Larry Dean Ditto, Jr. On July 25,
2022, the Company appointed Mr. Ditto as the Company’s Chief Financial Officer. Mr. Ditto was previously appointed as the Company’s
Interim Chief Financial Officer on May 11, 2022, effective May 17, 2022, and he has served as accounting and financial consultant for
Akerna since April 21, 2022. Mr. Ditto is the Chief Financial Officer (“CFO”) of Mydecine Innovations Group, Inc (“Mydecine”),
where he has served as CFO since December 2020 and will continue to serve as CFO concurrent to his service as the Company’s Interim
CFO. Prior to his service at Mydecine, Mr. Ditto served Sigue Corporation from June 2019 through December 2020. He was the company’s
CFO and, following his CFO tenure, also supported the company as a Financial Consultant. He served as the Vice President and Corporate
Controller of OSI Systems, Inc. from April 2018 through June 2019 and the CFO of DLH Davinci LLC (Dental Lab Holdings) from January 2016
through April 2018. Mr. Ditto holds a Bachelor of Arts in Economics and Management from Albion College and holds a Master of Business
Administration from the Kelley School of Business at Indiana University.
Ray Thompson was appointed Special
Advisor to the Chief Executive Officer in May 2022, and he served as President and Chief Operating Officer of Akerna from January 2022
to May 2022 and Chief Operating Officer from November 2018 to January 2022. From November 2016 to January 2018, Mr. Thompson worked as
the head of customer and sales Operations for Gloo, a people development SaaS company. During that time, Mr. Thompson reported to the
executive team to develop and execute on market strategies, product offerings, financial projections, and talent management. From October
2008 to October 2016, Mr. Thompson served as corporate senior vice president of VisionLink, a multiagency humanitarian software platform,
managing across all aspects of the business providing enterprise SaaS solutions to federal and state governments and international humanitarian
organizations. From 1996 to 2008, Mr. Thompson served in various executive sales and marketing roles across multiple technologies companies.
Mr. Thompson holds a Masters in Business Administration from the University of Denver.
David McCullough has served as Chief Technology
Officer of Akerna since July 1, 2020. Mr. McCullough has been with Akerna and MJF since 2015, previously serving as Akerna's executive
vice president of product & engineering. Before joining MJF, Mr. McCullough was the Chief Technology Officer of StudentPublishing.com,
during that time, he actively managed the technical aspects of Student Publishing’s sale to and system integration with lulu.com.
Mr. McCullough has over 16 years of software engineering experience, including extensive government systems experience. Mr. McCullough
has previously served as a profession at New Mexico State University where he taught courses in data communications and networking. Mr.
McCullough holds a master's degree in Computer Science. MCSE, CCNP, A+. N+.
Board Qualifications
Our Board has not formally established any specific,
minimum qualifications that must be met by each of its officers or directors or specific qualities or skills that are necessary for one
or more of its officers or members of the Board to possess. However, we expect to generally evaluate the following qualities: educational
background, diversity of professional experience, including whether the person is a current or was a former chief executive officer or
chief financial officer of a public company or the head of a division of a prominent organization, knowledge of our business, integrity,
professional reputation, independence, wisdom, and ability to represent the best interests of our stockholders.
Our officers and the Board will be composed of
a diverse group of leaders in their respective fields. Many of these officers or directors have senior leadership experience at various
companies. In these positions, they have also gained experience in core management skills, such as strategic and financial planning,
public company financial reporting, compliance, risk management, and leadership development. Many of our officers and directors also
have experience serving on boards of directors and/or board committees of other public companies and private companies, and have an understanding
of corporate governance practices and trends, which provides an understanding of different business processes, challenges, and strategies.
Further, these officers and directors also have other experience that makes them valuable, such as managing and investing assets or facilitating
the consummation of business investments and combinations.
We, along with our officers and directors, believe
that the above-mentioned attributes, along with the leadership skills and other experiences of our officers and board members described
above, provide us with a diverse range of perspectives and judgment necessary to facilitate our goals of shareholder value appreciation
through organic and acquisition growth.
Number and Terms of Office of Officers and
Directors
Our Board is divided into three classes: Class
I; Class II; and Class III. The directors in Class I have a term expiring at this Annual Meeting and again at the 2025 annual meeting
of stockholders, the directors in Class II have a term expiring at the 2023 annual meeting of stockholders, and the directors in
Class III have a term expiring at the 2024 annual meeting of stockholders. The Class I directors are Matthew R. Kane and Tahira Rehmatullah,
the Class II director is Scott Sozio, and the Class III directors are Jessica Billingsley and Barry Fishman.
Our officers are appointed by the Board and serve
at the discretion of the Board, rather than for specific terms of office. Our Board is authorized to appoint persons to the offices set
forth in our Amended and Restated Bylaws as it deems appropriate.
Arrangements between Officers and Directors
To our knowledge, there is no arrangement or
understanding between any of our officers and any other person, including Directors, pursuant to which the officer was selected to serve
as an officer.
Family Relationships
None of our Directors are related by blood, marriage,
or adoption to any other Director, executive officer, or other key employees.
Other Directorships
None of the Directors of Akerna are currently
also directors of issuers with a class of securities registered under Section 12 of the Exchange Act (or which otherwise are required
to file periodic reports under the Exchange Act). In the past five years, Mr. Fishman has served as a director to Merus
Labs International Inc., Aurora Cannabis Inc., Field Trip Health Ltd., and VIVO Cannabis Inc.; and Ms. Rehmatullah served as a director
for Good Works Acquisition Corp. from August 2020 to August 2021.
Legal Proceedings
We are not aware of any of our directors or officers
being involved in any legal proceedings in the past ten years relating to any matters in bankruptcy, insolvency, criminal proceedings
(other than traffic and other minor offenses) or being subject to any of the items set forth under Item 401(f) of Regulation S-K.
Director Independence
The Board evaluates the independence of each
nominee for election as a director of our Company in accordance with the Listing Rules (the “Nasdaq Listing Rules”) of the
Nasdaq Stock Market LLC (“Nasdaq”). Pursuant to these rules, a majority of our Board must be “independent directors”
within the meaning of the Nasdaq Listing Rules, and all directors who sit on our Audit Committee, Nominating Committee and Compensation
Committee must also be independent directors.
The Nasdaq definition of “independence”
includes a series of objective tests, such as the director or director nominee is not, and was not during the last three years, an employee
of the Company and has not received certain payments from, or engaged in various types of business dealings with, the Company. In
addition, as further required by the Nasdaq Listing Rules, the Board has made a subjective determination as to each independent director
that no relationships exist which, in the opinion of the Board, would interfere with such individual’s exercise of independent
judgment in carrying out his or her responsibilities as a director. In making these determinations, the Board reviewed and discussed
information provided by the directors with regard to each director’s business and personal activities as they may relate to Company
and its management.
As a result, the Board has affirmatively determined
that each of Matthew R. Kane, Tahira Rehmatullah, and Barry Fishman are independent in accordance with the Nadsaq Listing Rules. The
Board has also affirmatively determined that all members of our Audit Committee, Nominating Committee and Compensation Committee are
independent directors.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires the
Company’s officers and directors, and persons who own more than 10% of the Shares, to file reports of ownership and changes of
ownership of such securities with the SEC.
Based solely on a review of the reports received
by the SEC, the Company believes that, during the fiscal year ended June 30, 2020, the Company’s officers, directors and greater
than 10% owners timely filed all reports they were required to file under Section 16(a), except as set forth below:
| Name |
|
Number
of Late Reports
(Transactions) |
|
Number
of Missing Reports
(Transactions) |
| Jessica Billingsley |
|
5 (5 Transactions) |
|
-- |
| L. Dean Ditto |
|
-- |
|
Form 3, 1 Form 4 (1 Transaction), Form 5 |
| Barry Fishman |
|
1 (1 Transaction) |
|
-- |
| Matt Kane |
|
1 (1 Transaction) |
|
-- |
| Tahira Rehmutallah |
|
1 (1 Transaction) |
|
-- |
| Scott Sozio |
|
1 (2 Transactions) |
|
-- |
| Ray Thompson |
|
2 (5 Transactions) |
|
-- |
| David McCullough |
|
1 (2 Transactions) |
|
-- |
Code of Business Conduct and Ethics
We have a code of business conduct and ethics,
or the Code of Ethics, that applies to all of our employees, officers and directors of Akerna and our affiliated entities. The Code
of Ethics is available on our website at www.akerna.com and we will post any amendments to, or waivers from, including an implicit
waiver, the Code of Ethics on that website.
Director Nominating Process
The policy of our Nominating Committee is to
consider properly submitted recommendations for candidates to the Board from stockholders. Any stockholder recommendations for consideration
by the Nominating Committee should include the candidate’s name, biographical information, information regarding any relationships
between the candidate and the Company within the last three years, a description of all arrangements between the candidate and the recommending
stockholder and any other person pursuant to which the candidate is being recommended, a written indication of the candidate’s
willingness to serve on the Board, any other information required to be provided under securities laws and regulations, and a written
indication to provide such other information as the Nominating Committee may reasonably request. There are no differences in the manner
in which the Nominating Committee evaluates nominees for director based on whether the nominee is recommended by a stockholder or otherwise.
Stockholder recommendations to the Board should be sent to:
Akerna Corp.
1550 Larimer Street #246, Denver, Colorado 80202
Attention: Secretary
In addition, our Amended and Restated Bylaws
permit stockholders to nominate directors for consideration at an annual meeting of stockholders. Stockholders wishing to nominate a
candidate for director at the annual meeting of stockholders must give written notice to Akerna Corp. 1630 Welton St., Floor 4, Denver,
CO 80202, Attention: Secretary, either by personal delivery or by United States mail, postage prepaid. The stockholder’s notice
must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor
more than one hundred twenty (120) days prior to the first anniversary of the date of the immediately preceding year’s annual meeting
of stockholders; provided, however, that if the date of the annual meeting is advanced more than thirty (30) days prior to or delayed
by more than sixty (60) days after the anniversary of the preceding year’s annual meeting, to be timely, notice by the stockholder
must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the
date of the annual meeting was mailed or public disclosure of the date of the annual meeting is first given or made (which for this purpose
shall include any and all filings of the Corporation made on the EDGAR system of the SEC or any similar public database maintained by
the SEC), whichever first occurs. To be timely for a special meeting of the stockholders called for the purpose of electing directors,
a stockholder’s written notice to the Secretary of the Corporation must be delivered to or mailed and received at the principal
executive offices of the Corporation not later than thirty (30) days after the prior meeting of stockholders and no later than one hundred
and eighty (180) days before the first anniversary date of the immediately preceding year’s annual meeting of stockholders. To
be in proper form, a stockholder’s notice to the Secretary shall be in writing and shall set forth (i) the name and record address
of such stockholder proposing such nomination and the beneficial owner, if any, on whose behalf the nomination is made; (ii) the class
or series and number of shares of capital stock of the Corporation which are, directly or indirectly, owned beneficially or of record
by such stockholder; (iii) a description of all direct and indirect compensation and other material monetary agreements, arrangements
or understandings during the past three years, and any other material relationships, between such stockholder and each proposed nominee,
including, without limitation, all information that would be required to be disclosed pursuant to the Regulations of the Securities and
Exchange Commission if such stockholder were the “registrant” for purposes of such rule and the proposed nominee were a director
or executive officer of such registrant; (iv) any derivative positions held or beneficially held, directly or indirectly, by such stockholder;
(v) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf
of, or any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares) has been
made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease
the voting power of, such stockholder with respect to any share of stock of the Corporation; (v) a representation that such stockholder
intends to appear in person or by proxy at the meeting to nominate the persons named in its notice; and (vii) any other information relating
to such stockholder that would be required to be disclosed in a proxy statement or other filings of the proposing stockholder required
to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules
and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named
or referred to as a nominee and to serve as a director if elected. The Corporation may require any proposed nominee to furnish such other
information (which may include attending meetings to discuss the furnished information) as may reasonably be required by the Corporation
to determine the eligibility of such proposed nominee to serve as a director of the Corporation.
Audit Committee and Audit Committee Financial Expert
We have a separately-designated standing Audit
Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and Nasdaq Listing Rules. In addition, our Board adopted a written charter for the Audit Committee, which is available
on the Company’s website at www.akerna.com, which complies with the requirements of Rule 10A-3 of the Exchange Act.
The Audit Committee consists of Barry Fishman,
Matthew R. Kane, and Tahira Rehmatullah, each of whom is independent within the meaning of the Nasdaq Listing Rules and Rule 10A-3 of
the Exchange Act. In addition, each Audit Committee member satisfies the Audit Committee independence standards under the Exchange
Act. Our Board has determined that Mr. Fishman qualifies as an Audit Committee financial expert, as defined by SEC rules, based
on education, experience and background. Mr. Fishman serves as chairperson of the Audit Committee.
The Audit Committee’s duties, include,
but are not limited to: (i) reviewing and discussing with management and the independent auditor the annual audited financial statements,
and recommending to the board whether the audited financial statements should be included in our annual reports; (ii) discussing with
management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of
our financial statements; (iii) discussing with management major risk assessment and risk management policies; (iv) monitoring the
independence of the independent auditor; (v) verifying the rotation of the lead (or coordinating) audit partner having primary responsibility
for the audit and the audit partner responsible for reviewing the audit as required by law; (vi) reviewing and approving all related-party
transactions; (vii) inquiring and discussing with management our compliance with applicable laws and regulations; (viii) pre-approving
all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms of the services
to be performed; (ix) appointing or replacing the independent auditor; (x) determining the compensation and oversight of the work of
the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting)
for the purpose of preparing or issuing an audit report or related work; (xi) establishing procedures for the receipt, retention and
treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding
our financial statements or accounting policies; and (xii) approving reimbursement of expenses incurred by our management team in identifying
potential target businesses.
Item 11. Executive Compensation
Our named executive officers for the fiscal year
ended December 31, 2022 are Jessica Billingsley, our Chief Executive Officer, L. Dean Ditto, our Chief Financial Officer, David McCullough,
our Chief Technology Officer and Ray Thompson, our former Chief Operating Officer.
Summary Compensation Table
The following table sets forth all information
concerning the compensation earned, for the fiscal years ended December 31, 2022 and 2021, six-month transition period ended December
31, 2020, and for the fiscal year ended June 30, 2020 for services rendered to us by persons who served as our named executive officers
at the end of December 31, 2022.
| Name and Principal Position | |
Year | |
Salary
($) | | |
Bonus
($) | | |
Stock
Awards
($) | | |
All Other
Compensation
($) | | |
Total
($) | |
| (a) | |
(b) | |
(c) | | |
(d) | | |
(e) | | |
(i) | | |
(j) | |
| Jessica Billingsley | |
2022 | |
| 297,916 | | |
| - | | |
| - | | |
| 6,587 | (2) | |
| 304,503 | |
| Chief Executive Officer | |
2021 | |
| 262,500 | | |
| 201,866 | (3) | |
| 108,200 | (4) | |
| 11,774 | (5) | |
| 584,340 | |
| | |
2020TP | |
| 125,000 | | |
| 81,625 | (6) | |
| 125,450 | (7) | |
| 740 | (8) | |
| 332,815 | |
| | |
2020 | |
| 250,000 | | |
| 54,750 | (9) | |
| 153,474 | (10) | |
| 21,780 | (11) | |
| 480,004 | |
| Ray Thompson | |
2022 | |
| 233,854 | | |
| - | | |
| - | | |
| - | | |
| 233,854 | |
| Former Chief Operating Officer | |
2021 | |
| 200,000 | | |
| - | | |
| 83,200 | (12) | |
| - | | |
| 283,200 | |
| | |
2020TP | |
| 100,000 | | |
| - | | |
| 94,200 | (13) | |
| - | | |
| 194,200 | |
| David McCullough | |
2022 | |
| 240,432 | | |
| - | | |
| - | | |
| - | | |
| 240,432 | |
| Chief Technology Officer | |
2021 | |
| 200,000 | | |
| 60,075 | (14) | |
| 83,200 | (15) | |
| - | | |
| 343,275 | |
| | |
2020TP | |
| 100,000 | | |
| - | | |
| 94,200 | (16) | |
| - | | |
| 194,200 | |
| L. Dean Ditto (17) | |
2022 | |
| 68,750 | | |
| - | | |
| 25,000 | (18) | |
| 49,200 | (19) | |
| 142,950 | |
| Chief Financial Officer | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| (1) | In November 2022, the Company effected a
20-for-1 reverse stock split (the "Reverse Stock Split"). As a result, all references
to stock-based awards issued before the Reverse Stock Split are noted parenthetically and
adjusted downward by dividing by 20 in order to maintain the ratio of one unit/restricted
share/share being equivalent to one share on Common Stock. |
| (2) | In addition to cash and stock awards, Ms.
Billingsley may redeem loyalty awards generated by corporate purchases made on certain credit
cards for her personal use. During the year ended 2022, Ms. Billingsley redeemed $6,587 in
loyalty awards for her personal use. |
| (3) | Pursuant to Ms. Billingsley’s employment
agreement with Akerna, she is eligible for a bonus that is determined by the Board on the
basis of fulfillment of the objective performance criteria established in its discretion.
For the year ended 2021, the bonus was determined based Akerna’s relative performance
against budgeted targets, as further described below. The Board evaluated the achievement
of these targets and Ms. Billingsley’s 2021 fiscal year bonus amount was $201,866. |
| (4) | During the year ended 2021, Ms. Billingsley
was awarded 20,000 restricted stock units (1,000 after the Reverse Stock Split) with a grant
date fair value of $83,200. These awards vest 25% annually on December 1 with the final vesting
occurring on December 1, 2024. As compensation for the 2021 fiscal year, Ms. Billingsley
was also awarded a discretionary bonus of 22,322 restricted shares (1,117 after the Reverse
Stock Split) with a grant date fair value of $25,000. These shares fully vested on April
12, 2022. |
| (5) | In addition to cash and stock awards, Ms.
Billingsley may redeem loyalty awards generated by corporate purchases made on certain credit
cards for her personal use. During the year ended 2022, Ms. Billingsley redeemed $11,774
in loyalty awards for her personal use. |
| (6) | Pursuant to Ms. Billingsley’s employment
agreement with Akerna, she is eligible for a bonus that is determined by the Board on the
basis of fulfillment of the objective performance criteria established in its discretion.
For the transition period 2020, the transition period bonus was determined based Akerna’s
relative performance against budgeted targets, as further described below. The Board evaluated
the achievement of these targets and Ms. Billingsley’s transition period 2020 bonus
amount was $81,625. |
| (7) | During the transition period 2020, Ms. Billingsley
was awarded 20,000 restricted stock units (1,000 after the Reverse Stock Split) with a grant
date fair value of $94,200. These awards vest 25% annually on July 1 with the final vesting
occurring on July 1, 2024. As compensation for the 2020 transition period, Ms. Billingsley
was also awarded a discretionary bonus of 7,548 restricted shares (375 after the Reverse
Stock Split) with a grant date fair value of $31,250. These shares fully vested on April
26, 2021. |
| (8) | In addition to cash and stock awards, Ms.
Billingsley may redeem loyalty awards generated by corporate purchases made on certain credit
cards for her personal use. During the year ended 2022, Ms. Billingsley redeemed $740 in
loyalty awards for her personal use. |
| (9) | Pursuant to Ms. Billingsley’s employment
agreement with Akerna, she is eligible for an annual bonus that is determined by the Board
on the basis of fulfillment of the objective performance criteria established in its discretion.
For the 2020 fiscal year, the annual bonus was determined based Akerna’s relative performance
against budgeted targets, as further described below. The Board evaluated the achievement
of these targets and Ms. Billingsley’s 2020 annual bonus amount was $54,750. |
| (10) | During 2020, Ms. Billingsley was awarded
10,000 restricted stock units (500 after the Reverse Stock Split) with a grant date fair
value of $57,900. These awards vest 25% annually on July 1 with the final vesting occurring
on July 1, 2023. Ms. Billingsley was awarded share-based compensation that was conditioned
upon the price of a share of our Common Stock achieving a specified total return as of June
30, 2020. This award had a grant date fair value of $12,465. The total return target was
not achieved, as such no shares will be issued pursuant to this award. Ms. Billingsley was
also awarded a share based annual bonus award of 19,694 shares of Common Stock (985 after
the Reverse Stock Split). This award had a grant date fair value of $83,109. |
| (11) | In addition to cash and stock awards, Ms.
Billingsley may redeem loyalty awards generated by corporate purchases made on certain credit
cards for her personal use. During the year ended 2022, Ms. Billingsley redeemed $21,780
in loyalty awards for her personal use. |
| (12) | During the year ended 2021, Mr. Thompson
was awarded 20,000 restricted stock units (1,000 after the Reverse Stock Split) with a grant
date fair value of $83,200. These awards vest 25% annually on December 1 with the final vesting
occurring on December 1, 2024. |
| (13) | During the transition period 2020, Mr. Thompson
was awarded 20,000 restricted stock units (1,000 after the Reverse Stock Split) with a grant
date fair value of $94,200. These awards vest 25% annually on July 1 with the final vesting
occurring on July 1, 2024. |
| (14) | During the year ended 2021, Mr. McCullough
was awarded a discretionary cash bonus of $60,075. |
| (15) | During the year ended 2021, Mr. McCullough
was awarded 20,000 restricted stock units (1,000 after the Reverse Stock Split) with a grant
date fair value of $83,200. These awards vest 25% annually on December 1 with the final vesting
occurring on December 1, 2024. |
| (16) | During the transition period 2020, Mr. McCullough
was awarded 20,000 restricted stock units (1,000 after the Reverse Stock Split) with a grant
date fair value of $94,200. These awards vest 25% annually on July 1 with the final vesting
occurring on July 1, 2024. |
| (17) | On July 25, 2022, Mr. Ditto was appointed
as the Company’s Chief Financial Officer. Mr. Ditto was previously appointed as the
Company’s Interim Chief Financial Officer on May 11, 2022, effective May 17, 2022. |
| (18) | On July 25, Mr. Ditto was awarded a discretionary
bonus of 134,013 restricted shares (6,701 after the Reverse Stock Split) with a grant date
fair value of $25,000. These shares fully vested on the grant date. |
| (19) | In the period during which Mr. Ditto was
serving as the Company’s Interim Chief Financial Officer, he was compensated as a consultant
for $49,200. |
Employment Agreements with Named Executive Officers
Jessica Billingsley
In connection with the consummation of the mergers
on June 17, 2019, Ms. Billingsley and Akerna entered into an employment agreement, dated June 17, 2019 (the “Billingsley Employment
Agreement”). Under the terms of the Billingsley Employment Agreement, Ms. Billingsley serves at the Chief Executive Officer
of Akerna at will, and must devote substantially all of her working time, skill and attention to her position and to the business and
interests of Akerna (except for customary exclusions).
Akerna pays Ms. Billingsley an annual base salary
in the amount of $250,000. The base salary is subject to (1) review at least annually by the Board for increase, but not decrease,
and (2) automatic increase by an amount equal to $50,000 from its then current level on the date upon which Akerna’s aggregate,
gross consolidated trailing twelve month (TTM) revenue equals the product of (x) two multiplied by (y) Akerna’s
TTM revenue as of the Closing. Effective October 1, 2021, Ms. Billingsley’s annual base salary was increased to $300,000. Within
ten days of the consummation of the Merger Agreement, Akerna paid Ms. Billingsley a completion award in a single lump sum of $95,000.
Ms. Billingsley will be eligible for an annual
bonus (the “Annual Bonus”) with respect to each fiscal year ending during her employment. Her target annual cash bonus shall
be in the amount of one hundred percent (100%) of her base salary (the “Target Bonus”) with the opportunity to earn greater
than the Target Bonus upon achievement of above target performance. The amount of the Annual Bonus shall be determined by the Board on
the basis of fulfillment of the objective performance criteria established in its reasonable discretion. The performance criteria for
any particular fiscal year shall be set no later than ninety days after the commencement of the relevant fiscal year. For the 2021 fiscal
year, the Annual Bonus shall be determined based upon four (4) budget components (B2B Software Revenue, B2G Software Revenue, Services
Revenue and Adjusted EBITDA) and NPS Scores With regards to the budget components, each scales linearly between achieving 75% to 100%,
and greater than 100% with respect to the B2B Software Revenue, B2G Software Revenue, and Adjusted EBITDA target budget components respectively,
of the applicable fiscal year’s budget for each such component (with 50% of the Target Bonus payable upon achievement of 75% of
budget, 100% of the Target Bonus payable upon achievement of budget (and, with respect to the B2B Software Revenue, B2G Software Revenue,
and Adjusted EBITDA budget components, with 200% of each weighted portion of the Target Bonus payable upon achievement of 125% of the
corresponding component of budget, with linear interpolation between points. Accelerator to be paid at the discretion of the Board of
Directors in cash, stock, or both. For the transition period 2020 and the 2020 fiscal year, the Annual Bonus was determined based upon
the following four (4) budget components, each of which scales linearly between achieving 75% to 100%, and greater than 100% with respect
to the Platform Recurring Revenue (as defined in Billingsley Employment Agreement) and Government Recurring Revenue (as defined in Billingsley
Employment Agreement) budget components respectively, of the applicable fiscal year’s budget for each such component (with 50%
of the Target Bonus payable upon achievement of 75% of budget, 100% of the Target Bonus payable upon achievement of budget (and, with
respect to the Platform Recurring Revenue and Government Recurring Revenue budget components, with 200% of each weighted portion of the
Target Bonus payable upon achievement of 125% of the corresponding component of budget, with linear interpolation between points)). During
the fiscal year ended June 30, 2020, due to achieving targets Ms. Billingsley received a bonus of $54,750 and she received a discretionary
share bonus of $90,000 worth of the Company’s shares of Common Stock based on the 10-day volume weighted average price as of the
date of the award, which resulted in the issuance of 19,694 shares of Common Stock with a grant date fair value of $83,109. During the
transition period ended December 31, 2020, due to achieving targets Ms. Billingsley received a bonus of $81,625.
Ms. Billingsley is entitled to participate in
annual equity awards and employee benefits. She is indemnified by Akerna to for any and all expenses (including advancement and payment
of attorneys’ fees) and losses arising out of or relating to any of her actual or alleged acts, omissions, negligence or active
or passive wrongdoing, including, the advancement of expenses she incurs. The foregoing indemnification is in addition to the indemnification
provided to her by Akerna pursuant to her Indemnification Agreement.
In the event of Ms. Billingsley’s termination
for cause or without good reason, Akerna will be obligated to pay any accrued but unpaid base salary and any annual bonus earned and
awarded for the fiscal year prior to that in which the termination occurs. In the event of Ms. Billingsley’s termination without
cause or with good reason, Akerna will be obligated to pay any accrued but unpaid base salary, any annual bonus earned and awarded for
the fiscal year prior to that in which the termination occurs, a cash severance payment equal to her base salary, pro-rated annual bonus
for the fiscal year in which the termination occurs through the date of termination, and twelve months of health benefits.
The Billingsley Employment Agreement also contains
noncompetition and non-solicitation provisions that apply through her employment and for a term of one year thereafter, and which are
in addition to the noncompetition and non-solicitation provisions prescribed under a certain Non-Competition Agreement between Ms. Billingsley
and Akerna. The Billingsley Employment Agreement also contains a non-disparagement provision that apply through her employment and for
a term of two years thereafter.
L. Dean Ditto
Mr. Ditto entered into a letter agreement with
Akerna on August 18, 2022 (the “Ditto Letter Agreement”). Mr. Ditto serves as the Chief Financial Officer of Akerna
on an at-will-basis. Pursuant to the Ditto Letter Agreement, Mr. Ditto’s initial compensation package includes an annual base salary
of $250,000, subject to all legal withholdings and deductions. Mr. Ditto will also immediately vest with $25,000 in Restricted Stock
Units, which are subject to the terms of consulting agreement he previously executed.
Prior to Mr. Ditto’s appointment as Chief
Financial Officer, the Company and Mr. Ditto entered into a consultant agreement dated April 21, 2022 (the “Ditto Consulting
Agreement”). Pursuant to the Ditto Consulting Agreement, Mr. Ditto had agreed to perform certain financial and accounting related
services and the Company granted Mr. Ditto restricted stock units that are valued at $25,000 that immediately vested upon the grant.
Subject to Mr. Ditto’s continued employment
with Akerna through the occurrence of the first closing of a sale transaction of the majority of MJ Freeway at a reasonable and acceptable sale
transactional valuation amount as determined by and at the sole discretion of the Akerna Board of Directors or a change in control (as
defined in the Ditto Letter Agreement), Akerna will be obligated to pay Mr. Ditto a lump sum of $125,000 in one installment, within 60
days of the change in control event, subject to the requirements described in the Ditto Letter Agreement and less applicable payroll
taxes and deductions.
Ray Thompson
On October 19, 2018, Mr. Thompson entered into
a letter agreement with Akerna’s wholly owned subsidiary MJ Freeway LLC. Mr. Thompson served as the President and Chief Operating
Officer of Akerna at will. Akerna paid Mr. Thompson an annual base salary of $200,000 in 2021. As part of his appointment as the Company’s
President under the Company’s 2022 executive compensation structure, Mr. Thompson received an annual base salary of $275,000 and
Mr. Thompson’s performance target annual cash bonus shall be 25% of his base salary. At the Board’s discretion, Mr. Thompson
may be eligible for a bonus. Upon a change of control transaction, Mr. Thompson’s unvested restricted stock units or any other
equity interests that he may be granted, will immediately vest. If Mr. Thompson’s employment is terminated by Akerna without cause
or by him with good reason, he is entitled to his base salary through the date of termination.
Akerna entered into an Employee Covenant Agreement
with Mr. Thompson, which obligates Mr. Thompson from disclosing any confidential information, including without limitation, trade secrets.
The agreement also prohibits Mr. Thompson during the term of his employment and for a period of two years after his employment from soliciting
any customer, client, employee, supplier or vendor of Akerna, and rendering any services or giving advice to any competitor or affiliate
of a competitor. The agreement also requires Mr. Thompson to return all Akerna property and disclose all work product to Akerna.
On May 16, 2022, Akerna and Mr. Thompson agreed
to a transition, effective immediately, by which Mr. Thompson will move from his current role as President and Chief Operating Officer
to Special Advisor to the Chief Executive Officer. In that role, Mr. Thompson will continue to assist the Chief Executive Officer with
certain of the day-to-day operations of the Company and advise the Company on various aspects of corporate strategy.
David McCullough
Mr. McCullough does not have a formal letter
agreement with Akerna in relation to his employment as the Chief Technology Officer. Akerna paid Mr. McCullough an annual base salary
of $200,000 for 2021. Under the Company’s 2022 executive compensation structure, Mr. McCullough will receive a base salary of $250,000
and Mr. McCullough’s performance target annual cash bonus shall be 25% of his base salary. At the Board’s discretion, Mr.
McCullough may be eligible for a bonus. Upon a change of control transaction, Mr. McCullough’s unvested restricted stock units
or any other equity interests that he may be granted, will immediately vest. If Mr. McCullough’s employment is terminated by Akerna
without cause or by him with good reason, he is entitled to his base salary through the date of termination.
Akerna entered into an Employee Covenant Agreement
with Mr. McCullough, which obligates Mr. McCullough from disclosing any confidential information, including without limitation, trade
secrets. The agreement also prohibits Mr. McCullough during the term of his employment and for a period of two years after his employment
from soliciting any customer, client, employee, supplier or vendor of Akerna, and rendering any services or giving advice to any competitor
or affiliate of a competitor. The agreement also requires Mr. McCullough to return all Akerna property and disclose all work product
to Akerna.
Potential Payments upon Termination or Change
in Control
As described above under “Employment
Agreements with Named Executive Officers,” the Company has entered into employment agreements with each of the named executive
officers that provide for certain severance payments and benefits in the event the named executive officer’s employment with the
Company is terminated under certain circumstances.
In addition, upon a Change in Control of the
Company, unvested equity awards held by an executive officer will be accelerated as follows: (i) outstanding stock options and other
awards in the nature of rights that may be exercised shall become fully vested and exercisable, (ii) time-based restrictions on restricted
stock, restricted stock units and other equity awards shall lapse and the awards shall become fully vested, and (iii) performance-based
equity awards, if any, shall become vested and shall be deemed earned based on an assumed achievement of all relevant performance goals
at “target” levels, and shall payout pro rata to reflect the portion of the performance period that had elapsed prior to
the Change in Control.
The table below shows the estimated value of
benefits to each of the named executive officers if their employment had been terminated under various circumstances as of May 1, 2023.
The amounts shown in the table exclude accrued but unpaid base salary, unreimbursed employment-related expenses, accrued but unpaid vacation
pay, and the value of equity awards that were vested by their terms as of May 1, 2023.
| | |
Involuntary
Termination Without a Change in Control
($) | | |
Involuntary Termination in Connection
with a Change in Control
($) | | |
Death
($) | | |
Disability
($) | | |
Termination for Cause; Voluntary
Resignation
($) | |
| | |
| | |
| | |
| | |
| | |
| |
| Jessica Billingsley | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cash severance (1) | |
$ | 300,000 | | |
$ | 300,000 | | |
| | | |
| | | |
| | |
| Bonus (2) | |
| - | | |
$ | 300,000 | | |
| | | |
| | | |
| | |
| Health benefits (3) | |
$ | 2,400 | | |
$ | 2,400 | | |
| | | |
| | | |
| | |
| Value of equity acceleration (4) | |
$ | 934 | | |
$ | 934 | | |
| | | |
| | | |
| | |
| Total | |
$ | 303,334 | | |
$ | 603,334 | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| L. Dean Ditto | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cash severance (1) | |
$ | 83,333 | | |
$ | 83,333 | | |
| | | |
| | | |
| | |
| Bonus | |
| - | | |
$ | 125,000 | | |
| | | |
| | | |
| | |
| Health benefits (3) | |
$ | 2,400 | | |
$ | 2,400 | | |
| | | |
| | | |
| | |
| Value of equity acceleration (4) | |
| | | |
| | | |
| | | |
| | | |
| | |
| Total | |
$ | 85,733 | | |
$ | 210,733 | | |
| | | |
| | | |
| | |
| |
(1) |
Reflects severance payment equal to one times base salary payable in equal monthly installments for 12 months for Ms. Billingsley and one third of base salary for Mr. Ditto. |
| |
|
|
| |
(2) |
Reflects change in control success bonuses equal to one times base salary for Ms. Billingsley and one half of base salary for Mr. Ditto. |
| |
|
|
| |
(3) |
Reflects the Company’s estimated cost of continued health coverage at active employee rates for three months. |
| |
|
|
| |
(4) |
Reflects the value of unvested in-the-money stock options and restricted stock units, or RSUs, that vest upon the designated event. |
| |
|
|
| |
(5) |
|
| |
|
|
| |
(6) |
. |
| |
|
|
| |
(7) |
|
Outstanding Equity Awards at 2022 Fiscal Year-End
A summary of the number and the value of the outstanding
equity awards as of December 31, 2022 held by the named executive officers is set out in the table below.
| Stock Awards(1) |
| Name | |
Number of Shares
or Units of Stock
That Have Not
Vested (#) | | |
Market Value of
Shares or Units of
Stock That Have
Not Vested ($) | | |
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested(#) | | |
Equity
Incentive
Plan
Awards:
Market or Payout
Value of Unearned
Shares,
Units or
Other Rights That
Have Not Vested ($) | |
| Jessica Billingsley | |
| - | | |
| - | | |
| 125 | (2) | |
| 86 | |
| Chief Executive Officer | |
| - | | |
| - | | |
| 500 | (3) | |
| 345 | |
| | |
| - | | |
| - | | |
| 500 | (4) | |
| 345 | |
| Ray Thompson | |
| 334 | (5) | |
| 230 | | |
| 125 | (2) | |
| 86 | |
| Chief Operating Officer | |
| - | | |
| - | | |
| 334 | (6) | |
| 230 | |
| | |
| - | | |
| - | | |
| 313 | (7) | |
| 216 | |
| | |
| - | | |
| - | | |
| 500 | (3) | |
| 345 | |
| | |
| - | | |
| - | | |
| 500 | (4) | |
| 345 | |
| David McCullough | |
| - | | |
| - | | |
| 100 | (8) | |
| 69 | |
| Chief Technology Officer | |
| - | | |
| - | | |
| 500 | (3) | |
| 345 | |
| | |
| - | | |
| - | | |
| 500 | (4) | |
| 345 | |
There were no options granted in the fiscal year
ended December 31, 2022.
| (1) | Each RSU represents a contingent
right to receive one share of Common Stock of the Company. |
| (2) | Represents 125 RSUs which vest
on July 1, 2023. |
| (3) | Represents 500 RSUs, which vest
as follows: 250 units shall vest on July 1, 2023, and 250 units shall vest on July 1, 2024. |
| (4) | Represents 500 RSUs, which vest
as follows: 250 units shall vest on December 1, 2023, and 250 units shall vest on December 1, 2024. |
| (5) | Represents 334 shares of restricted
stock which vest on January 1, 2023. |
| (6) | Represents 334 RSUs which vest
on January 1, 2023. |
| (7) | Represents 313 RSUs which vest
on January 1, 2023. |
| (8) | Represents 100 RSUs which vest
on July 1, 2023. |
Pension Benefits
None of our employees participate in or have account
balances in qualified or non-qualified defined benefit plans sponsored by us. Our Compensation Committee may elect to adopt qualified
or non-qualified benefit plans in the future if it determines that doing so is in our company’s best interest.
Non-qualified Deferred Compensation
None of our employees participate in or have account
balances in non-qualified defined contribution plans or other non-qualified deferred compensation plans maintained by us. Our Compensation
Committee may elect to provide our officers and other employees with non-qualified defined contribution or other non-qualified compensation
benefits in the future if it determines that doing so is in our company’s best interest.
Director Compensation
The following table sets forth the compensation
granted to our directors who are not also executive officers during the fiscal year ended December 31, 2022. Compensation to directors
that are also executive officers is detailed above and is not included on this table.
| Name | |
Fees
earned
or paid
in cash
($) | | |
Stock
awards
($) | | |
Option
award
($) | | |
Non-equity
incentive
plan
compensation
($) | | |
Nonqualified
deferred
compensation
earnings
($) | | |
All other
compensation
($) | | |
Total
($) | |
| Barry Fishman | |
| 49,379 | | |
| 21,750 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 71,129 | |
| Matthew Kane | |
| 49,467 | | |
| 21,750 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 71,217 | |
| Tahira Remhatullah | |
| 49,467 | | |
| 21,750 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 71,217 | |
| Scott Sozio(1) | |
| 161,458 | | |
| 136,937 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 161,458 | |
| (1) |
Mr. Sozio receives compensation pursuant to his role as Head of Corporate Development and is not compensated independently as a director. |
Narrative Disclosure to Director Compensation Table
Compensation granted to our directors who are
not also executive officers or employees during the fiscal year ended December 31, 2022 included $48,500 paid $26,750 in cash and $21,750
in stock. Rach independent director receives $5,000 per year per committee to be paid in cash for
participation on each of the audit, compensation and corporate governance and nominating committees. Additionally, the Compensation Committee
approved a one-time payment to the current independent directors of $20,000 per director as compensation for service on the Board’s
special committees since the beginning of the fiscal year. Amounts earned in cash are paid quarterly. Stock awards vest quarterly
over the fiscal year.
Compensation Policies and Practices and Risk Management
The Compensation Committee has reviewed the design
and operation of Akerna’s compensation policies and practices for all employees, including executives, as they relate to risk management
practices and risk-taking incentives. The Compensation Committee believes that Akerna’s compensation policies and practices do not
encourage unnecessary or excessive risk taking and that any risks arising from Akerna’s compensation policies and practices for
its employees are not reasonably likely to have a material adverse effect on Akerna.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee has ever
been an officer or employee of Akerna. None of Akerna’s executive officers serve, or have served during the last fiscal 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 Akerna’s directors or on the Compensation Committee.
Item 12. Security Ownership of Certain Beneficial
Owners and Management, and Related Stockholder Matters
The following table sets forth information concerning
beneficial ownership of Akerna’s capital stock outstanding as of the date of this prospectus, by: (1) each stockholder known to
be the beneficial owner of more than five percent of any class of Akerna’s voting stock then outstanding; (2) each of Akerna’s
directors and nominees to serve as director; (3) each of Akerna’s named executive officers; and (4) Akerna’s current directors
and executive officers as a group.
As of April 28, 2023, there were [5,767,499] shares
of common stock issued and outstanding. Each share entitles the holder thereof to one vote.
The information regarding beneficial ownership
of shares of common stock has been presented in accordance with the rules of the SEC. Under these rules, a person may be deemed to beneficially
own any shares of capital stock as to which such person, directly or indirectly, has or shares voting power or investment power, and as
to which such person has the right to acquire voting or investment power within 60 days through the exercise of any stock option or other
right. The percentage of beneficial ownership as to any person as of a particular date is calculated by dividing (1) (i) the number of
shares beneficially owned by such person plus (ii) the number of shares as to which such person has the right to acquire voting or investment
power within 60 days by (2) the total number of shares outstanding as of such date, plus any shares that such person has the right to
acquire from Akerna within 60 days. Including those shares in the tables does not, however, constitute an admission that the named stockholder
is a direct or indirect beneficial owner of those shares. Unless otherwise indicated, each person or entity named in the table has sole
voting power and investment power (or shares that power with that person’s spouse) with respect to all shares of capital stock listed
as owned by that person or entity.
| | |
Beneficial Ownership | |
| Name and Address of Beneficial Owner(1) | |
Number of
Akerna
Shares of
Common Stock | | |
Percentage(2) | |
| DIRECTORS AND OFFICERS | |
| | |
| |
| Jessica Billingsley(3) | |
| 60,777 | | |
| 1.1 | % |
| Matthew Kane(4) | |
| 31,014 | | |
| * | |
| Scott Sozio(5) | |
| 15,935 | | |
| * | |
| Tahira Rehmatullah(6) | |
| 3,194 | | |
| * | |
| Larry Dean Ditto, Jr. | |
| 6,701 | | |
| * | |
| David McCullough(7) | |
| 3,457 | | |
| * | |
| Ray Thompson(8) | |
| 6,701 | | |
| * | |
| Barry Fishman(9) | |
| — | | |
| * | |
| John Fowle(10) | |
| — | | |
| * | |
| All directors and officers as a group (nine persons) | |
| 127,194 | | |
| 2.2 | % |
| | |
| | | |
| | |
| 5% STOCKHOLDERS - None | |
| | | |
| | |
| (1) |
Unless otherwise noted, the address of each of the persons listed above is 1550 Larimer Street #246 Denver, Colorado 80202. |
| |
|
| (2) |
The percentage is based on 5,767,499 shares of Common Stock issued and outstanding as of March 31, 2023. |
| |
|
| (3) |
Represents 53,915 shares held by Jessica Billingsley Living Trust and 6,872 shares held directly by Ms. Billingsley. Ms. Billingsley, the trustee of the Jessica Billingsley Living Trust, has sole and dispositive power over the shares held by the Jessica Billingsley Living Trust. Does not reflect 1,125 restricted stock units issued pursuant to Akerna’s Incentive Plan, which vest as follows: 125 RSUs, which vest as follows: 125 units shall vest on July 1, 2023, 500 RSUs, which vest as follows: 250 units shall vest on July 1, 2023, and 250 units shall vest on July 1, 2024, and 500 RSUs, which vest as follows: 250 units shall vest on December 1, 2023, and 250 units shall vest on December 1, 2024. |
| |
|
| (4) |
Includes 13,067 shares held by Seam Capital, LLC. Mr. Kane is a manager of Seam Capital, LLC, and as such, Mr. Kane has sole and dispositive power of the shares held by Seam Capital, LLC. Also, includes 17,947 shares of Common Stock held directly by Mr. Kane. |
| |
|
| (5) |
Represents 14,657 shares held by Mr. Sozio. Does not reflect 2,805 restricted stock units issued pursuant to Akerna’s Incentive Plan, which vest as follows: 1,278 units shall vest on July 1, 2023 and 1,277 units shall vest on July 1, 2024, and 250 RSUs, which vest as follows 125 units shall vest on December 1, 2023, and 125 units shall vest on December 1, 2024. |
| |
|
| (6) |
Represents 3,194 shares of Common Stock. |
| |
|
| (7) |
Reflects 3,457 shares of Common Stock. Does not reflect 1,100 restricted stock units issued pursuant to Akerna’s Incentive Plan, which vest as follows: 100 RSUs, which vest as follows: 100 units shall vest on July 1, 2023, 500 RSUs, which vest as follows: 250 units shall vest on July 1, 2023, and 250 units shall vest on July 1, 2024, and 500 RSUs, which vest as follows: 250 units shall vest on December 1, 2023, and 250 units shall vest on December 1, 2024. |
| |
|
| (8) |
Reflects 4,510 shares of Common Stock. Does not reflect 1,125 restricted stock units issued pursuant to Akerna’s Incentive Plan, which vest as follows: 375 RSUs, which vest as follows: 375 units shall vest on July 1, 2023. 250 RSUs, which vest as follows: 125 units shall vest on July 1, 2023, and 125 units shall vest on July 1, 2024, and 500 RSUs, which vest as follows: 250 units shall vest on December 1, 2023, and 250 units shall vest on December 1, 2024. |
| |
|
| (9) |
Represents 481 shares of Common Stock. |
Change in Control
We are not aware of any arrangement that might
result in a change in control in the future. We have no knowledge of any arrangements, including any pledge by any person of our securities,
the operation of which may at a subsequent date result in a change in the Company’s control.
Equity Compensation Plans
The following summary information is presented
as of December 31, 2022:
| | |
Number of
securities
to be
issued upon
exercise of
outstanding
options,
warrants,
and rights
(a) | | |
Weighted-
average
exercise
price of
outstanding
options,
warrants,
and
rights
(b) | | |
Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
(c) | |
| Equity compensation plans approved by security holders(1) | |
| 225,000 | (1) | |
$ | 89.66 | | |
| 172,021 | |
| Equity compensation plans not approved by security holders | |
| Not Applicable | | |
| Not Applicable | | |
| Not Applicable | |
| TOTAL | |
| 225,000 | (1) | |
$ | 89.66 | | |
| 172,021 | |
2019 Long Term Incentive Plan Summary
The purpose of the Incentive Plan is to enable
Akerna to offer its employees, officers, directors and consultants whose past, present and/or potential future contributions to Akerna
have been, are, or will be important to its success, an opportunity to acquire a proprietary interest in Akerna. The various types of
incentive awards that may be provided under the Incentive Plan are intended to enable Akerna to respond to changes in compensation practices,
tax laws, accounting regulations and the size and diversity of its business.
Plan Administration
The Incentive Plan is administered by the compensation
committee of the Akerna Board (the “Compensation Committee”) or by the full Akerna Board, which may determine, among other
things, (1) the persons who are to receive awards, (2) the type or types of awards to be granted to such persons, (3) the number of shares
of common stock to be covered by, or with respect to what payments, rights, or other matters are to be calculated in connection with the
awards, (4) the terms and conditions of any awards, (5) whether, to what extent, and under what circumstances awards may be settled or
exercised in cash, shares of common stock, other securities, other awards or other property, or cancelled, forfeited, or suspended and
the method or methods by which awards may be settled, exercised, cancelled, forfeited, or suspended, (6) whether, to what extent, and
under what circumstances the delivery of cash, shares of common stock, other securities, other awards or other property and other amounts
payable with respect to an award, and (7) make any other determination and take any other action that the Compensation Committee deems
necessary or desirable for the administration of the Incentive Plan.
Stock Options
Stock options granted under the Incentive Plan
may be of two types: (i) Incentive Stock Options (as defined in the Incentive Plan) and (ii) Non-qualified Stock Options (as defined in
the Incentive Plan). Any stock option granted under the Incentive Plan shall contain such terms, as the Compensation Committee may from
time to time approve.
The term of each stock option shall be fixed by
the Compensation Committee; provided, however, that no stock option may be exercisable after the expiration of ten years from the date
of grant; provided, further, that no Incentive Stock Option granted to a person who, at the time of grant, owns stock possessing more
than 10% of the total combined voting power of all classes of voting stock of Akerna (“10% Shareholder”) may be exercisable
after the expiration of five years from the date of grant.
The exercise price per share purchasable under
a stock option shall be determined by the Compensation Committee at the time of grant; provided, however, that the exercise price of a
stock option may not be less than 100% of the fair market value on the date of grant; provided, further, that the exercise price of an
Incentive Stock Option granted to a 10% Shareholder may not be less than 110% of the fair market value on the date of grant.
Stock Appreciation Rights
The Compensation Committee may grant Stock Appreciation
Rights in tandem with a stock option or alone and unrelated to a stock option. The Compensation Committee may grant stock appreciation
rights to participants who have been or are being granted stock options under the Incentive Plan as a means of allowing such participants
to exercise their stock options without the need to pay the exercise price in cash. In the case of a Non-qualified Stock Option, a stock
appreciation right may be granted either at or after the time of the grant of such Non-qualified Stock Option. In the case of an Incentive
Stock Option, a stock appreciation right may be granted only at the time of the grant of such Incentive Stock Option. Stock appreciation
rights shall be exercisable as shall be determined by the Compensation Committee. All or a portion of a stock appreciation right granted
in tandem with a stock option shall terminate and shall no longer be exercisable upon the termination or after the exercise of the applicable
portion of the related stock option.
Restricted Stock and Restricted Stock Units
Shares of restricted stock may be awarded either
alone or in addition to other awards granted under the Incentive Plan. The Compensation Committee shall determine the eligible persons
to whom, and the time or times at which, grants of restricted stock will be awarded, the number of shares to be awarded, the price (if
any) to be paid by the holder, any restriction period, the vesting schedule and rights to acceleration thereof, and all other terms and
conditions of the awards. In addition, the Compensation Committee may award restricted stock units, which may be subject to vesting and
forfeiture conditions during the applicable restriction period, as set forth in an agreement.
Restricted stock constitutes issued and outstanding
shares of common stock for all corporate purposes. The holder will have the right to vote such restricted stock and to exercise all other
rights, powers and privileges of a holder of common stock with respect to such restricted stock, subject to certain limited exceptions.
Upon the expiration of the restriction period with respect to each award of restricted stock and the satisfaction of any other applicable
restrictions, terms and conditions, all or part of such restricted stock shall become vested in accordance with the terms of the agreement.
Any restricted stock that do not vest shall be forfeited to Akerna and the holder shall not thereafter have any rights with respect to
such restricted stock.
The Compensation Committee may provide that settlement
of restricted stock units will occur upon or as soon as reasonably practicable after the restricted stock units vest or will instead be
deferred, on a mandatory basis or at the holder’s election, in a manner intended to comply with tax laws. A Holder will have no
rights of a holder of common stock with respect to shares subject to any restricted stock unit unless and until the shares are delivered
in settlement of the restricted stock unit. If the Committee provides, a grant of restricted stock units may provide a holder with the
right to receive dividend equivalents.
Other Stock-Based Awards
Other Stock-Based Awards may be awarded, subject
to limitations under applicable law, that are denominated or payable in, valued in whole or in part by reference to, or otherwise based
on or related to, shares of common stock, as deemed by the Compensation Committee to be consistent with the purposes of the Incentive
Plan, including, without limitation, purchase rights, shares of common stock awarded that are not subject to any restrictions or conditions,
convertible or exchangeable debentures, or other rights convertible into shares of common stock and awards valued by reference to the
value of securities of or the performance of specified subsidiaries.
Change of Control Provisions
The Incentive Plan provides that in the event
of a change of control event, (1) all of the then outstanding options and stock appreciation rights granted pursuant to the Incentive
Plan will immediately vest and become immediately exercisable as of a time prior to the change in control and (2) any performance goal
restrictions related to an award will be deemed achieved at 100% of target levels and all other conditions met as of a time prior to the
change in control. In the event of the sale of all of Akerna’s assets or a change of control event, then the Compensation Committee
may (1) accelerate the vesting of any and all Stock Options and other awards granted and outstanding under the Incentive Plan; (2) require
a holder of outstanding options to relinquish such award to Akerna upon the tender by Akerna to holder of cash, stock or other property,
or any combination thereof pursuant to the terms of the Incentive Plan and (3) terminate all incomplete performance periods in respect
of awards in effect on the date the acquisition occurs, determine the extent to which performance goals have been met based upon such
information then available as it deems relevant and cause to be paid to the holder all or the applicable portion of the award based upon
the Compensation Committee’s determination of the degree of attainment of performance goals, or on such other basis determined by
the Compensation Committee.
The Akerna Board may at any time, and from time
to time, amend alter, suspend or discontinue any of the provisions of the Incentive Plan, but no amendment, alteration, suspension or
discontinuance shall be made that would impair the rights of a holder under any agreement theretofore entered into hereunder, without
the holder’s consent, except as set forth in this Incentive Plan or the agreement. Notwithstanding anything to the contrary herein,
no amendment to the provisions of the Incentive Plan shall be effective unless approved by the stockholders of Akerna to the extent stockholder
approval is necessary to satisfy any provision of the Ethics Code or other applicable law or the listing requirements of any national
securities exchange on which Akerna’s securities are listed.
Item 13. Certain Relationships and Related
Transactions, and Director Independence
In July 2019, we hired Mr. Scott Sozio, at will,
to serve as our Head of Corporate Development. As restructured in August 2020, Mr. Sozio receives an annual base salary of $150,000, a
one-time grant of $600,000 in restricted stock units (92,166 restricted stock units) issued in August 2020 vesting over 4 years, as discussed
below, and deal related compensation of 0.5% of the transaction value of acquisition completed by Akerna, payable one-half in restricted
stock units of Akerna at the option of the Board.
In April 2020, Mr. Sozio was granted 1,230 restricted
stock units of the Akerna under our 2019 Equity Incentive Plan in relation to the closing of our acquisition of Trellis, which vested
immediately. In August of 2020, Mr. Sozio’s compensation was restructured and he was granted 92,166 restricted stock units, which
vest one quarter each year beginning on July 1, 2021. In September 2020, Mr. Sozio was granted 10,000 restricted stock units as part of
our annual employee grants, which vest one quarter each year beginning on July 1, 2021 and 38,527 restricted stock units in connection
with the closing of our acquisition of Ample, which vested immediately.
In April 2021, Mr. Sozio was granted 2,976 restricted
stock units of the Akerna under our 2019 Equity Incentive Plan in relation to the closing of our acquisition of Viridian, which vested
immediately. In October 2021, Mr. Sozio was granted 29,210 restricted stock units of the Akerna under our 2019 Equity Incentive Plan in
relation to the closing of our acquisition of 365 Cannabis, which vested immediately. In April 2021, Mr. Sozio was granted 10,000 restricted
stock units as part of our annual employee grants, which vest one quarter each year beginning on December 1, 2021.
TechMagic
During the fiscal year ended June 30, 2020, we
have been invoiced through our wholly-owned subsidiary Solo by TechMagic USA LLC, a Massachusetts limited liability, in an amount of approximately
$657,000. When we acquired Solo in January 2020, there was an open balance payable to TechMagic of approximately $265,000. Subsequently,
during the remainder of our fiscal year ended June 30, 2020, we received invoices totaling an aggregate additional amount of approximately
$392,000. After our year ended June 30, 2020, through to the date hereof, we have received invoices totaling an aggregate amount of approximately
$375,000. Currently, there are outstanding invoices totaling approximately $767,000. The invoices set forth services that TechMagic USA
LLC purports to have provided to Solo regarding development of mobile software applications for MJF and Solo between March and November
2020. Mr. Ashesh Shah, formerly the president of Solo and currently the beneficial holder of 6.2% of our issued and outstanding shares
of Common Stock is, to our knowledge, the founder and one of the principal managers of TechMagic USA LLC. The invoices state that the
services were rendered pursuant to the terms of an agreement regarding the development of mobile software products for Solo, entered into
between Solo and TechMagic at a time when Mr. Shah was a principal at both entities. On December 4, 2020, TechMagic filed suit against
Solo in Massachusetts Superior Court seeking recovery of up to approximately $1.07 million. Akerna provided a notice of termination of
the Master Services Agreement on November 23, 2020 and the parties dispute the effective date of the termination. Solo disputes the validity
of the invoices, in whole or in part, and intends to defend the suit vigorously. Mr. Ashesh Shah, formerly the president of Solo and currently
the holder of less than 5% of our issued and outstanding shares of common stock is, to our knowledge, the founder and one of the principal
managers of TechMagic USA LLC.
In July 2022, we entered into an agreement with
TechMagic and the defendants to dismiss all litigation and claims described above. In connection with the settlement agreement, we reversed
our previously accrued loss contingency of $0.5 million during the second quarter of 2022 and no amounts were paid in cash.
Indemnification
Akerna’s amended and restated certificate
of incorporation contains provisions limiting the liability of directors, and its amended and restated bylaws provides that it will indemnify
the directors and executive officers to the fullest extent permitted under Delaware law. Akerna’s amended and restated certificate
of incorporation and bylaws also provides the board of directors with discretion to indemnify the other officers, employees, and agents
when determined appropriate by the board of directors. In addition, Akerna entered into an indemnification agreement with each of its
directors and executive officers, which requires it to indemnify them.
Related Person Transactions Policy and Procedure
Akerna’s Code of Ethics requires it to avoid,
wherever possible, all related party transactions that could result in actual or potential conflicts of interests, except under guidelines
approved by the Board (or the audit committee). Related-party transactions are defined as transactions in which (1) the aggregate amount
involved will or may be expected to exceed $120,000 in any calendar year, (2) Akerna or any of its subsidiaries is a participant, and
(3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of Akerna’s
shares of common stock, or (c) immediate family member, of the persons referred to in clauses (a) and (b), has or will have a direct or
indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity).
A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her
work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper
personal benefits as a result of his or her position.
Ours audit committee, pursuant to its written
charter, is responsible for reviewing and approving related-party transactions to the extent we enter into such transactions. The audit
committee will consider all relevant factors when determining whether to approve a related party transaction, including whether the related
party transaction is on terms no less favorable to us than terms generally available from an unaffiliated third-party under the same or
similar circumstances and the extent of the related party’s interest in the transaction.
Director Independence
The Board evaluates the independence of each nominee
for election as a director of our Company in accordance with the Listing Rules (the “Nasdaq Listing Rules”) of the Nasdaq
Stock Market LLC (“Nasdaq”). Pursuant to these rules, a majority of our Board must be “independent directors”
within the meaning of the Nasdaq Listing Rules, and all directors who sit on our Audit Committee, Nominating Committee and Compensation
Committee must also be independent directors.
The Nasdaq definition of “independence”
includes a series of objective tests, such as the director or director nominee is not, and was not during the last three years, an employee
of Akerna or our subsidiaries and has not received certain payments from, or engaged in various types of business dealings with us. In
addition, as further required by the Nasdaq Listing Rules, the Board has made a subjective determination as to each independent director
that no relationships exist, which, in the opinion of the Board, would interfere with such individual’s exercise of independent
judgment in carrying out his or her responsibilities as a director. In making these determinations, the Board reviewed and discussed
information provided by the directors with regard to each director’s business and personal activities as they may relate to Company
and its management.
As a result, the Board has affirmatively determined
that each of Matthew R. Kane, Tahira Rehmatullah, and Barry Fishman are independent in accordance with the Nasdaq listing rules. The Board
has also affirmatively determined that all members of our Audit Committee, Nominating Committee and Compensation Committee are independent
directors.
Item 14. Principal Accounting Fees and Services
Marcum LLP was the Company’s independent
registered public accounting firm for the fiscal year ended June 30, 2020. Marcum LLP was initially appointed by the Audit Committee as
the Company’s independent registered public accounting firm on September 26, 2019.
As discussed in greater detail below, the following table shows the
fees paid or accrued by us to Marcum and during the fiscal years ended December 31, 2022 and 2021:
| Type of Service | |
2022 | | |
2021 | |
| Audit Fees | |
$ | 325,480 | | |
| 380,893 | |
| Audit-Related Fees(1) | |
| 118,965 | | |
| — | |
| Tax Fees | |
| — | | |
| — | |
| Other Fees | |
| — | | |
| — | |
| Total | |
$ | 444,445 | | |
| 380,893 | |
| (1) | For the year ended December 31, 2022 audit-related fees related to
comfort letters and registration statements.
|
“Audit Fees” relate to fees and expenses
billed by Marcum for the annual audits, including the audit of our financial statements, review of our quarterly financial statements
and for comfort letters and consents related to stock issuances.
“Audit-Related Fees” relate to fees
for assurance and related services that traditionally are performed by independent auditors that are reasonably related to the performance
of the audit or review of the financial statements, such as due diligence related to acquisitions and dispositions, attestation services
that are not required by statute or regulation, internal control reviews and consultation concerning financial accounting and reporting
standards.
“Tax Fees” relate to fees for all
professional services performed by professional staff in our independent auditor’s tax division, except those services related to
the audit of our financial statements. These include fees for tax compliance, tax planning and tax advice, including federal, state and
local issues. Services may also include assistance with tax audits and appeals before the Internal Revenue Service and similar state and
local agencies, as well as federal, state and local tax issues related to due diligence.
“All Other Fees” relate to fees for
any services not included in the above-described categories.
Pre-Approval Policies and Procedures
The Audit Committee charter provides that the
Audit Committee will pre-approve all audit services and non-audit services to be provided by our independent auditors before the accountant
is engaged to render these services. The Audit Committee may delegate its authority to pre-approve services to one or more committee members,
provided that the designees present the pre-approvals to the full committee at the next committee meeting. Akerna’s Audit Committee
was formed upon consummation of the Business Combination. As a result, the Audit Committee did not pre-approve any of the foregoing services
performed by Marcum. Since the formation of our Audit Committee, and on a going-forward basis, the Audit Committee has and will pre-approve
all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject
to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the
completion of the audit).
PART IV
Item 15. Exhibits, Financial Statement Schedules.
The following documents are
filed as part of this Report:
Our
audited consolidated balance sheets as of December 31, 2022, and 2021, the related consolidated statements of operations, comprehensive
loss, changes in stockholders’ equity (deficit) and cash flows for the years ended December 31, 2022 and 2021, the notes thereto,
and the report of Marcum LLP, independent registered public accounting firm, are included in Part II, Item 8 of the Original 10-K.
None.
Exhibits
The exhibits required to be
filed by Item 15 are set forth in, and filed with or incorporated by reference in, the “Exhibit Index” of the Original 10-K.
The attached list of exhibits in the “Exhibit Index” sets forth the additional exhibits required to be filed with this amendment
and is incorporated herein by reference in response to this item.
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements
of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report on Form 10-K/A to be signed on its behalf
by the undersigned, thereunto duly authorized.
| |
AKERNA CORP. |
| |
|
|
| |
By: |
/s/ Jessica Billingsley |
| |
|
Name: |
Jessica Billingsley |
| |
|
Title: |
Chief Executive Officer |
| |
|
Date: |
May 1, 2023 |
| |
By: |
/s/ L. Dean Ditto |
| |
|
Name: |
L. Dean Ditto |
| |
|
Title: |
Chief Financial Officer |
| |
|
Date: |
May 1, 2023 |
21
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2023-04-28
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