| Jennifer Fall Jung Effective July 22, 2019, we entered into an employment agreement with Ms. Fall Jung, pursuant to which she serves as our Chief Financial Officer. The employment agreement provides for an initial term of employment of three years, subject to two automatic one-year extensions provided that neither party provides prior written notice of non-extension of the then-current term.
Pursuant to her employment agreement, Ms. Fall Jung is entitled to an annual base salary of $425,000 and is eligible to participate in standard benefit plans. Additionally, Ms. Fall Jung is eligible to receive an annual performance-based cash bonus upon the attainment of pre-established individual and company performance goals, with a target bonus opportunity equal to 50% of her base salary (which shall be prorated for any partial bonus years during the term of her employment). The employment agreement also provides for an initial equity grant consisting of restricted stock units and stock options with an aggregate value to be targeted at 200% of Ms. Fall Jung’s base salary. Ms. Fall Jung received such grant on August 13, 2019.
Furthermore, the employment agreement requires that Ms. Fall Jung relocate to within fifty miles of our offices in Everett, Washington by no later than October 15, 2020; provided, that, unless otherwise permitted, Ms. Fall Jung will still be expected to work from our Everett, Washington offices no less than three weeks per month prior to such relocation. In connection with such relocation process, Ms. Fall Jung shall be entitled to receive a monthly housing allowance of $3,000 during the one-year period ending July 22, 2020, reimbursement of the costs of forty-five two-way flights for her travel to Washington in an amount of up to $300 each and reimbursement of her moving expenses in an amount up to $20,000.
The employment agreement provides for severance upon a termination by us without cause or by Ms. Fall Jung for good reason, in each case, subject to the execution and non-revocation of a waiver and release of claims by Ms. Fall Jung.
Upon a termination of employment by us without cause or by Ms. Fall Jung for good reason, then subject to her execution of a release of claims, Ms. Fall Jung is entitled to severance consisting of either (a) continuation of base salary for up to 12 months, payable in 12 equal monthly installments and reimbursement of up to 12 months for the employer portion of premium payments for any COBRA coverage Ms. Fall Jung elects, if (1) Ms. Fall Jung has been an employee of the company or its affiliates for at least two years prior to the date of termination or (2) if Ms. Fall Jung is terminated on or within 12 months of a change in control or (b) continuation of base salary for up to six months, payable in six equal monthly installments and reimbursement of up to six months for the employer portion of premium payments for any COBRA coverage Ms. Fall Jung elects, if Ms. Fall Jung has been an employee of the company or its affiliates for at least six months but less than two years following the effective date of her employment agreement and such termination is not on or within 12 months of a change in control.
For purposes of the employment agreement, we have “cause” to terminate Ms. Fall Jung’s employment upon any of the following (a) gross neglect or willful misconduct by Ms. Fall Jung of her duties or her willful failure to carry out, or comply with, in any material respect any lawful and reasonable directive of the Board not inconsistent with the terms of the employment agreement; (b) her conviction of, or plea of no contest, plea of nolo contendere or imposition of adjudicated probation with respect to, any felony or crime involving moral turpitude or her indictment for any felony or crime involving moral turpitude; provided if she is terminated following such indictment but is found not guilty or the indictment is dismissed, the termination shall be deemed to be a termination without cause; (c) her habitual unlawful use (including being under the influence) or possession of illegal drugs on the Company’s premises or while performing her duties and responsibilities under the employment agreement; (d) her commission at any time of any act of fraud, embezzlement, misappropriation, material misconduct, or breach of fiduciary duty against the Company (or any predecessor thereto or successor thereof); or (e) her material breach of the restrictive covenants in Sections 5 and 6 of the employment agreement or any other confidentiality, non-compete or non-solicitation covenant; provided that the Company shall provide Ms. Fall Jung with fifteen (15) days prior written notice before any such termination in (a) or (e) (other than to the extent that (a) relates to any fraud or intentional misconduct) with an opportunity to meet with the Board and discuss or cure any such alleged violation.
For purposes of the employment agreement, Ms. Fall Jung has “good reason” to terminate her employment after the occurrence of (a) a material adverse change in Ms. Fall Jung’s title or reporting line or material duties, authorities or responsibilities, as determined by the Board (provided, that her title, reporting line or material duties, authorities or responsibilities shall not be deemed to be materially adversely changed solely because the Company (or its successor) is no longer an independently operated public entity or becomes a subsidiary of another entity); (b) a material breach by the Company of any material provision of the employment agreement; (c) a material reduction of Ms. Fall Jung’s base salary or benefits or target bonus opportunity (other than such a reduction that is generally consistent with a general reduction affecting the Company’s other similarly situated executives); (d) failure by the Company to pay any portion of her earned base salary or bonus; or (e) the Company’s requiring Ms. Fall Jung to be headquartered at any office or location more than 50 miles from Everett, Washington, provided that in the case of all the above events, Ms. Fall Jung may not resign from her employment for good reason unless she provides the Company written notice within 90 days after the initial occurrence of the event and at least 60 days prior to the date of termination, and the Company has not corrected the event prior to the date of termination.
Pursuant to her employment agreement, Ms. Fall Jung is subject to a 12-month post-termination non-competition covenant and a 24-month post-termination non-solicitation covenant, as well as perpetual confidentiality and mutual non-disparagement covenants.
The employment agreement also provides that in the event any payment to Ms. Fall Jung would be subject to the excise tax imposed by Section 4999 of the Code (as a result of a payment being classified as a parachute payment under Section 280G of the Code), the payment will be reduced to such extent that no portion of the payment would be subject to the potential excise tax imposed by Section 4999 of the Code.
425,000 | | | | | | | | | | |
Director Compensation
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During 2019, certain of our directors received cash compensation for their services as directors and option awards and restricted stock units pursuant to our 2017 Plan. The following table sets forth certain information with respect to cash compensation paid to our directors for 2019 service and equity awards granted to our directors in 2019.
| | | | | | | | | | | | | | | Name (1) | Fees Earned or Paid in Cash ($) | Option Awards (2) ($) | Restricted Stock Units (2) ($) | Total ($) | Ken Brotman | 90,000 | | 36,033 | | 37,492 | | 163,525 | |
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| Gino Dellomo | 50,000 | | 36,033 | | 37,492 | | 123,525 | |
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| Charles Denson | 65,000 | | 36,033 | | 37,492 | | 138,525 | |
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| Diane Irvine | 68,750 | | 36,033 | | 37,492 | | 142,275 | |
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| Adam Kriger | 50,000 | | 36,033 | | 37,492 | | 123,525 | |
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| Michael Lunsford | 50,000 | | 36,033 | | 37,492 | | 123,525 | | | | | | | Sarah Kirshbaum Levy | 12,500 | | 36,043 | | 30,194 | | 78,737 | |
Annual Bonuses In addition to base salaries, our executive officers are eligible to receive annual performance-based cash bonuses. In connection with our initial public offering, we adopted the Funko, Inc. Executive Annual Incentive Plan, or the Executive Incentive Plan. The Executive Incentive Plan is an incentive bonus plan under which certain key executives, including our named executive officers, may be eligible to receive bonus payments generally based upon the attainment of pre-established performance goals. Notwithstanding the foregoing, we may pay bonuses to participants under the Executive Incentive Plan based upon such other terms and conditions as the administrator may in its discretion determine. In 2020, the board determined to pay each of Mr. Mariotti, Mr. Perlmutter, and Ms. Fall Jung a bonus under the Executive Incentive Plan. The terms of the Executive Incentive Plan for 2020 were originally set by the compensation committee prior to the onset of the COVID-19 pandemic and its impact on the global economy. As a result, the compensation committee determined to amend the Executive Incentive Plan including, among other things, the applicable performance targets and payout levels, to reflect the effects of the COVID-19 pandemic on the Company’s business. The actual annual cash bonuses awarded to the named executive officers for 2020 performance are set forth above in the Summary Compensation Table in the column entitled “Non-Equity Incentive Plan Compensation.”
(1) Mr. Mariotti has been excluded from this table because his compensation is fully reflected in the SummaryEquity Compensation Table for executive officers.
(2) Amounts reflect the grant-date Black-Scholes value of the stock options granted during 2019, computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual. For a discussion of the assumptions used to calculate the value of all option awards made to our named executive officers, see Note 16 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
The table below shows the aggregate numbers of vested options to purchase Class A Stock, unvested options to purchase Class A Stock and unvested Restricted Stock Units held as of December 31, 2019 by each non-employee director who was serving as of December 31, 2019.
| | | | | | | | | | | | Name (1) | Vested Options Outstanding at Fiscal Year End | Unvested Options Outstanding at Fiscal Year End | Unvested Restricted Stock Units Outstanding at Fiscal Year End | Ken Brotman | — | | 3,927 (2) | | 1,592 (4) | |
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| Gino Dellomo | — | | 3,927 (2) | | 1,592 (4) | |
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| Charles Denson | 32,500 | | 3,927 (2) | | 1,592 (4) | |
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| Diane Irvine | 63,000 | | 3,927 (2) | | 1,592 (4) | | | | |
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| Adam Kriger | — | | 3,927 (2) | | 1,592 (4) | |
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| Michael Lunsford | 5,098 | | 3,927 (2) | | 1,592 (4) | | | | | | | | | Sarah Kirshbaum Levy | — | | 3,916 (3) | | 1,292 (5) | |
Common Units. Prior to our initial public offering, certain of our employees were granted profits interests in FAH, LLC pursuant to the Amended FAH LLC Agreement. Upon our initial public offering, these profit interest grants were converted into Common Units in FAH, LLC, but remained subject to vesting. The common units generally vest annually over four years from the first anniversary of the applicable vesting date (December 21, 2015 for Mr. Mariotti and Mr. Perlmutter), subject to the individual’s continued employment with us. Notwithstanding the foregoing, the Common Units accelerate and vest in full in the event (1) that ACON receives a multiple on invested capital (calculated on a cash-in, cash-out basis) over the term of its investment in FAH, LLC equal to or in excess of two times or (2) a “change in control” occurs (as such term is defined in the applicable common unit grant agreement).
(1) Mr. Mariotti has been excluded from this table because his incentive equity is fully reflected in the Outstanding Equity Awards at Fiscal Year End table for executive officers.
(2) 100% of options vest and become exercisable on June 25, 2020, subject to continued service through the vesting date.
(3) 100% of options vest and become exercisable on June 3, 2020, subject to continued service through the vesting date.
(4) 100% of restricted stock units vest and become exercisable on June 25, 2020, subject to continued service through the vesting date.
(5) 100% of restricted stock units vest and become exercisable on June 3, 2020, subject to continued service through the vesting date.
For additional information about all outstanding Common Units held by our named executive officers, please see the “Outstanding Equity Awards at Fiscal Year End” table above.
Optionsand Restricted Stock Units. We sponsor the FAH, LLC 2015 Option Plan, or the 2015 Option Plan, pursuant to which certain of our employees, including Mr. Perlmutter, have been granted options to purchase Common Units in FAH, LLC. 555,867 Common Units are reserved for issuance under the 2015 Option Plan. As of December 31, 2020, options to purchase 228,141 Common Units were outstanding, with a weighted average exercise price of $0.05. | | | |
Security Ownership of Certain Beneficial Owners and Management
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The following table sets forth information with respect to the beneficial ownership of our Class A common stock and Class B common stock for:
•each person known by us to beneficially own more than 5% of our Class A common stock or our Class B common stock;
•each of our directors (which includes all nominees);
•each of our named executive officers; and
•all of our executive officers and directors as a group.
As described in “Certain Relationships and Related Person Transactions,” each common unit of FAH, LLC (other than common units held by us and 42,261 common units held by certain of the Former Profits Interests Holders that are initially subject to time-based vesting requirements) is redeemable from time to time at each holder’s option (subject in certain circumstances to time-based vesting requirements) for, at our election (determined solely by our independent directors (within the meaning of the rules of the Nasdaq) who are disinterested), shares of our Class A common stock on a one-for-one basis or a cash payment equal to a volume weighted average market price of one share of Class A common stock for each common unit redeemed, in each case in accordance with the terms of FAH, LLC’s amended and restated limited liability company agreement, as amended to date (the “FAH LLC Agreement”); provided that, at our election (determined solely by our independent directors (within the meaning of the Nasdaq Rules) who are disinterested), we may effect a direct exchange of such Class A common stock or such cash, as applicable, for such common units.
The Continuing Equity Owners may exercise such redemption right for as long as their common units of FAH, LLC remain outstanding. In connection with our IPO, we issued to each Continuing Equity Owner for nominal consideration one share of Class B common stock for each common unit of FAH, LLC it owned. As a result, the number of shares of Class B common stock listed in the table below correlates to the number of common units of FAH, LLC each such Continuing Equity Owner owns.
The number of shares beneficially owned by each stockholder as described in this proxy statement is determined under rules issued by the SEC. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power. Applicable percentage ownership is based on 34,953,398 shares of Class A common stock and 14,515,296 shares of Class B common stock outstanding as of April 3, 2020. In computing the number of shares beneficially owned by an individual or entity and the percentage ownership of that person, shares of Common Stock subject to options, or other rights, including the redemption right described above with respect to each common unit of FAH, LLC, held by such person that are currently exercisable or will become exercisable within 60 days of April 3, 2020, are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person. Unless otherwise indicated, the address of all listed stockholders is 2802 Wetmore Avenue, Everett, Washington 98201. Each of the stockholders listed has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable.
| | | | | | | | | | | | | | | | | | | Shares of Class A Common Stock Beneficially Owned (1) | | Shares of Class B Common Stock Beneficially Owned | | Combined Voting Power (2) |
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| Name of beneficial owner (3) | Number | Percentage | Number | Percentage | Percentage | 5% Stockholders | | | | | | ACON4 | 19,816,726 | | 45.2% | | 8,882,120 | | 61.2% | | 40.1% | | Van Berkom & Associates Inc.5 | 3,935,191 | | 11.3% | | — | | * | | 8.0% | | Fifth Street Station6 | 3,187,834 | | 9.1% | | — | | * | | 6.4% | | Fundamental7 | 2,429,676 | | 6.5% | | 2,429,676 | | 16.7% | | 4.9% | | Massachusetts Financial Services Company8 | 1,760,485 | | 5.0% | | — | | * | | 3.6% | | Woodson Capital Master Fund, LP9 | 1,751,164 | | 5.0% | | — | | * | | 3.5% | | | | | | | | Named Executive Officers and Directors | | | | | | Brian Mariotti10 | 3,464,295 | | 9.0% | | 2,531,690 | | 17.4% | | 5.1% | | Jennifer Fall Jung | — | | * | | — | | * | | * | | Andrew Perlmutter11 | 606,668 | | 1.7% | | — | | * | | * | | Ken Brotman | — | | * | | — | | * | | * | | Gino Dellomo | — | | * | | — | | * | | * | | Charles Denson12 | 159,517 | | * | | 16,058 | | * | | * | | Diane Irvine13 | 63,800 | | * | | — | | * | | * | | Adam Kriger14 | 32,117 | | * | | 16,058 | | * | | * | | Sarah Kirshbaum Levy | — | | * | | — | | * | | * | | Michael Lunsford15 | 5,098 | | * | | — | | * | | * | | All executive officers and directors as a group (10 individuals)16 | 4,404,114 | | 11.3% | | 2,587,242 | | 17.8% | | 5.8% | |
*Less than one percent.
(1) For the reasons described above, in this table, beneficial ownership of common units of FAH, LLC has been reflected as beneficial ownership of our Class A common stock for which such common units may be exchanged. When a common unit is exchanged by a Continuing Equity Owner who holds our Class B common stock, a corresponding share of Class B common stock will be cancelled.
(2) Represents the percentage of voting power of our Class A common stock and Class B common stock voting as a single class. Each share of Class A common stock and each share of Class B common stock entitles the registered holder thereof to one vote per share on all matters presented to stockholders for a vote generally, including the election of directors. The Class A common stock and Class B common stock will vote as a single class on all matters except as required by law or the Company’s certificate of incorporation.
(3) Except as otherwise noted, all shares of Class A common stock shown as beneficially owned represent shares of class A common stock that may be acquired upon the exchange of common units of FAH, LLC for shares of Class A common stock on a one-for-one basis.
(4) Based on information obtained from a Schedule 13G filed on February 14, 2020, ACON ownership includes (a) 8,882,120 common units of FAH, LLC held by ACON Funko Investors, L.L.C., (b) 4,207,513 shares of Class A common stock held by ACON Funko Investors Holdings 1, L.L.C., (c) 1,774,080 shares of Class A common stock held by ACON Funko Investors Holdings 2.5, L.L.C. and (d) 4,953,013 shares of Class A common stock held by ACON Funko Investors Holdings 3.5, L.L.C. ACON Funko Manager, L.L.C. is (x) the sole manager of, and exercises voting and investment power over shares held by, ACON Funko Investors, L.L.C and (y) the sole managing member of, and exercises voting and investment power over shares held by, ACON Funko Investors Holdings 1, L.L.C. ACON Equity GenPar, L.L.C. is the sole managing member of, and exercises voting and investment power over shares held by, each of ACON Funko Investors Holdings 2.5, L.L.C., formerly known as ACON Funko Investors Holdings 2, L.L.C. and ACON Funko Investors Holdings 3.5, L.L.C., formerly known as ACON Funko Investors Holdings 3, L.L.C. Voting and investment decisions at ACON Funko Manager, L.L.C. are made by a board of managers, the members of which are Bernard Aronson, Kenneth Brotman, Jonathan Ginns, Daniel Jinich, Andre Bhatia and Aron Schwartz. Voting and investment decisions at ACON Equity GenPar, L.L.C. are made by an investment committee, the members of which are Bernard Aronson, Kenneth Brotman, Jonathan Ginns, Daniel Jinich, Andre Bhatia and Aron Schwartz. The address of ACON Funko Investors, L.L.C., ACON Funko Investors Holdings 1, L.L.C., ACON Funko Investors Holdings 2.5, L.L.C., ACON Funko Investors Holdings 3.5, L.L.C., ACON Funko Manager, L.L.C. and ACON Equity GenPar, L.L.C. is 1133 Connecticut Avenue, NW, Suite 700, Washington, D.C. 20036.
(5) Based on information obtained from a Schedule 13G filed on December 10, 2019, Van Berkom & Associates Inc. has sole voting and dispositive power over 3,935,191 shares of Class A common stock. The address of Van Berkom & Associates Inc. is 1130 Sherbrooke Street West, Suite 1005, Montreal, Quebec H3A 2M8.
(6) Based on information obtained from a Schedule 13G/A filed on February 13, 2020, Fifth Street Station LLC has sole voting and dispositive power over 3,187,834 shares of Class A common stock. The address of Fifth Street Station LLC is 505 Fifth Avenue South, Suite 900, Seattle, WA 98104.
(7) Based on the Company’s books and records and information obtained from a Schedule 13G/A filed on February 5, 2020, Fundamental Capital Partners, LLC (“FCP”), Richard L. McNally, and Kevin G. Keenley reported shared dispositive power over all 2,429,676 common units of FAH, LLC; Funko International, LLC had shared voting and dispositive power over 1,996,538 common units; and Fundamental Capital, LLC had shared voting and dispositive power over 433,138 common units of FAH, LLC. Funko International, LLC is a Delaware limited liability company; Fundamental Capital, LLC, a Delaware limited liability company, serves as the Manager of Funko International, LLC; FCP, a Delaware limited liability company, serves as the Manager of Fundamental Capital, LLC; Richard L. McNally and Kevin G. Keenley are the sole members of and hold voting membership interests in FCP. The address of FCP, Richard L. McNally, Kevin G. Keenly, Funko International, LLC and Fundamental Capital, LLC is 4 Embarcadero Center, Suite 1400, San Francisco, CA 94111.
(8) Based on information obtained from a Schedule 13G filed on February 14, 2020, Massachusetts Financial Services Company has sole voting and dispositive power over 1,760,485 shares of Class A common stock. The address of Massachusetts Financial Services Company is 111 Huntington Avenue, Boston, MA 02199.
(9) Based on information obtained from a Schedule 13G filed on February 10, 2020 and as of January 31, 2020, Woodson Capital Master Fund, LP (“Woodson Master”) has shared voting and dispositive power with respect to 1,619,825 shares of Class A common stock and Woodson Capital General Partner, LLC (“WCGP”), Woodson Capital Management, LP (“WCM”), Woodson Capital GP, LLC (“WCG”) and James Woodson Davis (together with WCGP, WCM, and WCG, the “Woodson Reporting Persons”) have shared voting and dispositive power over all 1,751,164 shares of Class A common stock. James Woodson Davis is the sole managing member of WCG, which is the general partner of WCM. WCM is the investment manager of Woodson Master and WCGP is the general partner of Woodson Master. The address of Woodson Master is Maples Corporate Services Limited, Ugland House Grand Cayman, KY1-1104 Cayman Islands and the address of the Woodson Reporting Persons is 101 Park Avenue, 48th Floor, New York, New York, 10178.
(10) Based on the Company’s records and information obtained from a Schedule 13G/A filed on February 12, 2020, Brian Mariotti has sole voting and dispositive power over 8,665 shares of Class A common stock, 3,258,496 common units, vested options to purchase 137,843 shares of Class A common stock, and options to purchase 59,291 shares of Class A common stock that will vest within 60 days of April 3, 2020.
(11) Includes 126,583 common units of FAH, LLC that are currently vested, 161,529 options to purchase common units of FAH, LLC that are currently vested, vested options to purchase 187,798 shares of Class A common stock, and options to purchase 11,001 shares of Class A common stock that will vest within 60 days of April 3, 2020.
(12) Includes 32,117 common units of FAH, LLC that are currently vested and vested options to purchase 32,500 shares of Class A common stock.
(13) Includes vested options to purchase 63,000 shares of Class A common stock.
(14) Includes 32,117 common units of FAH, LLC that are currently vested.
(15) Includes 5,098 options to purchase Class A common stock that are currently vested.
(16) Includes 3,511,167 common units of FAH, LLC that are currently vested, vested options to purchase 161,529 common units of FAH, LLC, vested options to purchase 426,239 shares of Class A common stock and options to purchase 79,690 shares of Class A common stock that will vest within 60 days of April 3, 2020.
In connection with our initial public offering we adopted the 2017 Incentive Award Plan, or the 2017 Plan, pursuant to which we may grant cash and equity-based incentive awards, including stock options and restricted stock units, to eligible service providers in order to attract, motivate and retain the talent for which we compete. An aggregate of 5,518,518 shares of our Class A common stock were initially reserved for issuance under awards granted pursuant to the 2017 Plan, which shares may be authorized but unissued shares, or shares purchased in the open market. In addition, in 2019 we adopted the 2019 Incentive Award Plan, or the 2019 Plan. The 2019 Plan supplements our 2015 Option Plan and 2017 Plan by providing us with an additional tool to grant cash and equity-based incentive awards, including stock options and restricted stock units, to eligible service providers in order to attract, motivate and retain the talent for which we compete. An initial pool of 3,000,000 shares of Common Stock was authorized for issuance under our 2019 Plan, which initial pool is subject to increase on the first day of each year 2020-2029 pursuant to the terms of the 2019 Plan.
As of December 31, 2020, options to purchase 2,904,979 shares of Common Stock, with a weighted average exercise price of $13.05 were outstanding, and restricted stock units with respect to 1,868,427 shares of Common Stock were outstanding. For additional information about all outstanding options held by our named executive officers, please see the “Outstanding Equity Awards at Fiscal Year End” table above. Other Elements of Compensation Retirement Plans. We currently maintain the Funko 401(k) Plan, a defined contribution retirement and savings plan, for the benefit of our employees, including our named executive officers, who satisfy certain eligibility requirements. Our named executive officers are eligible to participate in the 401(k) Plan on the same terms as other full-time employees. The Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) Plan. Currently, we match contributions made by participants in the 401(k) Plan up to 4% of the employee earnings, and these matching contributions are fully vested as of the date on which the contribution is made. We believe that providing a vehicle for tax-deferred retirement savings though our 401(k) Plan, and making fully vested matching contributions, adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies. | | | |
Certain Relationships and Related Person Transactions
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POLICIES AND PROCEDURES FOR RELATED PERSON TRANSACTIONS
Our Board has adopted a written Related Person Transaction Policy and Procedures, setting forth the policies and procedures for the review and approval or ratification of related person transactions. This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we (including any of our subsidiaries) are, were or will be a participant, where the amount involved exceeds $120,000 in any fiscal year and a related person has, had or will have a direct or indirect material interest.
Under the policy, the Company’s legal staff is primarily responsible for developing and implementing processes and procedures to obtain information regarding related persons with respect to potential related person transactions and then determining, based on the facts and circumstances, whether such potential related person transactions do, in fact, constitute related person transactions requiring compliance with the policy. If the Company’s legal staff determines that a transaction or relationship is a related person transaction requiring compliance with the policy, the General Counsel is required to present to the Audit Committee all relevant facts and circumstances relating to the related person transaction. The Audit Committee must review the relevant facts and circumstances of each related person transaction, including if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party and the extent of the related person’s interest in the transaction, take into account the conflicts of interest and corporate opportunity provisions of the Company’s Code of Business Conduct and Ethics, and either approve or disapprove the related person transaction. If advance Audit Committee approval of a related person transaction requiring the Audit Committee’s approval is not feasible, then the transaction may be preliminarily entered into by management upon prior approval of the transaction by the Chair of the Audit Committee subject to ratification of the transaction by the Audit Committee at the Audit Committee’s next regularly scheduled meeting; provided, that if ratification is not forthcoming, management will make all reasonable efforts to cancel or annul the transaction. If a transaction was not initially recognized as a related person, then upon such recognition the transaction will be presented to the Audit Committee for ratification at the Audit Committee’s next regularly scheduled meeting; provided, that if ratification is not forthcoming, management will make all reasonable efforts to cancel or annul the transaction. Management will update the Audit Committee as to any material changes to any approved or ratified related person transaction and will provide a status report at least annually of all then current related person transactions. No director may participate in approval of a related person transaction for which he or she is a related person.
The following are certain transactions, arrangements and relationships with our directors, executive officers and stockholders owning 5% or more of our outstanding Class A common stock or our Class B common stock since January 1, 2018. All of the transactions, agreements or relationships described in this section occurred prior to the adoption of this policy. We believe that the terms of such agreements are as favorable as those we could have obtained from parties not related to us.
Health/Welfare Plans. All of our full-time employees, including our named executive officers, are eligible to participate in our health and welfare plans, including:
On November 1, 2017, we entered into a tax receivable agreement (the “Tax Receivable Agreement”) that provides for the payment by us to the Continuing Equity Owners of 85% of the amount of certain tax benefits, if any, we actually realize, or in some circumstances are deemed to realize, as a result of the redemption and exchange transactions described below in the section titled “FAH LLC Agreement”, including basis adjustments in our share of the tax basis of the assets of FAH, LLC, and certain other tax benefits attributable to payments made under the Tax Receivable Agreement. The applicable basis adjustments (as well as any amounts payable to the Continuing Equity Owners under the Tax Receivable Agreement) will vary depending on a number of factors including the timing of any future redemptions or exchanges, the price of shares of our Class A common stock at the time of any applicable redemptions or exchanges, the extent to which such redemptions or exchanges are taxable, and the amount and timing of our income. These tax benefit payments are not conditioned upon one or more of the Continuing Equity Owners maintaining a continued ownership interest in FAH, LLC. If a Continuing Equity Owner transfers common units of FAH, LLC but does not assign to the transferee of such units its rights under the Tax Receivable Agreement, such Continuing Equity Owner generally will continue to be entitled to receive payments under the Tax Receivable Agreement arising in respect of a subsequent exchange of such common units. In general, the Continuing Equity Owners’ rights under the Tax Receivable Agreement may not be assigned, sold, pledged or otherwise alienated to any
person, other than certain permitted transferees, without our prior written consent (which should not be unreasonably withheld, conditioned or delayed) and such person’s becoming a party to the Tax Receivable Agreement and agreeing to succeed to the applicable Continuing Equity Owner’s interest therein. During the years ended December 31, 2019 and 2018, we recognized Tax Receivable Agreement liabilities of $59.0 million and $6.8 million, respectively for payments due to the Continuing Equity Owners under the Tax Receivable Agreement. There were $0.2 million in payments made pursuant to the Tax Receivable Agreement during the year ended December 31, 2019. There were no payments made pursuant to the Tax Receivable Agreement during the year ended December 31, 2018.
•medical, dental and vision benefits;
On November 1, 2017, FAH, LLC amended and restated the FAH LLC Agreement to, among other things, (i) provide for a new single class of common membership interests in FAH, LLC, the common units; (ii) exchange all of the then-existing membership interests of the Original Equity Owners for common units of FAH, LLC; and (iii) appoint the Company as the sole manager of FAH, LLC.
The LLC Agreement also provides that the Continuing Equity Owners may from time to time at each of their options require FAH, LLC to redeem (subject in certain circumstances to time-based vesting requirements) all or a portion of their common units in exchange for, at our election (determined solely by our independent directors (within the meaning of the Nasdaq Rules) who are disinterested), shares of the Company’s Class A common stock on a one-for-one basis or a cash payment equal to a volume weighted average market price of one share of Class A common stock for each common unit redeemed, in each case in accordance with the terms of the FAH LLC Agreement; provided that, at our election (determined solely by our independent directors (within the meaning of the Nasdaq Rules) who are disinterested), we may effect a direct exchange of such Class A common stock or such cash, as applicable, for such common units. The Continuing Equity Owners may exercise such redemption right for as long as their common units remain outstanding. Simultaneously with the payment of cash or shares of Class A common stock, as applicable, in connection with a redemption or exchange of common units pursuant to the terms of the FAH LLC Agreement, a number of shares of our Class B common stock registered in the name of the redeeming or exchanging Class B common stock owners will be cancelled for no consideration on a one-for-one basis with the number of common units so redeemed or exchanged.
The FAH LLC Agreement also requires that FAH, LLC, at all times, maintain (i) a one-to-one ratio between the number of outstanding shares of Class A common stock and the number of common units of FAH, LLC owned by us and (ii) a one-to-one ratio between the number of shares of Class B common stock owned by the Continuing Equity Owners and the number of common units of FAH, LLC owned by the Continuing Equity Owners.
•medical and dependent care flexible spending accounts;
Pursuant to the Stockholders Agreement between ACON, Fundamental•short-term and long-term disability insurance; and Brian Mariotti, our Chief Executive Officer, ACON and its permitted transferees (the “ACON Related Parties”) have the right to designate certain of our directors (the “ACON Directors”), which will be three ACON Directors for as long as the ACON Related Parties directly or indirectly, beneficially own, in the aggregate, 35% or more of our Class A common stock; two ACON Directors for so long as the ACON Related Parties, directly or indirectly, beneficially own, in the aggregate, less than 35% but 25% or more of our Class A common stock; and one ACON Director for as long as the ACON Related Parties, directly or indirectly, beneficially own, in the aggregate, less than 25% but at least 15% or more of our Class A common stock (assuming in each such case that all outstanding common units in FAH, LLC are redeemed for newly issued shares of our Class A common stock on a one-for-one basis). In addition, the Stockholders Agreement provides that Fundamental has the right to designate one of our directors (the “Fundamental Director”) until the earlier of (1) Fundamental no longer directly or indirectly, beneficially owns, in the aggregate, at least 10% or more of our Class A common stock (assuming that all outstanding common units in FAH, LLC are redeemed for newly issued shares of our Class A common stock on a one-for-one basis) and (2) October 1, 2018. As of October 1, 2018, Fundamental no longer has a director designation right under the Stockholders Agreement. Each of ACON, Fundamental and Brian Mariotti, our Chief Executive Officer, also agreed to vote, or cause to vote, all of their outstanding shares of our Class A common stock and Class B common stock at any annual or special meeting of stockholders in which directors are elected, so as to cause the election of the ACON Directors and Mr. Mariotti for as long as he is our Chief Executive Officer. Additionally, pursuant to the Stockholders Agreement, we have agreed to take all commercially reasonable actions to cause (1) the Board to be comprised of at least seven directors or such other number of directors as our Board may determine; (2) the individuals designated in accordance with the terms of the Stockholders Agreement to be included in the slate of nominees to be elected to the Board at the next annual or special meeting of our stockholders at which
directors are to be elected and at each annual meeting of our stockholders thereafter at which a director’s term expires; (3) the individuals designated in accordance with the terms of the Stockholders Agreement to fill the applicable vacancies on the Board; and (4) an ACON Director to be the chairperson of the Board. The Stockholders Agreement allows for the Board to reject the nomination, appointment or election of a particular director if such nomination, appointment or election would constitute a breach of the Board’s fiduciary duties to our stockholders or does not otherwise comply with any requirements of our amended and restated certificate of incorporation or our amended and restated bylaws or the charter for, or related guidelines of, the Board’s nominating and corporate governance committee.
In addition, the Stockholders Agreement provides that for as long as the ACON Related Parties beneficially own, directly or indirectly, in the aggregate, 30% or more of all issued and outstanding shares of our Class A common stock (assuming that all outstanding common units in FAH, LLC are redeemed for newly issued shares of our Class A common stock on a one-for-one basis), we will not take, and will cause our subsidiaries not to take, certain actions (whether by merger, consolidation or otherwise) without the prior written approval of ACON and each of its affiliated funds that holds common units of FAH, LLC or our Class A Common Stock, including:
•entering into any transaction or series of related transactions in which any person or group (other than the ACON Related Parties and any group that includes the ACON Related Parties, Fundamental (or certain of its affiliates or permitted transferees) or Mr. Mariotti) acquires, directly or indirectly, in excess of 50% of the then outstanding shares of any class of our or any of our subsidiaries’ capital stock, or following which any such person or group has the direct or indirect power to elect a majority of the members of our board of directors or to replace Funko, Inc. as the sole manager of FAH, LLC (or to add another person as co-manager of FAH, LLC);
•the reorganization, recapitalization, voluntary bankruptcy, liquidation, dissolution or winding up of us or any of our subsidiaries;
•the sale, lease or exchange of all or substantially all of our and our subsidiaries’ property and assets;
•the resignation, replacement or removal of Funko, Inc. as the sole manager of FAH, LLC, or the appointment of any additional person as a manager of FAH, LLC;
•any acquisition or disposition of our or any of our subsidiaries’ assets for aggregate consideration in excess of $10.0 million in a single transaction or series of related transactions (other than transactions solely between or among us and our direct or indirect wholly owned subsidiaries);
•the creation of a new class or series of capital stock or other equity securities of us or any of our subsidiaries;
•the issuance of additional shares of Class A common stock, Class B common stock, preferred stock or other equity securities of us or any of our subsidiaries other than (i) under any stock option or other equity compensation plan approved by our board of directors or the compensation committee thereof, (ii) pursuant to the exercise or conversion of any options, warrants or other securities existing as of the date of the Stockholders Agreement and (iii) in connection with any redemption of common units of FAH, LLC pursuant to the FAH LLC Agreement;
•any amendment or modification of our or any of our subsidiaries’ organizational documents, other than the FAH LLC Agreement, which shall be subject to amendment or modification solely in accordance with the terms set forth therein; and
•any increase or decrease of the size of our board of directors.
The Stockholders Agreement will terminate upon the earlier to occur of (1) each of ACON and Fundamental no longer have any right to designate a director as set forth in the Stockholders Agreement, and (2) the unanimous written consent of the parties to the Stockholders Agreement.
| | | REGISTRATION RIGHTS AGREEMENT |
In connection with our IPO, we entered into a Registration Rights Agreement with the Original Equity Owners. The Registration Rights Agreement provides ACON with certain “demand” registration rights whereby, at any time after 180 days following our IPO and the expiration of any related lock-up period, ACON can require us to register under the Securities Act the offer and sale of shares of Class A common stock issuable to them, at our election (determined solely by our independent directors (within the meaning of the rules of the Nasdaq) who are disinterested), upon redemption or exchange of their common units in FAH, LLC. The Registration Rights Agreement also provides for customary “piggyback” registration rights for all parties to the agreement. We have agreed to pay certain expenses of the registration rights holders in connection with the exercise of their registration rights, and that we will indemnify the registration rights holders against certain liabilities which may arise under the Securities Act or other federal or state securities laws.
•life insurance.
| | | INDEMNIFICATION AGREEMENTS |
Our Amended and Restated Bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. In addition, our Amended and Restated Certificate of Incorporation provides that our directors will not be liable for monetary damages for breach of fiduciary duty.
We have entered into indemnification agreements with our executive officers and directors. We also purchased directors’ and officers’ liability insurance.
Perquisites. We believe the perquisites described above are necessary and appropriate to provide a competitive compensation package to our named executive officers.
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Delinquent Section 16(a) Reports
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Section 16(a) of the Exchange Act requires our directors, officers (as defined under Rule 16a-1(f) under the Exchange Act) and stockholders who beneficially own more than 10% of any class of our equity securities registered pursuant to Section 12 of the Exchange Act (collectively, the “Reporting Persons”) to file initial statements of beneficial ownership of securities and statements of changes in beneficial ownership of securities with respect to our equity securities with the SEC. All Reporting Persons are required by SEC regulation to furnish us with copies of all reports that such Reporting Persons file with the SEC pursuant to Section 16(a). Based solely on our review of the copies of such forms received by us and upon written representations of the Reporting Persons received by us, we believe that there has been compliance with all Section 16(a) filing requirements applicable to such Reporting Persons with respect to the fiscal year ended December 31, 2019, other than one Form 4 reporting one late transaction for Charles Denson, one Form 4 reporting one late transaction for Andrew Perlmutter, and one Form 4 reporting two late transactions for Fundamental Capital Partners, LLC and its affiliates.
No Tax Gross-Ups. We do not make gross-up payments to cover our named executive officers’ personal income taxes that may pertain to any of the compensation or perquisites paid or provided by our company.
| | | Compensation Committee Interlocks and Insider Participation |
During the fiscal year ended December 31, 2019, the members of our Compensation Committee were Ken Brotman, Charles Denson and Diane Irvine. None of the members of our Compensation Committee is our current employee. During the fiscal year ended December 31, 2019, none of the relationships required to be disclosed by the rules of the SEC existed aside from those identified herein. See “Certain Relationships and Related Person Transactions” for a description of certain agreements involving ACON Investments where Mr. Brotman is a Managing Partner.
None of our executive officers serves as a member of the board of directors or compensation committee (or other committee performing equivalent functions) of any entity that has one or more executive officers serving on our Board or compensation committee.
Stockholders who intend to have a proposal considered for inclusion in our proxy materials for presentation at our 2021 Annual Meeting of Stockholders pursuant to Rule 14a-8 under the Exchange Act must submit the proposal to our Secretary at our offices at 2802 Wetmore Avenue, Everett, Washington 98201 in writing not later than December 16, 2020.
Stockholders intending to present a proposal at the 2021 Annual Meeting of Stockholders, but not to include the proposal in our proxy statement, or to nominate a person for election as a director, must comply with the requirements set forth in our Amended and Restated Bylaws. Our Amended and Restated Bylaws require, among other things, that our Secretary receive written notice from the stockholder of record of their intent to present such proposal or nomination not earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the first anniversary of the preceding year’s annual meeting. Therefore, we must receive notice of such a proposal or nomination for the 2021 Annual Meeting of Stockholders no earlier than the close of business on January 27, 2021 and no later than the close of business on February 26, 2020. The notice must contain the information required by the Amended and Restated Bylaws, a copy of which is available upon request to our Secretary. In the event that the date of the 2021 Annual Meeting of Stockholders is more than 30 days before or more than 70 days after May 27, 2021, then our Secretary must receive such written notice not earlier than the close of business on the 120th day prior to the 2021 Annual Meeting and not later than the close of business on the 90th day prior to the 2021 Annual Meeting or, if later, the 10th day following the day on which public disclosure of the date of such meeting is first made by us. SEC rules permit management to vote proxies in its discretion in certain cases if the stockholder does not comply with this deadline and, in certain other cases notwithstanding the stockholder’s compliance with this deadline.
We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these or other applicable requirements.
Stock Ownership Guidelines
Our Board is not aware of any matter to be presented for action at the Annual Meeting other than the matters referred to above and does not intend to bring any other matters before the Annual Meeting. However, if other matters should come before the Annual Meeting, it is intended that holders of the proxies will vote thereon in their discretion.
The accompanying proxy is solicited by and on behalf of our Board, whose Notice of Annual Meeting is attached to this proxy statement, and the entire cost of our solicitation will be borne by us. In addition to the use of mail, proxies may be solicited by personal interview, telephone, e-mail and facsimile by our directors, officers and other employees who will not be specially compensated for these services. We will also request that brokers, nominees, custodians and other fiduciaries forward soliciting materials to the beneficial owners of shares held by the brokers, nominees, custodians and other fiduciaries. We will reimburse these persons for their reasonable expenses in connection with these activities.
| | | Funko’s Annual Report on Form 10-K |
A copy of Funko’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, including financial statements and schedules but not including exhibits, as filed with the SEC, will be sent to any stockholder of record on April 3, 2020 without charge upon written request addressed to:
Funko, Inc.
Attention: Secretary
2802 Wetmore Avenue
Everett, Washington 98201
A reasonable fee will be charged for copies of exhibits. You also may access this proxy statement and our Annual Report on Form 10-K at www.proxyvote.com. You also may access our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 at www.funko.com.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING VIRTUALLY, WE URGE YOU TO VOTE YOUR SHARES VIA THE TOLL-FREE TELEPHONE NUMBER OR OVER THE INTERNET, AS DESCRIBED IN THIS PROXY STATEMENT. IF YOU RECEIVED A COPY OF THE PROXY CARD BY MAIL, YOU MAY SIGN, DATE AND MAIL THE PROXY CARD IN THE ENCLOSED RETURN ENVELOPE. PROMPTLY VOTING YOUR SHARES WILL ENSURE THE PRESENCE OF A QUORUM AT THE ANNUAL MEETING AND WILL SAVE US THE EXPENSE OF FURTHER SOLICITATION.
By Order of the Board of Directors
Tracy D. Daw, Senior Vice President, General Counsel and Secretary
Everett, Washington
April 15, 2020Effective January 1, 2021, we adopted stock ownership guidelines that are applicable to our executive officers, including our named executive officers, and to our non-employee directors. Our executive officers and non-employee directors are expected to satisfy the applicable guidelines set forth below within five years of the later of (i) January 1, 2026 and (ii) the date of such individual’s appointment to a position with the Company that is subject to such guidelines, and to hold at least such minimum value in shares of common stock for so long as they are an executive officer or non-employee director, as applicable.
| | | | | | | | | | | | | Position | Salary/Fee Multiple Threshold ($) | | | Chief Executive Officer | 5X annual base salary | | | President | 3X annual base salary | | | Other Executive Officers | 1X annual base salary | | | Non-Employee Director | 5X annual retainer fee | |
Clawback Policy Effective January 1, 2021, we also adopted a “clawback” policy covering our executives with respect to certain incentive-based cash and equity compensation in connection with any of: (i) a financial restatement due to the Company’s material non-compliance with financial reporting requirements; (ii) a covered employee engages in conduct constituting “cause” under the employee’s employment agreement or any applicable Company arrangement; (iii) a covered employee engages in conduct violating any applicable Company policies; or (iv) a covered employee breaches any applicable restrictive covenant obligations. If any of the payments would have been lower if determined using the restated results in the event of a financial restatement, the Board will, in its discretion and to the extent permitted by law, seek to recoup from the executive officers up to the excess value or benefit of the prior payments made to those executive officers; provided that the Board may seek to recoup any incentive-based compensation in the event of employee misconduct covered by the preceding clauses (ii) – (iv).
Executive Compensation Arrangements Brian Mariotti Mr. Mariotti serves as our Chief Executive Officer pursuant to an employment agreement, dated as of October 30, 2015, or the Mariotti Employment Agreement. Pursuant to the Mariotti Employment Agreement, Mr. Mariotti receives an annual base salary (currently $1,000,000) and is eligible to participate in standard benefit plans. Mr. Mariotti is also eligible to receive an annual bonus payment with the amount of such annual bonus to be set by the board of directors each year. For 2018, 2019 and 2020, Mr. Mariotti received an annual bonus as per the Executive Incentive Plan that reflected his performance and achievements for each respective year calculated based on 150%, 130% and 120%, respectively of his base salary. If Mr. Mariotti is terminated by us without “Cause” or by Mr. Mariotti for “Good Reason”, then in addition to any accrued amounts and subject to Mr. Mariotti timely delivering an effective release of claims in our favor, Mr. Mariotti is entitled to receive (1) payment of COBRA premiums, if Mr. Mariotti timely elects and maintains COBRA coverage, to the same extent premiums for the same coverage would be paid by us had Mr. Mariotti remained employed, for a period of 12 months after the date of termination, (2) a pro-rata portion of his annual bonus payment for the fiscal year in which termination occurs, assuming achievement of any applicable performance objectives, paid in a lump sum within 60 days of Mr. Mariotti’s termination, and (3) 12 months of his base salary, paid in installments over 12 months in accordance with standard payroll practices.
Andrew Perlmutter In 2019, we were party to an employment agreement with Mr. Perlmutter pursuant to which he serves as our President.The employment agreement provides for an initial term of three years from our initial public offering, subject to two automatic one-year extensions provided that neither party provides prior written notice of non-extension of the then-current term. Pursuant to his employment agreement, Mr. Perlmutter is entitled to an annual base salary (currently $550,000). Additionally, Mr. Perlmutter is eligible to receive an annual performance-based cash bonus upon the attainment of individual and company performance goals established by our board of directors or the compensation committee. The maximum amount of Mr. Perlmutter’s annual performance-based cash bonus is 200% of his base salary. Pursuant to Mr. Perlmutter’s original employment agreement, he was eligible for an additional annual cash bonus subject to our performance. The target amount of such additional cash bonus was $1,000,000 and the maximum amount of such additional cash bonus was $1,250,000. He did not receive this bonus in 2018 and in April 2019, Mr. Perlmutter’s employment agreement was amended to remove his right to receive such bonus. Mr. Perlmutter’s employment agreement provides for severance upon a termination by us without cause or by Mr. Perlmutter for good reason, in each case, subject to the execution and non-revocation of a waiver and release of claims by Mr. Perlmutter. Upon a termination of employment by us without cause or by Mr. Perlmutter for good reason, Mr. Perlmutter is entitled to severance consisting of either (a) continuation of base salary for up to 12 months, payable in 12 equal monthly installments and reimbursement of up to 12 months for the employer portion of premium payments for any COBRA coverage Mr. Perlmutter elects, if (1) Mr. Perlmutter has been an employee of the company or its affiliates for at least two years prior to the date of termination or (2) if Mr. Perlmutter is terminated on or within 12 months of a change in control or (b) continuation of base salary for up to six months, payable in six equal monthly installments and reimbursement of up to six months for the employer portion of premium payments for any COBRA coverage Mr. Perlmutter elects, if Mr. Perlmutter has been an employee of the company or its affiliates for less than two years prior to the date of termination and such termination is not on or within 12 months of a change in control. Pursuant to his employment agreement, Mr. Perlmutter is subject to certain non-competition and non-solicitation restrictions for a 12-month period after termination of employment. During the restricted period, Mr. Perlmutter may not be engaged in activities or businesses that compete, directly or indirectly, with us including businesses that manufacture, market, license, distribute or sell licensed pop culture products. Mr. Perlmutter’s employment agreement also contains a perpetual mutual non-disparagement covenant. Pursuant to Mr. Perlmutter’s employment agreement, in the event any payment to Mr. Perlmutter would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, as amended, or the Code (as a result of a payment being classified as a parachute payment under Section 280G of the Code), the payment will be reduced to such extent that no portion of the payment would be subject to the potential excise tax imposed by Section 4999 of the Code. Jennifer Fall Jung Effective July 22, 2019, we entered into an employment agreement with Ms. Fall Jung, pursuant to which she serves as our Chief Financial Officer. The employment agreement provides for an initial term of employment of three years, subject to two automatic one-year extensions provided that neither party provides prior written notice of non-extension of the then-current term. Pursuant to her employment agreement, Ms. Fall Jung is entitled to an annual base salary of $425,000 and is eligible to participate in standard benefit plans. Additionally, Ms. Fall Jung is eligible to receive an annual performance-based cash bonus upon the attainment of pre-established individual and company performance goals, with a target bonus opportunity equal to 50% of her base salary (which shall be prorated for any partial bonus years during the term of her employment). The employment agreement also provides for an initial equity grant consisting of restricted stock units and stock options with an aggregate value to be targeted at 200% of Ms. Fall Jung’s base salary. Ms. Fall Jung received such grant on August 13, 2019. Furthermore, the employment agreement requires that Ms. Fall Jung relocate to within fifty miles of our offices in Everett, Washington by no later than October 15, 2020; provided, that, unless otherwise permitted, Ms. Fall Jung will still be expected
to work from our Everett, Washington offices no less than three weeks per month prior to such relocation. In connection with such relocation process, Ms. Fall Jung shall be entitled to receive a monthly housing allowance of $3,000 during the one-year period ending July 22, 2020, reimbursement of the costs of forty-five two-way flights for her travel to Washington in an amount of up to $300 each and reimbursement of her moving expenses in an amount up to $20,000. The employment agreement provides for severance upon a termination by us without cause or by Ms. Fall Jung for good reason, in each case, subject to the execution and non-revocation of a waiver and release of claims by Ms. Fall Jung. Upon a termination of employment by us without cause or by Ms. Fall Jung for good reason, then subject to her execution of a release of claims, Ms. Fall Jung is entitled to severance consisting of either (a) continuation of base salary for up to 12 months, payable in 12 equal monthly installments and reimbursement of up to 12 months for the employer portion of premium payments for any COBRA coverage Ms. Fall Jung elects, if (1) Ms. Fall Jung has been an employee of the company or its affiliates for at least two years prior to the date of termination or (2) if Ms. Fall Jung is terminated on or within 12 months of a change in control or (b) continuation of base salary for up to six months, payable in six equal monthly installments and reimbursement of up to six months for the employer portion of premium payments for any COBRA coverage Ms. Fall Jung elects, if Ms. Fall Jung has been an employee of the company or its affiliates for at least six months but less than two years following the effective date of her employment agreement and such termination is not on or within 12 months of a change in control. Pursuant to her employment agreement, Ms. Fall Jung is subject to a 12-month post-termination non-competition covenant and a 24-month post-termination non-solicitation covenant, as well as perpetual confidentiality and mutual non-disparagement covenants. The employment agreement also provides that in the event any payment to Ms. Fall Jung would be subject to the excise tax imposed by Section 4999 of the Code (as a result of a payment being classified as a parachute payment under Section 280G of the Code), the payment will be reduced to such extent that no portion of the payment would be subject to the potential excise tax imposed by Section 4999 of the Code.
During 2020, certain of our directors received cash compensation for their services as directors and option awards and restricted stock units pursuant to our 2017 Plan. The following table sets forth certain information with respect to cash compensation paid to our directors for 2020 service and equity awards granted to our directors in 2020. | | | | | | | | | | | | | | | Name (1) | Fees Earned or Paid in Cash ($) (3) | Option Awards (2) ($) | Restricted Stock Units (2) ($) | Total ($) | Ken Brotman | 85,500 | 14,698 | 20,973 | 121,171 |
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| Gino Dellomo | 47,500 | 14,698 | 20,973 | 83,171 |
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| Charles Denson (3) | 83,500 | 14,698 | 20,973 | 119,171 |
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| Diane Irvine (3) | 87,063 | 14,698 | 20,973 | 122,734 |
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| Adam Kriger | 47,500 | 14,698 | 20,973 | 83,171 |
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| Michael Lunsford (3) | 74,250 | 14,698 | 20,973 | 109,921 | | | | | | Sarah Kirshbaum Levy (3) | 69,250 | 14,698 | 20,973 | 104,921 |
(1) Mr. Mariotti has been excluded from this table because his compensation is fully reflected in the Summary Compensation Table for executive officers. (2) Amounts reflect the grant-date Black-Scholes value of the stock options granted during 2020, computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual. For a discussion of the assumptions used to calculate the value of all option awards made to our named executive officers, see Note 18 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. (3) Directors Denson, Irvine, and Levy were each paid $21,750 and Lunsford was paid $26,750 in connection with service on a special committee of the Board. In response to the COVID-19 pandemic, we imposed a reduction on the cash retainer fees payable to our directors by 20% from April 1, 2020 through July 1, 2020, after which cash retainer fees were fully restored to pre-reduction rates. The table below shows the aggregate numbers of vested options to purchase Class A Stock, unvested options to purchase Class A Stock and unvested Restricted Stock Units held as of December 31, 2020 by each non-employee director who was serving as of December 31, 2020. | | | | | | | | | | | | Name (1) | Vested Options Outstanding at Fiscal Year End | Unvested Options Outstanding at Fiscal Year End (2) | Unvested Restricted Stock Units Outstanding at Fiscal Year End (3) | Ken Brotman | 3,927 | 5,900 | 3,616 |
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| Gino Dellomo | 3,927 | 5,900 | 3,616 |
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| Charles Denson | 36,427 | 5,900 | 3,616 |
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| Diane Irvine | 66,927 | 5,900 | 3,616 | | |
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| Adam Kriger | 3,927 | 5,900 | 3,616 |
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| Michael Lunsford | 9,025 | 5,900 | 3,616 | | | | | Sarah Kirshbaum Levy | 3,916 | 5,900 | 3,616 |
(1) Mr. Mariotti has been excluded from this table because his incentive equity is fully reflected in the Outstanding Equity Awards at Fiscal Year End table for executive officers. (2) 100% of options vest and become exercisable on May 27, 2021, subject to continued service through the vesting date. (3) 100% of restricted stock units vest and become exercisable on May 27, 2021, subject to continued service through the vesting date.
| | | | Security Ownership of Certain Beneficial Owners and Management |
The following table sets forth information with respect to the beneficial ownership of our Class A common stock and Class B common stock for: •each person known by us to beneficially own more than 5% of our Class A common stock or our Class B common stock; •each of our directors (which includes all nominees); •each of our named executive officers; and •all of our executive officers and directors as a group. As described in “Certain Relationships and Related Person Transactions,” each common unit of FAH, LLC (other than common units held by us) is redeemable from time to time at each holder’s option (subject in certain circumstances to time-based vesting requirements) for, at our election (determined solely by our independent directors (within the meaning of the rules of the Nasdaq) who are disinterested), shares of our Class A common stock on a one-for-one basis or a cash payment equal to a volume weighted average market price of one share of Class A common stock for each common unit redeemed, in each case in accordance with the terms of the FAH LLC Agreement; provided that, at our election (determined solely by our independent directors (within the meaning of the Nasdaq Rules) who are disinterested), we may effect a direct exchange of such Class A common stock or such cash, as applicable, for such common units. The Continuing Equity Owners may exercise such redemption right for as long as their common units of FAH, LLC remain outstanding. In connection with our IPO, we issued to each Continuing Equity Owner, for nominal consideration, one share of Class B common stock for each common unit of FAH, LLC it owned. As a result, the number of shares of Class B common stock listed in the table below correlates to the number of common units of FAH, LLC each such Continuing Equity Owner owns. The number of shares beneficially owned by each stockholder as described in this proxy statement is determined under rules issued by the SEC. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power. Applicable percentage ownership is based on 37,342,222 shares of Class A common stock and 12,540,296 shares of Class B common stock outstanding as of April 9, 2021. In computing the number of shares beneficially owned by an individual or entity and the percentage ownership of that person, shares of Common Stock subject to options, or other rights, including the redemption right described above with respect to each common unit of FAH, LLC, held by such person that are currently exercisable or will become exercisable within 60 days of April 9, 2021, are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person. Unless otherwise indicated, the address of all listed stockholders is 2802 Wetmore Avenue, Everett, Washington 98201. Each of the stockholders listed has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable.
| | | | | | | | | | | | | | | | | | | Shares of Class A Common Stock Beneficially Owned (1) | Shares of Class B Common Stock Beneficially Owned | Combined Voting Power (2) |
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| Name of beneficial owner (3) | Number | Percentage | Number | Percentage | Percentage | 5% Stockholders | | | | | | ACON(4) | 19,821,502 | | 42.9% | 8,882,120 | | 70.8% | 39.7% | Fifth Street Station(5) | 2,787,824 | | 7.5% | — | | * | 5.6% | Woodson Capital Master Fund, LP(6) | 2,450,000 | | 6.6% | — | | * | 4.9% | Massachusetts Financial Services Company(7) | 2,325,404 | | 6.2% | — | | * | 4.7% | Fundamental(8) | 1,429,676 | | 3.7% | 929,676 | | 7.4% | 2.9% | | | | | | | Named Executive Officers and Directors | | | | | | Brian Mariotti(9) | 3,653,537 | | 8.9% | 2,531,690 | | 20.2% | 5.1% | Jennifer Fall Jung(10) | 58,360 | | * | — | | * | * | Andrew Perlmutter(11) | 740,317 | | 2.0% | — | | * | * | Ken Brotman(12) | 13,443 | | * | — | | * | * | Gino Dellomo(13) | 13,443 | | * | — | | * | * | Charles Denson(14) | 174,552 | | * | 16,058 | | * | * | Diane Irvine(15) | 78,835 | | * | — | | * | * | Adam Kriger(16) | 45,560 | | * | 16,058 | | * | * | Sarah Kirshbaum Levy(17) | 14,724 | | * | — | | * | * | Michael Lunsford(18) | 20,133 | | * | — | | * | * | All executive officers and directors as a group (10 individuals)(19) | 4,812,904 | | 12.0% | 2,563,806 | | 20.4% | 5.6% |
*Less than one percent. (1) For the reasons described above, in this table, beneficial ownership of common units of FAH, LLC has been reflected as beneficial ownership of our Class A common stock for which such common units may be exchanged. When a common unit is exchanged by a Continuing Equity Owner who holds our Class B common stock, a corresponding share of Class B common stock will be cancelled. (2) Represents the percentage of voting power of our Class A common stock and Class B common stock voting as a single class. Each share of Class A common stock and each share of Class B common stock entitles the registered holder thereof to one vote per share on all matters presented to stockholders for a vote generally, including the election of directors. The Class A common stock and Class B common stock will vote as a single class on all matters except as required by law or the Company’s certificate of incorporation. (3) Except as otherwise noted, all shares of Class A common stock shown as beneficially owned represent shares of class A common stock that may be acquired upon the exchange of common units of FAH, LLC for shares of Class A common stock on a one-for-one basis. (4) Based on information available to the Company and information obtained from a Schedule 13G/A filed on February 16, 2021, ACON ownership includes (a) 8,882,120 common units of FAH, LLC held by ACON Funko Investors, L.L.C., (b) 4,207,513 shares of Class A common stock held by ACON Funko Investors Holdings 1, L.L.C., (c) 1,774,080 shares of Class A common stock held by ACON Funko Investors Holdings 2.5, L.L.C., (d) 4,953,013 shares of Class A common stock held by ACON Funko Investors Holdings 3.5, L.L.C and (e) 4,772 shares of Class A common stock held by ACON Funko Manager, L.L.C. ACON Funko Manager, L.L.C. is (x) the sole manager of, and exercises voting and investment power over shares held by, ACON Funko Investors, L.L.C and (y) the sole managing member of, and exercises voting and investment power over shares held by, ACON Funko Investors Holdings 1, L.L.C., resulting in sole voting and dispositive power over 13,089,633 shares of Class A common stock. ACON Equity GenPar, L.L.C. is the sole managing member of, and exercises voting and investment power over shares held by, each of ACON Funko Investors Holdings 2.5, L.L.C., formerly known as ACON Funko Investors Holdings 2, L.L.C., and ACON Funko Investors Holdings 3.5, L.L.C., formerly known as ACON Funko Investors Holdings 3, L.L.C., resulting in sole voting and dispositive power over 6,727,093 shares of Class A common stock. Voting and investment decisions at ACON Funko Manager, L.L.C. are made by a board of managers, the members of which are Bernard Aronson, Kenneth Brotman, Jonathan Ginns, Daniel Jinich, Andre Bhatia and Aron Schwartz. Voting and investment decisions at ACON Equity GenPar, L.L.C. are made by an investment committee, the members of which are Bernard Aronson, Kenneth Brotman, Jonathan Ginns, Daniel Jinich, Andre Bhatia and Aron Schwartz. The address of ACON Funko Investors, L.L.C., ACON Funko Investors Holdings 1, L.L.C., ACON Funko Investors Holdings 2.5, L.L.C., ACON Funko Investors Holdings 3.5, L.L.C., ACON Funko Manager, L.L.C. and ACON Equity GenPar, L.L.C. is 1133 Connecticut Avenue, NW, Suite 700, Washington, D.C. 20036. (5) Based on information obtained from a Schedule 13G/A filed on February 12, 2021, Fifth Street Station LLC has sole voting and dispositive power over 2,787,824 shares of Class A common stock. The address of Fifth Street Station LLC is 505 Fifth Avenue South, Suite 900, Seattle, WA 98104.
(6) Based on information obtained from a Schedule 13G/A filed on February 16, 2021 and as of December 31, 2020, Woodson Capital Master Fund, LP (“Woodson Master”) has shared voting and dispositive power with respect to 2,285,849 shares of Class A common stock, and Woodson Capital General Partner, LLC (“WCGP”), Woodson Capital Management, LP (“WCM”), Woodson Capital GP, LLC (“WCG”) and James Woodson Davis (together with WCGP, WCM, and WCG, the “Woodson Reporting Persons”) have shared voting and dispositive power over all 2,450,000 shares of Class A common stock. James Woodson Davis is the sole managing member of WCG, which is the general partner of WCM. WCM is the investment manager of Woodson Master and WCGP is the general partner of Woodson Master. The address of Woodson Master is Maples Corporate Services Limited, Ugland House Grand Cayman, KY1-1104 Cayman Islands and the address of the Woodson Reporting Persons is 101 Park Avenue, 48th Floor, New York, New York, 10178. (7) Based on information obtained from a Schedule 13G/A filed on February 11, 2021, Massachusetts Financial Services Company has sole voting and dispositive power over 2,325,404 shares of Class A common stock. The address of Massachusetts Financial Services Company is 111 Huntington Avenue, Boston, MA 02199. (8) Based on information obtained from a Schedule 13G/A filed on January 21, 2021 and information available to the Company, Fundamental Capital Partners, LLC (“FCP”), Richard L. McNally, and Kevin G. Keenley have shared dispositive power over 929,676 common units of FAH, LLC and 500,000 shares of Class A common stock of Funko, Inc.; Funko International, LLC had shared voting and dispositive power over 776,538 common units of FAH, LLC and 410,000 shares of Class A common stock of Funko, Inc.; and Fundamental Capital, LLC had shared voting and dispositive power over 163,138 common units of FAH, LLC and 90,000 shares of Class A common stock of Funko, Inc. Funko International, LLC is a Delaware limited liability company; Fundamental Capital, LLC, a Delaware limited liability company, serves as the Manager of Funko International, LLC; FCP, a Delaware limited liability company, serves as the Manager of Fundamental Capital, LLC; Richard L. McNally and Kevin G. Keenley are the sole members of and hold voting membership interests in FCP. The address of FCP, Richard L. McNally, Kevin G. Keenley, Funko International, LLC and Fundamental Capital, LLC is 4 Embarcadero Center, Suite 1400, San Francisco, CA 94111. (9) Based on information available to the Company and information obtained from a Schedule 13G/A filed on February 12, 2021, Brian Mariotti has sole voting and dispositive power over 22,017 shares of Class A common stock, 3,258,496 common units of FAH, LLC that are currently vested, vested options to purchase 298,283 shares of Class A common stock, 22769 restricted stock units that will vest within 60 days of April 9, 2021 and options to purchase 51,972 shares of Class A common stock that will vest within 60 days of April 9, 2021. (10) Jennifer Fall Jung has sole voting and dispositive power over 1,638 shares of Class A common stock, 32,129 options to purchase shares of Class A common stock that are currently vested, 7,684 restricted stock units that will vest within 60 days of April 9, 2021 and options to purchase 16,869 shares of Class A common stock that will vest within 60 days of April 9, 2021. (11) Andrew Perlmutter has sole voting and dispositive power over 127, 015 shares of Class A common stock, 126,583 common units of FAH, LLC that are currently vested, 161,529 options to purchase common units of FAH, LLC that are currently vested, vested options to purchase 286,776 shares of Class A common stock, 9,944 restricted stock units that will vest within 60 days of April 9, 2021, and options to purchase 28,470 shares of Class A common stock that will vest within 60 days of April 9, 2021. (12) Ken Brotman has sole voting and dispositive power over 3,927 options to purchase shares of Class A common stock that are currently vested, 3,616 restricted stock units that will vest within 60 days of April 9, 2021 and options to purchase 5,900 shares of Class A common stock that will vest within 60 days of April 9, 2021. (13) Gino Dellomo has sole voting and dispositive power over 3,927 options to purchase shares of Class A common stock that are currently vested, 3,616 restricted stock units that will vest within 60 days of April 9, 2021 and options to purchase 5,900 shares of Class A common stock that will vest within 60 days of April 9, 2021. (14) Charles Denson has sole voting and dispositive power over 96,496 shares of Class A common stock, 32,117 common units of FAH, LLC that are currently vested, 36,427 options to purchase shares of Class A common stock that are currently vested, 3,616 restricted stock units that will vest within 60 days of April 9, 2021 and options to purchase 5,900 shares of Class A common stock that will vest within 60 days of April 9, 2021. (15) Diane Irvine has sole voting and dispositive power over 2,392 shares of Class A common stock, 66,927 options to purchase shares of Class A common stock that are currently vested, 3,616 restricted stock units that will vest within 60 days of April 9, 2021 and options to purchase 5,900 shares of Class A common stock that will vest within 60 days of April 9, 2021. (16) Adam Kriger has sole voting and dispositive power over 32,117 common units of FAH, LLC that are currently vested, 3,616 restricted stock units that will vest within 60 days of April 9, 2021 and options to purchase 5,900 shares of Class A common stock that will vest within 60 days of April 9, 2021. (17) Sarah Kirshbaum Levy has sole voting and dispositive power over 1,292 shares of Class A common stock, 3,916 options to purchase shares of Class A common stock that are currently vested, 3,616 restricted stock units that will vest within 60 days of April 9, 2021 and options to purchase 5,900 shares of Class A common stock that will vest within 60 days of April 9, 2021. (18) Michael Lunsford has sole voting and dispositive power over 1,592 shares of Class A common stock, 9,025 options to purchase shares of Class A common stock that are currently vested, 3,616 restricted stock units that will vest within 60 days of April 9, 2021 and options to purchase 5,900 shares of Class A common stock that will vest within 60 days of April 9, 2021. (19) Includes 252,442 shares of Class A common stock, 3,449,313 common units of FAH, LLC that are currently vested, vested options to purchase 161,529 common units of FAH, LLC, vested options to purchase 745,264 shares of Class A common stock, 65,709 restricted stock units that will vest within 60 days of April 9, 2021 and options to purchase 138,611 shares of Class A common stock that will vest within 60 days of April 9, 2021.
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Certain Relationships and Related Person Transactions |
POLICIES AND PROCEDURES FOR RELATED PERSON TRANSACTIONS Our Board has adopted a written Related Person Transaction Policy and Procedures, setting forth the policies and procedures for the review and approval or ratification of related person transactions. This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we (including any of our subsidiaries) are, were or will be a participant, where the amount involved exceeds $120,000 in any fiscal year and a related person has, had or will have a direct or indirect material interest. Under the policy, the Company’s legal staff is primarily responsible for developing and implementing processes and procedures to obtain information regarding related persons with respect to potential related person transactions and then determining, based on the facts and circumstances, whether such potential related person transactions do, in fact, constitute related person transactions requiring compliance with the policy. If the Company’s legal staff determines that a transaction or relationship is a related person transaction requiring compliance with the policy, the General Counsel is required to present to the Audit Committee all relevant facts and circumstances relating to the related person transaction. The Audit Committee must review the relevant facts and circumstances of each related person transaction, including if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party and the extent of the related person’s interest in the transaction, take into account the conflicts of interest and corporate opportunity provisions of the Company’s Code of Business Conduct and Ethics, and either approve or disapprove the related person transaction. If advance Audit Committee approval of a related person transaction requiring the Audit Committee’s approval is not feasible, then the transaction may be preliminarily entered into by management upon prior approval of the transaction by the Chair of the Audit Committee subject to ratification of the transaction by the Audit Committee at the Audit Committee’s next regularly scheduled meeting; provided, that if ratification is not forthcoming, management will make all reasonable efforts to cancel or annul the transaction. If a transaction was not initially recognized as a related person, then upon such recognition the transaction will be presented to the Audit Committee for ratification at the Audit Committee’s next regularly scheduled meeting; provided, that if ratification is not forthcoming, management will make all reasonable efforts to cancel or annul the transaction. Management will update the Audit Committee as to any material changes to any approved or ratified related person transaction and will provide a status report at least annually of all then current related person transactions. No director may participate in approval of a related person transaction for which he or she is a related person. The following are certain transactions, arrangements and relationships with our directors, executive officers and stockholders owning 5% or more of our outstanding Class A common stock or our Class B common stock since January 1, 2019. All of the transactions, agreements or relationships described in this section occurred prior to the adoption of this policy. We believe that the terms of such agreements are as favorable as those we could have obtained from parties not related to us.
On November 1, 2017, we entered into a tax receivable agreement (the “Tax Receivable Agreement”) that provides for the payment by us to the Continuing Equity Owners of 85% of the amount of certain tax benefits, if any, we actually realize, or in some circumstances are deemed to realize, as a result of the redemption and exchange transactions described below in the section titled “FAH LLC Agreement”, including basis adjustments in our share of the tax basis of the assets of FAH, LLC, and certain other tax benefits attributable to payments made under the Tax Receivable Agreement. The applicable basis adjustments (as well as any amounts payable to the Continuing Equity Owners under the Tax Receivable Agreement) will vary depending on a number of factors including the timing of any future redemptions or exchanges, the price of shares of our Class A common stock at the time of any applicable redemptions or exchanges, the extent to which such redemptions or exchanges are taxable, and the amount and timing of our income. These tax benefit payments are not conditioned upon one or more of the Continuing Equity Owners maintaining a continued ownership interest in FAH, LLC. If a Continuing Equity Owner transfers common units of FAH, LLC but does not assign to the transferee of such units its rights under the Tax Receivable Agreement, such Continuing Equity Owner generally will continue to be entitled to receive payments under the Tax Receivable Agreement arising in respect of a subsequent exchange of such common units. In general, the Continuing Equity Owners’ rights under the Tax Receivable Agreement may not be assigned, sold, pledged or otherwise alienated to any
person, other than certain permitted transferees, without our prior written consent (which should not be unreasonably withheld, conditioned or delayed) and such person’s becoming a party to the Tax Receivable Agreement and agreeing to succeed to the applicable Continuing Equity Owner’s interest therein. During the years ended December 31, 2020 and 2019, we recognized Tax Receivable Agreement liabilities of $1.0 million and $59.0 million, respectively for payments due to the Continuing Equity Owners under the Tax Receivable Agreement. There were $4.6 million and $0.2 million of payments made pursuant to the Tax Receivable Agreement during the year ended December 31, 2020 and 2019, respectively.
On November 1, 2017, FAH, LLC amended and restated the FAH LLC Agreement to, among other things, (i) provide for a new single class of common membership interests in FAH, LLC, the common units; (ii) exchange all of the then-existing membership interests of the Original Equity Owners for common units of FAH, LLC; and (iii) appoint the Company as the sole manager of FAH, LLC. The LLC Agreement also provides that the Continuing Equity Owners may from time to time at each of their options require FAH, LLC to redeem (subject in certain circumstances to time-based vesting requirements) all or a portion of their common units in exchange for, at our election (determined solely by our independent directors (within the meaning of the Nasdaq Rules) who are disinterested), shares of the Company’s Class A common stock on a one-for-one basis or a cash payment equal to a volume weighted average market price of one share of Class A common stock for each common unit redeemed, in each case in accordance with the terms of the FAH LLC Agreement; provided that, at our election (determined solely by our independent directors (within the meaning of the Nasdaq Rules) who are disinterested), we may effect a direct exchange of such Class A common stock or such cash, as applicable, for such common units. The Continuing Equity Owners may exercise such redemption right for as long as their common units remain outstanding. Simultaneously with the payment of cash or shares of Class A common stock, as applicable, in connection with a redemption or exchange of common units pursuant to the terms of the FAH LLC Agreement, a number of shares of our Class B common stock registered in the name of the redeeming or exchanging Class B common stock owners will be cancelled for no consideration on a one-for-one basis with the number of common units so redeemed or exchanged. The FAH LLC Agreement also requires that FAH, LLC, at all times, maintain (i) a one-to-one ratio between the number of outstanding shares of Class A common stock and the number of common units of FAH, LLC owned by us and (ii) a one-to-one ratio between the number of shares of Class B common stock owned by the Continuing Equity Owners and the number of common units of FAH, LLC owned by the Continuing Equity Owners.
Pursuant to the Stockholders Agreement between ACON, Fundamental and Brian Mariotti, our Chief Executive Officer, ACON and its permitted transferees (the “ACON Related Parties”) have the right to designate certain of our directors (the “ACON Directors”), which will be three ACON Directors for as long as the ACON Related Parties directly or indirectly, beneficially own, in the aggregate, 35% or more of our Class A common stock; two ACON Directors for so long as the ACON Related Parties, directly or indirectly, beneficially own, in the aggregate, less than 35% but 25% or more of our Class A common stock; and one ACON Director for as long as the ACON Related Parties, directly or indirectly, beneficially own, in the aggregate, less than 25% but at least 15% or more of our Class A common stock (assuming in each such case that all outstanding common units in FAH, LLC are redeemed for newly issued shares of our Class A common stock on a one-for-one basis). In addition, the Stockholders Agreement provides that Fundamental has the right to designate one of our directors (the “Fundamental Director”) until the earlier of (1) Fundamental no longer directly or indirectly, beneficially owns, in the aggregate, at least 10% or more of our Class A common stock (assuming that all outstanding common units in FAH, LLC are redeemed for newly issued shares of our Class A common stock on a one-for-one basis) and (2) October 1, 2018. As of October 1, 2018, Fundamental no longer has a director designation right under the Stockholders Agreement. Each of ACON, Fundamental and Brian Mariotti, our Chief Executive Officer, also agreed to vote, or cause to vote, all of their outstanding shares of our Class A common stock and Class B common stock at any annual or special meeting of stockholders in which directors are elected, so as to cause the election of the ACON Directors and Mr. Mariotti for as long as he is our Chief Executive Officer. Additionally, pursuant to the Stockholders Agreement, we have agreed to take all commercially reasonable actions to cause (1) the Board to be comprised of at least seven directors or such other number of directors as our Board may determine; (2) the individuals designated in accordance with the terms of the Stockholders Agreement to be included in the slate of nominees to be elected to the Board at the next annual or special meeting of our stockholders at which directors are to be elected and at each annual meeting of our stockholders thereafter at which a director’s term expires; (3) the
individuals designated in accordance with the terms of the Stockholders Agreement to fill the applicable vacancies on the Board; and (4) an ACON Director to be the chairperson of the Board. The Stockholders Agreement allows for the Board to reject the nomination, appointment or election of a particular director if such nomination, appointment or election would constitute a breach of the Board’s fiduciary duties to our stockholders or does not otherwise comply with any requirements of our amended and restated certificate of incorporation or our amended and restated bylaws or the charter for, or related guidelines of, the Board’s nominating and corporate governance committee. In addition, the Stockholders Agreement provides that for as long as the ACON Related Parties beneficially own, directly or indirectly, in the aggregate, 30% or more of all issued and outstanding shares of our Class A common stock (assuming that all outstanding common units in FAH, LLC are redeemed for newly issued shares of our Class A common stock on a one-for-one basis), we will not take, and will cause our subsidiaries not to take, certain actions (whether by merger, consolidation or otherwise) without the prior written approval of ACON and each of its affiliated funds that holds common units of FAH, LLC or our Class A Common Stock, including: •entering into any transaction or series of related transactions in which any person or group (other than the ACON Related Parties and any group that includes the ACON Related Parties, Fundamental (or certain of its affiliates or permitted transferees) or Mr. Mariotti) acquires, directly or indirectly, in excess of 50% of the then outstanding shares of any class of our or any of our subsidiaries’ capital stock, or following which any such person or group has the direct or indirect power to elect a majority of the members of our board of directors or to replace Funko, Inc. as the sole manager of FAH, LLC (or to add another person as co-manager of FAH, LLC); •the reorganization, recapitalization, voluntary bankruptcy, liquidation, dissolution or winding up of us or any of our subsidiaries; •the sale, lease or exchange of all or substantially all of our and our subsidiaries’ property and assets; •the resignation, replacement or removal of Funko, Inc. as the sole manager of FAH, LLC, or the appointment of any additional person as a manager of FAH, LLC; •any acquisition or disposition of our or any of our subsidiaries’ assets for aggregate consideration in excess of $10.0 million in a single transaction or series of related transactions (other than transactions solely between or among us and our direct or indirect wholly owned subsidiaries); •the creation of a new class or series of capital stock or other equity securities of us or any of our subsidiaries; •the issuance of additional shares of Class A common stock, Class B common stock, preferred stock or other equity securities of us or any of our subsidiaries other than (i) under any stock option or other equity compensation plan approved by our board of directors or the compensation committee thereof, (ii) pursuant to the exercise or conversion of any options, warrants or other securities existing as of the date of the Stockholders Agreement and (iii) in connection with any redemption of common units of FAH, LLC pursuant to the FAH LLC Agreement; •any amendment or modification of our or any of our subsidiaries’ organizational documents, other than the FAH LLC Agreement, which shall be subject to amendment or modification solely in accordance with the terms set forth therein; and •any increase or decrease of the size of our board of directors. The Stockholders Agreement will terminate upon the earlier to occur of (1) each of ACON and Fundamental no longer have any right to designate a director as set forth in the Stockholders Agreement, and (2) the unanimous written consent of the parties to the Stockholders Agreement.
| | | REGISTRATION RIGHTS AGREEMENT |
In connection with our IPO, we entered into a Registration Rights Agreement with the Original Equity Owners. The Registration Rights Agreement provides ACON with certain “demand” registration rights whereby ACON can require us to register under the Securities Act the offer and sale of shares of Class A common stock issuable to them, at our election (determined solely by our independent directors (within the meaning of the rules of the Nasdaq) who are disinterested), upon redemption or exchange of their common units in FAH, LLC. The Registration Rights Agreement also provides for customary “piggyback” registration rights for all parties to the agreement. We have agreed to pay certain expenses of the registration rights holders in connection with the exercise of their registration rights, and that we will indemnify the registration rights holders against certain liabilities which may arise under the Securities Act or other federal or state securities laws.
| | | INDEMNIFICATION AGREEMENTS |
Our Amended and Restated Bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. In addition, our Amended and Restated Certificate of Incorporation provides that our directors will not be liable for monetary damages for breach of fiduciary duty. We have entered into indemnification agreements with our executive officers and directors. We also purchased directors’ and officers’ liability insurance.
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Delinquent Section 16(a) Reports |
Section 16(a) of the Exchange Act requires our directors, officers (as defined under Rule 16a-1(f) under the Exchange Act) and stockholders who beneficially own more than 10% of any class of our equity securities registered pursuant to Section 12 of the Exchange Act (collectively, the “Reporting Persons”) to file initial statements of beneficial ownership of securities and statements of changes in beneficial ownership of securities with respect to our equity securities with the SEC. All Reporting Persons are required by SEC regulation to furnish us with copies of all reports that such Reporting Persons file with the SEC pursuant to Section 16(a). Based solely on our review of the copies of such forms received by us and upon written representations of the Reporting Persons received by us, we believe that there has been compliance with all Section 16(a) filing requirements applicable to such Reporting Persons with respect to the fiscal year ended December 31, 2020, other than one Form 4 reporting two late transactions for each of Brian Mariotti, Andrew Perlmutter, and Tracy Daw and one Form 4/A reporting one late transaction for Jennifer Fall Jung.
| | | Compensation Committee Interlocks and Insider Participation |
During the fiscal year ended December 31, 2020, the members of our Compensation Committee were Ken Brotman, Charles Denson and Diane Irvine. None of the members of our Compensation Committee is our current employee. During the fiscal year ended December 31, 2020, none of the relationships required to be disclosed by the rules of the SEC existed aside from those identified herein. See “Certain Relationships and Related Person Transactions” for a description of certain agreements involving ACON Investments where Mr. Brotman is a Managing Partner. None of our executive officers serves as a member of the board of directors or compensation committee (or other committee performing equivalent functions) of any entity that has one or more executive officers serving on our Board or compensation committee.
Stockholders who intend to have a proposal considered for inclusion in our proxy materials for presentation at our 2022 Annual Meeting of Stockholders pursuant to Rule 14a-8 under the Exchange Act must submit the proposal to our Secretary at our offices at 2802 Wetmore Avenue, Everett, Washington 98201 in writing not later than December 21, 2021. Stockholders intending to present a proposal at the 2022 Annual Meeting of Stockholders, but not to include the proposal in our proxy statement, or to nominate a person for election as a director, must comply with the requirements set forth in our Amended and Restated Bylaws. Our Amended and Restated Bylaws require, among other things, that our Secretary receive written notice from the stockholder of record of their intent to present such proposal or nomination not earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the first anniversary of the preceding year’s annual meeting. Therefore, we must receive notice of such a proposal or nomination for the 2022 Annual Meeting of Stockholders no earlier than the close of business on February 4, 2022 and no later than the close of business on March 6, 2022. The notice must contain the information required by the Amended and Restated Bylaws, a copy of which is available upon request to our Secretary. In the event that the date of the 2022 Annual Meeting of Stockholders is more than 30 days before or more than 70 days after June 4, 2022, then our Secretary must receive such written notice not earlier than the close of business on the 120th day prior to the 2022 Annual Meeting and not later than the close of business on the 90th day prior to the 2022 Annual Meeting or, if later, the 10th day following the day on which public disclosure of the date of such meeting is first made by us. SEC rules permit management to vote proxies in its discretion in certain cases if the stockholder does not comply with this deadline and, in certain other cases notwithstanding the stockholder’s compliance with this deadline. We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these or other applicable requirements.
Our Board is not aware of any matter to be presented for action at the Annual Meeting other than the matters referred to above and does not intend to bring any other matters before the Annual Meeting. However, if other matters should come before the Annual Meeting, it is intended that holders of the proxies will vote thereon in their discretion.
The accompanying proxy is solicited by and on behalf of our Board, whose Notice of Annual Meeting is attached to this proxy statement, and the entire cost of our solicitation will be borne by us. In addition to the use of mail, proxies may be solicited by personal interview, telephone, e-mail and facsimile by our directors, officers and other employees who will not be specially compensated for these services. We will also request that brokers, nominees, custodians and other fiduciaries forward soliciting materials to the beneficial owners of shares held by the brokers, nominees, custodians and other fiduciaries. We will reimburse these persons for their reasonable expenses in connection with these activities.
| | | Funko’s Annual Report on Form 10-K |
A copy of Funko’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, including financial statements and schedules but not including exhibits, as filed with the SEC, will be sent to any stockholder of record on April 9, 2021 without charge upon written request addressed to: Funko, Inc. Attention: Secretary 2802 Wetmore Avenue Everett, Washington 98201
A reasonable fee will be charged for copies of exhibits. You also may access this proxy statement and our Annual Report on Form 10-K at www.proxyvote.com. You also may access our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 at www.funko.com. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING VIRTUALLY, WE URGE YOU TO VOTE YOUR SHARES VIA THE TOLL-FREE TELEPHONE NUMBER OR OVER THE INTERNET, AS DESCRIBED IN THIS PROXY STATEMENT. IF YOU RECEIVED A COPY OF THE PROXY CARD BY MAIL, YOU MAY SIGN, DATE AND MAIL THE PROXY CARD IN THE ENCLOSED RETURN ENVELOPE. PROMPTLY VOTING YOUR SHARES WILL ENSURE THE PRESENCE OF A QUORUM AT THE ANNUAL MEETING AND WILL SAVE US THE EXPENSE OF FURTHER SOLICITATION. By Order of the Board of Directors Tracy D. Daw, Senior Vice President, General Counsel and Secretary Everett, Washington April 20, 2021
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