EX-99.23 24 a18-26052_1ex99d23.htm EX-99.23

Exhibit 99.23

 

 

NOTICE OF MEETING

 

AND

 

MANAGEMENT INFORMATION CIRCULAR

 

FOR THE

 

ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

 

to be held on October 25, 2017

 

September 11, 2017

 



 

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 Wednesday, October 25, 2017 at 10:00 a.m. (Eastern Daylight Time) at 245 Talbot Street West, Unit 103, Leamington, Ontario for the following purposes:

 

1.              to receive the annual audited financial statements of the Company for the financial year ended May 31, 2017, 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 the stock option plan for the Company;

 

5.              to consider and, if thought fit, approve the deferred share unit plan for the Company; and

 

6.              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 October 25, 2017 (the “Circular”).

 

This Notice of Meeting, the Circular and the annual financial statements for the year ended May 31, 2017, 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 13, 2017, 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 August 29, 2017 (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 Computershare 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 11th day of September 2017.

 

 

 

 

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

 

3

Record Date and Quorum

 

3

 

 

 

PROXY RELATED MATTERS

 

3

Solicitation of Proxies

 

3

Appointment of Proxies

 

3

Revocation of Proxy

 

4

Persons Making the Solicitation

 

4

Voting of Proxies

 

4

Advice to Nonregistered Shareholders

 

4

Notice-and-Access

 

5

 

 

 

NON-IFRS MEASURES

 

5

 

 

 

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

 

6

 

 

 

BUSINESS OF THE MEETING

 

6

Receipt of Financial Statements and Auditors Report

 

6

Election of Directors

 

6

Appointing Auditors

 

7

Approval of an Amended and Restated Stock Option Plan

 

8

Approval of an Amended and Restated Deferred Share Unit Plan

 

10

Director Nominees

 

13

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

21

Overview

 

21

Objectives of Compensation Program

 

21

Compensation, Nominating & Governance Committee

 

22

Executive Compensation Components

 

23

Employment Agreements

 

26

Option-based Awards and Share-based Awards

 

30

Summary Compensation Table

 

32

Outstanding Share-Based Awards and Option-Based Awards Table

 

33

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

 

34

Exercise of Stock Options by NEOs

 

34

NEO Share Ownership

 

35

Employment Agreements, Termination, and Change of Control Benefits

 

35

Summary of Termination Benefits

 

37

 

 

 

COMPENSATION OF DIRECTORS

 

37

Director Compensation Table

 

39

Outstanding Share-Based Awards and Option-Based Awards Table

 

39

 

 

 

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

 

41

 

 

 

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

 

41

General

 

41

Board of Directors

 

41

Chairman of the Board

 

42

Other Public Company Directorships Held

 

43

Position Descriptions

 

44

Orientation and Continuing Education

 

44

Nomination of Directors

 

44

Board Committees

 

45

 

1



 

INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS

 

46

INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

 

46

INTEREST OF CERTAIN PERSONS AND COMPANIES IN MATTERS TO BE ACTED UPON

 

46

ADDITIONAL INFORMATION

 

46

APPROVAL

 

46

Exhibit “A”

 

A-1

Exhibit “B”

 

B-1

Exhibit “C”

 

C-1

Exhibit “D”

 

D-1

 

2



 

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 at September 11, 2017, 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 Wednesday, October 25, 2017 at 10:00 am (EDT) at 245 Talbot Street West, Unit 103, Leamington, 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 the stock option plan of Aphria, the approval of a deferred share units 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, 2017. 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’s discussions and analysis for the financial year ended May 31, 2017. 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 August 29, 2017 (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.

 

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 Wednesday October 25, 2017 (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.

 

3



 

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 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. The majority of brokers now delegate responsibility for obtaining instructions from clients to Broadridge Financial Solutions, Inc. (“Broadridge”). Broadridge typically mails 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.

 

4



 

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.com/investors/documents 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.

 

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. 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, 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 September 29, 2017.

 

NON-IFRS MEASURES

 

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

 

·          Adjusted gross profit is equal to gross profit less the non-cash increase (plus the non-cash decrease) in the fair value 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.

 

·          EBITDA is net income (loss), plus (minus) income tax expense (recovery) plus (minus) finance expense (income), plus amortization, plus share-based compensation, plus (minus) non-cash fair value adjustments related to biological assets, plus amortization of non-capital assets, plus impairment of intangible assets, plus (minus) loss (gain) on marketable securities, plus (minus) loss (profit) from equity accounted investee, plus (minus) EBITDA profit (loss) from equity accounted investee, 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, 2017 available on SEDAR.

 

5



 

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

 

The authorized capital of the Company consists of an unlimited number of Common Shares. There were 138,888,590 Common Shares of the Company outstanding as of the Record Date, each Common Share carrying the 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 Common 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, 2017 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, there will be 7 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. All the individuals who have been nominated as directors are currently members of the board and were elected as part of the business combination between Pure Natures Wellness Inc. o/a Aphria and Black Sparrow Capital Corp., as described in the joint management information circular dated October 28, 2014, except for Mr. Dym and Ms. Persofsky who are new nominees in fiscal 2018 as Ms. Dickinson and Mr. Kozlov will not be standing for re-election at the Meeting. The Company wishes to thank each of Ms. Dickinson and Mr. Kozlov for their contributions to the Company and the Board.

 

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. Please refer to pages 12 to 19 of this Circular for additional information on the proposed 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.

 

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

 

6



 

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 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 have 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 the Company’s previous external auditors, MNP LLP, for the financial year ended May 31, 2016 and PricewaterhouseCoopers LLP for the financial year ended May 31, 2017, are as set out below (including estimates).

 

 

 

May 2017

 

May 2016

 

Audit Fees(1)

 

$

99,000

 

$

60,000

 

Audit Related Fees(2)

 

61,200

 

19,000

 

Tax Fees(3)

 

 

 

All Other Fees

 

 

 

Total

 

$

160,200

 

$

79,000

 

 


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.

 

7



 

Approval of an Amended and Restated Stock Option 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 an amended and restated incentive stock option plan (the “Option Plan”). A copy of the Option Plan, which has been conditionally approved by the TSX, subject to the receipt of customary documentation, is attached hereto as Schedule “A-1” to Exhibit “A”. The Option Plan was previously approved by the Board, in connection with the Company’s graduation from the TSX Venture Exchange to the TSX on March 22, 2017. The changes to the Company’s prior option plan are those required by the TSX in order to ensure that the Option Plan meets the guidelines set out in the Manual, each as further discussed below. Capitalized terms used herein in this section and not otherwise defined shall have the meanings given to them in the Option Plan.

 

The Option Plan

 

The purpose of the Option Plan continues to be:

 

(i)

providing directors, officers, consultants and key employees of the Company (“Eligible Persons”) with additional incentives;

 

 

(ii)

encouraging stock ownership by such Eligible Persons;

 

 

(iii)

increasing the proprietary interest of Eligible Persons in the success of the Company;

 

 

(iv)

encouraging Eligible Persons to remain with Aphria or its subsidiaries; and

 

 

(v)

attracting new directors, employees and officers.

 

The Option Plan requires the approval of Shareholders in accordance with the Section 613 of the Manual.

 

The Option Plan continues to be a “rolling plan” with the Company authorized to issue such number of options which is 10% of the issued and outstanding share capital at the date of grant, less the aggregate number of Common Shares reserved for issuance or issuable under any Share Compensation Arrangement. As a result, any increase in the issued and outstanding Common Shares will result in an increase in the number of Common Shares available for issuance under the Option Plan. The maximum number of Common Shares issued to Insiders under the Option Plan, or when combined with any other previously established or proposed share compensation arrangements, within any one-year period, may not exceed 10% of the outstanding value and the maximum number of Common Shares issuable to Insiders under the Option Plan, or when combined with any other previously established or proposed share compensation arrangements, at any time, may not exceed 10% of the outstanding issue. Furthermore, the maximum number of Common Shares that may be issued to any Consultant or all Persons conducting Investor Relations Activities for the Company within any one year period pursuant to the exercise of Options granted under the Stock Option Plan shall not exceed 2% of the Common Shares outstanding (calculated on a non-diluted basis).

 

As of the date hereof, there are an aggregate of 7,155,869 Options outstanding and unexercised under the Option Plan, representing 5.2% of the issued and outstanding Common Shares. As of the date of this Circular, 1,157,131 Common Shares have been issued from exercised Options under the Option Plan, representing 0.8% of the issued and outstanding Common Shares and 290,000 Options have been forfeited. If the Option Plan and the DSU Plan (collectively, the “Plans”) are approved at the Meeting, 13,888,859 Shares in the capital of Aphria will be reserved for issuance under the Plans, representing 10% of the total outstanding Common Shares. As a result of the previously issued and unexercised Options and DSUs, a total of 6,727,570 Common Shares, representing 4.8% of the total outstanding Common Shares will be reserved for issuance under the Plans.

 

In connection with certain change of control transactions, including a take-over bid, merger or other structured acquisition, the Board may accelerate the vesting date of all unvested options such that all optionees will be entitled to exercise their full allocation of Options and in certain circumstances where such optionees’ employment is terminated in connection with such transactions, such accelerated vesting will be automatic.

 

Options granted under the Option Plan will have an Exercise Price that shall be fixed by the Board at the time that the Option is granted, but in no event shall it be less than the Market Price. The term of the Options and the vesting schedule shall be determined by the Board at the time of grant, but in no case shall an Option be exercisable for a period exceeding ten (10) years.

 

8



 

The Company does not provide financial assistance to Option holders in connection with their participation in the Option Plan.

 

Options shall not be transferable or assignable by the Participant otherwise than by will or the laws of descent and distribution, and shall be exercisable during the lifetime of a Participant only by the Participant and after death only by the Participant’s legal representative. As a general matter and subject to Board discretion and certain specified exceptions, if the Board service, employment or consulting relationship of a participant terminates, then vested Options held by the participant will cease to be exercisable on the earlier of the original expiry date of the Option and six (6) months after the applicable termination date and all unvested Options will terminate.

 

Notwithstanding any other provision of the Stock Option Plan, if the expiry date of any vested Option ceases falls on, or within nine business days immediately following, a date upon which the participant is prohibited from exercising the Option due to a black-out period or other trading restriction imposed by the Company, then the expiry date of the Option shall be automatically extended to the tenth business day following the date the relevant black-out period or other trading restriction imposed by the Company is lifted, terminated or removed.

 

A Participant may, in lieu of exercising an Option for cash, elect to receive, instead of the Common Shares issuable upon exercise of the Option, such number of Common Shares (rounded down to the nearest whole number) equal to the value (as determined below) of such Option by surrendering the Option at the principal office of the Company together with a properly endorsed notice of exercise and a notice of cashless exercise, in which event the Company shall issue to the Participant, upon exercise, 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 upon such cashless exercise

 

Y = the number of Common Shares issuable upon the exercise of the Options being exercised

 

A = the Market Price of the Common Shares as at the date of such cashless exercise

 

B = the Exercise Price

 

Amending the Option Plan

 

As part of the Company’s graduation to the TSX, there were significant revisions to the amendment provisions of the Company’s prior option plan, each as described further below.

 

Subject to the applicable rules of the TSX, the Board may hereafter from time to time, in its absolute discretion and without the approval of Shareholders, make the following amendments to the Option Plan or any Option:

 

·        amend the vesting provisions of the Option Plan and any Certificate;

 

·        amend the Option Plan or an Option as necessary to comply with applicable law or the requirements of the TSX or any other regulatory body having authority over the Company, the Option Plan or the Shareholders;

 

·        any amendment of a “housekeeping” nature, including, without limitation, to clarify the meaning of an existing provision of the Option Plan, correct or supplement any provision of the Option Plan that is inconsistent with any other provision of the Option Plan, correct any grammatical or typographical errors or amend the definitions in the Option Plan regarding administration of the Option Plan;

 

·        any amendment respecting the administration of the Option Plan; and

 

·        any other amendment that does not require the approval of Shareholders under Section 1.6(d) of the Option Plan.

 

Subject to the applicable rules of the TSX, Shareholder approval is required for the following amendments to the Option Plan:

 

·        any increase in the maximum number of Common Shares that may be issuable pursuant to Options granted under the Option Plan;

 

9



 

·        any reduction in the Exercise Price of an Option, cancellation and reissue of Options, extension of the Expiry Date of an Option or a substitution of Options with cash or other awards on terms that are more favourable to the Participant;

 

·        any amendment to the Insider participation limit;

 

·        any amendment to Section 1.6(c) and (d) of the Option Plan;

 

·        any extension of the Expiry Date of an Option held by an Insider; and

 

·        any change that would materially modify the eligibility requirements for participation in the Option Plan.

 

Disinterested Shareholder approval, meaning the approval of a majority of Shareholders voting at a duly called and held meeting of such Shareholders, excluding votes of Insiders to whom options may be granted under the Option Plan, is required for the following amendments to the Option Plan:

 

·        any individual stock option grant that would result in any of the limitations set forth in Section 1.4(c) of the Option Plan being exceeded; and

 

·        any individual stock option grant that would result in the grant to Insiders (as a group), within a twelve (12) month period, of an aggregate number of Options exceeding ten percent (10%) of the issued Common Shares, calculated on the date an Option is granted to any Insider;

 

·        any individual stock option grant that would result in the number of Common Shares issued to any individual in any twelve (12) month period under the Option Plan exceeding five percent (5%) of the issued Common Shares of the Company, less the aggregate number of shares reserved for issuance or issuable under any other Share Compensation Arrangement of the Company;

 

·        any amendment to Options held by Insiders that would have the effect of decreasing the exercise price of the Options; and

 

·        any individual stock option grant requiring Shareholder approval pursuant to the TSX Manual.

 

As at the date hereof, current directors, officers, key employees and consultants of the Company hold Options to acquire an aggregate of 7,155,869 Common Shares.

 

Vote Required

 

At the Meeting, Shareholders of the Company will be asked to consider, and if thought fit, approve a motion to approve the Option Plan. The resolution (the “Option 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 Option Plan Resolution, as set out in Exhibit “A”.

 

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

 

Approval of an Amended and Restated Deferred Share Unit Plan

 

At the Meeting, Shareholders will be asked to consider and if thought fit, approve a resolution in the form attached as Exhibit “B” hereto, approving an amended and restated deferred share unit plan (the “DSU Plan”). A copy of the DSU Plan, which has been conditionally approved by the TSX subject to the receipt of customary documentation, is attached hereto as Schedule “B-1” to Exhibit “B”. The DSU Plan was previously approved by the Board, in connection with the Company’s graduation from the TSX Venture Exchange to the TSX on March 22, 2017. The changes to the Company’s prior deferred share unit plan are those required by the TSX in order to ensure that the DSU Plan meets the guidelines set out in the Manual, each as further discussed below. Capitalized terms used herein in this section and not otherwise defined shall have the meanings given to them in the DSU Plan.

 

10



 

The DSU Plan

 

The DSU Plan will continue to promote the interests of the Company by attracting and retaining qualified persons to serve on the Board and to service the Company and to afford such participants in the DSU Plan an opportunity to receive a portion of their compensation for serving as a director or officer of the Company in the form of securities of the Company. The DSU Plan continues to be a “rolling plan” with the Company authorized to issue such number of deferred share units “DSUs”, each a “DSU” which is 10% of the issued and outstanding share capital at the date of grant, less the aggregate number of Common Shares reserved for issuance or issuable under any Share Compensation Arrangement.

 

The CNG Committee of the Board will continue to administer the DSU Plan and determine which members of the Board and officers of the Company are eligible to participate (the “Participants”) and to whom awards of DSUs will be made. Each existing or new member of the Board or certain officers may elect in writing, once each year, to be paid a percentage of his or her cash annual retainer or annual bonus, as applicable, in the form of DSUs, with the balance being paid in cash. If no election is made in respect of a particular fiscal year, the Participant will receive the cash annual retainer or annual bonus, as applicable, in cash.

 

The number of DSUs granted at any particular time pursuant to the DSU Plan will be calculated by: (a) in the case of an elected amount, by dividing (i) the dollar amount of the elected amount allocated to the participant by (ii) the Share Price of a Common Share on the applicable award date; or (b) in the case of a grant of Deferred Share Units by dividing (i) the dollar amount of such grant by (ii) the Share Price of a Common Share on the applicable grant date. “Share Price” at any date in respect of the Common Shares means the volume weighted average trading price of the Common Shares on the TSX for the five (5) trading days immediately preceding the applicable date.

 

Unless otherwise stated in an applicable Grant Agreement, all DSUs recorded in a Participant’s DSU notional account shall vest on the day of grant.

 

Dividend equivalents are awarded in respect of DSUs in a Participant’s account on the same basis as if the Participant was a Shareholder on the relevant record date, and the dividend equivalents are credited to the Participant’s account as additional DSUs (or fractions thereof).

 

The maximum number of Common Share issuable under the DSU Plan shall not exceed 10% of the then issued and outstanding Common Shares pursuant to the DSU Plan (together with any other share-based compensation arrangement of the Company, including the Option Plan), and the aggregate value of DSUs awarded to non-executive directors within any one-year period under the DSU Plan together with all other security based compensation arrangements of the Company shall not exceed $150,000 in value of equity per Participant. The maximum number of Common Shares issued to Insiders under the DSU Plan, or when combined with any other previously established or proposed share compensation arrangements, within any one-year period, may not exceed 10% of the outstanding value and the maximum number of Common Shares issuable to Insiders under the DSU Plan, or when combined with any other previously established or proposed share compensation arrangements, at any time, may not exceed 10% of the outstanding issue.

 

As of the date hereof, there are an aggregate of 5,420 DSUs outstanding and unexercised under the DSU Plan representing 0.004% of the issued and outstanding Common Shares. If the Plans are approved at the Meeting, 13,888,859 Shares in the capital of Aphria will be reserved for issuance under the Plans, representing 10% of the total outstanding Common Shares. As a result of the previously issued and unexercised Options and DSUs, a total of 6,727,570 Common Shares, representing 4.8% of the total outstanding Common Shares will be reserved for issuance under the Plans.

 

Upon a Participant ceasing to be a member of the Board or officer of the Company, he or she may by the 90th day following the date on which the Participant ceases to hold any position as a director of the Company or ceases to be an officer and employee of the Company (the “Termination Date”), elect to receive net of any applicable withholding taxes: (i) a cash payment equal to the number of DSUs credited to the Participant’s account as of the Termination Date, multiplied by the Share Price of the Common Shares; (ii) Common Shares purchased on the Participant’s behalf on the open market by a broker; or (iii) a combination thereof.

 

Notwithstanding the foregoing, the Company has the absolute discretion, subject to any necessary Shareholder and regulatory approvals, to issue to the Participant such number of Common Shares from treasury as equal the number of

 

11



 

DSUs, net of the number of DSUs that would equal the applicable withholding taxes recorded in the Participant’s account on the Termination Date. In the absence of the giving of a notice of redemption, the Participant will be deemed to have elected a cash payment. In the event of death of a Participant, no notice of redemption shall be required and the Company shall within one (1) calendar year in the case of a Participant, make a lump sum cash payment for the benefit of the trustee, administrator or other legal representative of the individual. The lump sum cash payment would be equivalent to the cash payment on the Termination Date.

 

Under no circumstances shall DSUs be considered Common Shares nor shall they entitle any Participant to exercise voting rights or any other rights attaching to the ownership of common shares of the Company nor shall any Participant be considered a Shareholder by virtue of the award of DSUs.

 

The rights or interests of a Participant under the DSU Plan are not assignable or transferable, otherwise than by will or the laws governing the devolution of property in the event of death. Further, such rights or interests are not to be encumbered.

 

Amending the DSU Plan

 

As part of the Company’s graduation to the TSX, there were significant revisions to the amendment provisions of the Company’s prior deferred share unit plan, each as described further below.

 

The Board may at any time, and from time to time, and without Shareholder approval, amend any provision of the DSU Plan, subject to any regulatory or stock exchange requirement at the time of such amendment, including, without limitation:

 

·        amendments to the termination provisions the DSU Plan;

 

·        amendments necessary or advisable because of any change in application of securities laws;

 

·        amendments to Section 4 relating to the administration of the DSU Plan; and

 

·        any other amendment, fundamental or otherwise, not requiring shareholder approval under applicable laws or the rules of the TSX, including amendments of a “housekeeping” nature.

 

Notwithstanding the foregoing, none of the following amendments shall be made to the DSU Plan without approval by Shareholders or disinterested Shareholders (as applicable) by ordinary resolution:

 

·        amendments to the DSU Plan which would increase the number of securities issuable under this Plan, otherwise than in accordance with the terms of the DSU Plan which permit the Board to make equitable adjustments in the event of transactions affecting the Company or its capital;

 

·        amendments to the DSU Plan which would increase the number of securities issuable to Insiders, otherwise than in accordance with the terms of the DSU Plan;

 

·        amendments permitting awards other than DSUs to be made under the DSU Plan;

 

·        an amendment that would permit DSUs to be granted to persons other than Eligible Participants on a discretionary basis; and

 

·        amendments deleting or reducing the range of amendments which require shareholders’ approval under the DSU Plan.

 

Any amendment shall not alter the terms or conditions of any DSU or impair any right of any holder of Deferred Share Units pursuant to any DSU granted prior to such amendment.

 

No amendment shall be made which prevents the DSU Plan from continuously meeting the requirements of paragraph 6801(d) of the Income Tax Regulations (Canada) or any successor provision thereto.

 

Vote Required

 

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

 

12



 

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

 

Unless specifically instructed to vote against the DSU Plan Resolution, the persons named in the form of proxy accompanying the Notice of Meeting intend to vote FOR the approval of the DSU 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 2017, 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”) — Dennis Staudt, Phil Waddington, Shawn Dym and Renah Persofsky. In addition, the Board has determined that the following director nominees are non-independent within the meaning of NI 52-110 — Vic Neufeld, Cole Cacciavillani and John Cervini.

 

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 (including the 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.

 

13



 

VIC NEUFELD

 

 

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

 

Age: 63

 

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 developing brands

 

Board Committee Membership

Membership

Meeting Attendance

 

Board

10 of 10

 

Annual General Meeting

1 of 1

 

Organizational Board Meeting

1 of 1

Current Board Directorships

Public Boards

Private Boards

 

None

Enwin Utilities Ltd.

 

 

WFCU Credit Union

Common Shares (# & $)

Number

Value

 

949,695

$5,166,341(1)

Shareholding Requirements

% of Shareholding Requirements(2)

Target Date to Meet Requirement

 

14.0 x

TARGET MET

 

14



 

COLE CACCIAVILLANI

 

 

Co-Founder and Vice-President — Growing Operations

 

Age: 62

 

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

10 of 10

 

Annual General Meeting

1 of 1

 

Organizational Board Meeting

1 of 1

Current Board Directorships

Public Boards

Private Boards

 

None

Erie Shores Campus Hospice

Common Shares (# & $)

Number

Value

 

8,494,444

$46,209,775(1)

Shareholding Requirements

% of Shareholding Requirements(2)

Target Date to Meet Requirement

 

220.0 x

TARGET MET

 

15



 

JOHN CERVINI

 

 

Co-Founder and Vice-President — Infrastructure & Technology

 

Age: 47

 

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

10 of 10

 

Annual General Meeting

1 of 1

 

Organizational Board Meeting

1 of 1

Current Board Directorships

Public Boards

Private Boards

 

None

None

Common Shares (# & $)

Number

Value

 

9,500,001

$51,680,005(1)

Shareholding Requirements

% of Shareholding Requirements(2)

Target Date to Meet Requirement

 

246.0 x

TARGET MET

 

16



 

DENNIS STAUDT, CPA, CA

 

 

Lead Director Chair of the Audit Committee Member, Compensation, Nominating & Governance Committee

 

Age: 63

 

Kingsville, Ontario

 

Director since 2014

 

Independent Director: YES

 

 

Mr. Staudt is the Lead Director of Aphria, in addition to being the Chair of the Audit Committee. Mr. Staudt is a retired Partner from PricewaterhouseCoopers LLP. Mr. Staudt continues to provide business advisory services to a number of private companies, primarily in the manufacturing and greenhouse sectors. He is also Vice-President of Staudt Farms Limited, a family-owned farming operation in Leamington, Ontario.

 

Strategic qualifications:

·        Significant financial literacy tied to Big Four experience

·        3 years as a member of Board of Directors

 

Board Committee Membership

Membership

Meeting Attendance

 

Board

10 of 10

 

Audit

4 of 4

 

Compensation, Nominating &

7 of 7

 

Governance

 

 

Annual General Meeting

1 of 1

 

Organizational Board Meeting

1 of 1

Current Board Directorships

Public Boards

Private Boards

 

None

None

Common Shares (# & $)

Number

Value

 

60,000

$314,400(1)

Shareholding Requirements

% of Shareholding Requirements(2)

Target Date to Meet Requirement

 

15.7 x

TARGET MET

 

17



 

DR. PHIL WADDINGTON

 

 

Member, Compensation, Nominating & Governance Committee

 

Age: 54

 

Gatineau, QC

 

Director since 2014

 

Independent Director: YES

 

 

 

 

Dr. Waddington is a director of Aphria Inc. Dr. Waddington, a trained naturopathic physician, is a leader in the field of regulating natural health products. From January 2000 to August 2008, Dr. Waddington served as the inaugural Director General of the Natural Health Products Directorate (NHPD) of Health Canada. He is also the Executive Director of the Canadian Homeopathic Pharmaceutical Association (CHPA).

 

Strategic qualifications:

·        Significant experience inside Health Canada and more specifically Natural Health Products Directorate

·        3 years as a member of Board of Directors

 

Board Committee Membership

Membership

Meeting Attendance

 

Board

9 of 10

 

Compensation, Nominating &

7 of 7

 

Governance

 

 

Annual General Meeting

1 of 1

 

Organizational Board Meeting

1 of 1

Current Board Directorships

Public Boards

Private Boards

 

None

None

Common Shares (# & $)

Number

Value

 

32,007

$167,717(1)

Shareholding Requirements

% of Shareholding Requirements(2)

Target Date to Meet Requirement

 

8.4 x

TARGET MET

 

18



 

RENAH PERSOFSKY — NEW NOMINEE

 

 

New Nominee

 

Age: 58

 

Toronto, ON

 

Director since: N/A

 

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 I banking 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

BookJAne

 

 

MeazureUP Inc.

Common Shares (# & $)

Number

Value

 

Nil

$ Nil

Shareholding Requirements

% of Shareholding Requirements(2)

Target Date to Meet Requirement

 

0.0%

October 2022

 

19



 

SHAWN DYM — NEW NOMINEE

 

 

New Nominee

 

Age: 37

 

Toronto, ON

 

Director since: N/A

 

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. Since 2014 he has been president of Eddy Smart Home Solutions Inc. a leading smart home water monitoring venture based out of Toronto.

 

Mr. Dym has more than a decade of experience in the energy industry, most recently co-founding National Home Services (NHS) and serving as its chief operating officer from 2008 to 2011. He currently serves on the board of directors at Wellpoint Health and Totally Green. 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

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

Wellpoint Health

 

 

Totally Green

Common Shares (# & $)

Number

Value

 

Nil

$ Nil

Shareholding Requirements

% of Shareholding Requirements(2)

Target Date to Meet Requirement

 

0.0 x

October 2022

 


Notes:

 

(1)                 As at May 31, 2017.

(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”.

 

20



 

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, Director of Marketing, for the fiscal year ended May 31, 2017.

 

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 (the “Reference Group)”;

 

·          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.

 

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

 

·          Implementation of a SuperCharger bonus to reward extraordinary results for fiscal 2018 which would be a fixed percentage of the Fiscal 2018 target bonus under the STIP

 

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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 — Board Committees — CNG Committee” on page 45 of this Circular.

 

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 is considered to be “at-risk”. Our senior executives’ short-term incentive plan (“Short-Term Incentive Plan” or “STIP”) payout is conditional upon the attainment of or exceeding certain Company financial metrics, in particular annual targets related to gross sales, EBITDA and gross profit as set forth in the budget. The Board seeks to tie individual goals to the area of the executive officer’s primary responsibility, primarily through the use of a SuperCharger bonus. 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, 2017, the CNG Committee was comprised of four directors, namely Robert Kozlov (Chair), Arlene Dickinson, 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

 

22



 

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 × base salary

Independent Directors

 

2 × base annual cash retainer

Chief Financial Officer

 

1 × base salary

Other Officers

 

0.5 × 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.

 

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 average closing price of the Company’s Common Shares on the TSX on May 31 of the prior fiscal year.

 

In fiscal 2016, the Board approved the Minimum Share Ownership Policy. However, during the current year, the Board tasked the CNG Committee with reconsideration of the Policy based on the growth of the per share cost of the Company’s Common Shares. As at the Record Date, the Board has not approved a revised policy but has temporarily suspended the initial ownership requirements while the Policy is reconsidered.

 

While the applicable 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 Common 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 for fiscal 2018, the introduction of the SuperCharger bonus, and (c) long-term equity incentives, consisting of stock options granted under the Option Plan and any other equity plan that may be approved by the Board, including the DSU Plan. These three principal elements of compensation are described in more detail below

 

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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

 

·        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

 

 

·        Performance period: 1 year

 

 

 

 

 

 

 

 

Short-Term Incentive (STIP)

 

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

·        Performance period: 1 year

 

 

·        Cash

 

·        Gross sales performance

·        EBITDA performance

·        Gross profit performance

 

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

 

·        Payout conditional upon achievement of pre-determined financial metrics

 

 

·        Annual SuperCharger bonus, beginning in fiscal 2018

 

·        Cash

 

·        Executive specific financial metric

 

·        In concert with Strategic Plan

 

·        Payout conditional on achievement of pre-determined financial metric

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 the NEOs and competitive industry benchmarks for other medical marijuana 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.

 

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;

 

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The following table shows the percentage breakdown of STIPs for the fiscal year ended May 31, 2017:

 

Name

 

Position

 

Maximum
annual
bonus
(1)

 

Target #1, meet
or exceed 2017
budgeted sales
level
(1)

 

Target #2, meet
or exceed 2017
budgeted gross
profit level
(1)

 

Target #3, meet
or exceed 2017
budgeted EBITDA
level
(1)

 

Discretionary
bonus
(2)

 

Vic Neufeld

 

Chief Executive Officer

 

45

%(3)

15

%

15

%

15

%

N/A

 

Carl Merton

 

Chief Financial Officer

 

30

%

10

%

10

%

10

%

N/A

 

Cole Cacciavillani

 

Co-Founder and Vice-President — Growing Operations

 

30

%

10

%

10

%

10

%

N/A

 

John Cervini

 

Co-Founder and Vice-President — Infrastructure & Technology

 

30

%

10

%

10

%

10

%

N/A

 

Megan McCrae

 

Director of Marketing

 

20

%

5

%

5

%

5

%

5

%

 


(1)         As a percentage of base salary. Maximum annual bonuses for the NEOs were revised for fiscal 2018. For further disclosure see “Changes to Compensation for fiscal 2018.”

 

(2)         At the discretion of the CEO, based on Ms. McCrae achieving personal performance objectives as established by the CEO.

 

(3)         Mr. Neufeld’s bonus was increased for fiscal 2018 to a maximum annual bonus of 50%, with 16 2/3% of such bonus payable with each of the three targets referenced in the table above for Mr. Neufeld.

 

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 2017, the Board approved the following as the financial measures to be achieved (for Mr. Neufeld, Merton, Cacciavillani and Cervini, as to 1/3 of the total targeted STIP in each case and for Ms. McCrae, as to 1/4 of the total targeted STIP):

 

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

 

·   EBITDA measured against budgeted the EBITDA target; and

 

·   Annual gross profits (“AGP”) as measured against budgeted AGP target.

 

The CNG Committee recommended AGS, EBITDA and AGP as the financial measures to be achieved in Fiscal 2017 to ensure that senior executives’ incentive-based compensation reflects:

 

·   Success in achieving the Company’s targets for profitability; and

 

·   Effectiveness in managing the return on assets, including the level of investment required to generate earnings.

 

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 NEOs all received annual incentive payout at 100% of targets, as the Company’s fiscal 2017 gross sales targets as set forth in the operating budget (“Budget”) for the immediately preceding fiscal year prior to the determination of the LTIP bonus, and its annual EBITDA with reference to targets, as set forth in the Budget and its annual targets for gross profit as set for in the Budget, all met or exceeded their respective target ranges, except for Ms. McCrae who received approximately 70% of her discretionary bonus. We believe that these 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

 

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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 or stock options of the Company.

 

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 DSUs under the DSU Plan to NEOs at its discretion.

 

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 NEOs do not benefit from pension plan participation as the Company does not currently have a company-sponsored pension plan. Moreover, none of its NEOs participate in a 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 of the NEOs receive a gas allowance, perquisite and personal benefits are not a significant element of the compensation of the NEOs.

 

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. Any increases in base salary for the NEOs, with the exception of Ms. McCrae, are at the sole discretion of the Board, with significant input from the CNG Committee. Historically, Aphria had not engaged

 

26



 

compensation consultants for the purposes of performing benchmarking with reference being had to other comparable businesses, including other small capitalization public Canadian medical marijuana companies.

 

In May 2017, the Committee engaged Hugessen to conduct a compensation review of the salaries and total direct compensation for the purposes of setting the future compensation of the NEOs for fiscal year 2018 and developing appropriate benchmarking which together with the implementation of a formalized compensation philosophy will provide a framework for compensation decisions going forward.

 

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 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 CNG 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 in regard 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 continued to grow rapidly in size and complexity, it was thought appropriate to engage an outside independent compensation consultant 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 2018 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

 

27



 

senior executive positions, are also considered relevant in selecting the companies in the Reference Group given the correlation between pay level and company size.

 

As part of the assessment of the Reference Group by the Company, the following criteria were considered by Hugessen:

 

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

 

·                  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 proforma basis as at fiscal year 2019 to recognize the significant expected growth in the medical marijuana 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 are designed to align 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’s 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.

 

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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:

 

 

The Company’s total shareholder return since inception has shown a significant upward trend. However, for the fiscal year ended May 31, 2017, based on the market data reviewed by Hugessen, the target total cash compensation for the senior executives was in the bottom quartile which was a reflection of the desire on the part of the Company to base more of the compensation of the senior executives on long-term performance to align their interests with those of the shareholders. However, even when considering STIP and LTIP, the target total direct compensation (“TDC”) (base salary, STIP and LTIP) was still between the bottom quartile and median, and thus based on the market data reviewed by Hugessen, it was recommended that the CNG Committee could consider providing increases to the compensation of the senior executives in order to bring the TDC in line with the market median.

 

In this regard the CNG Committee is in the process of implementing a formalized compensation philosophy to provide a framework around compensation decisions. Such executive compensation policy is contemplated to have reference to the market median with the potential of higher total compensation when individual and Company performance are also at comparable higher levels. 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, based on individual experience and performance or other criteria deemed important by the CNG Committee. Relative to the Reference Group, for fiscal 2018 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. AGS targets, annual EBITDA targets, AGP targets); 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.

 

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Option-based Awards and Share-based Awards

 

The Option Plan

 

The Option Plan is intended to provide 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 Option 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 Option Plan see “Business of the Meeting — Approval of an Amended and Restated Stock Option Plan”.

 

Compensation Consultant

 

In May 2017, the CNG Committee retained Hugessen, a company specialized in compensation matters, among other things, to assist the CNG Committee in matters related to executive compensation, performance assessment and appropriate governance related thereto for fiscal 2018. Hugessen assisted the CNG Committee in determining and benchmarking compensation for the Company’s senior executives including assisting with the establishment of the Reference Group and reviewing and providing advice in regard to the existing STIP and LTIP, with a view to ensuring that the various elements of the compensation package orient senior executives’ efforts and behaviours towards the goals that have been set, as well as to ensure that their total compensation is market competitive. While Hugessen was retained at the end of fiscal 2017, no changes to executive or director compensation were implemented until fiscal 2018, as further disclosed under the heading “Employment Agreements, Termination, and Change of Control Benefits” on page 35 of this Circular.

 

In connection with such retainer, Hugessen researched and benchmarked the Company’s total direct compensation for the four most senior executives in the Company notably the CEO, CFO and the two Co-Founders.

 

There are no other relationships between Hugessen and the Company which would compromise the objectivity of Hugessen, including the following:

 

·                  The CNG Committee had the sole authority to retain and terminate Hugessen including the individual consultants who worked on the mandate;

 

·                  The individual consultants had direct access to the CNG Committee without management intervention;

 

·                  The CNG Committee has the sole discretion to decide if and when the individual consultants advice and recommendations can be shared with management.

 

While the CNG Committee may rely on external information and advice, all of the decisions with respect to executive compensation are made by the CNG Committee and may reflect factors and considerations other than, or that may differ from, the information and recommendations provide by Hugessen.

 

An overview of the characteristics of the Reference Group which was used for the benchmarking and establishment of compensation for fiscal 2018 is provided in the table above under “Benchmarking Practices — Reference Group”.

 

Executive Compensation — Related Fees

 

The fixed fees paid to Hugessen for their services, which also included an analysis of the compensation paid to directors and recommendations in respect thereto, was $27,000 plus HST which were incurred in fiscal 2018.

 

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Changes to Compensation for Fiscal 2018

 

Effective June 1, 2017, the following adjustments to executive compensation were made:

 

NEO

 

Base salary

 

STIP — Base

 

STIP — SuperCharger

Vic Neufeld

CEO and Director

 

Base salary increased to $360,000

 

Target bonus increased to 50%

 

50% of base bonus, upon meet or exceed of EBITDA financial metric

Carl Merton

CFO

 

Base salary increased to $230,000

 

No change

 

50% of base bonus, upon meet or exceed of EBITDA financial metric

Cole Cacciavillani

Co-Founder & VP — Growing Operations and Director

 

Base salary increased to $210,000

 

No change

 

50% of base bonus upon meeting or exceeding a yield metric combined without increasing the budgeted “all-in” cost per gram

John Cervini

Co-Founder & VP — Infrastructure & Technology and Director

 

Base salary increased to $210,000

 

No change

 

50% of base bonus upon meeting or exceeding a yield metric combined without increasing the budgeted “all-in” cost per gram

Megan. McCrae

Director of Marketing

 

Base salary increased to $143,000

 

No change

 

No change

 

Commitment to Competitive Compensation

 

Looking ahead to fiscal 2018, 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 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.

 

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Summary Compensation Table

 

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

 

 

 

 

 

Salary,
consulting

 

 

 

 

 

Non-equity incentive
plan compensation 

 

 

 

 

 

Name and principal position

 

Fiscal
year

 

fee,
retainer or
commission

 

Share-
based
awards

 

Option-based
awards
(11)

 

Annual
Incentive
 Plan
(12)

 

Long-Term
Incentive
Plans
(13)

 

All other
compensation

 

Total
compensation

 

 

 

 

 

($)

 

($)

 

($)

 

($)

 

($)

 

($)

 

($)

 

VIC NEUFELD(1)

 

2017

 

235,385

 

 

1,895,000

 

108,000

 

 

84,500

(14)

2,322,884

 

CEO and Director

 

2016

 

174,415

(6)

 

65,000

 

26,462

 

 

18,768

(15)

284,645

 

 

 

2015

 

120,000

 

 

831,000

 

 

 

185,000

(16)

1,136,000

 

CARL MERTON(2)

 

2017

 

210,000

 

 

265,000

 

63,000

 

 

5,125

 

543,125

 

CFO

 

2016

 

120,048

(7)

 

170,000

 

11,359

 

 

 

301,407

 

 

 

2015

 

3,000

(8)

 

55,000

 

 

 

 

58,000

 

COLE CACCIAVILLANI(3)

 

2017

 

139,231

 

 

265,000

 

42,000

 

 

14,500

(17)

460,731

 

Co-Founder & VP — Growing Operations and Director

 

2016

 

139,115

(9)

 

26,000

 

13,912

 

 

 

179,027

 

 

2015

 

120,000

 

 

300,000

 

 

 

 

420,000

 

JOHN CERVINI(4)

 

2017

 

139,231

 

 

265,000

 

42,000

 

 

14,500

(17)

460,731

 

Co-Founder & VP — Infrastructure & Technology and Director

 

2016

 

139,115

(9)

 

26,000

 

13,912

 

 

 

179,027

 

 

2015

 

120,000

 

 

300,000

 

 

 

 

420,000

 

MEGAN MCCRAE(5)

 

2017

 

107,692

(10)

 

219,400

 

20,073

 

 

 

347,165

 

Director of Marketing

 

2016

 

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

 

 

 

 

 


Notes:

 

(1)                  Mr. Neufeld was appointed President and CEO 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 compensation for fiscal 2018 consisting of an annual salary of $360,000 and an annual bonus under the STIP of up to 50% of his base salary.

(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 for fiscal 2018 to $230,000 per annum.

(3)                  Mr. Cacciavillani did not receive any compensation in his role as a director. The Board approved an increase to Mr. Cacciavillani’s base salary for fiscal 2018 to $210,000 per annum.

(4)                  Mr. Cervini did not receive any compensation in his role as a director. The Board approved an increase to Mr. Cervini’s base salary for fiscal 2018 to $210,000 per annum.

(5)                  Ms. McCrae commenced her employment with the Company on August 15, 2016. The CEO approved an increase to Ms. McCrae’s base salary for fiscal 2018 to $143,000 per annum.

(6)                  Includes a $1,000 signing bonus for executing employment agreement. Mr. Neufeld’s annual salary as at June 1, 2016 was $240,000 per annum. Mr. Neufeld did not receive any compensation related to his position as a director of the Company.

(7)                  Mr. Merton received $6,462 as director fees prior to resigning as a director. Mr. Merton received $113,586 as CFO, including a $1,000 signing bonus for executing employment agreement. Mr. Merton’s annual salary as at June 1, 2016 was $210,000.

(8)                  Mr. Merton’s compensation in fiscal 2015 was only in his capacity as a director of the Company.

(9)                  Includes a $1,000 signing bonus for executing employment agreement. Mr. Cacciavillani and Mr. Cervini’s annual salary as at June 1, 2016 is $140,000 per annum. Neither Mr. Cacciavillani nor Mr. Cervini received any compensation related to their positions as directors of the Company.

(10)             Includes a $5,000 signing bonus for executing employment agreement and pro-rated for starting her employment with the Company on August 15, 2016.

(11)             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, 2017. These amounts represent the fair value of the Options at the grant date.

(12)             All annual incentive amounts related to any fiscal year will be paid in the following fiscal year.

(13)             All LTIP awards to our NEOs were in the form of stock options and disclosed under the column “Option-based awards”.

(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)             Includes compensation for consulting services provided prior to going public.

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

 

32



 

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, 2017.

 

 

 

Option Based Awards

 

Share-based Awards(2)

 

Name and position

 

Date of
issue or
grant

 

Number of
securities
underlying
unexercised
options and
percentage
of class

 

Option
exercise
price

 

Option
expiration
date

 

Value of
Unexercised
In-The-
Money
Options
(1)

 

Number of
shares or
units of
shares that
have not
vested

 

Market or
payout value
of share-
based awards
that
have not
vested

 

Market or
payout value
of vested
share-based
awards not
paid out or
distributed

 

 

 

 

 

 

 

($)

 

 

 

($)

 

(#)

 

 

 

($)

 

VIC NEUFELD

 

6/2/2016

 

100,000

 

1.40

 

6/2/2021

 

384,000

 

N/A

 

N/A

 

N/A

 

CEO and Director

 

11/1/2016

 

450,000

 

3.90

 

11/1/2019

 

603,000

 

 

 

 

 

 

 

CARL MERTON

 

6/2/2016

 

50,000

 

1.40

 

6/2/2021

 

192,000

 

N/A

 

N/A

 

N/A

 

CFO

 

11/1/2016

 

50,000

 

3.90

 

11/1/2019

 

67,000

 

 

 

 

 

 

 

COLE CACCIAVILLANI

 

6/2/2016

 

50,000

 

1.40

 

6/2/2021

 

192,000

 

N/A

 

N/A

 

N/A

 

Co-Founder & VP — Growing Operations and Director

 

11/1/2016

 

50,000

 

3.90

 

11/1/2019

 

67,000

 

 

 

 

 

 

 

JOHN CERVINI

 

6/2/2016

 

50,000

 

1.40

 

6/2/2021

 

192,000

 

N/A

 

N/A

 

N/A

 

Co-Founder & VP — Infrastructure & Technology and Director

 

11/1/2016

 

50,000

 

3.90

 

11/1/2019

 

67,000

 

 

 

 

 

 

 

MEGAN MCCRAE

 

8/15/2016

 

110,000

 

1.64

 

9/1/2019

 

396,000

 

N/A

 

N/A

 

N/A

 

Director of Marketing

 

11/1/2016

 

10,000

 

3.90

 

11/1/2019

 

13,400

 

 

 

 

 

 

 

 


Notes:

 

(1)                  Based on the closing price for the Common Shares on the TSX Venture Exchange of $5.24 on May 31, 2017.

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

 

33



 

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

 

Name and position

 

Option-based awards
Value vested during the year
(1)

 

Share-based awards
Value vested during the year

 

Non-equity incentive plan
compensation — Value earned
during the year

 

 

 

($)

 

($)

 

($)

 

VIC NEUFELD

 

 

 

 

 

 

 

CEO and Director

 

245,700

 

 

 

CARL MERTON

 

 

 

 

 

 

 

CFO

 

 

 

 

COLE CACCIAVILLANI

 

 

 

 

 

 

 

Co-Founder & VP — Growing Operations and Director

 

 

 

 

JOHN CERVINI

 

 

 

 

 

 

 

Co-Founder & VP — Infrastructure & Technology and Director

 

 

 

 

MEGAN MCCRAE

 

 

 

 

 

 

 

Director of Marketing

 

32,500

 

 

 

 


Notes:

 

(1)              Represents the sum of the value of the Options that vested during the year. The value of the Options that vested during the year was calculated by subtracting the fair market value on the applicable vesting date from the fair market value of the Common Shares on the vesting date and multiplying the difference by the number of Options that vested.

 

Exercise of Stock Options by NEOs

 

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

 

EXERCISE OF COMPENSATION SECURITIES BY NEOS

 

Name and position

 

Number of
underlying securities issued
upon exercise of
outstanding
options

 

Exercise price

 

Date of
exercise

 

Closing price on date of exercise

 

Difference
between exercise
price and closing
price on date of
exercise

 

Total value on
exercise date

 

 

 

(#)

 

($)

 

($)

 

($)

 

($)

 

 

 

VIC NEUFELD

 

210,000

 

1.10

 

3/1/2017

 

6.61

 

5.51

 

1,157,100

 

CEO and Director

 

 

 

 

 

 

 

 

 

 

 

 

 

CARL MERTON

 

50,000

 

1.10

 

3/1/2017

 

6.61

 

5.51

 

275,500

 

CFO

 

15,000

 

0.85

 

8/31/2016

 

2.58

 

1.73

 

25,950

 

COLE CACCIAVILLANI

 

 

 

 

 

 

 

 

 

 

 

 

 

Co-Founder & VP — Growing Operations and Director

 

 

 

 

 

 

 

JOHN CERVINI

 

 

 

 

 

 

 

 

 

 

 

 

 

Co-Founder & VP — Infrastructure & Technology and Director

 

 

 

 

 

 

 

MEGAN MCCRAE

 

 

 

 

 

 

 

 

 

 

 

 

 

Director of Marketing

 

 

 

 

 

 

 

 

34



 

NEO Share Ownership

 

The table below summarizes the NEO’s share ownership levels as at May 31, 2017, based on fiscal 2018 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 22:

 

 

 

Annual Base

 

Actual Ownership 
($/#)

 

Total
Ownership

 

 

 

 

 

Name

 

Salary
($)

 

 Common Shares
Beneficially Owned

 

Total Ownership

 

as a Multiple
Base Salary

 

Ownership
Requirements

 

Meets
Requirement

 

VIC NEUFELD

 

 

 

5,166,341/
949,695

 

5,166,341/
949,695

 

 

 

 

 

 

 

CEO and Director

 

360,000

 

 

 

14.4 x

 

3 x

 

Yes

 

CARL MERTON

 

 

 

310,080/

 

310,080/

 

 

 

 

 

 

 

CFO

 

230,000

 

57,000

 

57,000

 

1.3 x

 

1.0 x

 

Yes

 

COLE CACCIAVILLANI

 

 

 

 

 

 

 

 

 

 

 

 

 

VP — Growing Operations and Director

 

210,000

 

46,209,775/
8,494,444

 

46,209,775/
8,494,444

 

220.0 x

 

0.5 x

 

Yes

 

JOHN CERVINI

 

 

 

 

 

 

 

 

 

 

 

 

 

VP — Infrastructure & Technology and Director

 

210,000

 

51,680,005/
9,500,001

 

51,680,005/
9,500,001

 

246.0 x

 

0.5 x

 

Yes

 

MEGAN MCCRAE

 

 

 

 

 

 

 

 

 

 

 

 

 

Director of Marketing

 

143,000

 

Nil

 

Nil

 

0 x

 

N/A

 

N/A

 

 

NEOs subject to the Minimum Share Ownership Policy are expected to not sell 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 in the amount of $240,000 per annum, a monthly car allowance of $750, 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 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 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 June 1, 2017, the Board approved an increase in base salary to $360,000 per annum and an increase in bonus to 50% of his base salary for fiscal 2018. Further, the Board approved a SuperCharger bonus equal to 50% of the CEO’s bonus otherwise payable, if the Company achieves a minimum EBITDA equal to 5% more than the Company’s board approved Budgeted EBITDA for 2018.

 

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 $750, a monthly gas allowance of up to $500, annual bonus of up to 30% of his base salary, to be approved by the Board, and stock options pursuant to the 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

 

35



 

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, 2017, the Board approved an increase in base salary to $230,000 per annum for fiscal 2018. Further, the Board approved a SuperCharger bonus equal to 50% of the CFO’s bonus otherwise payable, if the Company achieves a minimum EBITDA equal to 5% more than the Company’s board approved Budgeted EBITDA for 2018.

 

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 30% of his base salary, to be approved by the Board, and stock options pursuant to the 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, 2017, the Board approved an increase in base salary to $210,000 per annum for fiscal 2018. Further, the Board approved a SuperCharger bonus equal to 50% of the Co-Founder’s bonus otherwise payable, if the Company achieves a minimum yield equal to 5% more than the Company’s board approved budgeted yield for 2018 without increasing the Company’s “all-in” cost per gram from budgeted amounts.

 

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 30% of his base salary, to be approved by the Board, and stock options pursuant to the 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, 2017, the Board approved an increase in base salary to 210,000 per annum for fiscal 2018. Further, the Board approved a SuperCharger bonus equal to 50% of the Co-Founder’s bonus otherwise payable, if the Company achieves a minimum yield equal to 5% more than the Company’s board approved budgeted yield for 2018 without increasing the Company’s “all-in” cost per gram from budgeted amounts.

 

Ms. McCrae — Director 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 $500, annual bonus of up to 20% 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

 

36



 

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 of control. The CEO approved an increase in base salary to 143,000 per annum for fiscal 2018. Ms. McCrae’s employment already contained a SuperCharger bonus.

 

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:

 

Name

 

Triggering Event

 

Base Salary(1)

 

Bonus

 

Total

 

 

 

 

 

($)

 

($)

 

($)

 

VIC NEUFELD

 

Termination without cause

 

390,000

 

126,000

 

516,000

 

CEO and Director

 

Termination following a Change of Control

 

780,000

 

252,000

 

1,032,000

 

CARL MERTON

 

Termination without cause

 

220,000

 

57,750

 

277,750

 

CFO

 

Termination following a Change of Control

 

440,000

 

114,500

 

554,500

 

 

 

Termination without cause (new CEO)

 

440,000

 

114,500

 

554,500

 

 

COLE CACCIAVILLANI

 

Termination without cause

 

245,000

 

49,000

 

294,000

 

VP — Growing Operations and Director

 

Termination following a Change of Control

 

490,000

 

98,000

 

588,000

 

JOHN CERVINI

 

Termination without cause

 

245,000

 

49,000

 

294,000

 

VP — Infrastructure & Technology and Director

 

Termination following a Change of Control

 

490,000

 

98,000

 

588,000

 

MEGAN MCCRAE Director of Marketing

 

Termination without cause

 

83,500

 

15,500

 

99,000

 

 


(1)   Calculation of Termination Benefits are based on the base salaries, annual bonuses and years of service for fiscal 2018.

 

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; (b) long-term equity incentives, consisting of DSUs issued under the DSU Plan; and, (c) a one-time grant of stock options upon election to the Board of Directors, granted under the Option Plan, currently set at 50,000 options 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 capitalization and revenue. Annual retainers have been intended to provide an appropriate level of fixed compensation

 

37



 

that will assist in director retention and recruitment. The CNG Committee may retain 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. While no such independent consultant had been engaged in connection with the determination of directors’ compensation for the fiscal year ended May 31, 2017, as noted elsewhere herein, the CNG 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 2017 to the Independent Directors on the following basis:

 

Type of Compensation

 

Annual Compensation

 

Board Retainer

 

20,000

(1)(2)

Deferred share units

 

16,000

(3)

Audit Committee Chair Retainer

 

6,000

 

CNG Committee Chair Retainer

 

2,000

 

Member of Audit Committee

 

4,000

 

 


(1)                  No meeting fees are paid to Independent Directors.

(2)                  Annual cash retainers were effective June 1, 2017.

(3)                  Effective the first quarter after approval of the DSU plan by shareholders, at the rate of $4,000 per quarter.

 

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, no meeting fees are paid to the Independent Directors. Moreover, the Directors do not benefit from pension plan participation. Perquisites and personal benefits are not available to the Directors. The CNG Committee, in conjunction with the Board, upon the recommendation of Hugessen, has established an appropriate comparator group for purposes of setting the future compensation of the Directors.

 

Changes to Director Compensation for Fiscal 2018 and 2019

 

Effective June 1, 2017 and June 1, 2018 respectively the following adjustments to director compensation have been approved by the Board:

 

Type of Compensation

 

Fiscal Year 2018

 

Fiscal Year 2019

 

Board Retainer

 

35,000

(1)

40,000

(1)

Deferred share units

 

28,000

 

32,000

 

Lead Director

 

15,000

 

15,000

 

Audit Committee Chair Retainer

 

15,000

 

15,000

 

CNG Committee Chair Retainer

 

15,000

 

15,000

 

Member of any 2 Board Committees

 

7,500

 

7,500

 

 


(1)                         No meeting fees are paid to Independent Directors.

 

Deferred Share Unit Plan

 

A full copy of the DSU Plan is attached to this Circular as Exhibit “B”.

 

38



 

Minimum Share Ownership Requirements

 

The Independent Directors are also subject to the Minimum Share Ownership Policy as further discussed above on page 22 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, 2017.

 

 

 

 

 

Committee

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

or Committee

 

Share

 

Option-

 

Non-equity

 

 

 

 

 

 

 

Annual Base

 

Chair Cash

 

Based

 

based

 

incentive plan

 

All other

 

Total

 

Name and principal position

 

Cash Retainer(1)

 

Retainer(2)

 

Awards

 

awards

 

compensation

 

compensation

 

compensation(3)

 

 

 

($)

 

($)

 

($)

 

($)

 

($)

 

($)

 

($)

 

DENNIS STAUDT

 

20,000

 

6,000

 

8,000

 

54,033

 

 

 

88,033

 

PHILIP WADDINGTON

 

20,000

 

 

8,000

 

54,033

 

 

 

82,033

 

ROB KOZLOV(4)

 

20,000

 

6,000

 

8,000

 

54,033

 

 

 

88,033

 

ARLENE DICKINSON(3)(4)

 

15,000

 

4,000

 

8,000

 

85,150

 

 

 

112,150

 

 


Notes:

 

(1)         The Board set the annual retainer for Independent Directors at $20,000 per year.

(2)         The Board set the annual retainer for the Chair of the Audit Committee at $6,000 per year, the Chair of the CNG Committee at $2,000 per year and added a $4,000 fee for a member of the Audit Committee.

(3)         Ms. Dickinson joined the Board on October 27, 2016 and her compensation is pro-rated for the year from her start date.

(4)         Mr. Kozlov and Ms. Dickinson will not stand for re-election at the Meeting and each of their terms as a Director will expire immediately after the close of the Meeting.

 

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, 2017.

 

 

 

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-based

 

share-based

 

 

 

Date of

 

underlying

 

Option

 

Option

 

In-The-

 

shares that

 

awards that

 

awards not

 

 

 

issue or

 

unexercised

 

exercise

 

expiration

 

Money

 

have not

 

have not

 

paid out or

 

Name and position

 

grant

 

options

 

price

 

date

 

Options(1)

 

vested

 

vested

 

distributed

 

 

 

 

 

 

 

($)

 

 

 

($)

 

(#)

 

 

 

($)

 

DENNIS STAUDT

 

Nov. 1, 2016

 

30,000

 

3.90

 

Nov. 1, 2019

 

13,400

 

N/A

 

N/A

 

N/A

 

PHILIP WADDINGTON

 

Nov. 1, 2016

 

30,000

 

3.90

 

Nov. 1, 2019

 

13,400

 

N/A

 

N/A

 

N/A

 

ROB KOZLOV(1)

 

Nov. 1, 2016

 

30,000

 

3.90

 

Nov. 1, 2019

 

13,400

 

N/A

 

N/A

 

N/A

 

ARLENE DICKINSON(1)

 

Oct. 27, 2016

 

50,000

 

3.70

 

Oct. 27, 2021

 

77,000

 

N/A

 

N/A

 

N/A

 

 


Notes:

 

(1)         Mr. Kozlov and Ms. Dickinson will not stand for re-election at the Meeting and each of their terms as a Director will expire immediately after the close of the Meeting.

 

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, 2017, 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.

 

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EXERCISE OF COMPENSATION SECURITIES BY INDEPENDENT DIRECTORS

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

 

underlying

 

 

 

 

 

 

 

 

 

 

 

 

 

securities to be

 

 

 

 

 

 

 

Difference

 

 

 

 

 

issued upon

 

 

 

 

 

 

 

between exercise

 

 

 

 

 

exercise of

 

Exercise

 

 

 

 

 

price and closing

 

Total value on

 

 

 

outstanding

 

price

 

Date of

 

Closing price date

 

price on date of

 

exercise date

 

Name and position

 

options (#)

 

($)

 

exercise

 

of exercise ($)

 

exercise ($)

 

($)

 

DENNIS STAUDT

Director

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

PHILIP WADDINGTON(1)

 

50,000

 

1.10

 

JULY 15, 2016

 

1.77

 

0.67

 

33,500

 

Director

 

10,000

 

1.30

 

JULY 15, 2016

 

1.77

 

0.47

 

4,700

 

ROBERT KOZLOV(2)

Director

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

ARLENE DICKINSON(2)

Director

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

 


Notes:

 

(1)         Elected to use cashless option exercise process. Exercised 60,000 options and received 21,807 Common Shares.

(2)         Mr. Kozlov and Ms. Dickinson will not stand for re-election at the Meeting and each of their terms as a Director will expire immediately after the close of the Meeting.

 

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 $25,000,000. 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.

 

40



 

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 the Record Date:

 

 

 

Number of securities to

 

Weighted-average

 

Number of securities

 

 

 

be issued upon exercise

 

exercise price of

 

remaining available for

 

 

 

of outstanding options,

 

outstanding options,

 

future issuance under

 

Plan Category

 

warrants and rights

 

warrants and rights

 

equity compensation plans

 

Equity compensation plans approved by Shareholders

 

5,931,421

 

1.99

 

7,950,529

 

Equity compensation plans not approved by Shareholders

 

 

 

 

Total

 

5,931,421

 

1.99

 

7,950,529

 

 

Please refer to the section above entitled “Business of the Meeting — approval of an Amended and Restated Stock Option Plan” for a description of the Option Plan and its significant terms and Business of the Meeting — Approval of an Amended and Restated Deferred Share Unit Plan” for a description of the DSU Plan and its significant terms.

 

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:

 

·                  Mandate of the Board

·                  Charters of the Board Committees

·                  Audit Committee

·                  CNG Committee

·                  Code of 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 National Instrument 58-101 — Disclosure of Corporate Governance Practices. A copy of our Board Mandate is attached to this Circular as Exhibit “C”.

 

Board of Directors

 

Independence

 

The Board is currently comprised of 7 directors, 4 of whom are independent. Independence is determined in accordance with NI 52-110. The Board has determined that Dennis Staudt and Phil Waddington are independent within the meaning of NI 52-110 as well as Shawn Dym and Renah Persofsky, who are new nominees for fiscal 2018. 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.

 

41



 

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. Dennis Staudt was appointed on March 22, 2017 as lead director by our Board and is responsible for ensuring that the directors who are independent of management have opportunities to meet without management present, as required.

 

During the fiscal year ended May 31, 2017, the Board and the committees met as follows:

 

 

 

Meetings

 

 

 

held

 

Board

 

10

 

Audit Committee

 

4

 

CNG Committee

 

7

 

Attendance

 

The attendance record of each director is set out below for the fiscal year ended May 31, 2017:

 

 

 

 

 

Audit

 

CNG

 

Annual

 

 

 

 

 

Board

 

committee

 

committee

 

General and

 

 

 

 

 

meetings

 

meetings

 

meetings

 

Special

 

Organizational

 

Director

 

attended

 

attended

 

attended

 

Meeting

 

Meeting

 

Vic Neufeld(1)

 

10

 

N/A

 

N/A

 

1

 

1

 

Cole Cacciavillani

 

10

 

N/A

 

N/A

 

1

 

1

 

John Cervini

 

10

 

N/A

 

N/A

 

1

 

1

 

Dennis Staudt(2)

 

10

 

4

 

7

 

1

 

1

 

Philip Waddington

 

9

 

N/A

 

7

 

1

 

1

 

Arlene Dickinson(3)(4)

 

6

 

2

 

5

 

0

 

0

 

Rob Kozlov(4)(5)

 

10

 

4

 

7

 

1

 

1

 

 


Notes:

 

(1)         Chair of the Board.

(2)         Lead Director and Chair of the Audit Committee.

(3)         Ms. Dickinson participated in 6 of 6 Board meetings, 2 of 2 Audit Committee meetings, 5 of 5 CNG meetings but did not participate in either the Annual General and Special Meeting nor the Organizational Meeting after her election to the Board on October 27, 2016.

(4)         Mr. Kozlov and Ms. Dickinson will not stand for re-election at the Meeting and each of their terms as a Director will expire immediately after the close of the Meeting.

(5)         Chair of the CNG Committee.

 

Chairman of the Board

 

Mr. Neufeld, serve as Chairman of the Board (the “Chairman”), and is not considered independent due to his position as CEO. The primary functions of the Chairman are to facilitate the operations and deliberations of the Board and the satisfaction of the Board’s responsibilities under its mandate. The Chair’s key responsibilities include duties relating to setting Board meeting agendas, chairing Board and Shareholder meetings, director development, providing input on potential director candidates and communicating with Shareholders and regulators.

 

42



 

Other Public Company Directorships Held

 

The following table sets out the directors and officers of the Company that are, or have been within the last five years, directors, officers or promoters of other reporting issuers:

 

 

 

Name and

 

 

 

 

 

 

 

Name of director,

 

jurisdiction of

 

Name of

 

 

 

 

 

officer or promoter

 

reporting issuer

 

exchange

 

Position

 

Period

 

Vic Neufeld

 

Reko International Group Inc.

 

TSX-V

 

Director

 

December 2004 – December 2016

 

 

 

Neptune Technologies & Bioresources Inc.

 

TSX

 

Director

 

July 12, 2016 – August 2017

 

 

 

 

 

 

 

 

 

 

 

Carl Merton

 

Reko International Group Inc.

 

TSX-V

 

Chief Financial Officer

 

October 2007 – November 2015

 

 

 

Tetra Bio-Pharma Inc.

 

TSX-V

 

Director

 

July 2017 – Present

 

 

Board Tenure

 

Aphria has not adopted a policy which imposes term limits for directors. We believe that it is crucial that directors understand our industry and our business and this requires a certain length of tenure on the Board. Long-term directors accumulate extensive company knowledge while new directors bring new experience and perspectives to the Board. It is important to achieve an appropriate balance of both to ensure an effective Board.

 

Board and Executive Management Diversity

 

Aphria recognizes the importance and benefit of having a Board and senior management comprised of individuals who are highly qualified based on their talents and experience, and embrace the benefits of diversity in perspective and background that enhance our Board’s and Aphria’s performance. Aphria does not differentiate by race, colour, ethnicity, religion, gender, sexual orientation, or any other aspect.

 

While the primary objectives of the CNG Committee are to ensure consideration of individuals who are highly qualified, based on their talents, experience, functional expertise, as well as personal skills, character, and qualities, the CNG Committee will follow a balanced approach in identifying the factors to be considered as new members are added to the team. In particular, the CNG Committee shall consider the level of representation of women and other diverse candidates on the Board when making recommendations for nominees to the Board and monitor the level of female representation on our Board and in senior management positions, with a view to continuing to broaden recruiting efforts to attract and interview qualified female candidates, and committing to retention and training to ensure that our most talented employees are promoted from within our organization.

 

Currently, Aphria has one woman on the Board, representing approximately 14% of its seven members, with the same number and percentage proposed for election. Also, while neither of our senior executive officers are women, our full senior management team comprises one-third female representation. As the Company has been successful in recruiting and retaining qualified female senior management members under its existing policies and processes, Aphria has not adopted any specific targets, but will promote its objectives through the initiatives set out in this policy with a view to identifying and fostering the development of a suitable pool of candidates for nomination or appointment over time. The Company shall select candidates that represent a diversity of business understanding, personal attributes, abilities and experience. The CNG Committee will also engage in periodic evaluation of individual Board members to identify strengths and areas for improvements, take measures to ensure that the nominee recruitment and identification process fosters progression of diverse candidates, and make recommendations in respect of diverse representation on the Board.

 

Assessments

 

The Board is in the process of developing a peer assessment process for its individual board members. This is an initiative of the CNG Committee for the upcoming year.

 

43



 

Mandate of the Board of Directors

 

The Board is responsible for supervising the management of Aphria business and affairs and has adopted the written mandate set forth in Exhibit “C”. The Board’s principal responsibilities relate to the stewardship of management and are summarized below:

 

·          Strategic planning — the Board reviews and approves Aphria’s strategic planning process and annual strategic plan in light of Management’s assessment of emerging trends, the competitive environment, risk issues and significant business practices and products;

 

·          Risk management — the Board reviews management reports on material risks associated with our businesses and operations, the implementation by Management of systems to manage these risks and material deficiencies in the operation of these systems;

 

·          Human resources management — the Board with assistance from the CNG Committee reviews Aphria’s approach to human resource management and executive compensation, the extent to which senior management fosters a culture of integrity and succession planning for the Chief Executive Officer and key senior management positions;

 

·          Financial corporate governance — the Board with assistance from the CNG Committee reviews Aphria’s approach to corporate governance, director independence, Aphria’s code of ethics and conduct, and policies relating to reputation and legal risk;

 

·          Financial information — the Board with assistance from the Audit Committee reviews Aphria’s internal controls relating to financial information, management reports on material deficiencies relating to those controls and the integrity of Aphria’s financial information and systems;

 

·          Communications — the Board reviews Aphria’s overall communications strategy, measures for receiving shareholder feedback and compliance with Aphria’s disclosure policy;

 

·          Board Committees — the Board establishes committees and their mandates and requires committee chairs to present a report to the board on material matters considered by the committee at the next board meeting;

 

The mandate of the Board is reviewed and considered by the Board for approval each year.

 

Position Descriptions

 

Our Board has adopted a written position description for the Chairman, which sets out the Chair of the Board’s key responsibilities, including, among others, duties relating to setting Board meeting agendas, chairing Board and shareholder meetings, director development and communicating with shareholders and regulators.

 

Our Board has also adopted a written position description for our lead director. See “Meetings of Independent Directors” above. Our Board has adopted a written position description for the chair of the CNG Committee and the chair of the Audit Committee, each which sets such chair’s key responsibilities, including, among others, duties relating to setting committee meeting agendas, chairing committee meetings and working with the respective committee and management to ensure, to the greatest extent possible, the effective functioning of the committee.

 

The primary functions of the CEO are to lead the management of Aphria’s business and affairs and lead the implementation of the resolutions and policies of the Board, which include strategic planning, the operational direction of the Company and communicating with Shareholders. Our Board is in the process of developing a written position description for the CEO. This is an initiative of the Board for the upcoming year.

 

Orientation and Continuing Education

 

Aphria does not currently have an orientation or continuing education program for new directors but shall provide an orientation and education program to new Board members and continuing education as necessary.

 

Nomination of Directors

 

Aphria has a standing CNG Committee which oversees the nomination of directors. Each of the four directors who comprise the CNG Committee in the prior year were independent within the meaning of NI 52-110.

 

44



 

Board Committees

 

The Board has two committees, Audit Committee and the CNG Committee (each alternatively a “Committee” and collectively, the “Committees”).

 

The CNG Committee shall review with the Board on an annual basis the current composition of the Board with a view to ensuring that the members of the Board have the independence, expertise, experience, personal qualities and ability to make the necessary time commitment to Aphria in light of the opportunities and risks facing Aphria.

 

The CNG Committee shall propose to the Board nominees they believe to be qualified to be directors and, in doing so, shall consider both the opportunities and risks facing Aphria and the independence, expertise, experience, personal qualities and ability to make the necessary time commitment of a proposed nominee in order to add value to Aphria.

 

Audit Committee

 

The Audit Committee in fiscal 2017 consisted of Dennis Staudt, Arlene Dickinson and Rob Kozlov, all of whom were considered “independent”, and all of whom are “financially literate” within the meaning of NI 52-110. Each of the Audit Committee members has an understanding of the accounting principles used to prepare Aphria’s financial statements, experience preparing, auditing, analyzing or evaluating comparable financial statements and experience as to the general application of relevant accounting principles, as well as an understanding of the internal controls and procedures necessary for financial reporting.

 

The Audit Committee has the primary function of fulfilling its responsibilities in relation to reviewing the integrity of Aphria’s financial statements, financial disclosures and internal controls over financial reporting; monitoring the system of internal control; monitoring Aphria’s compliance with legal and regulatory requirements, selecting the external auditor for shareholder approval; reviewing the qualifications, independence and performance of the external auditor; and reviewing the qualifications, independence and performance of Aphria’s internal auditors, if any. The Audit Committee has specific responsibilities relating to Aphria’s financial reports; the external auditor; the internal audit function, if any; internal controls; regulatory reports and returns; legal or compliance matters that have a material impact on Aphria; and Aphria’s whistleblowing procedures. In fulfilling its responsibilities, the Audit Committee meets regularly with the internal and external auditor and key management members. Information concerning the relevant education and experience of the Audit Committee members can be found in “Business of the Meeting — Election of Directors” in the prior year’s Management Information Circular. The full text of the Audit Committee’s charter is disclosed in Exhibit “D”.

 

CNG Committee

 

The fiscal 2017 CNG Committee consisted of Dennis Staudt, Philip Waddington, Arlene Dickinson and Rob Kozlov, all of whom were consider “independent” within the meaning of NI 52-110. The CNG Committee is charged with reviewing, overseeing and evaluating the governance and nominating policies and the compensation policies of Aphria. In addition, the CNG Committee is responsible for: (i) assessing the effectiveness of the Board, each of its committees and individual directors; (ii) overseeing the recruitment and selection of candidates as directors of the Company; (iii) organizing orientation and education programs for new directors and coordinating continuing director development programs; (iv) considering and approving proposals by the directors to engage outside advisers on behalf of the Board as a whole or on behalf of the independent directors; (v) reviewing and making recommendations to the Board concerning any change in the number of directors composing the Board; (vi) administering any stock option or purchase plan of the Company or any other compensation incentive programs; (vii) assessing the performance of the officers and other members of the executive management team of the Company; and (viii) reviewing and making recommendations to the Board concerning the level and nature of the compensation payable, if any, to the directors and officers of the Company. The Board intends to nominate a new director as Chair of the CNG Committee following the election of directors.

 

Ethical Business Conduct

 

The Board has adopted a written Code of Conduct and Ethics applicable to all members of the Company, including directors, officers, employees, consultants and contractors, which has been filed with the Canadian securities regulatory authorities under the Company’s profile on SEDAR at www.sedar.com and on the Company’s website under

 

45



 

the Investors — Corporate Governance section. Each director, officer, employee, consultant and contractor of the Company must provide an annual certification of compliance with the Code of Conduct and Ethics, confirming compliance with all laws, rules and regulations of the jurisdictions where they carry out their duties and where the Company is conducting its business activities, as well as compliance with all Company policies.

 

INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS

 

There is not, and has not been any indebtedness outstanding from directors or senior officers of the Company to the Company in fiscal 2017.

 

INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

 

There were no other material interests, direct or indirect, of directors or senior officers of the Company, nominees for director of the Company, any Shareholder who owns more than ten per cent of the Common Shares of the Company (or any director or executive officer of any such Shareholder), or any known associate or affiliate of such persons, in any transaction during fiscal 2017 or in any proposed transaction which has materially affected or would materially affect the Company or any of their subsidiaries other than as disclosed herein.

 

INTEREST OF CERTAIN PERSONS AND COMPANIES IN MATTERS TO BE ACTED UPON

 

Management of the Company is not aware of any material interest of any director, senior officer, or nominee for director of the Company, or of any associate or affiliate of any of the foregoing, in respect of any matter to be acted on at the Meeting except as disclosed herein.

 

ADDITIONAL INFORMATION

 

The Company will provide to any person or Company, upon request, one copy of any of the following documents: (i) this Circular; (ii) the Company’s most recently filed consolidated annual financial statements, together with the accompanying report of the auditor; and (iii) any interim financial statements of the Company that have been filed for any period after the end of the Company’s most recently completed financial year.

 

Copies of the above documents will be provided, upon request, by the corporate secretary or investor relations at 245 Talbot St W, Suite 103, Leamington, ON N8H 1N8. Copies of these documents and other information relating to the Company are available on SEDAR at www.sedar.com and on the Company’s website at www.aphria.com. All of our news releases are also available on our website.

 

APPROVAL

 

The contents and delivery of this Circular has been approved by the Board and a copy has been sent to each Shareholder who is eligible to receive notice of and vote his or her Common Shares at the Meeting, as well as to each director and to the auditors.

 

 

On behalf of the Board,

 

 

 

“Vic Neufeld”

 

 

 

Vic Neufeld

 

Chair of the Board of Directors and Chief Executive Officer

 

46



 

Exhibit “A”

Option Plan Resolution

RESOLUTION APPROVING

THE AMENDED AND RESTATED STOCK OPTION PLAN

OF THE COMPANY

 

BE IT RESOLVED AS AN ORDINARY RESOLUTION THAT:

 

1.              the Amended and Restated Stock Option Plan of the Company (the “Option Plan”) as set out in Schedule “A-1” to Exhibit “A” of the management information circular of the Company dated September 11, 2017 prepared for the purpose of the annual and special meeting of shareholders held on October 25, 2017, be and is hereby approved, ratified, sanctioned and confirmed;

 

2.              the total number of Common Shares issuable pursuant to the Option Plan, together with all other share based compensation of the Company shall be fixed at 10% of the issued shares outstanding at the time of any option grant, subject to adjustment as set forth in the Option Plan, and further subject to the applicable rules and regulations of all regulatory authorities to which the Company is subject, including the Toronto Stock Exchange;

 

3.              the provisions governing amendments to the Option Plan specifying when security holder approval of amendments is required to be adopted;

 

4.              the Company be authorized to grant stock options pursuant to and subject to the terms and conditions of the Option Plan;

 

5.              any officer or director of the Company be, and each is hereby, authorized and directed, for and on behalf of the Company, to sign and execute all documents, to conclude any agreements and to do and perform all acts and things deemed necessary or advisable in order to give effect to this resolution; and

 

6.              the Board of Directors of the Company be, and it is hereby, authorized to cause all measures to be taken, such further agreements to be entered into and such further documents to be executed as may be deemed necessary or advisable to give effect to and fully carry out the intent of this resolution.

 

A-1



 

Exhibit “A”

Schedule “A-1”

Amended and Restated Incentive Stock Option Plan

 

See attached.

 

A-2



 

APHRIA INC.

INCENTIVE STOCK OPTION PLAN

 

Section 1                                             General Provisions

 

1.1                       Interpretation

 

For the purposes of this Plan, the following terms shall have the following meanings:

 

(a)