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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

Amendment No. 1

 

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                      TO                     

Commission File Number 001-38594

 

TILRAY, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

82-4310622

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1100 Maughan Road

Nanaimo, BC

V9X IJ2

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (844) 845-7291

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class 2 Common Stock, $0.0001 par value per share

 

TLRY

 

The Nasdaq Stock Market LLC

The Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES  NO 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  YES NO 

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES  NO 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).  YES  NO 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES NO 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of the Registrant’s Class 2 Common Stock on The Nasdaq Stock Market on June 28, 2019, was approximately $1.03 billion.

As of April 28, 2020 there were 16,666,665 shares of the Registrant’s Class 1 Common Stock, par value of $0.0001 per share, and 108,019,525 shares of the Registrant’s Class 2 Common Stock, par value $0.0001 per share, issued and outstanding.

 

 

 

 


 

EXPLANATORY NOTE

Tilray, Inc. (the “Company”) is filing this Amendment No. 1 to its Annual Report on Form 10-K (“Amendment”), originally filed with the Securities and Exchange Commission (the “SEC”) on March 2, 2020 (the “Initial Filing”), solely for the purposes of amending and supplementing Part III of the Annual Report on Form 10-K. This amendment changes the Company’s Initial Filing by including information required by Part III (Items 10, 11, 12, 13 and 14) because our definitive proxy statement will not be filed within 120 days after December 31, 2019, the end of the fiscal year covered by our Annual Report on Form 10-K.

In addition, in connection with the filing of this Amendment, the Company is including new certifications of our principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Accordingly, Item 15 of Part IV of the Initial Filing has also been amended to reflect the filing of the new certifications. Because no financial statements are contained within this Amendment, the Company is not including certifications pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

Except as contained herein, this Amendment does not modify or update disclosures contained in the Initial Filing. This Amendment should be read in conjunction with the Company’s other filings made with the SEC subsequent to the date of the Initial Filing.

 

In this Annual Report on Form 10-K, “we,” “our,” “us,” “Tilray,” and “the Company” refer to Tilray, Inc. and, where appropriate, its consolidated subsidiaries. This report contains references to our trademarks and trade names and to trademarks and trade names belonging to other entities. Solely for convenience, trademarks and trade names referred to in this report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trademarks or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

 

 

 


 

Table of Contents

 

 

 

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Board of Directors

Tilray’s Board of Directors is divided into three classes.  Each class consists, as nearly as possible, of one-third of the total number of directors, and each class has a three-year term.  Vacancies on the Board may be filled only by persons elected by a majority of the remaining directors.  A director elected by the Board to fill a vacancy in a class, including vacancies created by an increase in the number of directors, shall serve for the remainder of the full term of that class and until the director’s successor is duly elected and qualified.

The Board presently has five members.  There are two directors in the class whose term of office expires in 2020.  If elected at the Annual Meeting, each of these nominees would serve until the 2023 annual meeting and until her successor has been duly elected and qualified, or, if sooner, until the director’s death, resignation or removal.  It is the Company’s policy to invite directors and nominees for director to attend the Annual Meeting.  All of our board members attended our 2019 Annual Meeting of stockholders.

The following table sets forth information as of March 30, 2020 with respect to our directors:

 

Name

 

Age

 

Director

Since

 

Position(s)

Class II Directors—Nominees for Election at the 2020 Annual Meeting

 

 

 

 

 

 

Maryscott Greenwood

 

54

 

May 2018

 

Director

Christine St.Clare

 

69

 

June 2018

 

Director

Class III Directors—Continuing in Office until the 2021 Annual Meeting

 

 

 

 

 

 

Brendan Kennedy

 

47

 

January 2018

 

President, Chief Executive Officer and Director

Class I Directors—Continuing in Office until the 2022 Annual Meeting

 

 

 

 

 

 

Michael Auerbach

 

44

 

February 2018

 

Director

Rebekah Dopp

 

43

 

May 2018

 

Director

 

Each of the nominees listed below is currently a director of the Company who was previously elected by the then current members of the Board to fill a vacant seat.

Nominees for Election for a Three-Year Term Expiring at the 2023 Annual Meeting

Maryscott “Scotty” Greenwood has served as a member of our Board since May 2018. Ms. Greenwood is currently the Partner and Managing Director of Crestview Strategy US LLC, serving in such role since June 2019.  She has served as the Chief Executive Officer of the Canadian American Business Council since 2016, where she previously served as Executive Director from 2001 to 2016. She previously served as a principal at Dentons from July 2015 to May 2019 and as the Senior Managing Director at McKenna, Long & Aldridge LLP from April 2001 to June 2015. Ms. Greenwood holds a BA in Political Science from the University of Vermont.

The Nominating and Corporate Governance Committee believes Ms. Greenwood is qualified to serve on our Board due to her background in government and policy and her extensive regulatory knowledge.

Christine St.Clare has served as a member of our Board since June 2018. Ms. St.Clare is President of St.Clare Advisors, LLC, a company she founded in January 2012.  In 2010, Ms. St.Clare completed a 35-year career with KPMG, during which time she served in various capacities, including as Audit Partner from 1986 until 2005; as Advisory Partner in Internal Audit, Risk and Compliance from 2005 until 2010; and as a member of KPMG’s board of directors for four years, chairing the Audit and Finance Committee. From February 2013 to December 2019, Ms.

2


 

St.Clare served on the board of directors of Fibrocell Science, Inc. and chaired its Audit Committee until its sale to a strategic buyer.  Ms. St.Clare has served on the board of directors of AquaBounty Technologies, Inc. and as Chairperson of its Audit Committee since May 2014.  From February 2013 through December 2016, Ms. St.Clare served on the board of directors and as Audit Committee Chairperson for Polymer Group, Inc (aka Avintiv), a global manufacturing company.  Ms. St.Clare holds a BS in Accounting from California State University, Long Beach, and attended Executive Education courses at The Wharton School of the University of Pennsylvania.  In March 2019, Ms. St.Clare was named to The National Association of Corporate Directors (NACD) 2019 NACD Directorship 100, which is a list of the most influential leaders in the boardroom and corporate governance community.

The Nominating and Corporate Governance Committee believes Ms. St.Clare is qualified to serve on our Board due to her extensive accounting, business and finance knowledge and experience.

 

Director Continuing in Office Until the 2021 Annual Meeting

Brendan Kennedy has served as our President and Chief Executive Officer and member of our Board since January 2018.  Mr. Kennedy has also served as a member of the board of directors and Chief Executive Officer of Tilray Canada, Ltd., our Canadian subsidiary, since 2016. Mr. Kennedy served as the Executive Chairman and member of the board of directors of Privateer Holdings, Inc., a private investment firm focused exclusively on the cannabis industry, beginning October 2011 until December 2019. Privateer Holdings was our controlling stockholder until the Downstream Merger (as defined below). Mr. Kennedy also served as Chief Executive Officer of Privateer Holdings from its founding until June 2018. Prior to founding Privateer Holdings, Mr. Kennedy served as the Chief Operating Officer of Silicon Valley Bank Analytics from 2010 to 2011 and Managing Director from 2006 to 2010. Mr. Kennedy holds a BA from the University of California, Berkeley, an MS in Engineering from the University of Washington and an MBA from the Yale School of Management.

The Nominating and Corporate Governance Committee believes Mr. Kennedy is qualified to serve on our Board due to his role as a founder.

 

Directors Continuing in Office Until the 2022 Annual Meeting

Michael Auerbach has served as a member of our Board since February 2018. He served on the board of directors of Privateer Holdings from January 2014 to December 2019. He is the Founder of Subversive Capital, Chairman of Subversive Capital Acquisition Corp., Chairman of Subversive Capital REIT, LP and General Partner of Subversive Capital’s venture platform and Opportunity Fund. Mr. Auerbach is an entrepreneur, investor, business consultant, and private diplomat. He is a Senior Vice President at Albright Stonebridge Group (“ASG”), the global consulting firm of former secretary of state Madeleine Albright, where he has worked since 2012. Before joining ASG, Mr. Auerbach created Social Risks, which provided investors with assessments of companies' social impact. Social Risks was bought out by global consulting giant Control Risks, where Mr. Auerbach served as a Vice President for five years. Michael began his career founding Panopticon Inc, a VC incubator concentrating on internet and mobile technology. He has an MA in International Relations from Columbia University and a BA in Critical Theory from the New School.

The Nominating and Corporate Governance Committee believes Mr. Auerbach is qualified to serve on our Board due to his extensive knowledge of our company and industry.

Rebekah Dopp has served as a member of our Board since May 2018. Ms. Dopp currently works at Google, where she is the founder of Exponent – the company’s gender equality incubator; she joined Google in 2016 as Head of Local TV Partnerships and was the architect of the local TV engagement strategy for YouTube TV. She previously served as Senior Vice President, Advanced Digital Services for CBS Corporation from 2014 to 2016 and in several leadership positions at HBO from 2001 to 2014. She is a CEO coach, keynote speaker and has led global product, engineering, strategy, and distribution teams. She served as a senior leader on the launch teams for HBO GO, CBS All Access, and YouTube TV.  Ms. Dopp holds a BA in Business Administration with a concentration in finance from The College of William and Mary and participated in Directors’ College at Stanford Law School and the TV Executive Leadership Program at Harvard Business School.

The Nominating and Corporate Governance Committee believes Ms. Dopp is qualified to serve on our Board due to her extensive corporate leadership experience and deep expertise in strategic partnerships and transactions.

 

3


 

Information Regarding The Board Of Directors And Corporate Governance

Independence of The Board of Directors

On December 12, 2019, Privateer Holdings, Inc., our former controlling stockholder, merged with and into a wholly owned subsidiary of Tilray, Inc., and ceased to exist. This transaction is referred to in this proxy statement as the “Downstream Merger.” Accordingly, we are no longer a “controlled company” within the meaning of the listing rules of the Nasdaq Global Select Market. As a result, we are now required to have a majority of independent directors on the Board. Our Board has made a determination that each of Ms. Dopp, Ms. Greenwood and Ms. St.Clare is independent under the listing rules of the Nasdaq Global Select Market.  In determining that Ms. Greenwood was independent, our Board considered her current employment at Crestview Strategy USA LLC, a Delaware limited liability company (“Crestview US”), and Tilray’s previous engagement with Crestview Strategy Inc., an Ontario corporation and an indirect majority owner of Crestview US (“Crestview Canada”). Crestview Canada provided lobbying and advisory services to Tilray from November 2014 to March 2020.  Our Board has also determined that Mr. Kennedy, due to his employment as our President and Chief Executive Officer and his prior affiliation with Privateer Holdings, Inc., and Mr. Auerbach, due to his prior consulting relationship with the Company and his prior affiliation with Privateer Holdings, Inc., are not independent under the listing rules of the Nasdaq Global Select Market.

Board Leadership Structure

Our Board is currently chaired by our President and Chief Executive Officer, Mr. Kennedy.

The Company believes that combining the positions of Chief Executive Officer and Board Chair helps to ensure that the Board and management act with a common purpose. In the Company’s view, separating the positions of Chief Executive Officer and Board Chair has the potential to give rise to divided leadership, which could interfere with good decision-making or weaken the Company’s ability to develop and implement strategy. Instead, the Company believes that combining the positions of Chief Executive Officer and Board Chair provides a single, clear chain of command to execute the Company’s strategic initiatives and business plans. In addition, the Company believes that a combined Chief Executive Officer/Board Chair is better positioned to act as a bridge between management and the Board, facilitating the regular flow of information. The Company also believes that it is advantageous to have a Board Chair with an extensive history with and knowledge of the Company (as is the case with the Company’s Chief Executive Officer) as compared to a relatively less informed independent Board Chair.

Role of the Board in Risk Oversight

One of the Board’s key functions is informed oversight of the Company’s risk management process.  The Board does not have a standing risk management committee, but rather administers this oversight function directly through the Board as a whole, as well as through various Board standing committees that address risks inherent in their respective areas of oversight. In particular, our Board is responsible for monitoring and assessing strategic risk exposure, including a determination of the nature and level of risk appropriate for the Company.  Our Audit Committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken.  The Audit Committee also monitors compliance with legal and regulatory requirements, in addition to oversight of the performance of our internal audit function.  Our Nominating and Corporate Governance Committee monitors the effectiveness of our corporate governance guidelines, including whether they are successful in preventing illegal or improper liability-creating conduct.  Our Compensation Committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking.

Meetings of The Board of Directors

The Board met nine times during 2019.  Each Board member attended 75% or more of the aggregate number of meetings of the Board and of the committees on which she or he served or held during the portion of 2019 for which she or he was a director or committee member.

4


 

Information Regarding Committees of the Board of Directors

The Board has three standing committees: an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.  The following table provides membership as of December 31, 2019 and meeting information for 2019 for each of the Board committees.

 

Name

 

Audit

 

Compensation

 

Nominating

and

Corporate

Governance

Michael Auerbach (1)

 

 

 

 

 

 

Rebekah Dopp (2)

 

X

 

X

 

X

Maryscott Greenwood (3)

 

X

 

X

 

X

Christine St.Clare (4)

 

X

 

X

 

X

Brendan Kennedy

 

 

 

 

 

 

Total meetings in 2019

 

9

 

7

 

6

 

 

(1)

Mr. Auerbach served as a member of the Compensation Committee and Nominating and Corporate Governance Committee through December 12, 2019.  Mr. Auerbach also served as Chairperson of the Compensation Committee and Nominating and Corporate Governance Committee through August 2019.  

 

(2)

Ms. Dopp has served as Chairperson of the Compensation Committee since August 2019.

 

(3)

Ms. Greenwood has served as Chairperson of the Nominating and Corporate Governance Committee since August 2019.

 

(4)

Ms. St.Clare serves as Chairperson of the Audit Committee. Ms. St.Clare has served as a member of the Compensation Committee since December 12, 2019.

Below is a description of each standing committee of the Board.  

Audit Committee

Our Audit Committee currently consists of Ms. Dopp, Ms. Greenwood and Ms. St.Clare. Our Board has determined each member of our Audit Committee to be independent under the listing standards and Rule 10A-3(b)(1) of the Exchange Act. The chairperson of our Audit Committee is Ms. St.Clare. Our Board has determined that Ms. St.Clare is an “Audit Committee financial expert” within the meaning of SEC regulations. Our Board has also determined that each member of our Audit Committee has the requisite financial expertise required under the applicable requirements of Nasdaq. In arriving at this determination, the Board has examined each Audit Committee member’s scope of experience and the nature of their current and prior employment. The Audit Committee met nine times during 2019. The Board has adopted a written Audit Committee charter that is available to stockholders on the Company’s website at https://ir.tilray.com/.

The primary purpose of the Audit Committee is to discharge the responsibilities of our Board with respect to our accounting, financial and other reporting and internal control practices and to oversee our independent registered accounting firm. Specific responsibilities of our Audit Committee include:

 

selecting a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;

 

helping to ensure the independence and performance of the independent registered public accounting firm;

 

discussing the scope and results of the audit with the independent registered public accounting firm and reviewing, with management and the independent accountants, our interim and year-end operating results;

 

developing procedures for employees to submit concerns anonymously about questionable accounting or audit matters;

5


 

 

reviewing our policies on financial risk assessment and risk management;

 

reviewing related-party transactions;

 

obtaining and reviewing a report by the independent registered public accounting firm, at least annually, that describes their internal quality-control procedures, any material issues with such procedures and any steps taken to deal with such issues when required by applicable law; and

 

approving (or, as permitted, pre-approving) all audit and all permissible non-audit service to be performed by the independent registered public accounting firm.

Compensation Committee

Our Compensation Committee currently consists of Ms. Dopp, Ms. Greenwood and Ms. St.Clare. Our Board has determined each of Ms. Dopp, Ms. Greenwood and Ms. St.Clare meets the independence requirements under the Nasdaq listing rules. The chairperson of our Compensation Committee is Ms. Dopp. The Compensation Committee met seven times during 2019.  The Board has adopted a written Compensation Committee charter that is available to stockholders on the Company’s website at https://ir.tilray.com/.

The primary purpose of our Compensation Committee is to discharge the responsibilities of our Board to oversee our compensation policies, plans and programs and to review and determine the level of compensation to be paid to our executive officers and other senior management, as appropriate. Specific responsibilities of our Compensation Committee include:

 

reviewing and approving, or recommending to our Board for approval the compensation of our executive officers;

 

reviewing and approving, or recommending to our Board for approval the terms of compensatory arrangements with our executive officers;

 

administering our stock and equity incentive plans;

 

selecting compensation advisors and assessing whether there are any conflicts of interest with any of the committee’s compensation advisors;

 

reviewing and approving, or recommending to our Board for approval of the incentive compensation and equity plans, severance agreements, change-of-control protections and any other compensatory arrangements for our executive officers and other senior management, as appropriate;

 

reviewing and establishing general policies relating to compensation and benefits of our employees; and

 

reviewing our overall compensation philosophy.

Compensation Committee Process and Procedures

 

Typically, the Compensation Committee meets at least semiannually and with greater frequency if necessary and appropriate. The agenda for each meeting is usually developed by the Chair of the Compensation Committee, in consultation with management.

 

From time to time, various members of management and other employees as well as external advisors or consultants may be invited by the Compensation Committee to make presentations, to provide financial or other background information or advice or to otherwise participate in Compensation Committee meetings.

 

The Chief Executive Officer may not participate in-camera, or be present during, any deliberations or determinations of the Compensation Committee regarding his compensation or individual performance objectives.

 

The charter of the Compensation Committee grants the Compensation Committee full access to all books, records, facilities and personnel of the Company.

 

In addition, under the charter, the Compensation Committee has the authority to obtain, at the expense of the Company, advice and assistance from compensation advisors and internal and external legal, accounting or other advisors and other external resources that the Compensation Committee considers necessary or appropriate in the performance of its duties.

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The Compensation Committee has direct responsibility for the oversight of the work of external advisors engaged for the purpose of advising the Committee. In particular, the Compensation Committee has the sole authority to retain, in its sole discretion, external compensation advisors to assist in its evaluation of executive and director compensation, including the authority to approve the consultant’s reasonable fees and other retention terms.

 

Under the charter, the Compensation Committee may select, or receive advice from, an external compensation advisor, legal counsel or other advisor to the Compensation Committee, other than in-house legal counsel and certain other types of advisers, only after taking into consideration six factors, prescribed by the SEC and Nasdaq, that bear upon the adviser’s independence; however, there is no requirement that any adviser be independent.

Nominating and Corporate Governance Committee

Our Nominating and Corporate Governance Committee currently consists of Ms. Dopp, Ms. St.Clare and Ms. Greenwood. The chairperson of our Nominating and Corporate Governance Committee is Ms. Greenwood.  The Board has determined that each of the members of the Nominating and Corporate Governance Committee meets the independence requirements under the Nasdaq listing rules. The Nominating and Corporate Governance Committee met six times during 2019.  The Board has adopted a written Nominating and Corporate Governance Committee charter that is available to stockholders on the Company’s website at https://ir.tilray.com/.

Specific responsibilities of our Nominating and Corporate Governance Committee include:

 

reviewing and recommending to our Board for approval the compensation of our directors;

 

reviewing periodically and evaluating director performance on our Board and its applicable committees and recommending to our Board and management areas for improvement;

 

interviewing, evaluating, nominating and recommending individuals for membership on our Board;

 

reviewing developments in corporate governance practices;

 

overseeing and reviewing our processes and procedures to provide information to our Board and its committees;

 

reviewing and recommending to our Board any amendments to our corporate governance policies; and

 

reviewing and assessing, at least annually, the performance of the Nominating and Corporate Governance Committee and the adequacy of its charter.

The Board believes that candidates for director should have certain minimum qualifications, including the ability to read and understand basic financial statements, being over 21 years of age and having the highest personal integrity and ethics. The Nominating and Corporate Governance Committee also intends to consider such factors as possessing relevant expertise upon which to be able to offer advice and guidance to management, having sufficient time to devote to the affairs of the Company, demonstrated excellence in his or her field, having the ability to exercise sound business judgment and having the commitment to rigorously represent the long-term interests of the Company’s stockholders. However, the Board retains the right to modify these qualifications from time to time. Candidates for director nominees are reviewed in the context of the current composition of the Board, the operating requirements of the Company and the long-term interests of stockholders. In conducting this assessment, the Nominating and Corporate Governance Committee typically considers diversity, age, skills and such other factors as it deems appropriate, given the current needs of the Board and the Company, to maintain a balance of knowledge, experience and capability.

In the case of incumbent directors whose terms of office are set to expire, the Nominating and Corporate Governance Committee, if it deems appropriate, will use a professional search firm to compile a list of potential candidates.  The Nominating and Corporate Governance Committee reviews these directors’ overall service to the Company during their terms, including the number of meetings attended, level of participation, quality of performance and any other relationships and transactions that might impair the directors’ independence. In the case of new director candidates, the Nominating and Corporate Governance Committee also determines whether the nominee is independent for Nasdaq purposes, which determination is based upon applicable Nasdaq listing standards, applicable

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SEC rules and regulations and the advice of counsel, if necessary. The Nominating and Corporate Governance Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the Board. The Nominating and Corporate Governance Committee meets to discuss and consider the candidates’ qualifications and then selects a nominee for recommendation to the Board.

The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders. The Nominating and Corporate Governance Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, based on whether or not the candidate was recommended by a stockholder. Stockholders who wish to recommend individuals for consideration by the Nominating and Corporate Governance Committee to become nominees for election to the Board may do so by delivering a written recommendation to the Nominating and Corporate Governance Committee at the following address: 1100 Maughan Road, Nanaimo, BC, Canada, V9X IJ2. Submissions must include the full name of the proposed nominee, a description of the proposed nominee’s business experience for at least the previous five years, complete biographical information, a description of the proposed nominee’s qualifications as a director and a representation that the nominating stockholder is a beneficial or record holder of the Company’s stock. Any such submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected.

Stockholder Communications With The Board Of Directors

Historically, the Company has not provided a formal process related to stockholder communications with the Board.  Nevertheless, every effort has been made to ensure that the views of stockholders are heard by the Board or individual directors, as applicable, and that appropriate responses are provided to stockholders in a timely manner.  The Company believes its responsiveness to stockholder communications to the Board has been excellent.  

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. The Code of Business Conduct and Ethics is available on our website at https://ir.tilray.com/. Information contained on or accessible through our website is not a part of this report, and the inclusion of our website address in this report is an inactive textual reference only. We intend to disclose any amendments to the Code of Business Conduct and Ethics, or any waivers of its requirements, on our website to the extent required by the applicable rules and exchange requirements.

Corporate Governance Guidelines

The Board has adopted Corporate Governance Guidelines to assure that the Board has the necessary authority and practices in place to review and evaluate the Company’s business operations as needed and to make decisions that are independent of the Company’s management.  The guidelines are also intended to align the interests of directors and management with those of the Company’s stockholders.  The Corporate Governance Guidelines set forth the practices the Board intends to follow with respect to board composition and selection, board meetings and involvement of senior management, Chief Executive Officer performance evaluation and succession planning, and board committees and compensation.  The Corporate Governance Guidelines, as well as the charters for each standing committee of the Board, may be viewed at https://ir.tilray.com/.

Hedging Policy

Under the Company's Insider Trading and Trading Window Policy, directors, officers and other members of management of the Company are prohibited from engaging in short-term or speculative transactions in Company securities including the common stock. Such transactions may include buying and selling options (puts or calls) of Company securities on an exchange or in any other organized market, holding Company securities in a margin account, or pledging the Company securities. The Company maintains this policy because hedging transactions, which might be considered short-term bets on the movements of the common stock, could create the appearance that the person is trading on inside information. In addition, transactions in options may also focus the person's attention on short-term performance at the expense of our long-term objectives.

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Executive Officers

The following table sets forth certain information with respect to our executive officers as of March 30, 2020. Biographical information with regard to Mr. Kennedy is presented under “Proposal No. 1—Election of Directors” in this Proxy Statement.

 

Name

 

Age

 

Position

Michael Kruteck

 

58

 

Chief Financial Officer

Jon Levin

 

51

 

Chief Operating Officer

Edward Wood Pastorius, Jr.

 

52

 

Chief Revenue Officer

Andrew Pucher

 

37

 

Chief Corporate Development Officer

Kathryn Dickson

 

55

 

President, Manitoba Harvest USA, LLC

 

Michael Kruteck joined Tilray in January 2020 and has served as Tilray’s Chief Financial Officer since March 2020. From 2011 to 2020, Mr. Kruteck served as Chief Financial Officer for Pharmaca Integrative Pharmacy. Prior to 2011 Mr. Kruteck held several senior financial roles at Molson Coors Beverage Company. With over 30 years of experience, Mr. Kruteck possesses a broad finance background with specific experience in financial and operational transformations, supply chain, corporate finance, and financial planning and analysis. Mr. Kruteck received his MBA from the Garvin School of International Management (Thunderbird) and his B.A. from the University of Colorado at Boulder.

Jon Levin has served as our Chief Operating Officer since January 2020.  Previously, Mr. Levin was with Revlon from February 2018 to January 2020, where he most recently was General Manager, U.S. Mass Markets. Mr. Levin was also with Revlon in various capacities from January 2009 to April 2014.  From April 2014 to October 2017, Mr. Levin was the Executive Vice President, Sales, for Ferrara Candy Company. With 25 years of experience, Mr. Levin has general management knowledge in diverse industries including beauty and health, consumer packaged goods and sporting goods. Levin has a B.S. in Economics from Portland State University and a degree in Executive Management from Cornell University.

Edward Wood Pastorius, Jr. has served as our Chief Revenue Officer since March 2018 and served as the President, North America of our subsidiary, Tilray Canada Ltd., from November 2016 to February 2018.  From 2008 to 2016, Mr. Pastorius was President and CEO of mywedding.com. Prior to 2008, Mr. Pastorius was CEO at HEALTHeCAREERS Network. Mr. Pastorius holds a BA from Colorado State University and an MBA from the New York Institute of Technology.

Andrew Pucher has served as Tilray’s Chief Corporate Development Officer since March 2019. From July 2009 to February 2019 Mr. Pucher was with Goldman Sachs, where he most recently served as Managing Director and Head of Canadian Diversified Investment Banking, which included coverage of the Canadian cannabis industry. Previously, Mr. Pucher was a member of Goldman Sachs’ Global Healthcare Investment Banking Group in New York. Mr. Pucher attended Simon Fraser University and obtained a JD/MBA from York University.  

Kathryn Dickson joined Tilray as President of Manitoba Harvest USA, LLC in December 2019.  Previously, Ms. Dickson was with Mattel where she served as SVP, Global Brand GM and President of American Girl, LLC from February 2016 to December 2018.  Prior to Mattel, from February 2015 to February 2016, Ms. Dickson worked for NewsCorp, where she served as EVP and Global Chief Marketing Officer for the company’s News America Marketing (NAM) division. Prior to NewsCorp, Ms. Dickson was with General Mills, where she held numerous senior marketing and brand management roles. Ms. Dickson has served as an independent member of the board of directors of Cooper Tire & Rubber Co. since October 2018, where she is a member of the Audit Committee. Ms. Dickson is a graduate of the United States Air Force Academy and has an MBA from the Anderson School of Management at UCLA.


9


 

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company.  Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 2019, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with, except that Privateer Holdings, Inc. did not timely file a Form 4 following the closing of the Downstream Merger in December 2019.


10


 

Item 11. Executive Compensation.

Executive compensation

Compensation Discussion and Analysis

Overview

Our named executive officers, consisting of the President and Chief Executive Officer, the Chief Financial Officer and Treasurer and the next three most highly compensated executive officers throughout 2019, were:

 

Brendan Kennedy, President and Chief Executive Officer;

 

Mark Castaneda, Former Chief Financial Officer and Treasurer (through March 2020);

 

Edward Wood Pastorius, Jr., Chief Revenue Officer;

 

Andrew Pucher, Chief Corporate Development Officer; and

 

Kathryn Dickson, President, Manitoba Harvest USA, LLC

Our executive compensation program is designed to provide our named executive officers with meaningful incentives and rewards, while effectively balancing the short-term and long-term interests of our stockholders with our ability to attract and retain talented executives. The Compensation Committee of our Board has the primary responsibility for establishing our executive compensation philosophy and determining the specific components and levels of each named executive officers’ compensation. Our executive compensation program is based on four guiding principles. We have created a compensation program that combines short-term and long-term components, cash, equity, fixed and performance-based contingent payments, in the proportions that we believe achieve these four guiding principles:

 

enhance stockholder value by aligning the financial interests of our named executive officers with those of our stockholders;

 

enable us to attract, motivate and retain the people needed to define and lead our industry;

 

integrate compensation closely with the achievement of our business and performance objectives; and

 

reward the individual performance that contributes to our short-term and long-term success.

An important element of our compensation philosophy is to provide our named executive officers with compensation packages that are competitive with the compensation offered to the executives in comparable positions in cannabis, biotech/pharmaceuticals, and consumer-packaged goods companies of similar size operating in similar geographies in order to attract dynamic and innovative executives to lead our strategic initiatives. As such, the Compensation Committee utilizes and relies significantly on a competitive market analysis when determining the size, components and mix of our named executive officers’ compensation packages.

Historically, our named executive officers’ target annual compensation has consisted of three principal components: (a) base salary, (b) an annual performance Tilray Incentive Plan (TIP) and (c) long-term equity incentive compensation. The base salary component is primarily designed to provide a predictable level of financial stability. The TIP is designed to reward the achievement of the short-term goals, primarily related to revenue and strategic success. The base salary and TIP are referred to as the cash component of the compensation plan. The equity compensation component is primarily designed to incentivize and retain our executives and to reward the achievement of our long-term financial and strategic objectives. In addition, we provide tax equalization payments for certain U.S. citizen executives that work in Canada, as the tax burden on their compensation is higher than it would be if they worked in the U.S. alone.  The purpose of these tax equalization payments is to ensure that the expatriate assignment is tax neutral to the employee.

Establishing Market-Competitive Pay Levels

In December 2018, the Compensation Committee completed a review of the CEO, CFO and CRO compensation peer group and pay levels to reflect the Company’s transition from a private company to a public company in 2018.  The Compensation Committee engaged Radford (part of Aon) to compare broader industry pay practices for public U.S. life sciences companies with a market cap >$1 billion and a median revenue of $80 million.  The Company adjusted base salaries for this group to a level that approximated the 25th percentile of comparable

11


 

companies for 2019, as the adjustments reflected a significant increase from their prior compensation packages, which were set at lower than market base salary and market levels of equity.  

In July 2019, the Compensation Committee engaged Mercer (a Marsh and McLennan Company) to complete a more comprehensive review of the Company’s executive compensation peer group and pay levels for a broader pool of executive jobs. This review allowed the Compensation Committee to evaluate both the overall fairness and effectiveness of the Company’s approach to executive compensation and, the need to adjust the critical elements of the executive compensation package (i.e. base salary, short-term and long-term incentives).

Concurrent with this review, the Compensation Committee adopted a pay philosophy that references the median target total direct compensation of the peer group. This ensures Tilray provides a competitive executive pay package that aligns with earnings of other executive officers holding comparable positions within similar companies.

The review of the peer group appropriately balanced the following four relevant spectrums:

 

1.

Industry: Focus was given to companies in the cannabis industry as this best represents the main customer, labor and capital markets in which Tilray competes.

 

Broader biotechnology / pharmaceuticals companies were included because they are similar to Tilray’s medical cannabis business in many respects.

 

Companies in the consumer-packaged goods industry were also considered due to Tilray’s consumer-product based business model, and because they provide a balance to the high-growth cannabis / pharmaceutical companies.

 

2.

Size: Company size is a strong indicator of organizational complexity and drives scope of accountability.

 

Given the anticipated growth of the cannabis sector overall, market capitalization was the primary indicator of size. Total assets and revenue were used as secondary reference points.

 

3.

Operations: As Tilray is an established international operator in the cannabis industry, focus was given to companies that are based in North America and have international operations.

 

4.

Location: The regions or countries where Tilray competes for talent. Our approach proposes to benchmark executive compensation primarily to Canadian and U.S.-based companies.

 

Since Tilray is Canadian-based with Canadian and U.S.-sourced executives, the Canadian and U.S. markets are both relevant sources of data. Should other markets become relevant in the future, consideration will be given to including companies from these geographies in Tilray’s peer group.

The ultimate outcome of this peer group review was the creation of the following 16-company peer group in July 2019:

 

Cannabis Companies

 

 

Aphria, Inc.

Canopy Growth Corporation

 

Aurora Cannabis, Inc.

Cronos Group, Inc.

 

Biotechnology/Pharmaceutical Companies

 

 

ACADIA Pharmaceuticals, Inc.

GW Pharmaceuticals, Plc

MyoKardia, Inc.

FibroGen, Inc.

Moderna, Inc.

Reata Pharmaceuticals, Inc.

Consumer/Packaged Goods Companies

 

 

B&G Foods, Inc.

Lancaster Colony Corporation

The Simply Good Food Co.

J&J Snack Foods Corp

The Boston Beer Company, Inc.

Tootsie Roll Industries, Inc.

12


 

 

 

 

Market Value

(in millions) (1)

 

 

Assets

(in millions)

 

 

Revenue

(in millions) (2)

 

75th Percentile

 

$

5,175

 

 

$

1,980

 

 

$

922

 

Median

 

$

3,875

 

 

$

947

 

 

$

188

 

25th Percentile

 

$

2,326

 

 

$

715

 

 

$

70

 

Tilray, Inc.

 

$

4,527

 

 

$

1,077

 

 

$

190

 

Percentile Rank

 

 

67

%

 

 

57

%

 

 

50

%

 

 

(1)

Market Value and Assets as of June 30, 2019.

 

(2)

Revenue is trailing twelve months as of June 30, 2019.  Tilray’s revenue reflects 2019 internal projections as of June 30, 2019.

As the cannabis industry and our business evolves and matures, the Compensation Committee will continue to evaluate the appropriateness of each peer annually and make any necessary changes.

Elements of Compensation and 2019 Determinations

Our executive compensation program has historically consisted of three principal components: base salary, TIP (together with base salary, “total cash compensation”), and long-term equity incentive compensation. The long-term equity incentive compensation has consisted primarily of restricted stock units, and historically stock options, that each vest over time if the executive remains employed with the Company. In addition, we provide tax equalization payments for certain U.S. citizen executives that work in Canada, as the tax burden on their compensation is higher than it would be if they worked in the U.S. alone. We also provide our named executive officers with certain other benefits including severance and change-of-control benefits, the ability to participate in our 401(k) plan, and other employee benefit plans that are generally available to all other eligible employees.

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Key Components of Our 2019 Compensation Plan

 

Compensation Element

 

Primary Purpose

 

Performance Period

 

Details

Cash Compensation

 

 

 

 

 

 

Base Salary

Reward for ongoing work performed, executive tenure and role

Ongoing

Provided in cash each pay period.

 

Continuity

 

 

 

 

Annual Tilray Incentive Plan (TIP)

Reinforce and drive short-term priorities and business results

1 year

 

Target award based on a percentage of salary.

 

Recognize and reward corporate and individual performance

 

 

TIP incentivizes and rewards the achievement of predetermined corporate short-term objectives that are aligned with our strategic plan as well as individual performance.

Equity Compensation

 

 

 

 

 

 

Long-term incentives (RSUs)

Reinforce and drive long-term stockholder value

3 year

The 2019 annual grants of RSUs were based on job level and percentage of salary, included 100% vesting on a cliff basis after 36 months.

Long-term incentives (RSUs)

Reinforce and drive long-term stockholder value

3 year

Initial grants of RSUs: The grant value is based on job level and percentage of salary with 33.34% of the shares vesting one year from the vesting commencement date and the remaining shares vesting in equal quarterly installments over the following 24 months.

 

Total Cash Compensation

Overview

The cash component of our executive compensation program has served a two-fold purpose. Base salaries are intended to provide financial stability, and predictability and security of compensation for our named executive officers for fulfilling their core job responsibilities, while the TIP has been intended to incentivize and reward the achievement of predetermined corporate short-term objectives that are aligned with our strategic plan as well as individual performance.

In addition, the TIP has been used to further motivate and reward our named executive officers for achieving revenue and strategic objectives and, thus, maximize stockholder value in accordance with the Company’s long-term strategic plans.

To determine the level of each component of an executive’s target total cash compensation, the Compensation Committee first considered the prior year’s base salary and, the target TIP. The Compensation Committee then considered the relevant base salary, and the target annual incentives in its competitive market analysis.

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Adjustments in total cash compensation targets may then be made based on such factors as an executive’s duties and responsibilities and his or her position in the Company, an executives individual contributions, as well as management’s financial forecasts for the upcoming year.

2019 Base Salary and Total Cash Compensation Determination

The Compensation Committee engaged Radford in December 2018 to compare broader industry pay practices for public US life sciences companies with a market cap >$1 billion and a median revenue of $80 million.  The Company adjusted base salaries for this group effective January 1, 2019 to a level that approximated the 25th percentile of comparable companies for 2019, as the adjustments reflected a significant increase from their prior compensation packages, which were set at lower than market base salary.

The following table sets forth, for each named executive officer, the annualized base salary for 2019 as well as 2018 for reference:

 

Name

 

2019 Base Salary

 

 

2018 Base Salary

 

Brendan Kennedy

 

$

577,000

 

 

$

425,000

 

Edward Wood Pastorius, Jr.

 

$

325,000

 

 

$

265,000

 

Mark Castaneda

 

$

402,000

 

 

$

230,000

 

Andrew Pucher (1)

 

$

279,705

 

 

 

 

Kathryn Dickson (1)

 

$

350,000

 

 

 

 

 

 

(1)

Mr. Pucher and Ms. Dickson were hired during 2019.  The salary of Mr. Pucher is converted into USD with an exchange rate of 0.74588. The annual salary of Mr. Pucher is CA$375,000 (Canadian Dollars).

Annual Tilray Incentive Plan (TIP)

Under the 2019 TIP, payouts were calculated based on the following:

 

The Revenue Target Factor (70%) is determined by market based on specific revenue targets defined within the Company’s annual operating plan.

 

The Strategic Success Factor qualitatively measures the operational efficiency, global expansion and mergers and acquisitions success.

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The following table illustrates for each named executive officer, the target award as a percentage of base salary as well as the maximum allowed under the 2019 TIP.

Name

 

Incentive

Target % of

base salary

 

 

Maximum %

of base salary

 

Brendan Kennedy (1)

 

100%

 

 

200%

 

Edward Wood Pastorius, Jr. (1)

 

50%

 

 

100%

 

Mark Castaneda (1)

 

50%

 

 

100%

 

Andrew Pucher

 

50%

 

 

100%

 

Kathryn Dickson (2)

 

50%

 

 

100%

 

 

 

(1)

In December 2018, the Compensation Committee completed a review of the CEO, CFO and CRO compensation peer group and pay levels to reflect the Company’s transition from a private company to a public company in 2018. No adjustments were recommended to the TIP (% of base salary).

 

(2)

Ms. Dickson was hired in December 2019 and did not participate in the TIP.

Despite the TIP score-card results provided in the table below, the Compensation Committee met in February 2020 and decided that no payments under the 2019 TIP will be made due to the significant drop of the stock price and the poor performance of other financial metrics not reflected in the scorecard. As per the Compensation Committee’s applied judgment, there were no payments under the 2019 TIP to our named executive officers.

Company Performance Factor

 

Weight

 

 

Target

 

 

Actual

 

 

% Achieved

 

 

Payout Factor

 

Revenue Target Factor (70%)

 

70%

 

 

$

150,148,496

 

 

$

107,145,279

 

 

71%

 

 

50%

 

Strategic Target Factor (30%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational Efficiency

 

10%

 

 

N/A

 

 

N/A

 

 

0%

 

 

0%

 

M&A Success

 

10%

 

 

N/A

 

 

N/A

 

 

50%

 

 

5%

 

Global Expansion

 

10%

 

 

N/A

 

 

N/A

 

 

50%

 

 

5%

 

Total

 

100%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60%

 

 

Changes in 2020 TIP

As part of the review of the executive compensation program to effectively address our ongoing business needs, market competitiveness, performance, and retention concerns, and to further simplify our design, the compensation committee has approved the changes in the design of the TIP with the following Key Performance Indicators and their respective weightings, thresholds and payouts.

 

Company Performance Factor

 

KPIs

 

Segment

 

 

KPIs

 

 

Threshold Performance

(as a % of target)

 

 

Payout Factor at

Threshold Performance

(as a % of target)

 

 

Target Payout

 

Business (70%)

 

Revenue

 

35%

 

 

24.5%

 

 

80%

 

 

50%

 

 

100%

 

 

 

Direct Operating Income

 

65%

 

 

45.5%

 

 

80%

 

 

50%

 

 

100%

 

 

 

 

 

100%

 

 

70%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate (30%)

 

Revenue

 

35%

 

 

10.5%

 

 

80%

 

 

50%

 

 

100%

 

 

 

Adjusted EBITDA

 

65%

 

 

19.5%

 

 

80%

 

 

50%

 

 

100%

 

 

 

 

 

100%

 

 

30%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individual

 

Performance Rating

 

0% - 200%

 

 

0% - 200%

 

 

0%

 

 

0%

 

 

100%

 

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Equity Compensation

We use long-term equity-based compensation to incentivize and retain our executive officers by linking their awards to our long-term financial performance. We believe that these long-term incentives motivate our named executive officers to grow revenues and earnings, enhance stockholder value and align their interests with those of our stockholders. We typically award long-term equity-based compensation with restricted stock units that vest over time so long as the executive remains employed with the Company.

Historically, upon commencement of employment, our named executive officers have been granted initial equity awards with service-based vesting requirements, with 33.34% of the shares subject to the awards generally vesting one year from the vesting commencement date and the remaining shares vesting in equal quarterly installments over the following 24 months. In 2019, the Company initiated annual equity grant awards. The shares subject to annual equity awards granted by the Compensation Committee in 2019 to our named executive officers vest on a cliff basis whereby 100% vest after 36 months. Restricted stock units provide long-term incentive compensation that has greater retention value as compared to stock options in a flat or down market while minimizing earnings dilution.

The Compensation Committee determines the size of equity award grants after considering the following factors:

 

the competitive equity compensation practices for comparable positions identified in the applicable market analysis; 

 

the executive’s level of responsibility and duties; 

 

a comparison to grant levels of other executive officers; 

 

individual named executive officers’ performance; 

 

our corporate performance; 

 

our total equity compensation costs relative to total expenses;

 

the executive’s prior experience, experience within his or her specific job and breadth of knowledge; and 

 

our corporate objectives for share-based compensation charges and earnings dilution.

The Compensation Committee does not take into consideration an executive’s aggregate equity holdings or equity carrying value in determining annual long-term equity incentive awards.

In 2019, the Compensation Committee approved the grant of equity awards to our named executive officers. The Compensation Committee considered, to the extent applicable, our corporate performance and individual contributions in 2018, as well as the equity compensation practices for comparable positions identified in the competitive market analysis performed in December 2018. The Compensation Committee determined the value of each equity award as time-based restricted stock units that fully cliff-vest after the third anniversary of the grant date. The total value was determined based on the potential equity compensation expense and the target award size, as well as the retention and incentive aspects of the award.  The total value was also corroborated by the equity grant analysis conducted by Radford.

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The following table sets forth the equity awards granted by the Compensation Committee under the 2018 Equity Plan to our named executive officers in 2019:

 

Name

 

Number of Stock Awards Granted

 

 

Total Value

 

Brendan Kennedy (1)

 

 

76,000

 

 

$

2,888,760

 

Edward Wood Pastorius, Jr. (1)

 

 

24,000

 

 

$

912,240

 

Mark Castaneda (1)

 

 

24,000

 

 

$

912,240

 

Andrew Pucher (2)

 

 

90,000

 

 

$

4,283,100

 

Kathryn Dickson (3)

 

 

 

 

 

 

 

 

(1)

Annual equity grants based on competitive market analysis at the median level of annual equity.  These RSUs fully cliff-vest after the third anniversary of the grant date.

 

(2)

Upon contracting employment with Tilray, Mr. Pucher was provided with 90,000 RSUs. The vesting schedule is 33.34% of the shares vesting one year from the vesting commencement date and the remaining shares vesting in equal quarterly installments over the following 24 months.

 

(3)

Ms. Dickson was hired in December 2019 and did not receive an initial equity grant until 2020.

Changes in 2020 Annual Equity Grant Vesting Practice

For 2020, both new hire and annual RSU awards will vest in tranches over three years with 33.34% of the shares subject to the awards generally vesting one year from the vesting commencement date and the remaining shares vesting in equal quarterly installments over the following 24 months. However, the Compensation Committee may still consider the above factors where appropriate.  

Other Compensation and Benefits

Severance and Change of Control Benefits. Our named executive officers are entitled to certain severance and change of control payments and benefits pursuant to our executive agreements with our named executive officers. The terms of executive agreements are described in more detail below in the sections entitled “Employment, Severance and Change of Control Arrangements.” The Compensation Committee believe these agreements are an essential element of our executive compensation program and assists the Compensation Committee in recruiting and retaining talented executives.  The Compensation Committee also believe these benefits serve to minimize the distractions to the executive, reduce the risk that the executive will depart the Company before an acquisition is consummated, and allow the executive to focus on continuing normal business operations and the success of a potential business combination, rather than worrying about how business decisions that may be in our best interest and the interests of our stockholder will impact his or her own financial security.  Further, these agreements are in line with customary practices at an executive level at our peer companies.

Tax Equalization. The Company’s global business needs require it to temporarily relocate certain employees with special or unique skills to countries where those skills may not be available. To meet this need, the Company utilizes expatriate assignments. To provide incentives to encourage employees to accept these assignments and to minimize any financial impacts associated with these assignments, the Company makes certain tax equalization payments for expatriates.

The purpose of these tax equalization payments is to ensure that the expatriate assignment is tax neutral to the employee. Expatriates pay a hypothetical tax to the Company, in amounts equal to the taxes of a home country and the Company then pays the actual taxes due. The Company’s cost is limited to any difference between the actual taxes paid by the Company and the hypothetical tax received from the employee. Tax equalization payments may occur after an expatriate assignment has ended, when taxes are owed in future years to the host country.  

Other Benefits. We believe that establishing a competitive benefit package consistent with companies with which we compete for employees is an important factor in attracting and retaining talented employees. Thus, we provide our named executive officers with employee benefits on the same basis as offered to our full time non-executive employees, including health and dental insurance, supplemental life insurance, short-term and long-term disability and a 401(k) plan.

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Compensation Policies and Practices as They Relate to Risk Management

Our Board is responsible for understanding the principal risks of our business and assessing the balance between risk and potential return to ensure we promote stockholder value over the long term. We use a broad-based, systematic approach to identifying, assessing, reporting and managing the significant risks we face in our business and operations. The Compensation Committee meets at least twice annually to review the performance, appropriateness and the current business environment as they pertain to our executive compensation programs.

Within this context, the Compensation Committee reviews and recommends to the board our compensation program and practices to:

 

align executive compensation with our short and long-term goals;

 

reflect financial, operating, share performance and individual accomplishments; and

 

ensure that compensation aligns with the interest of our stockholders and encourages the right behavior.

This includes, among other things:

 

using balanced measures, including qualitative and quantitative goals, to determine annual incentive compensation is effectively linked to actual performance and not unduly influenced by one-time events;

 

incorporating time vesting features in the long-term incentives;

 

capping the amount executives can receive under the short-term incentive plan; and

 

having a balanced mix of short and long-term compensation components to eliminate reliance on a single or a limited number of factors to determine potential awards and diversify potential reward scenarios.

The Compensation Committee also takes measures to prevent risks that could have a material adverse effect on our company, through appropriate compensation governance measures, which include:

 

building a strong governance culture and ensuring effective oversight;

 

prohibiting executives and directors from hedging equity awards and building in safeguards against insider trading; and

 

applying a consistent compensation structure for the CEO, executives and employees.

The Compensation Committee also makes sure our compensation plans and employee benefit programs are administered according to the laws and Nasdaq rules that apply to us, and our compensation objectives. Our Board has not identified any material risks in our compensation program or practices that have an adverse impact on the company.

Compensation Committee Processes and Procedures

Typically, the Compensation Committee meets quarterly and with greater frequency if necessary. The agenda for each meeting is usually developed by the Chair of the Compensation Committee, in consultation with management. From time to time, various members of management and other employees as well as outside advisors or consultants may be invited by the Compensation Committee to make presentations, to provide financial or other background information or advice or to otherwise participate in Compensation Committee meetings.

The Chief Executive Officer may not participate in, or be present during, any deliberations or determinations of the Compensation Committee regarding his compensation or individual performance objectives. The charter of the Compensation Committee grants the Compensation Committee full access to all books, records, facilities and personnel of the Company. In addition, under the charter, the Compensation Committee has the authority to obtain, at the expense of the Company, advice and assistance from compensation consultants and internal and external legal, accounting or other advisors and other external resources that the Compensation Committee considers necessary or appropriate in the performance of its duties.

19


 

The Compensation Committee has direct responsibility for the oversight of the work of any consultants or advisers engaged for the purpose of advising the Committee. In particular, the Compensation Committee has the sole authority to retain, in its sole discretion, compensation consultants to assist in its evaluation of executive and director compensation, including the authority to approve the consultant’s reasonable fees and other retention terms.

Under the charter, the Compensation Committee may select, or receive advice from, a compensation consultant, legal counsel or other adviser to the Compensation Committee, other than in-house legal counsel and certain other types of advisers, only after taking into consideration six factors, prescribed by the SEC and Nasdaq, that bear upon the adviser’s independence; however, there is no requirement that any adviser be independent.

Role of Compensation Consultants

The Compensation Committee has the authority under its charter to engage its own advisors to assist in carrying out its responsibilities. Tilray’s management team engaged Radford in 2018 and Mercer (Canada) Ltd. (“Mercer”) in 2019 to support the development of a peer group and provide data on current market practices to support Compensation Committee deliberations and ensure that the executive compensation program is market competitive and properly aligned with Tilray’s business strategy. From time to time, representatives of such consultant may attend meetings (or portions of meetings) of the Compensation Committee to present information and answer questions.

All of Radford and Mercer’s analysis and advice pertaining to executive compensation was ultimately reviewed by the Compensation Committee, and the decisions of the Compensation Committee were made in their sole discretion.

Mercer also provided non-executive compensation services to Tilray’s management team. In particular, these services included the provisions of market data covering various compensation and other remuneration programs and policies covering non-executives of the company (e.g. market data for various specific roles, U.S. and Canada market data for car allowance practices, vacation policies, and a comprehensive non-executive compensation program review.

Radford was also engaged in April 2019 by Tilray to conduct an analysis and to provide perspective for top executives on the competitiveness of the total compensation package including equity grants.

Compensation Committee Interlocks and Insider Participation

Our Compensation Committee currently consists of Ms. Dopp, Ms. Greenwood and Ms. St.Clare. No member of our Compensation Committee has ever been an officer or employee of our company. None of our executive officers serve, or have served during the last year, as a member of the Board, Compensation Committee or other board committee performing equivalent functions of any other entity that has one or more executive officers serving as one of our directors or on our Compensation Committee.

Compensation Committee Report

The Compensation Committee of the Board of Directors of the Company is composed entirely of non-employee directors, each of whom has been determined in the Board’s business judgment to be independent. The Compensation Committee is responsible for oversight and review of the Company’s compensation and benefit plans.

The Compensation Discussion and Analysis is management’s report on the Company’s compensation programs and, among other things, describes material elements of compensation paid to the President and Chief Executive Officer and the other named executive officers. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis as required by Item 402(b) of Regulation S-K with the management of the Company. Based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Rebekah Dopp (Chairperson)

Maryscott Greenwood

Christine St.Clare

20


 

Summary Compensation Table

The following table presents all of the compensation paid or awarded to or earned by our named executive officers during 2017 to 2019 from us or any of our affiliates:

 

Name and Principal Position

 

Year

 

Salary

 

 

Bonus

 

 

Option

Awards (1)

 

 

Stock

Awards (1)

 

 

All Other

Compensation

 

 

Total

 

Brendan Kennedy (2) (3)

 

2019

 

$

575,332

 

 

 

 

 

 

 

 

$

2,888,760

 

 

$

16,818

 

(3)

$

3,480,910

 

President and Chief Executive Officer

 

2018

 

$

425,000

 

 

$

425,000

 

 

$

25,147,534

 

 

$

5,819,925

 

 

 

 

 

$

31,817,459

 

 

 

2017

 

$

375,000

 

(2)

$

 

 

$

 

 

 

 

 

 

 

 

$

375,000

 

Edward Wood Pastorius, Jr. (2) (4)

 

2019

 

$

325,000

 

 

 

 

 

 

 

 

$

912,240

 

 

$

2,780,670

 

(4)

$

4,017,910

 

Chief Revenue Officer

 

2018

 

$

265,000

 

 

$

125,000

 

 

$

1,562,171

 

 

$

775,990

 

 

$

43,200

 

 

$

2,771,361

 

 

 

2017

 

$

250,000

 

(2)

 

 

 

 

 

 

 

 

 

$

36,000

 

 

$

286,000

 

Mark Castaneda (5)

 

2019

 

$

400,045

 

 

 

 

 

 

 

 

$

912,240

 

 

$

8,815,029

 

(6)

$

10,127,314

 

Former Chief Financial Officer and Treasurer

 

2018

 

$

230,000

 

 

$

230,000

 

 

$

2,482,929

 

 

$

1,551,980

 

 

 

 

 

$

4,494,909

 

Andrew Pucher (7)

 

2019

 

$

209,779

 

 

 

 

 

 

 

 

$

4,283,100

 

 

$

2,252

 

 

$

4,495,131

 

Chief Corporate Development Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kathryn Dickson (8)

 

2019

 

$

10,769

 

 

 

 

 

 

 

 

 

 

 

$

1,002

 

 

$

11,771

 

President, Manitoba Harvest USA, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The amounts reported do not reflect the amounts actually received by our named executive officers.  Instead, these amounts reflect the aggregate grant date fair value of each stock option or restricted stock unit award granted to our named executive officers during 2019 and 2018, as computed in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC 718. Assumptions used in the calculation of the grant date fair value of each stock option during 2019 are included in Note 15 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.  As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.  Our named executive officers who have received stock options will only realize compensation with regard to these options to the extent the trading price of our common stock is greater than the exercise price of such options.

 

(2)

Compensation for 2017 represents amounts received from Privateer Holdings, Inc.

 

(3)

All other compensation for 2019 includes group benefits coverage paid by the employer.

 

(4)

All other compensation for 2019 includes tax equalization amounts of $2,710,880 for assignment in Canada and were increased over prior periods due to the vesting of restricted stock unit awards, which were taxed on multiple jurisdictions. The tax equalization amounts are intended to be tax neutral to the employee. Other employer paid amounts were $6,422 for 401(k) contributions, $20,168 for benefits premiums, $42,000 for living expenses, and $1,200 for phone.

 

(5)

Mr. Castaneda ceased to be the Chief Financial Officer in March 2020.

 

(6)

Includes tax equalization amounts of $8,786,723 for assignment in Canada and were increased over prior periods due to the vesting of restricted stock unit awards, which were taxed on multiple jurisdictions.  The tax equalization amounts are intended to be tax neutral to the employee. Other employer amounts were $20,168 for benefits premiums and $8,138 for 401(k) contributions.

 

(7)

Mr. Pucher joined the Company in March 2019 and his compensation reflects a partial year of service.  The salary of Mr. Pucher is converted into USD with an exchange rate of 0.74588, which is equal to the exchange rate on March 5, 2020.

 

(8)

Ms. Dickson joined the Company in December 2019 and her compensation reflects a partial year of service.

21


 

Grants of Plan-Based Awards

The following table shows for 2019, certain information regarding grants of plan-based awards, including awards under the TIP, to the following named executive officers:

 

Name

 

Grant Date

 

 

Estimated Possible Payouts Under Non-Equity Incentive Plan Awards Target (1)

 

 

Maximum Possible Non-equity Incentive Plan Target Compensation (1)

 

 

All Other Stock Awards: Number of Units of Stock

 

 

Grant Date Fair Value of Stock Awards (2)

 

Brendan Kennedy (3)

 

 

 

 

$

577,000

 

 

$

1,154,000

 

 

 

 

 

 

 

 

 

5/31/2019

 

 

 

 

 

 

 

 

 

76,000

 

 

$

2,888,760

 

Edward Wood Pastorius, Jr. (3)

 

 

 

 

$

162,500

 

 

$

325,000

 

 

 

 

 

 

 

 

 

5/31/2019

 

 

 

 

 

 

 

 

 

24,000

 

 

$

912,240

 

Mark Castaneda (3)

 

 

 

 

$

201,000

 

 

$

402,000

 

 

 

 

 

 

 

 

 

5/31/2019

 

 

 

 

 

 

 

 

 

24,000

 

 

$

912,240

 

Andrew Pucher (4)

 

 

 

 

$

139,853

 

 

$

279,705

 

 

 

 

 

 

 

 

 

5/16/2019

 

 

 

 

 

 

 

 

 

90,000

 

 

$

4,283,100

 

Kathryn Dickson (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

These columns set forth the target and maximum amount of each named executive officer’s 2019 TIP award for the year ended December 31, 2019. As a result of the Company’s performance during 2019, no amounts were earned under the 2019 TIP. As such, the amounts set forth in the column do not represent additional compensation earned by the named executive officers for the year ended December 31, 2019.

 

(2)

The dollar amounts in this column represent that grant date fair value of the product of the number of shares granted and the closing market price of our common stock on the grant date for time-based restricted stock units.

 

(3)

These RSUs fully cliff-vest after the third anniversary of the grant date

 

(4)

Upon contracting employment with Tilray, Mr. Pucher was provided with 90,000 RSUs. As an initial grant with 33.34% of the shares vesting one year from the vesting commencement date and the remaining shares vesting in equal quarterly installments over the following 24 months.

 

(5)

Ms. Dickson was hired in December 2019 and did not participate in the 2019 TIP and did not receive an initial equity grant until 2020.

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

Annual TIP Awards

The 2019 TIP Plan provided for annual cash bonus awards to reward named executive officers for performance in the fiscal year. For more information regarding our 2019 TIP, please see the sections of the Compensation Discussion and Analysis titled “Elements of Compensation and 2019 Determinations.”

Equity Compensation Awards

Consistent with its practices for awarding restricted stock units described in the Compensation Discussion and Analysis above, the Compensation Committee approved equity compensation awards in the form restricted stock units to each of the named executive officers. For more information regarding our equity compensation awards, please refer the section of the Compensation Discussion and Analysis titled “Elements of Compensation and 2019 Determinations.” In addition, the named executive officers’ equity compensation awards may, under certain circumstances, be subject to accelerated vesting in the event of a change of control and termination. For more information regarding the accelerated vesting provisions and treatment of the equity compensation awards in the event of a change of control, refer to the sections titled “Severance and Change of Control Arrangements” and “Potential Payments Upon Termination or Change of Control”.

22


 

Other Benefits

For a description of the other elements of our executive compensation program, see the section “Other Benefits” in the Compensation Discussion and Analysis above.

Outstanding Equity Awards at Fiscal year end

The following table shows for the fiscal year ended December 31, 2019, certain information regarding outstanding equity awards at fiscal year-end for the named executive officers.

 

 

 

 

 

 

 

 

 

 

 

Option Awards

 

 

Stock Awards

 

Name

 

Grant Date

 

 

Vesting

Commencement

Date

 

 

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

 

 

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable (1)

 

 

Option

Exercise

Price

Per

Share (2)

 

 

Option

Expiration

Date

 

 

Number

of Shares

or Units of

StockThat

Have Not

Vested

 

 

Market

Value of

Shares or

Units of

Stock That

Have Not

Vested (1) (8)

 

Brendan Kennedy

 

5/31/2019

 

 

4/1/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76,000

 

(4)

$

1,301,880

 

 

 

8/31/2018

 

 

8/6/2018

 

 

 

107,417

 

 

 

236,318

 

(3)

$

65.20

 

 

8/30/2028

 

 

 

 

 

 

 

 

 

5/21/2018

 

 

1/1/2017

 

 

 

1,964,500

 

 

 

937,500

 

(3)

$

7.76

 

 

5/20/2028

 

 

 

 

 

 

 

 

 

5/21/2018

 

 

1/1/2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

234,375

 

(5)

$

4,014,844

 

Edward Wood Pastorius, Jr.

 

5/31/2019

 

 

4/1/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,000

 

(4)

$

411,120

 

 

 

5/21/2018

 

 

4/1/2018

 

 

 

87,500

 

 

 

218,750

 

(3)

$

7.76

 

 

5/20/2028

 

 

 

 

 

 

 

 

 

5/21/2018

 

 

1/1/2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31,250

 

(5)

$

535,313

 

 

 

4/13/2018

 

 

11/14/2017

 

 

 

670

 

 

 

15,423

 

(7)

$

5.28

 

 

4/13/2028

 

 

 

 

 

 

 

 

 

3/31/2017

 

 

11/14/2016

 

 

 

1,117

 

 

 

12,294

 

(7)

$

3.13

 

 

3/30/2027

 

 

 

 

 

 

 

Mark Castaneda

 

5/31/2019

 

 

4/1/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,000

 

(4)

$

411,120

 

 

 

5/21/2018

 

 

7/23/2018

 

 

 

520,000

 

(3)

 

 

 

$

7.76

 

 

5/20/2028

 

 

 

 

 

 

 

Andrew Pucher

 

5/16/2019

 

 

3/18/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90,000

 

(6)

$

1,541,700

 

Katheryn Dickson

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Pursuant to the executive agreements between the named executive officer and us, the vesting of such named executive officers’ stock and option awards will accelerate under certain circumstances as described under “—Employment, Severance and Change of Control Arrangements.”

 

(2)

Prior to our IPO, the exercise price per share reflects the fair market value per share of our common stock on the date of grant as determined by our Board. Following our IPO, the exercise price reflects the closing price of our Class 2 common stock on the date of grant.

 

(3)

The shares subject to the option are scheduled to vest as follows: 25% of the shares on the twelve (12) month anniversary of the Vesting Commencement Date and the remaining option shares will vest quarterly thereafter at the rate of 6.25% of the total number of shares on each quarterly anniversary of the Vesting Commencement Date thereafter for so long as the optionee remains in Continuous Service (as defined in the Company’s 2018 Amended and Restated Tilray, Inc. Equity Incentive Plan (the “2018 Plan”)), such that the total number of shares shall be fully vested on the four-year anniversary of the Vesting Commencement Date.

 

(4)

Annual equity grants of RSUs vest in full on the third anniversary of the grant date.

 

(5)

The shares subject to the RSU shall vest over a four-year period as follows: two vesting requirements must be satisfied for the RSU to vest - a time and service requirement and a Liquidity Event (as defined below) requirement.  The time and service requirement is as follows: the RSUs shall vest at the rate of 25% of the RSUs on the twelve (12) month anniversary of the Vesting Commencement Date, and the remaining RSUs will vest quarterly thereafter at the rate of 6.25% of the total number of RSUs on each quarterly anniversary of the Vesting Commencement Date.  The Liquidity Event requirement will be satisfied as to any then-outstanding RSU on the first to occur of: (1) a Change in Control (as defined in the 2018 Plan); or (2) the date following the effective date of a registration statement of the Company filed under the Securities Act for the sale of the Company’s common stock on which all shares of common stock issued or issuable under the 2018 Plan are not subject to the lock-up restrictions.  The total number of RSUs shall be fully vested on the four-year anniversary of the Vesting Commencement Date, provided that the RSU recipient has remained in Continuous Service (as defined in the 2018 Plan) through each applicable vesting date.

23


 

 

(6)

The shares subject to the RSU shall vest with 33.34% of the shares vesting one year from the vesting commencement date and the remaining shares vesting in equal quarterly installments over the following 24 months.

 

(7)

The shares subject to the option are scheduled to vest as follows: 25% of the shares on the twelve (12) month anniversary of the Vesting Commencement Date and the remaining option shares will vest monthly thereafter at the rate of 2.08% of the total number of shares on each monthly anniversary of the Vesting Commencement Date thereafter for so long as the optionee remains in Continuous Service (as defined in the Privateer Holdings, Inc. 2011 Equity Incentive Plan), such that the total number of shares shall be fully vested on the four-year anniversary of the Vesting Commencement Date.

 

(8)

This amount reflects the fair market value of our Class 2 common stock of $17.13 per share, which was the closing price of our Class 2 common stock on December 31, 2019.

Option Exercises and Stock Vested

The following table shows for 2019, certain information regarding option exercises and stock vested during the last fiscal year with respect to the named executive officers:

 

 

 

Option Awards

 

 

Stock Awards

 

Name

 

Number of

Shares Acquired

on Exercise (#)

 

 

Value Realized on

Exercise ($)

 

 

Number of

Shares Acquired

on Vesting (#)

 

 

Value Realized on

Vesting ($)

 

Brendan Kennedy

 

 

100,000

 

 

$

6,350,000

 

 

 

515,625