Proxy Statement - Form DEF 14A

Filed by the Registrant ☒

Filed by a party other than the Registrant  ☐

☐

Preliminary Proxy Statement

☐

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

☒

Definitive Proxy Statement

☐

Definitive Additional Materials

☐

Soliciting Material under §240.14a-12

☒

No fee required

☐

Fee paid previously with preliminary materials

☐

Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11

•

The setting of the number of directors at six;‎

•

The election of directors for the forthcoming year from the nominees proposed by the board of directors of the Company (the "Board" or the "board of directors");‎

•

The appointment of Ernst & Young LLP, as auditors for the Company and the authorization of the Board to fix the auditors' remuneration and terms of ‎engagement;

•

The approval of the unallocated awards under the Company's Amended 2018 Long Term Incentive Plan; and

•

The transaction of such other business as may properly come before the Meeting or any adjournment(s) or postponement(s) ‎thereof.‎

DATED as of April 29, 2024

by Order of the Board of Directors

/s/ William Morachnick

William Morachnick

Chief Executive Officer

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL GENERAL AND SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 13, 2024‎.

The Notice of Annual General and Special Meeting and Proxy Statement are available online at the ‎"Investor Relations" section of the Company's website at https://investors.charlottesweb.com. The Annual Report on Form 10-K for the year ended December 31, 2023, is also available online at the "Investors Relations" section of our website at https://investors.charlottesweb.com.

YOUR VOTE IS IMPORTANT. PLEASE VOTE YOUR PROXY OVER THE INTERNET BY ‎VISITING WWW.PROXYVOTE.COM OR BY TELEPHONE 1(800) 690-6903 OR MARK, SIGN, ‎DATE AND RETURN YOUR FORM OF PROXY BY MAIL WHETHER OR NOT YOU PLAN TO ‎ATTEND THE ANNUAL GENERAL AND SPECIAL MEETING.‎

GENERAL INFORMATION ABOUT THE ANNUAL GENERAL AND SPECIAL MEETING AND VOTING

1

Proxy Materials

1

How You Can Vote

4

Shareholder Proposals and Director Nominations

7

Description of the Company's Voting Securities

9

Notice-and-Access

9

Interest of Certain Persons or Companies in Matters to be acted upon

9

Obtaining Additional Information

10

OVERVIEW OF PROPOSALS TO BE VOTED ON

11

PROPOSALS 1 AND 2 - ELECTION OF DIRECTORS

11

PROPOSAL 3 - APPOINTMENT AND REMUNERATION OF AUDITORS

18

Principal Independent Accountant Fees and Services

18

PROPOSAL 4 - APPROVAL OF UNALLOCATED AWARDS UNDER AMENDED 2018 LONG TERM INCENTIVE PLAN

20

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

22

CORPORATE GOVERNANCE

23

Board of Directors

23

Board Oversight of Enterprise Risk

29

Board Leadership

29

Code of Ethics

29

EXECUTIVE OFFICERS

30

Biographical Information

30

EXECUTIVE COMPENSATION

32

Introduction

32

Role and Composition of the Compensation Committee

32

Compensation Principles and Objectives

32

Elements of Compensation

34

Clawback Policy

38

Insider Trading and Reporting Policy

38

Common Share Ownership Requirements

38

Summary Compensation Table for 2023

39

Employment Agreements

39

Outstanding Equity Awards Table for 2023 Fiscal Year-End

42

Pension Plan Benefits

43

Termination and Change of Control Benefits

43

Liability Insurance of Directors and Officers

44

Other Compensation

45

DIRECTOR COMPENSATION

46

Compensation of Directors

46

Director Compensation for 2023

46

Other Compensation

47

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

48

INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

49

INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

49

MANAGEMENT CONTRACTS

49

BENEFIT COMPANY REPORT

50

BOARD APPROVAL

50

EXHIBIT I - BOARD MANDATE

51

EXHIBIT II - ANNUAL BENEFIT REPORT

54

EXHIBIT III - AUDIT COMMITTEE CHARTER

68

•

receive a form of proxy executed by the Intermediary but otherwise uncompleted. The Non-registered ‎Shareholder may complete the proxy and return it directly to Broadridge Financial Solutions, Inc. ("Broadridge"); or

•

be provided with a request for voting instructions. The Intermediary is required to send the Company an ‎executed form of proxy completed in accordance with any voting instructions received by the ‎Intermediary.‎

•

our Notice of Meeting;‎

•

our proxy statement for the Meeting (including a copy of our Annual Benefit Report for the year ended December 31, 2023);‎

•

a Proxy Instrument or voting instruction card;

•

our 2023 Annual Report on Form 10-K (including the audited annual ‎consolidated financial statements of the Company for the fiscal year ended December 31, 2023, together with ‎the notes thereto, and the independent auditor's report thereon and the related management's discussion and ‎analysis); and

•

a request for financial statement form for the fiscal year ended December 31, 2024.

•

The setting of the number of directors at six;‎

•

The election of directors for the forthcoming year from the nominees proposed by the Board;‎

•

The appointment of Ernst & Young LLP, as auditors for the Company and the authorization of the Board to ‎fix the auditors' remuneration and terms of engagement;

•

The approval of the unallocated awards under the Amended 2018 Long Term Incentive Plan; and

•

The transaction of such other business as may properly come before the Meeting or any adjournment(s) or postponement(s) ‎thereof.‎

Proposal

Required Vote

‎Setting the number of directors at six

Majority of the votes cast on the proposal

The election of directors

Majority of the votes cast on the proposal*‎

‎Appointment and remuneration of auditors

Majority of the votes cast on the proposal

Approval of the unallocated awards under the Amended 2018 Long Term Incentive Plan

Majority of the votes cast on the proposal

*

The Board has adopted a "majority voting" policy (the "Majority Voting Policy"). Pursuant to the Majority Voting Policy, if a nominee for election as director receives "for" votes fewer than a majority of the votes ‎‎(50% + 1 vote) cast with respect to his or her election by shareholders, he or she must immediately tender his or ‎her resignation to the Board following the meeting of shareholders at which the

•

at any time up to and including ‎the last business day preceding the day of the Meeting or any adjournment(s) or postponement(s) thereof at which the proxy is to ‎be used by an instrument in writing executed by the shareholder or by his, her or its attorney authorized in writing or, if the shareholder is a corporation, under its corporate seal by an officer or attorney thereof duly authorized, ‎and deposited with Broadridge by mail to Attention: Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717; or

•

by delivering written notice of such revocation to the chairman of the Meeting prior to the ‎commencement of the Meeting on the day of the Meeting or any adjournment(s) or postponement(s) thereof.

Name

Age

Position(s)‎

Location of Residence

Director ‎Since

Jonathan Atwood⁽⁴⁾

60

Director

Westport, Connecticut, USA

March 14, 2023

John Held⁽³⁾⁽⁵⁾

61

Chairman, Director

Austin Texas, USA

May 18, 2018

Thomas Lardieri^(2)(3)(5)

63

Director

Allendale, New Jersey, USA

August 10, 2022

Alicia Morga^(1)(2)(5)

52

Director

San Francisco, California, USA

December 6, 2022

Angela McElwee⁽¹⁾⁽³⁾

47

Director

Austin, Texas, USA

October 11, 2023

William Morachnick

60

Chief Executive

Officer, Director

Los Vegas, Nevada, USA

September 13, 2023

Matthew E. McCarthy⁽¹⁾⁽²⁾

55

Director

Carmel, New York, USA

February 6, 2024

Jared Stanley

37

Chief Commercial

Officer, Director

Nominee

Denver, Colorado, USA

Maureen Usifer

64

Director Nominee

Hilton Head, South Carolina, USA

(1)

Compensation Committee member.‎ The chair is Angela McElwee.

(2)

Audit Committee member. The chair is Thomas Lardieri.

(3)

Corporate Governance and Nominating Committee Member. The chair is John Held.‎

(4)

Mr. Atwood is the designee of BT DE Investments, Inc. pursuant to the terms of the Investor Rights Agreement.

(5)

Mr. Held, Mr. Lardieri, and Ms. Morga will not be standing for reelection at the Meeting.

(a)

was subject to: (i) a cease trade order, (ii) an order similar to a cease trade order, or (iii) an order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days (collectively, an "Order"), that was issued while the proposed director was acting in the capacity as director, chief executive officer or chief financial officer; or

(b)

was subject to an Order that was issued after the proposed director ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer.

○

the Company is or will be a participant;‎

○

the aggregate amount involved exceeds $120,000 in any fiscal year; and

○

any related party has or will have a direct or indirect material interest.‎

‎2023

(USD$

millions)

‎2022

(USD$

millions)‎

Audit Fees‎

0.88

1.09

Audit Related Fees‎

0.10

0.07

Tax Fees‎

Nil

Nil

All Other Fees‎

Nil

Nil

Total Fees Paid‎

0.98

1.16

1.

all unallocated awards issuable pursuant to the LTIP are hereby approved and authorized until June 13, 2027;

2.

the Company has the ability to continue granting awards pursuant to the LTIP until June 13, 2027, which is the date that is three years from the date of the shareholder meeting at which shareholder approval is being sought; and

3.

any officer or director of the Company be and is hereby authorized for and on behalf of the Company to execute and deliver all such documents and instruments and to take all such other actions as such

Name

Amount and Nature

of Beneficial

Ownership⁽¹⁾

Percent

of

Class

Jonathan Atwood

-⁽²⁾

-

John Held

766,694⁽³⁾

*

Thomas Lardieri

553,127

*

Alicia Morga

510,134

*

William Morachnick

847,270

*

Jacques Tortoroli

887,607⁽⁴⁾

*

Matthew E. McCarthy

-

-

Angela McElwee

-

-

Susan Vogt

644,061

*

Jessica Saxton

971,179⁽⁵⁾

*

Jared Stanley

368,866⁽⁶⁾

*

All directors and executive officers as a group (11 people)

5,548,938⁽⁷⁾

3.5%

>5% Shareholders:

BT DE Investments Inc.

37,670,540⁽⁸⁾

19.9%

Shareholder Group consisting of Joel Stanley, Jesse Stanley and Lynn Kehler⁽⁹⁾

12,431,835

7.9%

*

Represents less than 1%.

(1)

For purposes of this table, beneficial ownership has been determined in accordance with the provisions of Rule 13d-3 of the Exchange Act, under which, in general, a person is deemed to be the beneficial owner of a security if he or she has or shares the power to vote or direct the voting of the security or the power to dispose of or direct the disposition of the security, or if he or she has the right to acquire beneficial ownership of the security within 60 days of April 15, 2024 ("presently exercisable"). Except as otherwise indicated, each director or executive officer has sole voting and investment power with respect to the shares shown, and none of such shares are pledged. Unless otherwise indicated, the address of each of the named individuals is c/o Charlotte's Web Holdings, Inc., 700 Tech Court, Louisville, Colorado 80027.

(2)

Mr. Atwood was appointed as a director effective as of March 14, 2023 as the designee to the board of directors by BT DE Investments Inc. pursuant to the terms of the Investor Rights Agreement, which was entered into in connection with the issuance of an approximately $56.8 million ("Canadian Dollar" C$75.3 million) convertible debenture (the "debenture") convertible into 19.9% ownership of the Company's Common Shares at a conversion price of C$2.00 per Common Share of the Company on the Toronto Stock Exchange (TSX) on the terms of a subscription agreement between the Company and BT DE Investments Inc. Mr. Atwood's address is Globe House, 4 Temple Place, London, England WCR2 2PG.

(3)

Includes 17,420 Common Shares underlying options presently exercisable.

(4)

Based on information available at the time of the individual's departure as an executive officer of the Company.

(5)

Includes 647,321 Common Shares underlying options presently exercisable.

(6)

Includes 215,607 Common Shares underlying options presently exercisable.

(7)

Includes 880,348 Common Shares underlying options presently exercisable.

(8)

Based solely on the Statement on Schedule 13D filed by BT DE Investments Inc. with the U.S. Securities and Exchange Commission on November 23, 2022. BT DE Investments Inc. is a wholly owned subsidiary of BATUS Holdings Inc., which is a wholly owned subsidiary of Louisville Securities Limited, which is a wholly owned subsidiary of British-American Tobacco (Holdings) Limited, which is a wholly owned subsidiary of B.A.T. Industries p.l.c., which is a wholly owned subsidiary of Weston (2009) Limited, which is a wholly owned subsidiary of British American Tobacco (2009) Limited, which is a wholly owned subsidiary of British American Tobacco (2012) Limited, which is a wholly owned subsidiary of British American Tobacco (1998) Limited, which is a wholly owned subsidiary of British American Tobacco p.l.c. The shares represent the Common Shares issuable upon conversion of an approximately $56.8 million (C$75.3 million) debenture, which comprise approximately 19.9% of the outstanding Common Shares assuming full conversion of the debenture. In connection with the issuance of the debenture on the terms of a subscription agreement between the Company and BT DE Investments Inc., the Company and BT DE Investments Inc. entered into the Investor Rights Agreement. Under the terms of the Investor Rights Agreement, the Company's director, Mr. Jonathan Atwood, was appointed as the designee to the board of directors by BT DE Investments Inc. The Investor Rights Agreement provides BT DE Investments, Inc. with certain rights, including the right to nominate 20% of the members of the Company's board of directors for so long as BT DE Investments, Inc. and its affiliates' partially diluted ownership of the Company's common shares is at least 15% (with a stepdown in its nomination rights to 10% of the members of the board of directors). BT DE Investments, Inc. nomination rights terminate upon its and its affiliates' partially diluted ownership of the Company's common shares declining below 10% for, subject to certain exceptions in the investor rights agreement, a 30-day period. The conversion of the debenture in whole in accordance with its terms could result in a change of control of the Company.

(9)

Based solely on the Statement on Schedule 13D (the "Schedule 13D") filed by Joel Stanley, Jesse Stanley and Lynn Kehler with the U.S. Securities and Exchange Commission on June 16, 2023. According to the Schedule 13D, the address of Joel Stanley is 8022 Southpark Cir. Suite 500, Littleton, CO 80120, the address of Jesse Stanley is 2545 West 8th Avenue, Denver, CO 80203, and the address of Lynn Kehler is 3748 Camelrock View, Colorado Springs, CO 80904.

Member

Independent

Audit

Corporate

Governance and

Nominating

Compensation

Jonathan Atwood

John Held

✔

✔

Thomas Lardieri

✔

✔

✔

Alicia Morga

✔

✔

✔

Matthew E. McCarthy

✔

✔

✔

William Morachnick

Angela McElwee

✔

✔

✔

Name of Member

Independent⁽¹⁾

Financially Literate⁽²⁾

Thomas Lardieri*

Yes

Yes

Alicia Morga

Yes

Yes

Matthew E. McCarthy

Yes

Yes

(1)

A member of the Audit Committee is independent if he or she has no direct or indirect 'material relationship' with the Company in accordance with NI 52-110 and the Nasdaq rules. A material relationship is a relationship which could, in the view of the Company's Board, reasonably interfere with the exercise of a member's independent judgment. Any executive officer of the Company is deemed to have a material relationship with the Company.

(2)

A member of the Audit Committee is financially literate if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company's financial statements.

*

Qualifies as an audit committee financial expert in accordance with SEC rules.

Name of Member

Independent⁽¹⁾

John Held

Yes

Thomas Lardieri

Yes

Angela McElwee

Yes

(1)

A member of the Corporate Governance and Nominating Committee is independent if he or she has no direct or indirect 'material relationship' with the Company. A material relationship is a relationship which could, in the view of the Company's Board, reasonably interfere with the exercise of a member's independent judgment. Any executive officer of the Company is deemed to have a material relationship with the Company.

Name of Member

Independent⁽¹⁾

Angela McElwee

Yes

Alicia Morga

Yes

Matthew E. McCarthy

Yes

(1)

A member of the Compensation Committee is independent if he or she has no direct or indirect 'material relationship' with the Company. A material relationship is a relationship which could, in the view of the Company's Board, reasonably interfere with the exercise of a member's independent judgment. Any executive officer of the Company is deemed to have a material relationship with the Company.

•

Extensive business experience in various executive roles.

•

Knowledge of the CBD Industry

•

International business experience.

•

Extensive business experience in various executive and board level roles

•

Knowledge of the CBD industry

•

Mr. Atwood was designated for service on the Board by BT DE Investments Inc. under the terms of the Investor Rights Agreement

•

Extensive business experience in various executive and board level roles.

•

Significant accounting and financial qualifications.

•

Extensive business experience in various executive and board level roles.

•

Knowledge of the botanical industry.

•

Extensive business experience in various executive and board level roles.

•

Knowledge of the CBD industry.

•

Extensive business experience in various executive and board level roles.

•

Significant accounting and financial expertise.

Name

Age

Position

William Morachnick

60

Chief Executive Officer & Director

Jessica Saxton

36

Chief Financial Officer

Jared Stanley

37

Chief Commercial Officer & Director Nominee

Sarah Cambridge

36

Chief Accounting Officer

Raymond Kunkel

58

Chief Operating Officer

Stephen Rogers

59

Senior Vice President - General Counsel and Corporate Secretary

•

align executive compensation with corporate performance and appropriate peer group comparisons;

•

produce long-term, positive results for shareholders and other key stakeholders;

•

provide market competitive compensation and benefits to attract and retain highly qualified management; and

•

provide incentives that encourage superior corporate performance to support the Company's overall business strategy and objectives.

•

Options: The exercise price of any options is determined by the Board, subject to Toronto Stock Exchange ("TSX") approval (if required), at the time such options are granted. In no event shall such exercise price be lower than the greater of the closing market prices of the underlying securities on: (a) the trading day prior to the date of grant of the options, and (b) the date of grant of the options. Subject to any vesting restrictions imposed by the TSX, the Board may, in its sole discretion, determine the time during which options shall vest and the method of vesting, or that no vesting restriction shall exist. The terms of an option may not be amended once issued. If an option is cancelled prior to its expiry date, the Company must post notice of the cancellation and shall not grant new options to the same person until 30 days have elapsed from the date of cancellation. Generally, options granted under the LTIP vest evenly over three years on an annual basis from the grant date.

•

Restricted Stock Units: Each restricted stock unit granted under the LTIP entitles the participant to receive, subject to the provisions of the LTIP and the award agreement, Common Shares, subject to certain transferability and other restrictions. The specific terms of any restricted stock unit grants will be subject to determination by the Compensation Committee, including the consideration payable, if any, vesting terms and any performance criteria to be satisfied. Generally, restricted stock units granted under the LTIP vest evenly over three years on an annual basis from the grant date.

Security-Based

Compensation

Arrangement

Fiscal 2021⁽¹⁾

(%)

Fiscal 2022⁽²⁾

(%)

Fiscal 2023⁽³⁾

(%)

LTIP

2.45

5.02

7.41

Legacy Option Plan

0.00

0.00

0.00

(1)

Calculated using the basic weighted average number of Common Shares outstanding during the year ended December 31, 2021. Using the fully diluted weighted average number of Common Shares outstanding during the year ended December 31, 2021, the burn rate for the LTIP is 2.45% and for the Legacy Option Plan is 0.0%.

(2)

Calculated using the basic weighted average number of Common Shares outstanding during the year ended December 31, 2022. Using the fully diluted weighted average number of Common Shares outstanding during the year ended December 31, 2022, the burn rate for the LTIP is 5.02% and for the Legacy Option Plan is 0.0%.

(3)

Calculated using the basic weighted average number of Common Shares outstanding during the year ended December 31, 2023. Using the fully diluted weighted average number of Common Shares outstanding during the year ended December 31, 2023, the burn rate for the LTIP is 7.41% and for the Legacy Option Plan is 0.0%.

Name and

Principal Position

Year

Salary

($)

Bonus

($)

Stock

Awards

($)⁽¹⁾

Option

Awards

($)⁽¹⁾

Non-Equity

Incentive Plan

Compensation

($)⁽²⁾

All Other

Compensation

($)⁽³⁾

Total

($)

Jacques Tortoroli

Former Chief Executive Officer

2023

​$259,808

​$-

​$8,141

​$18,928

​$-

​$55,904

​$342,781

​2022

​$399,712

​$-

​$738,600

​$324,090

​$-

​$67,355

​$1,529,757

Jared Stanley

Chief Commercialization Officer

2023

$325,000

$-

$7,560

$17,576

$-

$20,664

$370,800

2022

$325,000

$-

$117,749

$186,975

$-

$17,634

$647,358

Jessica Saxton⁽⁴⁾

Chief Financial Officer

2023

$288,461

$-

$​200,000

$455,357

$-

$45,970

$​989,788

William Morachnick⁽⁴⁾

Chief

Executive Officer

2023

$​117,692

$-

$1,480,000

​$-

$-

$13,259

$1,610,951

(1)

The amounts reported in the Stock Awards and Option Awards columns reflect aggregate grant date fair value computed in accordance with ASC Topic 718, Compensation-Stock Compensation. These amounts reflect the Company's calculation of the value of these awards at the grant date and do not necessarily correspond to the actual value that may ultimately be realized by the named executive officer. Assumptions used in the calculation of the amounts for 2023 non-qualified stock options are as follows: expected volatility - 88.9%-89.5%; expected term - 5.7-6.0 years; risk-free interest rate - 3.4%-3.5%; value of underlying shares - $0.32-$0.56; dividend yield - 0%. Assumptions used in the calculation of the amounts for 2023 restricted stock units are as follows: value of underlying shares at fair market value on the date of grant - $0.29-$0.56. Assumptions used in the calculation of these amounts for 2022 are included in Note 14 to the Company's audited consolidated financial statements for the fiscal year ended December 31, 2022, which were included in the Annual Report on Form 10-K.

(2)

The amounts shown in the Non-Equity Incentive Plan Compensation column represent payouts under the Company's cash bonus program for 2023.

(3)

For 2023, in the case of Mr. Tortoroli, consists of $48,837 in lease payments for housing and vehicle, $500 in employer contributions to his health savings account and $6,567 in employer paid insurance premiums; in the case of Mr. Stanley, consists of $9,750 in employer matching contributions under the Company's 401(k) plan and $10,914 in employer paid insurance premiums; in the case of Ms. Saxton, consists of $28,080 in lease payments for housing and vehicle, $500 in employer contributions to his health savings account, $6,313 in employer paid insurance premiums and $11,077 in employer matching contributions under the Company's 401(k) plan; in the case of Mr. Morachnick, consists of $7,962 in lease payments for housing and vehicle, $2,528 in employer paid insurance premiums and $2,769 in employer matching contributions under the Company's 401(k) plan; For 2022, in the case of Mr. Tortoroli, consists of $60,620 in lease payments for housing and vehicle, $250 in employer contributions to his health savings account and $6,485 in employer paid insurance premiums; and in the case of Mr. Stanley, consists of $9,150 in employer matching contributions under the Company's 401(k) plan and $8,484 in employer paid insurance premiums.

(4)

Mr. Morachnick and Ms. Saxton were not named executive officers prior to the fiscal year ended December 31, 2023.

(11)

Includes 23,624 shares remaining subject to an initial grant of 23,624 RSUs granted on April 1, 2023. These shares vest equally in three annual increments beginning on April 1, 2024. Remaining outstanding shares reflected in this table were subsequently accelerated on February 1, 2024 as approved by the board.

(12)

The option was granted on February 1, 2023 with an exercise price in Canadian dollars, C$0.75. The first tranche of the option vests at 50% on February 1, 2024. The remaining shares vest equally in four quarterly increments beginning on April 1, 2024.

(13)

Includes 178,571 shares remaining subject to an initial grant of 178,571 RSUs granted on February 1, 2023. The first tranche of the award vests at 50% on February 1,2024. The remaining shares vest equally in four quarterly increments beginning on April 1, 2024. Remaining outstanding shares reflected in this table were subsequently accelerated on February 1, 2024 as approved by the board.

(14)

The option was granted on April 1, 2023 with an exercise price in Canadian dollars, C$0.435. The option vests in three annual increments beginning April 1, 2024.

(15)

Includes 312,500 shares remaining subject to an initial grant of 312,500 RSUs granted on April 1, 2023. These shares vest equally in three annual increments beginning on April 1, 2024. Remaining outstanding shares reflected in this table were subsequently accelerated on February 1, 2024 as approved by the board.

Name

Effective date

of Employment

Agreement

Termination Without Cause

Termination After Change of

Control⁽¹⁾

Jacques Tortoroli

December 16, 2021

None.

None under employment agreement. See also treatment of stock options and RSUs described below and description of Severance Plan.

William

Morachnick

September 13, 2023

An amount equal to existing base salary for a period of twelve (12) months; plus, an amount equal to the amount of the target bonus for the year of termination, pro-rated to the date of termination.

An amount equal to existing base salary for a period of twenty-four (24) months; plus, an amount equal to the amount of the target bonus for the year of termination pro-rated to the date of termination.

Jared Stanley

June 2, 2022

Base salary for 9 months.

None under employment agreement. See also treatment of stock options and RSUs described below and description of Severance Plan.

Jessica Saxton

January 1, 2023

None.

None under employment agreement. See also treatment of stock options and RSUs described below and description of Severance Plan.

(1)

Options and awards granted under the Legacy Option Plan and LTIP contain provisions allowing for the exercise, in certain circumstances, of options following termination (other than by reason of death, disability, retirement or for cause). Under the LTIP, in the event that any transaction resulting in a change in control occurs, outstanding awards will terminate upon the effective time of such change in control unless provision is made in connection with the transaction for the continuation or assumption of such awards by, or for the issuance therefor of substitute awards of, the surviving or successor entity or a parent thereof. Subject to the provisions of the LTIP, certain awards that terminate at the effective time of the change of control shall become fully vested and exercisable immediately before such effective time.

Type of Fee

Role

Amount of Fee

Board Retainer

Board Member

$70,000/year

Additional Retainer

Chair

$30,000/year

Committee Retainer

Audit Committee Chair

$20,000/year

Compensation Committee Chair

$10,000/year

Governance and Nominating Committee Chair

$10,000/year

Committee Member

$5,000/year

Restricted Stock Units⁽¹⁾

Board Member

$75,000/year

Chair

$10,000/year

(1)

RSUs granted to the non-employee directors vest 100% on the first anniversary of the date of grant, which occurs annually on the date of the scheduled annual general shareholder meeting (with newly appointed non-employee directors granted RSUs upon their appointment, pro-rated based on the number of days such appointment follows the previous annual general shareholder meeting). The RSUs automatically terminate upon the grantee ceasing to provide services to the Company, if the termination is for any reason other than death or total and permanent disability.

Name

Fees

Earned

or

Paid in

Cash ($)⁽¹⁾

Stock

Awards

($)⁽²⁾

Option

Awards

($)

All Other

Compensation

($)

Total

($)

Jonathan Atwood⁽³⁾

$​-

$​-

$-

$-

$​-

John Held

$120,000

$85,000

$-

$-

$205,000

Thomas Lardieri

$​95,000

$75,000

$-

$-

$170,000

Alicia Morga

$​80,000

$75,000

$-

$-

$155,000

Angela McElwee

$​33,288

$-

$-

$-

$​33,288

Jacques Tortoroli^*(4)

$-

$-

$-

$-

$-

William Morachnick⁽⁴⁾

$-

$-

$-

$-

$-

Susan Vogt

$80,000

$75,000

$-

$-

$155,000

*

Mr. Tortoroli resigned as director effective September 13, 2023.

(1)

Cash fees earned by non-employee directors. Includes director payments earned for the fiscal year ended December 31, 2023. Payments made in 2024 for services rendered in 2023 are also included.

(2)

The amounts reported in the Stock Awards and Option Awards columns reflect restricted stock units granted in respect of 2023. No stock options were granted in respect of 2023. Assumptions used in the calculation of the amounts for 2023 restricted stock units are as follows: value of underlying shares at fair market value on the date of grant - $0.17.

(3)

Mr. Atwood, the director nominee of BAT, is not entitled to compensation or reimbursement for any travel or other expenses incurred in connection with participating on the Board.

(4)

Please see "Executive Compensation - Summary Compensation Table for 2023" above.

Plan Category

Number of Securities to be issued upon exercise of outstanding options, warrants and rights⁽⁵⁾

Weighted average exercise price of outstanding options, warrants and rights⁽⁴⁾

Number of securities remaining available for issuance under equity compensation plans (excluding outstanding securities reflected in Column 1)

Equity compensation plans approved by Shareholders^(1)(2)(3)

​13,405,900

$0.50‎

​1,848,743

(8.7%)

‎

(1.2%)

Equity compensation plans not approved by Shareholders

Nil

Nil

Nil

Total

​13,405,900

$0.50

​1,848,743

(8.7%)

‎

(1.2%)‎

(1)

As at December 31, 2023, securities remained reserved for issuance under the Legacy Option Plan and LTIP.

(2)

The LTIP provides that the total number of Common Shares reserved and available for issuance pursuant to Awards granted ‎under the LTIP shall not exceed the number of Common Shares equal to ten percent (10%) of the total issued ‎and outstanding Common Shares from time to time (assuming the conversion of the outstanding PVS into Common ‎Shares) less any Common Shares that are issuable pursuant to the Legacy Option Plan (previously defined as the "Share Pool"). Without duplication, for the purposes of compliance with certain United States securities laws, the Share Pool shall, unless otherwise determined by the Board or the Administrator (as defined in the LTIP), be considered to be increased annually on the first day of each fiscal year of the Company by a number equal to 10% of the increase during the preceding fiscal year in the number of Common Shares outstanding, as measured from the first to the last date of such fiscal year.

(3)

Percentages based on 154,085,054 Common Shares and nil PVS issued and outstanding as of December 31, 2023.

(4)

The exercise price of certain awards are in Canadian dollars and have been converted to United States dollars as of the applicable grant date.

(5)

On close of the Company's acquisition of Abacus Health Products, Inc., the Company issued replacement stock options ("Replacement Options") that were exercisable to purchase an aggregate of ‎1,437,953 Common Shares (in lieu of shares of Abacus Health Products, Inc.). As of December 31, 2023, there are Replacement Options outstanding exercisable to purchase an aggregate of ‎69,843 Common Shares. The weighted average exercise price of the Replacement Options outstanding as at December 31, 2023 was $3.64.

(a)

is, or at any time since the beginning of the most recently completed financial year of the Company has been, indebted to the Company or any of its subsidiaries; or

(b)

was indebted to another entity, which such indebtedness is, or was at any time during the most recently completed financial year of the Company, the subject of a guarantee, support agreement, letter of credit, or other similar arrangement or understanding provided by the Company or any of its subsidiaries.

1.

Independence

2.

Leadership in Corporate Strategy

3.

Management of Risk

4.

Approach to Corporate Governance

5.

Oversight of Management

6.

Succession Planning

7.

Expectations and Responsibilities of Board Members

(a)

Commitment and Attendance

(b)

Participation in Meetings

(c)

Financial Knowledge

(d)

Other Directorships

(e)

Contact with Management

(f)

Confidentiality

(g)

Preparation for Meetings

8.

Shareholder Communications and Disclosure

9.

Integrity of Corporate Control and Management Information Systems

10.

Legal Requirements

11.

Board Delegation to Committees

12.

Limitation

13.

Assessments

•

At Charlotte's Web, authenticity is central to our identity. We believe our products, practices, and impact must be a true reflection of our core values and purpose. Becoming a Certified B Corporation was a natural step in this journey, solidifying our commitment to using business as a force for good.

•

B Corp certification empowers us to cultivate a business ecosystem that harmonizes social and environmental responsibility with financial success. By being part of this community of like-minded companies, we can quantify and manage our impact, holding ourselves accountable to high standards of transparency and performance.

•

Our B Corp status symbolizes our dedication to building a better world through our business operations. We take pride in being part of an ecosystem that drives positive change, making a tangible difference in communities and the environment. This certification reinforces our role as catalysts for a more sustainable and equitable future.

•

Charlotte's Web is on track to significantly increase our original BIA certification score of 92.8. Charlotte's Web remains as the largest certified CBD B Corp with the highest score among our peers.

•

The B Corp movement has gained significant momentum since our certification date on August 2020, when we became the 3,500th company to certify. Today, there are over 8,545 certified B Corp companies globally.

•

As part of our continuous improvement plan, Charlotte's Web is embracing the new B Corp certification standards as a roadmap for continuous improvement across areas like stakeholder governance, workplace culture, fair wages, diversity/inclusion, human rights, and environmental stewardship. By meeting the robust requirements laid out in each impact area and striving to exceed them where possible, we are reinforcing our commitment to being a force for positive change while driving sustainable progress within our operations and value chain.

•

In accordance with the impending B Corp certification standards, Charlotte's Web is developing a Climate Action plan to strive for continuous improvement across the supply chain and all areas of Environmental Impact.

•

In addition, we are developing a more robust supplier engagement framework to support our environmental objectives and traceability in our supply chain.

•

Supporting our ongoing continuous improvement process is Charlotte's Web's B Team, a cross-functional team reporting to the CEO, COO, and Board of Directors. In 2023, Charlotte's Web appointed Board Members Angela McElwee and Matthew McCarthy. With Angela McElwee's experience leading Gaia Herbs through multiple B Corp recertifications and Matthew McCarthy's tenure guiding Ben & Jerry's, a Certified B Corp, forward-thinking environmental and social initiatives, our two new board members bring valuable expertise in operationalizing and continuously elevating B Corp principles that will help drive our company's improvement journey.

•

Charlotte's Web filed for recertification in July of 2023 and we expect that our new certification score will be published in the second quarter of 2024.

○

Organic certification progress

•

As a recap, in 2022, all Charlotte's Web tinctures that shipped to consumers were certified organic. As of the date of this Report, 14% of Charlotte's Web product portfolio is certified organic.

•

In 2023, we transitioned our legacy sleep, calm, and recovery gummies from conventional to organic, expanding our offering of organic certified products.

•

Taking a Stand and ensuring access to CBD

•

Legislation We Support - One Hemp: Charlotte's Web's support for ONE HEMP reflects our shared values of product safety, industry transparency, responsible regulation and product accessibility - all of which we consider as important to the long-term success and growth of the CBD industry and Charlotte's Web.

•

In 2023, Charlotte's Web announced our founding membership in a historic alliance with ONE HEMP. ONE HEMP is a coalition of leading CBD companies that are advocating for federal legislation and FDA regulation of hemp-derived CBD products as dietary supplements. This aligns with our company's goal of ensuring responsible and transparent regulation of the CBD industry.

•

ONE HEMP is proposing science-backed and safety-minded policy solutions, including an FDA mandate to regulate hemp-derived products through the existing regulatory framework for dietary supplements. This approach addresses the FDA's concerns about product safety and quality while ensuring consumer access to CBD.

•

ONE HEMP's advocacy is supported by leading cannabinoid scientists, such as Dr. Marcel Bonn-Miller and Dr. Rayetta G. Henderson, who have provided data on safe CBD usage limits and the non-intoxicating nature of hemp-derived products. This scientific backing strengthens the credibility of ONE HEMP's policy positions.

•

By joining ONE HEMP, our company can contribute to shaping a brighter, safer future for the CBD industry and the millions of consumers who rely on CBD products for their wellness needs. This aligns with our commitment to providing our customers high-quality, safe, and responsible CBD products.

•

The Coalition represents the interests of approximately 45 million American caregivers, veterans, seniors, and others who rely on the benefits of CBD products for their health and wellness. This aligns with our company's commitment to providing high-quality, accessible CBD products to those who need them.

•

The Coalition is backed by numerous large organizations representing individuals with chronic pain, veterans, professional athletes, and families seeking solutions, The Company interprets this broad support as demonstrating the widespread demand for regulated CBD products.

•

The Coalition's advocacy is driven by personal stories, such as the founder's experience with their daughter's life-changing response to CBD oil. These real-life examples highlight the transformative impact CBD can have, which is consistent with our company's mission to improve the lives of our customers.

•

The Coalition is pushing for the passage of federal legislation, H.R. 1629 and S. 2451, to allow for the regulation of CBD as a dietary supplement, which we feels would provide the consumer confidence, product quality, and safety standards that our company believes are important for the responsible growth of the CBD industry. The Coalition's effort to work constructively with policymakers aligns with our company's approach of engaging in productive dialogue with a goal of achieving meaningful regulatory reform.

1.

State Advocacy: We strive to maintain an active presence in state capitals, working closely with policymakers to educate them on the benefits of CBD and the need for consistent regulations. We provide science-backed data, real-life testimonials, and practical policy solutions to demonstrate the importance of ensuring access to these products.

2.

Legal Action: In states where regulatory actions or legislative efforts threaten to restrict or ban CBD, we are prepared, when we deem it to be appropriate, to pursue legal challenges to protect consumer access. We believe strongly in the rights of individuals to make informed choices about their health and wellness, and we will vigorously defend those rights in court if necessary.

3.

Consumer Outreach: We empower our customers to engage with their elected representatives and make their voices heard. We provide them with the tools and resources to effectively advocate for CBD access in their communities, amplifying the grassroots demand for these products.

4.

Industry Collaboration: We work closely with other responsible CBD companies and industry associations to coordinate our state-level advocacy efforts. By speaking with a unified voice, we can maximize our impact and ensure a cohesive, well-resourced approach to securing access for all.

•

Charlotte's Web pays time off for community service. Employees can take two days (sixteen hours) of paid time off to volunteer individually every year. In addition, we also host a company-wide day of service. Charlotte's Web uses an app called Kyndhub to track volunteer hours as well as charitable giving, gratitude, and acts of kindness done by our employees. In 2023, Charlotte's Web employees donated over 1,341 volunteer hours into our local communities.

•

We raised hourly compensation to reflect a $20-hour minimum wage. Most employees make more than this.

•

Starting January 1, 2023, Charlotte's Web began offering a match of 100% of employee deferrals up to 3% of compensation plus 50% of employee deferrals between 3% -5% of compensation, for a maximum match of 4% of eligible compensation. Employer Safe Harbor Matching is 100% vested immediately.

•

In 2022, Charlotte's Web leadership implemented managerial training for all people leaders In 2023, Charlotte's Web's leadership also implemented a leadership training course for all managers reporting to the Executive Leadership team.

•

We also implemented medical care and travel reimbursement for employees who must travel to another state to seek healthcare treatment if the proper healthcare is unavailable in their state.

•

In addition, we implemented three additional holidays: Martin Luther King, Juneteenth, and a flex holiday of the employee's choosing.

•

Charlotte's Web offers its employee monthly samples of product as part of our wellness initiatives.

•

Healthcare costs across the nation increased throughout 2023. Charlotte's Web picked up the 11% increase in Health/Life/Dental/Vision benefits for employees. Employees experienced no increase.

•

We implemented medical care and travel reimbursement for employees who must travel to another state to seek healthcare treatment if the proper healthcare is unavailable in their state.

○

In 2023, CW's MCAG launched four cross functional subcommittees to ensure engagement and cultivation of a healthy culture. These include:

•

Volunteer Committee - Compassion in Action At Charlotte's Web, we believe that meaningful change starts with active involvement in our local and global communities.

•

Company employees volunteered 1,341 hours in 2023, up from 1,260 hours volunteered in 2022.

•

Veteran's Committee - Team Calvary

•

Key 2023 veteran partnerships include:

○

Grunt Style Foundation

○

Hero Grows - Veterans

○

Irreverent Warriors - Veterans

○

Adaptive Training Foundation - Veterans

•

STEM & Women in Leadership:

•

A cross-functional, roundtable team that generates, develops, and communicates new ideas and outreach programs for Empowering Women & Girls and fosters diversity and Inclusion at CW and within our communities. At Charlotte's Web, we are committed to empowering the next generation of STEM innovators and leaders. That's why we are proud to partner with STEM Generation, an organization dedicated to closing the opportunity gap and changing the face of STEM.

•

Key Partner: STEM Generation

•

Employee Policy Committee

○

Employees with specific interests in policy decisions around employment to propose and draft policies for the organization on behalf of all employees.

•

Allyship - supporting colleagues from historically marginalized communities to advance opportunities, build partnerships, raise awareness, offer mentoring, and advocate on behalf of marginalized coworkers.

•

Equity - policies, processes, and programs that appreciate differences and create a fair, safe, and just working environment for staff.

•

Diversity - age, race, ethnicity, gender identity, sexual orientation, physical or mental ability, neurocognition, and lived experience

•

Inclusion - a culture where everyone feels their perspectives are valued.

•

For 2023, Focus on: Equity and Allyship

○

Equity: is giving everyone what they need to be successful, which is very individual.

○

Allyship: A good ally goes one step further and seeks to understand what equity looks like for those they serve.

○

In 2023, Charlotte's Web donated 89,224 individual products directly to our community and in collaboration with our core partners.

○

In 2023, Charlotte's Web donated $1,295,184 to our community and our partners.

○

Advocacy

•

Angle City Football Club + L.A. LGBTQ Center

•

STEM Generation - focus on kids in Title 1 Schools

•

Women's Bean Project

•

One Hemp

○

Families& Research

•

U.S. Pain Foundation

•

Epilepsy Foundation of Colorado and Wyoming

•

Realm of Caring

○

Veterans and Responders

•

Grunt Style Foundation

•

High Fives Foundation

•

Revital Colorado

•

Irreverent Warriors

•

Hero Grown

○

Environment

•

Garden to Table, Boulder - Focus on Title 1 Schools

○

Waste reduction

•

For 2023, we diverted a total of 38.76 tons of waste from the landfill.

•

Other programs

•

Recycle/Compost/Efficiencies

○

Adaptive Athletes

•

Partnership highlights

•

Realm of Caring - 11 years of support for the Realm of Caring community while furthering cannabinoid research

•

Adaptive Training Foundation - 2023 marks our sixth year of support for this powerful and agile organization.

•

High Fives Foundation - 2023 marks our sixth year of support for professional adaptive athletes

•

Freedom Service Dogs - 2023 marks our fifth year of support for this far reaching

•

QUALITY

•

Our company is dedicated to delivering high quality products to our customers. We have a rigorous research, testing, and product development approach to ensure our products are safe, effective, and meet high quality standards. We work with leading experts in the industry and conduct extensive testing and analysis at every stage of the product development process.

•

Our quality assurance program is designed to ensure that every product we sell meets our strict quality standards. We have a team of dedicated quality assurance professionals who monitor our production process, from sourcing raw materials to packaging and shipping. In addition, we use state-of-the-art testing equipment and techniques to verify our products' purity, potency, and safety. We strive continuously evaluate and improve our processes to meet or exceed industry standards.

•

Our commitment to our customers' health and well-being drives our focus on quality. By delivering high quality products, we can positively impact our customers' lives and contribute to the broader mission of promoting health and wellness.

•

In 2022, Charlotte's Web passed the annual ISO 17025 assessment to maintain accreditation. This accreditation gives our customers assurance that results from our in-house lab can be trusted. In 2023, CW passed the annual ISO 17025 assessment to maintain accreditation. This evaluation included an addition of 3 new methods, (MTH-010 Water Activity, MTH-014 Viscosity, and MTH-019 Olive Oil ID), which further saves the business time and money.

BY ORDER OF THE BOARD OF DIRECTORS OF

CHARLOTTE'S WEB HOLDINGS, INC.

/s/ William Morachnick

William Morachnick

Chief Executive Officer and a Director

Charlotte's Web Holdings, Inc.

1.

Role and Objective

•

nature and scope of the annual audit;

•

management's reporting on internal accounting standards and practices;

•

the review of financial information, accounting systems and procedures;

•

the Company's risk management process in conjunction with the appropriate Board committees;

•

financial reporting and financial statements,

•

to assist the directors of the Company (the "Directors") in meeting their responsibilities in respect of the preparation and disclosure of the financial statements of the Company and related matters;

•

to provide an open avenue of communication among the Company's auditors, financial and senior management and the Board;

•

to ensure the external auditors' independence and review and appraise their performance;

•

to increase the credibility and objectivity of financial reports;

•

to strengthen the role of the outside Directors by facilitating in depth discussions between Directors on the Committee, management and external auditors;

•

to maintain oversight of risk identification, assessment and management programs;

•

to maintain oversight of Company's Code of Conduct certification process and review potential conflicts of interest and Company's disposition of any such conflicts;

•

to maintain oversight of the Company's non-financial information, including ESG and certified B-Corp reporting; and

•

to establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters.

2.

Composition

3.

Meetings and Administrative Matters

(a)

The Committee shall meet at least four times per year and/or as deemed appropriate by the Committee Chair. In addition, the independent directors of the Committee will consider holding regularly scheduled meetings (or holding in camera sessions at regular Board meetings) at which members of management are not in attendance. As part of its job to foster open communication, the Committee will meet at least annually with management (including separate sessions with each of the Chief Executive Officer, the Chief Financial Officer and the General Counsel) and the external auditors in separate sessions, and at such other times as the external auditor and/or the Committee consider appropriate. The Chief Financial Officer of the Company shall attend meetings of the Committee, unless otherwise excused from all or part of any such meeting by the Chair.

(b)

Agendas, with input from management and approved by the Chair, shall be circulated to Committee members and relevant management personnel along with background information on a timely basis prior to the Committee meetings.

(c)

A quorum for meetings of the Committee will be a majority of its members, and the rules for calling, holding, conducting and adjourning meetings of the Committee will be the same as those governing the Board unless otherwise determined by the Committee or the Board.

(d)

The Chair will preside at all meetings of the Committee, unless the Chair is not present, in which case the members of the Committee that are present will designate from among such members the Chair for purposes of the meeting.

(e)

At all meetings of the Committee, every resolution shall be decided by a majority of the votes cast. In case of an equality of votes, the Chair of the meeting shall be entitled to a second or casting vote.

(f)

The minutes of the Committee meetings shall accurately record the decisions reached and shall be distributed to the Committee members with copies to the Board, the Chief Financial Officer or such other officer acting in that capacity, and the external auditor.

(g)

The Committee may invite such officers, directors and employees of the Company and its subsidiaries, if any, as it sees fit from time to time to attend meetings of the Committee and assist in the discussion and consideration of the matters being considered by the Committee.

(h)

The Committee may retain outside advisers and/or obtain independent professional advice to assist in fulfilling its responsibilities at the expense of the Company as solely determined by the Committee without any further approval of the Board.

(i)

Any members of the Committee may be removed or replaced at any time by the Board and will cease to be a member of the Committee as soon as such member ceases to be a Director. The Board may fill vacancies on the Committee by appointment from among its members. If and whenever a vacancy exists on the Committee, the remaining members may exercise all the Committee's powers so long as a quorum remains. Subject to the foregoing, following appointment as a member of the Committee, each member will hold such office until the Committee is reconstituted.

(j)

Any issues arising from these meetings that bear on the relationship between the Board and management should be communicated to the Chairman of the Board by the Committee Chair.

4.

Mandate and Responsibilities

(a)

undertake annually a review of this mandate and make recommendations to the Corporate Governance and Nominating Committee as to proposed changes;

(b)

be responsible for oversight of the Company's internal control systems and procedures, including:

(i)

identifying, monitoring and mitigating business risks; and

(ii)

ensuring compliance with legal, ethical and regulatory requirements;

(c)

review and discuss with management the Company's financial statements and reports and any related management's discussion and analysis ("MD&A"), any annual earnings, interim earnings and related press releases before the Company publicly discloses this information and any reports or other financial information (including quarterly financial reports), which are submitted to any governmental body, or to the public, including any certification, report, opinion, or review rendered by the external auditors; the process should include but not be limited to:

(i)

reviewing changes in accounting principles and policies, or in their application, which may have a material impact on the current or future years' financial statements;

(ii)

reviewing significant accruals, reserves or other estimates such as the ceiling test calculation;

(iii)

reviewing accounting treatment of unusual or non-recurring transactions;

(iv)

ascertaining compliance with covenants under loan agreements;

(v)

reviewing financial reporting relating to asset retirement obligations;

(vi)

reviewing disclosure requirements for commitments and contingencies;

(vii)

reviewing adjustments raised by the external auditors, whether or not included in the financial statements;

(ix)

obtaining explanations of significant variances with comparative reporting periods; and

(x)

determining through inquiry if there are any related party transactions and ensure the nature and extent of such transactions are properly disclosed;

(d)

review the financial reports and related information included in prospectuses, MD&A, information circular-proxy statements and annual information forms and all public disclosure containing audited or unaudited financial information (including, without limitation, annual and interim press releases and any other press releases disclosing earnings or financial results) before release and prior to Board approval, if required. The Committee must be satisfied that adequate procedures are in place for the review of the Company's disclosure of all other financial information and will periodically assess the adequacy of those procedures;

(e)

with respect to the appointment of external auditors by the Board:

(i)

require the external auditors to report directly to the Committee;

(ii)

review annually the qualifications and performance of the external auditors who shall be ultimately accountable to the Board and the Committee as representatives of the shareholders of the Company and consider and decide if the Company should change external auditors;

(iii)

on an annual basis, review and discuss with the external auditors all significant relationships such auditors have with the Corporation to determine the auditors' independence and obtain a formal written statement of external auditors setting forth all relationships between the external auditors and the Company and confirming their independence from the Company as required by the Public Company Accounting Oversight Board ("PCAOB");

(iv)

review and actively engage in a dialogue with the external auditors regarding the matters required to be discussed by the applicable requirements of the PCAOB and the Securities Exchange Commission, including any disclosed relationships or services that may impact the objectivity and independence of the external auditors;

(v)

be directly responsible for overseeing the work of the external auditors engaged for the purpose of issuing an auditors' report or performing other audit, review or attest services for the Company, including the resolution of disagreements between management and the external auditor regarding financial reporting and taking, or recommending that the full Board take, appropriate action to oversee the independence of the external auditor;

(vi)

review management's recommendation for the appointment of external auditors and recommend to the Board appointment of external auditors and the compensation of the external auditors;

(vii)

review the terms of engagement of the external auditors, including the appropriateness and reasonableness of the auditors' fees;

(ix)

take, or recommend that the full Board take, appropriate action to oversee the independence of the external auditors; and

(x)

at each meeting, consult with the external auditors, without the presence of management, about the quality of the Company's accounting principles, internal controls and the completeness and accuracy of the Company's financial reports;

(f)

review and approve the Company's hiring policies regarding partners, employees and former partners and employees of the present and former external auditors of the Company;

(g)

review annually with the external auditors their plan for their audit and, upon completion of the audit, their reports upon the financial reports of the Company and its subsidiaries;

(h)

review and pre-approve all audit and audit-related services and the fees and other compensation related thereto, and any permissible non-audit services, provided by the Company's external auditors and consider the impact on the independence of the auditors; the pre-approval requirement is waived with respect to the provision of non-audit services if:

(i)

the aggregate amount of all such non-audit services provided to the Company constitutes not more than five percent (5%) of the total amount of fees paid by the Company to its external auditors during the fiscal year in which the non-audit services are provided;

(ii)

such services were not recognized by the Company at the time of the engagement to be non-audit services; and

(iii)

such services are promptly brought to the attention of the Committee by the Company and approved prior to the completion of the audit by the Committee or by one or more members of the Committee who are members of the Board to whom authority to grant such approvals has been delegated by the Committee;

(i)

Notwithstanding Section 4(h) the Committee may delegate to one or more independent members the authority to pre-approve non-audit services, provided that the member(s) report to the Committee at the next scheduled meeting such pre-approval and the member(s) comply with such other procedures as may be established by the Committee from time to time;

(j)

review any other matters that the Audit Committee feels are important to its mandate or that the Board chooses to delegate to it;

(k)

with respect to the financial reporting process:

(i)

in consultation with the external auditors, review with management the integrity of the Company's financial reporting process, both internal and external;

(ii)

consider the external auditors' judgments about the quality and appropriateness of the Company's accounting principles as applied in its financial reporting;

(iii)

consider and approve, if appropriate, changes to the Company's auditing and accounting principles and practices as suggested by the external auditors and management;

(iv)

review significant judgments made by management in the preparation of the financial reports and the view of the external auditors as to appropriateness of such judgments;

(v)

following completion of the annual audit, review separately with management and the external auditors any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information;

(vi)

review any significant disagreement among management and the external auditors regarding financial reporting;

(vii)

review with the external auditors and management the extent to which changes and improvements in financial or accounting practices have been implemented; and

(l)

review financial reporting relating to risk exposure and risk management policies and procedures of the Company (i.e., hedging, litigation and insurance);

(m)

establish procedures for:

(i)

the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; and

(ii)

the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

5.

Authority