Proxy Statement (definitive) (def 14a)

SUMMARY OF THE PROXY STATEMENT

This summary highlights selected information contained in this proxy statement and does not contain all of the information that is important to you. You should read carefully this entire proxy statement, including the Annexes and accompanying financial statements of the Company and Hostess, to fully understand the proposed Business Combination (as described below) before voting on the proposals to be considered at the Special Meeting (as described below). Please see the section entitled “Where You Can Find More Information” beginning on page 353 of this proxy statement.

Unless otherwise specified, all share calculations assume (i) no exercise of redemption rights by the Company’s public stockholders; (ii) no inclusion of any shares of Class A Stock issuable upon the exercise of the Company’s warrants; (iii) an equity raise of approximately $300,000,000 of gross proceeds from the Private Placement at $9.18 per share will fund a portion of the cash consideration payable to the Selling Equityholders pursuant to the Master Transaction Agreement for the Business Combination and related transactions; (iv) cancellation of approximately 4,062,500 Founder Shares by our Sponsor; and (v) transfer of all Bridge Shares to third parties prior to the closing of the Business Combination.

The historical financial statements of Hostess have been presented herein, as opposed to those of the various entities of the Selling Equityholders. The Selling Equityholders entities are holding companies without any operations, and no material assets beyond their investment in Hostess. The Selling Equityholders entities are not permitted to consolidate Hostess under U.S. GAAP. As such, the historical Hostess Holdings financial statements represent the highest level of consolidated financial statements that presents the full financial position and results of operations of the underlying business.

Parties to the Business Combination

The Company

The Company is a blank check company incorporated on June 1, 2015 as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

The Company’s securities are traded on NASDAQ under the ticker symbols “GRSH”, “GRSHU” and “GRSHW”. The Company intends to apply to continue the listing of its Class A Stock and public warrants on NASDAQ under the symbols “TWNK” and “TWNKW,” respectively, upon the closing of the Business Combination. The Company’s public units will automatically separate into the component securities upon consummation of the Business Combination and, as a result, will no longer trade as a separate security.

The mailing address of the Company’s principal executive office is 9800 Wilshire Blvd., Beverly Hills, California 90212.

Company Merger Sub

Company Merger Sub, a Delaware corporation, is a wholly-owned subsidiary of the Company, formed by the Company on June 23, 2016, to consummate the Business Combination. In the Business Combination, Company Merger Sub will merge with and into AP Hostess Holdings, with AP Hostess Holdings continuing as the surviving entity.

The mailing address of Company Merger Sub’s principal executive office is 9800 Wilshire Blvd., Beverly Hills, California 90212.

 

AP Hostess LP and Sellers’ Representative

AP Hostess LP is a Delaware limited partnership that was formed in 2013 for the purpose of indirectly acquiring and holding interests in Hostess Holdings and Hostess Holdings GP through its wholly-owned subsidiary, AP Hostess Holdings. AP Hostess LP is owned and controlled by certain funds managed by affiliates of Apollo.

AP Hostess LP is acting as Sellers’ Representative pursuant to the terms of the Master Transaction Agreement.

The mailing address of AP Hostess LP’s principal executive office is 9 West 57th Street, 43rd Floor, New York, New York 10019.

Hostess CDM Co-Invest

Hostess CDM Co-Invest is a Delaware series limited liability company that was formed in 2013 for the purpose of acquiring and holding interests in Hostess Holdings and Hostess Holdings GP. Hostess CDM Co-Invest is controlled by Mr. Metropoulos and owned by certain trusts for the benefit of Mr. Metropoulos and other members of the Metropoulos family and associates of Mr. Metropoulos.

CDM Hostess

CDM Hostess is a Delaware limited liability company that was formed in 2013 for the purpose of acquiring and holding interests in Hostess Management. CDM Hostess is controlled by Mr. Metropoulos and owned by certain trusts for the benefit of Mr. Metropoulos and other members of the Metropoulos family and associates of Mr. Metropoulos.

Hostess’ Business

Hostess, America’s Original Snack Cake, has been an iconic American brand for generations. Hostess offers a variety of new and classic treats like Twinkies ^® , Cupcakes, Ding Dongs ^® , Ho Hos ^® , Donettes ^® , and Fruit Pies that it believes delight snack fans across the nation. In 2013, the Selling Equityholders acquired the Hostess brand out of the bankruptcy liquidation proceedings of its prior owners, free and clear of all past liabilities. After a brief hiatus in production, Hostess began providing Hostess products to consumers and retailers across the nation in July 2013. By combining Hostess’ beloved brands’ established reputation with an innovative business model, Hostess rapidly recaptured market share. Three years after launching “The Sweetest Comeback in the History of Ever” ^® , Hostess has reestablished a leading premium brand position in the $6.8 billion U.S. Sweet Baked Goods, or “ SBG, ” category.

Since the relaunch, Hostess has:

 

•

grown from a business with zero sales to one that generated $620.8 million in net revenue, $88.8 million in net income (including noncontrolling interest) and $177.9 million in Adjusted EBITDA 1 (as defined below in the section entitled “ Summary of the Proxy Statement — Selected Consolidated Historical Financial and Other Information of Hostess Holdings ”) for the year ended December 31, 2015. Adjusted EBITDA is not based on the accounting principles generally accepted in the U.S. (“ non-GAAP financial measures ”) and such measure is defined and reconciled to the most directly comparable U.S. GAAP measure in footnote 7 to the section entitled “ Summary of the Proxy

 

1

Adjusted EBITDA does not exclude related party expenses of $4.3 million for the year ended December 31, 2015, which are the annual expenses relating to the employment arrangement with Mr. Metropoulos as the Chief Executive and/or Executive Chairman. Upon consummation of the Business Combination, these expenses will be approximately $0.3 million annually.

 

Statement — Selected Consolidated Historical Financial and Other Information of Hostess Holdings ” below in this proxy statement;

 

•

increased market share from 0% at relaunch, to over 17.4%, for the 4 weeks ended August 13, 2016 per Nielsen’s U.S. SBG category;

 

•

improved manufacturing and distribution through Hostess’ new simplified, industry redefining operating model;

 

•

expanded channel and geographic reach to include the portion of the 160,000 convenience, drug and dollar store universe previously not fully available under the Direct-Store-Delivery (“ DSD ”) model;

 

•

enhanced in-store merchandising capabilities enabling industry leading display levels and the ability to launch nationally coordinated promotion campaigns via the Direct-To-Warehouse (“ DTW ”) model; and

 

•

acquired the stock of Superior Cake Products, Inc. (“ Superior ”) to expand its platform into the “In-Store Bakery” section of grocery and club retailers.

When Hostess products returned to shelves in July 2013, the relaunch was met with substantial media attention and a strong consumer response. The initial demand surpassed Hostess’ expectations, and it had to manage its production levels as it ramped up its supply chain. Since April 2013, Apollo and Metropoulos & Co. have invested $138 million to upgrade Hostess’ manufacturing footprint, implement new IT systems and enhance production efficiency via the installation of automated baking and packaging lines. These investments, coupled with Hostess’ DTW distribution model, have paved new opportunities for Hostess and increased Hostess’ distribution channels.

Hostess’ DTW distribution model uses centralized distribution centers and common carriers to fill orders, with products generally delivered to Hostess’ customers’ warehouses. This model has eliminated the need for DSD truck routes and drivers. Once limited by the previous DSD model, Hostess has since been able to expand its core distribution while gaining access to new channels ( e.g. , further penetration into convenience, drug, dollar, foodservice, and cash & carry stores). Hostess has both renewed and added relationships with trusted retailers around the country, once again stocking shelves with Hostess products.

As a highly fragmented category in both the U.S. and internationally, SBG represents a significant opportunity for further consolidation. The new Hostess business model and efficient route-to-market strategy, along with highly sophisticated and modern systems, provide an ideal platform for eventually adding other branded snacks to the Hostess portfolio. Hostess maintains a highly-disciplined outlook on M&A, focusing on opportunities with large addressable markets. In addition, Hostess believes its expertise in managing brands (led by Mr. Metropoulos) and experience in operating packaged food businesses (under Mr. Bill Toler’s leadership) gives Hostess the specialized tools to position itself as an attractive vehicle for future growth within the snacking universe.

For more information about Hostess, please see the sections entitled “ Information About Hostess ,” “ Hostess Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and “ Management after the Business Combination .”

The Business Combination Proposal

On July 5, 2016, the Company entered into the Master Transaction Agreement, by and among the Company, Company Merger Sub, a wholly-owned subsidiary of the Company, AP Hostess LP, Hostess CDM Co-Invest, CDM Hostess, and Sellers’ Representative, solely in its capacity as the sellers’ representative thereunder. The Master Transaction Agreement provides for, among other things: (i) the mergers of: (A) Hostess Management with and into Hostess Holdings, with Hostess Holdings continuing as the surviving entity; (B) Company Merger Sub with and into AP Hostess Holdings, with AP Hostess Holdings continuing as the surviving entity; and (C) immediately thereafter, AP Hostess Holdings with and into the Company, with the Company continuing as

 

the surviving entity; and (ii) the purchase by the Company of certain of the limited partnership interests in Hostess Holdings held by certain of the Selling Equityholders. For more information about the transactions contemplated in the Master Transaction Agreement, please see the section entitled “ Proposal No. 1 – Approval of the Business Combination. ” A copy of the Master Transaction Agreement is attached to this proxy statement as Annex   A .

Consideration to Selling Equityholders in the Business Combination

Subject to the terms of the Master Transaction Agreement and customary adjustments set forth therein, the aggregate purchase price for the Business Combination and related transactions is expected to be approximately $2.3 billion, which amount will be increased by the amount of cash held by Hostess as of the closing of the Business Combination, and which amount will be decreased by the amount of Hostess’ outstanding indebtedness under its existing credit facilities, certain transaction fees and expenses, and certain payments to Hostess management under the Hostess LTIP. The consideration to be paid to the Selling Equityholders will be funded through a combination of cash and stock consideration. The amount of cash consideration payable to the Selling Equityholders is the sum of (i) cash available to us from the Trust Account, after giving effect to taxes payable, any redemptions that may be elected by any of our public stockholders for their pro rata share of the aggregate amount of funds on deposit in the Trust Account as of two business days prior to the closing of the Business Combination (which instructions to redeem such public shares are further discussed in this proxy statement), plus (ii) the anticipated gross proceeds of approximately $300,000,000 from the Private Placement, less (iii) certain transaction fees and expenses, including the payment of deferred underwriting commissions agreed to at the time of our IPO, less (iv) certain payments to Hostess management under the Hostess LTIP, less (v) approximately $173,000,000 that will be used to repay a portion of the existing indebtedness of Hostess. The remainder of the consideration paid to the Selling Equityholders will be stock consideration, consisting of approximately 22,136,188 newly issued shares of our publicly-traded Class A Stock and approximately 29,912,742 shares of our newly established Class B Stock, which includes approximately 5,446,429 shares of Class B Stock representing the partial rollover of Hostess CDM Co-Invest’s equity investment in Hostess, which shares will be valued at approximately $9.73 per share for purposes of determining the aggregate number of shares payable to the Selling Equityholders for their ownership interests therein. In addition, Mr. Metropoulos will receive 2,496,000 Class B Units (and an equivalent number of shares of Class B Stock) pursuant to the Executive Chairman Employment Agreement. The foregoing consideration to be paid to the Selling Equityholders and Mr. Metropoulos may be further increased by amounts payable under the Tax Receivable Agreement and amounts payable as earn-out shares of Class A Stock or Class B Stock and an equivalent number of Class B Units, as applicable. The number of shares of Class A Stock and Class B Stock (and a corresponding number of Class B Units) issued to the Selling Equityholders as Stock Consideration is subject to adjustment, depending on, among other things, the level of redemptions of shares of Class A Stock by our public stockholders. AP Hostess LP will receive shares of Class A Stock, and Hostess CDM Co-Invest, CDM Hostess and Mr. Metropoulos will receive shares of Class B Stock and shall hold an equivalent number of Class B Units. The Class B Units (including the Class B Units issued to Mr. Metropoulos under the Executive Chairman Employment Agreement) may be exchanged (together with the cancellation of an equivalent number of shares of Class B Stock) by the holders thereof for, at the election of the Company, shares of Class A Stock or the cash equivalent of such shares, in accordance with the Exchange Agreement. In order to facilitate the Business Combination, our Sponsor has agreed to the cancellation of approximately 4,062,500 of the Founder Shares held by it and to the acquisition of shares of Class A Stock and Class B Stock by the Selling Equityholders (pursuant to the Master Transaction Agreement) and the participants in the Private Placement (pursuant to subscription agreements entered into in connection therewith) at a discount. The remaining Founder Shares will automatically convert into shares of Class A Stock on a one-for-one basis at the closing of the transactions contemplated by the Master Transaction Agreement and will continue to be subject to the transfer restrictions applicable to the Founder Shares. For more information about the consideration to the Selling Equityholders, please see the section entitled “ Proposal No. 1 — Approval of the Business Combination .”

 

Related Agreements

Contribution Agreement

At the closing of the Business Combination, the Company, Hostess CDM Co-Invest and CDM Hostess will enter into the Contribution Agreement, substantially in the form attached as Annex   E to this proxy statement. Pursuant to the Contribution Agreement, (i) Hostess CDM Co-Invest will sell certain limited partnership interests in Hostess Holdings to the Company in exchange for Hostess CDM Co-Invest’s pro rata portion of the cash consideration, less certain deductions, as set forth in the Master Transaction Agreement, (ii) CDM Hostess will sell certain limited partnership interests in Hostess Holdings to the Company in exchange for CDM Hostess’ pro rata portion of the cash consideration, less certain deductions, as set forth in the Master Transaction Agreement, and (iii) Hostess CDM Co-Invest will contribute all of its Class C general partner interests in Hostess Holdings GP to the Company in exchange for (x) approximately 22,136,188 shares of Class B Stock, plus approximately 5,446,429 rollover shares of the Class B Stock, as set forth in the Master Transaction Agreement, less certain shares of Class B Stock to be held in escrow, and (y) approximately 2,330,125 shares of Class B Stock, less certain shares of Class B Stock to be held in escrow, as set forth in the Master Transaction Agreement, which Hostess CDM Co-Invest shall direct the Company to issue and deliver to CDM Hostess.

Exchange Agreement

At the closing of the Business Combination, the Company, the CDM Holders and Hostess Holdings will enter into the Exchange Agreement, substantially in the form attached as Annex   F to this proxy statement. Pursuant to the Exchange Agreement, the CDM Holders and such other holders of Class B Units from time to time party thereto will be entitled to exchange Class B Units, and surrender shares of the Company’s Class B Stock for cancellation, in exchange for, at the option of the Company, a number of shares of the Company’s Class A Stock or the cash equivalent of such shares.

Tax Receivable Agreement

At the closing of the Business Combination, the Company will enter into the Tax Receivable Agreement, substantially in the form attached as Annex   G to this proxy statement, with the Selling Equityholders and Mr. Metropoulos. The Tax Receivable Agreement will generally provide for the payment by the Company to the Selling 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) in periods after the closing of the Business Combination (which periods may extend, unless the Tax Receivable Agreement is terminated early in accordance with its terms, for more than 15 years following any exchange of Class B Units of Hostess Holdings for shares of the Company’s Class A Stock or the cash equivalent thereof) 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 of Hostess Holdings; (iv) imputed interest deemed to be paid by the Company as a result of payments it makes under the Tax Receivable Agreement; and (v) certain increases in tax basis resulting from payments the Company makes under the Tax Receivable Agreement. The Company will retain the benefit of the remaining 15% of these cash savings. Certain payments under the Tax Receivable Agreement will be made to the Selling Equityholders in accordance with specified percentages, regardless of the source of the applicable tax attribute.

Registration Rights Agreement

At the closing of the Business Combination, the Company will enter into the Registration Rights Agreement, substantially in the form attached as Annex   H to this proxy statement, with the Restricted Stockholders. Pursuant to the terms of the Registration Rights Agreement, the Restricted Stockholders will be

 

bound by restrictions on the transfer of their shares of Class A Stock, Class B Stock and other securities of the Company and its subsidiaries until the later of (i) six months following the date of the Registration Rights Agreement, and (ii) the date that is the earlier of (A) 60 days after a registration statement registering the resale of shares of Class A Stock issued pursuant to the subscription agreements entered into in connection with the Business Combination has been filed with the SEC and declared effective and (B) 270 days after the closing of the transactions contemplated by the Master Transaction Agreement, except for transfers as bona fide gifts, to a trust, to wholly owned subsidiaries or other equity holders (in the case of entities), pursuant to any acquisition or sale involving the Company, pursuant to an indemnity transfer, or with the prior written consent of the Company and each holder of Restricted Stock.

Upon the consummation of the Business Combination, the Restricted Stockholders and their permitted transferees will be entitled to certain registration rights described in the Registration Rights Agreement. Among other things, pursuant to the Registration Rights Agreement, the Restricted Stockholders will each be entitled to participate in six demand registrations, and will also have certain “piggyback” registration rights with respect to registration statements filed by the Company subsequent to the Business Combination.

In addition, the Registration Rights Agreement provides that our Initial Stockholders will vote all of their shares of Class A Stock in favor of the election to the Board of Mr. Metropoulos (or his designees for so long as Mr. Metropoulos is entitled to serve on the Board or appoint a member of the Board, as applicable, pursuant to the terms of the Executive Chairman Director Agreement).

Subscription Agreements

Concurrently with the execution of the Master Transaction Agreement, the Company entered into the Investor Subscription Agreements with Canyon Capital Advisors LLC, Northwestern Mutual Life Insurance Company and certain of its affiliates, Teachers’ Retirement System of the State of Illinois and certain other accredited investors, pursuant to which the Private Placement Investors agreed to purchase up to 14,923,218 shares of Class A Stock for an aggregate commitment amount of approximately $137,000,000, subject to certain conditions, including the closing of the Business Combination.

On the same date, the Company entered into a separate Sponsor Subscription Agreement with our Sponsor, pursuant to which our Sponsor agreed to purchase up to 17,755,358 shares of Class A Stock for an aggregate commitment amount of approximately $163,000,000, subject to certain conditions, including the closing of the Business Combination. The Sponsor Subscription Agreement provides our Sponsor with the right to transfer up to $113,000,000 of its obligation to purchase the Sponsor Shares to any party or parties in compliance with the Securities Act, provided that our Sponsor, together with any controlled affiliates or employees of The Gores Group or Platinum Equity LLC or their respective controlled affiliates, maintain a subscription level of at least $50,000,000 in the aggregate. Upon any such transfer, our Sponsor’s commitment to purchase the Sponsor Shares will be correspondingly reduced, and our Sponsor will be fully and unconditionally released from its obligation to purchase the Sponsor Shares subject to the transferred commitment amount.

The Private Placement Shares to be issued pursuant to the Subscription Agreements have not been registered under the Securities Act in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder. The Subscription Agreements provide that the Company must register the resale of the Private Placement Shares pursuant to a registration statement that must be filed within thirty calendar days after consummation of the Business Combination.

The Subscription Agreements will be terminated, and be of no further force and effect, upon the earlier to occur of (i) the termination of the Master Transaction Agreement in accordance with its terms, (ii) the mutual written agreement of the parties thereto or (iii) if any of the conditions to the closing are not satisfied on or prior to the closing and which make the consummation of the Business Combination fail to occur.

 

Executive Chairman Arrangement

Pursuant to the terms of the Executive Chairman Employment Agreement, attached hereto as Annex   J-1 , Hostess will employ Mr. Metropoulos as the Executive Chairman of certain subsidiaries of Hostess, effective as of the closing date of the Business Combination and until December 31, 2018 (or until December 31, 2019 by mutual agreement of the parties). The Executive Chairman Employment Agreement provides that Mr. Metropoulos will receive an annual base salary of $30,000 as well as a one-time issuance of 2,496,000 Class B Units (and an equivalent number of shares of Class B Stock), which units and shares will be subject to a one-year holding period subject to certain exceptions. Mr. Metropoulos will also be entitled to (i) participate in any of Hostess’ employee benefit plans, (ii) continued access to and use of the automobile currently being provided to him by Hostess, and (iii) reimbursement of up to $25,000 per month for the cost of business travel using his personal aircraft consistent with past practice. The post-combination company will enter into an aircraft service contract with a third party in respect of Mr. Metropoulos’ aircraft and make such reimbursements of up to $25,000 per month by direct payments to such third party under such contract. Subject to his continued employment through December 31, 2018, Mr. Metropoulos will be entitled to shares of Class A Stock (or, upon his written request, an equivalent number of shares of Class B Stock and Class B Units) upon achievement of earn-out targets for the 2018 fiscal year, as specified in the Executive Chairman Employment Agreement. The Executive Chairman Employment Agreement will supersede all prior agreements between Mr. Metropoulos and Hostess regarding compensation for Mr. Metropoulos’ services to Hostess that are in effect immediately prior to the consummation of the Business Combination.

Pursuant to the terms of the Executive Chairman Director Agreement, attached hereto as Annex   J-2 , Mr. Metropoulos will serve as the Executive Chairman of the Board, effective as of the closing date of the Business Combination and until December 31, 2018 (or until December 31, 2019 by mutual agreement of the parties). The Executive Chairman Director Agreement provides that, for so long as the CDM Holders in the aggregate hold at least 7.5% of the capital stock of the Company on a fully diluted basis, Mr. Metropoulos will have the right to designate one member for election to the Board, which designee will be Mr. Metropoulos himself so long as he is employed as the Executive Chairman of the Board.

Sponsor Letter Agreement

Mr. Metropoulos has entered into the Sponsor Letter Agreement, attached hereto as Annex   K , with our Sponsor that provides for the potential transfer of Private Placement Warrants and Founder Shares held by our Sponsor to Mr. Metropoulos. In the event that our Sponsor transfers the Bridge Shares to third parties prior to the closing of the Business Combination, then our Sponsor will, immediately prior to the closing, transfer 2,000,000 Private Placement Warrants and 500,000 Founder Shares to Mr. Metropoulos. To the extent that our Sponsor transfers less than all of the Bridge Shares, then our Sponsor will transfer a proportionally reduced portion of such Private Placement Warrants and Founder Shares to Mr. Metropoulos.

Incentive Plan

Our Board approved the Incentive Plan on July 26, 2016, subject to stockholder approval of the Incentive Plan at the Special Meeting. The purpose of the Incentive Plan is to further align the interests of eligible participants with those of the Company’s stockholders post-Business Combination by providing long-term incentive compensation opportunities tied to the performance of the Company and the Class A Stock. The Incentive 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 Incentive Plan. For more information about the Incentive Plan, please see the section entitled “ Proposal No. 9 — Approval of the Incentive Plan, Including the Authorization of the Initial Share Reserve under the Incentive Plan and Also for Purposes of Complying with Section 162(m) of the Code — Description of the Incentive Plan .”

 

Organizational Structure

The following diagram depicts the current ownership structure of Hostess Holdings:

 

 

1	Pursuant to the Master Transaction Agreement, the Class B Units are entitled to approximately $9,355,486.

2	Pursuant to the Master Transaction Agreement, Class B-1 Units and Class B-2 Units are together entitled to approximately $3,669,322.

3	Pursuant to the Master Transaction Agreement, the Class A Units, the Class A-1 Units and the Class A-2 Units collectively have an economic value of 44.57172% ownership of Hostess Management, LLC, minus, approximately $3,669,322.

4	Pursuant to the Master Transaction Agreement, the Class C Units have an economic value of 55.42828% ownership of Hostess Management, LLC, minus, approximately $9,355,486.

 

The following diagram, which is subject to change based upon any redemptions by the Company’s current public stockholders in connection with the Business Combination, illustrates the ownership structure of the post-combination company immediately following the Business Combination: ⁽¹⁾

 

 

(1)

The post-closing ownership positions of each of the referenced entities assumes the following: (i) no exercise of redemption rights by the Company’s public stockholders; (ii) no inclusion of any shares of Class A Stock issuable upon the exercise of the Company’s warrants; (iii) cancellation of approximately 4,062,500 Founder Shares by our Sponsor; and (iv) transfer of all Bridge Shares to third parties prior to the closing of the Business Combination.

(2)

The post-closing ownership position of the Company’s public stockholders in the Company’s Class A Stock includes the ownership interest held by the Private Placement Investors. The Company’s public stockholders (other than the Private Placement Investors) will retain an ownership interest of approximately 38% of the Company’s outstanding shares of Class A Stock and approximately 29% of the total equity of the post-combination company. The Private Placement Investors will own approximately 28% of the Company’s outstanding shares of Class A Stock and approximately 21% of the total equity of the post-combination company.

(3)	Includes 2,496,000 shares of Class B Stock issued to Mr. Metropoulos pursuant to the Executive Chairman Employment Agreement (approximately 8% of the outstanding shares of Class B Stock and approximately 1.9% of the total equity of the post-combination company).

Redemption Rights

Pursuant to our current certificate of incorporation, holders of public shares may elect to have their shares redeemed for cash at the applicable redemption price per share equal to the quotient obtained by dividing (i) the aggregate amount on deposit in the Trust Account as of two business days prior to the consummation of the Business Combination, including interest (which interest shall be net of taxes payable), by (ii) the total number of

 

then-outstanding public shares; provided that the Company will not redeem any shares of Class A Stock issued in the IPO to the extent that such redemption would result in the Company having net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) of less than $5,000,001. As of June 30, 2016, this would have amounted to approximately $10.00 per share. Notwithstanding the foregoing, a holder of the public shares, together with any affiliate of his or her or any other person with whom he or she is acting in concert or as a “group” (as defined in Section 13(d)-(3) of the Exchange Act) will be restricted from seeking redemption rights with respect to more than 15% of the shares of Class A Stock included in the units sold in our IPO.

If a holder exercises its redemption rights, then such holder will be exchanging its shares of our Class A Stock for cash and will no longer own shares of the post-combination company. Such a holder will be entitled to receive cash for its public shares only if it properly demands redemption and delivers its shares (either physically or electronically) to our Transfer Agent in accordance with the procedures described herein. Please see the section entitled “ Special Meeting in Lieu of 2016 Annual Meeting of Company Stockholders — Redemption Rights ” for the procedures to be followed if you wish to redeem your shares for cash.

Impact of the Business Combination on the Company’s Public Float

It is anticipated that, upon completion of the Business Combination: (i) the Company’s public stockholders (other than the Private Placement Investors) will retain an ownership interest of approximately 29% in the post-combination company; (ii) the Private Placement Investors (other than our Sponsor) will own approximately 21% of the post-combination company (such that public stockholders, including Private Placement Investors other than our Sponsor, will own approximately 50% of the post-combination company); (iii) our Initial Stockholders (including our Sponsor, and the shares of Class A Stock purchased by it in the Private Placement) will own approximately 8% of the post-combination company, after giving effect to the cancellation of approximately 4,062,500 Founder Shares held by our Sponsor; (iv) AP Hostess LP will own approximately 17% of the post-combination company; (v) Hostess CDM Co-Invest will own approximately 21% of the post-combination company; (vi) CDM Hostess will own approximately 2% of the post-combination company and (vii) Mr. Metropoulos and/or his designee will own approximately 2% of the post-combination company (and Hostess CDM Co-Invest, CDM Hostess and Mr. Metropoulos, collectively, will own approximately 25% of the post-combination company). 100% of the shares of Class B Stock will be owned by the CDM Holders. These levels of ownership interest assume that no shares are elected to be redeemed, that all Bridge Shares have been transferred to third parties prior to the closing of the transactions contemplated by the Master Transaction Agreement and that our Sponsor and Mr. Metropoulos have not exercised any of the Private Placement Warrants. The Private Placement Investors have agreed to purchase in the aggregate approximately 32,678,576 shares of Class A Stock, for approximately $300,000,000 of gross proceeds, in the Private Placement. In this proxy statement, we assume that approximately $97,000,000 of the gross proceeds from the Private Placement, in addition to $375,000,000 of the funds from the Trust Account, will be used to fund the cash consideration payable to the Selling Equityholders, the repayment of approximately $173,000,000 of Hostess’ existing indebtedness and the payment of certain transaction expenses. The ownership percentage with respect to the post-combination company following the Business Combination does not take into account (a) warrants to purchase Class A Stock that will remain outstanding immediately following the Business Combination, (b) the issuance of any shares of Class A Stock under the Exchange Agreement, a copy of which is attached to this proxy statement as Annex   F , upon the exchange of Class B Units (and the cancellation of shares of Class B Stock), or (c) the issuance of any shares upon completion of the Business Combination under the Incentive Plan, a copy of which is attached to this proxy statement as Annex   L , but does include Founder Shares, which will be converted into shares of Class A Stock at the closing of the Business Combination on a one-for-one basis (after giving effect to the cancellation of approximately 4,062,500 of such shares and even though such shares of Class A Stock will be subject to transfer restrictions). If the actual facts are different than these assumptions (which they are likely to be), the percentage ownership retained by the Company’s existing stockholders in the post-combination company will be different.

 

The following table illustrates varying ownership levels in the Company, assuming varying levels of redemptions by the Company’s public stockholders: ⁽¹⁾

 

		No Redemptions								12.5 Million shares of Class A Stock Redeemed
		No Exercise of Private Placement Warrants				Assuming Exercise of Private Placement Warrants				No Exercise of Private Placement Warrants				Assuming Exercise of Private Placement Warrants
The Company’s public stockholders			29%				26%				19%				18%
The Private Placement Investors			21%				20%				21%				20%
Initial Stockholders			8%				14%				8%				14%
AP Hostess LP			17%				16%				22%				20%
Hostess CDM Co-Invest (2)			21%				20%				26%				24%
CDM Hostess (3)			2%				2%				2%				2%
Mr. Metropoulos			2%				2%				2%				2%
			100%				100%				100%				100%

 

(1)

This table, other than the maximum redemption scenario wherein 12.5 million shares of Class A Stock are redeemed and the scenario in which our Sponsor exercises all of its Private Placement Warrants for an additional 8.5 million shares of Class A Stock (after giving effect to the transfer of 2,000,000 Private Placement Warrants to Mr. Metropoulos in connection with the transfer of all of the Bridge Shares to third parties), reflects the assumptions as set forth in the preceding paragraph.

(2)	The shares of Class B Stock (and a corresponding number of Class B Units in Hostess Holdings) held by Hostess CDM Co-Invest are beneficially owned by Mr. Metropoulos.

(3)	The shares of Class B Stock (and a corresponding number of Class B Units in Hostess Holdings) held by CDM Hostess are beneficially owned by Mr. Metropoulos.

The Private Placement is contingent upon, among other things, stockholder approval of the Business Combination Proposal and the closing of the Business Combination. The issuance of 20% or more of our outstanding shares of Common Stock in connection with the Master Transaction Agreement, the Private Placement and the Executive Chairman Employment Agreement requires stockholder approval of the NASDAQ Proposal.

Board of Directors of the Company Following the Business Combination

Upon consummation of the Business Combination, our Board anticipates increasing its initial size from four directors to seven directors, with each Class I director having a term that expires at the post-combination company’s annual meeting of stockholders in 2017, each Class II director having a term that expires at the post-combination company’s annual meeting of stockholders in 2018 and each Class III director having a term that expires at the post-combination company’s annual meeting of stockholders in 2019, or in each case until their respective successors are duly elected and qualified, or until their earlier resignation, removal or death. Please see the sections entitled “ Proposal No. 8 — Election of Directors to the Board of Directors ” and “ Management After the Business Combination ” for additional information.

The Charter Amendment Proposals

Upon the closing of the Business Combination, our current certificate of incorporation will be amended promptly to reflect the Charter Amendment Proposals to:

 

•

provide for the classification of our Board into three classes of directors with staggered terms of office and to make certain related changes (Proposal No. 3);

 

•

authorize an additional 40,000,000 shares of Common Stock, which would consist of (i) establishing 50,000,000 shares of a newly designated class of Class B Stock, in order to provide for our “Up-C” structure, which allows certain of the Selling Equityholders to continue to hold their ownership interest

 

in Hostess in a tax efficient manner, and (ii) decreasing the post-combination company’s shares of Class F Common Stock from 20,000,000 shares to 10,000,000 shares (Proposal No. 4);

 

•

change the stockholder vote required to amend certain provisions of the post-combination company’s proposed certificate of incorporation and bylaws (Proposal No. 5);

 

•

elect not to be governed by Section 203 of the DGCL and, instead, include a provision in our certificate of incorporation that is substantially similar to Section 203 of the DGCL, but excludes The Gores Group, Apollo and the CDM Holders, each of their successors, certain affiliates and each of their respective transferees from the definition of “interested stockholder,” and to make certain related changes (Proposal No. 6); and

 

•

provide for certain additional changes, including changing the post-combination company’s corporate name from “Gores Holdings, Inc.” to “Hostess Brands, Inc.,” providing that certain transactions are not “corporate opportunities” and that certain persons, including the Selling Equityholders and their affiliates, are not subject to the doctrine of corporate opportunity, and eliminating certain provisions specific to our status as a blank check company, which our Board believes are necessary to adequately address the needs of the post-combination company, subject to approval by our stockholders at the Special Meeting (Proposal No. 7).

Please see the sections entitled “ Proposal No. 3 — Classification of the Board of Directors ,” “ Proposal No. 4 — Approval of Amendments to Current Certificate to Authorize Additional Shares of Common Stock ,” “ Proposal No. 5 — Approval of Amendments to Current Certificate to Change the Stockholder Vote Required to Amend the Certificate of Incorporation and Bylaws of the Company ,” “ Proposal No. 6 — Approval of Amendments to Current Certificate to Elect Not to be Governed by Section 203 of the DGCL ,” and “ Proposal No. 7 — Approval of Additional Amendments to Current Certificate in Connection with the Business Combination ” for more information.

Other Proposals

In addition, the stockholders of the Company will be asked to vote on:

 

•

a proposal to approve, for purposes of complying with applicable NASDAQ Listing Rules, the issuance of more than 20% of the Company’s issued and outstanding Common Stock pursuant to the Business Combination, the Private Placement and the Executive Chairman Employment Agreement (Proposal No. 2);

 

•

a proposal to elect seven directors to our Board, effective upon the closing of the Business Combination, with each Class I director having a term that expires at the post-combination company’s annual meeting of stockholders in 2017, each Class II director having a term that expires at the post-combination company’s annual meeting of stockholders in 2018 and each Class III director having a term that expires at the post-combination company’s annual meeting of stockholders in 2019, or in each case until their respective successors are duly elected and qualified, or until their earlier resignation, removal or death (Proposal No. 8);

 

•

a proposal to approve and adopt the Incentive Plan, a copy of which is attached to this proxy statement as Annex   L , including the authorization of the initial share reserve under the Incentive Plan and also for purposes of complying with Section 162(m) of the Code (Proposal No. 9);

 

•

a proposal to ratify the appointment of KPMG as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2016 (Proposal No. 10); and

 

•

a proposal to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if there are insufficient votes for, or otherwise in connection with, the

 

approval of the Business Combination Proposal, the NASDAQ Proposal or the Charter Amendment Proposals (Proposal No. 11).

Please see the sections entitled “ Proposal No. 2 — Approval of the Issuance of More than 20% of the Company’s Issued and Outstanding Common Stock in Connection with the Business Combination, the Private Placement and the Executive Chairman Employment Agreement ,” “ Proposal No. 8 — Election of Directors to the Board of Directors ,” “ Proposal No. 9 — Approval of the Incentive Plan, Including the Authorization of the Initial Share Reserve under the Incentive Plan and Also for Purposes of Complying with Section 162(m) of the Code ,” “ Proposal No. 10   — Ratification of Appointment of the Company’s Independent Registered Public Accounting Firm ” and “ Proposal No. 11 — The Adjournment Proposal ” for more information.

Date, Time and Place of Special Meeting

The Special Meeting will be held on November 3, 2016, at 9:00 a.m., Eastern Time, at the offices of Weil, Gotshal & Manges LLP, located at 767 Fifth Avenue, New York, NY 10153, or at such other date, time and place to which such meeting may be adjourned or postponed, to consider and vote upon the proposals.

Voting Power; Record Date

Only Company stockholders of record at the close of business on September 29, 2016, the record date for the Special Meeting, will be entitled to vote at the Special Meeting. You are entitled to one vote for each share of Company Common Stock that you owned as of the close of business on the record date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker, bank or other nominee to ensure that votes related to the shares you beneficially own are properly counted. On the record date, there were 46,875,000 shares of Company Common Stock outstanding and entitled to vote, of which 37,500,000 are shares of Class A Stock and 9,375,000 are Founder Shares held by our Initial Stockholders.

Accounting Treatment

The Business Combination will be accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification 805, Business Combinations (“ ASC 805 ”), with the Company treated as the acquirer, assuming that the public stockholder redemptions do not exceed a level whereby the Selling Equityholders would retain control of Hostess Holdings. The ultimate determination of the accounting acquirer is a qualitative and quantitative assessment that requires careful consideration, of which the final determination will occur after the consummation of the Business Combination. However, the Company generally believes that if the Selling Equityholders retain greater than 50% of the voting control of the post-combination company, the Company would not be considered the accounting acquirer. Under the acquisition method of accounting, the Company will allocate the purchase price of this acquisition to tangible and identifiable intangible assets acquired and liabilities assumed, based on their estimated acquisition-date fair values. These estimates will be determined through established and generally accepted valuation techniques. Transaction costs will be expensed as incurred.

If the public stockholder redemptions exceed the level whereby the Selling Equityholders retain control of Hostess Holdings, then Hostess Holdings will be considered the acquirer for accounting purposes, notwithstanding the legal form of the Business Combination. This is referred to as reverse merger accounting. If Hostess Holdings is the acquirer for accounting purposes, the Company will be considered the acquired entity, and the assets and liabilities of the Company, as opposed to Hostess Holdings, will be recorded at fair value. As displayed in the section entitled “ Unaudited Pro Forma Condensed Combined Financial Information ,” the resulting accounting treatment differs materially if reverse merger accounting is applied.

Appraisal Rights

Appraisal rights are not available to our stockholders in connection with the Business Combination.

 

Proxy Solicitation

Proxies may be solicited by mail. The Company has engaged Morrow to assist in the solicitation of proxies.

If a stockholder grants a proxy, it may still vote its shares in person if it revokes its proxy before the Special Meeting. A stockholder may also change its vote by submitting a later-dated proxy, as described in the section entitled “ Special Meeting in Lieu of 2016 Annual Meeting of Company Stockholders — Revoking Your Proxy .”

Interests of Certain Persons in the Business Combination

In considering the recommendation of our Board to vote in favor of the Business Combination, stockholders should be aware that aside from their interests as stockholders, our Sponsor and certain members of our Board and officers have interests in the Business Combination that are different from, or in addition to, those of other stockholders generally. Our Board was aware of and considered these interests, among other matters, in evaluating and negotiating the Business Combination, and in recommending to stockholders that they approve the Business Combination. Stockholders should take these interests into account in deciding whether to approve the Business Combination.

These interests include, among other things:

 

•

the fact that our Initial Stockholders have agreed not to redeem any of the Founder Shares in connection with a stockholder vote to approve a proposed initial business combination;

 

•

the fact that our Sponsor paid an aggregate of $25,000 for the Founder Shares and such securities will have a significantly higher value at the time of the Business Combination, which if unrestricted and freely tradable would be valued at approximately $53,125,000 (after giving effect to the cancellation of approximately 4,062,500 Founder Shares) but, given the restrictions on such shares, we believe such shares have less value;

 

•

the fact that our Initial Stockholders have agreed to waive their rights to liquidating distributions from the Trust Account with respect to their Founder Shares if we fail to complete an initial business combination by August 19, 2017;

 

•

the fact that our Sponsor paid an aggregate of $9,500,000 for its 19,000,000 Private Placement Warrants to purchase shares of Class A Stock and that such Private Placement Warrants will expire worthless if a business combination is not consummated by August 19, 2017;

 

•

the continued right of our Sponsor to hold our Class A Stock and the shares of Class A Stock to be issued to our Sponsor upon exercise of its Private Placement Warrants following the Business Combination, subject to certain lock-up periods;

 

•

the fact that, at the option of our Sponsor, any amounts outstanding under any loan made by our Sponsor or an affiliate of our Sponsor to the Company in an aggregate amount up to $1,500,000, may be converted into warrants to purchase Class A Stock of the post-combination company;

 

•

if the Trust Account is liquidated, including in the event we are unable to complete an initial business combination within the required time period, The Gores Group, an affiliate of our Sponsor, has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10.00 per public share, or such lesser per public share amount as is in the Trust Account on the liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party for services rendered or products sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;

 

•

the anticipated election of our Chief Executive Officer, Mr. Mark R. Stone, as a director of the post-combination company;

 

•

the continued indemnification of our existing directors and officers and the continuation of our directors’ and officers’ liability insurance after the Business Combination;

 

•

the fact that our Sponsor, officers and directors may not participate in the formation of, or become a director or officer of, any other blank check company until we (i) have entered into a definitive agreement regarding an initial business combination or (ii) fail to complete an initial business combination by August 19, 2017; provided that, in the case of clause (i), such other blank check company does not consummate its initial public offering prior to the consummation of the Business Combination;

 

•

the fact that our Sponsor, officers and directors will lose their entire investment in us and will not be reimbursed for any out-of-pocket expenses if an initial business combination is not consummated by August 19, 2017;

 

•

that, as described in the Charter Amendment Proposals and reflected in Annex   B , our proposed certificate of incorporation will be amended to exclude The Gores Group, Apollo and the CDM Holders, each of their successors, certain affiliates and each of their respective transferees as “interested parties” from the list of prohibited business combinations not in compliance with Section 203 of the DGCL;

 

•

that, at the closing of the Business Combination we will enter into the Registration Rights Agreement with the Restricted Stockholders, which provides for registration rights to Restricted Stockholders and their permitted transferees and provides that our Initial Stockholders will vote all of their shares of Class A Stock in favor of the election to the Board of Mr. Metropoulos (or his designee for so long as Mr. Metropoulos is entitled to serve on the Board or appoint a member of the Board, as applicable, pursuant to the terms of the Executive Chairman Director Agreement); and

 

•

that our Sponsor has entered into the Sponsor Subscription Agreement with the Company, pursuant to which our Sponsor has committed to purchase up to 17,755,358 shares of Class A Stock in the Private Placement for an aggregate commitment of $163,000,000. Pursuant to the terms of the Sponsor Subscription Agreement, our Sponsor may transfer or assign its rights to purchase shares of Class A Stock to third parties in compliance with the Securities Act, so long as our Sponsor, together with any controlled affiliates or employees of The Gores Group or Platinum Equity LLC or their respective controlled affiliates party to any other Subscription Agreement, maintains a subscription level of at least $50,000,000.

Reasons for the Approval of the Business Combination

We were formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We sought to do this by utilizing the networks and industry experience of both our Sponsor and our Board to identify, acquire and operate one or more businesses within or outside of the United States, although we were not limited to a particular industry or sector.

In particular, our Board considered the following positive factors, although not weighted or in any order of significance:

 

•

Iconic Brand .   Hostess is an iconic American brand with very strong brand awareness. Hostess has significant market share in the sweet baked goods market and is a category leader in the single serve market and bagged donuts market.

 

•

Business and Financial Condition and Prospects . The knowledge and familiarity of the Board and the Company’s management with Hostess’ business, financial condition, results of operations (including

 

Hostess’ favorable margins) and future growth prospects. The Board discussed Hostess’ current prospects for growth in executing upon and achieving Hostess’ business plans, and noted that the U.S. sweet baked goods industry is highly fragmented and represents a significant opportunity for further consolidation. The Board believed that Hostess’ additional market share gain and growth rates could outpace the underlying market, given that Hostess demonstrated above-market growth post-bankruptcy and that Hostess had not yet reached the sweet baked goods market share it held prior to its bankruptcy. In addition, the Board believed that there is expected market growth overall in the $6.8 billion sweet baked goods category and that Hostess is in a premium position to capitalize on such growth with its brand power and market position.

 

•

Acquisition of Hostess Assets by the Selling Equityholders . The Board considered the fact that the assets of Hostess were acquired, free and clear of all past liabilities, out of bankruptcy in 2013 by Apollo and the CDM Holders.

 

•

Apollo and CDM Holder’s Investment in Hostess . Following the acquisition of Hostess out of bankruptcy in 2013, Apollo and the CDM Holders invested significant capital in Hostess transforming Hostess to a competitively advantaged direct to warehouse model with extended shelf life technology, an upgraded manufacturing footprint, implementation of new IT systems and enhanced production efficiency through the installation of automated baking and packaging lines. The Board viewed these investments as improving Hostess’ operating model, allowing flexibility to innovate and quickly bring to market new products and ideas.

 

•

Experienced and Proven Management Team .   The Board considered the fact that the post-combination company will be led by the senior management team of Hostess which, with an average of 19 years of industry experience, has successfully transformed the business since it was acquired out of bankruptcy in 2013 and has delivered industry leading profitability margins. In addition, the Board considered the fact that Mr. Metropoulos, who has more than 30 years of successful experience revamping iconic brands throughout the consumer space and a strong track record of growing revenues, reducing costs and enhancing capital efficiency, would continue on as the Executive Chairman of the post-combination company.

 

•

Opinion of Moelis .   The opinion of Moelis, dated July 4, 2016, addressed to the Board as to the fairness, from a financial point of view and as of the date of such opinion, of the consideration to be paid by the Company in the Business Combination which opinion was based on and subject to the assumptions made, procedures followed, matters considered and limitations and qualifications set forth in such opinion as more fully described below under the caption “ Proposal No. 1 — Approval of the Business Combination — Opinion of the Company’s Financial Advisor .”

 

•

Other Alternatives . The Board’s belief, after a thorough review of other business combination opportunities reasonably available to the Company, that the proposed Business Combination represents the best potential business combination for the Company based upon the process utilized to evaluate and assess other potential acquisition targets, and the Board’s and management’s belief that such processes had not presented a better alternative.

 

•

Terms of the Master Transaction Agreement .  The Board considered the terms and conditions of the Master Transaction Agreement and the transactions contemplated thereby, including the Business Combination.

 

•

Independent Director Role . The Board is comprised of a majority of independent directors who are not affiliated with our Sponsor and its affiliates, including The Gores Group. In connection with the Business Combination, our independent directors, Messrs. Randall Bort, William Patton and Jeffrey Rea, took an active role in evaluating and negotiating the proposed terms of the Business Combination, including the Master Transaction Agreement, the Related Agreements and the amendments to our

 

current certificate of incorporation to take effect upon the completion of the Business Combination. Our independent directors evaluated and unanimously approved, as members of the Board, the Master Transaction Agreement and the transactions contemplated therein, including the Business Combination.

For more information about our decision-making process, please see the section entitled “ Proposal No. 1 — Approval of the Business Combination — The Company’s Board of Directors’ Reasons for the Approval of the Business Combination .”

Conditions to Closing of the Business Combination

The respective obligations of the Company and the Selling Equityholders to consummate the transactions contemplated by the Master Transaction Agreement, including the Business Combination, are subject to the satisfaction or written waiver by both the Company and the Selling Equityholders, of each of the following conditions:

 

•

the waiting period applicable to the transactions contemplated by the Master Transaction Agreement under the HSR Act must have expired or early termination must have been granted;

 

•

there must not be in effect any order by a governmental entity of competent jurisdiction enjoining, restricting or otherwise making illegal the consummation of the Business Combination or any law or regulations that makes the consummation of the Business Combination illegal or otherwise prohibited; and

 

•

the required vote of the Company’s stockholders to approve the Business Combination Proposal, the NASDAQ Proposal and the Charter Amendment Proposals shall have been duly obtained in accordance with the DGCL, the Company’s current certificate of incorporation and bylaws and the rules and regulations of NASDAQ.

The obligations of the Company to affect the Business Combination are subject to fulfillment, on or prior to the closing date, of certain conditions (any or all of which may be waived in writing by the Company), including, among others:

 

•

the Selling Equityholders must have performed and complied in all material respects with all obligations required to be performed or complied with by the Selling Equityholders under the Master Transaction Agreement at or prior to closing; and

 

•

the amount in the Trust Account and the proceeds from the Private Placement, together with the CDM Rollover Amount, must equal or exceed $537,500,000.

The obligations of the Selling Equityholders to affect the Business Combination are subject to fulfillment, on or prior to the closing date, of certain conditions (any or all of which may be waived in writing by the Selling Equityholders), including, among others:

 

•

the Company must have performed and complied in all material respects with all obligations required to be performed or complied with by it under the Master Transaction Agreement at or prior to closing;

 

•

the Company’s current certificate must be amended to reflect the Charter Amendment Proposals; and

 

•

the amount in the Trust Account and the proceeds from the Private Placement, together with the CDM Rollover Amount, must equal or exceed $600,000,000.

Please see the section entitled “ Proposal No. 1 — Approval of the Business Combination — Conditions to Closing of the Business Combination ” for additional information.

 

Regulatory Matters

Under the HSR Act and the rules that have been promulgated thereunder by the U.S. Federal Trade Commission (“ FTC ”), certain transactions may not be consummated unless information has been furnished to the Antitrust Division of the Department of Justice (“ Antitrust Division ”) and the FTC and certain waiting period requirements have been satisfied. The Business Combination is subject to these requirements and may not be completed until the expiration of a 30-day waiting period following the filing of the required Notification and Report Forms with the Antitrust Division and the FTC or until early termination is granted. On July 19, 2016, the Company and Hostess filed the required forms under the HSR Act with the Antitrust Division and the FTC. Early termination of the HSR waiting period was granted on July 29, 2016.

At any time before or after consummation of the Business Combination, notwithstanding termination of the waiting period under the HSR Act, the applicable competition authorities could take such action under applicable antitrust laws as each deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the Business Combination. Private parties may also seek to take legal action under the antitrust laws under certain circumstances. We cannot assure you that the Antitrust Division, the FTC, any state attorney general, or any other government authority will not attempt to challenge the Business Combination on antitrust grounds, and, if such a challenge is made, we cannot assure you as to its result. Neither the Company nor Hostess is aware of any material regulatory approvals or actions that are required for completion of the Business Combination other than the expiration or early termination of the waiting period under the HSR Act. It is presently contemplated that if any such additional regulatory approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.

Quorum and Required Vote for Proposals for the Special Meeting

A quorum of Company stockholders is necessary to hold a valid meeting. A quorum will be present at the Special Meeting if a majority of the Company’s Common Stock outstanding and entitled to vote at the Special Meeting is represented in person or by proxy. Abstentions will count as present for the purposes of establishing a quorum.

The approval of the Business Combination Proposal requires the affirmative vote of holders of a majority of the outstanding shares of our Common Stock entitled to vote thereon at the Special Meeting. Accordingly, a Company stockholder’s failure to vote by proxy or to vote in person at the Special Meeting or an abstention from voting with regard to the Business Combination Proposal will have the same effect as a vote “AGAINST” the Business Combination Proposal. Our Initial Stockholders have agreed to vote their Founder Shares and any public shares purchased during or after the IPO in favor of the Business Combination Proposal.

The approval of the NASDAQ Proposal requires the affirmative vote of holders of a majority of the shares of our Common Stock represented in person or by proxy and entitled to vote thereon at the Special Meeting. Accordingly, a Company stockholder’s failure to vote by proxy or to vote in person at the Special Meeting will not be counted towards the number of shares of Common Stock required to validly establish a quorum, and if a valid quorum is otherwise established, such failure to vote will have no effect on the outcome of any vote on the NASDAQ Proposal. Abstentions will be counted in connection with the determination of whether a valid quorum is established and will have the same effect as a vote “AGAINST” the NASDAQ Proposal.

The approval of the Charter Amendment Proposals requires the affirmative vote of the holders of a majority of the outstanding shares of our Common Stock entitled to vote thereon at the Special Meeting. Accordingly, a Company stockholder’s failure to vote by proxy or to vote in person at the Special Meeting or an abstention from voting with regard to any of the Charter Amendment Proposals will have the same effect as a vote “AGAINST” such Charter Amendment Proposal.

 

Directors are elected by a plurality of all of the votes cast by holders of shares of our Common Stock represented in person or by proxy and entitled to vote thereon at the Special Meeting. This means that the seven director nominees will be elected if they receive more affirmative votes than any other nominee for the same position. Stockholders may not cumulate their votes with respect to the election of directors. Assuming a valid quorum is established, abstentions will have no effect on the election of directors.

The approval of the Incentive Plan Proposal, the Ratification Proposal and the Adjournment Proposal requires the affirmative vote of holders of a majority of the shares of our Common Stock represented in person or by proxy and entitled to vote thereon at the Special Meeting. Accordingly, a Company stockholder’s failure to vote by proxy or to vote in person at the Special Meeting will not be counted towards the number of shares of Common Stock required to validly establish a quorum, and if a valid quorum is otherwise established, such failure to vote will have no effect on the outcome of any vote on the Incentive Plan Proposal. Abstentions will be counted in connection with the determination of whether a valid quorum is established and will have the same effect as a vote “AGAINST” the Incentive Plan Proposal, the Ratification Proposal and the Adjournment Proposal.

The Business Combination is conditioned on the approval of the Business Combination Proposal, the NASDAQ Proposal and the Charter Amendment Proposals at the Special Meeting. Each of the proposals other than the Business Combination Proposal, the NASDAQ Proposal and the Charter Amendment Proposals is conditioned on the approval of the Business Combination Proposal, the NASDAQ Proposal and the Charter Amendment Proposals, other than the Ratification Proposal and the Adjournment Proposal, which are not conditioned on the approval of any other proposal set forth in this proxy statement.  It is important for you to note that in the event that the Business Combination Proposal, the NASDAQ Proposal or the Charter Amendment Proposals do not receive the requisite vote for approval, we will not consummate the Business Combination . If we do not consummate the Business Combination and fail to complete an initial business combination by August 19, 2017, we will be required to dissolve and liquidate our Trust Account by returning the then remaining funds in such account to our public stockholders.

Opinion of the Company’s Financial Advisor

In connection with the Board’s approval of the Master Transaction Agreement, the Board received a written opinion, dated July 4, 2016, from the Company’s financial advisor, Moelis, as to the fairness, from a financial point of view and as of the date of such opinion, of the consideration to be paid by the Company. The full text of Moelis’ written opinion, dated July 4, 2016, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion (which are also summarized herein), is attached as Annex   D to this proxy statement and is incorporated herein by reference. Stockholders are urged to read Moelis’ written opinion carefully and in its entirety. Moelis’ opinion was provided for the use and benefit of the Board (in its capacity as such) in its evaluation of the Business Combination (and, in its engagement letter, Moelis provided its consent to the inclusion of the text of its opinion as part of this proxy statement). Moelis’ opinion is limited solely to the fairness, from a financial point of view to the Company, of the consideration to be paid by the Company in the Business Combination, and does not address the Company’s underlying business decision to effect the Business Combination or the relative merits of the Business Combination as compared to any alternative business strategies or transactions that might be available with respect to the Company. Moelis’ opinion does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote or act with respect to the Business Combination or any other matter.

Independent Director Oversight

Our Board is comprised of a majority of independent directors who are not affiliated with our Sponsor and its affiliates, including The Gores Group. In connection with the Business Combination, our independent

 

directors, Messrs. Randall Bort, William Patton and Jeffrey Rea, took an active role in evaluating and negotiating the proposed terms of the Business Combination, including the Master Transaction Agreement, the Related Agreements and the amendments to our current certificate of incorporation to take effect upon the completion of the Business Combination. As part of their evaluation of the Business Combination, our independent directors were aware of the potential conflicts of interest with our Sponsor and its affiliates, including The Gores Group, that could arise with regard to the proposed terms of the (i) Master Transaction Agreement, (ii) the Private Placement and (iii) amendments to our current certificate of incorporation to take effect upon the completion of the Business Combination (including a provision that certain transactions are not “corporate opportunities” and that certain persons, including the Selling Equityholders and their affiliates, are not subject to the doctrine of corporate opportunity and the exclusion of The Gores Group, Apollo, the CDM Holders and their affiliates and transferees as “interested stockholders” from the restrictions in our proposed certificate of incorporation that are similar to Section 203 of the DGCL). Our independent directors reviewed and considered these interests during the negotiation of the Business Combination and in evaluating and unanimously approving, as members of the Board, the Master Transaction Agreement and the transactions contemplated therein, including the Business Combination. Please see the section entitled “ Proposal No. 1 — Approval of the Business Combination — Independent Director Oversight .”

Recommendation to Company Stockholders

Our Board believes that each of the Business Combination Proposal, the NASDAQ Proposal, the Charter Amendment Proposals, the Director Election Proposal, the Incentive Plan Proposal, the Ratification Proposal and the Adjournment Proposal to be presented at the Special Meeting is in the best interests of the Company and our stockholders and unanimously recommends that its stockholders vote “FOR” each of the proposals.

When you consider the recommendation of our Board in favor of approval of the Business Combination Proposal, you should keep in mind that our Sponsor and certain members of our Board and officers have interests in the Business Combination that are different from or in addition to (or which may conflict with) your interests as a stockholder. Stockholders should take these interests into account in deciding whether to approve the Business Combination. These interests include, among other things:

 

•

the fact that our Initial Stockholders have agreed not to redeem any of the Founder Shares in connection with a stockholder vote to approve a proposed initial business combination;

 

•

the fact that our Sponsor paid an aggregate of $25,000 for the Founder Shares and such securities will have a significantly higher value at the time of the Business Combination, which if unrestricted and freely tradable would be valued at approximately $53,125,000 (after giving effect to the cancellation of approximately 4,062,500 Founder Shares) but, given the restrictions on such shares, we believe such shares have less value;

 

•

the fact that our Initial Stockholders have agreed to waive their rights to liquidating distributions from the Trust Account with respect to their Founder Shares if we fail to complete an initial business combination by August 19, 2017;

 

•

the fact that our Sponsor paid an aggregate of $9,500,000 for its 19,000,000 Private Placement Warrants to purchase shares of Class A Stock and that such Private Placement Warrants will expire worthless if a business combination is not consummated by August 19, 2017;

 

•

the continued right of our Sponsor to hold our Class A Stock and the shares of Class A Stock to be issued to our Sponsor upon exercise of its Private Placement Warrants following the Business Combination, subject to certain lock-up periods;

 

•

the fact that, in connection with the Business Combination, we shortened the lock-up period on the Founder Shares from one year following the Business Combination to six months;

 

•

the fact that, on July 27, 2016, our Sponsor loaned us $500,000 to fund our on-going operational expenses and certain transaction costs incurred by us in connection with the Business Combination and that, at the option of our Sponsor, any amounts outstanding under any loan made by our Sponsor or an affiliate of our Sponsor to the Company in an aggregate amount up to $1,500,000, may be converted into warrants to purchase Class A Stock of the post-combination company;

 

•

if the Trust Account is liquidated, including in the event we are unable to complete an initial business combination within the required time period, The Gores Group, an affiliate of our Sponsor, has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10.00 per public share, or such lesser per public share amount as is in the Trust Account on the liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party for services rendered or products sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;

 

•

the anticipated election of our Chief Executive Officer, Mr. Mark R. Stone, as a director of the post-combination company;

 

•

the continued indemnification of our existing directors and officers and the continuation of our directors’ and officers’ liability insurance after the Business Combination;

 

•

the fact that our Sponsor, officers and directors may not participate in the formation of, or become a director or officer of, any other blank check company until we (i) have entered into a definitive agreement regarding an initial business combination or (ii) fail to complete an initial business combination by August 19, 2017; provided that, in the case of clause (i), such other blank check company does not consummate its initial public offering prior to the consummation of the Business Combination;

 

•

the fact that our Sponsor, officers and directors will lose their entire investment in us and will not be reimbursed for any out-of-pocket expenses if an initial business combination is not consummated by August 19, 2017;

 

•

that, as described in the Charter Amendment Proposals and reflected in Annex   B , our proposed certificate of incorporation will be amended to exclude The Gores Group, Apollo and the CDM Holders, each of their successors, certain affiliates and each of their respective transferees as “interested parties” from the list of prohibited business combinations not in compliance with Section 203 of the DGCL;

 

•

that, at the closing of the Business Combination we will enter into the Registration Rights Agreement with the Restricted Stockholders, which provides for registration rights to Restricted Stockholders and their permitted transferees and provides that our Initial Stockholders will vote all of their shares of Class A Stock in favor of the election to the Board of Mr. Metropoulos (or his designee for so long as Mr. Metropoulos is entitled to serve on the Board or appoint a member of the Board, as applicable, pursuant to the terms of the Executive Chairman Director Agreement); and

 

•

that our Sponsor has entered into the Sponsor Subscription Agreement with the Company, pursuant to which our Sponsor has committed to purchase up to 17,755,358 shares of Class A Stock in the Private Placement for an aggregate commitment of $163,000,000. Pursuant to the terms of the Sponsor Subscription Agreement, our Sponsor may transfer or assign its rights to purchase shares of Class A Stock to third parties in compliance with the Securities Act, so long as our Sponsor, together with any controlled affiliates or employees of The Gores Group or Platinum Equity LLC or their respective controlled affiliates party to any other Subscription Agreement, maintains a subscription level of at least $50,000,000.

 

Risk Factors

In evaluating the Business Combination and the proposals to be considered and voted on at the Special Meeting, you should carefully review and consider the risk factors set forth under the section entitled “ Risk Factors ” beginning on page 65 of this proxy statement. The occurrence of one or more of the events or circumstances described in that section, alone or in combination with other events or circumstances, may have a material adverse effect on (i) the ability of the Company and Hostess to complete the Business Combination, and (ii) the business, cash flows, financial condition and results of operations of the Company following consummation of the Business Combination.

 

SELECTED HISTORICAL FINANCIAL INFORMATION OF THE COMPANY

The following table contains summary historical financial data for the Company as of and for the six months ended June 30, 2016 and as of and for the periods from June 1, 2015 (inception) through June 30, 2015 and from June 1, 2015 (inception) through December 31, 2015. Such data for the period from June 1, 2015 through December 31, 2015 and as of December 31, 2015 have been derived from the audited financial statements of the Company, which are included elsewhere in this proxy statement. Such data as of and for the six months ended June 30, 2016 have been derived from the unaudited financial statements of the Company included elsewhere in this proxy statement. Results from interim periods are not necessarily indicative of results that may be expected for the entire year. The information below is only a summary and should be read in conjunction with the sections entitled “ The Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and “ Information About the Company ” and in our financial statements, and the notes and schedules related thereto, which are included elsewhere in this proxy statement.

 

		For the Six Months Ended June 30, 2016				For the period from June 1, 2015 (inception) to June 30, 2015				For the period from June 1, 2015 (inception) to December 31, 2015
		(unaudited)				(unaudited)
Statement of Operations Data:
Revenues		$	—			$	—			$	—
Professional fees and other expenses			(2,325,835	)			(12,000	)			(411,207	)
State franchise taxes, other than income tax			(90,000	)			—				(69,917	)
Loss from operations			(2,415,835	)			(12,000	)			(481,124	)
Other income — Interest and dividend income			225,069				—				11,205
Net loss		$	(2,190,766	)		$	(12,000	)		$	(469,919	)
Weighted average common shares outstanding (Basic and diluted)			11,027,712				9,375,000				10,856,156
Net loss per common share: (Basic and diluted)		$	(0.20	)		$	(0.00	)		$	(0.04	)

 

		As of June 30, 2016				As of December 31, 2015
		(unaudited)				(audited)
Condensed Balance Sheet Data:
ASSETS:
Current assets:
Cash and cash equivalents		$	452,181			$	790,635
Prepaid expenses			211,526				259,149
Total current assets			663,707				1,049,785
Investments and cash held in Trust Account			375,234,320				375,010,481
Total assets		$	375,898,027			$	376,060,265
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accrued expenses, formation and offering costs		$	2,253,767			$	217,384
State franchise tax accrual			62,062				69,917
Total current liabilities (1)			2,315,829				287,301
Deferred underwriting compensation			13,125,000				13,125,000
Total liabilities			15,440,829				13,412,301

 

		As of June 30, 2016				As of December 31, 2015
		(unaudited)				(audited)
Commitments and Contingencies
Shares of Class A common stock subject to possible redemption; 35,545,719 and 35,764,796 shares at June 30, 2016 and December 31, 2015, respectively, at a value of $10.00 per share			355,457,190				357,647,960
Stockholders’ equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized, none issued or outstanding			—				—
Common stock
Class A common stock, $0.0001 par value; 200,000,000 shares authorized, 1,954,281 and 1,735,204 shares issued and outstanding (excluding 35,545,719 and 35,764,796 shares subject to possible redemption) at June 30, 2016 and December 31, 2015, respectively			195				174
Class F common stock, $0.0001 par value; 20,000,000 shares authorized, 9,375,000 shares issued and outstanding			938				938
Additional paid-in-capital			7,659,560				5,468,811
Retained earnings			—				—
Deficit accumulated			(2,660,685	)			(469,919	)
Total stockholders’ equity			5,000,008				5,000,004
Total liabilities and stockholders’ equity		$	375,898,027			$	376,060,265

 

(1)	Subsequent to June 30, 2016, our Sponsor loaned us $500,000 to be used to fund our on-going operational expenses and certain transaction costs incurred by us in connection with the Business Combination.

 

SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OTHER INFORMATION OF HOSTESS HOLDINGS

The following table contains summary historical consolidated financial and other data for Hostess Holdings for the six months ended June 30, 2016 and June 30, 2015 and for the years ended December 31, 2015, December 31, 2014 and for the period from February 6, 2013 (inception) through December 31, 2013. Such data as of December 31, 2015 and December 31, 2014 and for the years ended December 31, 2015 and December 31, 2014 and for the period from February 6, 2013 (inception) through December 31, 2013 have been derived from the audited consolidated financial statements of Hostess Holdings included elsewhere in this proxy statement. Such data as of June 30, 2016 and for the six months ended June 30, 2016 and June 30, 2015 have been derived from the unaudited consolidated financial statements of Hostess Holdings included elsewhere in this proxy statement. Results from interim periods are not necessarily indicative of results that may be expected for the entire year. The data for the twelve months ended June 30, 2016, which are unaudited, have been calculated by adding the six months ended June 30, 2016 to the year ended December 31, 2015, and subtracting the six months ended June 30, 2015. This presentation is not in accordance with U.S. GAAP. Hostess believes this presentation provides useful information to investors regarding Hostess Holdings’ recent financial performance. The information below is only a summary and should be read in conjunction with the information contained under the headings “ Hostess Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and “ Information About Hostess ” and in Hostess Holdings’ audited consolidated financial statements and unaudited interim condensed consolidated financial statements and the related notes included elsewhere in this proxy statement.

The historical financial statements of Hostess Holdings have been presented herein, as opposed to those of the various entities of the Selling Equityholders. The Selling Equityholders entities are holding companies without any operations, and no material assets beyond their investment in Hostess Holdings. The Selling Equityholders entities are not permitted to consolidate Hostess Holdings under GAAP. As such, the historical Hostess Holdings financial statements represent the highest level of consolidated financial statements that presents the full financial position and results of operations of the underlying business.

 

Statement of Cash Flows Data

The following table sets forth selected elements of Hostess Holdings’ Consolidated Statements of Cash Flows:

 

(In thousands)		Six Months Ended June 30, 2016				Six Months Ended June 30, 2015				Year Ended December 31, 2015				Year Ended December 31, 2014				February 6, 2013 (Inception) through December 31, 2013
		(Unaudited)				(Unaudited)
Net cash provided by (used in) operating activities		$	54,193			$	62,108			$	132,972			$	108,329			$	(29,672	)
Net cash provided by (used in) investing activities			(62,030	)			25,828				17,880				(91,393	)			(422,498	)
Net cash provided by (used in) financing activities			(9,862	)			(239,450	)			(296,002	)			(9,769	)			654,626

Balance Sheet Data (at period end)

The following table sets forth selected attributes of Hostess Holdings’ Consolidated Balance Sheets:

 

(In thousands)		June 30, 2016				December 31, 2015				December 31, 2014
		(Unaudited)
Cash and cash equivalents		$	46,774			$	64,473			$	209,623
Property and equipment, net			140,130				128,078				112,732
Total assets			682,257				613,871				765,494
Long-term debt and capital lease obligation			1,191,155				1,193,667				473,175
Total liabilities and partners’ equity			682,257				613,871				765,494

Other Financial Data

The following table sets forth Adjusted EBITDA ⁽⁷⁾ :

 

(In thousands)		Twelve Months Ended June 30, 2016				Six Months Ended June 30, 2016				Six Months Ended June 30, 2015				Year Ended December 31, 2015				Year Ended December 31, 2014				February 6, 2013 (Inception) through December 31, 2013
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Adjusted EBITDA		$	189,546			$	106,828			$	95,212			$	177,930			$	145,343			$	40,285

 

(1)

On June 3, 2016, Hostess voluntarily recalled approximately 710,000 cases of snack cakes and donuts as a direct result of the recall by Hostess’ supplier, Grain Craft, of certain lots of its flour for undeclared peanut residue. The components of the estimated recall costs of $4.0 million recorded in the Consolidated Statements of Operations for the six months ended June 30, 2016, consisted of the net revenue loss of approximately $3.1 million related to customer deductions and customer payments and cost of goods sold of $0.9 million for the write-off and destruction of finished product and flour. See Note 9. Commitments and Contingencies of the Notes to Hostess Holdings’ unaudited consolidated financial statements elsewhere in this proxy statement for further information regarding the product recall.

(2)	For the year ended December 31, 2015, a one-time special bonus payment of $2.6 million and $1.3 million was paid to employees at Hostess Holdings’ bakery facilities and corporate employees, respectively, as compensation for their efforts in the successful recapitalization of Hostess.

(3)

In April 2013, Hostess Holdings began the process of bringing four of its acquired bakeries into operation and completed this process in July 2013. For the period from inception through December 31, 2013, Hostess Holding incurred bakery start-up costs totaling $6.7 million, including repairs, materials and supplies, labor costs, and ingredients used in testing, and acquisition-related costs of approximately $7.3 million.

 

(4)

For the six months ended June 30, 2016, Hostess Holdings incurred bakery shutdown costs of $0.2 million associated with utilities, insurance, maintenance, and taxes related to the assets that were held for sale. For the six months ended June 30, 2015, Hostess Holdings incurred bakery shutdown costs of $0.9 million associated with the closure and relocation of assets. For the years ended December 31, 2015 and December 31, 2014, Hostess Holdings incurred bakery shutdown costs associated with the closure and relocation of assets of $1.2 million and $1.4 million, respectively. Also, for the year ended December 31, 2014, Hostess Holdings incurred bakery shutdown costs associated with employee severance and Worker Adjustment and Retraining Notification (WARN) Act payments of $2.9 million. Hostess Holdings recorded a loss on sale and abandonment of property and equipment of $3.0 million and $0.8 million for the years ended December 31, 2015 and December 31, 2014, respectively.

(5)

For the six months ended June 30, 2015, Hostess Holdings recorded a loss on a partial extinguishment of Hostess Holdings’ original Term Loan of $7.8 million, which consisted of prepayment penalties of $3.0 million and write-off of deferred financing costs of $4.8 million. For the year ended December 31, 2015, Hostess Holdings recorded a loss on extinguishment related to Hostess Holdings’ original term loan dated April 9, 2013 of $25.9 million, which consisted of prepayment penalties of $9.9 million and write-off of deferred financing costs of $16.0 million.

(6)

For the six months ended June 30, 2016, other expense primarily consisted of legal and professional fees of $5.2 million, related to Hostess Holdings’ business combination agreement with Gores Holdings, Inc., transaction costs attributable to the acquisition of Superior, and the pursuit of a potential acquisition. Other income for the six months ended June 30, 2015, primarily consisted of $12.0 million of proceeds from the sale of foreign trademark rights and perpetual irrevocable licenses to certain “know how” in certain countries in the Middle East. For the year ended December 31, 2015, other income consisted of $12.0 million of proceeds from the sale of foreign trademark rights and perpetual irrevocable licenses to certain “know how” in certain countries in the Middle East, partially offset by $3.3 million for professional service fees related to Hostess Holdings’ pursuit of a potential sale of Hostess. For the year ended December 31, 2014 and the period February 6, 2013 (inception) through December 31, 2013, other expense was $0.6 million and $1.2 million, respectively.

(7)

Adjusted EBITDA is a non-GAAP financial measure commonly used in Hostess Holdings’ industry and should not be construed as an alternative to net income as an indicator of operating performance or as an alternative to cash flow provided by operating activities as a measure of liquidity (each as determined in accordance with GAAP). Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. Hostess Holdings has included Adjusted EBITDA because it believe it provides management and investors with additional information to measure Hostess Holdings’ performance and liquidity, estimate Hostess Holdings’ value and evaluate Hostess Holdings’ ability to service debt.

Hostess Holdings defines Adjusted EBITDA as net income adjusted to exclude (i) interest expense, net, (ii) depreciation and amortization and (iii) as further adjusted to eliminate the impact of certain items that Hostess Holdings does not consider indicative of its ongoing operating performance. These further adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons Hostess Holdings considers them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future Hostess Holdings may incur expenses that are the same as or similar to some of the adjustments set forth below. Hostess Holdings’ presentation of Adjusted EBITDA should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items.

Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of Hostess Holdings’ results as reported under GAAP. For example, Adjusted EBITDA:

 

•

does not reflect Hostess Holdings’ capital expenditures, future requirements for capital expenditures or contractual commitments;

 

•

does not reflect changes in, or cash requirements for, Hostess Holdings’ working capital needs;

 

•

does not reflect the significant interest expenses, or the cash requirements necessary to service interest or principal payments, on Hostess Holdings’ debt; and

 

•

does not reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future.

Hostess Holdings’ presentation of Adjusted EBITDA does not exclude related party expenses associated with its employment agreement with Mr. Metropoulos as the Chief Executive Officer and/or Executive Chairman. The amounts of such related party expenses were: $4.2 million for the twelve months ended June 30, 2016, $2.4 million for the six months ended June 30, 2016, $2.5 million for the six months ended June 30, 2015, $4.3 million for the year ended December 31, 2015, $4.5 million for the year ended December 31, 2014 and $2.8 million for February 6, 2013 (Inception) through December 31, 2013. Following completion of the Business Combination, these expenses will be approximately $0.3 million annually.

 

The following table sets forth Hostess Holdings’ reconciliation of Adjusted EBITDA (unaudited):

 

(In thousands)		Twelve Months Ended June 30, 2016				Six Months Ended June 30, 2016				Six Months Ended June 30, 2015				Year Ended December 31, 2015				Year Ended December 31, 2014				February 6, 2013 (Inception) through December 31, 2013
Net income (loss)		$	61,099			$	48,010			$	75,671			$	88,760			$	81,464			$	(5,594	)
Plus non-GAAP adjustments:
Income tax provision			317				317				—				—				—				—
Interest expense, net			68,085				35,744				17,670				50,011				37,447				27,766
Loss on debt extinguishment (i)			18,121				—				7,759				25,880				—				—
Depreciation and amortization			10,954				5,628				4,510				9,836				7,113				2,611
Unit-based compensation			1,408				413				386				1,381				372				315
Acquisition and bakery start-up costs			—				—				—				—				—				14,029
Other (income) expense (ii) .			8,570				5,189				(12,124	)			(8,743	)			556				1,158
Impairment of property and equipment			9,575				7,300				425				2,700				13,241				—
Loss on sale/abandonment of property and equipment and bakery shutdown costs (iii)			3,494				227				915				4,182				5,150				—
Recall costs of flour (iv)			4,000				4,000				—				—				—				—
Special employee incentive compensation (v)			3,923				—				—				3,923				—				—
Adjusted EBITDA		$	189,546			$	106,828			$	95,212			$	177,930			$	145,343			$	40,285

 

(i)

For the six months ended June 30, 2015, Hostess Holdings recorded a loss on a partial extinguishment of Hostess Holdings’ original Term Loan of $7.8 million, which consisted of prepayment penalties of $3.0 million and write-off of deferred financing costs of $4.8 million. For the year ended December 31, 2015, Hostess Holdings recorded a loss on extinguishment related to Hostess Holdings’ original Term Loan of $25.9 million, which consisted of prepayment penalties of $9.9 million and write-off of deferred financing costs of $16.0 million.

(ii)

For the six months ended June 30, 2016, other expense primarily consisted of legal and professional fees of $5.2 million, related to Hostess Holdings’ business combination agreement with Gores Holdings, Inc., transaction costs attributable to the acquisition of Superior, and the pursuit of a potential acquisition. Other income for the six months ended June 30, 2015, primarily consisted of $12.0 million of proceeds from the sale of foreign trademark rights and perpetual irrevocable licenses to certain “know how” in certain countries in the Middle East. For the year ended December 31, 2015, other income consisted of $12.0 million of proceeds from the sale of foreign trademark rights and perpetual irrevocable licenses to certain “know how” in certain countries in the Middle East, partially offset by $3.3 million for professional service fees related to Hostess Holdings’ pursuit of a potential sale of Hostess. For the year ended December 31, 2014 and the period February 6, 2013 (inception) through December 31, 2013, other expense was $0.6 million and $1.2 million, respectively.

(iii)

For the six months ended June 30, 2016, Hostess Holdings incurred bakery shutdown costs of $0.2 million associated with utilities, insurance, maintenance, and taxes related to the assets that were held for sale. For the six months ended June 30, 2015, Hostess Holdings incurred bakery shutdown costs of $0.9 million associated with the closure and relocation of assets. For the years ended December 31, 2015 and December 31, 2014, Hostess Holdings incurred bakery shutdown costs associated with the closure and relocation of assets of $1.2 million and $1.4 million, respectively. Also, for the year ended December 31, 2014, Hostess Holdings incurred bakery shutdown costs associated with employee severance and Worker Adjustment and Retraining Notification (WARN) Act payments of $2.9 million. Hostess Holdings recorded a loss on sale and abandonment of property and equipment of $3.0 million and $0.8 million for the years ended December 31, 2015 and December 31, 2014, respectively.

(iv)

On June 3, 2016, Hostess voluntarily recalled approximately 710,000 cases of snack cakes and donuts as a direct result of the recall by Hostess’ supplier, Grain Craft, of certain lots of its flour for undeclared peanut residue. The components of the estimated recall costs of $4.0 million recorded in the Consolidated Statements of Operations for the six months ended June 30, 2016, consisted of the net revenue loss of approximately $3.1 million related to customer deductions and customer payments and cost of goods sold of $0.9 million for the write-off and destruction of finished product and flour. See Note 9. Commitments and Contingencies of the Notes to Hostess Holdings’ unaudited consolidated financial statements elsewhere in this proxy statement for further information regarding the product recall.

(v)	For the year ended December 31, 2015, a one-time special bonus payment of $2.6 million and $1.3 million was paid to employees at Hostess Holdings’ bakery facilities and corporate employees, respectively, as compensation for their efforts in the successful recapitalization of Hostess.