Past history The company had secured licenses from Health Canada to produce and market medicinal cannabis at its facilities in Cobourg, Ontario. Fairful and Saeed believed Durkacz, with his financial background, would be able to assist FSD in raising sufficient capital to enable it to be listed on the Canadian Securities Exchange which was ultimately done by way of a reverse takeover of Century Financial Corporation Inc.
10. FSD’s capital structure was not unique. It consisted of Class B Shares which permitted one vote per share at shareholders’ meetings and Class A Shares which carried the right to cast 276,000 votes.
11. Fairful, Saeed and Durkacz each held an equal number of Class A Shares. The Class B Shares began trading on the CSE in May 2018 at approximately CAD $25.00 per share.
12. Through the Pakistani diaspora, Bokhari and Saeed had become acquainted in about 2008. A Pakistani immigrant himself, Bokhari was medically trained in Pakistan. Upon his emigration to the USA, Bokhari, rather than practice medicine, founded a medical testing company, Parkway Clinical Laboratories Inc. (“PCL”) in the Philadelphia area.
13. Obviously, through his association with Saeed, Bokhari became interested in FSD. Both Saeed and Durkacz thought that Bokhari, with his
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US connections, could be useful to FSD, particularly in any effort to gain a NASDAQ listing of its Class B Shares. Unquestionably, Bokhari had an extensive political, government and business network.
14. According to Saeed and Durkacz, it was initially thought that Bokhari could become an advisor to FSD. Bokhari, it would seem was interested in a more significant role so that when Fairful stepped down as CEO in the summer of 2018, FSD appointed Bokhari as a director and together with Durkacz, in October 2018, he became Executive Co-Chair of the Board and was appointed interim CEO. According to the evidence of Durkacz, this interim role was to extend until FSD found a permanent CEO.
15. Shortly after joining FSD, Bokhari was granted an option to purchase 45 million Class B Shares under an Option Plan. This was comprised of an option to purchase three million Class B Shares at CAD $0.13 per share in August 2018 which were to vest immediately. Upon receiving a certificate for those options, Bokhari acknowledged receiving a copy of the Option Plan which contained certain terms and conditions.
16. In September 2018, FSD granted Bokhari a further option to purchase up to 40 million Class B Shares at CAD $0.74 per share. As with the August options, these were for a period of four years.
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17. The September 2018 options, unlike the August options, did not vest immediately. Rather, they were to vest (a) upon the listing of FSD on the NASDAQ and (b) upon the arrangement of adequate financing to the satisfaction of the Board in connection with the NASDAQ listing. A 2019 Circular, which Bokhari signed, set out these conditions for the September 2018 options.
18. Under Bokhari’s leadership in the early days FSD, in order to obtain the NASDAQ listing, transitioned from a cannabis company into the pharmaceutical and biotechnology area. In late 2018, a new CEO, Rupert Haynes (“Haynes”) was hired. Unfortunately, there was conflict between Bokhari and this new CEO who was ultimately fired by Bokhari in February 2019.
19. As a result, on the same day the new CEO was terminated, FSD made Bokhari interim CEO and in June 2019 appointed him permanent CEO.
20. Once Bokhari assumed the role of permanent CEO, he re-shaped the Board of Directors such that by early 2020, the Board consisted of Bokhari, Saeed, Durkacz, Gerard Goldberg (a holdover from the CSE listing days), David Urban, James Datin, Robert Ciaruffoli (“Ciaruffoli), Stephen Buyer (“Buyer”) and Larry Kaiser. All but Mr. Goldberg were US
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citizens recruited by Bokhari and all were highly accomplished in their own fields of endeavour.
21. In order to transition from a medical cannabis business, Dr. Edward Brennan (“Brennan”) was recruited to be President of FSD’s new Delaware subsidiary, FSD Biosciences Inc., which operated from Bokahri’s PCL premises in Pennsylvania.
22. Given the new direction FSD was taking, it acquired a biosciences company, Prismic Pharmaceuticals Inc. (“Prismic”), in the summer of 2019. Without question, both Saeed and Durkacz were in agreement with the direction Bokhari was taking the company.
23. Following FSD’s December 2019 listing on the NASDAQ, and obviously in recognition of Bokhari’s achievements, Saeed and Durkacz transferred to him Class A Shares such that by early 2020, they each held 24 of FSD’s 72 Class A Shares, each carrying multiple voting rights.
24. Given its transition to a pharmaceutical and biotechnology business, FSD gave up its cannabis license and announced it would be liquidating its cannabis-related assets, including its facility in Coburg, Ontario. As well, given the emergence of COVID, the company began to design and conduct a Phase 2 clinical trial for the use of one of its compounds to treat the disease.
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25. Without question, 2020 was a busy year for FSD, a year that also included a significant capital raise. It should be noted that the NASDAQ listing came with certain requirements as a result of which FSD developed its Controls Policy including a Delegation Matrix which will be discussed later.
26. In early 2020, the Board’s Compensation Committee began a process to deal with Bokhari’s remuneration. Bokhari, at the time, did not agree it was timely for the Board to be considering a full compensation package for him. Nevertheless, the issue of Bokhari’s compensation re- surfaced in July 2020 and he entered into a written Employment Agreement effective July 29, 2020, an agreement fully supported by the Board of FSD, including Saeed and Durkacz.
27. In particular, the Agreement contained a provision that Bokhari’s cash compensation would be $1.00 annually but that the Board could award non-cash compensation to him from time to time in the form of stock grants and/or options.
28. The Employment Agreement, drafted by Bokhari’s personal lawyer, John Hogan (“Hogan”), stated in one recital the following: “Whereas the Executive has been employed by the Company since February 5, 2019.” Bokhari has taken issue with this recital stating it is
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incorrect and that he should be considered to have been “employed” by FSD since 2018. This will be discussed later in the Award.
29. Coincident with the entering into of the Employment Agreement, the Board of FSD approved an award of CAD $2.5 million worth of Class B Shares to Bokhari as his employment compensation for the year 2020. The Independent Directors had already, as of March 2020, been paid their full annual compensation for 2020 in cash or shares. This was publicly disclosed in May 2020.