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Item 9A. Controls and Procedures

2023-03-09 compared with 2022-03-01 · 159 added, 14 removed, 123 unchanged (58% of the section changed)

2 unchanged sentences

Our management, with the participation and supervision of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Annual Report on Form 10-K.

Based upon that evaluation, the Company's management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective for the period covered by this Annual Report on Form 10-K.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms.

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Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.

Our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective for the period covered by this Annual Report.

Management's Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act.

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act.

Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In accordance with guidance issued by the Securities and Exchange Commission, companies are permitted to exclude acquisitions from their first assessment of internal control over financial reporting following the date of acquisition.

Based on those guidelines, management’s assessment of the effectiveness of our internal control over financial reporting excluded Heavy 16, House and Garden, Aurora, Greenstar and Innovative Growers Equipment, Inc., which were acquired on May 3, June 1, July 1, August 3 and November 1, 2021 respectively.

See Note 3 to the consolidated financial statements for additional information on our acquisitions.

We have included the financial results of these acquisitions in the consolidated financial statements from the date of the respective acquisitions.

These acquisitions represented 85% and 68% of net and total assets, respectively, 13% of revenues, and 37% of net income of the consolidated financial statement amounts as of and for the year ended December 31, 2021.

As a result of this assessment, management concluded that, as of December 31, 2022, our internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Deloitte & Touche LLP has independently assessed the effectiveness of our internal control over financial reporting and its report is included above.

Deloitte & Touche LLP has independently assessed the effectiveness of our internal control over financial reporting and its report is included in Item 8 of this Annual Report on Form 10-K.

Changes in Internal Controls over Financial Reporting

During 2021, we remediated material weaknesses that were identified in 2020.

In particular, we (i) hired and continue to hire, additional qualified accounting and financial reporting personnel with technical and/or public company experience, (ii) implemented new control procedures over certain areas previously deemed ineffective related to the preparation, review, and analysis of accounting information and financial statements and (iii) engaged and continue to engage an external advisor to assist management in completing a Sarbanes-Oxley Act compliant risk assessment, creating detailed control documentation for in-scope business and information technology processes, identifying further control gaps and providing assistance on remediation procedures, and designing and implementing a Sarbanes-Oxley Act sub-certification process.

Other than disclosed above, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

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The information required by this Item will be included in the 2023 Proxy Statement and is incorporated herein by reference.

The following table sets forth the name and position of each of our executive officers and directors as of March 9, 2023.

Name Position

William Toler Chairman of the Board and Chief Executive Officer

John Lindeman Chief Financial Officer

Kevin O'Brien Chief Accounting Officer

Mark Parker Executive Vice President

Patrick Chung Director

Peters Director, Chairperson of Compensation Committee

Renah Persofsky Director, Chairperson of Nominating and Corporate Governance Committee

Moss Director, Chairperson of Audit Committee and Mergers and Acquisitions Committee

Melisa Denis Director

William Toler, Chairman of the Board and Chief Executive Officer

Toler has served as our Chairman of our board of directors and Chief Executive Officer since January 1, 2019.

Prior to joining Hydrofarm in 2019, Mr.

Toler was the Chief Executive Officer of Hostess Brands, Inc.

TWNK) (“Hostess”), a food and beverage company, from May 2014 to March 2018.

Under his leadership, Hostess successfully re-established the iconic Hostess brand as a leader within the sweet baked goods category, returned the company to profitability and transitioned Hostess from a private to public company.

Toler has over 35 years of executive leadership experience in supply chain management and consumer packaged goods, including previously having served as Chief Executive Officer of AdvancePierre Foods, from September 2008 to August 2013, and President of Pinnacle Foods.

He has also held executive roles at Campbell Soup Company, Nabisco and Procter & Gamble.

Toler served on the board of directors of Collier Creek Holdings from September 2018 to September 2020, Hostess Brands from May 2014 to March 2018, AdvancePierre Foods from 2008 to 2013 and Pinnacle Foods from 2007 to 2008.

In addition, Mr.

Toler has also served as a senior advisor at Oaktree Capital Management, an investment management firm, from September 2013 to April 2014.

Toler holds a B.A.

in Business Management and Economics from North Carolina State University.

John Lindeman, Chief Financial Officer

Lindeman has served as our Chief Financial Officer since March 2020.

From August 2015 until assuming his current role at Hydrofarm in March 2020, Mr.

Lindeman served as Chief Financial Officer and Corporate Secretary at Calavo Growers, Inc.

CVGW) (“Calavo”), a global avocado-industry leader and expanding provider of valued-added fresh food, where he was responsible for the finance, accounting, IT and human resource functions.

Prior to joining Calavo, Mr.

Lindeman held various leadership positions within the finance and investment banking industries, including serving as managing director at Sageworth Trust Company, a family office and private trust company, from March 2015 to July 2015, managing director and co-head of the consumer and retail group at Janney Montgomery Scott from August 2009 to March 2015, managing director at Stifel, Nicolaus & Co., Inc.

from December 2005 to August 2009 and principal at Legg Mason from October 1999 to December 2005.

Prior to joining Legg Mason, he was a Manager at PricewaterhouseCoopers LLP from August 1996 to October 1999.

Lindeman has also served as a director of Utz Brands, Inc.

UTZ) since September 2020.

Lindeman is a Chartered Financial Analyst and holds a B.S.

in Business Administration from the University of Mary Washington.

Kevin O’Brien, Chief Accounting Officer

O’Brien has served as our Chief Accounting Officer since March 2022.

Prior to joining Hydrofarm, Mr.

O’Brien served as the Chief Accounting Officer of CPI Card Group Inc.

PMTS) since April 2018.

O’Brien previously

served as the Director of Corporate Accounting and SEC Reporting at the same company from March 2016 until April 2018.

O’Brien has 20 years of accounting experience, including serving as a Senior Audit Manager at Deloitte & Touche LLP.

O’Brien is a Colorado Certified Public Accountant and received a Bachelor of Science in Business with an Emphasis in Accounting from University of Colorado and a Master of Science with an Emphasis in Accounting from the same institution.

Mark Parker, Executive Vice President

Parker has served as our Executive Vice President since February 2022.

Parker has over 30 years of experience in sales and marketing, and leading complex integration projects in multiple industries, in particular with consumer packaging goods.

From May 2019 until February 2022, Mr.

Parker served as our Senior Vice President of Business Development.

Prior to joining Hydrofarm Mr.

Parker was the founder and Chief Executive Officer of iQ Solutions, where he spent nine years assisting organizations in commercialization efforts focused on sales and marketing.

Parker also previously served as Senior Vice President of Trade Marketing, U.S.

Soup Division, for Campbell Soup Company (CPB, NYSE), where he introduced innovative initiatives as “Soup to Go” (convenience in a package) and iQ Shelf, an in-store approach to simplify consumer shopping experience and drive mutual share growth.

Parker holds a B.S.

in Economics from Wingate University.

Peters, Director

Peters has served as our director since November 10, 2020.

Previously, she was the Senior Vice President of Human Resources for General Electric Company (“GE”) from July 2013 until December 2017 after which she retired following 38 years of service.

In her role as Chief Human Resource Officer (“CHRO”), Ms.

Peters was a member of GE’s senior leadership team.

From 2001 to 2007 Ms.

Peters served as GE’s Vice President of Executive Development and served as Chief Learning Officer since 2007.

In her role as the CHRO, Ms.

Peters oversaw all aspects of the Human Resource function for GE’s workforce of approximately 325,000 employees in 175 countries.

She was responsible for all of GE’s talent acquisition, talent development, learning, compensation and benefits, payroll, union relations, and security.

Approximately 5,000 human resource employees worked under her leadership.

Peters was first appointed as an officer at GE in 1997.

Peters was a founding member of the GE Women’s Network and was also a member of the GE Foundation Board and the GE Pension Board.

Peters also served on the National Board of Directors of Girl Scouts of the USA from 2008 until 2017.

She is currently a member of the Loews Corporation (NYSE) board of directors.

Peters received her B.A.

Mary’s College, Notre Dame and her Masters in Education from the University of Virginia.

Peters was selected to serve on our board of directors because of her expertise in leadership and development and her experience serving as an officer of a global industrial company.

Patrick Chung, Director

Chung has served as our director since November 10, 2020.

Chung currently serves as the Vice President of Finance at Serruya Private Equity Inc., which he joined in March 2018.

In his role as Vice President, Mr.

Chung oversees financial reporting and asset management for the fund, leads the real estate investments team, and plays a strategic role in the growth of investee companies.

Previously, Mr.

Chung was the Director of Finance for Inside Edge Properties Ltd.

from March 2017 to March 2018.

From January 2015 to March 2017, Mr.

Chung served as the Assistant Manager of Finance Advisory for Deloitte.

Prior to January 2015, Mr.

Chung served as an Associate of Risk Assurance Services at PricewaterhouseCoopers Canada.

In December 2015, Mr.

Chung was designated as a Chartered Professional Accountant (“CPA”) by the Chartered Professional Accountants of Ontario.

Chung received his Bachelor of Accounting and Finance and Minor in Economics from the University of Waterloo in December 2011 and his Masters of Accounting from the University of Waterloo in August 2012.

Renah Persofsky, Director

Persofsky has served as our director since November 10, 2020.

Persofsky has over 40 years of business experience.

Persofsky has served as the Chief Executive Officer of Strajectory Corp.

since 2010 and as an executive consultant of Canadian Imperial Bank of Commerce since 2011.

Persofsky served as the Chairwoman of BookJane Inc.

from October 2016 to December 2021, a director of Tilray Brands, Inc.

(f/k/a Aphria Inc.) since October 2017 and the Vice Chairwoman and Lead Director since October 2019, the Chairwoman of Green Gruff Inc.

since July 2019, a director of Alkemy since April 2021 and a director of Greenlane Holdings (Nasdaq:

GNLN) since April 2022.

Persofsky has also previously served as an executive consultant to many iconic brands including Tim Hortons, Canadian Tire, Canada Post and Interac, and was an executive officer of the Bank of Montreal.

Persofsky previously co-chaired the Canadian Minister’s Advisory Committee on Electronic Commerce, as well as served as a special advisor to the Minister of Foreign Affairs and Trade.

Persofsky received her degree from the Rotman School of Management at the University of Toronto.

Moss, Director

Moss has served as our director since November 10, 2020.

Moss served as Chief Financial Officer of Hanesbrands Inc., a leading Fortune 500 apparel company, from October 2011 until October 2017, after which he served in an advisory role at Hanesbrands until his retirement on December 31, 2017.

Prior to his appointment as Chief Financial Officer, Mr.

Moss led several key financial functions, including treasury and tax, at Hanesbrands from 2006 to 2011.

From 2002 to 2005, Mr.

Moss served as Vice President and Chief Financial Officer of Chattem Inc., a leading marketer and manufacturer of branded over-the-counter health-care products, toiletries and dietary supplements.

Moss also previously served as a senior advisor to Nexo Capital Partners from January 2018 until December 2020.

Moss has served as a director of Winnebago Industries, Inc., a leading U.S.

recreational vehicle manufacturer since February 2017, and has served as a director of Nature’s Sunshine Products, Inc.

since May 2018.

Moss received a B.A.

and an M.B.A.

from Brigham Young University.

Melisa Denis, Director

Denis has served as our director since November 20, 2020.

Denis is currently President of Miracle Pointe Development, a real estate development company.

Denis previously served as a partner at KPMG from 1998 to October 2020, including as National Tax Leader for Consumer Goods and as the leader of the Consumer and Industrial Market for Dallas.

Denis has served as a member of the Board of Regents for the University of North Texas System since January 2020, an advisory board member of Women Corporate Directors since 2011, and a board member of Enactus, a global non-profit, since 2019.

Denis is a Certified Public Accountant and received her degree in accounting and her Masters of accounting and tax from the University of North Texas.

EXECUTIVE COMPENSATION

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(incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 15, 2021).

10.5 Third Amendment and Joinder to Credit Agreement, dated as of August 23, 2022, by and among Hydrofarm Holdings Group, Inc., Hydrofarm, LLC, Field 16, LLC, Aurora Innovations, LLC, Innovative Growers Equipment, Inc., Manufacturing & Supply Chain Services, Inc., Hydrofarm Investment Corp., Hydrofarm Holdings LLC, EHH Holdings LLC, Sunblaster LLC, Hydrofarm Canada, LLC, Sunblaster Holdings ULC, Eddi’s Wholesale Garden Supplies Ltd., House & Garden Holdings, LLC, Gotham Properties LLC, Aurora International, LLC, Aurora Peat Products ULC, Greenstar Plant Products Inc., Innovative AG Installation, Inc., Innovative Racking Systems, Inc., Innovative Shipping Solutions, Inc., Innovative Growers Equipment Canada, Inc., the lenders party thereto and JPMorgan Chase Bank, N.A.

( i ncorporated by reference to Exhibit 10.

1 of the Company’s Quarterly Report on Form 10-Q (File No.

001-39773), filed with the SEC on November 09, 2022).

10.6 Fourth Amendment to Credit Agreement and Limited Consent and Waiver, dated December 22, 2022, by and among Hydrofarm Holdings Group, Inc., Hydrofarm, LLC, Field 16, LLC, Aurora Innovations, LLC, Innovative Growers Equipment, Inc., Manufacturing & Supply Chain Services, Inc., Hydrofarm Investment Corp., Hydrofarm Holdings LLC, EHH Holdings, LLC, Sunblaster LLC, Hydrofarm Canada, LLC, Sunblaster Holdings ULC, Eddi’s Wholesale Garden Supplies Ltd., House & Garden Holdings, LLC, Gotham Properties LLC, Aurora International, LLC, Aurora Peat Products ULC, Greenstar Plant Products Inc., Innovative Ag Installation, Inc., Innovative Racking Systems, Inc., Innovative Shipping Solutions, Inc., Innovative Growers Equipment Canada, Inc., JPMorgan Chase Bank, N.A.

and JPMorgan Chase Bank, N.A.

( i ncorporated by reference to Exhibit 10.

1 of the Company’s Current Report on Form 8 - K (File No.

001 - 39773 ), filed with the SEC on December 29 , 202 2 ).

10.7+ Credit and Guaranty Agreement, dated as of October 25, 2021, by and among Hydrofarm Holdings Group, Inc., the other credit parties party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A.

(incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 15, 2021).

10.8** Employment Agreement, dated January 1, 2019, by and between Hydrofarm Holdings Group, Inc.

and William Toler (incorporated by reference to the Company’s Registration Statement on Form S-1 (File No.