UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment
(Amendment No. )
Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐
Check the appropriate box:
☐ | 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 |
HOSTESS BRANDS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
☒ | No fee required. | |||
☐ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
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(2) | Aggregate number of securities to which transaction applies:
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(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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(4) | Proposed maximum aggregate value of transaction:
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☐ | Fee paid previously with preliminary materials. | |||
☐ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
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HOSTESS BRANDS, INC.
7905 Quivira Road
May 19, 2021Lenexa, Kansas 66215
Dear Hostess Stockholders:NOTICE OF CONSENT SOLICITATION
You are cordially invited to attendFOR WARRANT HOLDERS
To the 2021 Annual MeetingRegistered Holders of StockholdersPublic Warrants of Hostess Brands, Inc.:
Attached hereto is a Consent Solicitation Statement which solicits the consent of the Registered Holders (as defined in the Consent Solicitation Statement) of Public Warrants (as defined in the Consent Solicitation Statement) of Hostess Brands, Inc., a Delaware corporation, formerly known as Gores Holdings, Inc. (the “Annual Meeting”“Company”), which will be held online, on June 28, 2021, at 9:00 a.m. local time. Dueto amend the Warrant Agreement, dated as of August 13, 2015, between the Company and Continental Stock Transfer & Trust Company, a New York corporation, as warrant agent (such warrant agent, the “Warrant Agent” and such agreement, the “Warrant Agreement”).
The proposed amendments to the public health impactWarrant Agreement (the “Warrant Amendments”) provide, among other things, that, upon exercise, the Warrant Price (as defined in the Consent Solicitation Statement) shall be payable through a cashless exercise whereby the exercising holder surrenders the Warrants (as defined in the Consent Solicitation Statement) for that number of shares of Class A common stock, par value $0.0001 per share (“Common Stock”), equal to the quotient obtained by dividing (x) the product of (A) the number of shares of Common Stock underlying the Warrants, multiplied by (B+C-D), where (B) is the Valuation Price (as defined in the attached Consent Solicitation Statement), (C) is $0.25 and (D) is the Warrant Price by (y) the Valuation Price. The Warrant Amendments require the approval of Registered Holders (as defined in the Consent Solicitation Statement) of at least 65% of the COVID-19 pandemicoutstanding Public Warrants and to protect the health and well-being of our employees, directors and stockholders, we will hold our Annual Meetingare described in a virtual meeting format only via the Internet. As a result, stockholders will not be able to attend the Annual Meeting in person. Stockholders will be able to listen, vote, and submit questions from any remote location with Internet connectivity. Information on how to participatedetail in the Annual Meeting can be found on page 4Consent Solicitation Statement.
The Board of Directors of the proxy statement.
AtCompany (1) has determined that the Annual Meeting, we will ask you to (1) vote to elect Jerry D. Kaminski, Andrew P. Callahan, Olu Beck, Laurence Bodner, Gretchen R. Crist, Rachel P. Cullen, Hugh G. Dineen, Ioannis Skoufalosproposed Warrant Amendments are in the best interests of the Company and Craig D. Steeneck for terms to expire at our 2022 annual meetingits Registered Holders of stockholders;Public Warrants, (2) vote on a non-binding advisory resolution to approvehas unanimously approved the compensation paid to our named executive officers for 2020 (commonly referred to as “say-on-pay”);proposed Warrant Amendments and (3) ratifyrecommends that the appointmentRegistered Holders of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2021.
We have elected to provide accessPublic Warrants consent to the proxy materials over the Internet, other than to those stockholders who requested a paper copy, under the Securities and Exchange Commission’s “notice and access” rules to reduce the environmental impact and cost of our Annual Meeting. However, if you would prefer to receive paper copies of our proxy materials, please follow the instructions included in the Notice of Internet Availability.
Whether or not you attend the Annual Meeting, it is important that your shares be represented and voted at the meeting. Therefore, we urge you to promptly vote and submit your proxy via the Internet, via your smartphone or tablet, or by mail, in accordance with the instructions included in the Proxy Statement.
On behalf ofproposed Warrant Amendments. Accordingly, the Board of Directors we would likerequests that you sign, date and return the consent included as Annex A to thank you for your continued interestthe Consent Solicitation Statement in the enclosed envelope by July 23, 2021. The date of this Consent Solicitation Statement is July 7, 2021, and investment in Hostess Brands, Inc.
Sincerely,it is being mailed on or about July 9, 2021, to all Registered Holders of the Public Warrants as of the close of business on July 6, 2021.
Andrew P. Callahan
By Order of the Board of Directors, |
Andrew P. Callahan |
President and Chief Executive Officer |
Lenexa, Kansas
July 7, 2021
HOSTESS BRANDS, INC.
NOTICE7905 Quivira Road
Lenexa, Kansas 66215
CONSENT SOLICITATION STATEMENT
FOR THE WARRANT HOLDERS OF
HOSTESS BRANDS, INC.
July 7, 2021 ANNUAL MEETING OF STOCKHOLDERS
By OrderHostess Brands, Inc., a Delaware corporation, formerly known as Gores Holdings, Inc. (the “Company,” ““we,” “our” or “us”), is soliciting consents (the “Consent Solicitation”) from the Registered Holders (as defined below) of the BoardCompany’s public warrants that were issued in connection with its initial public offering pursuant to a prospectus dated August 13, 2015 (the “Public Warrants”), to amend the Warrant Agreement, dated as of Directors,August 13, 2015, between the Company and Continental Stock Transfer & Trust Company, a New York corporation, as warrant agent (such warrant agent, the “Warrant Agent” and such agreement, the “Warrant Agreement”) that governs all of the Public Warrants and the warrants issued by us in a private placement (the “Private Placement Warrants,” and together with the Public Warrants, the “Warrants”) that occurred contemporaneously with our initial public offering. Each Warrant is exercisable for one-half share of the Company’s Class A common stock, par value $0.0001 per share (the “Common Stock”) at an exercise price of $5.75 per half share. The Warrants must be exercised for whole shares of Common Stock. For purposes hereof, “Warrant Price” means $11.50 or the exercise price of two Warrants for one share of Common Stock.
Jolyn J. Sebree
General CounselThe proposed amendments to the Warrant Agreement (the “Warrant Amendments”) provide, among other things, that, upon exercise of any Warrant, the Warrant Price shall be payable through a cashless exercise whereby the exercising holder surrenders the Warrants for that number of shares of Common Stock, equal to the quotient obtained by dividing (x) the product of (A) the number of shares of Common Stock underlying the Warrants, multiplied by (B+C-D), where (B) is the Valuation Price (as defined in “Selected Definitions” below), (C) is $0.25 and Secretary
This(D) is the Warrant Price by (y) the Valuation Price (such formula for determining the number of shares of Common Stock, the “Formula”). Under the Warrant Amendments, the Formula will be used to determine the number of shares of Common Stock issuable in all circumstances involving a cashless exercise, including following the Company’s delivery of a notice of Annual Meetingredemption of the Public Warrants (a “Redemption”) unless the holder of such Public Warrants elects to exercise such Public Warrants for cash, or during a period when the Company has failed to maintain an effective registration statement covering the shares of Common Stock issuable upon exercise of the Warrants (a “Registration Suspension”). The holders of Warrants will only be permitted to pay the Warrant Price in cash, if they so elect in lieu of a cashless exercise, in connection with a Redemption.
The Warrant Amendments require the approval of Registered Holders (as defined below) of at least 65% of the outstanding Public Warrants and proxy statementare described in detail in this Consent Solicitation Statement.
“Registered Holders” shall mean the record holders of the Public Warrants and formthe Private Placement Warrants on the record books of proxy areContinental Stock Transfer & Trust Company, the warrant agent, as applicable.
The date of this Consent Solicitation Statement is July 7, 2021, and it is being distributed and made available to stockholdersmailed on or about July 9, 2021, to all Registered Holders of the Public Warrants as of the close of business on July 6, 2021 (the “Record Date”). Pursuant to Item 13(b) of Schedule 14A, the Company is enclosing a copy of its Annual Report to Stockholders for the fiscal year ended December 31, 2020 (the “Annual Report”), previously mailed to its stockholders beginning on May 19, 2021.2021 in order to provide the information required by Item 13(a) of Schedule 14A. Such Annual Report is hereby incorporated by reference into this Consent Solicitation Statement. Certain sections of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 containing information for such period required by Item 13(a) of Schedule 14A are attached hereto as Annex B and constitute a portion of this Consent Solicitation Statement.
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A copy of the consent to be executed by the Registered Holders of the Public Warrants is annexed to this Consent Solicitation Statement as Annex A. The form of the Warrant Amendments to the Warrant Agreement is included as Exhibit A to this Consent Solicitation Statement.
Our Board of Directors, by action taken on June 21, 2021, approved the Warrant Amendments and has directed that such matters be submitted to our Registered Holders of Public Warrants for approval. Only Registered Holders of the Public Warrants of record as of the Record Date will be entitled to submit a consent. As of the Record Date, there were 52,176,000 Public Warrants outstanding. Consents signed by the Registered Holders of at least 65% of the outstanding Public Warrants are required in order to approve the Warrant Amendments. You may revoke your written consent at any time prior to the time that we have received a sufficient number of consents to approve the Warrant Amendments. A revocation may be in any written form validly signed and dated by you, as long as it clearly states that the consent previously given is no longer effective. The revocation should be sent to us at Hostess Brands, Inc., 7905 Quivira Road, Lenexa, Kansas 66215, Attn: Secretary. We will pay the costs of soliciting these consents. We have engaged BofA Securities, Inc. to assist with the determination of the terms of the Warrant Amendments and communications with holders of Public Warrants for a customary fee. In addition to soliciting consents by mail, our officers, directors and other regular employees, without additional compensation, may solicit consents personally, by facsimile, by e-mail or by other appropriate means. Banks, brokers, fiduciaries and other custodians and nominees who forward written consent soliciting materials to their principals will be reimbursed for their customary and reasonable out-of-pocket expenses. Our executive offices are located at 7905 Quivira Road, Lenexa, Kansas 66215.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | ||||
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Annex A | ||||
Annex B |
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PROXY STATEMENT SUMMARYSELECTED DEFINITIONS
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all information that you should consider,“Trading Day” means any day on which the Nasdaq Capital Market is open for trading.
“Valuation Period” for a Warrant shall be the period of 20 consecutive Trading Days beginning on and you should review allincluding the earlier of (i) the first Trading Day following the date on which notice of exercise of the information contained inWarrant is received by the proxy statement before voting.Warrant Agent, and (ii) the date that is 21 scheduled Trading Days prior to the Expiration Date.
Annual Meeting of Stockholders
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Proposals and Voting Recommendations
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Voting Methods
You can vote in one of four ways:
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Vote VIA YOUR SMARTPHONE OR TABLET
Sign, date and return your proxy card in“Valuation Price” shall equal the prepaid enclosed envelope to vote BY MAIL
Attend the meeting to vote VIA THE INTERNET
To reduce our administrative and postage costs and the environmental impactarithmetic average of the Annual Meeting, we encourage stockholders to vote viaVWAP Prices on each day of the Internet, smartphone or tablet, whichrespective Valuation Period.
“VWAP Price” on any Trading Day means the per share volume-weighted average price as displayed on Bloomberg page “TWNK <EQUITY> AQR” (or its equivalent successor if such page is available 24 hours a day, seven days a week, until 6:00 p.m. Central Time on June 27, 2021. Stockholders may revoke their proxies atnot available) in respect of the times and in the manners described on page 6 of this proxy statement.
If your shares are held in “street name” through a bank, broker or other holder of record, you will receive voting instructionsperiod from the holderscheduled open of record that you must follow for your shares to be voted. If you wish to vote attrading on the meeting, you must obtain a legal proxy fromNasdaq Capital Market until the bank, broker or other holderscheduled close of record that holds your shares.
Information on how to participate in the Annual Meeting can be found on page 4trading of the proxy statement.
The notice of Annual Meeting, proxy statement, 2020 Annual Report and form of proxy are being distributed and madeprimary trading session on such Trading Day (or if such volume-weighted average price is not available, to stockholdersthe market value per ordinary share on or about May 19, 2021. This proxy statement is being filed with the SEC on April 30, 2021 in order to permit the incorporationsuch Trading Day as determined, using a volume-weighted average method, by reference of the proxy statement into the Company’s Annual Report on Form 10-Ka nationally recognized independent investment banking firm retained by us for the year ended December 31, 2020 in accordance with General Instruction G(3) to Form 10-K.
HOSTESS BRANDS, INC.
7905 Quivira Road
Lenexa, Kansas 66215
2021 ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement and the enclosed form of proxy are solicited on behalf of Hostess Brands, Inc. (the “Company”), a Delaware corporation, by our Board of Directors (referred to as “Board” or “Board of Directors”) for use at the 2021 Annual Meeting of Stockholders (referred to as the “Annual Meeting”) and any postponements or adjournments thereof. The Annual Meeting will be held online on June 28, 2021, at 9:00 a.m. local time. Due to the public health impact of the COVID-19 pandemic and to protect the health and well-being of its employees, directors and stockholders, the Company will hold the Annual Meeting in a virtual meeting format only via the Internet site set forth below. Stockholders will not be able to attend the Annual Meeting in person. Stockholders will be able to listen, vote, and submit questions from any remote location with Internet connectivity. Information on how to participate in the Annual Meeting can be found on page 4 of this proxy statement.
Internet Availability of Proxy Materials
In accordance with rules adopted by the Securities and Exchange Commission (referred to as the “SEC”) that allow companies to furnish their proxy materials over the Internet, we are mailing a Notice of Internet Availability of Proxy Materials instead of a paper copy of our proxy statement and our 2020 Annual Report. The Notice of Internet Availability of Proxy Materials contains instructions on how to access those documents and vote over the Internet. The Notice of Internet Availability of Proxy Materials also contains instructions on how to request a paper copy of our proxy materials, including our proxy statement, our 2020 Annual Report, and a form of proxy card. We believe this process will allow us to provide our stockholders the information they need in a more timely manner, while reducing the environmental impact and lowering our costs of printing and delivering the proxy materials.
These proxy solicitation materials are being first sent on or about May 19, 2021 to all stockholders entitled to vote at the meeting.
Stockholders of record at the close of business on April 29, 2021, which we have set as the record date, are entitled to notice of and to vote at the meeting.
On the record date, there were 131,193,663 outstanding shares of our Class A common stock, par value $0.0001 per share, and no outstanding shares of our Class B common stock, par value $0.0001 per share.
The holders of a majority of the issued and outstanding shares of common stock entitled to vote at the meeting, present in person (virtually) or represented by proxy, shall constitute a quorum for the transaction of business at the meeting. Each stockholder voting at the meeting, either in person (virtually) or by proxy, may cast one vote per share of common stock held on all matters to be voted on at the meeting.purpose).
Votes Required for Each ProposalCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Assuming a quorum is present, directors shall be elected by a pluralityThis Consent Solicitation Statement contains “forward-looking statements” within the meaning of Section 27A of the shares present in person (virtually) or represented by proxy at the meeting and entitled to vote on the electionSecurities Act of directors. Therefore, the nine nominees who receive the greatest number of affirmative votes cast shall be elected1933, as directors. We do not have cumulative voting rights for the election of directors.
The advisory vote on the compensation of our named executive officers for 2020 (commonly referred to as a “say-on-pay” proposal) and the proposal to ratify KPMG LLP as the independent registered public accounting firm of our Company for the year ending December 31, 2021 shall be decided by the affirmative vote of a majority of shares present in person (virtually) or represented by proxy at the meeting and entitled to vote thereon.
Although the say-on-pay vote is non-binding, it will provide information to our Talent and Compensation Committee and our Board of Directors regarding investor sentiment about our executive compensation philosophy, policies, and practices, which our Talent and Compensation Committee and our Board of Directors will consider when determining executive compensation for the years to come.
The vote on each matter submitted to stockholders is tabulated separately. A representative of Continental Stock Transfer and Trust Company (“Continental Stock Transfer”) will tabulate the votes.
Our Board’s Recommendation for Each Proposal
Our Board of Directors recommends that you vote your shares:
“FOR” each of the director nominees;
“FOR” the say-on-pay proposal; and
“FOR” the ratification of KPMG LLP as the independent registered public accounting firm of our Company for the year ending December 31, 2021.
You may vote your shares by proxy by doing any one of the following: vote via the Internet at www.cstproxyvote.com; via your smartphone or tablet by following the instructions on the proxy card; or sign, date and return your proxy or voting instruction card in the prepaid enclosed envelope to vote by mail. When a proxy is properly executed and returned, the shares it represents will be voted at the meeting as directed.
If a proxy card is properly executed and returned and no voting specification is indicated, the shares will be voted (1) “for” the election of each of the nominees for director set forth in this proxy statement, (2) “for” the non-binding advisory resolution to approve the compensation paid to our named executive officers for 2020, (3) “for” the proposal to ratify the appointment of KPMG LLP, as the independent registered public accounting firm of our Company for the year ending December 31, 2021, and (4) as the persons specified in the proxy deem advisable in their discretion on such other matters as may come before the meeting. As of the date of this proxy statement, we have received no notice of any such other matters.
If you attend the Annual Meeting, you may vote online during the Annual Meeting even if you have previously voted, and the vote you cast online during the Annual Meeting will supersede any vote previously cast.
Information about Participating in the Annual Meeting Online
Due to the public health impact of the COVID-19 pandemic and to protect the health and well-being of its employees, directors and stockholders, the Company will hold the Annual Meeting in a virtual meeting format
only, and stockholders will not be able to attend the Annual Meeting in person. Stockholders may participate online by logging in at https://www.cstproxy.com/hostessbrands/2021. All stockholders participating online will be in listen-only mode but will have an opportunity to submit questions and vote.
Registered stockholders will receive a Notice of Internet Availability and a proxy card from our transfer agent, Continental Stock Transfer. The Notice of Internet Availability and proxy card provided to registered stockholders will contain a control number that you will need to attend the Annual Meeting. If you do not have your control number, you should contact Continental Stock Transfer at the telephone number or e-mail address below.
For beneficial owners of shares held in “street name” who hold shares through a broker, bank or other nominee, you will need to contact your broker, bank or other nominee to obtain a legal proxy. After obtaining a legal proxy, beneficial owners may contact Continental Stock Transfer to obtain a control number. This is the only way beneficial owners will be able to attend the meeting.
Continental Stock Transfer’s contact information is as follows:
Telephone number: 917-262-2373
Email address: proxy@continentalstock.com
Broker Non-Votes and Abstentions
If you are a beneficial owner of shares held in “street name” and do not provide the broker, bank, or other nominee that holds your shares with specific voting instructions, under the rules of various national and regional securities exchanges, the organization that holds your shares may generally vote on routine matters but cannot vote on non-routine matters. If the broker, bank, or other nominee that holds your shares does not receive instructions from you on how to vote your shares on a non-routine matter, the organization that holds your shares will inform the inspector of election that it does not have the authority to vote on this matter with respect to your shares. This is commonly referred to as a “broker non-vote.”
The election of directors (“Proposal 1”amended (the “Securities Act”) and the say-on-pay proposal (“Proposal 2”) are matters considered non-routine under applicable rules. Therefore, a broker, bank, or other nominee cannot vote without your instructions on Proposals 1 or 2; as a result, there may be broker non-votes on Proposals 1 and 2. For your vote to be counted in the above proposals, you will need to communicate your voting decisions to your broker, bank, or other nominee before the date of the meeting using the voting instruction form provided by your broker, bank, or other nominee.
The ratification of appointment of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2021 (“Proposal 3”) is considered routine under applicable rules. A broker, bank, or other nominee may generally vote on routine matters, and therefore no broker non-votes are expected to exist in connection with Proposal 3.
Each broker non-vote and abstention is counted for determining the presence of a quorum. The election of directors requires a plurality of votes cast. Neither broker non-votes nor abstentions or any withhold votes in the election of directors will have any effect thereon. Abstentions have the same effect as votes “against” the say-on pay proposal because they represent votes present and entitled to vote that are not cast in favor of a proposal. Broker non-votes, however, do not represent votes present and entitled to vote on non-routine matters, and therefore, have no effect on the say-on-pay proposal. With respect to the proposal to ratify the appointment of KPMG LLP as the independent registered public accounting firm of our Company for the year ending December 31, 2021, abstentions have the same effect as votes “against” such proposal because they represent shares present and entitled to vote that are not voted in favor of a proposal.
Any stockholder giving a proxy may revoke the proxy at any time before its use by furnishing to us either a written notice of revocation or a duly executed proxy (via Internet, your smartphone or tablet or mail) bearing a later date, or by attending the meeting online and voting at the meeting. Attendance at the online meeting will not cause your previously granted proxy to be revoked unless you specifically so request.
We have engaged Continental Stock Transfer to be the election inspector. Votes cast by proxy or at the meeting will be tabulated by such election inspector, who will determine whether a quorum is present. The election inspector will treat broker non-votes and abstentions as shares that are present and entitled to vote for purposes of determining the presence of a quorum, and as described in the “Broker Non-Votes and Abstentions” section of this proxy statement for purposes of determining the approval of any matter submitted to stockholders for a vote.
The final voting results from the Annual Meeting will be included in a Current Report on Form 8-K to be filed with the SEC within four business days of the Annual Meeting.
Costs of Solicitation of Proxies
We will bear the cost of this solicitation. In addition, we may reimburse brokerage firms and other persons representing beneficial owners of shares for expenses incurred in forwarding solicitation materials to such beneficial owners. Proxies also may be solicited by certain of our directors and officers, personally or by telephone or e-mail, without additional compensation. We do not expect to engage or pay any compensation to a third-party proxy solicitor.
We have adopted a procedure called “householding,” which has been approved by the SEC. Under this procedure, certain stockholders of record who have the same address and last name, and who do not participate in electronic delivery of proxy materials, will receive only one copy of our Notice of Internet Availability of Proxy Materials, and as applicable, any additional proxy materials that are delivered. A separate proxy card for each stockholder of record will be included in the printed materials. This procedure reduces our printing costs, mailing costs and fees. Upon written request, we will promptly deliver a separate copy of the Notice of Internet Availability of Proxy Materials or, if applicable, the printed proxy materials to any stockholder at a shared address to which a single copy of any of those documents was delivered. To receive a separate copy of the Notice of Internet Availability of Proxy Materials or 2020 Annual Report or, if applicable, the printed proxy materials, please notify us by calling (816) 701-4600 or by sending a written request to our Secretary at 7905 Quivira Road, Lenexa, Kansas 66215. Street name stockholders may contact their brokerage firm, bank, broker-dealer or other similar organization to request information about householding.
Availability of our Filings with the SEC and Additional Information
Through our investor relations website, www.hostessbrands.com under the “Investors” tab, we make available free of charge all of our SEC filings, including our proxy statements, our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K, as well as Form 3, Form 4, and Form 5 reports of our directors, officers, and principal stockholders, together with amendments to these reports filed or furnished pursuant to Sections 13(a), 15(d), or 16Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. These forward-looking statements relate to expectations for our future capital structure following the Warrant Amendments and the likelihood of approval of the Warrant Amendments. Statements that constitute forward-looking statements are generally identified through the inclusion of words such as “believes,” “expects,” “intends,” “estimates,” “projects,” “anticipates,” “will,” “plan,” “may,” “should,” or the Exchange Act. Wesimilar language. Statements addressing our future operating performance and statements addressing events and developments that we expect or anticipate will occur are also provide upon written request, without charge to each stockholder of recordconsidered forward-looking statements. All forward-looking statements included herein are made only as of the record date hereof. Readers of this Consent Solicitation Statement are cautioned not to place undue reliance on any such forward-looking statements. As a copyresult of a number of known and unknown risks and uncertainties, our 2020 Annual Report. Any exhibits listedactual results or performance may be materially different from those expressed or implied by these forward-looking statements. Risks and uncertainties are identified and discussed in the Form 10-K report also will be furnished upon request at the actual expense we incursection of this Consent Solicitation Statement captioned “Risk Factors”. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in furnishing such exhibits. Any such requests should be directedtheir entirety by these risk factors. We undertake no obligation to our Secretary at our executive offices set forth in this proxy statement.
This proxyupdate any forward-looking statement, and our 2020 Annual Report will also be available at: https://www.cstproxy.com/hostessbrands/2021 beginning on May 19, 2021.
Our SEC filings can also be accessed through the SEC’s website, http://www.sec.gov.
The Class A common stock of the Company is listed on the Nasdaq Capital Market (“Nasdaq”), and reports and other information on the Company can be reviewed at the office of Nasdaq.
Our 2020 Annual Report, which will be made available to stockholders with this proxy statement, contains financial and other information about our Company but is not incorporated into this proxy statement and is not to be considered a part of these proxy materials or subject to Regulations 14A or 14C or to the liabilities of Section 18 of the Exchange Act. The information contained in the “Report of the Audit Committee” shall not be deemed “filed” with the SEC or subject to Regulations 14A or 14C or to the liabilities of Section 18 of the Exchange Act.
Hostess Brands, Inc. (f/k/a Gores Holdings, Inc.) was originally incorporated in Delaware on June 1, 2015whether as a special purpose acquisition company and consummated its initial public offering, on August 19, 2015, following which its shares began trading on the Nasdaq.
On November 4, 2016, in a transaction referred to as the “Business Combination,” Gores Holdings, Inc. acquired a controlling interest in Hostess Holdings, L.P. (“Hostess Holdings”), an entity owned indirectly by C. Dean Metropoulos (the “Metropoulos Entities”) and certain equity funds managed by affiliatesresult of Apollo Global Management, LLC (together with the Metropoulos Entities, the “Legacy Hostess Equityholders”).
In connection with the closing of the Business Combination, Gores Holdings, Inc. changed its name to Hostess Brands, Inc. and its trading symbols on Nasdaq from “GRSH” and “GRSHW,” to “TWNK” and “TWNKW.”
As used in this proxy statement, unless the context otherwise requires, references to the “Company,” “we,” “us” and “our” refer to Hostess Brands, Inc. and, where appropriate, its subsidiaries.
At the Company, we care about both WHAT we do and HOW we do it. Throughout 2020, we heard from many of our stockholders, continued to discuss our duties and obligations as a public company extensively with our Board, engaged with outside consultants, reviewed best practices and challenged ourselves to adapt and grow as a responsible, public company. Environmental, social and governance (“ESG”) matters and reporting were clearly identified as a part of this growth path and we, our management team and Board committed to this. We expect to publish our first ESG Corporate Responsibility Report in 2021 (the “ESG Report”).
We continue to be committed to providing a productive, safe, challenging, fun and rewarding work environment. We believe our response to the COVID crisis and its effects reflect our core values. We quickly formed a core team task force that consisted of leaders from across the Company. This task force adopted and communicated 3 key principles for our Company: (1) keeping employees, their families and their communities safe; (2) serving our customers and consumers; and (3) staying nimble and informed. Through everything, we continued to meet the evolving food safety standards that are critical for our long-term stability and growth.
As described further below, we amended the charter of our Nominating and Governance Committee to add oversight of the Company’s ESG practices to its responsibilities.
We hold ourselves and each other accountable to act with integrity and honesty to do the right thing for our customers, stockholders, and employees, in addition to the Company’s obligation and policy to comply with all applicable governmental laws, rules and regulations, as stated in the Company’s Code of Ethics. Our Board of Directors oversees the Company’s culture.
We believe promoting diversity in our workforce fosters a culture of collaboration, inclusion, creativity, and innovation. Globalnew information, future events, in 2020 provided a catalyst for us to enhance the employment experience we provide, and we’ve taken actions such as updating our Diversity, Equity, Inclusion, & Belonging policy and expanding our education and appreciation programs to ensure our culture remains one where all employees are valued and comfortable. We are an equal opportunity employer committed to making employment decisions without regard to age, race, gender, religion, sex, sexual orientation, disability, union affiliation, protected veteran status, or other characteristics protected by law. We respect the right under Section 7 of the National Labor Relations Act to organize and bargain collectively through a union and the right to refrain from those activities.
Our employees are central to our success. Our pay philosophy centers on pay for performance and we strive for gender pay equity. This philosophy provides strong alignment between results and compensation while maintaining market competitiveness enabling our ability to hire and retain a talented and diverse workforce.
Environmental, Health & Safety
We endeavor to be a company of energized people, providing a safe and respectful work environment, quality products, and to be a good corporate citizen committed to protecting our people and our environment. The Company meets periodically with local and state leaders to discuss business planning and ways to become a better community partner.
Employee safety is a top priority and has an impact on the Company’s financial success. Through training and education and employee safety committees, we empower employees to improve and promote a culture of safety. Recent improvements in the way we deliver employee safety training has helped reduce the frequency of workplace injuries.
We are proud members of the local communities in which we operate. We live this by providing a productive, safe, challenging, fun, and rewarding work environment, competitive wages, and philanthropic donations and volunteer opportunities for local organizations when possible. In addition to planned volunteer and employee donation opportunities, we also donate products to local food banks on an annual basis.otherwise.
CORPORATE GOVERNANCESUMMARY TERM SHEET
Our businessThis summary term sheet, together with the section entitled “Frequently Asked Questions” summarizes certain information contained in this Consent Solicitation Statement, but does not contain all of the information that may be important to you. You should read carefully this entire Consent Solicitation Statement and affairs are overseen by our Boardthe attached annex and exhibit, for a more complete understanding of Directors, which currently consists of nine members. Set forth below are the biographies of each of our current directors.Warrant Amendments.
As of the Record Date, there were outstanding 52,176,000 Public Warrants to purchase Class A common stock and 541,658 Private Placement Warrants. Each Warrant entitles its holder to purchase one half of one share of Common Stock at an exercise price of $5.75 per one half share ($11.50 per whole share).
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Name | Age | Director Since | Independent | Primary Occupation | Audit Comm. | Talent & Comp. Comm. | Nom. & Gov. Comm. | |||||||
Jerry D. Kaminski | 64 | 2016 | Yes | EVP & COO of Land O’Lakes Inc. | — | — | — | |||||||
Andrew P. Callahan | 55 | 2018 | No | President and CEO of Hostess Brands, Inc. | — | — | — | |||||||
Olu Beck | 54 | 2021 | Yes | CEO of The Beck Group NJ LLC | — | — | — | |||||||
Laurence Bodner | 58 | 2016 | Yes | CEO of Bulletproof 360, Inc. | X | X (Chair) | — | |||||||
Gretchen R. Crist | 53 | 2018 | Yes | Managing Director, RSR Partners | — | X | X (Chair) | |||||||
Rachel P. Cullen | 62 | 2020 | Yes | Former President and CEO of Ruiz Food Products Inc. | X | — | X | |||||||
Hugh G. Dineen | 52 | 2021 | Yes | Former SVP & CMO of MetLife US and MetLife Global Investment Management | — | — | — | |||||||
Ioannis Skoufalos | 63 | 2020 | Yes | Former Global Product Supply Officer of The Procter & Gamble Co. | — | X | X | |||||||
Craig D. Steeneck | 63 | 2016 | Yes | Former EVP & CFO of Pinnacle Foods Inc. | X (Chair) | — | — |
C. Dean Metropoulos, our former Chairman, served on our BoardIf the Warrant Amendments proposed herein are approved, upon the exercise of Directors during 2020 and resigneda Warrant, the Warrant Price ($11.50) will be payable through a cashless exercise, with a premium of $0.25 added to the Valuation Price of the Warrants for purposes of calculating the number of shares issuable upon exercise thereof, as Chairman effective October 13, 2020 and as a Director effective December 31, 2020.
Our objective is to foster diversity of thought on our Board of Directors. To accomplish that objective, the Nominating and Governance Committee considers ethnic and gender diversity, as well as diversity in perspective, professional experience, education, skill, and other qualitiesset forth in the contextFormula below:
X/B, where:
X = A multiplied by (B plus C minus D)
A = the number of shares of Common Stock underlying the Warrants
B = the Valuation Price
C = $0.25
D = the Warrant Price
The Warrant Amendments require the approval of Registered Holders of at least 65% of the needs of our Board of Directors. Nominees will not be discriminated against on the basis of race, religion, national origin, sex, sexual orientation, disability, or any other basis prohibited by law. The Nominating and Governance Committee evaluates its effectiveness in achieving diversity on the Board of Directors through its annual review of board member composition.outstanding Public Warrants.
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Board StructureQUESTIONS AND ANSWERS ABOUT THE WARRANT AMENDMENTS
Our Third AmendedThe following questions and Restated Certificate of Incorporation providesanswers are intended to respond to frequently asked questions concerning the Warrant Amendments. These questions do not, and are not intended to, address all the questions that each of our directors will serve for one-year terms, expiring at each annual meeting of stockholders.
Our Board of Directors has determined that Ms. Beck, Mr. Bodner, Ms. Crist, Ms. Cullen, Mr. Dineen, Mr. Kaminski, Mr. Skoufalos and Mr. Steeneck each qualify as an “independent director,” as defined in the corporate governance rules of Nasdaq. Mr. Callahan, our President and Chief Executive Officer, is not an “independent director.”
Our leadership structure separates the roles of Chairman of the Board and Chief Executive Officer. During 2020, Mr. Metropoulos served as our Chairman until October 2020 and Mr. Kaminski has served as our Chairman since then. Mr. Callahan has served as our President and Chief Executive Officer since May 2018. Our Board believes that separating these roles provides the appropriate balance between strategy development, flow of information between management and the Board of Directors, and oversight of management. As Chairman, Mr. Kaminski, among other responsibilities, presides over regularly scheduled meetings of the Board, serves as a liaison between the directors, and performs such additional duties as our Board of Directors may otherwise determine and delegate. By having Mr. Kaminski serve as Chairman of the Board, Mr. Callahan is better ablebe important to focus his attention on running our Company.
The Board’s Role in Risk Oversight
Although our management is primarily responsible for managing our risk exposure on a daily basis, our Board of Directors oversees the risk management processes. Our Board determines the appropriate level of risk for our Company, assesses the specific risks that we face, and reviews management’s strategies for adequately mitigating and managing the identified risks. Although our Board administersyou. You should carefully read this risk management oversight function, the Board has delegated to the Audit Committee oversight duties and addressing risks inherent in its areas of responsibility.
Our Board of Directors held 12 meetings and acted through written consent 15 times in 2020. During 2020, each of our directors attended at least 75% of the meetings of our Board of Directors and of the committees on which he or she serves or served (excluding, in the case of non-independent directors, any meetings solely of independent directors). We regularly schedule executive sessions in which independent directors meet without the presence or participation of management and non-independent directors.
We encourage our directors to attend each annual meeting of stockholders. All of our directors on the Board of Directors at the time, attended the 2020 Annual Meeting.
Our Board of Directors has the authority to appoint committees to perform certain oversight and other functions as directed by the Board. Our Board of Directors has an Audit Committee, a Talent and Compensation Committee, and a Nominating and Governance Committee. The composition and responsibilities of each committee are described below. Members will serve on these committees until their resignation or until otherwise determined by the Board of Directors.
Audit Committee
Our Audit Committee provides oversight of our accounting and financial reporting process, the review and/or audit of our financial statements and our internal control function. The Audit Committee also monitors our
overall hedging programs, including interest rate swaps and foreign currency forward contracts. Our Audit Committee has a written charter that sets forth its purpose and responsibilities, which include the following, among others:
appointing, compensating, retaining and overseeing the independent auditor; determining the compensation and oversight of the work of the independent auditor for the purpose of preparing or issuing an audit report or related work;
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;
reviewing the qualifications and performance of the independent auditor and evaluating the independence of the independent auditor;
reviewing and discussing with management and the auditors the annual audit plan and the information which is required to be reported by the independent auditor (including any critical auditing matters and resolution of disagreements between management and the independent auditor regarding financial reporting);
reviewing the adequacy and effectiveness of the Company’s accounting and internal control policies and procedures on a regular basis, including the responsibilities, budget, compensation and staffing of the Company’s internal audit function;
reviewing and discussing with management and the auditors the Company’s accounting and internal control policies;
discussing with management major risk assessment and risk management policies;
reviewing and discussing with management and the independent auditor the annual financial statements, and recommending to the Board whether the financial statements should be included in our Form 10-K and Form 10-Q;
reviewing the type and presentation of information to be included in the Company’s earnings press releases and securities filings,entire Consent Solicitation Statement, as well as financial informationits exhibit and earnings guidance provided by the Company;annex.
discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of our financial statements;
inquiring and discussing with management our compliance with applicable laws and regulations;
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;
reviewing and approving all related-party transactions; and
evaluating its performance and reporting the results to the Board.
While the Audit Committee has the responsibilities above, among others, it is not the duty of the Audit Committee (i) to plan or conduct audits, (ii) to determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles or (iii) to design and implement internal controls and procedures to ensure the Company’s compliance with applicable accounting standards, laws, and regulations. This is the responsibility of management and the independent auditor.
Our Audit Committee has the authority to retain advisors as the committee deems appropriate. Our Audit Committee is currently comprised of Craig D. Steeneck, the chair of the committee, Laurence Bodner and Rachel P. Cullen. All members of our Audit Committee qualify as independent directors according to the rules and regulations of the SEC and Nasdaq with respect to audit committee membership. Each of Mr. Steeneck and Mr. Bodner is an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation
S-K. Mr. Kaminski served as a member of our Audit Committee during fiscal year 2020 but stepped down effective December 31, 2020 to focus on his responsibilities as Board Chairman. Ms. Cullen’s membership on the Audit Committee was effective January 1, 2021.
Our Audit Committee held 10 meetings during 2020.
Talent and Compensation Committee
Our Talent and Compensation Committee adopts, administers and reviews the compensation policies, plans and benefit programs for our executive officers and all other members of our executive team. Our Talent and Compensation Committee has a written charter that sets forth the Talent and Compensation Committee’s purpose and responsibilities, including the following, among others:
reviewing key employee compensation goals, policies, plans and programs;
evaluating the performance of our Chief Executive Officer and other executive officers;
reviewing and approving the compensation of our Chief Executive Officer and other executive officers;
reviewing and approving employment agreements, severance arrangements and other similar arrangements between us and our executive officers;
overseeing talent management and succession planning with respect to our executive officers;
overseeing the Company’s culture;
periodically reviewing with management the Company’s policies and practices with respect to diversity and inclusion;
evaluating director and employee compensation and considering the result of the most recent shareholder advisory vote on executive compensation;
reviewing employee benefit plans and perquisites;
administering our stock ownership guidelines, stock plans and other incentive compensation plans;
preparing the Compensation Committee Report in accordance with the rules and regulations of the SEC;
overseeing our regulatory compliance with respect to compensation matters; and
evaluating its performance and reporting the results to the Board.
Our Talent and Compensation Committee is currently comprised of Laurence Bodner, the chair of the committee, Gretchen R. Crist and Ioannis Skoufalos. Mr. Bodner, Ms. Crist, and Mr. Skoufalos are independent directors according to the rules and regulations of the SEC and Nasdaq with respect to compensation committee membership.
Our Talent and Compensation Committee held 5 meetings and acted through written consent 3 times during 2020.
Our Talent and Compensation Committee has the authority to retain advisors as the committee deems appropriate. The Talent and Compensation Committee has engaged Mercer as its independent compensation consultant to assist the Talent and Compensation Committee with conducting a thorough review of our executive compensation practices, including a review of our historical compensation and related practices, an examination of relevant peer and industry practices and recommendations on how best to structure our performance-based and other compensation practices going forward.
Our Talent and Compensation Committee considered whether any conflicts of interest would arise due to its engagement of Mercer. The committee recognized that we paid Mercer $133,700 for executive compensation consulting services provided during 2020 and paid Mercer and its affiliates in 2020 $493,578 for services rendered to us in their capacities other than relating to executive compensation. The decisions to use Mercer and its affiliates for these other services are made in the ordinary course of our business and are generally recommended by our business department heads with the approval of management. We view these engagements as unrelated to our Talent and Compensation Committee’s engagement of Mercer, and we do not require the Talent and Compensation Committee or our Board to review each use of Mercer or its affiliates for such purposes. The Talent and Compensation Committee also considered that the Mercer consultants providing services to the Talent and Compensation Committee do not benefit economically from the provision of the non-executive compensation services and work in a different office separate from the part of Mercer that provides the other services. The Talent and Compensation Committee reviewed and analyzed Mercer’s services to and compensation from us prior to its engagement and all other factors deemed relevant and required by SEC rules and concluded that the proposed engagement of Mercer by our Talent and Compensation Committee for executive compensation work did not raise a conflict of interest and that Mercer remained independent.
Nominating and Governance Committee
Our Nominating and Governance Committee is responsible for, among other things, making recommendations regarding Board nominations and corporate governance practices, including governance trends and Board meeting topics and meeting cadence. Our Nominating and Governance Committee has a written charter that sets forth the committee’s purpose and responsibilities, which include the following, among others:
developing and annually assessing criteria and qualifications for membership on our Board and its committees;
identifying, recruiting, evaluating and screening individuals qualified to become members of our Board and its committees, consistent with criteria approved by our Board;
evaluating whether an incumbent director should be nominated for re-election to the Board as part of its selection process upon expiration of such director’s term;
selecting, or recommending that the Board select, the director nominees;
recommending to the Board director nominees to fill vacancies on the Board, as necessary;
reviewing, assessing and recommending nominees for membership on, and chairmanship of, the various committees of the Board;
implementing and overseeing compliance with our corporate governance policies;
overseeing our corporate responsibility and ESG matters;
reviewing and recommending to our Board any amendments to our organizational documents, committee charters and corporate governance policies;
developing and overseeing an orientation program for new directors and a continuing education program for current directors, periodically reviewing these programs and updating them as necessary; and
overseeing the evaluation of the Board and management and making appropriate recommendations to improve performance.
Our Nominating and Governance Committee has the authority to retain advisors as the committee deems appropriate. Our Nominating and Governance Committee is currently comprised of Gretchen R. Crist, the chair of the committee, Rachel P. Cullen and Ioannis Skoufalos. Mr. Kaminski served as a member of our Nominating and Governance Committee during fiscal year 2020 but stepped down effective December 31, 2020 to focus on his responsibilities as Board Chairman. Mr. Skoufalos’ membership on the Nominating and Governance Committee was effective January 1, 2021.
Our Nominating and Governance Committee held 8 meetings and acted through written consent once during 2020.
Identifying and Evaluating Director Candidates
Our Nominating and Governance Committee will consider persons recommended by stockholders for inclusion as nominees for election to our Board of Directors. Stockholders wishing to recommend director candidates for consideration by the Nominating and Governance Committee may do so by writing to the Company’s Secretary at 7905 Quivira Road, Lenexa, Kansas 66215, and giving the recommended nominee’s name, biographical data and qualifications, accompanied by the written consent of the recommended nominee.
The evaluation process for director nominees who are recommended by our stockholders is the same as for any other nominee and is based on numerous factors that our Nominating and Governance Committee considers appropriate, some of which may include strength of character, mature judgment, career specialization, relevant technical skills, diversity reflecting ethnic background, gender and professional experience, and the extent to which the nominee would fill a present need on our Board of Directors.
Availability of Corporate Governance Information
Our Board of Directors has adopted charters for our Audit, Talent and Compensation, and Nominating and Governance Committees describing the authority and responsibilities delegated to the committee by our Board of Directors. Our Board of Directors has also adopted a Code of Ethics that applies to all of our employees, including our executive officers, and our directors and those employees responsible for financial reporting. We post on our website, atwww.hostessbrands.comunder the “Investors” tab, the charters of our Audit, Talent and Compensation, and Nominating and Governance Committees and the Code of Ethics referenced above. A copy of the Code of Ethics has been provided to each of our Executive Officers and members of our Board of Directors. We intend to disclose any amendments to our Code of Ethics, or any waivers of its requirements, on our website to the extent required by applicable SEC or Nasdaq rules. The inclusion of our website address in this proxy statement does not include or incorporate by reference the information on or accessible through our website into this proxy statement. These documents are also available in print to any stockholder requesting a copy in writing from our Secretary at 7905 Quivira Road, Lenexa, Kansas 66215.
Communications with our Board of Directors
Stockholders and other interested parties wishing to communicate with our Board of Directors or with an individual member of our Board of Directors may do so by writing to our Board of Directors or to the particular member of our Board of Directors and mailing the correspondence to our Secretary at 7905 Quivira Road, Lenexa, Kansas 66215. Our Board has instructed our Secretary not to forward communications that our Secretary deems unduly hostile, threatening, illegal or otherwise inappropriate (such as surveys, spam, junk mail, unsolicited resumes, service or product inquiries or complaints, solicitations or advertisements). Our Secretary will periodically provide our Board a summary of all communications (other than surveys, spam, etc.) that were not forwarded to the intended recipient(s) and will make those communications available to any director upon request.
PROPOSAL 1: ELECTION OF DIRECTORS
Our Nominating and Governance Committee has recommended, and the Board of Directors has nominated:
Jerry D. Kaminski
Andrew P. Callahan
Olu Beck
Laurence Bodner
Gretchen R. Crist
Rachel P. Cullen
Hugh G. Dineen
Ioannis Skoufalos
Craig D. Steeneck
as nominees for election to our Board of Directors. Each nominee has consented to serve a term, if elected, concluding at the 2022 annual meeting of stockholders. Biographical information about each of our directors is contained in the section above.
The nine nominees receiving the highest number of affirmative “FOR” votes shall be elected as directors. Unless marked to the contrary, proxies received will be voted “FOR” each nominee.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ELECTION OF EACH OF THE ABOVE-NAMED NOMINEES.
Our Board of Directors has approved a compensation policy for our non-management directors. Each of the non-management directors (including Mr. Kaminski, who became our Chairman on October 13, 2020) receives an annual cash retainer of $70,000. Mr. Kaminski receives an additional $90,000 annual cash retainer for his service as Chairman (pro-rated from his appointment date). The non-management directors also receive an annual equity award with a grant date value of $95,000 (which has been increased to $105,000 in 2021) that vests annually at the annual stockholders meeting and reimbursement of expenses relating to attendance at Board and committee meetings. Each member of our Audit Committee receives an annual cash retainer of $10,000 for service on the committee and the chairperson of our Audit Committee receives an additional annual cash retainer of $10,000. Each member of our Talent and Compensation Committee receives an annual cash retainer of $6,500 for service on the committee (which has been increased to $7,500 in 2021) and the chairperson of our Talent and Compensation Committee receives an additional annual cash retainer of $8,500. Each member of our Nominating and Governance Committee receives an annual cash retainer of $4,000 for service on the committee (which has been increased to $7,500 in 2021) and the chairperson of our Nominating and Governance Committee receives an additional annual cash retainer of $6,000. All retainers are paid quarterly.
In May 2019, our Board of Directors made an annual award of 7,084 restricted stock units (“RSUs”) based upon a value of $95,000 divided by the average closing price of our Class A common stock over the 20-trading day period preceding the date of grant, rounded to the nearest share, to each of the non-management directors serving on the Board at that time. Two members of our Board of Directors, Mr. Skoufalos and Ms. Cullen, joined our Board of Directors in 2020 and received pro-rated awards for the period from the date upon which they became Directors until our 2020 annual meeting of stockholders (our “2020 Annual Meeting”). An award of 2,537 RSUs was granted to Mr. Skoufalos in February 2020 and an award of 1,002 RSUs was granted to Ms. Cullen in May 2020. For all of the non-management directors, the shares underlying the RSUs vested at our 2020 Annual Meeting.
In June 2020, our Board of Directors made an annual award of 8,000 RSUs based upon a value of $95,000 divided by the average closing price of our Class A common stock over the 20-trading day period preceding the date of grant, rounded to the nearest share, to each of the non-management directors serving on the Board at that time. These RSUs vest upon the first to occur of (i) the 2021 Annual Meeting, (ii) September 4, 2021, (iii) the death or disability of the director, or (iv) a change of control of the Company, in each case, subject to continued service until such vesting date, and shall be settled upon the director’s termination of Board service or if earlier, a change of control of the Company.
Mr. Callahan did not receive any additional compensation for his service on the Board of Directors. See the section of this proxy statement titled “Executive Compensation” below for a description of the compensation paid to Mr. Callahan.
The following table sets forth a summary of the compensation paid to each person serving as a director of the Company for any part of 2020 for service in 2020, other than Mr. Callahan, whose compensation is disclosed elsewhere in this proxy statement. Mr. Metropoulos served on the Board of Directors during 2020 and until his resignation as Chairman effective October 13, 2020 and as a Director effective December 31, 2020.
Name | Fees Earned or Paid in Cash | Share Awards (1) | Option Awards | All Other Compensation | Total | |||||||||||||||
Jerry D. Kaminski | $ | 106,500 | (2) | $ | 98,000 |
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| - |
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| - |
| $ | 204,500 |
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Laurence Bodner |
| 95,000 |
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| 98,000 |
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| - |
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| - |
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| 193,000 |
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Gretchen R. Crist |
| 86,500 |
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| 98,000 |
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| - |
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| - |
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| 184,500 |
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Rachel P. Cullen |
| 51,163 |
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| 109,543 |
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| 160,706 |
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C. Dean Metropoulos |
| 148,750 | (3) |
| 98,000 |
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| - |
| $ | 187,750 | (4) |
| 434,500 |
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Ioannis Skoufalos |
| 71,434 |
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| 131,920 |
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| - |
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| - |
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| 203,354 |
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Craig D. Steeneck |
| 91,309 |
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| 98,000 |
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| - |
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| - |
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| 189,309 |
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Neil P. DeFeo (5) |
| 6,708 |
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| - |
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| - |
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| - |
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| 6,708 |
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The following table lists all outstanding unvested equity awards held by our current directors as of April 29, 2021, other than unvested equity awards held by Mr. Callahan, whose awards are disclosed elsewhere in this proxy statement.
Name | Date of Grant | Number of Shares of Stock That Have Not Vested (1) | Market Value of Shares of Stock That Have Not Vested (2) | |||||||||
Jerry D. Kaminski | June 4, 2020 | 8,000 | $ | 98,000 | ||||||||
Laurence Bodner | June 4, 2020 | 8,000 | 98,000 | |||||||||
Gretchen R. Crist | June 4, 2020 | 8,000 | 98,000 | |||||||||
Rachel P. Cullen | June 4, 2020 | 8,000 | 98,000 | |||||||||
Ioannis Skoufalos | June 4, 2020 | 8,000 | 98,000 | |||||||||
Craig D. Steeneck | June 4, 2020 | 8,000 | 98,000 |
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Q: | What do I need to do now to register my consent? |
A: | After carefully reading and considering the information contained in this Consent Solicitation Statement, you may consent to the Warrant Amendments set forth herein by signing and dating the enclosed written consent and returning it in the enclosed envelope as soon as possible. |
Q: | What if I do not return the written consent? |
A: | Because the Warrant Amendments require the written consents of the |
Q: | Can I vote against the Proposal? |
A: | Yes, simply not delivering an executed written consent in |
Q: | Can I revoke my consent after I have delivered it? |
A: | You may revoke your written consent at any time prior to the time that we receive a sufficient number of written consents to approve the Warrant Amendments set forth herein. A revocation may be in any |
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Ms. Beck and Mr. Dineen were appointed to our Board on April 20, 2021. The Board granted RSUs to Ms. Beck and Mr. Dineen pro-rated for the period from the date of their appointment through the date of the Annual Meeting and with the same vesting terms as the RSUs noted in the table above.
The following table sets forth information regarding our executive officers as of April 29, 2021:
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Andrew P. Callahan’s biography is set forth under the heading “Our Board” above. Mr. Callahan has served as our President and Chief Executive Officer since May 2018.
Brian T. Purcell. Mr. Purcell has served as our Executive Vice President, Chief Financial Officer since January 2020. He also serves in the same role at the Company’s subsidiaries. From October 2015 through December 2019, Mr. Purcell was Chief Financial Officer of Rawlings Sporting Goods, where he was responsible for all finance, accounting and IT functions. From February 2012 through September 2015, Mr. Purcell was Regional Chief Financial Officer for the Pepsi Beverages Company Division of PepsiCo, where he managed the finance team supporting supply chain and financial planning and analysis, retail sales, foodservice sales and revenue management. From April 2006 through January 2012, Mr. Purcell held Director and Senior Director roles in the finance organization in the Pepsi Beverages Company Division of PepsiCo.
Michael J. Cramer. Mr. Cramer has served as our Executive Vice President, Chief Administrative Officer since the consummation of the Business Combination and has served in the same capacity at the Company’s subsidiaries since April 2013. Mr. Cramer has served as Vice President at CDM Hostess Class C, LLC, Vice President at Hostess CDM Co-Invest, LLC, and Vice President at Fairmont Aviation LLC since April 2013, as a director of Gores Metropoulos, Inc. from January 2019 to December 2020, and as a director of Gores Metropoulos II since January 2021. From June 2010 through November 2014, he served as Senior Vice President and Director of Pabst Brewing Company. From July 2010 through August 2017, he served as Founding Director of the Texas Program in Sports and Media at University of Texas Austin and also was appointed as a Senior Lecturer. He continues to serve as a Senior Fellow.
Andrew W. Jacobs. Mr. Jacobs has served as our Executive Vice President and Chief Customer & Experience Officer (formerly Chief Operating Officer) since December 2017, and serves in the same capacity at Hostess Brands, LLC. He served as our Executive Vice President, Chief Commercial Officer from June 2017 to December 2017. Prior to these roles, he served as our Senior Vice President, Chief Customer Officer from the consummation of the Business Combination through May 2017 and served in the same capacity at Hostess Brands, LLC from September 2014 through May 2017. From February 2014 through September 2014, he served at Hostess Brands, LLC as the Senior Vice President, Strategic Channels. From September 2012 until February 2014, he served as President of Wolfgang Candy Company. From September 2003 through May 2012, he served as Vice President and General Manager (US Customers) for The Hershey Company. Mr. Jacobs has been on the board of directors of Turkey Hill Dairy, an ice cream and beverage company owned by Peak Rock Capital, since July 2019. In 2015, Mr. Jacobs and his brother were found jointly and severally liable by the U.S. District Court of Northern Ohio for a civil violation of Exchange Act Rule 14e-3(a) in connection with a stock purchase made by Mr. Jacobs’ brother in 2009. Mr. Jacobs’ brother was required to disgorge approximately $50,000 in profits related thereto and each were enjoined from future violations of Rule 14e-3.
John L. Kalal. Mr. Kalal has served as our Senior Vice President, Chief Supply Chain Officer (formerly Senior Vice President of Bakery Operations and Supply Chain) since December 2018. He also serves in the same role at Hostess Brands, LLC. From June 2013 to December 2018, he served as Vice President & General Manager, Manufacturing Divisions for G3 Enterprises. From April 2012 through May 2013, he served as Vice President, Protein Operations for Dairy Farmers of America. From July 2003 through December 2011, he served in multiple roles for CSM Bakery Supplies North America including Senior Vice President, Supply Chain from 2008 through 2011.
Darryl P. Riley. Mr. Riley has served as our Senior Vice President of Quality, Food Safety and R&D since December 2016 and serves in the same capacity at Hostess Brands, LLC. From March 2016 through November 2016, Mr. Riley served as President of Total Food Safety Management, a quality and food safety consulting firm. Prior to this position he served as Vice President, R&D, Quality & Innovation at Kraft Foods Company from September 2013 to August 2015. From July 2004 through August 2013, he served as Vice President, Research, Quality & Technology at the Kellogg Company.
Jolyn J. Sebree. Ms. Sebree has served as our Senior Vice President, General Counsel and Secretary since the consummation of the Business Combination and has served in the same capacity at the Company’s subsidiaries since April 2013. From March 2012 to April 2013, she served as Senior Vice President, Acting General Counsel and Corporate Secretary at Old Hostess and related entities. Prior to this role, she served as Vice President and Assistant General Counsel at Old Hostess and related entities from August 2011 to March 2012.
Robert C. Weber. Mr. Weber has served as our Senior Vice President, Chief People Officer (formerly Chief Human Resources Officer) since September 2019. He also serves in the same role at Hostess Brands, LLC. From October 2015 through September 2018, Mr. Weber served as Vice President of Human Resources for Sears Holding Company and from October 2018 through August 2019, he served as its Chief Human Resources Officer. Prior to his roles with Sears Holding Company, Mr. Weber worked for Groupon, Inc. as Senior Human Resources Director for North America from July 2013 through September 2014 and as Head of Global Talent Development from October 2014 through September 2015.
Each of our executive officers serves at the discretion of our Board of Directors and holds office until his or her successor is duly elected and qualified or until his or her earlier resignation or removal. There are no family relationships among any of our directors or executive officers.
Thomas A. Peterson served as our Executive Vice President and Chief Financial Officer until January 6, 2020. He transitioned to the role of Executive Vice President, Strategy and M&A after that and resigned from the Company on March 6, 2020. As a result, he is a Named Executive Officer for 2020 but is not shown in the table above given his resignation.
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis (“CD&A”) describes our compensation strategy, philosophy, policies, programs and practices for our named executive officers (“NEOs”) identified in the table below and the positions they held in 2020. For purposes of this CD&A, the “Committee” refers to the Talent and Compensation Committee of our Board of Directors.
The Company’s efforts are led by our senior executive team, which is comprised of individuals who have significant industry experience and leadership. We believe that our management team’s expertise in managing brands and operating packaged food businesses enables us to position the Company for future growth. On January 6, 2020, Brian Purcell joined us as our Executive Vice President and Chief Financial Officer, and Thomas A. Peterson transitioned from Chief Financial Officer to the newly created role of Executive Vice President, Strategy and M&A, in which he served until his resignation on March 6, 2020.
Our NEOs for 2020 were as follows:
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Selected 2020 Business Highlights
2020 represented a year of major challenges across North America and beyond due to the COVID-19 pandemic. Throughout the pandemic, we have focused on three principles: (1) keeping our employees, their families and the communities in which we operate safe, (2) serving our customers and consumers, and (3) staying nimble and informed. In early 2020, we established a COVID-19 task force to monitor the rapidly evolving situation and recommend risk mitigation actions as deemed necessary. To date, we have experienced minimal disruption to our supply chain or distribution network, including the supply of our ingredients, and packaging or other sourced materials. We are also working closely with all of our contract manufacturers, distributors and other external business partners.
As a food producer, we are an essential business and our production and distribution facilities have continued to operate throughout the pandemic. To protect our employees and ensure continuity of operations, we implemented additional safety and sanitation measures in all of our facilities and have been and continue to monitor our employees’ health and provide additional resources and protocols to enable effective social distancing and adherence to our stringent internal food safety guidelines, industry best practices and CDC and other governmental guidelines.
Despite the challenging year, our discipline and agility enabled us to deliver strong financial results across a range of metrics. In January 2020, we acquired Voortman Cookies Limited, a manufacturer of premium,
branded wafers and cookies, as well as sugar-free products, and we successfully transitioned the distribution of Voortman® products from a direct store delivery model to our direct to warehouse distribution network. This transition created significant cost savings and unlocked opportunities to penetrate the convenience, drug store and dollar channels. We achieved strong market share growth in nearly every channel, with the convenience and dollar store channels hitting record levels. We maintained financial discipline and ended 2020 with a net leverage ratio of 3.9x, while also allowing us flexibility to make future acquisitions.
Executive Summary of 2020 Compensation
The Company’s 2020 short-term incentive plan (“STI Plan”) measures a combination of revenue, adjusted EBITDA, and strategic measures (where funding is contingent upon achievement of a threshold level of adjusted EBITDA). With the strong revenue and adjusted EBITDA growth achieved in 2020, the Company’s results exceeded target performance levels. As such, bonus payments to our NEOs were 120.7% of target. We feel these results acknowledge the strength of the strategic and operational achievements for the year, where end results were at the upper end of market guidance for the year.
In 2020, the Company continued its approach of providing annual equity grants to its NEOs. The 2020 awards (as well as the 2019 awards) emphasized a direct performance focus as well as a need to grow stockholder value. The 2020 awards to the NEOs consisted of an intended equity mix of performance share units (“PSUs”) (40% weighting by intended grant value), non-qualified stock options (“NQSOs”) (30% weighting by intended grant value) and RSUs (30% weighting by intended grant value). The PSUs measure the Company’s 3-year relative total stockholder return (“TSR”) against companies in the S&P 1500 Packaged Foods & Meats sector. This index reflects the industry dynamics in which the Company operates and assesses the ability of the management team to deliver stockholder value at or above market levels in order to earn target or greater payouts. The NQSOs vest ratably on an annual basis over a 3-year period, and the Company’s share price has to appreciate from the grant price for any value to be earned. Finally, the RSUs vest ratably on an annual basis over a 3-year period and are intended to align the NEOs with stockholders and provide an incentive to grow the absolute stock price.
The Company’s overall philosophy is to have a pay for performance culture, and this is reflected in the target pay mix for our NEOs, as well as the structure of our incentive programs. For 2020, over 80% of the CEO’s target pay was at risk and over 60% required performance against explicit financial and stockholder objectives to achieve payouts. Our philosophy is to establish rigorous performance expectations, where exceeding the targeted net revenue and adjusted EBITDA goals, as shown in 2020, will result in above target bonus payouts.
Our pay philosophy has been established to allow us to attract and retain talented senior leaders that can drive business success and create stockholder value. Key aspects of the pay strategy are to:
Target an overall compensation level that is competitive in the market (the long-term intent is generally to pay NEO compensation approximating market median for target pay);
Emphasize pay for performance with clear objectives and strong alignment between results and pay delivered;
For senior executives, provide a significant focus on long-term performance achievement that is aligned with stockholder outcomes; and
Administer all compensation programs in a manner that is consistent and without bias.
The Committee reviews management pay on a total compensation basis with a stronger focus on pay for performance and creation of stockholder value for members of senior management.
Performance-Based Compensation Mix
We have four elements of total compensation:
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If the Warrant Amendments are not approved, the Company intends to use the cash proceeds from the exercise of Warrants to purchase shares of Common Stock.
Q: | When will the Warrant Amendments take effect? |
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The charts below demonstrate our at-risk pay mix. Based on our targeted compensation (including intended target grant date value of equity awards(1) and target annual bonus amounts), 81% of Mr. Callahan’s annual compensation and an average of 67% of the annual compensation for the other NEOs(2) is at risk, with either direct performance hurdles required for delivering payouts or award value fluctuating based on stock price. The charts below also demonstrate the mix of performance-based compensation (PSUs, NQSOs and cash bonuses) and non-performance-based compensation (base salary and RSUs) of Mr. Callahan and our other NEOs for 2020. In 2020, 63% of the CEO’s target compensation is performance-based, as is 53% of target compensation for the other NEOs.
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You should carefully consider the risk factors described below, together with Stockholdersthe other information contained in this Consent Solicitation Statement and the Risk Factors set forth in the Company’s Annual Report on Form 10-K/A and subsequent filings with the Securities and Exchange Commission (the “SEC”), in evaluating the Warrant Amendments. This Consent Solicitation Statement also contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those anticipated in the forward looking statements contained in this Consent Solicitation Statement as a result of specific factors, including the risks described below. Additional risks that are as of yet unknown, or that are currently considered immaterial, could also materially adversely affect the Company’s financial condition, results of operations and prospects.
We maintain ongoing contact with our stockholders. In 2020, we met directly with stockholders holding over 80% of our outstanding shares. Executive compensation was one of many topics discussed. In addition,The Warrant Amendments, if approved, will require the overall program design has been publicly disclosed to ensure that stockholders are awarepayment of the approach being taken to motivateWarrant Price through a net settlement, reducing the shares of Common Stock issuable upon exercise of Warrants and reward our management teamthe potential upside of ownership of such shares.
If we complete the Consent Solicitation and obtain the requisite approval of the Warrant Amendments by Registered Holders of the Public Warrants, the Warrant Price shall be payable through a cashless exercise resulting in delivery of a reduced number of shares in a way that provides strong paynet settlement. As a result, a holder of Warrants will receive a lower number of shares upon exercise. If the trading price of the Common Stock increases after the exercise of Warrants, a holder who exercised Warrants on a cashless basis may receive less value than if the Warrant Price had been paid in cash and performance alignment. In our 2019 say-on-pay vote, approximately 93%the holder received a greater number of our voting stockholders voted to approve our compensation programs. In 2020, the say-on-pay vote approval rate decreased to approximately 60% despite no structural changesshares.
The cashless exercise of Warrants will result in less cash proceeds to the Company’s executive compensation programs, below-target bonus payoutsCompany.
In connection with a cashless exercise of the Warrants, the holder of the Warrants will not pay the Warrant Price in 2019 that aligned with financial results delivered, and no meaningful changes to target award opportunities. Based upon feedback we received in communications with our stockholders, we implemented some changes in our 2021 compensation programs as described below. Going forward, we will continue to engage with stockholders and incorporate feedback as appropriate.
Based on feedback from stockholders, the Committee made select changes to its 2021 equity grant program. Key refinements include:
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Requiring thatcash. As a result, the Company have positive 3-year TSR towill not receive PSUs aboveany cash proceeds from the target level
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Pay Program Design and Practices
exercise of such Warrants. The Committee oversees the design and administration of our compensation program and evaluates it against competitive practices, legal and regulatory developments and corporate governance trends. The Committee has incorporated the following leading governance features into our compensation program:
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2020 Compensation Program Overview
We provide a market-competitive mix of base salary, cash incentives and equity incentives with a pay for performance focus to align compensation with results for our stockholders. We review target total pay relative to market median and determine individual pay based on experience and performance and special circumstances as appropriate. The following table describes our 2020 pay program, including the purpose of each element.
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For 2020 benchmarking, we established a peer group of firms in similar business sectors, notably packaged foods and beverages. The peers are reviewed and selected annually by the Committee based on a number of factors. As a firm with historically strong profit margins relative to others in the sector, we focused on adjusted EBITDA as the primary selection criteria, though we also considered factors such as revenue, assets, and market capitalization as additional considerations in selecting peer firms. Our 2020 peer group is comprisedpayment of the 13 companies listed below. Pinnacle Foods, Inc. was removed from the peer groupWarrant Price through a net settlement would result in 2020 due to its acquisition in 2019. The Boston Beer Company, Cal-Maine Foods, and Calavo Growers were added for 2020 based on industry and financial profile comparability. The pay levels and award practices of these firms were considered as inputs when establishing compensation programs for our NEOs in 2020.
B&G Foods Inc.
The Boston Beer Company, Inc.
Cal-Maine Foods Inc.
Calavo Growers Inc.
Farmer Bros. Co.
Flowers Foods Inc.
The Hain Celestial Group, Inc.
J&J Snack Foods Corp.
John B Sanfilippo & Son, Inc.
Lancaster Colony Corp.
National Beverage Corp.
The Simply Good Foods Company
Tootsie Roll Industries Inc.
For 2021 benchmarking, we did not make any changes to the peer group.
We target market median base salary positioning. However, additional factors such as prior compensation levels, contributions to Company results, specific competitive needs and experience may also be considered in establishing salary levels. For 2020, the Committee made only cost of living and other limited adjustments to executive salaries as reflected in the table below:
NEO | 2020 Base Salary (1) | 2019 Base Salary | % Change | |||||||||
Andrew P. Callahan | $ | 850,000 | $ | 825,000 | 3.0 | % | ||||||
Brian T. Purcell | 402,400 | - | - | |||||||||
Andrew W. Jacobs | 451,000 | 444,338 | 1.5 | % | ||||||||
Jolyn J. Sebree | 378,200 | 369,000 | 2.5 | % | ||||||||
Michael J. Cramer | 372,700 | 367,200 | 1.5 | % | ||||||||
Thomas A. Peterson | 382,500 | 382,500 | - |
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We established the STI Plan with the intent to focus our senior leadership on driving business results that will lead to stockholder value creation. No incentive is payable in the event that threshold adjusted EBITDA performance levels are not achieved. We set goals across three key metrics which we believe support stockholder value growth. Metrics and weighting in the 2020 plan include:
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Upon attainment of threshold Adjusted EBITDA (93%), which was achieved in 2020, we pay based on achievement of each individual metric. Target achievement for all three metrics results in 100% of the target payout. For Net Revenue, performance below 93% of the target achievement level represents 0% funding for that particular metric. At 93% achievement of Net Revenue and/or adjusted EBITDA, bonus payouts are 40% of target for each metric, with gradually increasing payouts for performance between threshold and the 100% target achievement and payout levels. For each percentage point of performance above the targeted achievement by metric, payouts would be 10% above the target level (i.e., maximum payouts on the Adjusted EBITDA and Net Revenue metrics are 200% for 110% of target goal achievement). The maximum potential bonus is 180% of target for maximum achievement on all three metrics as payouts on Strategic Metrics cannot exceed target.
Target bonus opportunities for the NEOs under the STI Plan were set in the first quarter of 2020 by the Committee based on comparisons to market practices and with consideration of factors such as experience, prior opportunity levels, and expected impact to the business. The target levels of performance were determined basedless cash on the Company’s Annual Operating Plan. For 2020,balance sheet than if such Warrants were exercised for cash.
Although the NEOs maintained a consistent target bonus percentage opportunity relative to 2019. We believe that annual bonuses based on performance serve to align the interestscashless exercise of management and stockholders. 2020 Target STI Plan opportunities for our NEOs are detailed below:
Base Salary | STI Target Opportunity | |||||||||||
Name | Title | % of Salary | Value at Target | |||||||||
Andrew P. Callahan | President and Chief Executive Officer | $ | 850,000 | 110% | $ | 935,000 | ||||||
Brian T Purcell | EVP, Chief Financial Officer | 402,400 | 75% | 301,800 | ||||||||
Andrew W. Jacobs | EVP, Chief Customer & Experience Officer | 451,000 | 75% | 338,250 | ||||||||
Jolyn J. Sebree | SVP, General Counsel | 378,200 | 60% | 226,920 | ||||||||
Michael J. Cramer | EVP, Chief Administrative Officer | 372,700 | 50% | 186,350 | ||||||||
Thomas A. Peterson | Former EVP, Chief Financial Officer | 382,500 | 75% | (1) |
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2020 Financial Results and Funding.As set outWarrants will result in the table below, 2020 financial performance resulted in above target payouts to NEOsunderissuance of fewer shares than issuable if the STI Plan. The Company exceeded both its net revenue and adjusted EBITDA targets, resulting in a payout of 120.7% of targetWarrants were exercised for cash, the NEOs.
Determining Awardsformula for Strategic Goal Achievement. In 2020, strategic objectives were established to assess performance of our NEOs invarious categories. The strategic goals assess measurable accomplishments that accelerate achievement of our long-term strategy. In determining individual payouts for the strategic goal achievement for our NEOs, the Committee considered the accomplishments for each individual, as well as the recommendations of the Company’s CEO (for others beside the CEO himself). For the NEOs (other than Mr. Peterson who resigned in March 2020 and was not eligible for a bonus), the strategic goal portion was approved at 100%.
Financial Performance Metric (1) | Weight | Target Results (in millions) | Actual Results (in millions) | % of Metric Achieved by NEOs | Payout Achieved by NEOs | |||||||||||||||
2020 Adjusted Net Revenue | 40 | % | $ | 996.0 | $ | 1,023.4 | 127 | % | 51.0 | % | ||||||||||
2020 Adjusted EBITDA | 40 | % | 237.0 | 240.1 | 124 | % | 49.7 | % | ||||||||||||
2020 Strategic Metrics | 20 | % | N/A | 100 | % | 20.0 | % | |||||||||||||
TOTAL | 100 | % | 120.7 | % |
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We grant equity-based awards to our NEOs and key employees under the Hostess Brands, Inc. 2016 Equity Incentive Plan (“LTI Plan”) to further align the interests of eligible participants with those of our stockholders by providing long-term incentive compensation opportunities tied to the performance of the Company and our Class A common stock. The LTI Plan is intended to advance the interests of the Company and increase stockholder value by attracting, retaining and motivating key personnel through the granting of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and/or other stock-based awards consistent with the terms of the LTI Plan.
2020 LTI Grant Overview: In 2020, we continued with the annual grant approach first adopted in 2019. We made this change in 2019 to align with typical market practices and to provide an ongoing incentive and retention focus for our management team. The primary focus of the grant strategy is PSUs, where 40% of the intended target grant value is in a vehicle that measures the Company’s 3-year relative TSR versus companies in the S&P 1500 Packaged Foods & Meats sector. These PSUs provide a direct focus on exceeding performance of a broader group of relevant competitors than our peer group used for compensation benchmarking purposes. The Committee believes that TSR continues to remain an effective indicator of long-term performance and aligns the interests of our NEOs with our stockholders. The Committee believes that adjusted EBITDA remains an appropriate metric for the STI Plan because of its measurement of short-term performance and its emphasis on discipline in achieving targeted financial results.
2020 PSU Design Overview
(unchanged from 2019)
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The table below sets forth the applicable TSR targets and payout percentages for the 2020 PSU awards.
Minimum TSR | Payout | Target TSR Rank | Payout | Maximum TSR Rank | Payout | |||||||||||||||
35th Percentile |
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0 |
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50th Percentile |
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100 |
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75th Percentile |
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200 |
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A TSR ranking at or below the 35th percentile results in no payout and payouts are interpolated between the performance levels noted in the table above.
2021 PSU Changes
Based on feedback from stockholders, the Committee made the following changes to the 2021 PSU grants to NEOs:
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Requiring that the Company have positive 3-year TSR to receive PSUs above the target level
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RSU and NQSO Grants
In addition to PSUs, our NEOs received grants of NQSOs and RSUs in 2020, with each equal to 30% of the intended target award values. The Committee views NQSOs as performance-based as the Company must
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grow its absolute share price for the NEOs to realize any value from the awards. RSUs provide a performance incentive given that they are able to deliver more value with share price increases (and vice versa), though they vest with time over a 3-year period. Mr. Purcell was an exception to this grant mix in 2020 as he received an additional grant of 17,877 RSUs in conjunction with his hiring as Chief Financial Officer, which is not shown in the table below as it was not part of the core equity grant strategy. Target share awards granted in 2020 to our NEOs and the intended fair value of such awards (assuming performance at target level) are detailed below. Note, these values differ from the Summary Compensation Table, where the disclosed values represent the grant date fair value and probability adjustment (for PSUs) under GAAP. The NEO NQSO grants in 2020 were granted at an exercise price of $13.90 per share.
NEO | PSUs (1) | PSU Intended Value | Options | NQSO Intended Value (2) | RSUs | RSU Intended Value | Total Shares | Total Value | ||||||||||||||||||||||||
Andrew Callahan |
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77,143 |
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1,080,000 |
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141,115 |
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$ |
810,000 |
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57,857 |
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810,000 |
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276,115 |
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2,700,000 |
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Brian Purcell (3) | 21,429 | 300,000 | 39,199 | 225,000 | 16,071 | 225,000 | 76,699 | 750,000 | ||||||||||||||||||||||||
Andrew Jacobs | 31,429 | 440,000 | 57,491 | 330,000 | 23,571 | 330,000 | 112,491 | 1,100,000 | ||||||||||||||||||||||||
Jolyn Sebree | 11,429 | 160,000 | 20,906 | 120,000 | 8,571 | 120,000 | 40,906 | 400,000 | ||||||||||||||||||||||||
Michael Cramer | 8,571 | 120,000 | 15,679 | 90,000 | 6,429 | 90,000 | 30,679 | 300,000 | ||||||||||||||||||||||||
Thomas Peterson (4) | 8,571 | 120,000 | 15,679 | 90,000 | 6,429 | 90,000 | 30,679 | 300,000 |
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The awards described above include “double-trigger” vesting in the event of a change in control of the Company. Therefore, the awards will not vest upon a change in control, unless they are not assumed or substituted by a successor or acquirer. In the event of assumption or substitution, the awards will vest if, within 12 months following the change in control and prior to the applicable vesting date, the NEO’s employment is terminated by the Company and its subsidiaries without cause or the NEO terminates his employment for good reason. In the case of PSUs granted to Mr. Callahan in 2018, the PSUs for which performance criteria were satisfied and the target number of shares issuable through a net settlement provides for each of the remaining performance years would vest, anda premium, which will result in the caseissuance of all PSUs granted in 2019additional shares and 2020,dilution to our existing stockholders.
In order to incentivize holders of Public Warrants to consent to the targetWarrant Amendments, with respect to any Warrants exercised on a cashless basis, the holder shall receive that number of shares subjectof Common Stock equal to the award would vest. In addition, if an NEO’s employment is terminatedquotient obtained by us for any reason other than for cause or bydividing (x) the NEO without good reason (in each case, as described under “Executive Compensation—Severance Arrangements”),product of (A) the PSUs granted to such NEO will vest based on achievement of the performance criteria through the termination date, on a pro-rated basis.
Stock Ownership Guidelines
We adopted stock ownership guidelines (the “Stock Ownership Guidelines”) in 2017 to align the interests of executives with the interests of stockholders and promote our commitment to sound corporate governance. In 2019, we reviewed our ownership guidelines relative to typical market practices and updated the guideline policies to increase the ownership levels for all NEOs by 1x salary.
Determination of Guidelines
The Stock Ownership Guidelines are determined as a multiple of an NEO’s base salary or a non-management director’s annual cash retainer and are then converted to a fixed number of shares. In calculating the applicable number of shares as of a given date,Common Stock underlying the stock price to be used shall beWarrants, multiplied by (B+C-D), where (B) is the average stock price overValuation Price, (C) is $0.25 and (D) is the twenty trading days prior to such date. The individual guidelines as updated in 2019 for each covered person listed below (“Covered Person”) are as follows:
Chief Executive Officer—6x annual base salary;
Other Executive Officers—2x annual base salary; and
Non-Management Directors—5x annual cash retainer fee.
Compliance with Guidelines
Covered Persons are required to achieve their Stock Ownership Guideline within five years of becoming subject toWarrant Price by (y) the Stock Ownership Guidelines or 5 years from amendment that increases the Stock Ownership Guidelines. If a Covered Person’s Stock Ownership Guideline increases because of a change in title or increase in salary, such Covered Person will have the longer of the initial five-year period or, in the case of a change in title, four years and, in the case of an increase in salary, one year, from the date of the change to meet the increased guideline. Once achieved, ownership of the guideline amount must be maintained for as long as the individual is subject to the Stock Ownership Guidelines.
The Committee will review each Covered Person’s compliance (or progress towards compliance) with these Stock Ownership Guidelines annually. In its sole discretion, the Committee may impose such conditions, restrictions or limitations on any Covered Person as it determines to be necessary or appropriate in order to achieve compliance with these Stock Ownership Guidelines.
Prohibition on Hedging/Pledging of Our Securities
To further align their interests with those of our stockholders, our directors, our employees and others acting on our behalf may not engage in short sales of our securities and may not buy or sell puts, calls or other derivative securities or otherwise engage in hedging transactions with respect to our securities. They also may not hold our securities in a margin account or, without the prior written consent of our Board of Directors or the Audit Committee, otherwise pledge our securities as collateral for any loan.
We and the Committee have reviewed our compensation programs and have found that neither we nor the Committee believes that the programs create an incentive to take risks that would be materially adverse to stockholders.
We will recoup all incentive-based compensation (including cash and equity compensation) to the extent required under the Dodd-Frank Act and any rules, regulations and listing standards issued under that act, when effective, or the LTI Plan or any other plan or policy we may adopt.
Retirement and Employee Benefit Plans
NEOs are entitled to the same benefits generally available to all full-time employees, including the 401(k) plan and health care, life insurance and other welfare benefit programs. In designing these benefits, we seek to
provide an overall level of benefits that is competitive with those offered by similar companies in the markets in which we operate. We believe that these employee benefits are necessary to enable us to compete more successfully for qualified executive talent.
Valuation Price. As a general matter, the Committee takes into account the various accounting implications of the compensation vehicles we employ. When determining amounts of long-term incentive grants to NEOs and employees, the Committee examines the accounting cost associated with the grants. Under accounting guidance, grants of NQSOs, RSUs and PSUs result, in an accounting charge for the Company. The accounting charge is equal to the fair value of the instruments being issued determined in accordance with FASB ASC Topic 718. For RSUs, the expense is generally based on the fair value of the underlying stock on the date of grant multiplied byalthough the number of units granted amortized over the vesting period. PSUs that measure relative TSR are valued using a Monte Carlo simulation and the awards are then expensed proportionally over the respective performance period. For stock options, the expense is generally based on the fair valueshares issuable upon cashless exercise of the option on the date of grant multiplied byWarrants will be lower than the number of options granted amortized overshares issuable if the vesting period.
RoleWarrants were exercised for cash, the number of shares issuable in a net settlement will reflect such premium and result in the Committee andissuance of a greater number of shares than would be issuable in the Chief Executive Officer
absence of such premium. The Committee is composed solelyissuance of independent memberssuch additional shares will result in dilution to existing holders of shares of our Board of Directors. The Committee reviews and approves the base salaries, annual incentive bonus programs, long-term incentive compensation and other incentive and executive benefit plans of our NEOs. The Committee, in consultation with its independent compensation consultant, analyzes the reasonableness of our NEOs’ compensation, in part by reviewing compensation data from comparable companies and from relevant other industry sources.
Decisions regarding compensation of the Chief Executive Officer are made solely by the Committee based on its deliberations with input from its independent compensation consultant. Decisions regarding other NEOs are made by the Committee after considering recommendations from the Chief Executive Officer as appropriate, as well as input from the Committee’s independent compensation consultant. Our Chief Executive Officer, and, as appropriate, General Counsel, Chief Administrative Officer, and Chief Human Resources Officer may attend the portion of the Committee’s meetings where the individual performance of each NEO is discussed. Only Committee members may vote on compensation decisions regarding the NEOs.
The Committee meets in executive session at most meetings, with its independent compensation consultant in attendance as appropriate.
Role of Independent Compensation Consultant
The Committee has retained Mercer as its independent compensation consultant to advise on the compensation for our NEOs in 2020. The independent compensation consultant generally advises the Committee on the appropriateness of our compensation philosophy, peer group selection and general executive compensation program design. During 2020, as part of its engagement with the Committee, the independent compensation consultant:
advised on the selection of a peer group of companies for NEO compensation comparison purposes;
provided guidance on industry best practices and emerging trends and developments in NEO compensation;
analyzed peer company proxy and other survey data as appropriate; and
advised on determining the total compensation of each of our NEOs and the material elements of total compensation, including (1) annual base salaries, (2) target cash bonus amounts, and (3) the structure and target amount of long-term incentive awards.
The Committee retained its independent compensation consultant directly, although in carrying out assignments, the consultant also interacted with our management to the extent necessary and appropriate. Based on a review of the SEC’s six factor assessment of compensation consultant independence, the Committee does not believe the independent compensation consultants’ work has raised any conflict of interest. The Committee has the sole authority to select, retain, and terminate the independent compensation consultant.Common Stock.
COMPENSATION COMMITTEE REPORTTHE WARRANT AMENDMENTS
Our TalentBefore signing and Compensation Committee has revieweddating the enclosed written consent attached hereto as Annex A and discussed with management the Compensation Discussion and Analysis included in this proxy statement. Based on such review and discussion, the Committee recommended to our Board of Directors, and our Board of Directors approved, that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for filing with the SEC.
Laurence Bodner, Chairperson
Gretchen R. Crist
Ioannis Skoufalos
The information containedreturning it in the “Compensation Committee Report” is not considered to be “soliciting material,” “filed” or incorporated by reference in any past or future filing byenclosed envelope, you should read carefully this entire Consent Solicitation Statement, including such Annex and the Company under the Exchange Act or the Securities ActForm of 1933 unless and only to the extent that the Company specifically incorporates it by reference.Warrant Amendment attached hereto as Exhibit A.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATIONParties to the Warrant Amendments
In 2020, our TalentHostess Brands, Inc.
Hostess Brands, Inc. is a leading packaged food company focused on developing, manufacturing, selling and Compensation Committee was comprised of Laurence Bodner, Gretchen R. Crist, Neil DeFeo (until his resignation fromdistributing snack products in North America.
The Company’s securities are traded on the board on February 1, 2020)Nasdaq Capital Market under the ticker symbols “TWNK” and Ioannis Skoufalos (beginning February 6, 2020)“TWNKW”. None
The mailing address of the individuals who served on the Talent and Compensation Committee during 2020 or who currently serve on such committee had or have any contractual or other relationships with us exceptCompany’s principal executive office is 7905 Quivira Road, Lenexa, Kansas 66215.
Continental Stock Transfer & Trust Company as directors, nor have any of these individuals ever been an officer or employee of our Company.
None of our executive officers currently serves, or in the past year has served, as a memberWarrant Agent for those Registered Holders of the boardCompany’s Public Warrants and Private Placement Warrants
Continental Stock Transfer & Trust Company, a New York corporation, as warrant agent for those Registered Holders of the 52,176,000 outstanding Public Warrants, determined as of the close of business on July 6, 2021, as well as the 541,658 outstanding Private Placement Warrants.
The Warrant Amendments Proposal
The Warrant Amendments provide, among other things, that, upon exercise, the Warrant Price shall be payable through a cashless exercise whereby the exercising holder surrenders the Warrants for that number of shares of Common Stock, equal to the quotient obtained by dividing (x) the product of (A) the number of shares of Common Stock underlying the Warrants, multiplied by (B+C-D), where (B) is the Valuation Price, (C) is $0.25 and (D) is the Warrant Price by (y) the Valuation Price. Under the Warrant Amendments, the Formula will be used to determine the number of shares of Common Stock issuable in all circumstances involving a cashless exercise, including in connection with a Redemption unless the holder of such Public Warrants elects to exercise such Public Warrants for cash, or compensation committeeduring a Registration Suspension. The holders of any entityWarrants will only be permitted to pay the Warrant Price in cash, if they so elect in lieu of a cashless exercise, in connection with a Redemption.
The Warrant Amendments require the approval by Registered Holders of at least 65% of the outstanding Public Warrants. Registered Holders of the Public Warrants as of the close of business on July 6, 2021, are entitled to consent to the Warrant Amendments pursuant to this Consent Solicitation.
A copy of the consent to be executed by the Registered Holders of the Public Warrants is annexed to this Consent Solicitation Statement as Annex A. The form of the Warrant Amendments to the Warrant Agreement are included as Exhibit A to this Consent Solicitation Statement.
Reason for Approval of the Warrant Amendments
The Warrant Amendments will provide that has one or more executive officers serving on our Board or Talent and Compensation Committee.the Warrant Price shall be payable through a cashless exercise resulting in delivery of a reduced number of shares in a net settlement. As a result, the Company will issue a
lower number of shares upon exercise of Warrants, but will not receive any cash proceeds from such exercises. The following tables provide information regardingreduction in the compensationnumber of our NEOs for 2020, 2019 and 2018.
Name and Principal | Fiscal | Salary (1) | Bonus | Stock | Option | Non-Equity | All Other | Total | ||||||||||||||||||||||||
Andrew P. Callahan President & Chief Executive Officer (7) | 2020 | $871,154 | - | $2,097,129 | $570,105 | $1,128,777 | $11,505 | $4,678,670 | ||||||||||||||||||||||||
2019 | 825,000 | - | 2,267,355 | 800,457 | 598,950 | 38,938 | 4,530,700 | |||||||||||||||||||||||||
2018 | 507,692 | 297,113 | 2,024,346 | 928,539 | - | 31,326 | 3,789,016 | |||||||||||||||||||||||||
Brian T. Purcell EVP & Chief Financial Officer (8) | 2020 | 393,692 | - | 829,380 | 158,364 | 364,348 | 164,707 | 1,910,491 | ||||||||||||||||||||||||
Andrew W. Jacobs EVP & Chief Customer & Experience Officer | 2020 | 465,271 | - | 854,387 | 232,264 | 408,352 | 10,633 | 1,970,907 | ||||||||||||||||||||||||
2019 | 440,317 |
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| 1,091,698 | 385,405 | 253,273 | 10,556 | 2,181,249 | |||||||||||||||||||||||
2018 | 430,721 | - | - | - | - | 10,256 | 440,977 | |||||||||||||||||||||||||
Jolyn J. Sebree SVP, GC & Secretary | 2020 | 388,500 | - | 310,687 | 84,460 | 273,949 | 10,434 | 1,068,030 | ||||||||||||||||||||||||
2019 | 364,846 | - | 335,910 | 118,588 | 168,264 | 10,070 | 997,678 | |||||||||||||||||||||||||
2018 | 346,345 | - | - | - | - | 10,070 | 356,415 | |||||||||||||||||||||||||
Michael J. Cramer EVP, Chief Administrative Officer | 2020 | 384,496 | - | 233,013 | 63,343 | 224,971 | 13,103 | 918,927 | ||||||||||||||||||||||||
2019 | 363,877 |
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| 251,926 | 88,938 | 139,536 | 12,640 | 856,917 | |||||||||||||||||||||||
2018 | 348,177 | - | - | - | - | 12,490 | 360,667 | |||||||||||||||||||||||||
Thomas A. Peterson Former CFO (9) | 2020 | 88,269 | - | 233,013 | 63,343 | - | 4,799 | 389,424 | ||||||||||||||||||||||||
2019 | 379,039 | - | 839,773 | 296,467 | 189,338 | 10,220 | 1,714,837 | |||||||||||||||||||||||||
2018 | 351,923 | - | - | - | - | 10,070 | 361,993 |
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For 2019, reflectsshares issued will reduce the grant date fair value of RSUs awarded to each of our NEOs on January 11, 2019. Also reflects shares underlying PSUs awardeddilution to the NEOs based uponCompany’s existing holders of Common Stock from such exercises, but will also not result in any increase in the Company’s determinationcash balance. The payment of the probable outcomeWarrant Price through a cashless exercise may also encourage holders of Warrants who lack access to sufficient cash to pay the Company’s satisfaction of the performance conditions as of the grant date. The grant date fair value of each RSU or PSU granted during the year was computed in accordance with FASB ASC Topic 718. The valuation assumptions used in determining such amounts are described in “Note 4—Stock-Based Compensation” to our consolidated financial statements included in our Annual Report on Form 10-KWarrant Price for the fiscal year ended
December 31, 2019. The value of such PSUs as ofIf the grant date (January 11, 2019), assumingWarrant Amendments are not approved, the achievement of the performance conditions at the maximum level for the three-year performance period is as follows:
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For 2020, reflects the grant date fair value of RSUs awardedCompany intends to each of our NEOs on January 21, 2020. Also reflects shares underlying PSUs awarded to the NEOs based upon the Company’s determination of the probable outcome of the Company’s satisfaction of the performance conditions as of the grant date. The grant date fair value of each RSU or PSU granted during the year was computed in accordance with FASB ASC Topic 718. The valuation assumptions used in determining such amounts are described in “Note 4—Stock-Based Compensation” to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The value of such PSUs as of the grant date (January 21, 2020), assuming the achievement of the performance conditions at the maximum level for the three-year performance period is as follows:
NEO | Maximum Value | |||
Andrew P. Callahan | $ | 2,144,575 |
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Brian T. Purcell |
| 595,726 |
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Andrew W. Jacobs |
| 873,726 |
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Jolyn J. Sebree |
| 317,726 |
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Michael J. Cramer |
| 238,274 |
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Thomas A. Peterson |
| 238,274 |
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For 2019, reflects the grant date fair value of NQSOs awarded to each of our NEOs on January 11, 2019. The grant date fair value of such NQSOs was computed in accordance with FASB ASC Topic 718. The valuation assumptions used in determining such valuation are described in “Note 4—Stock-Based Compensation” to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
For 2020, reflects the grant date fair value of NQSOs awarded to each of our NEOs on January 21, 2020. The grant date fair value of such NQSOs was computed in accordance with FASB ASC Topic 718. The valuation assumptions used in determining such valuation are described in “Note 4—Stock-Based Compensation” to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
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For 2020, All Other Compensation is comprised of the following (as applicable): relocation benefits, vacation payout, matching contributions under the Company’s 401(k) plan, which is a tax-qualified defined contribution plan, life insurance premiums, cell phone allowance and incentive payments to encourage our NEOs to undergo annual physical examinations. The following table summarizes “All Other Compensation” provided to the NEOs during the year ended December 31, 2020:
Relocation Benefits | Vacation Payout | 401(k) Match | Life Insurance Premiums | Cell Phone Allowance |
Physical | Total | ||||||||||||||||||||||
Andrew P. Callahan | $ | - |
| $ | - |
| $ | 8,550 |
| $ | 1,875 |
| $ | 1,080 |
| $ | - |
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| $11,505 |
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Brian T. Purcell |
| 154,599 |
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| - |
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| 8,530 |
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| 557 |
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| 1,020 |
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| - |
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| 164,707 |
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Andrew W. Jacobs |
| - |
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| - |
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| 8,550 |
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| 1,003 |
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| 1,080 |
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| - |
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| 10,633 |
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Jolyn J. Sebree |
| - |
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| - |
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| 8,550 |
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| 654 |
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| 1,080 |
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| 150 |
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| 10,434 |
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Michael J. Cramer |
| - |
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| - |
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| 8,550 |
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| 3,323 |
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| 1,080 |
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| 150 |
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| 13,103 |
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Thomas A. Peterson |
| - |
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| 4,413 |
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| - |
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| 145 |
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| 240 |
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| - |
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| 4,799 |
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The following table provides information regardinguse the cash bonus opportunity for each NEO underproceeds from the 2020 STI Plan and equity grants under the LTI Plan made to any NEO during 2020 and does not reflect amounts actually paid.
Grantsexercise of Plan-Based Awards
Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | |||||||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Thres- hold ($) | Target ($) | Maximum ($) | Thres- hold (#) | Target (#) | Maximum (#) | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/sh) | Grant Date Fair Value of Stock and Option Awards ($) | |||||||||||||||||||||||||||||||||
Andrew P. Callahan | 2/12/2020 | 374,000 | 935,000 | 1,683,000 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
1/21/2020 | (2) | — | — | — | 0 | 77,143 | 154,286 | — | — | — | 1,292,917 | |||||||||||||||||||||||||||||||||
1/21/2020 | (3) | — | — | — | — | — | — | 57,857 | — | — | 804,212 | |||||||||||||||||||||||||||||||||
1/21/2020 | (4) | — | — | — | — | — | — | — | 141,115 | 13.90 | 570,105 | |||||||||||||||||||||||||||||||||
Brian Purcell | 2/12/2020 | 120,720 | 301,800 | 543,240 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
1/21/2020 | (2) | — | — | — | 0 | 21,429 | 42,858 | — | — | — | 359,150 | |||||||||||||||||||||||||||||||||
1/21/2020 | (3) | — | — | — | — | — | — | 26,785 | (5) | — | — | 372,312 | ||||||||||||||||||||||||||||||||
1/29/2020 | (6) | 7,163 | 97,918 | |||||||||||||||||||||||||||||||||||||||||
1/21/2020 | (4) | — | — | — | — | — | — | — | 39,199 | 13.90 | 158,364 | |||||||||||||||||||||||||||||||||
Andrew W. Jacobs | 2/12/2020 | 135,300 | 338,250 | 608,850 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
1/21/2020 | (2) | — | — | — | 0 | 31,429 | 62,858 | — | — | — | 526,750 | |||||||||||||||||||||||||||||||||
1/21/2020 | (3) | — | — | — | — | — | — | 23,571 | — | — | 327,637 | |||||||||||||||||||||||||||||||||
1/21/2020 | (4) | — | — | — | — | — | — | — | 57,491 | 13.90 | 232,264 | |||||||||||||||||||||||||||||||||
Jolyn J. Sebree | 2/12/2020 | 90,768 | 226,920 | 408,456 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
1/21/2020 | (2) | — | — | — | 0 | 11,429 | 22,858 | — | — | — | 191,550 | |||||||||||||||||||||||||||||||||
1/21/2020 | (3) | — | — | — | — | — | — | 8,571 | — | — | 119,137 | |||||||||||||||||||||||||||||||||
1/21/2020 | (4) | — | — | — | — | — | — | — | 20,906 | 13.90 | 84,460 | |||||||||||||||||||||||||||||||||
Michael J. Cramer | 2/12/2020 | 74,540 | 186,350 | 335,430 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
1/21/2020 | (2) | — | — | — | 0 | 8,571 | 17,142 | — | — | — | 143,650 | |||||||||||||||||||||||||||||||||
1/21/2020 | (3) | — | — | — | — | — | — | 6,429 | — | — | 89,363 | |||||||||||||||||||||||||||||||||
1/21/2020 | (4) | — | — | — | — | — | — | — | 15,679 | 13.90 | 63,343 | |||||||||||||||||||||||||||||||||
Thomas A. Peterson | 2/12/2020 | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
1/21/2020 | (2) | — | — | — | 8,571 | 17,142 | 143,650 | |||||||||||||||||||||||||||||||||||||
1/21/2020 | (3) | — | — | — | — | — | — | 6,429 | 89,363 | |||||||||||||||||||||||||||||||||||
1/21/2020 | (4) | — | — | — | — | — | — | 15,679 | 13.90 | 63,343 |
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The following table excludes shares of Class A common stock and optionsWarrants to purchase shares of Class A common stock held by Mr. Peterson, who was no longer an employeeCommon Stock.
Effect of the Company at fiscal year end. All of his unvested equity awards were forfeited in connection withWarrant Amendments
If we complete the termination of his employment.
Outstanding Equity Awards at Fiscal Year-End
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Number of Securities Underlying Options Exercisable | Number of Securities Underlying Options Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested (1) | 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 (1) | ||||||||||||||||||||||||||||
Andrew P. Callahan | 103,904 | 103,904 (2) | - | 13.99 | 07/31/2028 | - | - | - | - | |||||||||||||||||||||||||||
72,901 | 145,803 (3) | - | 11.35 | 01/10/2029 | - | - | - | - | ||||||||||||||||||||||||||||
- | 141,115 (4) | - | 13.90 | 01/20/2030 | - | - | - | - | ||||||||||||||||||||||||||||
22,124 (5) | 323,895 | |||||||||||||||||||||||||||||||||||
- | - | - | - | �� | - | 49,136 (6) | 719,351 | - | - | |||||||||||||||||||||||||||
- | - | - | - | - | 57,857 (7) | 847,026 | - | - | ||||||||||||||||||||||||||||
- | - | - | - | - | - | - | 16,593 (8) | 242,922(8) | ||||||||||||||||||||||||||||
- | - | - | - | - | - | (9) | (9) | |||||||||||||||||||||||||||||
(10) | (10) | |||||||||||||||||||||||||||||||||||
Brian T. Purcell | - | 39,199 (4) | - | 13.90 | 01/20/2030 | - | - | - | - | |||||||||||||||||||||||||||
- | - | - | - | - | 26,785 (7) | 392,132 | - | - | ||||||||||||||||||||||||||||
- | - | - | - | - | 7,163 (11) | 104,866 | - | - | ||||||||||||||||||||||||||||
- | - | - | - | - | - | - | (10) | (10) | ||||||||||||||||||||||||||||
Andrew W. Jacobs | 78,749 | - | 15.78 | 3/22/2027 | ||||||||||||||||||||||||||||||||
15,000 | 5,000 (12) | - | 13.95 | 12/06/2027 | - | - | - | - | ||||||||||||||||||||||||||||
90,000 | 30,000 (13) | - | 16.38 | 06/04/2027 | - | - | - | - | ||||||||||||||||||||||||||||
35,100 | 70,202 (3) | - | 11.35 | 01/10/2029 | - | - | - | - | ||||||||||||||||||||||||||||
- | 57,491 (4) | - | 13.90 | 01/20/2030 | - | - | - | - | ||||||||||||||||||||||||||||
- | - | - | - | - | 23,658 (6) | 346,353 | - | - | ||||||||||||||||||||||||||||
- | - | - | - | - | 23,571 (7) | 345,079 | - | - | ||||||||||||||||||||||||||||
- | - | - | - | - | - | (9) | (9) | |||||||||||||||||||||||||||||
(10) | (10) | |||||||||||||||||||||||||||||||||||
Jolyn J. Sebree | 30,623 | - | - | 15.78 | 3/22/2027 | |||||||||||||||||||||||||||||||
10,800 | 21,601 (3) | - | 11.35 | 01/10/2029 | - | - | - | - | ||||||||||||||||||||||||||||
- | 20,906 (4) | - | 13.90 | 01/20/2030 | - | - | - | - | ||||||||||||||||||||||||||||
- | - | - | - | - | 7,280 (6) | 106,579 | - | - | ||||||||||||||||||||||||||||
- | - | - | - | - | 8,571 (7) | 125,479 | - | - | ||||||||||||||||||||||||||||
- | - | - | - | - | - | (9) | (9) | |||||||||||||||||||||||||||||
(10) | (10) | |||||||||||||||||||||||||||||||||||
Michael J. Cramer | 48,121 | - | - | 15.78 | 3/22/2027 | |||||||||||||||||||||||||||||||
8,100 | 16,200 (3) | - | 11.35 | 01/10/2029 | - | - | - | - | ||||||||||||||||||||||||||||
- | 15,679 (4) | 13.90 | 01/20/2030 | - | - | - | - | |||||||||||||||||||||||||||||
- | - | - | - | - | 5,460 (6) | 79,934 | - | - | ||||||||||||||||||||||||||||
- | - | - | - | - | 6,429 (7) | 94,121 | - | - | ||||||||||||||||||||||||||||
- | - | - | - | - | - | (9) | (9) | |||||||||||||||||||||||||||||
(10) | (10) |
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Option ExercisesConsent Solicitation and Stock Vested
During 2020,obtain the NEOs had option exercises and stock vestings as set forth in the table below.
Name | Option Awards | Stock Awards | ||||||||||||||||||
Number of Shares Acquired on Exercise | Value realized on Exercise | Number of Shares Acquired on Vesting | Value Realized on Vesting | |||||||||||||||||
Andrew P. Callahan (1) (2) | 0 | $ | 0 | 46,691 | $ | 596,593 | ||||||||||||||
Brian T. Purcell | 0 | 0 | 0 | 0 | ||||||||||||||||
Andrew W. Jacobs (2) (3) | 0 | 0 | 13,496 | 189,700 | ||||||||||||||||
Jolyn J. Sebree (2) | 0 | 0 | 3,639 | 51,274 | ||||||||||||||||
Michael J. Cramer (2) | 0 | 0 | 2,729 | 38,452 | ||||||||||||||||
Thomas A. Peterson (2) (4) | 27,000 | 17,521 | 9,099 | 128,205 |
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SEC rules require us to disclose the total annual compensation of our principal executive officer for 2020, the medianrequisite approval of the total annual compensation of all employees other than our principal executive officer, as well as their ratio to each other (the “CEO Pay Ratio”). Total annual compensation for our principal executive officer, Andrew P. Callahan, and for the medianWarrant Amendments by Registered Holders of the total annual compensationPublic Warrants, the Warrant Price shall be payable through a cashless exercise resulting in delivery of all employeesa reduced number of shares in a net settlement. As a result, a holder of Warrants will receive a lower number of shares upon exercise. If the trading price of the Common Stock increases after the exercise of Warrants, a holder who exercised Warrants on a cashless basis may receive less value than if the Warrant Price had been paid in cash and the holder received a greater number of shares.
If the Warrant Price is calculatedpaid on a cashless basis, the holder of the Warrants will not pay the Warrant Price in accordance with SEC rules applicable tocash. As a result, the Summary Compensation Table. For 2020, these amounts were as follows:
Our principal executive officer’s total annual compensation: $4,687,137.
Our median compensated employee’s total annual compensation: $46,697.
CEO Pay Ratio: 100.4 to 1.
In determining the median compensated employee, we chose December 31, 2020 as the determination date. As of this date, we had 2,592 employees, excluding Mr. Callahan and one individual who was hired as of such date but who had not yet commenced employment and didCompany would not receive any compensationcash proceeds from the exercise of such Warrants. The settlement of Warrants on a cashless basis would result in 2020. We annualized compensationless cash on the Company’s balance sheet than if such Warrants were exercised for cash.
Recommendation to Registered Holders of employees who were not employed with us for the full year. In determining our median compensated employee and calculating the CEO Pay Ratio, we did not use anyPublic Warrants
The board of directors of the exemptions permitted under SEC rules, nor did we rely upon any material assumptions, adjustments or estimates.
The Company believes that the CEO Pay Ratio set forth above is a reasonable estimate for 2020, determined in a manner consistent with SEC rules. The SEC rules for identifying the median compensated employee and calculating the CEO Pay Ratio based on that employee’s total annual compensation permit companies to adopt a variety of methodologies, to apply certain exemptions and to make certain assumptions, adjustments or estimates that reflect their compensation policies. Accordingly, the CEO Pay Ratio may not be comparable to the pay ratios reported by other companies, which may have used different methodologies, assumptions, adjustments or estimates in calculating their pay ratios.
We have entered into an employment agreement with Mr. Callahan. The following description is a summary only.
Andrew P. Callahan
On April 12, 2018, we entered into an employment agreement with Mr. Callahan to serve as our President and Chief Executive Officer, beginning on May 7, 2018 (the “Employment Date”), which was amended as of August 1, 2018 (as amended, the “Callahan Employment Agreement”). The Callahan Employment Agreement has a term beginning on the Employment Date and continuing for three years. The term will automatically renew for consecutive one-year periods, unless Mr. Callahan’s employment is otherwise earlier terminated or the Company or Mr. Callahan provides notice of non-renewal at least 90 days prior to the applicable expiration date. We will pay Mr. Callahan an annual base salary of not less than $825,000. In addition, Mr. Callahan will be eligible for annual cash bonuses, with an annual target bonus of 110% of his base salary. For any year after 2018, if Mr. Callahan is terminated without cause, resigns for good reason or experiences a change in control termination (in each case, as definedWarrant Amendments are in the Callahan Employment Agreement), Mr. Callahan will be entitled to paymentbest interests of a pro-rated bonus, based on the Company’s performance through the date of his termination of employment.
Under the Callahan Employment Agreement, Mr. Callahan received a sign-on equity grant of RSUs, NQSOs and PSUs related to performance during the performance periods described below, with an aggregate grant date value of $2,700,000, subject to the terms and conditions of the Incentive Plan. Mr. Callahan’s RSUs will vest as to one-third of the award on each of the first three anniversaries of the Employment Date; NQSOs will vest as to one-fourth of the award on each of the first four anniversaries of the Employment Date; and PSUs will vest as to one-half of the PSUs on May 7, 2020 based on performance during the two-year performance period beginning on May 7, 2018 and ending on May 7, 2020, and as to the remaining one-half on May 7, 2021 based on performance during the three-year performance period beginning on May 7, 2018 and ending on May 7, 2021, subject to the Committee’s certification of the performance goals and Mr. Callahan’s continued employment with the Company on the applicable PSU vesting date; provided that, if Mr. Callahan’s employment is terminated for any reason other than by the Company for cause or by Mr. Callahan without good reason, the PSUs will become vested based on achievement of the applicable performance goal through the termination date, and pro-rated for Mr. Callahan’s period of employment. Mr. Callahan is eligible to receive long-term incentive awards for each year after 2018 during the term under the LTI Plan on terms established by the Committee, with the target award or grant for years after 2018 expected to have a value of no less than the value of Mr. Callahan’s sign-on equity grant. Mr. Callahan’s sign-on equity grants, as well as subsequent equity grants and related grant agreements will incorporate the definitions of cause and good reason provided in the Callahan Employment
Agreement, and will provide for full acceleration of vesting of equity in connection with a Change in Control Termination as that term is defined in the Executive Severance Plan, as in effect at the time of his termination of employment with the Company.
Under the terms of the Callahan Employment Agreement, Mr. Callahan will be eligible for reimbursement of reasonable relocation expenses and was eligible for reimbursement of commuting expenses through 2019.
Mr. Callahan will be entitled to severance and other benefits payable under the Executive Severance Plan (as defined below) if he experiences a qualifying termination or change in control termination, as applicable (in each case, as defined in the Executive Severance Plan, as modified by the Callahan Employment Agreement). The amount of Mr. Callahan’s severance payments and benefits is set forth in the Callahan Employment Agreement. See “Severance Arrangements” below.
The Callahan Employment Agreement also includes non-competition and non-solicitation restrictions which apply during the employment term and for a period of 18 months following termination of employment.
In September 2017, we adopted the HB Key Executive Severance Benefits Plan (the “Executive Severance Plan”) which provides market- aligned levels of employment protection to our executives, including our NEOs, and thereby enhances retention. The Executive Severance Plan is intended to constitute an unfunded welfare benefit plan that is established primarily for the purpose of providing certain severance benefits for eligible employees in the event of termination of employment under certain circumstances, as described below.
Severance benefits under the Executive Severance Plan for termination of a NEO’s employment by the Company and its subsidiaries are set forth in the table below based on the type of termination, either (1) a termination by the Company and its subsidiaries other than for cause or on account of disability (a “Qualifying Termination”) or (2) a termination by the Company and its subsidiaries other than for cause or on account of disability or by the NEO for good reason, in each case within 12 months following a change in control, or at the request of an acquirer or potential acquirer in connection with or prior to a change in control (a “Change in Control Termination”). Cash severance is paid in accordance with payroll practices over the applicable severance period indicated below.
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In addition, if a NEO is eligible for cash severance under the Executive Severance Plan, the NEO is also entitled to receive certain outplacement benefits and employer-subsidized COBRA premiums until the earlierRegistered Holders of the end of the severance period or the first day the NEO becomes eligible for comparable benefits under a plan of another employer.
In order to receive severance benefits under the Executive Severance Plan, a NEO must execute a release and is bound by non-competition and non-solicitation restrictions for 18 months, in the case of the Chief Executive Officer, and 12 months, in the case of the other NEOs.
Under the Executive Severance Plan, a “for cause” termination generally includes a termination on account of a NEO’s (i) neglect, failure or refusal, in any material respect, to attend to employment duties; (ii) failure to comply with employment terms in any material respect; (iii) failure to complete a performance improvement plan; (iv) failure to follow the established, reasonable and material policies, standards and regulations of the Company or its subsidiaries; (v) fraud, misappropriation of funds, or other willful engagement in misconduct; or (vi) conviction of or pleading guilty or nolo contendere to, any crime that constitutes a felony.
Under the Executive Severance Plan, termination for “good reason” generally includes termination on account of one of the following events without the NEO’s consent: (i) a material reduction in base salary or target bonus; (ii) a material reduction in authorities, duties or responsibilities (iii) relocation to an office location that is more than 50 miles from the NEO’s then-current office location and which materially increases the NEO’s commute or (iv) failure of a successor to assume the Executive Severance Plan for a period of at least 12 months following a change in control. A NEO may not terminate employment for good reason unless he or she delivers a notice based on the action or event forming the basis of such termination within 90 days after its occurrence, we fail to cure the circumstances within 30 days of receiving such notice and the NEO terminates employment within 60 days following our failure to cure.
Under the Executive Severance Plan, a “change in control” is defined by reference to the LTI Plan and generally means the occurrence of one or more of the following events: (a) any person or entity becoming the beneficial owner, directly or indirectly, of more than 30% of the combined voting power of the then outstanding voting securities of the Company entitled to vote in the election of its directors, including by merger, consolidation or otherwise (subject to certain limited exceptions such as an acquisition by any employee benefit plan or related trust sponsored or maintained by the Company or any of its subsidiaries); (b) during any 12-month period, the incumbent directors ceasing to constitute a majority of the directors then serving on the Company’s Board of Directors; (c) consummation of a reorganization, recapitalization, merger or consolidation involving the Company (subject to certain limited exceptions); or (d) the sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company.
Callahan Severance Arrangements
Under the terms of the Callahan Employment Agreement, Mr. Callahan is entitled to receive the following upon termination of his employment:
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Any payment of severance to Mr. Callahan will be subject to his execution and delivery of our standard release agreement. If Mr. Callahan is eligible for severance, he is also entitled to receive certain outplacement benefits and employer-subsidized COBRA premiums until the earlier of the end of the severance period or the day he becomes eligible for comparable benefits under a plan of another employer.
For purposes of the Callahan Employment Agreement, cause generally includes Mr. Callahan’s (i) failure or refusal to perform his job functions, or to follow the lawful directives of the Company (other than by reason of a physical or mental impairment); (ii) commission of any felony or commission of a non-felony crime involving moral turpitude; (iii) embezzlement, misappropriation or fraud, whether or not related to employment with the Company; (iv) engagement in material dishonesty or misconduct which negatively reflects on the public reputation of the Company; (v) violation of any material written policy of the Company; (vi) breach of the restrictive covenants contained in any agreement with the Company; or (vii) material breach of the Callahan Employment Agreement or any other written agreement with the Company. In the case of prongs (i), (v) and (vii), Mr. Callahan is to be provided written notice and 30 days to cure the circumstances constituting cause, if reasonably capable of being cured.
For purposes of the Callahan Employment Agreement, change in control, disability and good reason have the meaning set forth in the Executive Severance Plan; however, good reason also includes requiring Mr. Callahan to move his principal residence to Kansas City and material breach by the Company of the Callahan Employment Agreement or any other material agreement between Mr. Callahan and the Company.
Potential Payments Upon Termination or Change in Control
The tables below reflect the amount of compensation to our NEOs in the event of termination of such NEO’s employment pursuant to the Executive Severance Plan or the respective NEO’s employment agreement or equity award agreements, in each case, assuming such termination occurred on December 31, 2020. The amount of compensation payable to each NEO upon termination by the Company and its subsidiaries reflected in the first table assumes a Qualifying Termination. No compensation is payable to the NEOs under the Executive Severance Plan upon termination by the Company and its subsidiaries for cause or disability or by the NEO without good reason. Under the Callahan Employment Agreement, the death, disability or non-renewal of the agreement by the Company constitutes a Qualifying Termination for purposes of cash severance. Mr. Peterson is excluded from the tables below as he ceased employment with the Company prior to December 31, 2020.
Qualifying Termination without a Change in Control
NEO | Salary | Bonus |
Health | Restricted Stock Units | Performance Share Units (2) | Total Compensation | ||||||||||||||||||
Andrew P. Callahan | $ | 1,275,000 |
| $ | 1,402,500 | (3) | $ | 29,864 |
|
| -- |
| $ | 1,368,289 |
| $ | 4,075,653 |
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Brian T. Purcell |
| 402,400 |
|
| 18,604 |
|
| 75,293 |
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| 496,297 |
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Andrew W. Jacobs |
| 451,000 |
|
| -- |
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| 20,410 |
|
| -- |
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| 638,733 |
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| 1,110,143 |
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Jolyn J. Sebree |
| 378,200 |
|
| -- |
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| 20,406 |
|
| -- |
|
| 202,715 |
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| 601,321 |
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Michael J. Cramer |
| 372,700 |
|
| -- |
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| 20,410 |
|
| -- |
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| 152,031 |
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| 545,141 |
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The amount of compensation payable to each NEO upon termination by the Company and its subsidiaries reflected in the next table assumes a Change in Control Termination. Under the Callahan Employment Agreement, his death or disability within 12 months following a change in control constitutes a Change in Control Termination for purposes of cash severance.
Change in Control Termination
Salary (1) | Bonus (2) |
Health | Restricted Stock Units (4) | Performance Share Units (5) | Stock Options (6) | Total Compensation | ||||||||||||||||||||||
Andrew P. Callahan | $ | 1,700,000 |
| $ | 1,870,000 |
| $ | 29,864 |
| $ | 1,890,273 |
| $ | 3,053,904 |
| $ | 651,655 |
| $ | 9,195,696 |
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Brian T. Purcell |
| 402,400 |
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| 301,800 |
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| 18,604 |
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| 496,999 |
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| 313,721 |
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| 29,007 |
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| 1,562,531 |
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Andrew W. Jacobs |
| 451,000 |
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| 338,250 |
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| 20,410 |
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| 691,433 |
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| 1,152,827 |
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| 276,958 |
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| 2,930,878 |
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Jolyn J. Sebree |
| 378,200 |
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| 226,920 |
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| 20,406 |
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| 232,059 |
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| 380,464 |
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| 86,538 |
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| 1,324,587 |
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Michael J. Cramer |
| 372,700 |
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| 186,350 |
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| 20,410 |
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| 174,055 |
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| 285,334 |
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| 64,900 |
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| 1,103,749 |
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PROPOSAL 2: ADVISORY VOTE ON EXECUTIVE COMPENSATION (“SAY-ON-PAY”)
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 enables our stockholders to vote to approve, on an advisory (non-binding) basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with SEC rules. The advisory vote on executive compensation will occur every year.
We are asking our stockholders to provide advisory approval of the compensation of our named executive officers, as such compensation is described in the “Compensation Discussion and Analysis” and “Executive Compensation” sections and summarized below, the tabular disclosure regarding such compensation, and the accompanying narrative disclosure set forth in this proxy statement, beginning on page 41. We urge our stockholders to review the complete Executive Compensation section included in this proxy statement for more information.
Selected 2020 Business Highlights
2020 represented a year of major challenges across North America and beyond due to the COVID-19 pandemic. Throughout the pandemic, we have focused on three principles: (1) keeping our employees, their families and the communities in which we operate safe, (2) serving our customers and consumers, and (3) staying nimble and informed. In early 2020, we established a COVID-19 task force to monitor the rapidly evolving situation and recommend risk mitigation actions as deemed necessary. To date, we have experienced minimal disruption to our supply chain or distribution network, including the supply of our ingredients, and packaging or other sourced materials. We are also working closely with all of our contract manufacturers, distributors and other external business partners.
As a food producer, we are an essential business and our production and distribution facilities have continued to operate throughout the pandemic. To protect our employees and ensure continuity of operations, we implemented additional safety and sanitation measures in all of our facilities and have been and continue to monitor our employees’ health and provide additional resources and protocols to enable effective social distancing and adherence to our stringent internal food safety guidelines, industry best practices and CDC and other governmental guidelines.
Despite the challenging year, our discipline and agility enabled us to deliver strong financial results across a range of metrics. In January 2020, we acquired Voortman Cookies Limited, a manufacturer of premium, branded wafers and cookies, as well as sugar-free products, and we successfully transitioned the distribution of Voortman® products from a direct store delivery model to our direct to warehouse distribution network. This transition created significant cost savings and unlocked opportunities to penetrate the convenience, drug store and dollar channels. We achieved strong market share growth in nearly every channel, with the convenience and dollar store channels hitting record levels. We maintained financial discipline and ended 2020 with a net leverage ratio of 3.9x, while also allowing us flexibility to make future acquisitions.
Executive Summary of 2020 Compensation
The Company’s STI Plan measures a combination of revenue, adjusted EBITDA, and strategic measures (where funding is contingent upon achievement of a threshold level of adjusted EBITDA). With the strong revenue and adjusted EBITDA growth achieved in 2020, the Company’s results exceeded target performance levels. As such, bonus payments to our NEOs were 120.7% of target. We feel these results acknowledge the strength of the strategic and operational achievements for the year, where end results were at the upper end of market guidance for the year.
In 2020, the Company continued its approach of providing annual equity grants to its NEOs. The 2020 awards (as well as the 2019 awards) emphasized a direct performance focus as well as a need to grow
stockholder value. The 2020 awards to the NEOs consisted of an intended equity mix of PSUs (40% weighting by intended grant value), NQSOs (30% weighting by intended grant value) and RSUs (30% weighting by intended grant value). The PSUs measure the Company’s 3-year relative TSR against companies in the S&P 1500 Packaged Foods & Meats sector. This index reflects the industry dynamics in which the Company operates and assesses the ability of the management team to deliver stockholder value at or above market levels in order to earn target or greater payouts. The NQSOs vest ratably on an annual basis over a 3-year period, and the Company’s share price has to appreciate from the grant price for any value to be earned. Finally, the RSUs vest ratably on an annual basis over a 3-year period and are intended to align the NEOs with stockholders and provide an incentive to grow the absolute stock price.
Based on feedback from stockholders, the Committee made select changes to its 2021 equity grant program. Key refinements include:
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Requiring that the Company have positive 3-year TSR to receive PSUs above the target level
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The Company’s overall philosophy is to have a pay for performance culture, and this is reflected in the target pay mix for our NEOs, as well as the structure of our incentive programs. For 2020, over 80% of the CEO’s target pay was at risk and over 60% required performance against explicit financial and stockholder objectives to achieve payouts. Our philosophy is to establish rigorous performance expectations, where exceeding the targeted net revenue and adjusted EBITDA goals, as shown in 2020, will result in above target bonus payouts.
In accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC, our Board of Directors will request your advisory vote on the following resolution at the Annual Meeting:
RESOLVED, that the compensation paid to the Company’s named executive officers for the fiscal year ended December 31, 2020, as disclosed in this proxy statement pursuant to the SEC’s executive compensation disclosure rules (which disclosure includes the Compensation Discussion and Analysis, the compensation tables and the narrative discussion that accompanies the compensation tables), is hereby approved.
The say-on-pay proposal requires the affirmative vote of a majority of shares present in person (virtually) or represented by proxy at the meeting and entitled to vote on the proposal.
The say-on-pay vote is advisory, and therefore not binding on our Company, our Talent and Compensation Committee, or our Board of Directors. Although non-binding, the vote will provide information to our Talent and Compensation Committee and our Board of Directors regarding investor sentiment about our executive compensation philosophy, policies, and practices, which our Talent and Compensation Committee and our Board of Directors will be able to consider when determining executive compensation for the years to come.
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OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE RESOLUTION APPROVING THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020, AS DESCRIBED IN THE “COMPENSATION DISCUSSION AND ANALYSIS” AND “EXECUTIVE COMPENSATION” SECTIONS AND THE RELATED TABULAR AND NARRATIVE DISCLOSURE SET FORTH IN THIS PROXY STATEMENT.
The Company’s management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. KPMG LLP (“KPMG”), the Company’s independent registered public accounting firm, is responsible for auditing the financial statements and expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles.
The Audit Committee reviewed and discussed with management and KPMG the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the years ended December 31, 2020, 2019 and 2018 and the related notes.
The committee discussed with KPMG the matters required to be discussed by Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 1301, Communications with Audit Committees, and other applicable regulations. This included a discussion of KPMG’s judgments as to the quality, not just the acceptability, of our Company’s accounting principles and such other matters as are required to be discussed with the committee under generally accepted auditing standards. In addition, the committee received from KPMG, written disclosures and the letter required by PCAOB Rule 3526, Communication with Audit Committees Concerning Independence. The committee and KPMG also discussed KPMG’s independence from management and our Company, including the matters covered by the written disclosures and letter provided by KPMG.
The committee discussed with KPMG the overall scope and plans for its audit. The committee meets with KPMG, with and without management present, to discuss the results of KPMG’s examinations, its evaluations of our Company, the internal controls, and the overall quality of the financial reporting.
Based on the reviews and discussions referred to above, the committee recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for filing with the Securities and Exchange Commission.
The report has been furnished by the Audit Committee to our Board of Directors.
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The information contained in the “Report of the Audit Committee” is not considered to be “soliciting material,” “filed” or incorporated by reference in any past or future filing by the Company under the Exchange Act or the Securities Act of 1933 unless and only to the extent that the Company specifically incorporates it by reference.
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Audit Committee has appointed KPMG LLP, an independent registered public accounting firm, to audit the consolidated financial statements of our Company for the fiscal year ending December 31, 2021Warrants and recommends that stockholders vote in favorits Registered Holders of Public Warrants “CONSENT TO” the ratification of such appointment. In the event of a negative vote on such ratification, the Audit Committee will reconsider its selection. We anticipate that representatives of KPMG will be present at the Annual Meeting, will have the opportunity to make a statement if they desire, and will be available to respond to appropriate questions.
Aggregate fees billed to our Company for audit services rendered by KPMG LLP for the audits of the Company’s annual financial statements for 2020 and 2019 and other services rendered by KPMG LLP during 2020 and 2019 are as follows.
December 31, 2020 | December 31, 2019 | |||||||
Audit fees (1) | $1,917,512 | $1,944,807 | ||||||
Audit-related fees (2) | — | 750,000 | ||||||
Tax fees (3) | 843,843 | 587,884 | ||||||
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Total | $2,761,355 | $3,282,691 |
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Audit Committee Pre-Approval Policies and Procedures
Our Audit Committee has adopted policies and procedures for the pre-approval of audit services, internal control-related services and permitted non-audit services rendered by our independent registered public accounting firm. Pre-approval may also be given as part of our Audit Committee’s approval of the scope of the engagement of the independent registered public accounting firm or on an individual, case-by-case basis before the independent registered public accounting firm is engaged to provide each service.
All of the services provided by KPMG described above were approved by our Audit Committee pursuant to our Audit Committee’s pre-approval policies.
Ratification of the appointment of KPMG to audit the consolidated financial statements of our Company for the fiscal year ending December 31, 2021 will require the affirmative vote of a majority of shares present in person (virtually) or represented by proxy at the meeting and entitled to vote on the proposal.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF KPMG LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF OUR COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2021.
DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Exchange Act requires our directors, executive officers, and persons who beneficially own more than ten percent of our Class A common stock to file with the SEC initial reports of beneficial ownership and reports of changes in beneficial ownership of common stock. Directors, executive officers, and ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely upon our review of the copies of such forms that we received during the year ended December 31, 2020, and written representations that no other reports were required, we believe that, each person who at any time during such year was a director, officer, or beneficial owner of more than ten percent of our Class A common stock complied with all Section 16(a) filing requirements during the year ended December 31, 2020, except that: Mr. Robert Weber, the Company’s Senior Vice President and Chief Human Resources Officer, had a late Form 4 reporting shares withheld to pay taxes in connection with a vesting of RSUs on November 11, 2020 that was filed on April 2, 2021.Warrant Amendments.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The following table sets forth information regarding the beneficial ownership of our common stockCommon Stock as of the record date, April 29,June 24, 2021, by the following:
each of our directors and named executive officers who were serving with the Company as of such date;
all of our directors and executive officers as a group; and
each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our common stock.Common Stock.
For further information regarding material transactions between us and certain of our stockholders, see “Certain Relationships and Related Party Transactions.”
Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he, she, or it possesses sole or shared voting or investment power of that security, including options that are currently exercisable or exercisable within 60 days of the record date, April 29,June 24, 2021. Shares of Class A common stock or Class B common stockCommon Stock issuable upon exercise of options or warrantsWarrants currently exercisable or exercisable within 60 days as well as shares of Class A common stock issuable upon exchange of shares of Class B common stock are deemed outstanding solely for purposes of calculating the percentage of class and percentage of total voting power of the beneficial owner thereof. Accordingly, the percentage of class and percentage of total voting power of some beneficial owners may be lower than the percentage of class and percentage of total voting power of some other beneficial owners for whom a higher number of shares beneficially owned is reported. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons named in the table below have sole voting and investment power with respect to all shares of common stockCommon Stock shown that they beneficially own, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose.
Our calculation of the percentage of beneficial ownership is based on 131,193,663131,635,435 shares of Class A common stockCommon Stock outstanding as of April 29,June 24, 2021. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Hostess Brands, Inc., 7905 Quivira Road, Lenexa, Kansas 66215.
Name of Beneficial Owner |
Shares of
| Percentage Beneficially Owned
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NEOs and Directors:
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Andrew P. Callahan (1)
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465,575
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*
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Brian T. Purcell (2)
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20,255
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*
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Michael J. Cramer (3)
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127,404
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*
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Andrew W. Jacobs (4)
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391,363
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*
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Jolyn J. Sebree (5)
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86,970
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*
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Laurence Bodner (6)
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41,693
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*
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Gretchen R. Crist (7)
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23,042
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*
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Rachel P. Cullen (8)
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9,002
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*
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Jerry D. Kaminski (9)
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31,693
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*
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Ioannis Skoufalos (10)
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10,537
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*
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Craig D. Steeneck (11)
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49,293
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*
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Olu Beck (12)
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| 1,213
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*
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Hugh G. Dineen (13)
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| 1,213
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*
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All Directors and Executive Officers as a Group (16 persons)
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| 1,358,181
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1.0%
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5% Stockholders:
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River Road Asset Management LLC (14)
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14,223,876
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10.8%
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The Vanguard Group (15)
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10,979,672
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8.4%
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Champlain Investment Partners, LLC (16)
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10,652,320
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8.1%
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BlackRock Inc. (17)
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10,425,354
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7.9%
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Dimensional Fund Advisors LP (18)
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7,665,265
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5.8%
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Wellington Management Group LLP (19)
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7,325,865
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5.6%
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Cardinal Capital Management, LLC (20)
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7,289,836
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5.6%
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Name of Beneficial Owner | Shares of Class A common stock Beneficially Owned | Percentage Beneficially Owned | ||||||
NEOs and Directors: | ||||||||
Andrew P. Callahan (1) | 455,774 | * | ||||||
Brian T. Purcell (2) | 20,255 | * | ||||||
Michael J. Cramer (3) | 127,404 | * | ||||||
Jolyn J. Sebree (4) | 86,970 | * | ||||||
Laurence Bodner (5) | 41,693 | * | ||||||
Gretchen R. Crist (6) | 23,042 | * | ||||||
Rachel P. Cullen (7) | 9,002 | * | ||||||
Jerry D. Kaminski (8) | 31,693 | * | ||||||
Ioannis Skoufalos (9) | 10,537 | * | ||||||
Craig D. Steeneck (10) | 49,293 | * | ||||||
Olu Beck (11) | 1,213 | * | ||||||
Hugh G. Dineen (12) | 1,213 | * | ||||||
All Directors and Executive Officers as a Group (16 persons) | 957,017 | * | ||||||
5% Stockholders: | ||||||||
River Road Asset Management LLC (13) | 14,223,876 | 10.8 | % | |||||
The Vanguard Group (14) | 10,979,672 | 8.3 | % | |||||
Champlain Investment Partners, LLC (15) | 10,652,320 | 8.1 | % |
Name of Beneficial Owner | Shares of Class A common stock Beneficially Owned | Percentage Beneficially Owned | ||||||
BlackRock Inc. (16) | 10,425,354 | 7.9 | % | |||||
Dimensional Fund Advisors LP (17) | 7,665,265 | 5.8 | % | |||||
Wellington Management Group LLP (18) | 7,325,865 | 5.6 | % | |||||
Cardinal Capital Management, LLC (19) | 7,289,836 | 5.5 | % |
* | Less than 1% of the outstanding shares of common stock. |
(1) | Consists of (i) |
(2) | Consists of (i) 7,189 shares of Class A common stock and (ii) 13,066 options to purchase Class A common stock. |
(3) | Consists of (i) 54,857 shares of Class A common stock held directly, (ii) 3,000 shares of Class A common stock held in an individual retirement account and (iii) 69,547 options to purchase Class A common stock. |
(4) |
|
Consists of (i) 27,779 shares of Class A common stock held directly and (ii) 59,191 options to purchase Class A common stock. |
Consists of (i) 10,000 shares of Class A common stock and (ii) |
(6) | Consists of 23,042 shares of Deferred Stock. |
(7) | Consists of |
(8) | Consists of |
(9) | Consists of |
(10) |
|
Consists of (i) 17,600 shares of Class A common stock and (ii) |
|
|
Based solely on the statement on Schedule 13G/A filed by the beneficial owner on February 10, 2021. Includes 14,223,876 shares of which the reporting person has the sole power to dispose or direct the disposition and 10,461,639 shares of which the reporting person has the sole power to vote or direct the voting. The business address of River Road Asset Management, LLC is 462 S. 4th Street, Suite 2000, Louisville, KY 40202. |
Based solely upon the statement on Schedule 13G/A filed by the beneficial owner on February 10, 2021, 10,979,672 shares are beneficially owned by The Vanguard Group, Inc. (“Vanguard”), including 10,652,034 shares of Class A common stock of which Vanguard has sole dispositive power and securities held or managed by the following subsidiaries of Vanguard: Vanguard Asset Management, Limited; Vanguard Fiduciary Trust Company; Vanguard Global Advisors, LLC; Vanguard Group (Ireland) Limited; Vanguard Investments Australia Ltd; Vanguard Investments Hong Kong Limited; and Vanguard Investments UK, Limited. The business address of Vanguard is 100 Vanguard Blvd., Malvern, PA 19355. |
Based solely upon the statement on Schedule 13G filed by the beneficial owner on February 12, 2021. Includes 10,652,320 shares of Class A common stock owned by funds advised by Champlain Investment Partners, LLC, including 10,652,320 shares of which the reporting person has the sole power to dispose or direct the disposition and 8,181,150 shares of which the reporting person has the sole power to vote or direct the voting. The business address of Champlain Investment Partners, LLC is 180 Battery Street, Burlington, VT 05401. |
Based solely upon the statement on Schedule 13G/A filed by the beneficial owner on January 29, 2021. Includes (i) 10,008,473 shares of Class A common stock of which BlackRock, Inc. (“Black Rock”) has sole voting power, and (ii) 10,425,354 shares of Class A common stock of which BlackRock has sole dispositive power and securities held or managed by the following subsidiaries of BlackRock: BlackRock Advisors, LLC; BlackRock Investment Management (UK) Limited; BlackRock Asset Management Canada Limited; BlackRock (Netherlands) B.V.; BlackRock Fund Advisors; BlackRock Asset Management Ireland Limited; |
BlackRock Institutional Trust Company, National Association; BlackRock Financial Management, Inc.; BlackRock Asset Management Schweiz AG; BlackRock Investment Management, LLC; BlackRock Japan Co., Ltd.; BlackRock (Luxembourg) S.A.; and BlackRock Investment Management (Australia) Limited. The business address of Blackrock is 55 East 52nd Street, New York, NY 10055. |
Based solely on the statement on Schedule 13G filed by the beneficial owner on February 12, 2021. Includes 7,665,265 shares of Class A common stock owned by funds advised by Dimensional Fund Advisors LP, including 7,665,265 shares of which the reporting person has the sole power to dispose or direct the disposition and 7,339,067 shares of which the reporting person has the sole power to vote or direct the voting. The business address of Dimensional Fund Advisors LP is Building One, 6300 Bee Cave Road, Austin, TX 78746. |
Based solely upon information contained in Schedule 13G/A filed by the beneficial owner with the SEC on February 4, 2021. Includes (i) 7,325,865 shares of Class A common stock of which Wellington Management Group LLP has shared dispositive power, including 6,320,376 shares of Class A common stock of which Wellington Management Group LLP has shared voting power through one or more investment adviser subsidiaries. The business address of Wellington Management Group LLP is 280 Congress Street, Boston, MA 02210. |
Based solely upon information contained in Schedule 13G filed by the beneficial owner with the SEC on February 16, 2021. Includes 7,289,836 shares of which the reporting person has the sole power to dispose or direct the disposition and 5,768,147 shares of which the reporting person has the sole power to vote or direct the voting. The business address of Cardinal Capital Management, LLC is Four Greenwich Office Park, Greenwich, Connecticut 06831. |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONSAPPRAISAL RIGHTS
Other than compensation arrangements, we describe below transactions and seriesAppraisal rights are not available to Registered Holders of similar transactions during our last three fiscal years to which we were a party or will be a party, in which:
the amounts involved exceeded or will exceed $120,000; and
any of our directors, executive officers, or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest.
Compensation arrangements for our directors and named executive officers are described elsewhere in this proxy statement.
The following persons and entities that participated in the transactions listed in this section were “related persons” (as defined below) at the time of the transaction:
Tax Receivable Agreement
We are party to a Tax Receivable Agreement (the “Tax Receivable Agreement”), entered intoWarrants in connection with the Business Combination, that provides for the payment by us to the Legacy Hostess Equityholders of 85% of the net cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes (or is deemed to realize in certain circumstances) as a result of: (i) certain increases in tax basis resulting from the Business Combination; (ii) certain tax attributes of Hostess Holdings and its subsidiaries existing prior to the Business Combination; (iii) certain increases in tax basis resulting from exchanges of Class B Units; (iv) imputed interest deemed to be paid by the Company as a result of payments that it makes under the Tax Receivable Agreement; and (v) certain increases in tax basis resulting from payments that the Company makes under the Tax Receivable Agreement. It is expected that we will benefit from the remaining 15% cash savings, if any, in income tax that we realize.Warrant Amendments.
On April 10, 2017, AP Hostess Holdings, LP (“AP Hostess LP”), one of the entities of the Apollo Funds, and the Metropoulos Entities entered into that certain Letter Agreement Regarding Tax Receivable Agreement (the “Letter Agreement”), pursuant to which AP Hostess LP assigned to the Metropoulos Entities a portion of its rights under the Tax Receivable Agreement.
On January 26, 2018, we entered into a Buyout and Amendment Agreement (the “Buyout Agreement”) with the Legacy Hostess Equityholders. The Buyout Agreement terminated all future payments payable to AP Hostess LP under the Tax Receivable Agreement in exchange for a payment of $34,000,000, which was made by the Company to AP Hostess LP on January 26, 2018. The Buyout Agreement does not affect the portion of the rights under the Tax Receivable Agreement assigned by AP Hostess LP to the Metropoulos Entities pursuant to the Letter Agreement.
Exchange Agreement
We are party to an Exchange Agreement (the “Exchange Agreement”) which was entered into in connection with the Business Combination. Pursuant to the Exchange Agreement, the Metropoulos Entities and such other holders of Class B Units from time to time party thereto were entitled to exchange Class B Units and surrender shares of the Company’s Class B common stock for cancellation, in exchange for, at the option of the Company, a number of shares of the Company’s Class A common stock or the cash equivalent of such shares. The Metropoulos Entities have eliminated their ownership through a series of exchanges of shares of Class B Stock and Class B Units for an equal number of Class A shares. During 2020, we paid $8.0 million to repurchase 2.0 million warrants and 0.4 million shares from the Metropoulos Entities as part of the exchange of their last remaining Class B units in Hostess Holdings, LP. At December 31, 2020, there were no outstanding shares of Class B common stock.
Registration Rights Agreement
We were party to a Registration Rights Agreement (the “Registration Rights Agreement”) with Gores Sponsor LLC, the Legacy Hostess Equityholders, Mr. Metropoulos, Mr. Randall Bort, Mr. William Patton and Mr. Jeffery Rea (the “Restricted Stockholders”). The Restricted Stockholders and their permitted transferees were entitled to certain registration rights described in the Registration Rights Agreement. We were responsible for the expenses incurred in connection with the filing of any such registration statements, other than certain underwriting discounts, selling commissions and expenses related to the sale of shares to fund the indemnification obligations of the Legacy Hostess Equityholders under the Master Transaction Agreement, dated as of July 5, 2016, by and among the Company and the other parties thereto.
We agreed to indemnify each of the stockholders that is a party to the Registration Rights Agreement against certain liabilities in connection with a demand or piggyback registration of shares of Class A common stock, including under the Securities Act.
Indemnification of Directors and Officers
Our amended and restated bylaws provide that we will indemnify and advance expenses to our directors and executive officers to the fullest extent permitted by the Delaware General Corporation Law (the “DGCL”). In addition, our amended and restated certificate of incorporation provides that our directors will not be liable for monetary damages for breach of fiduciary duty, except as otherwise prohibited under the DGCL.HOUSEHOLDING INFORMATION
We have entered into customary indemnification agreements withadopted a procedure called “householding,” which has been approved by the SEC. Under this procedure, certain Registered Holders of Public Warrants who have the same address and last name will receive only one copy of this Consent Solicitation Statement and any proxy materials that are delivered. A separate consent solicitation card for each Registered Holder of Public Warrants will be included in the printed materials. This procedure reduces our directorsprinting costs, mailing costs and executive officers. The indemnification agreements provide the executive officers and directors with contractual rightsfees. Upon written request, we will promptly deliver a separate copy of such materials to indemnification, expense advancement and reimbursement,any holder of Public Warrants at a shared address to the fullest extent permitted under the DGCL. Our indemnification agreements also provide that we are required to advance expenseswhich a single copy of any of those documents was delivered. To receive a separate copy of such materials, please notify us by calling (816) 701-4600 or by sending a written request to our directors and officers as incurred in connection with legal proceedings against them for which theySecretary at 7905 Quivira Road, Lenexa, Kansas 66215. Street name holders of Public Warrants may be indemnified and that the rights conferred in the indemnification agreements are not exclusive.
There is no pending litigationcontact their brokerage firm, bank, broker-dealer or proceeding involving any of our directors or executive officersother similar organization to which indemnification is being sought, and we are not aware of any pending litigation that may result in claims for indemnification by any director or executive officer.request information about householding.
Review, Approval or Ratification of Transactions with Related Persons
Our Board of Directors has adopted a written statement of policy for the evaluation of and the approval, disapproval and monitoring of transactions involving us and “Related Persons”. For the purposes of the policy, “Related Persons” will include our executive officers, vice presidents, directors and director nominees or their immediate family members, stockholders owning 5% or more of our outstanding common stock or any entity in which any of the foregoing persons is an employee, general partner, principal or holder of a 5% or more ownership interest.
Our related person transactions policy requires that all related person transactions must be reported in advance to our Audit Committee for review and approval. In reviewing any such related person transaction, the Audit Committee will consider all of the material facts of such transaction and whether the transaction is fair and reasonable to the Company including consideration of the following factors to the extent pertinent:
the position within or relationship of the Related Person with the Company;
the materiality of the transaction to the Related Person and the Company, including the dollar value of the transaction, without regard to profit or loss;
the business purpose for and reasonableness of the transaction (including the anticipated profit or loss from the transaction), taken in the context of the alternatives available to the Company for attaining the purposes of the transaction;
whether the transaction is comparable to a transaction that could be available on an arms-length basis or is on terms that the Company offers generally to persons who are not Related Persons;
whether the transaction is in the ordinary course of the Company’s business and was proposed and considered in the ordinary course of business; and
the effect of the transaction on the Company’s business and operations, including on the Company’s internal control over financial reporting and system of disclosure controls and procedures, and any additional conditions or controls (including reporting and review requirements) that should be applied to such transaction. In approving or rejecting any related person transaction, the Audit Committee or the disinterested members of the Audit Committee, as applicable, is required to consider the material facts of the transaction, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction.
DEADLINE FOR RECEIPT OF TRANSFER AGENT AND REGISTRAR
The transfer agent for our securities is Continental Stock Transfer & Trust Company.
Pursuant to Rule 14a-8 under the Exchange Act, any proposal that a stockholder of our Company wishes to have included in the proxy statement in connection with our 2022 annual meeting of stockholders must be submitted to us no later than January 19, 2022.
In accordance with our current bylaws, stockholder proposals, including stockholder nominations for candidates for election as directors, that are intended to be presented by stockholders at the annual meeting of stockholders for the fiscal year ending December 31, 2022 but not submitted for inclusion in the proxy statement for our 2022 annual meeting of stockholders pursuant to Rule 14a-8, must be received by us no earlier than February 28, 2022 and no later than March 30, 2022, unless we change the date of our 2022 annual meeting of stockholders more than 45 days before or after June 3, 2022, in which case stockholder proposals must be received by us not later than the close of business on the 10th day following the day on which we first make a public announcement of the date of such meeting. These time limits also apply in determining whether notice is timely for purposes of rules adopted by the SEC relating to the exercise of discretionary voting authority. All stockholder proposals must include the specified information described in our bylaws and follow the procedures outlined in Rule 14a-8 under the Exchange Act.
Proposals and other items of business should be directed to the attention of the Secretary at our principal executive offices, 7905 Quivira Road, Lenexa, Kansas 66215.
WHERE YOU CAN FIND MORE INFORMATION
Through our investor relations website, www.hostessbrands.com under the “Investors” tab, we make available free of charge all of our SEC filings, including our proxy statements, our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K, as well as Form 3, Form 4, and Form 5 reports of our directors, officers, and principal stockholders, together with amendments to these reports filed or furnished pursuant to Sections 13(a), 15(d), or 16 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Any exhibits listed in the Form 10-K report also will be furnished upon request at the actual expense we incur in furnishing such exhibits. Any such requests should be directed to our Secretary at our executive offices set forth in this Consent Solicitation Statement.
This Consent Solicitation Statement will also be available at:
https://www.hostessbrands.com/financial-reports beginning on July 9, 2021.
Our SEC filings can also be accessed through the SEC’s website, http://www.sec.gov.
The Common Stock and Public Warrants are listed on the Nasdaq Capital Market (“Nasdaq”), and reports and other information on the Company can be reviewed at the office of Nasdaq.
BY ORDER OF THE BOARD OF DIRECTORS, |
Andrew P. Callahan |
President and Chief Executive Officer |
We know of no other matters to be submitted at the meeting. If any other matters properly come before the meeting, it is the intention of the persons named in the enclosed proxy card to vote the shares they represent as the Board of Directors may recommend.WARRANT AMENDMENT
Dated: May 19, 2021
17870_Hostess Brands Proxy Card_REV1- FrontYOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY.IMMEDIATE Vote by - Internet 24 Hours — a QUICK Day, 7 Days ï^ï^ ï^ a Week EASY or by MailYour Internet vote authorizes the named proxies to vote your shares in the same manner as if you HOSTESS BRANDS, INC. marked, signed (f/k/a GORES HOLDINGS, INC.)
and returned your proxy card. Votes submitted electronically over the Internet must be received by 6:00 p.m., Central Time, on June 27, 2021.INTERNET www.cstproxyvote.comUsetheInternettovoteyourproxy. Haveyourproxycardavailablewhen youaccesstheabovewebsite.Follow thepromptstovoteyourshares.MAIL – Mark,signanddateyourproxy cardandreturnitinthepostage-paid envelopeprovided.PLEASE DO NOT RETURN
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
AMENDMENT NO. 1
Dated as of [ ], 2021
TO THE PROXY CARD IF YOU ARE VOTING ELECTRONICALLY.ï³ FOLD HERE • DO NOT SEPARATE • INSERT IN ENVELOPE PROVIDED ï³Please mark PROXY your votesTHE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE NINE NOMINEES UNDER PROPOSAL like this X1, “FOR” PROPOSAL 2, AND “FOR” PROPOSAL 3.1. ElectionWARRANT AGREEMENT
Dated as of Directors 2. 2020 compensation paid to named FOR AGAINST ABSTAIN(1) Jerry D. Kaminski FOR all WITHOUT AUTHORITY executiveofficers(advisory).(2) Andrew P. Callahan Nominees tovote(exceptasmarked listed to the to the contrary for all (3) Olu Beck left nominees listed to the left)(4) Laurence Bodner 3. RatificationofKPMGLLPasindependent FOR AGAINST ABSTAIN (5) Gretchen R. Crist registeredpublicaccountingfirm.(6) Rachel P. Cullen (7) Hugh G. Dineen (8) Ioannis Skoufalos (9) Craig D. Steeneck(Instruction: individual nominee, To withhold strike a authority line through to that vote nominee’s for any name in the list above)CONTROLNUMBERSignature_______________________________________ Signature, if held jointly______________________________________ Date___________, 2021. Note:Pleasesignexactlyasnameappearshereon.Whensharesareheldbyjointowners,bothshouldsign.Whensigningasattorney,executor,administrator,trustee, guardian,orcorporateofficer,pleasegivetitleassuch.August 13, 2015
17870_HostessAmendment No. 1 (this “Amendment”), dated as of [ ], 2021, by and between Hostess Brands, Proxy Card_REV1- BackThe 2021 Proxy StatementInc. (f/k/a Gores Holdings, Inc.), a Delaware corporation (the “Company”), and Continental Stock Transfer & Trust Company, a New York corporation, as warrant agent (the “Warrant Agent”, also referred to herein as the “Transfer Agent”) to that certain Warrant Agreement, dated as of August 13, 2015, by and between the Company and the 2020 Annual ReportWarrant Agent (the “Warrant Agreement”).
W I T N E S S E T H
WHEREAS, Section 9.8 of the Warrant Agreement provides that the Warrant Agreement may be amended with written consent of the Registered Holders of 65% of the then outstanding Public Warrants (the “Required Holders”);
WHEREAS, the Company and the Required Holders desire to Stockholdersenter into this Amendment to effect the amendments to the Warrant Agreement set forth herein;
WHEREAS, the Required Holders have delivered to the Company and the Warrant Holders consents of Registered Holders of at least sixty-five percent (65%) of the outstanding Public Warrants (the “Consents”) to amend the Warrant Agreement as set forth herein;
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto mutually covenant and agree as follows:
1. Effectiveness. This Amendment shall become effective upon execution and delivery of this Amendment by the Warrant Agent and the Company, whereupon the Warrant Agreement shall be amended in accordance herewith.
2. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Warrant Agreement.
3. Amendment to Section 2.5. Section 2.5 is hereby amended by deleting clause (i) of the first paragraph and renumbering the subsequent clauses thereof.
4. Amendment to Section 3.2. Section 3.2 is hereby amended by amending and restating the following proviso as follows:
provided, however, that the exercise of any Warrant shall be subject to the satisfaction of any applicable conditions, as set forth in subsection 3.3.2 below, with respect to an effective registration statement.
5. Amendment to Section 3.3.1. Section 3.3.1 is hereby amended and restated as follows:
3.3.1 Payment. Subject to the provisions of the Warrant and this Agreement, a Warrant, when countersigned by the Warrant Agent, may be exercised by the Registered Holder thereof by surrendering it, at the office of the Warrant Agent, or at the office of its successor as Warrant Agent, together with (i) an election to purchase form, duly executed, electing to exercise such Warrants and (ii) payment in full of the Warrant Price for each full share of Common Stock as to which the Warrant is exercised on a “cashless basis” as provided in subsection 3.3.1 (c) below and payment in full in cash in lawful money of the United States, in good certified check or good bank draft payable to the order of the Warrant Agent of any and all applicable taxes due in connection with the exercise of the Warrant, the exchange of the Warrant for the shares of Common Stock and the issuance of such shares of Common Stock, as follows:
(a)in lawful money of the United States, in good certified check or good bank draft payable to the order of the Warrant Agent[Intentionally omitted];
(b)in the event of a redemption pursuant toSection 6 hereof in which the Company’s board of directors (the “Board”) has elected to require all holders of the Warrants to exercise such Warrants on a “cashless basis,” by surrendering the Warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Common Stock underlying the Warrants, multiplied by the difference between the Warrant Price and the “Fair Market Value”, as defined in thissubsection 3.3.1(b) by (y) the Fair Market Value. Solely for purposes of thissubsection 3.3.1(b) andSection 6.3, the “Fair Market Value” shall mean the average last sale price of the shares of Common Stock for the ten (10) trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of the Warrants, pursuant toSection 6 hereof[Intentionally omitted];
(c)with respect to any Private Placement Warrant, so long as such Private Placement Warrant is held by the Sponsor or a Permitted Transferee,with respect to any Warrant, by surrendering the Warrants for that number of shares of Common Stock equal to the quotient obtained by dividing X by B, where:
X = A multiplied by (B plus C minus D)
A = the number of shares of Common Stock underlying the Warrants
B = the Valuation Price
C = $0.25
D = the Warrant Price
Solely for purposes of this subsection 3.3.1(c):
“Valuation Price” shall equal the arithmetic average of the VWAP Prices on each day of the respective Valuation Period.
“Trading Day” means any day on which the Nasdaq Capital Market is open for trading.
“VWAP Price” on any Trading Day means the per share volume-weighted average price as displayed on Bloomberg page “TWNK <EQUITY> AQR” (or its equivalent successor if such page is not available) in respect of the period from the scheduled open of trading on the Nasdaq Capital Market until the scheduled close of trading of the primary trading session on such Trading Day (or if such volume-weighted average price is not available, at: https://www.cstproxy.com/hostessbrands/2021 ï³ FOLD HERE • DO NOT SEPARATE • INSERT the market value per ordinary share on such Trading Day as determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained by us for this purpose).
“Valuation Period” for a Warrant shall be the period of 20 consecutive Trading Days beginning on and including the earlier of (i) the first Trading Day following the date on which notice of exercise of the Warrant is received by the Warrant Agent, and (ii) the date that is 21 scheduled Trading Days prior to the Expiration Date.
(d)as provided inSection 7.4 hereof[Intentionally omitted].
6. Amendment to Section 3.3.2. Section 3.3.2 is hereby amended and restated as follows:
Issuance of Shares of Common Stock on Exercise. As soon as practicable after the exercise of any Warrant and the clearance of the funds in payment of the Warrant Price (if payment is pursuant to subsection3.3.1(a)6.3), the Company shall issue to the Registered Holder of such Warrant a book-entry position or certificate, as applicable, for the number of full shares of Common Stock to which he, she or it is entitled, registered in such name or names as may be directed by him, her or it, and if such Warrant shall not have been exercised in full, a new book-entry position or countersigned Warrant, as applicable, for the number of shares as to which such Warrant shall not have been exercised. Notwithstanding the foregoing, the Company shall not be obligated to deliver any shares of Common Stock pursuant to the exercise of a Warrant and shall have no obligation to settle such Warrant exercise
unless a registration statement under the Securities Act with respect to the shares of Common Stock underlying the Public Warrants is then effective and a prospectus relating thereto is current, or such exercise may be made in accordance with Section 3(a)(9) of the Securities Act or another exemption subject to the Company’s satisfying its obligations under Section 7.4. No Warrant shall be exercisable and the Company shall not be obligated to issue shares of Common Stock upon exercise of a Warrant unless the shares of Common Stock issuable upon such Warrant exercise have been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the Registered Holder of the Warrants. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a Warrant, the holder of such Warrant shall not be entitled to exercise such Warrant and such Warrant may have no value and expire worthless, in which case the purchaser of a Unit containing such Public Warrants shall have paid the full purchase price for the Unit solely for the shares of Common Stock underlying such Unit. Subject to Section 4.6 of this Agreement, a Registered Holder of Warrants may exercise its Warrants only for a whole number of shares of Common Stock (i.e., only an even number of Warrants may be exercised at any given time by a Registered Holder).The Company may require holders of Public Warrants to settle the Warrant on a “cashless basis” pursuant to Section 7.4. If, by reason of any exercise of warrants on a “cashless basis”, the holder of any Warrant would be entitled, upon the exercise of such Warrant, to receive a fractional interest in a share of Common Stock, the Company shall round down to the nearest whole number, the number of shares of Common Stock to be issued to such holder.
7. Amendment to Section 4.1.2. Section 4.1.2 is hereby amended by replacing “Board” with “board of directors (the “Board”)”.
8. Amendment to Section 6.1. Section 6.1 is hereby amended and restated as follows:
Redemption. Subject to Section 6.4 hereof, not less than all of the outstanding Warrants may be redeemed, at the option of the Company, at any time while they are exercisable and prior to their expiration, at the office of the Warrant Agent, upon notice to the Registered Holders of the Warrants, as described in Section 6.2 below, at the price of $0.01 per Warrant (the “Redemption Price”), provided that the last sales price of the Common Stock reported has been at least $24.00 per share (subject to adjustment in compliance with Section 4 hereof), on each of twenty (20) trading days within the thirty (30) trading-day period ending on the third Business Day prior to the date on which notice of the redemption is given.and provided that there is an effective registration statement covering the shares of Common Stock issuable upon exercise of the Warrants, and a current prospectus relating thereto, available throughout the 30-day Redemption Period (as defined in Section 6.2 below) or the Company has elected to require the exercise of the Warrants on a “cashless basis” pursuant to subsection 3.3.1
9. Amendment to Section 6.3. Section 6.3 is hereby amended and restated as follows:
Exercise After Notice of Redemption. The Warrants may be exercised, (i) for cash in lawful money of the United States, in good certified check or good bank draft payable to the order of the Warrant Agent(or (ii) on a “cashless basis” in accordance with subsection 3.3.1(b)(c) of this Agreement) at any time after notice of redemption shall have been given by the Company pursuant to Section 6.2 hereof and prior to the Redemption Date.In the event that the Company determines to require all holders of Warrants to exercise their Warrants on a “cashless basis” pursuant to subsection 3.3.1, the notice of redemption shall contain the information necessary to calculate the number of shares of Common Stock to be received upon exercise of the Warrants, including the “Fair Market Value” (as such term is defined in subsection 3.3.1(b) hereof) in such case. On and after the Redemption Date, the record holder of the Warrants shall have no further rights except to receive, upon surrender of the Warrants, the Redemption Price.
10. Amendment to Section 7.4.1. Section 7.4.1 is hereby amended and restated as follows:
Registration of Shares of Common Stock. The Company agrees that as soon as practicable, but in no event later than fifteen (15) Business Days after the closing of its initial Business Combination, it shall use its best efforts to file with the Commission a registration statement for the registration, under the Securities Act of 1933, as amended (the “Securities Act”), of the shares of Common Stock issuable upon exercise of the Warrants. The Company shall use its best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the Warrants in accordance with the provisions of this Agreement.If any such registration statement has not been declared effective by the 60th Business Day following the closing of the Business Combination, holders of the Warrants shall have the right, during the period beginning on the 61st Business Day after the closing of the Business Combination and ending upon such registration statement being declared effective by the Commission, and during any other period when the Company shall fail to have maintained an effective registration statement covering the shares of Common Stock issuable upon exercise of the Warrants, to exercise such Warrants on a “cashless basis,” by exchanging the Warrants (in accordance with Section 3(a)(9) of the Securities Act or another exemption) for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Common Stock underlying the Warrants, multiplied by the difference between the Warrant Price and the “Fair Market Value” (as defined below) by (y) the Fair Market Value. Solely for purposes of this subsection 7.4.1, “Fair Market Value” shall mean the volume weighted average price of the Common Stock as reported during the ten (10) trading day period ending on the trading day prior to the date that notice of exercise is received by the Warrant Agent from the holder of such Warrants or its securities broker or intermediary. The date that notice of “cashless exercise” is received by the Warrant Agent shall be conclusively determined by the Warrant Agent. In connection with the “cashless exercise” of a Public Warrant, the Company shall, upon request, provide the Warrant Agent with an opinion of counsel for the Company (which shall be an outside law firm with securities law experience) stating that (i) the exercise of the Warrants on a “cashless basis” in accordance with this subsection 7.4.1 is not required to be registered under the Securities Act and (ii) the shares of Common Stock issued upon such exercise shall be freely tradable under United States federal securities laws by anyone who is not an affiliate (as such term is defined in Rule 144 under the Securities Act) of the Company and, accordingly, shall not be required to bear a restrictive legend. Except as provided in subsection 7.4.2, for the avoidance of any doubt, unless and until all of the Warrants have been exercised, the Company shall continue to be obligated to comply with its registration obligations under the first three sentences of this subsection 7.4.1.
11. Deletion of Section 7.4.2. Section 7.4.2 is hereby deleted in its entirety.
12. Amendment. In the event of a conflict or inconsistency between the Warrant Agreement and this Amendment, the provisions of this Amendment shall control.
13. Successors. All the covenants and provisions of this Amendment by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns.
14. Applicable Law. The validity, interpretation, and performance of this Amendment shall be governed in all respects by the laws of the State of New York, without giving effect to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction.
15. Persons Having Rights under this Amendment. Nothing in this Amendment shall be construed to confer upon, or give to, any person or corporation other than the parties hereto and the Registered Holders of the Warrants any right, remedy, or claim under or by reason of this Amendment or the Warrant Agreement or of any covenant, condition, stipulation, promise, or agreement hereof. All covenants, conditions, stipulations, promises, and agreements contained in this Amendment or the Warrant Agreement shall be for the sole and exclusive benefit of the parties hereto and their successors and assigns and of the Registered Holders of the Warrants.
16. Counterparts. This Amendment may be executed in any number of original or facsimile counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.
17. Effect of Headings. The section headings herein are for convenience only and are not part of this Amendment and shall not affect the interpretation thereof.
18. Severability. This Amendment shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Amendment or of any other term or provision hereof. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Amendment a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable.
IN ENVELOPE PROVIDED ï³PROXYTHIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORSHOSTESSWITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed, as of the date first above written.
HOSTESS BRANDS, INC. | ||
By: | ||
Name: | ||
Title: |
CONTINENTAL STOCK TRANSFER & TRUST COMPANY | ||
By: | ||
Name: | ||
Title: |
Signature Page to Amendment No. 1 to Warrant Agreement
Annex A
HOSTESS BRANDS, INC. TheundersignedappointsAndrewP.Callahan,BrianT.PurcellandJolynJ.Sebreeand eachofthem,asproxies,eachwiththepowertoappointhisorhersubstitute,andauthorizes eachofthemtorepresentandtovote,asdesignatedonthereversehereof,allofthesharesof commonstockofHostessBrands,Inc.heldofrecordbytheundersignedatthecloseofbusiness onApril29,2021attheAnnualMeetingofStockholdersofHostessBrands,
Consent Solicitation for Warrantholders
This consent form must be received by July 23, 2021
This written consent is solicited by the Board of Directors
The board of directors of Hostess Brands, Inc.,tobeheldon June28,2021at9:00a.m.localtime,oratanyadjournmentthereof.THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS INDICATED. IF NO CONTRARY INDICATION IS MADE, THE PROXY WILL BE VOTED “FOR” THE NINE NOMINEES UNDER PROPOSAL 1, “FOR” PROPOSAL 2, “FOR” PROPOSAL 3, AND IN ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED AS PROXY HEREIN ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING, THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. (the “Company”) has determined that you will have up until July 23, 2021, in each case, to return your written consent. Any written consent not returned will have the same effect as a consent returned that elects to “WITHHOLD CONSENT” on the proposals. Any warrantholder that-signs, dates and returns this consent but does not indicate whether such warrantholder consents, withholds consent or abstains from any particular proposal will be deemed to have elected to “CONSENT” to such proposal in accordance with the recommendation of the board of directors of the Company. Please note that if you submit a properly executed written consent, then your public warrants will be voted in favor of the proposed Warrant Amendments, so long as we receive your consent no later than July 23, 2021, and on or before the date on which written consents signed by a sufficient number of registered holders of public warrants are delivered to the Company. The board of directors may extend the deadline to receive written consents in its sole discretion.
The undersigned, being a holder of record of public warrants issued by Hostess Brands, Inc. as of July 6, 2021 hereby acknowledges receipt of the Company’s Consent Solicitation Statement dated July 7, 2021 and hereby approves the Warrant Amendments attached as Exhibit A to the Consent Solicitation Statement.
Please mark, sign, date and return this consent promptly, using the enclosed envelope.
(continuedContinued and to be marked, dated and signed below)
Please mark vote as indicated in this example |
WITHHOLD | CONSENT | ABSTAIN | ||||
THE BOARD OF DIRECTORS RECOMMENDS WARRANTHOLDERS CONSENT TO THE FOLLOWING AMENDMENTS:
To approve amendments to that certain Warrant Agreement, dated as of August 13, 2015, between the Company and Continental Stock Transfer & Trust Company (the “Warrant Agreement”), which amendments provide, among other things, that, upon exercise, the Warrant Price (as defined in the Consent Solicitation Statement) shall be payable through a cashless exercise by surrendering the Public Warrants for that number of shares of Class A common stock, par value $0.0001 per share (“Common Stock”), equal to the quotient obtained by dividing (x) the product of (A) the number of shares of Common Stock underlying the Warrants, multiplied by (B+C-D), where (B) is the Valuation Price (as defined in the Consent Solicitation Statement), (C) is $0.25 and (D) is the Warrant Price by (y) the Valuation Price (such amendments, the “Warrant Amendments”), a copy of which is attached to the Consent Solicitation Statement as Exhibit A.
[print name of record warrant holder] | [signature of record warrant holder] | |||||
Title or authority of authorized person, if applicable | [signature, of additional record warrant holder, if held jointly] | |||||
Date: | 2021 |
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized signatory.
Selected Quarterly Report Sections
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
These excerpts from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 (the “Form 10-Q” or “Quarterly Report”)) contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. All statements contained in this Quarterly Report other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. Statements that constitute forward-looking statements are generally identified through the inclusion of words such as “believes,” “expects,” “intends,” “estimates,” “projects,” “anticipates,” “will,” “plan,” “may,” “should,” or similar language. Statements addressing events and developments that we expect or anticipate will occur are also considered forward-looking statements. All forward-looking statements included herein are made only as of the date hereof. It is routine for our internal projections and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end of the next quarter or year. Readers of the information set forth herein are cautioned not to place undue reliance on any such forward-looking statements. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Risks and uncertainties are identified under “Risk Factors” in our Annual Report on Form 10-K/A for the year ended December 31, 2020 and in the Quarterly Report, as updated by subsequent filings. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these risk factors. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.
HOSTESS BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, amounts in thousands, except shares and per share data)
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 197,846 | $ | 173,034 | ||||
Accounts receivable, net | 159,492 | 125,550 | ||||||
Inventories | 52,144 | 49,348 | ||||||
Prepaids and other current assets | 8,468 | 21,614 | ||||||
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Total current assets | 417,950 | 369,546 | ||||||
Property and equipment, net | 306,995 | 303,959 | ||||||
Intangible assets, net | 1,962,025 | 1,967,903 | ||||||
Goodwill | 706,615 | 706,615 | ||||||
Other assets, net | 17,166 | 17,446 | ||||||
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Total assets | $ | 3,410,751 | $ | 3,365,469 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Long-term debt and lease obligations payable within one year | $ | 13,508 | $ | 13,811 | ||||
Tax receivable agreement payments payable within one year | 10,200 | 11,800 | ||||||
Accounts payable | 76,106 | 61,428 | ||||||
Customer trade allowances | 47,514 | 46,779 | ||||||
Warrant liabilities | 785 | 861 | ||||||
Accrued expenses and other current liabilities | 38,855 | 55,715 | ||||||
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Total current liabilities | 186,968 | 190,394 | ||||||
Long-term debt and lease obligations | 1,110,101 | 1,113,037 | ||||||
Tax receivable agreement obligations | 144,744 | 144,744 | ||||||
Deferred tax liability | 303,880 | 295,009 | ||||||
Other long-term liabilities | 1,575 | 1,560 | ||||||
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Total liabilities | 1,747,268 | 1,744,744 | ||||||
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Commitments and Contingencies (Note 10) | ||||||||
Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 131,184,826 and 130,347,464 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively | 13 | 13 | ||||||
Additional paid in capital | 1,290,882 | 1,281,018 | ||||||
Accumulated other comprehensive loss | (4,245 | ) | (10,407 | ) | ||||
Retained earnings | 382,833 | 356,101 | ||||||
Treasury stock | (6,000 | ) | (6,000 | ) | ||||
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Stockholders’ equity | 1,663,483 | 1,620,725 | ||||||
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Total liabilities and stockholders’ equity | $ | 3,410,751 | $ | 3,365,469 | ||||
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See accompanying notes to the unaudited consolidated financial statements.
HOSTESS BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands, except shares and per share data)
Three Months Ended | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
Net revenue | $ | 265,421 | $ | 243,485 | ||||
Cost of goods sold | 169,902 | 164,148 | ||||||
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Gross profit | 95,519 | 79,337 | ||||||
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Operating costs and expenses: | ||||||||
Advertising and marketing | 11,781 | 10,063 | ||||||
Selling expense | 8,630 | 18,120 | ||||||
General and administrative | 22,185 | 25,195 | ||||||
Amortization of customer relationships | 5,878 | 6,484 | ||||||
Business combination transaction costs | — | 4,282 | ||||||
Other operating expense | — | 27 | ||||||
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Total operating costs and expenses | 48,474 | 64,171 | ||||||
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Operating income | 47,045 | 15,166 | ||||||
Other expense (income): | ||||||||
Interest expense, net | 10,017 | 11,725 | ||||||
Change in fair value of warrant liabilities | (76 | ) | (79,100 | ) | ||||
Other expense | 363 | 553 | ||||||
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Total other expense (income) | 10,304 | (66,822 | ) | |||||
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Income before income taxes | 36,741 | 81,988 | ||||||
Income tax expense | 10,009 | 248 | ||||||
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Net income | 26,732 | 81,740 | ||||||
Less: Net income attributable to the non-controlling interest | — | 292 | ||||||
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Net income attributable to Class A stockholders | $ | 26,732 | $ | 81,448 | ||||
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Earnings per Class A share: | ||||||||
Basic | $ | 0.20 | $ | 0.66 | ||||
Diluted | $ | 0.19 | $ | 0.02 | ||||
Weighted-average shares outstanding: | ||||||||
Basic | 130,839,313 | 123,123,656 | ||||||
Diluted | 137,186,889 | 126,075,126 |
See accompanying notes to the unaudited consolidated financial statements.
HOSTESS BRANDS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, amounts in thousands)
Three Months Ended | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
Net income | $ | 26,732 | $ | 81,740 | ||||
Other comprehensive income (loss): | ||||||||
Unrealized gain (loss) on interest rate swap designated as a cash flow hedge | 7,060 | (12,789 | ) | |||||
Reclassification into net income | 1,327 | 81 | ||||||
Income tax benefit (expense) | (2,225 | ) | 3,169 | |||||
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Comprehensive income | 32,894 | 72,201 | ||||||
Less: Comprehensive loss attributed to non-controlling interest | — | (437 | ) | |||||
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Comprehensive income attributed to Class A stockholders | $ | 32,894 | $ | 72,638 | ||||
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See accompanying notes to the unaudited consolidated financial statements.
HOSTESS BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, amounts in thousands except share data)
Class A Voting Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock | Total Stockholders’ Equity | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
Balance — December 31, 2020 | 130,347 | $ | 13 | $ | 1,281,018 | $ | (10,407 | ) | $ | 356,101 | 444 | $ | (6,000 | ) | $ | 1,620,725 | ||||||||||||||||
Comprehensive income | — | — | — | 6,162 | 26,732 | — | — | 32,894 | ||||||||||||||||||||||||
Share-based compensation | 146 | — | 2,723 | — | — | — | — | 2,723 | ||||||||||||||||||||||||
Exercise of employee stock options | 20 | — | 262 | — | — | — | — | 262 | ||||||||||||||||||||||||
Exercise of public warrants | 672 | — | 7,722 | — | — | — | — | 7,722 | ||||||||||||||||||||||||
Payment of taxes for employee stock awards | — | — | (843 | ) | — | — | — | — | (843 | ) | ||||||||||||||||||||||
Reclassification of public warrants | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
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Balance — March 31, 2021 | 131,185 | $ | 13 | $ | 1,290,882 | $ | (4,245 | ) | $ | 382,833 | 444 | $ | (6,000 | ) | $ | 1,663,483 | ||||||||||||||||
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Class A Voting Common Stock | Class B Voting Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Stockholders’ Equity | Non- controlling Interest | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||
Balance — December 31, 2019 | 122,107 | $ | 12 | 8,411 | $ | 1 | $ | 1,123,805 | $ | (756 | ) | $ | 251,425 | $ | 1,374,487 | $ | 94,432 | |||||||||||||||||||
Comprehensive income (loss) | — | — | — | — | — | (8,810 | ) | 81,448 | 72,638 | (437 | ) | |||||||||||||||||||||||||
Share-based compensation, net of income taxes of $103 | 106 | — | — | — | 2,180 | — | — | 2,180 | — | |||||||||||||||||||||||||||
Exchanges | 969 | — | (969 | ) | — | 11,819 | (17 | ) | — | 11,802 | (11,802 | ) | ||||||||||||||||||||||||
Distributions | — | — | — | — | — | — | — | — | (1,613 | ) | ||||||||||||||||||||||||||
Exercise of employee stock options | 2 | — | — | — | 153 | — | — | 153 | — | |||||||||||||||||||||||||||
Payment of taxes for employee stock awards | — | — | — | — | (1,004 | ) | — | — | (1,004 | ) | — | |||||||||||||||||||||||||
Exercise of public warrants | 1 | — | — | — | 2 | — | — | 2 | — | |||||||||||||||||||||||||||
Tax receivable agreement arising from exchanges, net of income taxes of $1,341 | — | — | — | — | (1,942 | ) | — | — | (1,942 | ) | — | |||||||||||||||||||||||||
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Balance — March 31, 2020 | 123,185 | $ | 12 | 7,442 | $ | 1 | $ | 1,135,013 | $ | (9,583 | ) | $ | 332,873 | $ | 1,458,316 | $ | 80,580 | |||||||||||||||||||
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See accompanying notes to the unaudited consolidated financial statements.
HOSTESS BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
Three Months Ended | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
Operating activities | ||||||||
Net income | $ | 26,732 | $ | 81,740 | ||||
Depreciation and amortization | 12,691 | 12,821 | ||||||
Debt discount amortization | 311 | 338 | ||||||
Change in fair value of warrant liabilities | (76 | ) | (79,100 | ) | ||||
Unrealized foreign exchange losses | 123 | 286 | ||||||
Non-cash lease expense | 329 | 590 | ||||||
Share-based compensation | 2,723 | 2,077 | ||||||
Deferred taxes | 6,646 | (649 | ) | |||||
Loss on sale of assets | — | 27 | ||||||
Change in operating assets and liabilities, net of acquisitions and dispositions: | ||||||||
Accounts receivable | (34,204 | ) | (17,463 | ) | ||||
Inventories | (2,796 | ) | 5,180 | |||||
Prepaids and other current assets | 13,112 | 3,270 | ||||||
Accounts payable and accrued expenses | 6,582 | 864 | ||||||
Customer trade allowances | 680 | 3,161 | ||||||
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Net cash provided by operating activities | 32,853 | 13,142 | ||||||
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Investing activities | ||||||||
Purchases of property and equipment | (10,251 | ) | (11,323 | ) | ||||
Acquisition of business, net of cash acquired | — | (318,427 | ) | |||||
Acquisition and development of software assets | (634 | ) | (1,793 | ) | ||||
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Net cash used in investing activities | (10,885 | ) | (331,543 | ) | ||||
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Financing activities | ||||||||
Repayments of long-term debt and lease obligations | (2,792 | ) | (2,792 | ) | ||||
Proceeds from long-term debt origination, net of fees paid | — | 136,888 | ||||||
Distributions to non-controlling interest | — | (1,614 | ) | |||||
Tax payments related to issuance of shares to employees | (843 | ) | (1,004 | ) | ||||
Cash received from exercise of options and warrants | 7,984 | 155 | ||||||
Payments on tax receivable agreement | (1,600 | ) | (1,279 | ) | ||||
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Net cash used in financing activities | 2,749 | 130,354 | ||||||
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Effect of exchange rate changes on cash and cash equivalents | 95 | (873 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 24,812 | (188,920 | ) | |||||
Cash and cash equivalents at beginning of period | 173,034 | 285,087 | ||||||
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Cash and cash equivalents at end of period | $ | 197,846 | $ | 96,167 | ||||
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Supplemental Disclosures of Cash Flow Information: |
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Cash paid during the period for: |
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Interest | $ | 9,807 | $ | 10,758 | ||||
Net taxes paid (refunded) | $ | (8,191 | ) | $ | (586 | ) | ||
Supplemental disclosure of non-cash investing: |
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Accrued capital expenditures | $ | 4,026 | $ | 2,014 |
See accompanying notes to the unaudited consolidated financial statements.
HOSTESS BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business
Hostess Brands, Inc. is a Delaware corporation headquartered in Lenexa, Kansas. The consolidated financial statements include the accounts of Hostess Brands, Inc. and its subsidiaries (collectively, the “Company”). The Company is a leading packaged food company focused on developing, manufacturing, marketing, selling and distributing snack products, including sweet baked goods, cookies and wafers in North America. The Hostess® brand dates back to 1919 when Hostess® CupCake was introduced to the public, followed by Twinkies® in 1930.
Basis of Presentation
The Company’s operations are conducted through operating subsidiaries that are wholly-owned by the Company. The consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned, majority-owned or controlled subsidiaries, collectively referred to as the Company.
For the periods presented, the Company has one reportable segment.
Adoption of New Accounting Standards
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. These amendments are not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. ASU No. 2020-04 is elective and effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020. Once elected, this ASU must be applied prospectively for all eligible contract modifications. We will adopt Topic 848 when our relevant contracts are modified upon transition to alternative reference rates. We do not expect our adoption of Topic 848 to have a material impact on our consolidated financial statements.
In December 2019, ASU 2019-12 “Income Taxes: Simplifying the Accounting for Income Taxes (Topic 740)” was issued. This ASU simplifies the accounting for certain income tax related items, including intraperiod tax allocations, deferred taxes related to foreign subsidiaries and step-up in tax basis of goodwill. The ASU is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted. The company adopted the standard effective January 1, 2021. Adoption of Topic 740 did not have a material impact on the other side)Company’s consolidated financial statements.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its majority-owned or controlled subsidiaries (including those for which the Company is the primary beneficiary of a variable interest entity). All intercompany balances and transactions have been eliminated in consolidation.
HOSTESS BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements and for the reported amounts of revenues and expenses during the reporting period. Management utilizes estimates, including, but not limited to, valuation and useful lives of tangible and intangible assets, valuation of expected future payments under the tax receivable agreement, and reserves for trade and promotional allowances. Actual results could differ from these estimates.
Accounts Receivable
Accounts receivable represents amounts invoiced to customers for performance obligations which have been satisfied. As of March 31, 2021 and December 31, 2020, the Company’s accounts receivable were $159.5 million and $125.6 million, respectively, which have been reduced by an allowance for damages occurring during shipment, quality claims and doubtful accounts in the amount of $3.5 million at both March 31, 2021 and December 31, 2020.
Inventories
Inventories are stated at the lower of cost or net-realizable value on a first-in first-out basis. Abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) are expensed in the period they are incurred.
The components of inventories are as follows:
(In thousands) | March 31, 2021 | December 31, 2020 | ||||||
Ingredients and packaging | $ | 24,557 | $ | 22,965 | ||||
Finished goods | 23,483 | 23,583 | ||||||
Inventory in transit to customers | 4,104 | 2,800 | ||||||
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$ | 52,144 | $ | 49,348 | |||||
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Software Costs
Capitalized software is included in “Other assets, net” in the consolidated balance sheets in the amount of $14.4 million and $14.7 million at March 31, 2021 and December 31, 2020, respectively. Capitalized software costs are amortized over their estimated useful life of five years commencing when such assets are ready for their intended use. Software amortization expense included in general and administrative operating expense was $0.9 million for the three months ended March 31, 2021, compared to $1.3 million for the three months ended March 31, 2020.
Disaggregation of Revenue
Net revenue consists of sales of packaged food products in the United States primarily within the Sweet Baked Goods category. The Company also sells products in the United States and Canada within the Cookies category.
HOSTESS BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following tables disaggregate revenue by geographical market and category.
Three Months Ended March 31, 2021 | ||||||||||||
(In thousands) | Sweet Baked Goods | Cookies | Total | |||||||||
United States | $ | 237,700 | $ | 23,803 | $ | 261,503 | ||||||
Canada | — | 3,918 | 3,918 | |||||||||
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$ | 237,700 | $ | 27,721 | $ | 265,421 | |||||||
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Three Months Ended March 31, 2020 | ||||||||||||
(In thousands) | Sweet Baked Goods | Cookies | Total | |||||||||
United States | $ | 226,361 | $ | 13,307 | $ | 239,668 | ||||||
Canada | — | 3,817 | 3,817 | |||||||||
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$ | 226,361 | $ | 17,124 | $ | 243,485 | |||||||
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Concentrations
The Company has one customer (together with its affiliates) that accounted 20.5% and 21.1% of total net revenue for the three months ended March 31, 2021 and 2020, respectively.
Foreign Currency Remeasurement
Certain Voortman Cookies Limited (“Voortman”) sales and costs are denominated in the Canadian dollar (“CAD”). CAD transactions have been remeasured into U.S. dollars (“USD”) on the consolidated statement of operations using the average exchange rate for the reporting period. Balances expected to be settled in CAD have been remeasured into USD on the consolidated balance sheet using the exchange rate at the end of the period. The Company recognized losses on remeasurement of less than $0.1 million during both the three months ended March 31, 2021 and 2020, reported within other expense on the consolidated statement of operations.
2. Property and Equipment
Property and equipment consists of the following:
(In thousands) | March 31, 2021 | December 31, 2020 | ||||||
Land and buildings | $ | 61,594 | $ | 59,774 | ||||
Right of use assets, operating | 31,169 | 31,354 | ||||||
Machinery and equipment | 265,615 | 255,821 | ||||||
Construction in progress | 20,385 | 25,041 | ||||||
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378,763 | 371,990 | |||||||
Less accumulated depreciation and amortization | (71,768 | ) | (68,031 | ) | ||||
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$ | 306,995 | $ | 303,959 | |||||
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Depreciation expense was $5.8 million for the three months ended March 31, 2021, compared to $5.0 million for the three months ended March 31, 2020.
HOSTESS BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. Accrued Expenses and Other Current Liabilities
Included in accrued expenses and other current liabilities are the following:
(In thousands) | March 31, 2021 | December 31, 2020 | ||||||
Payroll, vacation and other compensation | $ | 12,606 | $ | 9,886 | ||||
Interest rate swap contract | 5,307 | 13,694 | ||||||
Incentive compensation | 5,216 | 16,199 | ||||||
Accrued interest | 4,724 | 4,815 | ||||||
Other | 11,002 | 11,121 | ||||||
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$ | 38,855 | $ | 55,715 | |||||
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4. Debt and Lease Obligations
A summary of the carrying value of the debt and lease obligations is as follows:
(In thousands) | March 31, 2021 | December 31, 2020 | ||||||
Term Loan (3.0% as of March 31, 2021) | ||||||||
Principal | $ | 1,099,972 | $ | 1,102,763 | ||||
Unamortized debt premium and issuance costs | (4,607 | ) | (4,917 | ) | ||||
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1,095,365 | 1,097,846 | |||||||
Lease obligations | 28,244 | 29,002 | ||||||
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Total debt and lease obligations | 1,123,609 | 1,126,848 | ||||||
Less: Current portion of long term debt and lease obligations | (13,508 | ) | (13,811 | ) | ||||
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Long-term portion | $ | 1,110,101 | $ | 1,113,037 | ||||
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At March 31, 2021, minimum debt repayments under the term loan are due as follows:
(In thousands) | ||||
2021 | $ | 8,376 | ||
2022 | 11,167 | |||
2023 | 11,167 | |||
2024 | 11,167 | |||
2025 | 1,058,095 |
Leases
The Company entered into operating leases for certain properties which expire at various times through 2026. The Company determines if an arrangement is a lease at inception.
At March 31, 2021 and 2020, right of use assets related to operating leases are included in property and equipment, net on the consolidated balance sheet (see Note 2. Property and Equipment). As of March 31, 2021 and 2020, the Company has no outstanding financing leases. Lease liabilities for operating leases are included in the current and non-current portions of long-term debt and lease obligations on the consolidated balance sheet.
HOSTESS BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The table below shows the composition of lease expenses:
Three Months Ended | ||||||||
(In thousands) | March 31, 2021 | March 31, 2020 | ||||||
Operating lease expense | 1,653 | 1,795 | ||||||
Short-term lease expense | 203 | 1,014 | ||||||
Variable lease expense | 357 | 554 | ||||||
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$ | 2,213 | $ | 3,363 | |||||
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5. Derivative Instruments
Warrants
As of March 31, 2021 and December 31, 2020, there were 52,594,188 and 53,936,776 public warrants outstanding, respectively, and 541,658 private placement warrants outstanding. Each warrant entitles its holder to purchase one-half of one share of Class A common stock at an exercise price of $5.75 per half share, to be exercised only for a whole number of shares of Class A common stock. The warrants expire on November 4, 2021, or earlier upon redemption or liquidation. The Company may call the outstanding public warrants for redemption at a price of $0.01 per warrant, if the last sale price of the Company’s common stock equals or exceeds $24.00 per share for any 20 trading days within a 30-trading day period ending on the third business day before the Company sends the notice of redemption to the warrant holders. The private placement warrants, however, are nonredeemable so long as they are held by Gores Sponsor, LLC or its permitted transferees. The potential resale of the private placement warrants to the public warrants has been registered with the SEC. When sold to the public, the private placement warrants will become public warrants.
The warrant agreement contains a tender offer provision that when paired with a two-class equity structure causes all warrants to be precluded from equity classification. Subsequent to the collapse of the two-class structure in November 2020 when all remaining Class B shares were exchanged for Class A shares, the tender offer provision no longer precludes the public warrants from being equity-classified. As a result, the $68.0 million liability related to the public warrants was reclassified to equity in November 2020. There are provisions specific to the private warrants which cause them to continue to be liability-classified subsequent to the exchange. As of March 31, 2021, the outstanding private warrants remain liability classified and subject to fair value measurement. The value of the each public warrant up until they were no longer classified as liabilities was based on the public trading price of warrant (Level 1 fair value measure). The fair value of each private warrant was evaluated and determined to be substantially the same as that of a public warrant and therefore considered to be a Level 2 fair value measure. The fair value of the warrants is measured on a recurring basis by comparison to available market information. Gains and losses related to the warrants are reflected in the change in fair value of warrant liabilities in the consolidated statement of operations.
The Company entered into interest rate swap contracts with counter parties to make a series of payments based on fixed rates ranging from 1.11% to 1.78% and receive a series of payments based on the greater of LIBOR or 0.75%. Both the fixed and floating payment streams are based on the March 31, 2021 notional amount of $700 million reducing by $100 million each year, until $500 million remains outstanding through August 2025. The Company entered into these transactions to reduce its exposure to changes in cash flows associated with its variable rate debt and has designated these derivatives as cash flow hedges. At March 31, 2021, the effective fixed interest rate on the long-term debt hedged by these contracts ranged from 3.76% to 4.03%.
To reduce the effect of fluctuations in CAD denominated expenses relative to their US dollar equivalents originating from its Canadian operations, the Company entered into CAD purchase contracts. The contracts
HOSTESS BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
provide for the Company to sell a total of $8.6 million USD for $11.0 million CAD at varying defined settlement dates through the end of 2021. The Company has designated these contracts as cash flow hedges.
In connection with the agreement to purchase Voortman, the Company entered into a deal-contingent foreign currency contract to hedge the $440 million CAD forecasted purchase price and a portion of the subsequent expected conversion costs. The contract was settled in cash following the completion of the purchase on January 3, 2020.
A summary of the fair value of interest rate and foreign currency instruments is as follows:
(In thousands) | March 31, 2021 | December 31, 2020 | ||||||||
Liability derivatives | Location | |||||||||
Interest rate swap contracts (1) | Accrued expenses | $ | 5,307 | $ | 13,688 | |||||
Foreign currency contracts (2) | Accrued expenses | $ | — | $ | 6 | |||||
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$ | 5,307 | $ | 13,694 | |||||||
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(1) | The fair values of these contracts are measured on a recurring basis by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves (Level 2). |
(2) | The fair values of foreign currency contracts are measure on a recurring basis by comparison to available market information on similar contracts (Level 2). |
A summary of the gains and losses related to interest rate and foreign currency instruments in the consolidated statement of operations is as follows:
Three Months Ended | ||||||||||
(In thousands) | March 31, 2021 | March 31, 2020 | ||||||||
Gain on derivative contracts designated as cash flow hedges | Location | |||||||||
Interest rate swap contracts | Interest expense, net | $ | 1,327 | $ | 81 | |||||
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Loss on other derivative contracts | Location | |||||||||
Foreign currency contracts | Other expense | $ | — | $ | (255 | ) | ||||
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6. Earnings per Share
Basic earnings per share is calculated by dividing net income attributable to the Company’s Class A stockholders for the period by the weighted average number of shares of Class A common stock outstanding for the period excluding non-vested share-based awards. In computing diluted earnings per share, basic earnings per share is adjusted for the assumed issuance of all applicable potentially dilutive share-based awards including public and private placement warrants, RSUs and stock options.
HOSTESS BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Below are basic and diluted net income per share:
Three Months Ended | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
Numerator: | ||||||||
Net income attributable to Class A stockholders (in thousands) — basic | $ | 26,732 | $ | 81,448 | ||||
Less: Change in fair value of warrant liabilities | (76 | ) | (79,100 | ) | ||||
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Numerator — diluted | 26,656 | 2,348 | ||||||
Denominator: | ||||||||
Weighted-average Class A shares outstanding — basic | 130,839,313 | 123,123,656 | ||||||
Dilutive effect of warrants | 5,830,238 | 2,662,441 | ||||||
Dilutive effect of RSUs | 414,314 | 289,029 | ||||||
Dilutive effect of stock options | 103,024 | — | ||||||
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Weighted-average shares outstanding — diluted | 137,186,889 | 126,075,126 | ||||||
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Net income per Class A share — basic | $ | 0.20 | $ | 0.66 | ||||
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Net income per Class A share — diluted | $ | 0.19 | $ | 0.02 | ||||
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For warrants that are liability-classified, during periods when the impact would be dilutive, the Company assumes share settlement of the instruments as of the beginning of the reporting period and adjusts the numerator to remove the change in fair value of the warrant liability and adjusts the denominator to include the dilutive shares calculated using the treasury stock method.
For the three months ended March 31, 2021 and 2020, there were 123,998 and 523,643 stock options that were excluded from the computation of diluted weighted average shares because the effect was anti-dilutive.
7. Income Taxes
The Company is subject to U.S. federal, state and local income taxes as well as Canadian income tax on its controlled foreign subsidiaries. The income tax provision is determined based on the estimated full year effective tax rate, adjusted for infrequent or unusual items, which are recognized on a discrete basis in the period they occur. The Company’s estimated annual effective tax rate is approximately 27% prior to taking into account any discrete items.
The effective tax rate was 27.2% and 0.3% for the three months ended March 31, 2021 and 2020, respectively. The effective tax rate for the three months ended March 31, 2021 aligned with the Company’s estimated annual effective rate. The increase in tax rate is primarily attributed to the $79.1 million change in fair value of warrant liabilities in the prior-year period, which is a non-taxable gain. The effective rate was also impacted by the removal of the non-controlling interest in the current-year period and a write-off of deferred taxes in the prior-year period related to Voortman. As of March 31, 2021 and December 31, 2020, prepaid income taxes were $0.9 million and $12.3 million, respectively.
HOSTESS BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. Tax Receivable Agreement Obligations
The following table summarizes activity related to the Tax Receivable Agreement for the three months ended March 31, 2021:
(In thousands) | ||||
Balance December 31, 2020 | $ | 156,544 | ||
Payments | (1,600 | ) | ||
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Balance March 31, 2021 | $ | 154,944 | ||
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As of March 31, 2021 the future expected payments under the tax receivable agreement are as follows:
(In thousands) | ||||
2021 | $ | 10,200 | ||
2022 | 9,000 | |||
2023 | 9,700 | |||
2024 | 9,900 | |||
2025 | 9,800 | |||
Thereafter | 106,344 |
9. Commitments and Contingencies
Liabilities related to legal proceedings are recorded when it is probable that a liability has been incurred and the associated amount can be reasonably estimated. Where the estimated amount of loss is within a range of amounts and no amount within the range is a better estimate than any other amount, the minimum amount is accrued. As additional information becomes available, potential liabilities are reassessed and the estimates revised, if necessary. Any accrued liabilities are subject to change in the future based on new developments in each matter, or changes in circumstances, which could have a material effect on the Company’s financial condition and results of operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources of Hostess Brands, Inc. This discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included herein, and our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K/A for the year ended December 31, 2020. The terms “our”, “we,” “us,” and “Company” as used herein refer to Hostess Brands, Inc. and its consolidated subsidiaries.
Overview
We are a leading North America packaged food company which produces several types of sweet baked goods (“SBG”) as well as cookie and wafer products. Our direct-to-warehouse (“DTW”) product distribution system allows us to deliver to our customers’ warehouses. Our customers in turn distribute to the retail stores.
Hostess® is the second leading brand by market share within the SBG category, according to Nielsen U.S. total universe. For the 13-week period ended April 3, 2021, our branded SBG products (which include Hostess®, Dolly Madison®, Cloverhill® and Big Texas®) market share was 20.7% per Nielsen’s U.S. SBG category data.
Factors Impacting Recent Results
Acquisition
On January 3, 2020, we completed the acquisition of all of the shares of the parent company of Voortman Cookies Limited (“Voortman”), a manufacturer of premium, branded wafers as well as sugar-free and specialty cookies. By adding the Voortman® brand, we expect to have greater growth opportunities provided by a more diverse portfolio of brands and products. Our consolidated statement of operations includes the operation of these assets from January 3, 2020 through March 31, 2021.
COVID-19
The acute and far-reaching impact of the COVID-19 pandemic and actions taken by governments to contain the spread of the virus have impacted our operations during the three months ended March 31, 2021 and 2020. As consumers prepared for extended stays at home, we experienced an increase in consumption during the first and second quarter, particularly in our multi-pack products sold through grocery and mass retailer channels. Conversely, we experienced lower consumption of single-serve products, which are often consumed away from home. This trend moderated during the remainder of 2020, and in the first quarter of 2021 we have experienced continued strong demand in our multi-pack products as well as an increase in our immediate consumption single-serve business as mobility increases. However, we cannot predict if these trends will sustain or reverse in future periods.
At the start of the pandemic, we established a task force to monitor the rapidly evolving situation and recommend risk mitigation actions as deemed necessary. To date, we have experienced minimal disruption to our supply chain or distribution network, including the supply of our ingredients, packaging or other sourced materials, though it is possible that more significant disruptions could occur if the COVID-19 pandemic continues to impact markets around the world. We are also working closely with all of our contract manufacturers, distributors and other external business partners. As a food producer, we are an essential service and our production and distribution facilities have continued to operate. To protect our employees and ensure continuity of operations, we have implemented additional security and sanitation measures in all of our facilities. We are monitoring our employees’ health and providing additional resources and protocols to enable effective social distancing and adherence to our stringent internal food safety guidelines, industry best practices and evolving CDC guidelines. Many non-production team members, including sales, marketing and corporate employees, are adhering to social distancing guidelines by working from home and reducing person-to-person contact while supporting our ability to bring products to consumers.
Starting in late 2020, several vaccines have been authorized for use against COVID-19 in the United States and internationally. As a result of the distribution of these vaccines, various federal state and local governments have begun to ease the movement restrictions and initiatives while continuing to require social distancing and face mask protocols. However, uncertainty continues to exist regarding the severity and duration of the pandemic, the speed and effectiveness of vaccine and treatment developments and deployment, potential variants of COVID-19, and the effect of actions taken and that will be taken to contain COVID-19 or treat its effect, among others.
Under the provisions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, we were able to defer the payment of $5.6 million of 2020 employer payroll taxes until the second quarter of 2021. Apart from this deferral and their impact on the general economy, including the labor market and consumer demand, neither the CARES Act, the American Rescue Plan enacted in the first quarter of 2021, nor any other government program intended to address COVID-19 had any material impact on our consolidated financial statements for the three months ended March 31, 2021 or 2020. We continue to monitor any effects that may result from the CARES Act and other stimulus programs.
Operating Results
Three Months Ended | ||||||||
(In thousands, except per share data) | March 31, 2021 | March 31, 2020 | ||||||
Net revenue | $ | 265,421 | $ | 243,485 | ||||
Gross profit | 95,519 | 79,337 | ||||||
As a % of net revenue | 36.0 | % | 32.6 | % | ||||
Operating costs and expenses | $ | 48,474 | $ | 64,171 | ||||
Operating income | 47,045 | 15,166 | ||||||
Other (income) expense | 10,304 | (66,822 | ) | |||||
Income tax expense | 10,009 | 248 | ||||||
Net income | 26,732 | 81,740 | ||||||
Net income attributable to Class A stockholders | 26,732 | 81,448 | ||||||
Earnings per Class A share: | ||||||||
Basic | 0.20 | 0.66 | ||||||
Diluted | 0.19 | 0.02 |
Results of Operations
Net Revenue
Net revenue for the three months ended March 31, 2021 was $265.4 million, an increase of 9.0%, or $21.9 million, compared to $243.5 million for the three months ended March 31, 2020. Sweet baked goods net revenue increased $11.3 million, primarily driven by higher volume of core Hostess® branded products partially offset by lower sales of private label and non-Hostess® branded products. Cookies net revenue increased $10.6 million due to the strong demand and expanded distribution of Voortman® branded products following the transition of the Voortman business to the warehouse distribution model during the first quarter of 2020.
Gross Profit
Gross profit for the three months ended March 31, 2021 was $95.5 million, or 36.0% of net revenue, compared to $79.3 million, or 32.6% of net revenue for the three months ended March 31, 2020. The increase was driven primarily by higher volume of Hostess® branded products and favorable mix. Additionally, the increase was driven by the realization of Voortman synergies and productivity efficiencies as the Voortman business was not yet transitioned to the warehouse distribution model and fully integrated in the first quarter of 2020.
Operating Costs and Expenses
Operating costs and expenses for the three months ended March 31, 2021 were $48.5 million, compared to $64.2 million for the three months ended March 31, 2020. The decrease was primarily attributed to prior year expenses incurred for the integration and conversion of Voortman’s operations and the realization of operating cost synergies.
Other (Income) Expense
Other expense for the three months ended March 31, 2021 was $10.3 million compared to other income of $66.8 million for the three months ended March 31, 2020 primarily as a result of the $79.1 million gain on change in fair value of our liability-classified warrants in the three months ended March 31, 2020. Interest expense on our term loans was $9.7 million and $11.5 million for the three months ended March 31, 2021 and 2020, respectively. Interest expense on our term loan decreased in the current year due to the fluctuations in LIBOR.
Income Taxes
Our effective tax rate for the three months ended March 31, 2021 was 27.2% compared to 0.3% for the three months ended March 31, 2020. The increase in tax rate is primarily attributed to the $79.1 million change in fair value of warrant liabilities in the prior-year period, which is a non-taxable gain. The effective rate was also impacted by the removal of the non-controlling interest in the current-year period and a write-off of deferred taxes in the prior-year period related to Voortman.
Liquidity and Capital Resources
Our primary sources of liquidity are from cash on hand, future cash flow generated from operations, and availability under our revolving credit agreement (“Revolver”). We believe that cash flows from operations and the current cash and cash equivalents on the balance sheet will be sufficient to satisfy the anticipated cash requirements associated with our existing operations for at least the next 12 months. Our future cash requirements include the purchase commitments for certain raw materials and packaging used in our productions process, scheduled rent on leased facilities, scheduled debt service payments on our term loan and settlements on related interest rate swap contracts, payments on our Tax Receivable Agreement, settlements on our outstanding foreign currency contracts and outstanding purchase orders on capital projects.
Our ability to generate sufficient cash from our operating activities depends on our future performance, which is subject to general economic, political, financial, competitive and other factors beyond our control. In addition, our future acquisitions and other cash requirements could be higher than we currently expect as a result of various factors, including any expansion of our business that we undertake, including acquisitions. We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
We had working capital, excluding cash, as of March 31, 2021 and December 31, 2020 of $33.1 million and $6.1 million, respectively. We have the ability to borrow under the Revolver to meet obligations as they come due. As of March 31, 2021, we had approximately $94.5 million available for borrowing, net of letters of credit, under the Revolver.
Cash Flows from Operating Activities
Cash flows provided by operating activities for the three months ended March 31, 2021 and 2020 were $32.9 million and $13.1 million, respectively. Operating cash flow increased primarily due to the Voortman transition costs paid in 2020, partially offset by an increase in accounts receivable.
Cash Flows from Investing Activities
Cash used in investing activities for the three months ended March 31, 2021 and 2020 were $10.9 million and $331.5 million, respectively. During the three months ended March 31, 2020, we funded the CAD $423 million purchase price of Voortman with cash on hand and the proceeds from an incremental term loan on our existing credit facility. Cash used for purchase of property and equipment reflects continued innovation through investments in new bakery lines and equipment.
Cash Flows from Financing Activities
Cash flows from financing activities were $2.7 million and $130.4 million for the three months ended March 31, 2021 and 2020, respectively. Financing activity for the current year primarily consists of cash received from the exercise of warrants partially offset by regular debt service payments. During 2020, cash proceeds of $140.0 million from the incremental term loan used to finance the purchase of Voortman were offset by related charges of $3.1 million.
Long-Term Debt
As of March 31, 2021, $1,100.0 million aggregate principal amount of the Term Loan was outstanding and letters of credit worth up to $5.5 million aggregate principal amount were available, reducing the amount available under the Revolver. We had no outstanding borrowings under our Revolver as of March 31, 2021. As of March 31, 2021, we were in compliance with the covenants under the Term Loan and the Revolver.
Contractual Obligations and Commitments
There were no material changes, outside the ordinary course of business, in our outstanding contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K/A for the year ended December 31, 2020.
B-18