Sec Form 13D Filing - JANA PARTNERS LLC filing for Freshpet Inc. (FRPT) - 2023-06-01

71.             Freshpet considered JANA’s request, but requested that resolution of the Board conflict and governance issues be postponed until after the JANA-appointed directors joined the Board; JANA indicated it was open to that possibility. During those discussions, the Company gave no indication that there would be only three Board seats up for election at the Annual Meeting.

72.             At the conclusion of the May 11 call, JANA specifically noted that Mr. Ostfeld would be travelling internationally on business during the week beginning Monday, May 15, and would therefore be largely unavailable at that time. Given that, JANA requested that Freshpet respond to its proposal either before or after the week of May 15.

73.             The next day, May 12, Director Steeneck called Mr. Ostfeld to convey the Board’s position that the potential addition of Director Biegger to the Board should sufficiently address JANA’s concerns about the Company, and the Board was not interested in a settlement beyond that change.

74.             Surprised by that response, Mr. Ostfeld suggested that JANA and Freshpet continue their dialogue. Rather than responding to Mr. Ostfeld’s suggestion and knowing that Mr. Ostfeld was traveling for business, the Board acted abruptly in an effort to obtain an unwarranted strategic advantage and entrench itself in office.

75.             In response to JANA’s good faith efforts to engage in cooperative, productive discussions, the Board chose gamesmanship and ambush over cooperation in the best interests of the Company and its stockholders.

76.             On May 17, 2023, the Company filed a Form 8-K, announcing three key developments.⁴

77.             First, the Board increased its size from ten to eleven directors, and appointed Director Biegger to fill the newly created position as a Class I director. As a result, Director Biegger will not stand for election until the Company’s annual meeting in 2024.

78.             Second, the Company announced that Director Norris will retire as of the 2023 Annual Meeting and, accordingly, will not stand for re-election. The Company further announced that, upon Director Norris’s retirement, the size of the Board will be decreased back down to ten. That move will reduce the number of Class III seats up for election at the 2023 Annual Meeting from four to three, and, in effect move a Class III seat to Class I.

79.             Third, the Company announced that its 2023 Annual Meeting would be held on July 25, 2023—a significant acceleration from the Company’s historical practice of holding its annual meeting in mid-September or early October (as it had done since at least 2015).

80.             Pursuant to operation of the Company’s Bylaws, by moving the date of the 2023 Annual Meeting, the deadline to nominate candidates for election to the Board was accelerated from July 5, 2023 to May 27, 2023. Further, the nomination window was reduced from thirty days to ten days. In fact, because May 27, 2023, the tenth day, fell on a Saturday, the Bylaws required that nominations be submitted by May 26, giving stockholders only nine days to submit nominations.

81.             On May 24, 2023, JANA sent a letter to the Company’s stockholders to raise its serious concerns about the Board’s actions and to reiterate its intention to nominate four directors. In addition, JANA filed a third amendment to its Schedule 13D to report that it beneficially owned 9.3% of the Company’s outstanding common shares.

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⁴ Freshpet, Inc., Form 8-K (May 17, 2023), https://www.sec.gov/Archives/edgar/

data/1611647/000121390023040862/ea178794-8k_freshpet.htm.

82.             The next day, on May 25, 2023, outside counsel for JANA sent a letter to the Board asserting that the Board’s May 17 actions were in breach of the Board’s fiduciary duties. JANA demanded that the Board return the size of Class III to four directors to allow stockholders an opportunity to vote on all four Board seats at the 2023 Annual Meeting.

83.             On May 25, 2023, Freshpet issued a press release in response to JANA’s demand, which falsely asserted that JANA—not the Board—had rejected the settlement that the parties were negotiating. That is grossly misleading. As noted above, although JANA had rejected the Board’s May 12 proposal because it was unacceptable, JANA believed the parties were in active settlement negotiations, and were working towards a solution, when the Board ambushed JANA with its May 17 disclosure.

84.             On May 30, 2023, the Company’s counsel responded to JANA’s May 25, 2023 letter, and attempted to defend the Board’s May 17 actions. None of its purported justifications holds water.

85.             First, the Company contended that JANA knew all along that only three board seats would be up for election at the 2023 Annual Meeting due to the Chairman’s anticipated retirement:

As disclosed in the Company’s 2021 proxy statement, Mr. Norris was then 75, and no other director was more than 64. It should have been clear to JANA that the retirement policy would result in Mr. Norris not standing for re-election at the 2023 Annual Meeting. … In light of the foregoing, we are skeptical that JANA ever believed that Mr. Norris would stand for re-election at the 2023 Annual Meeting, nor therefore believed that four director seats would be up for election.

86.             Not so. Notwithstanding the Chairman’s impending retirement from the Board, nothing prevents the Company from nominating another individual for election to his soon-to-be vacant seat. Notably, the Company has not contended otherwise and had itself discussed a “replacement” for the Chairman.

87.             Further, the fact that JANA had, months earlier, disclosed that it had entered into nomination agreements with four individuals for election to the Board at the Company’s 2023 Annual Meeting belies counsel’s claim that JANA expected only three seats to be up for election.

88.             Second, Defendants advanced a “we had to do it” defense as to why Director Biegger was added to Class I, which requires an utter suspension of disbelief. The Company explained its action as follows:

On May 17, 2023, the Company announced Mr. Biegger’s appointment as a Class I director. The terms of the Charter mandated Mr. Biegger’s designation as a Class I director.…

As you acknowledge, the Charter requires that directors “be divided into three classes as nearly equal in size as is practicable, designated Class I, Class II and Class III.” The Charter further provides that “[if] the number of directors divided into classes as set forth herein is hereafter changed, any newly created directorship(s) . . . shall be so apportioned among the classes as to make all classes as nearly equal in number as practicable.”

Put simply, if the Board had done what JANA now seemingly demands (appointing Mr. Biegger into Class III), the Board would have violated the Charter.

89.             The Board’s excuses ring particularly hollow given that Class I has consisted of only two directors since September 24, 2020, when former director Robert C. King resigned. The Board made no effort to replace Mr. King in the almost three years since his resignation. Yet suddenly—when faced with a proxy contest—the Board developed a keen interest in evening out class sizes.

90.             Omitted from the Company’s explanation is the obvious: There was no need to expand the Board from ten to eleven members for a mere nine weeks to enable the appointment of Director Biegger. Nor was there a need to eliminate the eleventh seat once created—tellingly, the Board has provided no explanation as to why it needed to do so.

91.             The convoluted expansion and then contraction of the Board was plainly done in a manner designed to reduce the number of seats up for election at the 2023 Annual Meeting, thus depriving stockholders of their right to vote for a fourth director at that meeting. And, contrary to counsel’s claim, Section 2 of the Company’s Certificate does not alter that conclusion.

92.             Section 2 of the Certificate provides, “[i]f the number of directors divided into classes as set forth herein is hereafter changed, any newly created directorship(s), or any decrease in the number of directors shall be so apportioned among the classes as to make all classes as nearly equal in number as practicable.”

93.             Here, the “change” in the number of directors is illusory because the eleventh Board seat will exist for a period of just nine weeks, at which point it will be promptly eliminated. As such, the change is a pretext for the Board to improperly redistribute a seat from Class III to Class I in order to shield it from stockholder accountability at the 2023 Annual Meeting.

94.             Finally, as to moving up the nomination window, the Company claimed that “the change results in the terms of the incumbent directors up for re-election at the 2023 Annual Meeting being shortened by two months, and provides an earlier opportunity for the election of JANA’s slate of directors in lieu of incumbent directors. This is the opposite of entrenchment.”

95.             Putting aside that this position is entirely devoid of context and common sense, the 2023 Annual Meeting likely was moved up for the additional reasons of catching JANA off guard, thereby impeding its proxy solicitation efforts, as well as (on information and belief) to enable the appointment of the Board’s second director candidate outside of an annual meeting.

I.                  JANA’s Nominees

96.             JANA timely submitted its nominations by e-mail on May 25, 2023 and by hand on May 26, 2023.

97.             JANA’s nominees, Ms. Dietz, Mr. McLevish, Mr. Schmidt, and Mr. Ostfeld, are all highly qualified and well-equipped to address the Company’s financial shortcomings and resolve troublesome conflicts of interest.

98.             Ms. Dietz has served on the board of directors for Whirlpool Corporation since January 2013 and was previously President and CEO of Rodan & Fields, LLC (a premium skincare brand); Executive Vice President and Chief Marketing Officer for Safeway Inc.; and Executive Vice President of Oral Care at the Procter & Gamble Company.

99.             Mr. McLevish is a Managing Partner of Strategic Advisory Partners LLC and in the past, held various positions with Kraft Foods Group, Inc., including Executive Vice President and CFO, and Walgreens Boots Alliance, including CFO, and has served on the board of several other public companies.

100.        Mr. Schmidt is currently a director for Campbell Soup Company and previously served as the CEO and director of Blue Buffalo Company, a pet food company.

101.        Mr. Ostfeld, in addition to his role as Managing Partner of JANA, serves as a director of TreeHouse Foods, Inc. and previously served as a director of Conagra Brands, Inc.

STANDARD OF REVIEW

102.        The Director Defendants reduced the size of the Class III directors for the primary purpose of precluding stockholders, particularly JANA, from exercising their fundamental right to nominate a slate of directors for election at the 2023 Annual Meeting, thereby entrenching themselves in office.

103.        Notably, the Board undertook these actions not on a clear day, but, rather, in the face of an impending proxy contest in which JANA has expressed its intention to nominate four candidates for election to the Board, and mere days after settlement discussions with JANA had failed.

104.        It is well-settled that a board of directors may not “utilize the corporate machinery and the Delaware Law for the purpose of perpetuating itself in office” by “obstructing the legitimate efforts of dissident stockholders in the exercise of their rights to undertake a proxy contest” against the incumbent board. Schnell v. Chis-Craft Indus., Inc., 285 A.2d 437, 439 (Del. 1971); see also Giuricich v. Emtrol Corp., 449 A.2d 232, 239 (Del. 1982) (noting that “careful judicial scrutiny will be given a situation in which the right to vote for the election of successor directors has been effectively frustrated and denied”).

105.        That is precisely what the Board has done. By reducing the number of Board seats up for election at the 2023 Annual Meeting, the Board has obstructed JANA’s legitimate efforts to undertake a proxy contest.

106.        Where, as here, a board of directors manipulates “the size of its membership for the primary purpose of impeding and interfering with the effectiveness of a stockholder vote in a contested election for directors,” the board’s action is invalid unless it can demonstrate both a “compelling justification” for the action and that the action was a “proportionate and reasonable” defensive measure. MM Cos., Inc. v. Liquid Audio, Inc., 813 A.2d 1118 (Del. 2003) (invalidating board expansion undertaken “for the primary purpose of diminishing the influence of [insurgent’s] two nominees on a five-member Board”). The Board cannot make any such showing.

107.        Moreover, even assuming that the Board was acting in good faith to reapportion directors across classes pursuant to the Certificate’s requirement that the classes be “as nearly equal in size as is practicable,” that justification is still insufficient to uphold the Board’s action in the face of an impending proxy contest. See Liquid Audio, 813 A.2d at 1129 (under Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 663 (Del. Ch. 1988), an “incumbent board of directors’ good faith beliefs [are] not a proper basis for interfering with the stockholder franchise in a contested election for successor directors”).

108.        Under settled Delaware precedent, the Board’s attempt to entrench itself and disenfranchise the Company’s stockholders cannot stand.

COUNT I

(Declaratory Judgment)

109.        Plaintiffs incorporate by reference and reallege the preceding paragraphs as if fully set forth herein.

110.        The Director Defendants reduced the size of the Class III directors, thereby reducing the number of directors standing for election at the 2023 Annual Meeting, in the face of a pending proxy contest with JANA, and for the primary purpose of entrenching the incumbent directors in office. In addition, in response to JANA’s demand, the Director Defendants refused to restore the fourth Class III seat for election at the 2023 Annual Meeting.

111.        The Director Defendants have no compelling justification for their actions. Nor are the Board’s actions reasonable or proportionate to any threat posed.

112.        Plaintiffs are entitled to a declaratory judgment that the Director Defendants breached their fiduciary duties by reducing in the number of directors standing for election at the 2023 Annual Meeting.

113.        Plaintiffs have no adequate remedy at law.

COUNT II

(Breach of Fiduciary Duty of Loyalty)

114.        Plaintiffs incorporate by reference and reallege the preceding paragraphs as if fully set forth herein.

115.        The Director Defendants owed and continue to owe Freshpet’s stockholders—including Plaintiffs—the highest duties of loyalty and good faith. Each director and officer’s fiduciary duties require the director and/or officer to refrain from taking steps to improperly interfere with the stockholder franchise, including the right to nominate directors for election.

116.        The Director Defendants have abused the corporate machinery in an illegitimate attempt to prevent a stockholder proxy contest and prevent the Company’s stockholders from having a choice in the election of directors.

117.        The Director Defendants had no legitimate basis to effectively redistribute a director seat from Class III to Class I, as announced on May 17, 2023. The Director Defendants took such actions in violation of their fiduciary duties to protect the Board’s seats from a stockholder challenge and for the purpose of entrenching themselves in office. Likewise, the Director Defendants improperly refused JANA’s request that they restore the fourth Class III seat for election at the 2023 Annual Meeting.

118.        The Director Defendants had neither a compelling justification nor a practical reason for effectively redistributing the Board seats. The Board’s actions were not taken on a clear day— JANA had publicly disclosed that it had the nomination agreements with Ms. Dietz, Mr. Lillie, Mr. McLevish, and Mr. Schmidt, JANA had expressed an interest in obtaining representation on Freshpet’s Board, and JANA had been negotiating with certain of the Director Defendants for significant amounts of time regarding a possible settlement that would involve a change in the composition of the Board.

119.        Nor are the Board’s actions reasonable or proportionate to any threat posed. Rather, the Director Defendants’ primary purpose in redistributing the Board seats was to preclude Plaintiffs from nominating four candidates for election to the Board.

120.        The Director Defendants have acted unlawfully and in bad faith to entrench themselves in office by decreasing the number of director seats standing for election at the 2023 Annual Meeting, and therefore preventing JANA from presenting alternative candidates to stockholders, consistent with Plaintiffs’ franchise rights.

121.        The Director Defendants’ misuse of the corporate machinery to impede the exercise of the shareholders’ franchise and entrench themselves in office constitutes a clear violation of their fiduciary duties under Delaware law.

122.        Plaintiffs have no adequate remedy at law.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs respectfully request the Court grant the following relief:

Dated: June 1, 2023

EXHIBIT K 

JANA PARTNERS FILES LAWSUIT TO STOP FRESHPET BOARD’S HIGHLY ENTRENCHING ACTIONS
INTENDED TO DISENFRANCHISE SHAREHOLDERS AND MANIPULATE SHAREHOLDER VOTE

Believes Reduction in Number of Directors up for Election at 2023 Annual Meeting is a Clear Violation of Delaware Law and Constitutes Breach of Fiduciary Duties

Seeks Expedited Proceedings in Delaware Chancery Court 

NEW YORK – June 1, 2023 – JANA Partners (“JANA”), which along with its affiliates and partners owns 9.5% of Freshpet, Inc. (NASDAQ:FRPT) (“Freshpet” or the “Company”), today filed a complaint in the Court of Chancery of the State of Delaware (the “Court”) against Freshpet and the Company’s Board of Directors (the “Board”). The complaint seeks a declaratory judgment and a determination that the Board’s recent actions to entrench itself, and refusal to reverse them, constitute breaches of fiduciary duties; and an order requiring that the number of directors up for election at the Company’s 2023 Annual Meeting of Stockholders (the “Meeting”) be returned to its original size, such that four director seats, rather than three, stand for election at the Meeting.

JANA filed the complaint in response to the highly entrenching actions Freshpet took on May 17, 2023, which included changing the size and composition of its Board such that the number of directors up for election at the Meeting was reduced from four to three, and unexpectedly accelerating the date of the Meeting—in the midst of settlement discussions with JANA regarding Board composition, conflicts and governance issues—from its usual mid-Fall meeting date to July 25, 2023.

JANA’s filing contends that the Board’s extraordinary actions, taken well after JANA publicly disclosed its interest in obtaining representation on Freshpet’s Board, constitute a breach of the Board’s fiduciary duties, and that JANA should have the opportunity to nominate four Class III directors at the Meeting.

JANA has also filed a motion to expedite these proceedings to resolve this critical issue ahead of the recently-advanced deadline to nominate directors for consideration at the Meeting. The Board’s decision to accelerate the date of the 2023 Annual Meeting, announced on May 17, 2023, required that stockholders submit any director nominations within just nine days of the announcement, a clear entrenchment tactic by the Board to avoid accountability to Freshpet’s shareholders. 

Barry Rosenstein, Managing Partner at JANA, commented, “The Freshpet Board’s recent entrenchment actions constitute a clear breach of its fiduciary duties, leaving us with no choice but to seek expedited relief in Delaware Court so that a truly fair and democratic election of directors is allowed to proceed. In our view, the Board’s blatant misuse of corporate machinery obstructs the legitimate efforts of shareholders to exercise their rights and cannot stand. Further, we believe the Board has repeatedly failed to properly supervise management as performance worsened, liquidity deteriorated and shareholder value plummeted—while allowing more than half of Freshpet’s independent directors to pursue outside interests with corporate resources and key members of leadership. It is clear now, more than ever, that change is desperately needed at the Board level.”

On May 24, 2023, JANA announced that it will be nominating four highly qualified candidates to Freshpet’s Board at the Company’s 2023 Annual Meeting, scheduled for July 25, 2023.

Shareholders with questions can contact JANA’s proxy solicitor, Innisfree M&A Incorporated, at (212) 750-5833.

About JANA Partners

JANA Partners was founded in 2001 by Barry Rosenstein. JANA invests in undervalued public companies and engages with management teams and boards to unlock value for shareholders.

Important Information

JANA Partners LLC, JANA Partners Management, LP, JANA Strategic Investments Benchmark Master Fund, L.P., and Barry Rosenstein (“collectively JANA”), and Scott Ostfeld, Diane Dietz, James Lillie, Timothy R. McLevish, Kurt T. Schmidt, Dwyane Wade, Carsten Charles (CC) Sabathia, Jr. and Ginger Gorden (collectively, and together with JANA, the “Participants”) intend to file with the Securities and Exchange Commission (the “SEC”) a definitive proxy statement and accompanying form of GREEN proxy to be used in connection with the solicitation of proxies from the stockholders of Freshpet, Inc. (“Freshpet” or the “Company”) in connection with the Company’s 2023 annual meeting of stockholders (the “2023 Annual Meeting”). All stockholders of the Company are advised to read the definitive proxy statement and other documents related to the solicitation of proxies, each in connection with the 2023 Annual Meeting, by the Participants when they become available, as they will contain important information, including additional information related to the Participants. The definitive proxy statement and an accompanying GREEN proxy card will be furnished to some or all of the Company’s stockholders and will be, along with other relevant documents, available at no charge on the SEC website at http://www.sec.gov.

Information about the Participants and a description of their direct or indirect interests by security holdings will be contained in an exhibit to the Schedule 14A filed by the Participants with the SEC on June 1, 2023. This document is available free of charge from the source indicated above.

Disclaimer

This material does not constitute an offer to sell or a solicitation of an offer to buy any of the securities described herein in any state to any person. In addition, the discussions and opinions in this press release and the material contained herein are for general information only, and are not intended to provide investment advice. All statements contained in this press release that are not clearly historical in nature or that necessarily depend on future events are “forward-looking statements,” which are not guarantees of future performance or results, and the words “will,” “anticipate,” “believe,” “expect,” “potential,” “could,” “opportunity,” “estimate,” and similar expressions are generally intended to identify forward-looking statements. The projected results and statements contained in this press release and the material contained herein that are not historical facts are based on current expectations, speak only as of the date of this press release and involve risks that may cause the actual results to be materially different. Certain information included in this material is based on data obtained from sources considered to be reliable. No representation is made with respect to the accuracy or completeness of such data, and any analyses provided to assist the recipient of this material in evaluating the matters described herein may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results. Accordingly, any analyses should also not be viewed as factual and also should not be relied upon as an accurate prediction of future results. All figures are unaudited estimates and subject to revision without notice. JANA disclaims any obligation to update the information herein and reserves the right to change any of its opinions expressed herein at any time as it deems appropriate. Past performance is not indicative of future results.

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