HYDROFARM HOLDINGS GROUP, INC. 10-Q

ITEM 5. OTHER INFORMATION On May 10, 2024, Innovative Growers Equipment, Inc., a wholly-owned indirect subsidiary of the Company (“IGE”), Manufacturing & Supply Chain Services, Inc., a wholly-owned indirect subsidiary of the Company (“MSCSI” and collectively with IGE, the “Sellers”), CM Fabrication, LLC (the “Buyer”) and Chris Mayer, Senior Vice President of Commercial Sales of the Company, entered into an Asset Purchase Agreement (the “Purchase Agreement”) pursuant to which IGE and MSCSI agreed to sell certain assets relating to the production of durable equipment products, including inventories, property, plant and equipment, and other assets, owned by the Sellers (the “Certain Assets”) to the Buyer for approximately $8.7 million (the “Asset Sale”). The Asset Sale is expected to close (the "Closing") in the second quarter of 2024, subject to customary closing conditions (such date of closing, the “Closing Date”). The Purchase Agreement includes certain confidentiality, non-competition, non-solicitation and non-disparagement provisions applicable to the Buyer and Mr. Mayer for a period beginning on the Closing Date and ending on the later of (i) the term of the Supply Agreement (as defined below) and (ii) the term of the Consulting Agreement (as defined below), and, in certain circumstances, may be the later of (i) the fourth anniversary of the Closing Date, (ii) the term of the Supply Agreement and (iii) the term of the Consulting Agreement. Additionally, pursuant to the Purchase Agreement, subject to limited exceptions, the Company has a right of first refusal with respect to any sale by the Buyer of all or substantially all of the Certain Assets for a period beginning on the Closing Date and ending on the later of (i) the eighth anniversary of the Closing Date and (ii) the term of the Supply Agreement. The Purchase Agreement includes other customary representations, warranties and covenants regarding the Sellers and the Buyer. At the Closing, the Buyer and Hydrofarm will enter into an exclusive supply agreement, pursuant to which the Buyer will continue to supply substantially all of the products historically made in the Company’s manufacturing facility, including horticulture benches, racking and LED lighting systems, to the Sellers for an initial term of five years (the “Supply Agreement”). In addition, at the Closing the Company and Mr. Mayer will enter into a Consulting Agreement, pursuant to which Mr. Mayer will provide consulting services to the Company for a five-year period (the “Consulting Agreement”). Such consulting services shall relate to sales and business development efforts. In connection with the Consulting Agreement, Mr. Mayer will resign from his position at the Company. Pursuant to the Term Loan, the Company is required to either reinvest the net proceeds from the Asset Sale into certain permitted investments, such as capital expenditures, or offer to prepay Term Loan principal. In connection with the Asset Sale, the Company intends to pay in full and terminate a facility operating lease for approximately $1.3 million and certain finance leases for approximately $0.7 million. The foregoing descriptions of the Purchase Agreement do not purport to be complete and are qualified in their entirety by reference to the Purchase Agreement, which will be filed as an exhibit to the Company’s quarterly report on Form 10-Q for the period ending June 30, 2024. 32 TABLE OF CONTENTS ITEM 6. EXHIBITS (a) Exhibits. Exhibit Description 10.1*+ Form of Hydrofarm Holdings Group, Inc. 2020 Equity Incentive Plan Stock Option Grant Notice. 10.2*+ Form of Hydrofarm Holdings Group, Inc. 2020 Equity Incentive Plan Restricted Stock Unit Grant Notice. 10.3*+ Form of Hydrofarm Holdings Group, Inc. 2020 Equity Incentive Plan Performance Stock Unit Grant Notice. 31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1*# Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2*# Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101. INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH Inline XBRL Taxonomy Schema Linkbase Document. 101.CAL Inline XBRL Taxonomy Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Labels Linkbase Document. 101.PRE Inline XBRL Taxonomy Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). * Filed herewith. + Denotes management contract or compensatory plan or arrangement. # The certifications attached as Exhibits 32.1 and 32.2 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Company for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing of the registrant under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing. 33 TABLE OF CONTENTS SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized. Hydrofarm Holdings Group, Inc. Date: May 14, 2024 /s/ William Toler William Toler Chief Executive Officer (Principal Executive Officer) Date: May 14, 2024 /s/ B. John Lindeman B. John Lindeman Executive Vice President & Chief Financial Officer (Principal Financial Officer) 34