Jana Partners Calls On Freshpet Board To Immediately Rectify Highly Entrenching Actions Intended To Disenfranchise Shareholders And Manipulate Shareholder Vote

$FRPT

Derek Zaba, Esq.

Sidley Austin LLP

787 Seventh Avenue

New York, New York 10019

Re: Breaches of Fiduciary Duties by the Board of Directors of Freshpet, Inc.

Dear Derek:

We are counsel to JANA Strategic Investments Benchmark Master Fund, L.P. (“JANA”) and write concerning the recent announcement by Freshpet, Inc. (the “Company”) of certain changes to its Board of Directors (the “Board”). By adopting those changes, which are plainly intended to entrench the current Board in office and impede the free exercise of the stockholder franchise at the Company’s 2023 annual meeting (the “2023 Annual Meeting”), the Board has breached its fiduciary duties. JANA hereby demands that the Board immediately remedy those breaches.

As you are aware, JANA filed a Schedule 13D on September 22, 2022 disclosing that it beneficially owned 4,568,787 shares of the Company’s common stock (9.6% of the outstanding shares) and intended to enter into discussions with the Company’s Board and management team. JANA further disclosed that it had entered into nomination agreements with four individuals pursuant to which those individuals had agreed to become members of a slate of nominees and stand for election as directors of the Company in connection with a possible proxy solicitation in respect of the Company’s 2023 Annual Meeting.¹ On December 15, 2022, JANA disclosed that it intended to solicit proxies at the 2023 Annual Meeting. Thus, for months the Board has been aware of JANA’s intent to contest the election of the four Class III directors up for election at the 2023 Annual Meeting. Indeed, as you likely are aware, in the days leading up to the Board’s recent actions, JANA and the Board engaged in discussions about appointing individuals proposed by JANA to the Board.

Pursuant to the Company’s Sixth Amended and Restated Certificate of Incorporation, dated as of October 2, 2022 (the “Certificate of Incorporation”), the Board is staggered into three classes of directors. Class III directors will stand for election at the 2023 Annual Meeting and Class I and Class II directors will stand for election at the 2024 and 2025 annual meetings, respectively.

On Wednesday, May 17, 2023, the Company filed a Current Report on Form 8-K (the “Form 8-K”) announcing numerous changes to the size and composition of the Board. First, the Company announced that the Board had voted, that same day, to (i) expand the size of the Board from ten to eleven directors and (ii) appoint David B. Biegger as a director. Mr. Biegger is to be appointed to serve as a Class I director, meaning that he will not be up for election until the 2024 annual meeting. Then, in the same filing, the Company announced that Charles Norris, a Class III director who was up for re-election at this year’s Annual Meeting, is retiring from the Board and not standing for re-election. The Board then used Mr. Norris’s retirement as a pretext to reduce the size of the Board back down to ten directors such that only three seats would be up for election at the 2023 Annual Meeting.

The Board’s game of musical chairs has had the effect of reducing the number of directors up for re-election at the Annual Meeting from four to three. Plainly, that was the Board’s intention. Indeed, had the Board simply wished to replace Mr. Norris with Mr. Biegger, it could have nominated Mr. Biegger for election to the seat to be vacated by Mr. Norris. Instead, knowing that JANA intended to nominate four candidates, the Board manipulated the corporate machinery by eliminating the Class III seat Mr. Norris will vacate and moving his replacement to Class I.

In addition, the Form 8-K and the attached press release announced that the Board had moved the date of the Annual Meeting up by two months—from late September or early October 2023, which would have been customary and in line with the Company’s annual meeting schedule since at least 2015, to July 25, 2023. As the Company admitted in the Form 8-K, such a change accelerated nomination deadlines under the Company’s Amended and Restated Bylaws (adopted as of October 4, 2022) (the “Bylaws”), thus dramatically shortening JANA’s ability to nominate from thirty days (between June 5, 2023 and July 5, 2023) to ten days, starting on May 17, 2023 and ending on May 27, 2023. In fact, because May 27, 2023, the tenth day, falls on a Saturday, the Bylaws require that the nomination be submitted by May 26, giving stockholders only nine days to submit nominations.

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¹ In particular, JANA disclosed that it entered into nomination agreements with Diane Dietz, James Lillie, and Timothy R. McLevish. JANA later disclosed that it had also entered into a nomination agreement with Kurt T. Schmidt. In addition, JANA advised the Company that Scott Ostfeld was a potential director candidate.

Notably, the Board undertook those 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 Company’s Board, and mere days after discussions with JANA had failed.

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”). Yet that is precisely what the Board has done. By effectively reducing the number of Board seats up for election at the 2023 Annual Meeting, the Board has obstructed JANA’s legitimate efforts as a Company stockholder to undertake a proxy contest.

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 shareholder 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.

Moreover, even assuming that the Board was acting in good faith to reapportion directors across classes pursuant to the Certificate of Incorporation’s requirement that the classes be “as nearly equal in size as is practicable,”² 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, 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”).

Under settled Delaware precedent, the Board’s attempt to entrench itself and disenfranchise the Company’s stockholders cannot stand. Accordingly, please confirm by no later than Tuesday, May 30, 2023 at 5:00 p.m. EDT that the Company will expand the Board so that four seats are up for election at the 2023 Annual Meeting as was the case before last week’s Board action. Should the Board refuse to do so, JANA fully intends to exercise any and all available means to remedy the Board’s blatant breaches of fiduciary duties, including, without limitation, potentially seeking an order compelling Mr. Biegger to stand for re-election at the Annual Meeting as a Class III director.

JANA reserves all rights and remedies in connection with this matter and waives none.

Sincerely,

Michael E. Swartz

Partner and Litigation Co-Chair

Schulte Roth & Zabel LLP

Source:

https://www.sec.gov/Archives/edgar/data/1159159/000090266423003299/p23-1648sc13da.htm