PART
III
Item
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The
following is a brief description of the principal occupation and recent business experience of each of our executive officers
and directors and their ages as of March 31, 2021:
|
Name
|
|
Age
|
|
Position
|
|
Eric Finnsson (1)(2)(3)
|
|
59
|
|
Director
|
|
Robert Grammen (1)(2)(3)
|
|
66
|
|
Director
|
|
Stephanie Kilkenny
|
|
49
|
|
Director
|
|
Elizabeth Levy-Navarro (1)(2)(3)
|
|
58
|
|
Director
|
|
Paul Block
|
|
64
|
|
Chief Executive Officer and Director
|
|
Geoffrey Gwin
|
|
53
|
|
Chief Financial Officer
|
(1)
Member of the audit committee.
(2)
Member of the compensation committee.
(3)
Member of the nominating and corporate governance committee.
Our
board of directors currently consists of five members. All directors hold office until their successors have been elected and
qualified or until their earlier death, resignation, disqualification, or removal. Board vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled by a majority vote of the directors then in office,
even if less than a quorum, or by a sole remaining director. Our board may establish the authorized number of directors from time
to time by resolution.
Our
executive officers are each appointed by the board and serve at the board’s discretion.
There
are no family relationships among our officers or directors.
Executive
Officers
Paul
Block was appointed as our Chief Executive Officer as of July 1, 2020 and has served as a director since April 2020 and currently
serves as Chairman of the Board. Mr. Block also currently serves as a member of the board of directors of GLG Life Tech Corporation,
a producer of zero calorie natural sweeteners, and served as president of GLG Life Tech Corporation from January 2019 to June
2020. Prior to GLG Life Tech Corporation, Mr. Block held numerous positions as a consumer goods executive, including as chief
executive officer and member of the board of directors of SVP Worldwide, a consumer sewing machine company, as chief executive
officer and member of the board of directors of Merisant Worldwide, the maker of the Equal Sweetener brand, and as chief executive
officer of Sara Lee Retail Coffee & Tea USA, a retail coffee company. He also held various marketing and brand management
positions with Allied Domecq PLC, Groupe Danone, Guinness and Miller Brewing Company earlier in his career. Mr. Block received
his Bachelor of Science from Kent State University and participated in the Kellogg School of Management’s Advanced Executive
Program for General Management.
Geoffrey
Gwin was appointed Chief Financial Officer as of June 15, 2020. Mr. Gwin previously served as a member of the board of directors
from August 2019 through June 2020. Mr. Gwin was a Member of Quad Capital Management Advisors, LLC and the Managing Member of
Group G Capital Partners, LLC. Mr. Gwin is a Board Observer of SMArtX Advisory Solutions, Inc., a private company offering technology
solutions to wealth advisors, RIA’s and other financial services firms. Mr. Gwin formed Group G Capital Partners, LLC in
2003 and has continuously managed its related strategies as its Chief Investment Officer. Mr. Gwin has held positions at Symphony
Asset Management, BHF-BANK Aktiengesellschaft, and Citibank, Inc. over the last two decades. Mr. Gwin holds a Bachelor of Science
in Business from Wake Forest University and is a Charter Financial Analyst.
Non-Employee
Directors
Eric
Finnsson was appointed to our Board of Directors on July 30, 2020. Since March 2019, Mr. Finnsson has served as chief financial
officer of GLG Life Tech Corporation, a producer of zero calorie natural sweeteners. Prior to joining GLG Life Tech Corporation,
Mr. Finnsson worked as an independent consultant, offering finance and business consulting services to start-ups and individuals
investing in China. Mr. Finnsson worked for KPMG for over 25 years in Canada, Europe and China, including three years specializing
in Global Risk Management in KPMG’s International Headquarters. During his time with KPMG in China, Mr. Finnsson specialized
in auditing and advising large multinational groups in the food and beverages sector. Mr. Finnsson graduated from The University
of British Columbia in 1987 with a major in Economics and received his designation as a Canadian Chartered Accountant in 1990.
Robert
Grammen was appointed to our Board of Directors on June 15, 2020. Mr. Grammen currently serves as a managing director of EFO
Management, LLC, a family investment office, where he is responsible for the origination, analysis, structure and execution of
direct debt and equity investments, across a wide range of asset classes that include IT, healthcare, hospitality, spirits and
real estate. Prior to joining EFO Management, LLC in 1999, Mr. Grammen served as a vice president of International Trading Group,
focusing on the purchase, restructure, and sale of distressed municipal bond debt. Mr. Grammen received his Bachelor of Arts in
Economics from Bethany College, Bethany, West Virginia.
Stephanie
Kilkenny was appointed to our Board of Directors on October 24, 2019. Ms. Kilkenny was the former managing director of Azuñia
Tequila, and together with her spouse, owns and controls TQLA, LLC (“TQLA”), the majority owner of Intersect Beverage,
LLC. Ms. Kilkenny holds a BS Psychology from Ursinus College in Pennsylvania and relocated to California immediately upon earning
her degree. She began her post-college career in Client Services at the corporate offices of Mail Boxes Etc. and as an Operations
Manager at the corporate offices of Insurance Express Services. After a few years in the corporate world, Ms. Kilkenny returned
to the classroom to study photography and acquire an AA Interior Design from Mesa College, and then she opened her own photography
and design firm, Adair Interiors, LLC. Stephanie currently serves as Board President of the Lucky Duck Foundation, a non-profit
organization that has raised over $10 million dollars for various charitable organizations since Ms. Killkenny and her husband
Patrick founded it in 2005. In 2017, The Lucky Duck Foundation narrowed its focus to alleviating the suffering of San Diego County’s
homeless population. Their annual Swing & Soiree event has raised over $1 million dollars per year for the past 5 years.
Elizabeth
Levy-Navarro was appointed to our Board of Directors on March 22, 2021. Ms. Levy-Navarro
co-founded and was Chief Executive Officer of Orrington Strategies, a management consulting firm, helping consumer products and
financial services executives grow their businesses and brands, from 2002 to 2017. Since 2018, she has been a corporate advisor
with Summit Strategy Advisors. From 1993 to 2002, Ms. Levy-Navarro served as Practice Leader and Operating Committee Member for
The Cambridge Group. Ms. Levy-Navarro led her practice helping corporate executives develop and implement business growth strategies.
Ms. Levy-Navarro also serves on the Wilshire Mutual Funds Board, as its Valuation Committee Chair, and on its Audit, Nominating,
and Investment Committees. She also serves on the AIG US Life Company Board, including on its Corporate Affairs (Audit) Committee.
Ms. Levy-Navarro earned her MBA in Finance from The Wharton School, University of Pennsylvania,
and holds a BBA in Marketing from University of Michigan.
Involvement
in Certain Legal Proceedings
None
of our directors or executive officers has, during the past ten years:
|
|
●
|
has
had any bankruptcy petition filed by or against any business of which he was a general partner or executive officer, either
at the time of the bankruptcy or within two years prior to that time;
|
|
|
|
|
|
|
●
|
been
convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other
minor offences);
|
|
|
●
|
been
subject to any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending, or otherwise limiting his involvement in any type of business,
securities, futures, commodities, or banking activities;
|
|
|
|
|
|
|
●
|
been
found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed,
suspended, or vacated; or
|
|
|
|
|
|
|
●
|
been
subject or a party to or any other event requiring disclosure under Item 401(f) of Regulation S-K.
|
Family
Relationships
None.
Board
Committees
In
September 2016, our Board of Directors established the following standing committees: an audit committee, a compensation committee,
and a nominating and corporate governance committee. The Board of Directors determined that establishing standing audit, compensation,
and nominating and corporate governance committees is an important element of sound corporate governance.
Audit
Committee
Our
audit committee oversees the engagement of our independent public accountants, reviews our audited financial statements, meets
with our independent public accountants to review internal controls and reviews our financial plans. Our audit committee currently
consists of Eric Finnsson, who is the chair of the committee, Robert Grammen, and Elizabeth Levy-Navarro. Each of Messrs. Finnsson
and Grammen and Ms. Levy-Navarro have been determined by our Board of Directors to be independent in accordance with Nasdaq and
SEC standards. Our Board of Directors has also designated Mr. Finnsson as an “audit committee financial expert” as
the term is defined under SEC regulations and has determined that Mr. Finnsson possesses the requisite “financial sophistication”
under applicable Nasdaq rules. The audit committee operates under a written charter which is available on our website at https://www.eastsidedistilling.com/investors.
Both our independent registered accounting firm and internal financial personnel will regularly meet with our audit committee
and have unrestricted access to the audit committee. Each member of the audit committee is able to read and understand fundamental
financial statements, including our consolidated balance sheets, consolidated statements of operations and consolidated statements
of cash flows. Further, no member of the audit committee has participated in the preparation of our consolidated financial statements,
or those of any of our current subsidiaries, at any time during the past three years.
Compensation
Committee
Our
compensation committee reviews and recommends policies, practices and procedures relating to compensation for our directors, officers
and other employees and advising and consulting with our officers regarding managerial personnel and development. Our compensation
committee currently consists of Elizabeth Levy-Navarro, who is the chair of the committee, Eric Finnsson, and Robert Grammen,
each of whom has been determined by our Board of Directors to be independent in accordance with Nasdaq standards. Each member
of our compensation committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Exchange
Act, and an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended. The compensation
committee operates under a written charter which is available on the Company’s website at https://www.eastsidedistilling.com/investors.
Nominating
and Corporate Governance Committee
Our
nominating and corporate governance committee evaluates the composition, size and governance of our Board of Directors and its
committees, evaluating and recommending candidates for election to our Board of Directors, establishing a policy for considering
stockholder nominees and reviewing our corporate governance principles and providing recommendations to the Board of Directors.
Our nominating committee currently consists of Robert Grammen, who is the chair of the committee, Eric Finnsson, and Elizabeth
Levy-Navarro, each of whom has been determined by our Board of Directors to be independent in accordance with Nasdaq standards.
The nominating committee operates under a written charter which is available on the Company’s website at https://www.eastsidedistilling.com/investors.
Director
Nomination Process
The
nominating committee identifies director nominees by first considering those current members of the Board of Directors who are
willing to continue in service. Current members of the Board of Directors with skills and experience that are relevant to our
business and who are willing to continue in service are considered for re-nomination, balancing the value of the skills and experiences
of the current members and the value of continuity of service by existing members of the Board of Directors with that of obtaining
a new perspective or skills and experiences. If any member of the Board of Directors does not wish to continue in service, if
the nominating committee or the Board of Directors decides not to re-nominate a member for reelection, if the nominating committee
or the Board of Directors decided to fill a director position that is currently vacant, or if the nominating committee or the
Board of Directors decides to recommend that the size of the Board of Directors be increased, the nominating committee identifies
the desired skills needed by the board and will evaluate the experience of a new nominee in light of the criteria described above.
Current members of the Board of Directors and management are polled for suggestions as to individuals meeting the Board of Directors’
criteria. Research may also be performed to identify qualified individuals and, if appropriate, the nominating committee may engage
a search firm. Nominees for director are selected by a majority of the members of the Board of Directors, with any current directors
who may be nominees themselves abstaining from any vote relating to their own nomination. We anticipate that all of our directors
will participate in the consideration of the director nominees for election at the Company’s upcoming annual meeting. Although
the nominating committee and the Board of Directors do not have a formal diversity policy, the Board of Directors expects that
the nominating committee will consider such factors as it deems appropriate to develop a Board and committees that are diverse
in nature and comprised of experienced and seasoned advisors. Factors considered by the nominating committee include judgment,
knowledge, skill, diversity (including factors such as race, gender, and experience), integrity, experience with businesses and
other organizations of comparable size, including experience in the spirits industry, business, finance, administration or public
service, the relevance of a candidate’s experience to our needs and experience of other board members, familiarity with
national and international business matters, experience with accounting rules and practices, the desire to balance the considerable
benefit of continuity with the periodic injection of the fresh perspective provided by new members, and the extent to which a
candidate would be a desirable addition to the Board of Directors and any committees of the Board of Directors.
In
addition, directors are expected to be able to exercise their best business judgment when acting on behalf of us and all stockholders,
act ethically at all times, and adhere to the applicable provisions of our Code of Business Conduct and Ethics.
Other than consideration of the foregoing and applicable SEC and Nasdaq requirements, unless determined otherwise by the nominating
committee, there are no stated minimum criteria, qualities, or skills for director nominees. However, the nominating committee
may also consider such other factors as it may deem are in the best interests of us and all stockholders. In addition, at least
one member of the Board of Directors serving on the audit committee should meet the criteria for an “audit committee financial
expert” having the requisite “financial sophistication” under applicable Nasdaq and SEC rules, and a majority
of the members of the Board of Directors should meet the definition of “independent director” under applicable Nasdaq
rules.
The
nominating committee and the Board of Directors may consider suggestions for persons to be nominated for director that are submitted
by stockholders. The nominating committee will evaluate stockholder suggestions for director nominees in the same manner as it
evaluates suggestions for director nominees made by management, then-current directors, or other appropriate sources. Stockholders
suggesting persons as director nominees should send information about a proposed nominee to our Secretary at our principal executive
offices as referenced above at least 90 days before the anniversary of the prior year’s annual stockholder meeting. This
information should be in writing and should include a signed statement by the proposed nominee that he or she is willing to serve
as a director of Eastside Distilling, Inc., a description of the proposed nominee’s relationship to the stockholder and
any information that the stockholder feels will fully inform the Board of Directors about the proposed nominee and his or her
qualifications. The Board of Directors may request further information from the proposed nominee and the stockholder making the
recommendation. In addition, a stockholder may nominate one or more persons for election as a director at our annual meeting of
stockholders.
General
Stockholder Communications
Stockholders
can send communications to the Board of Directors by sending a certified or registered letter to the Chairman of the Board, care
of the Secretary, at our main business address set forth above. Communications that are threatening, illegal, or similarly inappropriate,
and advertisements, solicitations for periodical or other subscriptions, and other similar communications will generally not be
forwarded to the Chairman.
Code
of Ethics
We
have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers, and directors. We will
provide to any person without charge, upon request, a copy of our Code of Business Conduct and Ethics. Requests may be
directed to our principal executive offices at 8911 NE Marx Drive, Suite A2, Portland, Oregon 97220. Also, a copy of our Code
of Business Conduct and Ethics is available on our website. We will disclose, on our website, any amendment to, or a waiver
from, a provision of our Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing similar functions and that relates to any element of
the Code of Business Conduct and Ethics enumerated in applicable rules of the SEC.
Item
11. EXECUTIVE COMPENSATION
The
following table sets forth the compensation awarded to, earned by or paid to our Named Executive Officers for services rendered
during the fiscal years ended December 31, 2020, and 2019.
|
Name and Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards ($)
|
|
|
All Other
Compensation
($)
|
|
|
Total ($)
|
|
|
Paul Block
|
|
|
2020
|
|
|
|
174,777
|
(1)
|
|
|
87,388
|
(2)
|
|
|
100,000
|
(3)
|
|
|
60,000
|
(4)
|
|
|
422,165
|
|
|
Chief Executive Officer (Since July 1, 2020), Director
|
|
|
2019
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geoffrey Gwin
|
|
|
2020
|
|
|
|
51,923
|
|
|
|
35,000
|
(5)
|
|
|
150,000
|
(6)
|
|
|
62,989
|
(7)
|
|
|
299,912
|
|
|
Chief Financial Officer, Director (Since June 15, 2020)
|
|
|
2019
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence Firestone
|
|
|
2020
|
|
|
|
132,692
|
|
|
|
25,000
|
|
|
|
132,735
|
(8)
|
|
|
123,376
|
(9)
|
|
|
413,803
|
|
|
Chief Executive Officer, Director (Until June 30, 2020)
|
|
|
2019
|
|
|
|
28,846
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grover T. Wickersham
|
|
|
2020
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Chief Executive Officer, Director (Until May 10, 2019)
|
|
|
2019
|
|
|
|
57,692
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
207,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Manfredonia
|
|
|
2020
|
|
|
|
86,538
|
|
|
|
61,154
|
|
|
|
75,000
|
(10)
|
|
|
-
|
|
|
|
222,692
|
|
|
President (Until July 17, 2020)
|
|
|
2019
|
|
|
|
150,000
|
|
|
|
50,000
|
|
|
|
150,514
|
(11)
|
|
|
|
|
|
|
350,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Shum
|
|
|
2020
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Interim Chief Executive Officer (May 2019-November 2019) and Chief Financial Officer, (Until November 2019)
|
|
|
2019
|
|
|
|
152,885
|
|
|
|
142,115
|
|
|
|
111,700
|
(12)
|
|
|
-
|
|
|
|
406,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melissa Heim
|
|
|
2020
|
|
|
|
45,115
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,115
|
|
|
Executive V.P. Operations and Master Distiller (Until July 17, 2020)
|
|
|
2019
|
|
|
|
102,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
102,000
|
|
|
|
(1)
|
Mr.
Block’s salary in 2020 was paid in all stock. The amount reflects the aggregate grant date fair value of 125,000 shares
calculated based on the closing sales price reported on the Nasdaq Capital Market on the respective dates of grant.
|
|
|
(2)
|
Mr.
Block’s bonus in 2020 was paid in all stock. The amount reflects the aggregate grant date fair value of 62,500 shares
calculated based on the closing sales price reported on the Nasdaq Capital Market on the respective dates of grant.
|
|
|
(3)
|
Mr.
Block received a grant of the equivalent of $100,000 of RSUs, one-half (1/2) of which will be earned and vested on each of March
31, 2021 and June 30, 2021, if Mr. Block remains employed on the applicable vesting date.
|
|
|
(4)
|
Mr.
Block received $60,000 in director fees for 2020.
|
|
|
(5)
|
Mr.
Gwin received a bonus of $35,000, $17,500 of which was paid in cash and $17,500 was paid in 16,204 shares of stock, calculated
based on the closing sales price reported on the Nasdaq Capital Market on the respective dates of grant.
|
|
|
(6)
|
Mr.
Gwin received a grant of the equivalent of $150,000 of RSUs, one-quarter of which will be earned and vested on each of September
30, 2020, December 31, 2020, March 31, 2021 and June 30, 2021, if Mr. Gwin remains employed on the applicable vesting date.
Subsequent to December 31, 2020, $56,250 of unvested RSU’s were rescinded by mutual agreement.
|
|
|
(7)
|
Mr.
Gwin received $62,989 in director fees for 2020, which he elected to receive in 40,246 restricted stock units in lieu
of cash, calculated based on the closing sales price reported on the Nasdaq Capital Market on the respective dates of grant.
|
|
|
(8)
|
Amounts
reflect the aggregate grant date fair value of 92,954 restricted stock units calculated based on the closing sales
price reported on the Nasdaq Capital Market on the respective dates of grant without regard to forfeitures.
|
|
|
(9)
|
Mr.
Firestone continued to receive his annual cash base salary of $250,000 in installments in accordance with and under the regular
payroll schedule of Eastside until December 31, 2020, pursuant to his separation agreement.
|
|
|
(10)
|
Amounts
reflect the aggregate grant date fair value of 53,268 restricted stock units calculated based on the closing sales price reported
on the Nasdaq Capital Market on the respective dates of grant without regard to forfeitures.
|
|
|
(11)
|
Amounts
reflect the aggregate grant date fair value of 27,461 restricted stock units calculated based on the closing sales price reported
on the Nasdaq Capital Market on the respective dates of grant without regard to forfeitures.
|
|
|
(12)
|
Amounts
reflect the aggregate grant date fair value of 20,000 restricted stock units calculated based on the closing sales
price reported on the Nasdaq Capital Market on the respective dates of grant without regard to forfeitures.
|
Employment
Agreements
The
Company has agreements with certain named executive officers, which include provisions regarding post-termination compensation.
The Company does not have a formal severance policy or plan applicable to the executive officers as a group. The following summaries
of the employment agreements are qualified in their entirety by reference to the text of the employment agreements, as amended,
which have been previously filed in our prior SEC reports.
Employment
Agreement with Paul Block
In
connection with Mr. Block’s appointment as Chief Executive Officer, Mr. Block entered into an executive employment agreement
with the Company on July 7, 2020, effective July 1, 2020 (the “Employment Agreement”). Under the Employment Agreement,
Mr. Block will be paid in all stock of 31,250 shares per month from July 1, 2020 through December 31, 2020, which includes a 2020
bonus equal to 50% of his salary during the six-month period. Beginning January 1, 2021, the Company will pay Mr. Block an annual
base salary of $350,000, which will increase to $375,000 on January 1, 2022 if Company revenue exceeds $20 million in 2021 and
will increase to $400,000 on January 1, 2023 if Company revenue exceeds $30 million in 2022.
The
Company will also request that the Compensation Committee of the Board of Directors approve the following grants of restricted
stock units (“RSUs”) to Mr. Block: (i) on or after July 1, 2020, the equivalent of $100,000 in RSUs, one-half (1/2)
of which will vest on each of March 31, 2021 and June 30, 2021; (ii) on or after January 1, 2021, the equivalent of $200,000 of
RSUs, one-twelfth (1/12) of which will be earned and vested on each of March 31, June 30, September 30 and December 31, beginning
March 31, 2021 and ending December 31, 2023; (iii) on or after January 1, 2022, the equivalent of $200,000 of RSUs, one-twelfth
(1/12) of which will be earned and vested on each of March 31, June 30, September 30 and December 31, beginning March 31, 2022
and ending December 31, 2024; and (iv) on or after January 1, 2023, the equivalent of $100,000 of RSUs, one-twelfth (1/12) of
which will be earned and vested on each of March 31, June 30, September 30 and December 31, beginning March 31, 2023 and ending
December 31, 2025.
Further,
Mr. Block will be eligible to receive a target incentive payment of 100% of his annual base salary beginning in 2021. Actual payments
will be determined based on a combination of the Company’s results and individual performance against the applicable performance
goals established by the Compensation Committee of the Board of Directors. Mr. Block will also receive other benefits that are
generally available to other executive officers of the Company and will be entitled to certain severance benefits if he is terminated
without cause, or resigns for good reason (in each case, as defined in the Employment Agreement), including, among other things,
twelve (12) months of the Executive’s then-current annual base salary (which will be deemed $350,000 during 2020) and the
continued vesting of RSUs for a period of 12 months after the date of termination.
Employment
Agreement with Geoffrey Gwin
On
June 15, 2020 the Company entered into an Executive Employment Agreement with Mr. Gwin. The agreement terminates on June 15, 2021.
Under
the Employment Agreement, Mr. Gwin will initially receive an annual base salary of $250,000, with $100,000 in cash and $150,000
in RSUs. Twenty-five percent (25%) of the award will vest on each of March 31, June 30 and September 30 and December 31 of each
year this contract is in effect, beginning September 30, 2020. Mr. Gwin will also be eligible to receive a target incentive payment
of 100% of his annual base salary beginning in 2020, paid 50% in RSUs and 50% in cash. Actual payments will be determined based
on a combination of the Company’s results and individual performance against the applicable performance goals established
by the Compensation Committee of the Board. Mr. Gwin will also receive (i) a signing bonus of $35,000, 50% in cash and 50% in
fully vested stock of the Company, and (ii) other benefits that are generally available to other executive officers of the Company.
Mr. Gwin will be entitled to certain severance benefits if he is terminated without cause, or resigns for good reason (in each
case, as defined in the Employment Agreement), including, among other things, the remainder of the annual base salary remaining
under the employment term and one year of continued vesting of RSUs. Effective February 4, 2021, Mr. Gwin and the
Company entered into a First Amendment to Employment Agreement (the “First Amendment”), pursuant to which (i) the
Company agreed to pay his entire base salary in cash following the transactions contemplated by that Termination and Inventory
Purchase Agreement (the “Termination Agreement”) dated as of February 2, 2021 with Redneck Spirits Group LLC, and
(ii) $56,250 of unvested RSUs were rescinded.
Employment
Agreement with Melissa Heim
On
February 27, 2015, the Company entered into an employment agreement with Melissa Heim. The agreement was terminated on July 17,
2020, when Ms. Heim left her position.
The
Company subsequently entered into a Separation Agreement and General Release with Ms. Heim dated July 21, 2020. The Separation
Agreement provides that Ms. Heim will receive all unpaid wages through July 17, 2020, payment in the amount of $62,769 as severance
and a cash separation benefit of $15,000. The Separation Agreement also contains releases of claims.
The
agreement contained the following provisions among other customary terms: (i) reimbursement for all reasonable travel and other
out-of-pocket expenses incurred in connection with her employment; (ii) paid vacation leave; (iii) medical, dental and life insurance
benefits and (iv) 36-month non-compete/non-solicitation terms; (v) Ms. Heim is not entitled to increased severance in connection
with a change of control.
Employment
Agreement with Robert Manfredonia
Effective
December 6, 2018, the Company entered into an Amended and Restated Employment Agreement with Mr. Manfredonia. The agreement was
terminated when Mr. Manfredonia resigned as President of Eastside, effective July 17, 2020.
The
agreement contained the following provisions among others: (i) is for an initial term ending on December 5, 2021 and provide for
an annual base salary during the term of the agreement of $150,000,(ii) eligible to receive a bonus of $100,000 per annum, which
would be subject to Company results and individual performance, (iii) the Company will recommend to the compensation committee
that it grant Mr. Manfredonia $37,500 worth of restricted stock units within the first 5 days of the completion of each quarter,
(iv) each award will be immediately vested and will be subject to the terms and conditions of the 2016 Equity Incentive Plan,
(v) Mr. Manfredonia may be eligible to receive stock option grants pursuant to the 2016 Equity Incentive Plan, subject to the
discretion of compensation committee,(vi) reimbursement for all reasonable travel and other out-of-pocket expenses incurred in
connection with his employment, along with a $500 per month car allowance; (vii) benefits and perquisites available to other senior
executives of the Company; and (viii) a severance payment upon termination without cause.
Employment
Agreement with Lawrence Firestone
On
November 13, 2019, the Company entered into an employment agreement with Mr. Firestone. The agreement terminates on December 31,
2020. Under the Employment Agreement, Mr. Firestone will initially receive an annual base salary of $250,000 in cash. The Company
will also grant Mr. Firestone the equivalent of $100,000 of restricted stock units (“RSUs”), based on the Company’s
customary determination of the applicable stock price at the time of grant. Twenty-five percent (25%) of the award will vest on
each of March 31, June 30, and September 30, 2020 and the first anniversary of the effective date of the Employment Agreement.
Mr. Firestone will also be eligible to receive a target incentive payment of 100% of his annual base salary beginning in 2020,
paid 50% in RSUs and 50% in cash. Actual payments will be determined based on a combination of the Company’s results and
individual performance against the applicable performance goals established by the Compensation Committee of the Board. Mr. Firestone
will also receive (i) a signing bonus of $50,000, which he may elect to receive up to 50% in cash and 50% in fully vested stock
of the Company, and (ii) other benefits that are generally available to other executive officers of the Company. Mr. Firestone
will be entitled to certain severance benefits if he is terminated without cause, or resigns for good reason (in each case, as
defined in the Employment Agreement), including, among other things, one year of annual base salary, one year of continued health
benefits coverage and one year of continued vesting of RSUs.
On
June 25, 2020, the Company and Lawrence Firestone entered into an executive separation agreement, dated June 25, 2020 (the “Separation
Agreement”), pursuant to which Mr. Firestone will transition his relationship as our Chief Executive Officer. The Separation
Agreement provides that Mr. Firestone will resign as CEO upon the appointment of a successor, which will be Mr. Block. He will
also assist and cooperate with Eastside, as needed, with any transfer of duties and further assist and act as a consultant or
advisor to Eastside with any ongoing questions or issues or matters which may arise through December 31, 2020.
Further,
the Separation Agreement provides that Mr. Firestone will (a) continue to receive his annual cash base salary of $250,000 in installments
in accordance with and under the regular payroll schedule of Eastside until December 31, 2020, (b) continue to receive his existing
health benefits until June 25, 2021 and (c) continue to vest the restricted stock units (the “RSUs”) that were granted
or to be granted under his Executive Employment Agreement, dated November 12, 2019, between Eastside and Mr. Firestone, until
December 31, 2020 as follows: the equivalent of $25,000 of RSUs for the quarter ending June 30, $25,000 of RSUs for the quarter
ending September 30 and $25,000 of RSUs for the quarter ending December 31. The Separation Agreement also contains releases of
claims and non-solicitation, non-competition, and confidentiality provisions.
Potential
Payments upon Termination
The
following table sets forth quantitative information with respect to potential payments to be made to Mr. Block and Mr. Gwin upon
termination without cause. The potential payments are based on the terms of Mr. Block and Mr. Gwin’s employment agreements
discussed above. For a more detailed description of the employment agreements for Mr. Block and Mr. Gwin, see the “Employment
Agreements” section above.
|
Name
|
|
Potential
Payment upon
Termination
Without Cause ($)
|
|
|
Paul Block
|
|
|
350,000
|
(1)
|
|
Geoffrey Gwin
|
|
|
69,231
|
(2)
|
|
(1)
|
Based
on Mr. Block’s current annual base salary of $350,000. Employee is entitled to 12 months base salary to be paid over
12 months.
|
|
(2)
|
Based
on Mr. Gwin’s current annual base salary of $250,000. Employee is entitled to payment of the Executive’s Base
Salary remaining under the Employment Term. Employee’s employment term ends June 15, 2021.
|
Outstanding
Equity Awards at 2020 Fiscal Year-End
The
following table sets forth all outstanding equity awards made to each of the Named Executive Officers that are outstanding as
of December 31, 2020.
|
Name
|
|
Number of Securities Underlying Unexercised Options (#) Exercisable
|
|
|
Number of securities
underlying
unexercised
options
(#) unexercisable
|
|
|
Equity
incentive
plan awards: Number of
securities
underlying
unexercised
unearned
options
(#)
|
|
|
Option Exercise Price ($)
|
|
|
Option Expiration Date
|
|
|
Number of shares or units of stock that have not vested
(#)
|
|
|
Market value of shares of units of stock that have not vested
($)
|
|
|
Equity
incentive
plan awards: Number of
unearned
shares, units or other rights that have not vested
(#)
|
|
|
Equity
incentive
plan awards: Market or payout value of
unearned
shares, units or other rights that have not vested
($)
|
|
|
Paul Block
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Grant (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
78,125
|
|
|
$
|
100,000
|
|
|
|
-
|
|
|
$
|
-
|
|
|
2021 Grant (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
156,250
|
|
|
$
|
200,000
|
|
|
2022 Grant (3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
156,250
|
|
|
$
|
200,000
|
|
|
2023 Grant (4)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
78,125
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geoffrey Gwin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Grant (5)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
58,594
|
|
|
$
|
75,000
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
(1)
|
Mr.
Block received a grant of the equivalent of $100,000 of RSUs, one-half (1/2) of which will be earned and vested on each of
March 31, 2021 and June 30, 2021, if Mr. Block remains employed on the applicable vesting date.
|
|
|
(2)
|
Mr.
Block is to receive a grant of the equivalent of $200,000 of RSUs, one-twelfth (1/12) of which will be earned and vested on
each of March 31, June 30, September 30 and December 31, beginning March 31, 2021 and ending December 31, 2023, if Mr. Block
remains employed on the applicable vesting date.
|
|
|
(3)
|
Mr.
Block is to receive a grant of the equivalent of $200,000 of RSUs, one-twelfth (1/12) of which will be earned and vested on
each of March 31, June 30, September 30 and December 31, beginning March 31, 2022 and ending December 31, 2024, if Mr. Block
remains employed on the applicable vesting date.
|
|
|
(4)
|
Mr.
Block is to receive a grant of the equivalent of $100,000 of RSUs, one-twelfth (1/12) of which will be earned and vested on
each of March 31, June 30, September 30 and December 31, beginning March 31, 2023 and ending December 31, 2025, if Mr. Block
remains employed on the applicable vesting date.
|
|
|
(5)
|
Mr.
Gwin received a grant of the equivalent of $150,000 of RSUs, one-quarter of which will be earned and vested on each of September
30, 2020, December 31, 2020, March 31, 2021 and June 30, 2021, if Mr. Gwin remains employed on the applicable vesting date.
|
Compensation
of Directors
2020
Director Compensation
During
2018, the Board of Directors established an annual compensation program for the directors that includes 1) an annual retainer
of $16,000 paid in cash in quarterly installments, 2) $5,000 in stock awards per quarter, 3) $2,500 cash payment for each board
chair, which will be paid annually at the beginning of the year, 4) $1,000 for in-person board meetings and $500 for telephonic
board meetings, and 5) 5,000 stock options per year.
In
October of 2019, the annual compensation program was updated to include 1) an initial board election RSU grant of $5,000, paid
one time upon appointment or election, 2) board chair premium of $20,000, and 3) annual committee member fees of $20,000. In July
of 2020 the Board of Directors formally approved the acceptance of restricted stock units to be paid in lieu of cash, each such
award to be fully-vested and payable as of the date of grant.
Other
than Paul Block and Geoffrey Gwin, who each received compensation as an executive officer as well as a director as described above,
the following table sets forth information regarding compensation earned by or paid to our non-employee directors during the year
ended December 31, 2020.
|
Name
|
|
Fees Earned
or Paid in
Cash ($)
|
|
|
Stock
Awards ($)
|
|
|
Option
Awards
($)
|
|
|
Total ($)
|
|
|
Paul Shoen (1)
|
|
|
17,500
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
17,500
|
|
|
Jack Peterson (3)
|
|
|
19,000
|
(4)
|
|
|
-
|
|
|
|
6,150
|
(9)
|
|
|
25,150
|
|
|
Eric Finnsson
|
|
|
27,500
|
(5)
|
|
|
10,000
|
(8)
|
|
|
6,150
|
(9)
|
|
|
43,650
|
|
|
Stephanie Kilkenny
|
|
|
42,500
|
(6)
|
|
|
10,000
|
(8)
|
|
|
6,150
|
(9)
|
|
|
58,650
|
|
|
Robert Grammen
|
|
|
54,000
|
(7)
|
|
|
10,000
|
(8)
|
|
|
6,150
|
(9)
|
|
|
70,150
|
|
|
(1)
|
Resigned
from Board of Directors effective April 24, 2020.
|
|
(2)
|
Elected
to receive 15,909 RSUs in lieu of cash for $17,500 of earned fees as valued using the closing stock price as reported on the
Nasdaq Capital Market on the respective dates of grant. The RSUs were fully vested upon grant.
|
|
(3)
|
Resigned
from Board of Directors effective August 25, 2020.
|
|
(4)
|
Elected
to receive 16,489 RSUs in lieu of cash for $18,000 of earned fees as valued using the closing stock price as reported on the
Nasdaq Capital Market on the respective dates of grant. The RSUs were fully vested upon grant.
|
|
(5)
|
Elected
to receive 17,081 RSUs in lieu of cash for $27,500 of earned fees as valued using the closing stock price as reported on the
Nasdaq Capital Market on the respective dates of grant. The RSUs were fully vested upon grant.
|
|
(6)
|
Elected
to receive 30,817 RSUs in lieu of cash for $42,500 of earned fees as valued using the closing stock price as reported on the
Nasdaq Capital Market on the respective dates of grant. The RSUs were fully vested upon grant.
|
|
(7)
|
Elected
to receive 35,370 RSUs in lieu of cash for $54,000 of earned fees as valued using the closing stock price as reported on the
Nasdaq Capital Market on the respective dates of grant. The RSUs were fully vested upon grant.
|
|
(8)
|
Amounts
reflect the aggregate grant date fair value of the 8,291 restricted stock units calculated based on the closing sales price
reported on the Nasdaq Capital Market on the respective dates of grant ($1.14 and $1.28 per share) without regards to forfeitures.
|
|
(9)
|
Amounts
reflect the aggregate grant date fair value of 5,000 shares of common stock underlying the stock options with an exercise
price of $1.23, without regards to forfeitures, computed in accordance with ASC 718. This amount does not reflect the actual
economic value realized by the director. The options issued vest immediately. The assumptions used to calculate the value
of the stock options are set forth in Note 15 in the Notes to Consolidated Financial Statements.
|
Delinquent Section 16(a) Reports
Under U.S. securities laws, directors,
certain officers and persons holding more than 10% of our common stock must report their initial ownership of our common stock
and any changes in their ownership to the SEC. The SEC has designated specific due dates for these reports and we must identify
in this Proxy Statement those persons who did not file these reports when due. To our knowledge, based solely on our review of
copies of the reports filed with the SEC and the representations of our directors and executive officers, we believe that all
reporting requirements for fiscal year 2020 were complied with by each person who at any time during the 2020 fiscal year was
a director or an executive officer or held more than 10% of our common stock, except for the following: Paul Block, Geoffrey Gwin,
Stephanie Kilkenny, Robert Grammen and Eric Finnsson. The Company is currently conducting a review with its officers and directors
of all transactions subject to Section 16 reporting requirements in order to cure any remaining delinquencies.
Item
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The
following table sets forth information as of March 31, 2021 as to each person or group who is known to us to be the beneficial
owner of more than 5% of our outstanding voting securities and as to the security and percentage ownership of each of our executive
officers and directors and of all of our officers and directors as a group. As of March 31, 2021, the Company had 11,629,307 shares
of common stock outstanding.
Beneficial
ownership is determined under the rules of the SEC and generally includes voting or investment power over securities. Except in
cases where community property laws apply or as indicated in the footnotes to this table, we believe that each stockholder identified
in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder.
Shares
of common stock subject to options or warrants that are currently exercisable or exercisable within 60 days of the date of March
31, 2021 are considered outstanding and beneficially owned by the person holding the options for the purpose of computing the
percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of
any other person.
|
Name And Address (1)
|
|
Number of
Common Shares
Beneficially
Owned
|
|
|
Percentage
Owned
|
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
|
TQLA, LLC
|
|
|
1,594,789
|
(2)
|
|
|
13.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Officers and Directors
|
|
|
|
|
|
|
|
|
|
Paul Block
|
|
|
143,909
|
|
|
|
1.23
|
%
|
|
Geoffrey Gwin
|
|
|
219,115
|
(3)
|
|
|
1.88
|
%
|
|
Lawrence Firestone
|
|
|
88,150
|
(4)
|
|
|
0.76
|
%
|
|
Eric Finnsson
|
|
|
47,407
|
(5)
|
|
|
0.41
|
%
|
|
Stephanie Kilkenny
|
|
|
1,594,789
|
(2)
|
|
|
13.00
|
%
|
|
Robert Grammen
|
|
|
87,723
|
(6)
|
|
|
0.75
|
%
|
|
Elizabeth Levy-Navarro
|
|
|
7,972
|
(7)
|
|
|
0.07
|
%
|
|
All directors and executive officers as a group
|
|
|
2,189,065
|
|
|
|
17.77
|
%
|
|
|
|
|
2,189,065
|
|
|
|
|
|
|
|
(1)
|
Unless
otherwise noted, the address is c/o Eastside Distilling, Inc., 8911 NE Marx Drive, Suite A2,
Portland,
Oregon 97220.
|
|
|
(2)
|
Includes
74,663 shares held by Ms. Kilkenny, 5,000 shares underlying presently exercisable stock options held by Mrs. Kilkenny, 2,702
shares that Ms. Kilkenny has a right to acquire within 60 days of March 31, 2021, 830,838 shares held by TQLA, LLC (“TQLA”),
which Mrs. Kilkenny, together with her spouse, owns and controls, 598,223 shares that TQLA has a right to acquire within
60 days of March 31, 2021, and 55,555 shares and 27,778 warrants held directly by Patrick J. Kilkenny, Trustee of the Patrick
J. Kilkenny Revocable Trust. Mr. Kilkenny is the spouse of the Reporting Person. By virtue of her role with TQLA and spousal
relationship with Mr. Kilkenny, she may be deemed to be the indirect beneficial owner of shares held by TQLA or Mr. Kilkenny,
either individually or in his capacity as trustee; however, she disclaims beneficial ownership of the reported securities,
except to the extent of her pecuniary interest therein.
|
|
|
(3)
|
Includes 24,363 shares that Mr. Block has a right
to acquire within 60 days of March 31, 2021.
|
|
|
(4)
|
Includes 107,000 shares held by Group G Investments,
LP (“Group G Investments”), the general partner of which is Group G Capital Partners, LLC. Mr. Gwin is the managing
member and Chief Investment Officer of Group G Capital Partners, LLC and is also a limited partner of Group G Investments.
By virtue of his roles with Group G Capital Partners, LLC, he may be deemed to be the indirect beneficial owner of Group G
Investments’ portfolio securities; however, he disclaims beneficial ownership of the reported securities, except to
the extent of his pecuniary interest therein.
|
|
|
(5)
|
Includes
5,000 shares underlying presently exercisable stock options and 2,702 shares that Mr. Finnsson has a right to acquire within
60 days of March 31, 2021.
|
|
|
(6)
|
Includes
5,000 shares underlying presently exercisable stock options and 10,689 shares that Mr. Grammen has a right to
acquire within 60 days of March 31, 2021.
|
|
|
(7)
|
Includes 5,000 shares underlying presently exercisable
stock options and 2,972 shares that Ms. Levy-Navarro has a right to acquire within 60 days of March 31, 2021.
|
Securities
Authorized for Issuance Under Equity Compensation Plans. The following provides information concerning compensation plans
under which our equity securities are authorized for issuance as of December 31, 2020:
Equity
Compensation Plan Information
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Plan Category
|
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
|
|
|
Weighted-average price of outstanding options, warrants and rights ($)
|
|
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities in column (a))
|
|
|
Equity compensation plans approved by security holders (1)
|
|
|
1,213,553
|
|
|
$
|
4.71
|
|
|
|
1,673,452
|
|
|
Equity compensation plans not approved by security holders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
|
1,213,553
|
|
|
$
|
4.71
|
|
|
|
1,673,452
|
|
|
(1)
|
2016
Stock Incentive Plan. On September 8, 2016, the Company adopted the 2016 Equity Incentive Plan (the “2016 Plan”).
The total number of shares available for the grant of either stock options or compensation stock under the 2016 Plan was initially
set at 166,667 shares, subject to adjustment. On January 1, 2017 and pursuant to the plan provisions, the number of shares available
for grant under the 2016 Plan reset to 307,139 shares, equal to 8% of the number of outstanding shares of the Company’s
capital stock, calculated on an as-converted basis, on December 31 of the preceding calendar year. On October 18, 2017, the Board
of Directors approved amendments to the 2016 Plan to (i) increase the number of shares of the common stock that may be issued
under the 2016 Plan (the “Aggregate Limit”) by an additional 192,861 shares of common stock, for a total of 500,000
shares of common stock, (ii) increase the number of shares of common stock that may be granted to any participant pursuant to
options to purchase common stock and stock appreciation rights under the 2016 Plan in any one year period (the “Individual
Option Limit”) from 8,333 shares to 200,000 shares, (iii) increase the number of shares of common stock that may be granted
to any participant pursuant to other awards (the “Individual Award Limit”) under the 2016 Plan in any one year period
from 8,333 shares to 200,000 shares and (iv) increase the number of shares of common stock that may be paid to any one participant
under the 2016 Plan for a performance period pursuant to performance compensation awards under the 2016 Plan (the “Individual
Performance Award Limit”) from 8,333 shares to 200,000 shares, which amendments were adopted and approved at the December
2017 meeting of stockholders. On January 1, 2020, pursuant to the plan provisions, the number of shares available for grant under
the 2016 Plan reset to 2,887,005 shares. The exercise price per share of each stock option shall not be less than 100% of the
fair market value of the Company’s common stock on the date of grant. As of December 31, 2020, there were 134,514 options,
with a weighted-average exercise price of $4.71 per share, and 1,079,039 RSUs issued under the 2016 Plan, with vesting schedules
varying between immediate and three (3) years from the grant date.
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Item
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The
following is a description of transactions since January 1, 2019 as to which the amount involved exceeds the lesser of $120,000
or one percent (1%) of the average of our total assets at year-end for the last two completed fiscal years and in which any related
person has or will have a direct or indirect material interest, other than equity and other compensation, termination and other
arrangements which are described above under the headings “Compensation of Directors” and “Executive Compensation.”
As of the date of this Annual Report on Form 10-K, there are no proposed transactions as described in the foregoing sentence.
Jack
Peterson
On
August 23, 2017, our Board appointed Jack Peterson to the Board to fill an existing vacancy on the Board effective immediately.
Mr. Peterson is also the President of Sandstrom Partners. In 2019, we paid $220,000 in cash and issued 61,600 shares of common
stock to Sandstrom for work performed. We did not pay nor issue shares of common stock to Sandstrom.
Stephanie
Kilkenny
Stephanie
Kilkenny was appointed to the Board in accordance with the terms of the Asset Purchase Agreement, dated September 12, 2019 (the
“Asset Purchase Agreement”), between the Company and Intersect Beverage, LLC, a California limited liability company
(“Intersect”), pursuant to which the Company acquired substantially all of the assets of Intersect (the “Purchased
Assets”), an importer and distributor of tequila and related products (the “Transaction”) under the brand name
“Azuñia.” The Transaction closed on September 12, 2019. Mrs. Kilkenny was the former managing director of Azuñia
Tequila, and together with her spouse, owns and controls TQLA, LLC (“TQLA”), the majority owner of Intersect.
In
connection with the Transaction, TQLA is entitled to up to 93.88% of the aggregate consideration payable under the Asset Purchase
Agreement. The aggregate consideration payable under the Asset Purchase Agreement includes that number of shares of common stock
of the Company, cash payments and/or promissory notes comprising (i) 1,200,000 shares of the Company’s common stock (the
“Fixed Number of Shares”) and, (ii) to the extent certain revenue targets are achieved, the Initial Earnout Consideration
(as defined below) and the Subsequent Earnout Consideration (as defined below) The Fixed Number of Shares will be issued 540 days
following the closing date of the Transaction as follows: 850,000 shares of the Company’s common stock will be issued at
a stipulated value of $6.00 per share, equivalent to $5,100,000, and the remaining 350,000 shares of the Company’s common
stock will be issued at a stipulated value equal to the 20-day volume-weighted average closing price of Company common stock on
September 12, 2020. In addition, upon the acquired business (which is comprised of Intersect’s business of importing and
distributing tequila and related products (the “Business”)) achieving gross revenues of $3.24 million or more during
the first eighteen months following closing date of the Agreement, the Company will issue as further consideration (the “Initial
Earnout Consideration”) additional shares of Company common stock at a price per share equal to the 20-day volume-weighted
average closing price of the Company’s common stock on the eighteen-month anniversary of the closing date of the Transaction.
The number of additional shares of the Company’s common stock to be issued will be based upon a multiple of gross revenue
of the Business, ranging from 3.30 to 3.50, and less the aggregate stipulated dollar value of the Fixed Number of Shares previously
paid.
If
the gross revenue of the acquired Business for the period commencing on the first day of the thirteenth month following the closing
date of the Transaction and ending on the last day of the twenty-fourth month following the closing date of the Transaction (the
“Subsequent Earnout Period”) equals or exceeds $9.45 million, the Company will pay to the members of Intersect, including
up to 93.88% to TQLA, $1,500,000, either in cash or a number of shares equal to (x) $1.5 million divided by (y) the 20-day volume-weighted
average closing price of the Company’s common stock on the last day of the Subsequent Earnout Period, rounded down to the
nearest whole number of shares of the Company’s common stock (the “Subsequent Earnout Consideration”).
Notwithstanding
anything set forth in the Asset Purchase Agreement, the Company will not be required to issue shares of common stock if, in order
for the Company to issue sufficient shares to pay any portion of the aggregate consideration under the Agreement, the Company
would be required to hold a vote of the Company’s stockholders pursuant to Nasdaq Listing Rules (i.e. the number of shares
of common stock of the Company issuable under the Agreement would exceed 19.9% of the Company’s outstanding common stock).
In the event that the Company would be required to hold a vote of the Company’s stockholders pursuant to Nasdaq Listing
Rules, the Company may, at its election, issue only that number of shares of common stock which does not require such vote, and
instead pay any remaining portion of the aggregate consideration in the form of cash or as a promissory note with a three-year
maturity that bears interest at a rate of 6% per annum.
On
February 10, 2021, we issued 1,200,000 shares of common stock for the Fixed Number of Shares, and on April 19, 2021, we issued
682,669 shares of common stock and $7,841,042 in principal amount of promissory notes as the Earnout Consideration. Of these
amounts, TQLA received a total of 1,429,901 shares of our common stock and a promissory note in the principal amount of $6,871,105.
Any
shares issued by the Company under the Asset Purchase Agreement will be issued, at the Company’s election, either (i) as
registered shares under the Securities Act of 1933, as amended (the “Securities Act”) or (ii) as unregistered shares
in an issuance exempt from registration under Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
If the Company issues unregistered shares, the Company will file a re-sale registration statement on Form S-3 with the Securities
and Exchange Commission for a secondary offering covering the resale of the unregistered shares. Such registration statement will
be filed no later than 30 days following the date of payment of the Initial Earnout Consideration and will be amended within 30
days following the issuance of any Subsequent Earnout Consideration.
In
addition, TQLA is obligated to reimburse the Company for approximately $430,000 in certain expenses associated with the transaction.
On
September 16, 2019, the Company entered into a Subscription Agreement with Mrs. Kilkenny’s spouse, Patrick J. Kilkenny as
Trustee For Patrick J. Kilkenny Revocable Trust (the “Kilkenny Trust”) in reliance on the exemption from registration
afforded by Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated thereunder, pursuant to which the Company agreed
to issue and sell to the Kilkenny Trust an aggregate of 55,555 units (the “Units”) at a per unit price of $4.50. Each
Unit consists of one share of the Company’s common stock and a three-year warrant to acquire 0.5 shares of common stock
at an exercise price of $5.50 per share.
Effective
November 29, 2019, the Company issued to TQLA, a Secured Line of Credit Promissory Note (the “Note”) for a revolving
line of credit in the aggregate principal amount of $2,000,000. The Note matures on April 15, 2020 and may be prepaid in whole
or in part at any time without penalty or premium. Repayment of the Note is subject to acceleration in the event of an event of
default. The Company may use the proceeds to purchase tequila for its Azuñia product line and for general corporate purposes,
as approved by TQLA. As of December 31, 2019, the Company borrowed $946,640 on the Note. The Note was repaid in full on January
16, 2020.
In
August 2020, the Company entered into discussions with Intersect and TQLA to address potential changes to the deferred consideration
for the Azuñia acquisition and received a deposit of $250,000 in cash. In November 2020, Intersect and TQLA sent the Company
a second deposit of $450,000, bringing the total outstanding amount deposited to $700,000. Subsequent to December
31, 2020, the full deposit of $700,000 was repaid.
Robert Grammen
Effective June 15,
2020, our Board appointed Robert Grammen to the Board to fill an existing vacancy on the Board. Mr. Grammen is also a member of
Intersect. Pursuant to the Asset Purchase Agreement between the Company and Intersect, Mr. Grammen received a total of 22,027
shares of our common stock and a promissory note in the principal amount of $91,740.
We
believe that the foregoing transactions were in our best interests. Consistent with Section 78.140 of the Nevada Revised Statutes,
it is our current policy that all transactions between us and our officers, directors and their affiliates will be entered into
only if such transactions are approved by a majority of the disinterested directors, are approved by vote of the stockholders,
or are fair to us as a corporation as of the time it is authorized, approved or ratified by the board. We will conduct an appropriate
review of all related party transactions on an ongoing basis, and, where appropriate, we will utilize our audit committee for
the review of potential conflicts of interest.
Director
Independence
Generally,
under the listing requirements and rules of Nasdaq, independent directors must comprise a majority of a listed company’s
board of directors. Our Board of Directors has undertaken a review of its composition, the composition of its committees and the
independence of each director. Our Board of Directors has determined that Eric Finnsson, Robert Grammen, and Elizabeth Levy-Navarro
are independent within the meaning of Nasdaq listing standards. Accordingly, a majority of our directors is independent, as required
under applicable Nasdaq rules. In making this determination, our Board of Directors considered the current and prior relationships
that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant
in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. In making
this determination, the Board of Directors considered all transactions set forth under “Certain Relationships and Related
Transactions” above.
Item
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit
Fees
M&K
CPAS, PLLC (“M&K”) billed us $54,000 in fees for our 2020 annual audit and $35,000 in fees for the completion
of our 2019 audit, and $28,500 and $22,000 in fees for the review of our quarterly financial statements in 2020 and 2019, respectively.
Audit
Related Fees
We
paid fees to M&K for assurance and related services of $10,500 and $22,900 related to other SEC filings in 2020 and 2019,
respectively.
Tax
Fees
For
the years ended December 31, 2020 and 2019, the aggregate fees billed for tax compliance by M&K were $15,000 and $0, respectively.
Pre-Approval
Policies and Procedures
We
have implemented pre-approval policies and procedures related to the provision of audit and non-audit services. Under these procedures,
our audit committee pre-approves all services to be provided by M&K and the estimated fees related to these services.
All
audit, audit related, and tax services were pre-approved by the audit committee, which concluded that the provision of such services
by M&K was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. Our
pre-approval policies and procedures provide for the audit committee’s pre-approval of specifically described audit, audit-related,
and tax services on an annual basis, but individual engagements anticipated to exceed pre-established thresholds must be separately
approved. The policies and procedures also require specific approval by the audit committee if total fees for audit-related and
tax services would exceed total fees for audit services in any fiscal year. The policies and procedures authorize the audit committee
to delegate to one or more of its members pre-approval authority with respect to permitted services.