnibus Incentive Plan. No more than one percent (1%) of the total issued and outstanding Common Shares (on a non-diluted basis) from time to time, shall be reserved and available for grant and issuance pursuant to Awards to the Eligible Directors. The aggregate equity value of all Awards that are eligible to be settled in Common Shares granted to an Eligible Director, within a one-year period, pursuant to all security-based compensation arrangements of the Company shall not exceed $150,000.

 

The Compensation, Nomination and Governance Committee may provide the circumstances in which Awards shall be exercised, vested, paid or forfeited in the event a participant ceases to provide service to the Company or any affiliate prior to the end of a performance period or exercise or settlement of such Award.

 

The Omnibus Incentive Plan will provide that appropriate adjustments, if any, will be made by the Board in connection with a reclassification, reorganization or other change of Common Shares, consolidation, distribution, merger or amalgamation, in the Common Shares issuable or amounts payable to preclude a dilution or enlargement of the benefits under the Omnibus Incentive Plan.

 

In connection with a change of control of the Company, the Board will take such steps as are reasonably necessary or desirable to cause the conversion or exchange or replacement of outstanding Awards into, or for, rights or other securities of substantially equivalent (or greater) value in the continuing entity. The Board may, in its sole discretion, change the Performance Criteria (as defined in the Omnibus Incentive Plan) or accelerate the vesting and/or the expiry date of any or all outstanding Awards to provide that, notwithstanding the Performance Criteria and/or vesting provisions of such Awards, such designated outstanding Awards shall be fully performed and/or vested and conditionally exercisable upon (or prior to) the completion of the change of control provided that the Board shall not, in any case, authorize the exercise of Awards beyond the expiry date of the Awards.

 

The following table describes the impact of certain events upon the rights of holders of Awards under the Omnibus Incentive Plan, including termination for cause, termination other than for cause and death, subject to the terms of a Participant’s employment agreement:

 

9



 

Event

 

Provisions

Termination for cause

 

Immediate forfeiture of all vested and unvested Awards.

Resignation

 

Forfeiture of all unvested Awards and the earlier of the original expiry date and 90 days after resignation to exercise vested Awards or such longer period as the Board may determine in its sole discretion.

Termination other than for cause

 

Subject to the terms of the grant or as determined by the Board, upon a participant’s termination without cause the number of Awards that may vest is subject to pro-ration over the applicable performance or vesting period.

Retirement

 

Upon the retirement of a participant’s employment with the Company, any unvested Awards held by the participant as at the termination date will continue to vest in accordance with its vesting schedule, and all vested Awards held by the participant at the termination date may be exercised until the earlier of the expiry date of the Awards or three years following the termination date, provided that if the participant breaches any post-employment restrictive covenants in favour of the Company (including non-competition or non-solicitation covenants), then any Awards held by such participant, whether vested or unvested, will immediately expire and the participant shall pay to the Company any “in-the-money” amounts realized upon exercise of Awards following the termination date.

Death

 

All unvested Awards will vest and may be exercised within 180 days after death.

 

The Board may amend the Omnibus Incentive Plan or any Award at any time without the consent of a Participant provided that such amendment shall (i) not adversely alter or impair any Award previously granted except as permitted by the terms of the Omnibus Incentive Plan, (ii) be in compliance with applicable law and subject to any regulatory approvals including, where required, the approval of the TSX, and (iii) be subject to shareholder approval, where required by law, the requirements of the TSX or the Omnibus Incentive Plan, provided however that shareholder approval shall not be required for the following amendments and the Board may make any changes which may include but are not limited to: (i) amendments of a general housekeeping or clerical nature that, among others, clarify, correct or rectify any ambiguity, defective provision, error or omission in the Omnibus Incentive Plan; (ii) changes that alter, extend or accelerate the terms of vesting or settlement applicable to any Award; and (iii) a change to the Eligible Participants under the Omnibus Incentive Plan.

 

As described further in the Omnibus Incentive Plan, the Board shall be required to obtain shareholder approval to make the following amendments:

 

(a)                                 any change to the maximum number of Common Shares issuable from treasury under the Plan,

(b)                                 any amendment which reduces the exercise price of any Award, as applicable, after such Awards have been granted or any cancellation of an Award and the substitution of that Award by a new Award with a reduced price;

(c)                                  any amendment which extends the expiry date of any Award, or the restriction period of any RSU beyond the original expiry date;

 

10



 

(d)                                 any amendment which would have the potential of broadening or increasing participation by insiders;

(e)                                  any amendment which would permit any Award granted under the Plan to be transferable or assignable by any Participant other than as expressly permitted;

(f)                                   any amendment which increases the maximum number of Shares that may be (i) issuable to insiders and associates of such insiders at any time; or (ii) issued to insiders and associates of such insiders and any other proposed or established share compensation arrangement in a one-year period; or

(g)                                  any amendment to the amendment provisions of the Omnibus Incentive Plan.

 

provided that Common Shares held directly or indirectly by insiders benefiting from the amendments in sections (b) and (c) above shall be excluded when obtaining such shareholder approval.

 

The Board may, subject to regulatory approval, discontinue the Omnibus Incentive Plan at any time without the consent of the Participants provided that such discontinuance shall not materially and adversely affect any Awards previously granted to a Participant under the Omnibus Incentive Plan.

 

The Board (or the designate committee of the Board) may, by resolution, but subject to applicable regulatory approvals, decide that any of the provisions of the Omnibus Incentive Plan concerning the effect of termination of the Participant’s employment shall not apply for any reason acceptable to the Board (or a committee thereof).

 

Subject to TSX approval and shareholder approval, the Omnibus Incentive Plan will replace the Company’s existing stock option plan (the “Existing Option Plan”), as well as the Company’s existing deferred share unit plan (the “Existing DSU Plan”) and will be supplemental to any cash-based incentive compensation arrangements. The Existing Option Plan and Existing DSU Plan will remain in effect but no further Awards will be issued thereunder.

 

It is a condition of each grant of an Award that if the Company’s financial statements (the “Original Statements”) are required to be restated (other than as a result of a change in accounting policy by the Company or under International Financial Reporting Standards applicable to the Company) within three years following which such Original Statements were received by shareholders at the Company’s then most recent annual general meeting of shareholders, and such restated financial statements (the “Restated Statements”) disclose, in the opinion of the Board, acting reasonably, materially worse financial results than those contained in the Original Statements, then the Board may, in its sole discretion, to the full extent permitted by governing law and to the extent it determines that such action is in the best interest of the Company, and in addition to any other rights that the Company may have, take any or all of the following actions, as applicable): (i) require the Participant to reimburse the Company for any amount paid to the Participant in respect of an Award in cash in excess of the amount that should otherwise have been paid in respect of such Award had the determination of such compensation been based upon the Restated Statements, less, in any event, the amount of taxes withheld in respect of the amount paid in cash in the year of payment; (ii) cancel and terminate any one or more unvested Awards on or prior to the applicable maturity or vesting dates, or cancel or terminate any outstanding Awards which have vested in the twelve (12) months prior to the date on which the Board determines that the Original Statements are required to be restated (a “Relevant Equity Recoupment Date”); and/or (iii) require payment to the Company of the value of any Common Shares of the Company acquired by the Participant pursuant to an Award granted in the twelve (12) months prior

 

11



 

to a Relevant Equity Recoupment Date (less any amount paid by the Participant) to acquire such Common Shares and less the amount of taxes withheld in respect of such Common Shares.

 

Except as set forth in the Omnibus Incentive Plan, Awards are not transferable. Awards may only be exercised: (a) by the Participant to whom the Awards were granted; (b) with the Company’s prior written approval and subject to such conditions as the Company may stipulate; (c) upon the Participant’s death, by the legal representative of the Participant’s estate; or (d) upon the Participant’s incapacity, the legal representative having authority to deal with the property of the Participant.

 

Options

 

The Board shall determine, at the time of granting the particular Option, the period during which the Option is exercisable, commencing on the date such Option is granted to the Participant and ending as specified in the Omnibus Incentive Plan or in the underlying option agreement, but in no event shall an Option expire on a date which is later than ten (10) years from the date the Option is granted. Unless otherwise determined by the Board, all unexercised Options shall be cancelled at the expiry of such Options. The exercise price for Common Shares that are the subject of any Option shall be fixed by the Board when such Option is granted, but shall not be less than the “Market Value” (as defined in the Omnibus Incentive Plan) of such Common Shares at the time of the grant.

 

An Option is an option granted by the Company to a Participant entitling such Participant to acquire, for each Option issued, one Common Share from treasury at the exercise price.

 

Should the expiration date for an Option fall within a “Black-Out Period” (as defined in the Omnibus Incentive Plan) or within nine (9) business days following the expiration of a Black-Out Period, such expiration date shall be automatically extended without any further act or formality to that date which is the tenth business day after the end of the Black-Out Period, such tenth business day to be considered the expiration date for such Option for all purposes under the Omnibus Incentive Plan. The ten (10) business day period may not be extended by the Board.

 

In order to facilitate the payment of the exercise price of the Options, the Omnibus Incentive Plan has a cashless exercise feature pursuant to which a Participant may elect to undertake either a broker assisted “cashless exercise” or a “net exercise” subject to the procedures set out in the Omnibus Incentive Plan, including the consent of the Board, where required.

 

In particular, a Participant may, by surrendering an Option (“Surrender”) with a properly endorsed notice of Surrender (a “Surrender Notice”), elect to receive that number of Common Shares calculated using the following formula:

 

X = Y * (A-B) / A

 

Where:

 

X =                             the number of Common Shares to be issued to the Participant

Y =                             the number of Common Shares underlying the Options to be Surrendered

A =                             the Market Value (as defined in the Omnibus Incentive Plan) of the Shares as at the date of the Surrender

B =                             the exercise price of such Options

 

12



 

DSUs

 

A DSU is an Award of phantom share units to an Eligible Director, subject to restrictions and conditions as the Board may determine at the time of grant. Each Eligible Director shall receive his or her annual retainer fee in the form of a grant of DSUs in each fiscal year. The number of DSUs shall be calculated as the Eligible Director’s annual retainer fee divided by the Market Value (as defined in the Omnibus Incentive Plan). At the discretion of the Board, fractional DSUs will not be issued and any fractional entitlements will be rounded down to the nearest whole number.

 

Unless otherwise set forth in an underlying DSU Agreement, each DSU shall vest as to 50% on the sixth month anniversary of the date of grant and 50% on the anniversary of the date of grant. Subject to vesting and other conditions and provisions set forth in the Omnibus Incentive Plan and in an underlying DSU Agreement, each DSU awarded to an Eligible Director shall entitle the Eligible Director to redeem such DSU in exchange for one (1) Common Share issued from treasury.

 

Each Eligible Director shall be entitled to redeem his or her DSUs during the period commencing on the business day immediately following the date of termination (the “Termination Date”) and ending on the date that is two years following such termination date, or a shorter such redemption period set out in the relevant DSU Agreement, by providing a written notice of settlement to the Company setting out the number of DSUs to be settled and the particulars regarding the registration of the Common Shares issuable upon settlement (the “DSU Redemption Notice”).

 

If a DSU Redemption Notice is not received by the Company on or before the 90th day following the date of termination, the Eligible Director shall be deemed to have delivered a DSU Redemption Notice and the Company shall redeem all of the Eligible Director’s DSUs in exchange for Common Shares to be delivered to the Eligible Director, administrator or liquidator of the estate of the Eligible Director, as applicable.

 

Notwithstanding any other provision of the Omnibus Incentive Plan, in the event that (i) a DSU Redemption Notice is received during a Black-Out Period or other trading restriction imposed by the Company; or (ii) the Eligible Director has not delivered a DSU Redemption Notice and the 90th day following the Termination Date falls during a Black-Out Period or other trading restriction imposed by the Company, then settlement of the applicable DSUs shall be automatically extended to the tenth (10th) business day following the date that such Black-Out Period or other trading restriction is lifted, terminated or removed.

 

RSUs

 

An RSU is an Award entitling the recipient to acquire Common Shares, at such purchase price (which may be zero) as determined by the Board, subject to such restrictions and conditions as the Board may determine at the time of grant. Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives.

 

For each award of RSUs, the Board shall establish the period in which any “Performance Criteria” (as defined in the Omnibus Incentive Plan) and other vesting conditions must be met in order for a Participant to be entitled to receive Common Shares in exchange for all or a portion of the RSUs held by such Participant (the “Performance Period”), provided that such Performance Period may be no longer than three (3) years after the calendar year in which the Award was granted.

 

13



 

Unless otherwise set forth in an underlying RSU Agreement, each RSU shall vest as to 1/3 on each of the first, second and third anniversary of the date of grant. Subject to the vesting and other conditions and provisions set forth in the Omnibus Incentive Plan and in an underlying RSU Agreement, the Board shall determine whether each RSU awarded to a Participant shall entitle the Participant: (i) to receive one Common Share issued from treasury; (ii) to receive the “Cash Equivalent” of one Common Share; or (iii) to elect to receive either one Common Share from treasury, the Cash Equivalent of one Common Share or a combination of cash and Common Shares.

 

The vesting determination date means the date on which the Board determines if the Performance Criteria and/or other vesting conditions with respect to a RSU have been met (the “RSU Vesting Determination Date”), and as a result, establishes the number of RSUs that become vested, if any.

 

Except as otherwise provided in an underlying RSU Agreement, in the event that the vesting conditions, the Performance Criteria and Performance Period, if applicable, of an RSU are satisfied, all of the vested RSUs covered by a particular grant may, subject to the provisions for Black-Out Periods (described below), be settled at any time beginning on the first business day following their RSU Vesting Determination Date but no later than the date that is five (5) years from their RSU Vesting Determination Date (the “RSU Settlement Date”).

 

Settlement of RSUs shall take place promptly following the RSU Settlement Date and take the form set out in an RSU settlement notice through: (a) in the case of settlement of RSUs for their Cash Equivalent, delivery of a cheque to the Participant representing the Cash Equivalent; (b) in the case of settlement of RSUs for Common Shares, delivery of a share certificate to the Participant or the entry of the Participant’s name on the share register for the Common Shares; or (c) in the case of settlement of the RSUs for a combination of Common Shares and the Cash Equivalent, a combination of (a) and (b).

 

Notwithstanding any other provision of the Omnibus Incentive Plan, in the event that an RSU Settlement Date falls during a Black-Out Period or other trading restriction imposed by the Company and the Participant has not delivered an RSU settlement notice, then such RSU Settlement Date shall be automatically extended to the tenth (10th) business day following the date that such Black-Out Period or other trading restriction is lifted, terminated or removed.

 

The Omnibus Incentive Plan serves several purposes for the Company. One purpose is to develop the interests of Aphria Personnel in the growth and development of the Company by providing such persons with the opportunity to acquire a proprietary interest in the Company. All Aphria Personnel are considered eligible to be selected to receive an Award under the Omnibus Incentive Plan, other than Eligible Directors who may not receive an issuance or grant of Options. Another purpose is to attract and retain key talent and valuable Aphria Personnel, who are necessary to the Company’s success and reputation, with a competitive compensation mechanism.

 

As of May 31, 2018 (the last fiscal year end of the Company), there was an aggregate of 8,118,481 Options outstanding and unexercised under the Existing Option Plan; an aggregate of 168,460 DSUs outstanding under the Existing DSU Plan; and an aggregate of 837,714 legacy options issued in connection with the Company’s acquisition of Nuuvera.

 

If the Omnibus Incentive Plan is approved at the Meeting, an additional 11,892,337 shares will be reserved for issuance under the Omnibus Incentive Plan which, together with the shares underlying the

 

14



 

outstanding and unexercised options currently outstanding represents 10% of the total outstanding shares. The Omnibus Incentive Plan is administered by the Board or a committee of the Board. The Omnibus Incentive Plan must be renewed every three years according to the TSX rules.

 

Vote Required

 

At the Meeting, Shareholders of the Company will be asked to consider, and if thought fit, approve a motion to approve the Omnibus Incentive Plan. The resolution (the “Omnibus Plan Resolution”) which will be put forward to the Shareholders of the Company for approval at the Meeting is attached hereto as Exhibit “A”.

 

The Board recommends that Shareholders vote FOR the Omnibus Plan Resolution, as set out in Exhibit “A”.

 

Unless specifically instructed to vote against the Omnibus Plan Resolution, the persons named in the form of proxy accompanying the Notice of Meeting intend to vote FOR the approval of the Omnibus Plan. In order to be effected, this ordinary resolution must be approved by a majority of the votes cast in respect thereof.

 

Director Nominees

 

The following pages set out the director nominees, including a brief summary of their experience and qualifications together with their age, place of primary residence, principal occupation, year first elected or appointed as a Director, membership on Committees of the Board as at the Record Date, attendance at Board and Committee meetings during fiscal 2018, as well as past and current directorships of other public and private entities. Also indicated for each director nominee is the number of Common Shares and other securities beneficially owned, or controlled or directed, directly or indirectly, on the Record Date, and, as at such date, the value of such Common Shares.

 

The Board has determined that the following director nominees are independent within the meaning of National Instrument 52-110 Audit Committees (“NI 52-110”) Shawn Dym, Renah Persofsky, Tom Looney, John Herhalt, Shlomo Bibas and Michael Serruya. In addition, the Board has determined that the following director nominees are non-independent — Vic Neufeld, Cole Cacciavillani and John Cervini within the meaning of NI 52-110.

 

15



 

VIC NEUFELD

 

Chair of the Board and Chief Executive Officer (“CEO”) of Aphria

 

Age: 64

 

Lakeshore, Ontario

 

Director since 2014

 

Independent Director: NO

Mr. Neufeld is the Chief Executive Officer and Chair of the Board of Aphria Inc. Mr. Neufeld was formerly a Partner with Ernst & Young LLP, formerly the CEO of Jamieson Laboratories, Canada’s largest manufacturer and distributor of natural vitamins, minerals, concentrated food supplements, herbs and botanical medicines. He currently sits as the Chair of Enwin Utilities Ltd., a local energy provider and sits on the board of WFCU Credit Union.

 

Strategic qualifications:

·                  20+ years as CEO of Canada’s largest neutraceutical player

·                  20+ years building and develop brands

 

Board Committee Membership

 

Membership

 

Meeting attendance

 

 

Board

 

20 of 22

 

 

Annual General Meeting

 

1 of 1

 

 

Organizational Board Meeting

 

1 of 1

Current Board Directorships

 

Public Boards

 

Private Boards

 

 

Liberty Health Sciences Ltd.

 

Enwin Utilities Ltd.

 

 

 

 

WFCU Credit Union

Equity holdings as at September 24, 2018 (# & $)

 

Number

 

Value

 

 

Common shares - 1,925,342

 

(1) $ 37,120,594

 

 

DSUs — 67,000

 

1,291,760

 

 

 

 

Total - $ 38,412,354

Shareholding requirements

 

% of shareholding requirements(2)

 

Target Date to Meet Requirement

 

 

96.0 x

 

TARGET MET

 

16



 

COLE CACCIAVILLANI

 

Co-Founder and Vice-President — Growing Operations

 

Age: 63

 

Leamington, Ontario

 

Director since 2014

 

Independent Director: NO

Mr. Cacciavillani, a Co-Founder, is Vice-President — Growing Operations and a director of Aphria Inc. Mr. Cacciavillani is an industrial engineer with 35 years of experience in the agricultural and greenhouse industry. Mr. Cacciavillani is the Secretary/Treasurer of Cacciavillani and F.M Farms Ltd. and the Chief Executive Officer of CF Industrial Inc. Mr. Cacciavillani is the Co-Chair of Fundraising for the Erie Shores Campus Hospice and he is a recipient of the Queen Elizabeth II Diamond Jubilee Medal.

 

Strategic qualifications:

·                  35+ years experience in commercial agricultural space, specializing in greenhouses

·                  Founding vision of Aphria

 

Board Committee Membership

 

Membership

 

Meeting attendance

 

 

Board

 

21 of 22

 

 

Annual General Meeting

 

1 of 1

 

 

Organizational Board Meeting

 

1 of 1

Current Board Directorships

 

Public Boards

 

Private Boards

 

 

None

 

Erie Shores Campus Hospice

Equity holdings as at September 24, 2018 (# & $)

 

Number

 

Value

 

 

(3) Common shares - 5,371,706

 

(1) $ 103,566,492

 

 

DSUs — 18,000

 

347,020

 

 

 

 

Total - $ 103,913,532

Shareholding requirements

 

% of shareholding requirements(2)

 

Target Date to Meet Requirement

 

 

451.8 x

 

TARGET MET

 

17



 

JOHN CERVINI

 

Co-Founder and Vice- President — Infrastructure & Technology

 

Age: 48

 

Leamington, Ontario

 

Director since 2014

 

Independent Director: NO

Mr. Cervini, a Co-Founder, is Vice-President — Infrastructure & technology and a director of Aphria. Mr. Cervini is a fourth-generation greenhouse grower with hydroponic agricultural experience. Together with his father and brother, John helped established Lakeside Produce, one of North America’s leading sales and marketing companies selling fresh produce from Canada to multinational retailers throughout North America. John is a leading innovator in greenhouse growing technology and has also overseen greenhouse expansion to Carpentaria, California and Guadalajara, Mexico.

 

Strategic qualifications:

·                 20+ years of commercial agricultural experience, specializing in greenhouse growing technology

·                 Founding vision of Aphria

 

Board Committee Membership

 

Membership

 

Meeting attendance

 

 

Board

 

22 of 22

 

 

Annual General Meeting

 

1 of 1

 

 

Organizational Board Meeting

 

1 of 1

Current Board Directorships

 

Public Boards

 

Private Boards

 

 

None

 

None

Equity holdings as at September 24, 2018 (# & $)

 

Number

 

Value

 

 

(4) Common shares - 9,683,118

 

(1) $186,690,515

 

 

DSUs — 18,000

 

347,020

 

 

 

 

Total - $187,037,535

Shareholding requirements

 

% of shareholding requirements(2)

 

Target Date to Meet Requirement

 

 

813.0 x

 

TARGET MET

 

18



 

RENAH PERSOFSKY

 

DIRECTOR

 

Age: 59

 

Toronto, ON

 

Director since: 2017

 

Independent Director: YES

Ms. Persofsky is a widely-respected entrepreneur, strategist, innovator and change agent with a distinguished track record of success in creating 27 start-up companies.

 

She has a rich history of investing in early stage companies where she helps mentor CEOs in the art of bringing MVP products to market, and growing their business exponentially. She serves as Board Chair for mobile on-demand senior care and child care start- up BookJane, advises award winning payment card and platform technology firm Dynamics Inc., and is a board member for retail/QSR automation software specialty firm MeazureUp Inc. She is presently an executive consultant in the Innovation Group at CIBC.

 

Strategic qualifications:

·                 Strategic vision and entrepreneur expertise

·                 Capital markets and Schedule 1 banking experience

 

Board Committee Membership

 

Membership

 

Meeting attendance

 

 

Board

 

18 of 20

 

 

Audit

 

5 of 5

 

 

Compensation, Nominating & Governance

 

5 of 5

 

 

Annual General Meeting

 

0 of 1

 

 

Organizational Board Meeting

 

0 fo 1

Current Board Directorships

 

Public Boards

 

Private Boards

 

 

None

 

BookJAne

 

 

 

 

MeazureUP Inc.

Equity holdings as at September 24, 2018 (# & $)

 

Number

 

Value

 

 

Common shares - 7,662

 

$ 147,723

 

 

DSUs — 16,769

 

323,306

 

 

 

 

Total - $ 471,029

Shareholding requirements

 

% of shareholding requirements(2)

 

Target Date to Meet Requirement

 

 

11.8x

 

TARGET MET

 

19



 

SHAWN DYM

 

DIRECTOR

 

Age: 38

 

Toronto, ON

 

Director since: 2017

 

Independent Director: YES

Mr. Dym is a managing director at York Plains Investment Corp. a private investment vehicle focused on maximizing absolute returns by investing in a wide array of asset classes, including successful cannabis related investments. He currently serves on the board of advisors for Green Acre Capital, Canada’s first private investment fund focused on the cannabis industry.

 

He has extensive experience managing companies with high growth both at York Plains and as an entrepreneur.

 

He currently serves on the board of directors at Wellpoint Health, Eddy Solutions and Minus Global Holdings. He graduated from York University and holds an MBA from Harvard Business School.

 

Strategic qualifications:

·                 Extensive capital market expertise

·                 Early cannabis investor with strong overview of the industry

 

Board Committee Membership

 

Membership

 

Meeting attendance

 

 

Board

 

19 of 20

 

 

Audit

 

5 of 5

 

 

Annual General Meeting

 

1 of 1

 

 

Organizational Board Meeting

 

1 of 1

Current Board Directorships

 

Public Boards

 

Private Boards

 

 

None

 

Wellpoint Health

 

 

 

 

Eddy Solutions

 

 

 

 

Minus Global Holdings

Equity holdings as at September 24, 2018 (# & $)

 

Number

 

Value

 

 

DSUs — 16,769

 

$ 323,306

Shareholding requirements

 

% of shareholding requirements(2)

 

Target Date to Meet Requirement

 

 

8.1 x

 

TARGET MET

 

20



 

JOHN M. HERHALT — NEW NOMINEE

 

New Nominee

 

Age: 61

 

Toronto, ON

 

Director since: N/A

 

Independent Director: YES

MR. Herhalt is a FCPA (FCA) and a retired partner from KPMG and has over 39 years of experience providing a wide variety of advisory and audit services to a range of clients. He has worked across several industry sectors including automotive manufacturing, consumer products, infrastructure, power and utilities and the public sector. During his time with KPMG, Mr. Herhalt served as Canada’s national advisory leader, national public sector leader, and KPMG International’s global head of infrastructure, government and health care sectors — providing subject matter advice and support to various KPMG member firms and their clients on a variety of projects in the Americas, Europe, Middle East and Asia. After retiring from KPMG LLP, he has continued to provide management consulting services on a part-time basis and serves as a director on several boards.

 

Strategic qualifications:

·                 Significant financial literacy tied to Big Four experience

 

Board Committee Membership

 

Membership

 

Meeting attendance

 

 

Board

 

N/A

 

 

Audit

 

N/A

 

 

Compensation, Nominating & Governance

 

N/A

 

 

Annual General Meeting

 

N/A

 

 

Organizational Board Meeting

 

N/A

Current Board Directorships

 

Public Boards

 

Private Boards

 

 

None

 

Fengate Infrastructure Fund (Advisory Board)

Equity holdings as at September 24, 2018 (# & $)

 

Number

 

Value

 

 

Nil

 

$ Nil

Shareholding requirements

 

% of shareholding requirements(2)

 

Target Date to Meet Requirement

 

 

0.0%

 

October 2023

 

21



 

MICHAEL SERRUYA — NEW NOMINEE

 

New Nominee

 

Age: 54

 

Toronto, ON

 

Director since: N/A

 

Independent Director: YES

Mr. Serruya serves as Managing Director of Serruya Private Equity Inc. (“SPE”). Mr. Serruya began his career at age twenty, as one of the co-founders of Yogen Früz®. Mr. Serruya co-founded CoolBrands International Inc., where he served as Chairman and CEO. CoolBrands was a leading consumer packaged goods company, which included brands such as Weight Watchers, Eskimo Pie, Tropicana and Godiva Ice Cream. More recently, Mr. Serruya was Chairman and CEO of Kahala Brands, a multinational Franchisor to global QSR brands including Cold Stone Creamery, Taco Time and Blimpie Subs.

 

Mr. Serruya has also participated on the Boards of Directors of a number of both publicly and privately traded companies including Jamba Juice Inc., The Second Cup LTD., and The ONE Group Hospitality Inc.

 

Strategic qualifications:

·                  Extensive capital market expertise

·                  Early cannabis investor with strong overview of the industry

 

Board Committee Membership

 

Membership

 

Meeting attendance

 

 

Board

 

N/A

 

 

Audit

 

N/A

 

 

Compensation, Nominating & Governance

 

N/A

 

 

Annual General Meeting

 

N/A

 

 

Organizational Board Meeting

 

N/A

Current Board Directorships

 

Public Boards

 

Private Boards

 

 

The ONE Group

 

The Baycrest Foundation

Equity holdings as at September 24, 2018 (# & $)

 

Number

 

Value

 

 

Nil

 

$ Nil

Shareholding requirements

 

% of shareholding requirements(2)

 

Target Date to Meet Requirement

 

 

0.0%

 

October 2023

 

22



 

SCHLOMO BIBAS — NEW NOMINEE

 

New Nominee

 

Age: 48

 

Toronto, ON

 

Director since: N/A

 

Independent Director: YES

Mr. Bibas joined Celestica’s executive team, as Senior Vice President and Global Chief Information Officer with the mandate to drive the Digital agenda of the company. Prior to joining Celestica, Mr. Bibas served as Senior Vice President of Global Operations and Chief Information Officer for the Apotex Group of Companies since 2012. In this capacity, he had global accountability for all IT operations, risk management, customer care, innovation, business enablement, legal services, business services, and indirect procurement functions. As Corporate Officer and member of Apotex’ Executive Committee, he was part of the senior leadership team responsible for strategy development, governance, and global execution of the company.

 

Prior to joining Apotex, Mr. Bibas was a Partner at Accenture, where he spent 18 years of his career providing IT and management consulting services to Fortune 500 companies.

 

Strategic qualifications:

·                 Significant experience in the Pharmaceutical industry

·                 Extensive corporate management experience

 

Board Committee Membership

 

Membership

 

Meeting attendance

 

 

Board

 

N/A

 

 

Audit

 

N/A

 

 

Compensation, Nominating & Governance

 

N/A

 

 

Annual General Meeting

 

N/A

 

 

Organizational Board Meeting

 

N/A

Current Board Directorships

 

Public Boards

 

Cayuse Technologies

 

 

None

 

Cayuse Technologies

 

 

 

 

 

Equity holdings as at September 24, 2018 (# & $)

 

Number

 

Value

 

 

1,000

 

$ 19,280

Shareholding requirements

 

% of shareholding requirements(2)

 

Target Date to Meet Requirement

 

 

24.1%

 

October 2023

 

23



 

TOM LOONEY — NEW NOMINEE

 

New Nominee

 

Age: 55

 

Toronto, ON

 

Director since: N/A

 

Independent Director: YES

Mr. Looney recently retired as President of Diageo US Spirits & Canada. In this position, he had full responsibility for the growth and development of the company’s spirits business in the United States & Canada including brands such as Smirnoff, Crown Royal, Baileys, Johnnie Walker, Captain Morgan and Ketel One. He was also a member of Diageo’s North American Executive Team.

 

Prior to his current role, Mr. Looney held the position of President, Diageo Beer Company overseeing US sales, finance, marketing and innovation teams. Prior to that, he was Chief Commercial Officer where he oversaw the pricing strategy, business analytics and commercial marketing functions across spirits, beer and wine for North America. He has also held a variety of roles in finance, customer marketing and strategy roles, including SVP of global business support. Mr. Looney also had responsibility for new business development in North America where his responsibilities included M&A work and route to consumer strategy development.

 

Strategic qualifications:

·                 Significant experience in the Spirits Industry

·                 Extensive corporate management experience

 

Board Committee Membership

 

Membership

 

Meeting attendance

 

 

Board

 

N/A

 

 

Audit

 

N/A

 

 

Compensation, Nominating &

 

N/A

 

 

Governance

 

 

 

 

Annual General Meeting

 

N/A

 

 

Organizational Board Meeting

 

N/A

Current Board Directorships

 

Public Boards

 

Private Boards

 

 

None

 

None

Equity holdings as at September 24, 2018 (# & $)

 

Number

 

Value

 

 

750

 

$ 14,460

Shareholding requirements

 

% of shareholding requirements(2)

 

Target Date to Meet Requirement

 

 

18.1%

 

October 2023

 


Notes:

 

(1)                                 As at September 24, 2018.

(2)                                 The percentage of shareholding requirements are in accordance with the Company’s Minimum Share Ownership Policy as further discussed below under the heading “Compensation Discussion and Analysis — Minimum Share Ownership Policy”.

(3)                                 Does not include 1,727,777 shares held indirectly in The Cacciavillani Family Trust.

(4)                                 Includes 8,900,001 shares held directly through ownership of Fulfill Holdings Inc.

 

24



 

Cease trade orders, bankruptcies, penalties or sanctions

 

To the knowledge of the Company, none of the nominees for election as Director of the Company is as at the date hereof, or within 10 years before the date hereof:

 

·                  is, or has been a director, CEO or chief financial officer (“CFO”) of any Company that was subject to a cease trade order, an order similar to a cease trade order, or an order that denied the relevant Company access to any exemption under applicable securities legislation, that was in effect for a period of more than 30 consecutive days (an “Order”), which Order was issued while the director executive officer was acting in the capacity as director, CEO or CFO;

 

·                  was subject to an Order that was issued after the director executive officer ceased to be a director, CEO or CFO and which resulted from an event that occurred while that person was acting in the capacity as director, CEO or CFO;

 

·                  is, or has been a director or executive officer of any Company (including the Company) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or

 

·                  has become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director.

 

Furthermore, to the knowledge of the Company, no nominee has been subject to (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; and (ii) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable security holder in deciding whether to vote for a nominee.

 

25



 

COMPENSATION DISCUSSION AND ANALYSIS

 

Overview

 

The purpose of this Compensation Discussion and Analysis is to provide information about the Company’s executive compensation philosophy, objectives, and processes and to discuss compensation decisions relating to the Company’s executive officers, in particular, the five identified named executive officers (collectively, the “NEOs” and each an “NEO”), namely, Vic Neufeld, Chief Executive Officer (“CEO”), Carl Merton, Chief Financial Officer (“CFO”), Cole Cacciavillani, Co-Founder and Vice-President — Growing Operations, John Cervini, Co-Founder and Vice President — Infrastructure & Technology and Megan McCrae, Vice President of Marketing for the fiscal year ended May 31, 2018.

 

The CNG Committee, in consultation with the CEO is responsible for reviewing, establishing and overseeing the compensation policies of the Company and compensation of the NEOs. Historically, the CEO has made recommendations to the CNG Committee with respect to the compensation of the NEOs, and the CNG Committee reviews such recommendations with a view to determining whether to recommend to the Board any changes to the compensation for such senior executives. Moreover, the CNG Committee reviews, on an annual basis, the compensation of the CEO and makes recommendations to the Board in respect thereto.

 

Objectives of Compensation Program

 

The Company’s executive compensation practices are based on a pay-for-performance philosophy that is designed to attract, motivate and retain high performing senior executives, encourage and reward superior performance, and align our executives’ interests with those of the Company’s shareholders by:

 

·                  Providing the opportunity for total direct compensation (base salary plus short-term target annual incentive plus target annual long-term equity-based incentive) that is competitive with the compensation received by senior executives employed at a reference group of comparable publicly-traded companies;

 

·                  Ensuring that a significant proportion of executive compensation is linked to the Company’s financial and operational performance through the Company’s variable compensation plan as well as effective risk management;

 

·                  Providing senior executives with long-term equity-based incentive plans, such as stock options, which also help to ensure that senior executives meet or exceed minimum share ownership requirements; and

 

·                  Exercising informed judgement in regard to the nature and criticality of the senior executive’s role, as well as applying performance and market context to the comparator peer group data with input from the CEO to ensure the entirety of a senior executive’s contribution is recognized.

 

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In order to implement our compensation philosophy and achieve our objectives, we have adopted a number of governing compensation practices, including:

 

Key Features of our Compensation Program

 

·                  Annual incentive awards subject to achievement of pre-established performance goals tied to financial objectives

 

·                  Significant proportion of senior executives’ total annual target compensation is considered to be “at-risk”

 

·                  Significant proportion of senior executives’ total annual target compensation is in the form of stock options as part of the long-term incentive plan (LTIP)

 

·                  Engaged an independent consultant Hugessen Consulting Inc. (“Hugessen”) to assist with the assessment and determination of appropriate senior executive compensation for fiscal 2018

 

Compensation, Nominating & Governance Committee

 

In order to assist the Board in fulfilling its oversight responsibilities with respect to compensation and governance matters, the Board has established the CNG Committee. For more information on the CNG Committee see “Statement of Corporate Governance Practices”.

 

The primary role of the CNG Committee is to carry out the Board’s overall responsibility for executive compensation at the Company. Under its mandate, the CNG Committee is responsible for monitoring senior executives’ performance assessment, succession planning and overall compensation. The CNG Committee is consulted in regard to the appointment of senior executives, including the terms and conditions of their appointment and termination, and reviews the evaluation of the performance of the Company’s senior executives, and may make recommendations in respect thereto including recommending their compensation. The CNG Committee also oversees the existence of appropriate policies and compensation structures so that the Company can attract, motivate and retain senior executives who exhibit high standards of integrity, competence and performance. Finally, the CNG Committee is responsible for developing a compensation philosophy and objectives that reward the creation of shareholder value while reflecting an appropriate balance between the short-term and longer-term performance of the Company.

 

Aphria’s compensation practices are designed to attract, motivate and retain high performing senior executives, encourage and reward superior performance and align our senior executives’ interests with those of the Company’s shareholders. We believe that the actual compensation our executives receive should have a direct connection to their contribution to the Company’s financial performance and overall long-term success. Accordingly, our compensation program strongly links executive compensation to the actual performance of the company and aligns compensation with shareholder value by combining short and long-term cash and equity incentives. It also seeks to reward the achievement of corporate and individual performance objectives, and to align senior executives’ incentives with shareholder value creation by having a significant proportion of each senior executive’s total annual target compensation considered to be “at-risk”. Our senior executives’ short-term incentive plan (“STIP”) payout is conditional

 

27



 

upon the attainment of or exceeding certain Company financial metrics, in particular annual targets related to gross sales and adjusted EBITDA as set forth in the budget. The Board seeks to tie individual goals to the area of the executive officer’s primary responsibility. These goals may include the achievement of specific financial or business development goals. The Board also seeks to set company performance goals that reach across all business areas and include achievements in finance/business development and corporate development.

 

At the end of the most recently completed fiscal year, May 31, 2018, the CNG Committee was comprised of three directors, namely Renah Persofsky, Dennis Staudt and Philip Waddington, (the “Independent Directors”) all of whom are independent within the meaning of NI 52-110. The CNG Committee members have all had executive or senior roles in corporations or professional firms and/or board positions where they were required to make or were involved in decisions and determinations related to executive compensation, and the Board believes that the CNG Committee collectively has the knowledge, experience and background required to fulfill its mandate. For more detail please refer to their respective biographies under “Business of the meeting — Election of Directors” in this Circular.

 

Minimum Share Ownership Policy

 

The Board believes that it is in the best interests of the Company and its shareholders to align the economic interests of the Company’s senior executives and Independent Directors with those of the Company’s shareholders. To achieve this, the CNG Committee has recommended and the Board has adopted the following Minimum Share Ownership Policy.

 

The Policy is applicable to all of the senior executives and the Independent Directors of the Company pursuant to which each senior executive and the Independent Directors is expected to establish over a period of five (5) years, ownership of a prescribed number of Common Shares and/or DSUs which have a value which is equivalent to the following multiples of the senior executive’s base salary or, in the case of an Independent Director, the base annual cash retainer paid to such Independent Director by the Company (based on the market value of the Common Shares on the TSX) and subsequently maintain such minimum ownership position for the duration of his or her tenure:

 

Position

 

Share Ownership Guideline

Chief Executive Officer

 

3 x base salary

Independent Directors

 

2 x base annual cash retainer

Chief Financial Officer

 

1 x base salary

Other Officers

 

0.5 x base salary

 

The following may be used in determining share ownership:

 

1.              Shares owned directly (including through open market purchases);

 

2.              Shares owned jointly or separately by the individual’s spouse;

 

3.              Shares held in trust for the benefit of the officer or director, their spouse and/or children residing at the same residence; and,

 

4.              Vested DSUs.

 

28



 

Unexercised stock options (whether vested or not vested), convertible debt and warrants do not count toward meeting these guidelines until they have been converted or exercised into Common Shares.

 

The value of the ownership requirement is based upon the senior executive’s then current base salary or Independent Director’s base annual cash retainer at the end of May of each year and will be based on the closing price of the Company’s Shares on the TSX on May 31 of the same fiscal year.

 

The level of ownership is expected to be satisfied by each officer or director within five (5) years after first becoming subject to these guidelines, the original policy required officers of the Company to purchase a minimum of 25,000 Common Shares within the first year of their hire and each director was to possess a minimum of 25,000 Common Shares prior to the record date of the Annual General Meeting, in which he/she is to be first elected. Once the officer’s or director’s level of ownership satisfies the applicable guideline, such ownership levels are expected to be maintained for as long as the officer or director remains in their role with the Company. In the event of an increase in an officer’s base salary or a director’s base annual cash retainer, such individual will have five (5) years from the time of the increase to acquire any additional Shares required to meet these guidelines if necessary. Until such time that each individual officer meets the level of ownership of the guideline, that officer shall be awarded one-half (½) of their annual bonus in DSUs.

 

Executive Compensation Components

 

The Company’s executive compensation program is comprised of fixed and variable components. The variable components include equity and non-equity incentive plans. Each compensation component has a different function, but all elements are designed to work in concert to maximize Company and individual performance and provide financial incentives to senior executives based on the level of achievement of specific operational and financial objectives.

 

The compensation of the NEOs includes three major elements: (a) base salary, (b) short-term incentive plan consisting of an annual, discretionary cash bonus, and (c) long-term equity incentives, consisting of stock options granted under the Omnibus Incentive Plan and any other equity plan that may be approved by the Board. These three principal elements of compensation are described in more detail below.

 

29



 

The following table summarizes the compensation components of the Company’s executive compensation program, including the objectives of each component and the criteria impacting each component’s value:

 

Component

 

Key Feature

 

Form

 

Criteria

 

Objectives

 

Performance Link

 

 

 

 

 

 

 

 

 

 

 

Base Salary

 

·   Fixed Pay Rate

·   Individual salary recommendations based on competitive assessment and economic outlook, leadership, retention and succession candidates

·   Performance period: 1 year

 

·   Cash

 

·   Reference Group data

·   Individual contribution and performance

 

·   Attract and retain top talent Recognize level of responsibilities, individual experience and contribution to the Company’s performance

 

·   None

Short-Term Incentive (STIPS)

 

·   Annual award based on achievement of pre-determined corporate annual targets

·   Performance period: 1 year

 

·   Cash

 

·   Board approved balanced scorecard

 

·   Motivate executives to attain and exceed the Company’s annual goals and financial targets

 

·   Payout conditional upon achievement of pre-determined financial metrics

Long-Term Incentives (LTIP)

 

·   Stock options

·   Vesting over variable time horizons up to 5 years

 

·   Stock options

 

·   Time-based

·   Share price

 

·   Align executives with shareholder value creation Support retention with vesting conditions

 

·   Requires shareholder value creation to generate compensation value

 

Base salary

 

Base salaries are intended to provide an appropriate level of fixed compensation that will assist in employee retention and recruitment. Base salaries will be determined on an individual basis, taking into consideration the past, current and potential contribution to our success, the position and responsibilities of each senior executive and competitive industry benchmarks for other medical cannabis companies of comparable size and other companies of similar size in comparable industries. Base salaries are set and adjusted to reflect the scope of an executive’s responsibility and prior experience.

 

30



 

Short-Term Incentive Plan (STIP)

 

The Company’s short-term incentive plan aims to enhance the link between pay and performance by:

 

·                  Aligning the financial interests and motivations of the Company’s senior executives and employees with the annual financial performance and returns of the Company;

 

·                  Motivating senior executives and employees to work towards common annual performance objectives; and

 

·                  Providing total cash compensation that is at or higher than the median of the Reference Group in cases where superior financial performance and returns in excess of target objectives are attained;

 

The following table shows the percentage breakdown of STIPs for the fiscal year ended May 31, 2018:

 

Name

 

Position

 

Maximum annual
bonus 
(1)

 

 

 

 

 

Vic Neufeld

 

Chief Executive Officer

 

50%

Carl Merton

 

Chief Financial Officer

 

40%

Cole Cacciavillani

 

Co-Founder and Vice-President — Growing Operations

 

35%

John Cervini

 

Co-Founder and Vice-President — Infrastructure & Technology

 

35%

Megan McCrae

 

Vice President of Marketing

 

30%

 


(1)         As a percentage of base salary. Maximum annual bonuses for the NEOs were revised for fiscal 2019. For further disclosure see “Changes to Compensation for fiscal 2019.”

 

Category

 

Percentage weighting

Sales

 

35

Adjusted EBITDA

 

15

Incremental headcount

 

15

Patients eligible to order

 

15

Operational metrics

 

20

 

Performance Measures and Targets

 

Performance measures, targets and payout levels for STIP are reviewed and approved annually by the Board on the recommendation of the CNG Committee. For fiscal 2018, in January 2018 the Board approved elimination of the original bonus plan and substitution of a balanced scorecard comprised of the following financial measures to be achieved for all employees:

 

·                  Annual gross sales (“AGS”) measured against budgeted AGS target;

 

·                  Annual adjusted EBITDA as measured against budgeted adjusted EBITDA target;

 

·                  Incremental employee headcount;

 

·                  Year-end patients eligible to order; and,

 

·                  Achievement of certain operational targets measured on a board approved scale.

 

For each of the financial measures, the percentage portion represented by such measure is the maximum that may be received.

 

In consideration of this year’s achievements, our bonus-eligible employees all received annual incentive payout at 62.5% of targets, based on the Board approved balanced scorecard. We believe that these

 

31



 

performance measures, which are based on internal budgets, continue to be appropriate as they ensure that goals are sufficiently challenging but attainable without encouraging short-term risk-taking at the expense of long-term results.

 

Long-Term Incentive Plan (LTIP)

 

The purpose of the equity incentive component of the Company’s executive compensation program, namely the long-term incentive plan (the “Long-Term Incentive Plan” or “LTIP”), is to assist and encourage senior executives and key employees of the Company and its subsidiaries to work towards and participate in the growth and development of the Company and to assist the Company in attracting, retaining and motivating its senior executives and key employees. The LTIP is designed to:

 

·                  Recognize and reward the impact of longer-term strategic actions undertaken by senior executives and key employees;

 

·                  Align the interests of the Company’s senior executives and key employees with its shareholders;

 

·                  Focus senior executives and key employees on developing and successfully implementing the continuing growth strategy of the Company;

 

·                  Foster the retention of senior executives and key management personnel; and

 

·                  Attract talented individuals to the Company.

 

Types of Equity Incentives Awarded

 

The LTIP allows the Board to grant to senior executives DSUs, stock options and, beginning in fiscal 2019 such other awards as further set out in the Omnibus Incentive Plan of the Company, assuming the Omnibus Incentive Plan is approved at the AGM.

 

Performance Measures and Weightings

 

The LTIP awards help to achieve the Company’s compensation objectives by bringing the total compensation received by the Company’s senior executives to the median to 75th percentile of the Reference Group if the Company achieves its goals. Through the use of time vesting for long-term compensation, the LTIP awards help to achieve the Company’s objective of ensuring the retention of senior executives.

 

To encourage a long-term view of performance and to align the interests of senior executives with the interests of shareholders, Options granted to senior executives have different terms of years and variable time horizon vesting periods. The Board also has the ability to award RSUs and DSUs as further described in the Omnibus Incentive Plan to Eligible Participants, at its discretion, and subject to TSX rules, assuming the Omnibus Incentive Plan is approved at the AGM.

 

The Company does not have any equity compensation plans, under which equity securities are authorized for issuance, not previously approved by shareholders.

 

Pension Benefits and Nonqualified Deferred Compensation

 

The senior executives do not benefit from pension plan participation as the Company does not currently have a company-sponsored pension plan. Moreover, none of the senior executives participate in a

 

32



 

nonqualified deferred compensation plan. The Company does not have any equity compensation plans, under which equity securities are authorized for issuance, not previously approved by shareholders.

 

Other Perquisites and Benefits

 

While the senior executives receive a car allowance and some receive a gas allowance, perquisite and personal benefits are not a significant element of the compensation awarded to senior executives.

 

Employment Agreements

 

Aphria currently has employment agreements in place with each of its NEOs, each of which is discussed further below under the heading “Employment Agreements, Termination and Change of Control Benefits”. As noted below under the heading “Termination and Change of Control Benefits” there are certain circumstances that trigger payments or the provision of other benefits to an NEO upon termination and change of control.

 

Competitive Compensation Review

 

The CNG Committee reviews the individual salaries of the senior executives and makes adjustments when required to ensure that compensation remains market competitive and reflects individual performance, competencies, responsibilities and experience. The Committee also takes into account the senior executive’s value to the Company and retention risk. Other than the CEO, any increases in base salary for the senior executives, are at the sole discretion of the CEO with significant input from the CNG Committee. The compensation of the CEO is at the sole discretion of the Board, with significant input from the CNG Committee.

 

Benchmarking Practices

 

To meet the Company’s objectives of providing market competitive compensation opportunities, the Company’s senior executive compensation plans are benchmarked against market compensation data gathered from organizations of comparable size, complexity and geographical scope, as well as other companies with which the Company competes for executive talent.

 

As part of this benchmarking process, the CNG Committee reviews compensation data gathered from proxy circulars of other publicly-traded companies (the “Reference Group”). This involved the determination of an appropriate market compensation group composed of 12 companies, including appropriate benchmarking with reference to a relevant range of revenue, market cap and total enterprise value, and analysis of the senior executives’ total compensation, including an analysis of the Company’s short-term and long-term incentive plans, and an overview of current and emerging governance and executive compensation trends. Hugessen also provided analytical and advisory support on other matters related to executive compensation.

 

In addition, the Committee considers information gathered from annual compensation planning surveys from outside consulting firms related to determining annual salary increases for senior executives. As provided in its mandate, the CNG Committee has the authority to retain and obtain advice from independent compensation consultants with regards to executive compensation and approve their fees. Following the graduation of the Company to the TSX on March 22, 2017, and as the Company has

 

33



 

continued to grow rapidly in size and complexity, to the Board continues to engage outside independent compensation consultants to assist with the assessment of and compilation of appropriate benchmarking data in connection with the establishment of appropriate compensation for the senior executives for fiscal 2019 and thereafter.

 

The Chair of the CNG Committee, in consultation with the CFO, identified the following companies as being part of the Reference Group:

 

Company

 

HQ

 

Industry

Corcept Therapeutics Incorporated

 

Menlo Park, CA

 

Pharmaceuticals

Canopy Growth Corporation

 

Smith Falls, ON

 

Medical Marijuana

MGP Ingredients, Inc.

 

Atchison, KS

 

Distillers and Vintners

MedReleaf Corp.

 

Markham, ON

 

Pharmaceuticals (MMJ)

Amplify Snack Brands, Inc.

 

Austin, TX

 

Packaged Foods and Meats

Clearwater Seafoods Incorporated

 

Bedford, NS

 

Packaged Foods and Meats

Corby Spirit and Wine Limited

 

Toronto, ON

 

Distillers and Vintners

Andrew Peller Limited

 

Grimsby, ON

 

Distillers and Vintners

Merus Labs International Inc.

 

Toronto, ON

 

Pharmaceuticals

Cipher Pharmaceuticals Inc.

 

Mississauga, ON

 

Pharmaceuticals

Village Farms International, Inc.

 

Delta, BC

 

Agricultural Products

Ten Peaks Coffee Company Inc.

 

Burnaby, BC

 

Packaged Foods and Meats

 

The industry sector is considered relevant in the selection of companies comprising the Reference Group, as the Company may be in competition with these organizations for customers, revenue, executive talent and capital. Market cap and revenue size, which are used as a proxy for the level of complexity, job scope and responsibility associated with senior executive positions, are also considered relevant in selecting the companies in the Reference Group given the correlation between pay level and company size.

 

In 2017, the Company engaged the Hugessen group to determine certain criteria for establishing the Reference Group, and the same criteria have been upheld for fiscal 2018, although the companies included therein have changed. As part of the assessment of a Reference Group by the Company, the following criteria were considered:

 

·                  In recognition of the lack of publicly traded, revenue-generating and profit generating medical cannabis companies, the Reference Group included companies that are in related, but not directly comparable, industries (e.g., pharmaceuticals, distillers and vintners, packaged foods)

 

34



 

·                  The region where the Company primarily conducts business and competes for talent is in Canada, such that the companies comprising the Reference Group were headquartered primarily in Canada and listed on a Canadian stock exchange, however, a few examples of U.S.-listed companies were included to provide balance to the group from a company size perspective, with the goal of having the Company’s size positioned near median relative to the Reference Group

 

·                  The main factors that were assessed in arriving at an appropriate mix of companies were revenue, ability (or lack thereof) to generate profit, market capitalization and enterprise value, generally in range of 50% to 200% of the Company’s, which in the case of revenue was estimated on a pro forma basis as at fiscal year 2020 to recognize the significant expected growth in the medical cannabis industry in the coming years.

 

·                  Companies with comparable compensation structures vis-à-vis the compensation elements that make up total compensation.

 

Risk management principles of compensation programs

 

In terms of assessing and managing risk the role of the CNG Committee includes reviewing each of the components of an executive’s compensation to ensure there is an overall balance among long-term and short-term incentives commensurate with Aphria’s corporate strategy and goals. The mandate of the CNG Committee includes an annual review of Aphria’s compensation policies and practices to confirm that they remain aligned with Aphria’s risk management principles and to ensure that they do not encourage inappropriate or excessive risk. Aphria’s compensation policies and practices incorporate features, including significant weighting on long-term incentives that seek to mitigate risk related to encouraging the achievement of short-term goals, at the potential expense of long-term sustainability and shareholder value, without diminishing the incentive nature of the compensation, and to encourage and reward prudent business judgment and appropriate risk-taking over the long term to increase shareholder value. The variable elements of the compensation program (short-term and long-term incentives) represent a significant proportion of overall compensation that is sufficient to motivate senior executives to produce superior short-term and long-term corporate results, while the fixed compensation element (base salary) is high enough to discourage senior executives from taking unnecessary or excessive risks. The long-term incentive plan vesting conditions are designed to encourage a long-term view of performance and to align the interests of senior executives with shareholder interests, by being valuable only if the Company’s stock price increases over time. The vesting of stock options over various time horizons mitigates against taking short-term risks and aligns senior executives with longer-term shareholder interests.

 

The CNG Committee may adjust the relevant weighting of various components of an executive’s compensation based on its review, and, if required, amend or supplement specific components as appropriate. Finally, the Chairs of the Audit Committee and the CNG Committee each is a member of the other’s committee to ensure the alignment of policies for the assessment of risks.

 

Performance Graph

 

The graph below compares the performance of Aphria since inception in 2014 (with all dividends and distributions reinvested) to the S&P/TSX Composite Index, each starting with an investment of $100 at the beginning of fiscal 2014:

 

35



 

 

The Company’s total shareholder return since inception has shown a significant upward trend. For the fiscal year ended May 31, 2018, the CNG Committee desire is to base more of the compensation of the senior executives on long-term performance to align their interests with those of the shareholders.

 

The CNG Committee will continue to use discretion and judgement when determining actual compensation levels. In this regard, individual compensation may be positioned at, above or below median of the Reference Group, based on individual experience and performance or other criteria deemed important by the CNG Committee. Relative to the Reference Group, for fiscal 2019 the Company’s senior executives’ total direct compensation opportunity was positioned to be at or above the market median.

 

Total compensation may fluctuate year over year, not always following the trend in total shareholder returns, due to the following factors:

 

·      Senior executives’ base salary adjustments are generally made to remain competitive with the Reference Group and to reflect any changes in the scope of the executives’ responsibilities;

 

·      Short-term incentive payouts are not directly linked to total shareholder return but rather they are based on underlying financial measures (i.e. the balanced scorecard); and,

 

·      While long-term incentive grants are typically made at market-competitive target levels, occasional one-time stock option grants may cause significant year-over-year fluctuations in total compensation. That said, the value ultimately realized from the long-term incentive awards depends on share price performance.

 

36



 

Option-based Awards and Share-based Awards

 

The Omnibus Incentive Plan

 

The Omnibus Incentive Plan is intended to provide senior executives with the promise of longer term rewards which appreciate in value with the favourable future performance of the Company. The Board believes that the Omnibus Incentive Plan provides a method of retention and motivation for the senior executives of the Company and also aligns senior management’s objectives with long-term stock price appreciation.

 

For more information on the Omnibus Incentive Plan see “Business of the Meeting — Approval of Omnibus Incentive Plan”.

 

Changes to Compensation for Fiscal 2018

 

Effective June 1, 2018, the following adjustments to executive compensation were made:

 

NEO

 

Base salary

 

STIP — Base

 

LTIP

 

 

 

 

 

 

 

Vic Neufeld

 

CEO and Director

 

Base salary of $400,000(1)

 

Target bonus of 50%

 

To be determined by the CNG Committee prior to the AGM

Carl Merton

 

CFO

 

Base salary increased to $275,000

 

Target bonus of 40%

 

To be determined by the CNG Committee prior to the AGM

Cole Cacciavillani

 

Co-Founder & VP — Growing Operations and Director

 

Base salary increased to $230,000

 

No change

 

To be determined by the CNG Committee prior to the AGM

John Cervini

 

Co-Founder & VP — Infrastructure & Technology and Director

 

Base salary increased to $230,000

 

No change

 

To be determined by the CNG Committee prior to the AGM

Megan. McCrae

 

Director of Marketing

 

Base salary increased to $200,000

 

No change

 

No change

 

Commitment to Competitive Compensation

 

Looking ahead to fiscal 2019, we plan to continue to build on our strong foundation of sound and effective practices in executive compensation. We will continue to conduct periodic compensation

 

37



 

analyses and monitor the evolution of best practices, and implement those which enable and encourage superior performance. We will continue to benchmark our executive compensation program against our peers in the Reference Group and elsewhere to ensure that we provide competitive compensation to our senior executives.

 

Summary compensation table

 

The following table provides a summary of the compensation earned by the NEOs for services rendered in all capacities during the three most recent fiscal years.

 

 

 

Fiscal

year

 

Salary,
consulting

fee,

retainer or

commission

 

Share-based

awards

 

Option-

based

awards (9)

 

Non-equity incentive plan

compensation

 

 

 

 

 

Name and principal

position

Annual

Incentive

Plan (10)

 

Long-Term

Incentive

Plans (12)

 

All other
compensation

 

Total
compensation

 

 

 

 

($)

 

($)

 

($)

 

($)

 

($)

 

($)

 

($)

 

VIC NEUFELD (1)

 

2018

 

360,168

 

1,450,550

 

860,967

 

118,733

 

 

34,500

(13)

2,824,918

 

CEO and Director

 

2017

 

235,385

 

 

1,895,000

 

108,000

 

 

84,500

(14)

2,322,884

 

 

 

2016

 

174,415

(5)

 

65,000

 

26,462

 

 

18,768

(15)

284,645

 

CARL MERTON (2)

CFO

 

2018

 

225,138

 

476,300

 

308,528

 

94,060

(11)

 

 

1,104,026

 

 

2017

 

210,000

 

 

265,000

 

63,000

 

 

5,125

 

543,125

 

 

2016

 

120,048

(6)

 

170,000

 

11,359

 

 

 

301,407

 

COLE CACCIAVILLANI (3)

Co-Founder & VP — Growing Operations and Director

 

2018

 

199,407

 

389,700

 

369,506

 

39,375

 

 

 

997,988

 

 

2017

 

139,231

 

 

265,000

 

42,000

 

 

14,500

(16)

460,731

 

 

2016

 

139,115

(7)

 

26,000

 

13,912

 

 

 

179,027

 

JOHN CERVINI (4)

Co-Founder & VP —Infrastructure & Technology and Director

 

2018

 

187,407

 

389,700

 

369,506

 

39,375

 

 

12,000

(17)

1,009,988

 

 

2017

 

139,231

 

 

265,000

 

42,000

 

 

14,500

(16)

460,731

 

 

2016

 

139,115

(7)

 

26,000

 

13,912

 

 

 

179,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Megan McCrae — VPMarketing

 

2018

 

178,127

 

 

744,394

 

19,521

 

 

 

942,042

 

 

2017

 

107,692

(8)

 

219,400

 

20,073

 

 

 

347,435

 

 

2016

 

 

 

 

 

 

 

 

 


Notes:

(1)                  Mr. Neufeld was appointed President and Chief Executive Officer on June 3, 2014. Mr. Neufeld did not receive any compensation in his role as a director. The Board approved an increase to Mr. Neufeld’s base salary, effective December 1, 2017 to an annual salary of $400,000.

(2)                  Mr. Merton was elected as a Director on December 2, 2014. Mr. Merton resigned as a Director on December 15, 2015. Mr. Merton was appointed Chief Financial Officer on December 15, 2015. The Board approved an increase to Mr. Merton’s base salary, effective December 1, 2017 to $240,000 per annum.

(3)                  Mr. Cacciavillani did not receive any compensation in his role as a director.

(4)                  Mr. Cervini did not receive any compensation in his role as a director.

(5)                  Mr. Neufeld received a $1,000 signing bonus for executing employment agreement in fiscal 2016.

(6)                  Mr. Merton received $6,462 as director fees prior to resigning as a director. Mr. Merton received a $1,000 signing bonus for executing employment agreement in fiscal 2016.

(7)                  Mr. Cacciavillani and Mr. Cervini each received a $1,000 signing bonus for executing employment agreement in fiscal 2016.

(8)                  Ms. McCrae received a $5,000 signing bonus for executing employment agreement in fiscal 2017.

(9)                  The Company values Options using Black-Scholes option pricing method as described in the Company’s audited financial statements for the year ended May 31, 2018. These amounts represent the fair value of the Options at the grant date.

 

38



 

(10)             All annual incentive amounts related to any fiscal year will be paid in the following fiscal year, unless otherwise noted.

(11)             Mr. Merton received a $50,000 special bonus at the discretion of the CEO during fiscal 2018 in to his entitlement under the 2018 corporate bonus plan.

(12)             All LTIP awards to our NEOs were in the form of deferred share units.

(13)             Represents cash cost to Company of Mr. Neufeld’s leased corporate vehicle and insurance.

(14)             Represents cash cost to Company of Mr. Neufeld’s leased corporate vehicle and insurance and $50,000 retroactive payment for wages received in fiscal 2017 that related to fiscal 2016.

(15)             Represents cash cost to Company of Mr. Neufeld’s leased corporate vehicle and insurance.

(16)             Represents cash cost to Company of Mr. Cacciavillani and Mr. Cervini’s retroactive wages paid in fiscal 2017 that relate to fiscal 2016.

(17)             Represents cash cost to Company of Mr. Cervini’s leased corporate vehicle and insurance.

 

Outstanding Share-Based Awards and Option-Based Awards Table

 

The following table discloses the particulars of the option-based awards granted to NEOs of the Company during the fiscal year-ended May 31, 2018.

 

 

 

Option Based Awards

 

Share-based Awards (2)

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

Market or

 

 

 

 

 

securities

 

 

 

 

 

 

 

Number of

 

Market or

 

payout value

 

 

 

 

 

underlying

 

 

 

 

 

Value of

 

shares or

 

payout value

 

of vested

 

 

 

 

 

unexercised

 

 

 

 

 

Unexercised

 

units of

 

of share-

 

share-based

 

 

 

Date of

 

options and

 

Option

 

Option

 

In-The-

 

shares that

 

based awards

 

awards not

 

Name and

 

issue or

 

percentage

 

exercise

 

expiration

 

Money

 

have not

 

that have not

 

paid out or

 

position

 

grant

 

of class

 

price

 

date

 

Options (1)

 

vested

 

Vested (1)

 

distributed

 

 

 

 

 

 

 

($)

 

 

 

($)

 

(#)

 

 

 

($)

 

VIC NEUFELD

 

06/01/17

 

100,000

 

5.44

 

06/01/22

 

608,000

 

 

 

 

CEO and Director

 

07/11/17

 

250,000

 

5.24

 

07/11/20

 

1,570,000

 

 

 

 

 

 

 

CARL MERTON

 

06/01/17

 

50,000

 

5.44

 

06/01/22

 

304,000

 

 

 

 

CFO

 

07/11/17

 

75,000

 

5.24

 

07/11/20

 

471,000

 

 

 

 

 

 

 

COLE CACCIAVILLANI

 

06/01/17

 

50,000

 

5.44

 

06/01/22

 

304,000

 

 

 

 

Co-Founder & VP — Growing Operations and Director

 

07/11/17

 

100,000

 

5.24

 

07/11/20

 

628,000

 

 

 

 

 

 

 

JOHN CERVINI

 

06/01/17

 

50,000

 

5.44

 

06/01/22

 

304,000

 

 

 

 

Co-Founder & VP — Infrastructure & Technology and Director

 

07/11/17

 

100,000

 

5.24

 

07/11/20

 

628,000

 

 

 

 

 

 

 

MEGAN MCCRAE

 

07/17/17

 

35,000

 

5.24

 

07/17/20

 

219,800

 

 

 

 

VP — MARKETING

 

12/18/17

 

100,000

 

14.06

 

12/18/20

 

 

 

 

 

 

 

 

 


Notes:

(1)                  Based on the closing price for the Common Shares on the TSX Exchange of $11.52 on May 31, 2018.

(2)                  All LTIP awards to our NEOs in the form of stock options and disclosed under the column “Option-based awards” and all LTIP awards in the form of deferred share units were disclosed under the column “Share-based Awards”.

 

39



 

Incentive Plan Awards — Value Vested or Earned During the Year — NEOs

 

Exercise of stock options by NEOs

 

During the year, the NEOs exercised the following vested options:

 

EXERCISE OF COMPENSATION SECURITIES BY NEOS

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

 

underlying

 

 

 

 

 

 

 

Difference

 

 

 

 

 

securities issued

 

 

 

 

 

 

 

between exercise

 

 

 

 

 

upon exercise of

 

 

 

 

 

 

 

price and closing

 

 

 

 

 

outstanding

 

 

 

Date of

 

Closing price on

 

price on date of

 

Total value on

 

Name and position

 

options

 

Exercise price

 

exercise

 

date of exercise

 

exercise

 

exercise date

 

 

 

(#)

 

($)

 

 

 

($)

 

($)

 

($)

 

VIC NEUFELD

 

 

 

 

 

 

 

CEO and Director

 

 

CARL MERTON

 

 

 

 

 

 

 

CFO

 

COLE CACCIAVILLANI

 

500,000

 

0.60

 

01/16/18

 

21.65

 

21.05

 

10,825,000

 

Co-Founder & VP — Growing Operations and Director

 

20,000

 

1.30

 

01/16/18

 

21.65

 

20.35

 

433,000

 

 

33,333

 

1.40

 

01/16/18

 

21.65

 

20.25

 

721.659

 

 

33,333

 

3.90

 

01/16/18

 

21.65

 

17.75

 

721.659

 

 

16,666

 

5.44

 

01/16/18

 

21.65

 

16.21

 

360,819

 

 

100,000

 

5.24

 

01/16/18

 

21.65

 

16.41

 

2,165,000

 

JOHN CERVINI

 

500,000

 

0.60

 

01/16/18

 

21.65

 

21.05

 

10,825,000

 

Co-Founder & VP — Infrastructure & Technology and Director

 

20,000

 

1.30

 

01/16/18

 

21.65

 

20.35

 

433,000

 

 

33,333

 

1.40

 

01/16/18

 

21.65

 

20.25

 

721,659

 

 

33,333

 

3.90

 

01/16/18

 

21.65

 

17.75

 

721,659

 

 

 

16,666

 

5.44

 

01/16/18

 

21.65

 

16.21

 

360,819

 

 

 

100,000

 

5.24

 

01/16/18

 

21.65

 

16.41

 

2,165,000

 

MEGAN MCCRAE

 

 

 

 

 

 

 

VP - Marketing

 

 

40



 

NEO Share Ownership

 

The table below summarizes the NEO’s share ownership levels as at May 31, 2018, based on fiscal 2019 compensation. All of the NEOs are currently in compliance with the ownership requirement of the Minimum Share Ownership Policy described in this Circular on page 28:

 

 

 

 

 

Actual Ownership

 

Total

 

 

 

 

 

 

 

 

 

($/#)

 

Ownership

 

 

 

 

 

 

 

Annual Base
Salary

 

Deferred Share

 

Common Shares
Beneficially

 

Total

 

as a
Multiple

 

Ownership

 

Meets

 

Name

 

($)

 

Units

 

Owned

 

Ownership

 

Base Salary

 

Requirements

 

Requirement

 

VIC NEUFELD CEO and Director

 

400,000

 

771,840/67,000

 

22,1791,940/1,925,342

 

22,951,780/1,992,342

 

57.4 x

 

3 x

 

Yes

 

CARL MERTON CFO

 

275,000

 

253,440/22,000

 

860,890/ 74,730

 

1,114,330/ 96,730

 

4.1 x

 

1.0 x

 

Yes

 

COLE CACCIAVILLANI VP — Growing Operations and Director

 

225,000

 

207,360/18,000

 

81,734,204/7,094,983

 

81,941,564/7,112,983

 

364.2 x

 

0.5 x

 

Yes

 

JOHN CERVINI VP — Infrastructure & Technology and Director

 

225,000

 

207,360/18,000

 

111,549,519/9,683,118

 

111.756.879/9,701,118

 

496.7 x

 

0.5 x

 

Yes

 

MEGAN MCCRAE, Director of Marketing

 

200,000

 

Nil

 

Nil

 

Nil

 

0 x

 

N/A

 

N/A

 

 

NEOs subject to the Minimum Share Ownership Policy are expected to retain Common Shares acquired under the Company’s Long-Term Incentive Plan until the share ownership requirement is achieved, except as required to cover the tax liability associated with the exercise of Options.

 

Employment agreements, Termination and Change of Control Benefits

 

Aphria currently has employment agreements in place with each of its NEOs.

 

Mr. Neufeld — Chief Executive Officer

 

On June 1, 2016 the Company entered into a new employment agreement with Mr. Neufeld for an indefinite term setting forth the terms and conditions of his employment, which provides for his base salary, currently in the amount of $240,000 per annum, a monthly car allowance of $1,500, a monthly gas allowance of up to $250, annual bonus of up to 45% of his base salary, to be approved by the Board, and stock options pursuant to the Company’s Option Plan or any other equity plan as may be approved by the Board. Mr. Neufeld’s employment agreement also includes, among other things, provisions regarding

 

41



 

confidentiality, non-competition and non-solicitation as well as eligibility for the Company’s benefit plans. In the event that Mr. Neufeld is terminated without cause, he will be entitled to a payment equal to nine months’ base salary, plus one additional month per year of service, up to eighteen months’ base salary. In the event Mr. Neufeld is terminated without cause within two years following a Change of Control (as defined in his employment agreement), he will be entitled to receive a lump sum payment equal to two times (2x) his nine months’ base salary, plus one additional month per year of service, up to eighteen months base salary and two times (2x) the amount of annual bonus, if any, paid in the immediately preceding fiscal year. Effective December 1, 2018, the Board approved an increase in base salary to $400,000 per annum and an increase in bonus to 50% of his base salary.

 

Mr. Merton — Chief Financial Officer

 

On June 1, 2016 the Company entered into a new employment agreement with Mr. Merton for an indefinite term setting forth the terms and conditions of his employment, which provides for his base salary in the amount of $210,000 per annum, a monthly car allowance of $1,000, a monthly gas allowance of up to $500, annual bonus of up to 40% of his base salary, to be approved by the Board, and stock options pursuant to the Company’s Option Plan or any other equity plan as may be approved by the Board. Mr. Merton’s employment agreement also includes, among other things, provisions regarding confidentiality, non-competition and non-solicitation as well as eligibility for the Company’s benefit plans. In the event that Mr. Merton is terminated without cause, he will be entitled to a payment equal to nine months’ base salary, plus one additional month per year of service, up to eighteen months’ base salary. In the event Mr. Merton is terminated without cause within two years following a Change of Control (as defined in his employment agreement), or one year following a change in the position of the CEO, he will be entitled to receive a lump sum payment equal to two times (2x) his nine months’ base salary, plus one additional month per year of service, up to eighteen months base salary and two times (2x) the amount of annual bonus, if any, paid in the immediately preceding fiscal year. Effective June 1, 2018, Mr. Merton’s base salary increased to $275,000 per annum.

 

Mr. Cacciavillani — Co-Founder and Vice-President — Growing Operations

 

On June 1, 2016 the Company entered into a new employment agreement with Mr. Cacciavillani for an indefinite term setting forth the terms and conditions of his employment, which provides for his base salary in the amount of $140,000 per annum, a monthly car allowance of $750, annual bonus of up to 35% of his base salary, to be approved by the Board, and stock options pursuant to the Company’s Option Plan or any other equity plan as may be approved by the Board. Mr. Cacciavillani’s employment agreement also includes, among other things, provisions regarding confidentiality, non-competition and non-solicitation as well as eligibility for the Company’s benefit plans. In the event that Mr. Cacciavillani is terminated without cause, he will be entitled to a payment equal to nine months’ base salary, plus one additional month per year of service, up to eighteen months’ base salary. In the event Mr. Cacciavillani is terminated without cause within two years following a Change of Control (as defined in his employment agreement), he will be entitled to receive a lump sum payment equal to two times (2x) his nine months’ base salary, plus one additional month per year of service, up to eighteen months base salary and two times (2x) the amount of annual bonus, if any, paid in the immediately preceding fiscal year. Effective June 1, 2018, Mr. Cacciavillani’s base salary increased to $225,000 per annum.

 

42



 

Mr. Cervini — Co-Founder and Vice-President — Infrastructure & Technology

 

On June 1, 2016 the Company entered into a new employment agreement with Mr. Cervini for an indefinite term setting forth the terms and conditions of his employment, which provides for his base salary in the amount of $140,000 per annum, a monthly car allowance of $750, annual bonus of up to 35% of his base salary, to be approved by the Board, and stock options pursuant to the Company’s Option Plan or any other equity plan as may be approved by the Board. Mr. Cervini’s employment agreement also includes, among other things, provisions regarding confidentiality, non-competition and non-solicitation as well as eligibility for the Company’s benefit plans. In the event that Mr. Cervini is terminated without cause, he will be entitled to a payment equal to nine months’ base salary, plus one additional month per year of service, up to eighteen months’ base salary. In the event Mr. Cervini is terminated without cause within two years following a Change of Control (as defined in his employment agreement), he will be entitled to receive a lump sum payment equal to two times (2x) his nine months’ base salary, plus one additional month per year of service, up to eighteen months base salary and two times (2x) the amount of annual bonus, if any, paid in the immediately preceding fiscal year. Effective June 1, 2018, Mr. Cervini’s base salary increased to $225,000 per annum.

 

Ms. McCrae — Vice President of Marketing

 

On August 1, 2016, the Company entered into an employment agreement with Ms. McCrae for an indefinite term setting forth the terms and conditions of her employment, which provides for her base salary in the amount of $140,000 per annum, a monthly car allowance of $750, annual bonus of up to 35% of her base salary, to be approved by the Company. Ms. McCrae’s employment agreement also includes, among other things, provisions regarding confidentiality, non-competition, and non-solicitation as well as eligibility for the Company’s benefit plans. In the event Ms. McCrae is terminated without cause, she will be entitled to a payment equal to six months’ notice, using a combination of Base Salary and average bonus earnings based on a three year average. Ms. McCrae is not entitled to any additional compensation in the event of a change in control. Effective June 1, 2018, Ms. McCrae’s base salary increased to $200,000 per annum.

 

Summary of Termination Benefits

 

The following table provides details regarding the estimated incremental payments from the Company to each of the NEOs in the event of a change of control, termination without cause and assuming the event took place as of the date hereof:

 

43



 

 

 

 

 

Base Salary(1)

 

Bonus

 

Total

 

Name

 

Triggering Event

 

($)

 

($)

 

($)

 

VIC NEUFELD

 

Termination without cause(2)

 

433,000

 

216,500

 

649,500

 

CEO and Director

 

Termination following a Change of Control

 

866,000

 

433,000

 

1,299,000

 

CARL MERTON

 

Termination without cause(3)

 

275,000

 

110,000

 

385,000

 

CFO

 

Termination following a Change of Control

 

550,000

 

220,000

 

770,000

 

 

 

Termination without cause (new CEO)

 

550,000

 

220,000

 

770,000

 

COLE CACCIAVILLANI

 

Termination without cause(4)

 

262,500

 

92,000

 

354,500

 

VP — Growing Operations
and Director

 

Termination following a Change of Control

 

525,000

 

184,000

 

709,000

 

JOHN CERVINI

 

Termination without cause(4)

 

262,500

 

92,000

 

354,500

 

VP — Infrastructure &
Technology and Director

 

Termination following a Change of Control

 

525,000

 

184,000

 

709,000

 

MEGAN MCCRAE, Vice-

 

Termination without cause(5)

 

133,000

 

40,000

 

173,000

 

President of Marketing

 

Termination following a Change of Control

 

133,000

 

40,000

 

173,000

 

 

 


(1) Calculation of Termination Benefits are based on the base salaries, annual bonuses and years of service for fiscal 2019.

(2) Mr. Neufeld, on termination without cause in 2019, would be entitled to 13 months compensation.

(3) Mr. Merton, on termination without cause in 2019, would be entitled to 12 months compensation.

(4) Mr. Cacciavillani and Mr. Cervini, on termination without cause in 2019, would be entitled to 14 months compensation.

(5) Ms. McCrae, on termination without cause in 2019, would be entitled to 8 months compensation.

 

COMPENSATION OF DIRECTORS

 

The Company’s director compensation program is designed (i) to attract and retain highly qualified individuals to serve on the Board and its committees, (ii) to align the interests of the directors with the long-term interests of the Company’s shareholders, and (iii) to provide appropriate compensation having regard to the risks and responsibilities related to being an effective director.

 

The compensation of the directors, which is only paid to Independent Directors, includes three elements: (a) annual retainer and committee fees, as applicable; and, (b) long-term equity incentives, consisting of DSUs issued under the Omnibus Incentive Plan and any other equity plan that may be approved by the Board. These principal elements of compensation are described below.

 

Annual retainer

 

The Board, with assistance from the CNG Committee, reviews Aphria’s approach to director compensation. The CNG Committee considers many factors, including whether compensation fairly reflects the responsibilities and risks involved. The review of Aphria’s director compensation includes benchmarking against other medical marijuana companies in Canada and other similar or comparable companies with respect to Total Enterprise Value (TEV), market cap and revenue. Annual retainers have been intended to provide an appropriate level of fixed compensation that will assist in director retention and recruitment. The CNG Committee retained an independent external consultant to provide data and advice to the CNG Committee in regard to the appropriateness of its director compensation policy as well as the different levels of compensation, particularly in light of the number of meetings and the amount of time required to be spent by the directors to fulfill their board and committee obligations. The CNG

 

44



 

Committee engaged Hugessen to advise in regard to the directors’ compensation for fiscal 2018 and the Board has approved increased compensation for Directors in fiscal 2018 and fiscal 2019 as further described below.

 

Annual retainers were paid in fiscal 2018 to the Independent Directors on the following basis:

 

Type of Compensation

 

Annual Compensation

 

Board Retainer

 

40,000

(1)

Deferred share units

 

32,000

(1)

Audit Committee Chair Retainer

 

15,000

(1)

CNG Committee Chair Retainer

 

15,000

(1)

Member of more than one committee

 

7,500

(1)

Per meeting fee for more than 10 Board meetings (to a maximum of 10 additional meetings)

 

1,500

(1)

 


(1) Annual cash retainers were effective December 1, 2017.

 

Independent Directors are reimbursed for travel and other out-of-pocket expenses incurred in attending Board or committee meetings as well as annual shareholders’ meetings.

 

Currently, the Directors do not benefit from pension plan participation. Perquisites and personal benefits are not available to the Directors. The CNG Committee, has established an appropriate comparator group for purposes of setting the future compensation of the Directors.

 

Minimum Share Ownership Requirements

 

The Independent Directors are also subject to the Minimum Share Ownership Policy as further discussed above on page 28 of this Circular.

 

Director Compensation Table

 

The following table provides information regarding compensation earned by the Company’s Independent Directors for the fiscal year ended May 31, 2018

 

 

 

 

 

Committee

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

or

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual Base Cash

 

Committee

 

Share

 

Option-

 

Non-equity

 

 

 

 

 

Name and

 

Retainer &

 

Chair Cash

 

Based

 

based

 

incentive plan

 

All other

 

Total

 

principal position

 

Committee fees

 

Retainer

 

Awards

 

awards

 

compensation

 

compensation

 

compensation

 

 

 

($)

 

($)

 

($)

 

($)

 

($)

 

($)

 

($)

 

DENNIS STAUDT

 

55,231

 

30,000

 

203,171

 

 

 

 

288,402

 

PHILIP WADDINGTON

 

48,384

 

 

203,171

 

 

 

 

251,555

 

RENAH PERSOFSKY(1)

 

37,106

 

12,000

 

189,193

 

149,199

 

 

 

387,498

 

SHAWN DYM (1)

 

28,202

 

 

189,193

 

149,199

 

 

 

366,594

 

 

45



 


Notes:

(1)                                 Ms. Persofsky and Mr. Dym joined the Board on October 25, 2017 and their compensation is pro-rated for the year from their start date.

 

Outstanding Share-Based Awards and Option-Based Awards Table

 

The following table discloses the particulars of the option-based awards granted to the Independent Directors of the Company during the fiscal year-ended May 31, 2018.

 

 

 

Option Based Awards

 

Share-based Awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market or

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

Market or

 

payout value

 

 

 

 

 

Number of

 

 

 

 

 

Value of

 

shares or

 

payout value

 

of vested

 

 

 

 

 

securities

 

 

 

 

 

Unexercised

 

units of

 

of share-

 

share-based

 

 

 

Date of

 

underlying

 

Option

 

Option

 

In-The-

 

shares that

 

based awards

 

awards not

 

Name and

 

issue or

 

unexercised

 

exercise

 

expiration

 

Money

 

have not

 

that have not

 

paid out or

 

position

 

grant

 

options

 

price

 

date

 

Options (1)

 

vested

 

vested

 

distributed

 

 

 

 

 

 

 

($)

 

 

 

($)

 

(#)

 

 

 

($)

 

DENNIS STAUDT

 

 

 

 

 

 

 

 

92,160

 

PHILIP

 

 

 

 

 

 

 

 

92,160

 

WADDINGTON

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RENAH

 

10/25/17

 

37,000

 

6.90

 

10/25/22

 

170,940

 

 

 

92,160

 

PERSOFSKY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAWN DYM

 

10/25/17

 

37,000

 

6.90

 

10/25/22

 

170,940

 

 

 

92,160

 

 


Notes:

(1)                  Based on the closing price for the Common Shares on the TSX Exchange of $11.52 on May 31, 2018.

 

Exercise of stock options by Independent Directors

 

The following tables sets forth information concerning the exercise of vested options by the Independent Directors during the fiscal year-ended May 31, 2018, including:

 

·                  The number of securities to be issued upon the exercise of outstanding options, warrants and rights;

 

·                  The weighted-average exercise price of such outstanding options, warrants and rights; and,

 

·                  The number of securities remaining available for future issuance under the applicable plan, other than securities to be issued upon the exercise of such outstanding options, warrants and rights.

 

EXERCISE OF COMPENSATION SECURITIES BY INDEPENDENT DIRECTORS

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

 

underlying

 

 

 

 

 

 

 

 

 

 

 

 

 

securities to be

 

 

 

 

 

 

 

Difference

 

 

 

 

 

issued upon

 

 

 

 

 

 

 

between exercise

 

 

 

 

 

exercise of

 

 

 

 

 

Closing price

 

price and closing

 

Total value on

 

 

 

outstanding

 

Exercise price

 

Date of

 

date of exercise

 

price on date of

 

exercise date

 

Name and position

 

options (#)

 

($)

 

exercise

 

($)

 

exercise ($)

 

($)

 

DENNIS STAUDT

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

PHILIP WADDINGTON

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

RENAH PERSOFSKY

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

 

46



 

EXERCISE OF COMPENSATION SECURITIES BY INDEPENDENT DIRECTORS

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

 

underlying

 

 

 

 

 

 

 

 

 

 

 

 

 

securities to be

 

 

 

 

 

 

 

Difference

 

 

 

 

 

issued upon

 

 

 

 

 

 

 

between exercise

 

 

 

 

 

exercise of

 

 

 

 

 

Closing price

 

price and closing

 

Total value on

 

 

 

outstanding

 

Exercise price

 

Date of

 

date of exercise

 

price on date of

 

exercise date

 

Name and position

 

options (#)

 

($)

 

exercise

 

($)

 

exercise ($)

 

($)

 

SHAWN DYM

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

 

 

Notes: none

 

Directors’ and Officers’ Liability Insurance

 

The Company maintains directors’ and officers’ liability insurance (“D&O Insurance”) for its directors and officers. The D&O Insurance insures the Company and its directors and officers against liability arising from wrongful acts of the Company’s directors and officers in their capacity as directors and officers of the Company, subject to limitations, if any, contained in the Business Corporations Act (Ontario), and has an aggregate policy limit of $50,000,000. No portion of the D&O Insurance is directly paid by any director or officer of the Company.

 

Indebtedness of directors and officers

 

No individual who is, or at any time during the most recently completed fiscal year of the Company was, a director or executive officer of the Company, nor any proposed nominee for election as a director of the Company, nor any associate of any of the foregoing is, or at any time since the beginning of the most recently completed fiscal year of the Company has been, indebted to the Company or any of its subsidiaries (other than in respect of amounts which would constitute routine indebtedness) or was indebted to another entity, which such indebtedness is, or was at any time since the beginning of the most recently completed fiscal year of the Company, the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by the Company or any of its subsidiaries, except for Mr. Gary Leong in the amount of $170,000, for a period of three months.

 

47



 

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

 

The following sets forth information in respect of securities authorized for issuance under the Company’s equity compensation plan as at May 31, 2018 (the last fiscal year end of the Company):

 

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 under
equity compensation
plans

 

Equity compensation plans approved by Shareholders

 

9,124,655

(1)

$

7.46

 

11,892,337

 

Equity compensation plans not approved by Shareholders

 

 

$

 

 

Total

 

9,124,655

 

$

7.46

 

11,892,337

 

 


Notes:

(1)         Includes an aggregate of 8,118,481 Options outstanding and unexercised under the Existing Option Plan (or 3.86% of the issued and outstanding Common Shares as of May 31, 2018); an aggregate of 168,460 DSUs outstanding under the Existing DSU Plan (or 0.08% of the issued and outstanding Common Shares as of May 31, 2018); and an aggregate of 837,714 legacy options issued in connection with the Company’s acquisition of Nuuvera (or 0.40% of the issued and outstanding Common Shares as of May 31, 2018).

 

STOCK OPTION OVERHANG, DILUTION AND BURN RATES

 

 

 

2018(4)

 

2017

 

2016

 

Burn Rate(1)

 

4.27

%

2.16

%

0.97

%

Dilution(2)

 

4.14

%

4.27

%

7.10

%

Overhang(3)

 

9.92

%

9.98

%

10.00

%

 


Notes:

(1)         The number of Options and DSUs granted in a fiscal year, expressed as a percentage of the weighted average number of Common Shares - basic outstanding for the fiscal year.

(2)         Total number of Options and DSUs outstanding expressed as a percentage of the total number of Common Shares outstanding as at May 31st of each year.

(3)         Total number of Options and DSUs outstanding plus Options available for issue, expressed as a percentage of the total number of Common Shares outstanding as at May 31st of each year.

(4)         Includes all legacy options available for issuance in connection with the Company’s acquisition of Nuuvera.

 

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

 

General

 

The Board and management believe that sound and effective corporate governance is essential to Aphria’s performance. Aphria has adopted certain practices and procedures to ensure that effective corporate governance practices are followed and that the Board functions independently of management. In addition, the CNG Committee reviews the Company’s corporate governance practices and procedures on a regular basis to ensure that they address significant issues of corporate governance. To comply with these various standards and achieve best practices, we have adopted comprehensive corporate governance policies and procedures. Our key policies and documents include the following:

 

48



 

·                  Mandate of the Board

·                  Charters of the Board Committees

·                  Audit Committee

·                  CNG Committee

·                  Code of Business Conduct and Ethics

·                  Whistleblower Policy

·                  Corporate Disclosure Policy

·                  Insider Trading Policy

·                  Delegation of Authority Policy

 

The following sections set out a description of Aphria corporate governance practices as approved by the Board and in accordance with the requirements set forth in NI 58-101 — Disclosure of Corporate Governance Practices. A copy of our Board Mandate is attached to this Circular as Exhibit “B”.

 

Board of Directors

 

Independence

 

The Board is currently comprised of 7 directors, 3 of whom are independent. Independence is determined in accordance with NI 52-110. For fiscal 2018, the Board has determined that returning directors Shawn Dym and Renah Persofsky are independent within the meaning of NI 52-110 as well as newly nominated directors John Herhalt, Shlomo Bibas and Tom Looney. In addition, the Board has determined that the following director nominees are non-independent — Vic Neufeld, Cole Cacciavillani and John Cervini as a result of their senior management positions with the Company.

 

Common board memberships

 

The board has not adopted a policy limiting the number of directors who sit on the board of another public company but believes disclosure of common board memberships is important, See: “Statement of Corporate Governance Practices - Other Public Company Directorships Held”.

 

Meetings of independent directors

 

Our Board believes that given its size and structure, it is able to facilitate independent judgment in carrying out its responsibilities. However, to further enhance such independent judgment, the Independent Directors may meet in the absence of senior executive officers or any non-independent directors. As a result of Dennis Staudt’s resignation, the independent directors will appoint a Lead Director after the AGM who is independent of management. The Lead Director in conjunction with the independent directors have opportunities to meet without management present, as required.

 

During the fiscal year ended May 31, 2018, the Board and the committees met as follows:

 

 

 

Meetings
held

Board

 

25

Audit Committee

 

5

CNG Committee

 

5

 

49



 

Attendance

 

The attendance record of each director is set out below:

 

Director