DEF 14A of Funko, Inc.
Filed Apr 24, 2024 · FY20230001704711-24-000057
Comparative Market Pay Analysis
Comparative Market Pay Analysis In consultation with Semler Brossy, our Compensation Committee focuses on publicly disclosed information from the peer group as well as broader market survey data for companies similarly sized to Funko for general benchmarking purposes for evaluating our executive compensation program. The Compensation Committee periodically reviews the composition of the peer group to assess its continued relevance based on a combination of quantitative and qualitative factors including size, revenue and market capitalization, business fit, talent market overlap, and other relevant factors. For 2023, the peer group (which was unchanged from the 2022 peer group) consisted of:
Annual Performance-Based Cash Incentive Compensation
Annual Performance-Based Cash Incentive Compensation We consider annual cash incentive bonuses to be an important component of our total compensation program and provides incentives necessary to retain executive officers and align their compensation with Company performance. For 2023, target and potential maximum cash incentive bonuses as a percentage of salary were as set out below.
Annual Performance-Based Cash Incentive Compensation
| Named Executive Officer(1) | Target Cash Incentive | Maximum Cash Incentive | | Steve Nave | 75% | 150% | | Andrew Perlmutter | 150% | 300% | | Tracy Daw | 75% | 150% | | Andrew Oddie | 75% | 150% | | Brian Mariotti | 150% | 300% |
Annual Performance-Based Cash Incentive Compensation
(1) Messrs. Lunsford and Yessner were not eligible for cash incentive compensation. Mr. Lunsford received a monthly salary of $30,000 without additional cash incentive compensation. The Company paid Mr. Yessner’s employer, Tatum (as defined below), a weekly flat fee of $38,000 for his services as Interim Chief Financial Officer. Where applicable, such target bonuses were consistent with corresponding targets from 2022 following consideration of the factors set forth above under “Determination of Executive Compensation”. Under the Executive Incentive Plan, our Compensation Committee establishes company performance goals each year and, at the completion of the year, determines actual bonus payouts after assessing company and, if applicable, individual performance against these goals. The Executive Incentive Plan for fiscal 2023 was based solely on company performance goals and was based on the achievement of: (i) Adjusted EBITDA (weighted at 50%); (i) Gross Margin (weighted at 25%) and (iii) Cost to Fulfill (weighted at 25%). “Adjusted EBITDA” is defined as: net (loss) income before interest expense, net, income tax expense (benefit), depreciation and amortization, further adjusted for non-cash charges related to equity-based compensation programs, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction losses, Tax Receivable Agreement liability adjustments and other unusual or one-time items. “Gross Margin” is defined as: net sales less cost of sales as a percentage of net sales. “Cost to Fulfill” is defined as: (i) all expenses associated with order fulfillment and inventory storage related to the Company’s warehouse and third-party logistics (“3PL”) operations, divided by (ii) the total number of invoiced units shipped from Company warehouses and 3PLs. Adjusted EBITDA and Cost to Fulfill are non-GAAP financial measures. These non-GAAP financial measures are not a substitute for or superior to the comparable financial measures under GAAP. The targeted Company performance goals under the Executive Incentive Plan for 2023 were $90,000,000 for Adjusted EBITDA, 37.4% for Gross Margin and $1.08 for Cost to Fulfill. The following table sets forth the threshold, target and maximum bonus opportunities with respect to each Company performance component:
Annual Performance-Based Cash Incentive Compensation
| Financial Goals Achievement | Payout of Company performance goal (1) | | Less than 85% of Target | 0% | | 85% of Target | 50% of the Target Bonus | | 100% of Target | 100% of the Target Bonus | | 130% or more than Target | 200% of the Target Bonus |
Annual Performance-Based Cash Incentive Compensation
(1) Determined on a linear interpolation basis.
2023 Performance Goals
2023 Performance Goals
2023 Performance Goals
| Metric | Weighting | Threshold | Target | Maximum | Actual Achievement | Payout (% of target) | | Adj. EBITDA ($MM) | 50% | $77 | $90 | $117 | $24 | 0% | | Gross Margin | 25% | 33.7% | 37.4% | 42.0% | 30.0% | 0% | | Cost to Fulfill | 25% | $1.24 | $1.08 | $0.83 | $0.83 | 200% | | Total Weighted Attainment | | | | | | 50% |
2023 Performance Goals
Based on the Company’s maximum achievement of the Cost to Fulfill goal for 2023, and failure to achieve threshold achievement of the remaining two goals, the Compensation Committee determined that the performance goals with respect to the 2023 bonuses was achieved at 50%. In 2023, the Compensation Committee elected to eschew any individual component for NEOs under the fiscal 2023 Executive Incentive Plan, electing to focus instead on achievement of the company-wide goals set forth above. Total actual cash incentives earned for 2023 under the Executive Incentive Plan were as set out below:
2023 Performance Goals
| Named Executive Officer | Fiscal 2023 Payout | | Steve Nave | $227,163 | | Andrew Perlmutter | $618,750 | | Tracy Daw | $168,750 | | Andrew Oddie | $235,286 |
2023 Performance Goals
As a result of his resignation as Chief Executive Officer and an employee of the Company, Mr. Mariotti did not receive any bonus for 2023. The NEOs’ 2023 performance bonuses are set forth in the column entitled “Non-Equity Incentive Plan Compensation” in the “2023 Summary Compensation Table” below.
Equity-Based Long-Term Incentive Awards
Equity-Based Long-Term Incentive Awards We view equity-based compensation as a critical component of our balanced total compensation program. Equity-based compensation creates an ownership culture among our employees that provides an incentive to contribute to the continued growth and development of our business and aligns interest of executives with those of our stockholders. Long-term incentive grant values are determined holistically in the context of total compensation levels. This process, as described above, considers comparative market analysis, retention, role criticality, and individual performance. We generally make our annual equity awards following the Compensation Committee meeting held in the first quarter. Our Compensation Committee believes it is essential to provide equity-based compensation to our executive officers in order to link the interests and risks of our executive officers with those of our stockholders, reinforcing our commitment to ensuring a strong linkage between company performance and pay. Commencing in 2022, our Compensation Committee determined to add performance stock units, or PSUs, to the equity grant mix for our executives, which serves to further emphasize our commitment to at-risk compensation and drive sustained, long-term performance. The Compensation Committee will review and assess the mix of equity awards in the future to ensure it remains appropriate and aligned with stockholder interests.
2023 Equity-Based Long-Term Incentive Grants
2023 Equity-Based Long-Term Incentive Grants 2023 equity awards were granted through a combination of restricted stock units (“RSUs”), stock options, and performance-based stock units (“PSUs”) to our NEOs as follows:
2023 Equity-Based Long-Term Incentive Grants
| | RSUs | Stock Options | PSUs | | Weighting | 50% | 25% | 25% | | Performance Metrics | Not applicable | Not applicable | Net Sales and Adjusted EBITDA Margin | | Vesting Period | 25% annually over four years | 25% after year one, 1/36th monthly thereafter | Cliff vest following end of 3-year performance period | | Performance Leverage | Not applicable | Not applicable | 0 - 200% of target |
2023 Equity-Based Long-Term Incentive Grants
RSUs and stock options reward long-term stock price appreciation, promote retention, facilitate stock ownership, and align our NEOs’ interests with those of our stockholders. The PSUs were primarily designed to incentivize achievement of long-term financial growth priorities. The 2023 PSUs are tied to two equally weighted performance metrics, Net Sales and Adjusted EBITDA Margin, and vest based on (a) the average annual achievement of the Net Sales performance goal over the three-year performance period from January 1, 2023 to December 31, 2025 and (b) the actual achievement of the Adjusted EBITDA Margin performance goal for the last year of the performance period. The Company decided to shift the measure of the Adjusted EBITDA Margin component from a three-year average to a year three measurement given the uncertainty in setting EBITDA Margin goals in the near term, recognizing leadership transitions and to instead maintain focus on longer-term performance. We use Net Sales and Adjusted EBITDA Margin as measures to assess our business because they are key drivers of long-term shareholder value. Achievement of Targets for Second Year of 2022-2024 PSUs
2023 Equity-Based Long-Term Incentive Grants
| Performance Metric | Threshold (50% Payout) | Target (100% Payout) | Maximum (200% Payout) | Actual Achievement | % of Target Payout Earned (2023) | | Net Sales (in millions) | $1,360 | $1,600 | $2,080 | $1,096 | 0% | | Adjusted EBITDA Margin | 16.0% | 16.5% | 17.5% | 2.5% | 0% | | Achievement for Year Two of Performance Period(1) | | | | | 0% |
2023 Equity-Based Long-Term Incentive Grants
(1) The PSUs are tied to two equally weighted performance metrics, Net Sales and Adjusted EBITDA Margin, and vest based on the average annual achievement of the applicable performance goals over the three-year performance period. For 2022, the first year of the performance period, based on achievement of the applicable performance metrics the percentage of target payout earned for Net Sales was 94% and for Adjusted EBITDA Margin was 0%. Achievement of Targets for First Year of 2023-2025 PSUs
2023 Equity-Based Long-Term Incentive Grants
| Performance Metric | Threshold (50% Payout) | Target (100% Payout) | Maximum (200% Payout) | Actual Achievement | % of Target Payout Earned (2023) | | Net Sales (in millions) | $1,211 | $1,425 | $1,853 | $1,096 | 0% | | Achievement for Year One of Performance Period(1) | | | | | 0% |
2023 Equity-Based Long-Term Incentive Grants
(1) No PSUs are eligible to vest until the completion of the applicable three-year performance period. The Adjusted EBITDA Margin metric for the 2023-2025 Performance Based Stock Units is only measured following year three of the Performance Period. In March 2023, we made the following grants to our NEOs:
2023 Equity-Based Long-Term Incentive Grants
| Name | Target Grant Value ($) | Number of Shares Underlying Stock Options | Number of Shares Underlying RSUs | Number of Shares Underlying PSUs (at target) | | Steve Nave | 2,337,120 | 58,600 | 66,942 | 33,471 | | Andrew Perlmutter | 1,237,500 | 48,300 | 38,672 | 19,336 | | Tracy Daw | 675,000 | 23,500 | 21,094 | 10,547 | | Andrew Oddie | 880,800 | 34,400 | 27,525 | 13,763 | | Brian Mariotti | 2,000,000 | 78,100 | 62,500 | 31,250 |
2023 Equity-Based Long-Term Incentive Grants
Grants were converted from the target dollar values to shares based on a $16 conversion price. Given our stock price volatility and to help ensure that the grants to our executives were aligned with shareholders, we converted the target grant value to a number of options, PSUs, and RSUs based on a $16 price (which was chosen to maintain a competitive burn rate with our peer group). The actual price at the time of the grant was $9.77. For our named executive officers other than Mr. Yessner (who was not granted any equity awards in connection with his role as Interim Chief Financial Officer) and Mr. Lunsford (who was not eligible to receive an annual equity award for 2023), the Compensation Committee determined that it was appropriate to grant an annual equity mix targeted at approximately 25% PSUs, 50% RSUs and 25% options in order to promote a long-term compensation structure that emphasizes both retention and commitment to the financial performance of the Company. The amount of each award was based on several factors, including managing the Company’s available share pool, maintaining our ability to compete for outstanding talent while committing to the alignment of our executive compensation program with stockholders’ interests and long-term Company performance, and the NEO’s experience and position. In connection with his appointment to the roles of Interim Chief Executive Officer on July 13, 2023, Mr. Lunsford was granted an award of 120,000 restricted stock units, which vest on July 13, 2024, subject to Mr. Lunsford’s continued service through the vesting date and subject to certain acceleration provisions in the event he is terminated other than for “cause” (as defined in the Lunsford Agreement) prior to July 13, 2024. In addition to the annual grants set forth above, in light of the executive transitions which occurred in 2023, on August 11, 2023, the Compensation Committee determined to grant the NEOs in the following table additional retention awards of restricted stock units which vested in full on March 29, 2024, subject to continued employment through such date.
2023 Equity-Based Long-Term Incentive Grants
| Name | Number of Shares Underlying RSUs | | Steve Nave | 30,000 | | Andrew Perlmutter | 30,000 | | Tracy Daw | 15,000 | | Andrew Oddie | 15,000 |
2023 Equity-Based Long-Term Incentive Grants
Equity Plans 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. As of December 31, 2023, all such common units were fully vested. Options and 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. As of December 31, 2023, there were no outstanding awards under the 2015 Option Plan. 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. In addition, in 2019 we adopted the 2019 Incentive Award Plan, or the 2019 Plan. The 2019 Plan supplements our 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.
Severance and Change in Control Arrangements
Severance and Change in Control Arrangements We are party to employment agreements with each of our NEOs other than Mr. Lunsford (who entered into a letter agreement providing for his appointment as Interim Chief Executive Officer) and Mr. Yessner (who is engaged as an interim executive pursuant to a talent service agreement), which provide for severance benefits and payments upon certain qualifying terminations of employment. Our Compensation Committee believes that these types of arrangements are necessary to attract and retain executive talent and are a customary component of executive compensation. In addition, certain of our executives may be entitled to enhanced benefits in connection with a qualifying termination following a change in control, which can mitigate a potential disincentive for our executives when they are evaluating a potential acquisition of the Company and can encourage retention through the conclusion of the transaction. The payments and benefits provided under our severance and change in control arrangements are designed to be competitive with market practices. A description of these arrangements, as well as information on the estimated payments and benefits that our NEOs would have been eligible to receive as of December 31, 2023, are set forth in “Potential Payments Upon Termination or Change in Control” below. Additionally, effective April 19, 2023, we adopted an Executive Severance Policy pursuant to which eligible employees may be eligible to receive six to 12 months continued base salary payments and continuing healthcare, as well as, in certain instances, limited acceleration of equity awards with time-based vesting in the event such employees are terminated by the Company involuntarily or without “cause” or resign for “good reason” (each as described in the policy). The Executive Severance Policy does not apply to our NEOs who have employment agreements which provide for comparable severance benefits. Mr. Lunsford has declined to be covered by the Executive Severance Policy due to the expected short-term nature of his appointment.
Severance and Change in Control Arrangements
| OTHER POLICIES AND CONSIDERATIONS |
COMPENSATION COMMITTEE REPORT
| 2023 SUMMARY COMPENSATION TABLE |
COMPENSATION COMMITTEE REPORT
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards(1) ($) | Option Awards(2) ($) | Non-Equity Incentive Plan Compensation(3) ($) | All Other Compensation(4) ($) | Total ($) | | Michael Lunsford | 2023 | 155,077 | — | 1,011,578 | 102,349 | — | 66,893 | 1,335,897 | | Interim Chief Executive Officer(5) | | | | | | | | | | Steve Nave | 2023 | 723,769 | — | 1,163,135 | 400,512 | 227,163 | 11,182 | 2,525,761 | | Chief Financial Officer and Chief Operating Officer | | | | | | | | | | Andrew Perlmutter | 2023 | 825,000 | — | 748,838 | 330,115 | 618,750 | 9,493 | 2,532,196 | | President | 2022 | 814,423 | — | 2,564,342 | 452,872 | 371,377 | 11,311 | 4,214,325 | | | 2021 | 550,000 | — | 490,901 | 600,197 | 1,344,420 | 12,081 | 2,997,599 | | Andrew Oddie | 2023 | 627,429 | — | 494,434 | 235,113 | 235,286 | 46,536 | 1,638,798 | | Chief Commercial Officer (6) | 2022 | 594,892 | — | 6,044,187 | 237,556 | 259,489 | 44,852 | 7,180,976 | | Tracy Daw | 2023 | 450,000 | — | 400,183 | 180,436 | 168,750 | 13,200 | 1,212,569 | | Chief Legal Officer and Secretary | 2022 | 440,385 | 7,500(7) | 445,314 | 219,360 | 166,465 | 12,896 | 1,291,920 | | | 2021 | 400,000 | — | 238,024 | 291,258 | 325,920 | 17,096 | 1,272,298 | | Brian Mariotti | 2023 | 711,538 | — | 744,063 | 369,086 | | 422,356 | 2,247,043 | | Former Chief Executive Officer(8) | 2022 | 1,000,000 | — | 1,113,260 | 548,906 | 456,000 | 12,096 | 3,130,262 | | | 2021 | 1,000,000 | — | 892,565 | 1,090,590 | 2,444,400 | 12,096 | 5,439,651 | | Scott Yessner | 2023 | 418,000 | — | — | — | — | — | 418,000 | | Former Interim Chief Financial Officer (9) | 2022 | 152,000 | — | — | — | — | — | 152,000 |
COMPENSATION COMMITTEE REPORT
| GRANTS OF PLAN-BASED AWARDS IN FISCAL 2023 |
COMPENSATION COMMITTEE REPORT
| NARRATIVE TO SUMMARY COMPENSATION TABLE AND GRANTS OF PLAN-BASED AWARDS TABLE |
Named Executive Officer Employment Agreements
| OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE |
Named Executive Officer Employment Agreements
| OPTION EXERCISES AND STOCK VESTED IN FISCAL 2023 |
Named Executive Officer Employment Agreements
| POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL |
Estimated Potential Payments
Estimated Potential Payments The following table summarizes the payments that would be made to our NEOs (other than Messrs. Mariotti and Yessner, who were not employed on December 31, 2023) upon the occurrence of certain qualifying terminations of employment or a change in control, in any case, occurring on December 31, 2023. Amounts shown do not include (i) accrued but unpaid base salary through the date of termination or (ii) other benefits earned or accrued by the NEO during his employment that are available to all salaried employees, such as accrued vacation.
Estimated Potential Payments
| Name | Benefit | Termination Without Cause or for Good Reason / Cause (no Change in Control) ($) | Change in Control (no Termination) ($) (1) | Termination Without Cause or for Good Reason / Cause in Connection with a Change in Control ($) | Termination due to death or disability ($) | | Michael Lunsford | Cash | $120,000 | $— | $120,000 | $— | | | Equity Acceleration(2) | 695,700 | — | 695,700 | — | | | Continued Healthcare | — | — | — | — | | | Total(4) | $815,700 | $— | $815,700 | $— | | Steve Nave | Cash | $375,000 | $— | $375,000 | $— | | | Equity Acceleration(2) | $— | $— | $— | $749,362 | | | Continued Healthcare(3) | $7,317 | $— | $7,317 | $— | | | Total(4) | $382,317 | $— | $382,317 | $749,362 | | Andrew Perlmutter | Cash | $825,000 | $— | $825,000 | $— | | | Equity Acceleration(2) | 1,394,636 | — | 1,394,636 | 1,394,636 | | | Continued Healthcare(5) | 23,702 | — | 23,702 | | | | Total(4) | $2,243,338 | $— | $2,243,338 | $1,394,636 | | Andrew Oddie | Cash | 660,667 | $— | 660,667 | $— | | | Equity Acceleration(2) | 475,402 | — | 475,402 | — | | | Continued Healthcare | — | — | — | — | | | Total(4) | $1,136,069 | $— | $1,136,069 | $— | | Tracy Daw | Cash | $450,000 | $— | $450,000 | $— | | | Equity Acceleration(2) | 267,939 | — | 267,939 | 267,939 | | | Continued Healthcare(5) | 23,702 | — | 23,702 | — | | | Total(4) | $741,641 | $— | $741,641 | $267,939 |
Estimated Potential Payments
(1) Assumes awards are not assumed or substituted in connection with the change in control. (2) With respect to options, the value of equity acceleration was calculated by (i) multiplying the number of accelerated shares of common stock underlying the options by $7.73, the closing trading price of our common stock on December 29, 2023 (the last trading day of 2023) and (ii) subtracting the exercise price for the options. With respect to RSUs, the value of equity acceleration was calculated by multiplying the number of accelerated RSUs by $7.73, the closing trading price of our common stock on December 29, 2023 (the last trading day of 2023). With respect to the PSUs, the value of equity acceleration was calculated by multiplying the number of accelerated PSUs by $7.73, the closing trading price of our common stock on December 29, 2023 (the last trading day of 2022). (3) Amounts represent 6 months of continued COBRA payments. (4) Amounts shown are the maximum potential payment the NEO would have received as of December 31, 2023. Amounts of any reduction pursuant to the 280G best pay provision, if any, would be calculated upon actual termination of employment. (3) Amounts represent 6 months of continued COBRA payments. Mariotti Resignation In connection with his resignation as an employee of the Company, Mr. Mariotti is entitled to receive, subject to his execution and non-revocation of a waiver and release of claims agreement and compliance with the applicable restrictive covenants: (i) continued base salary payments for 12 months following the Separation Date, less applicable withholdings, (ii) reimbursement during such 12-month period of the Company-paid portion of premium payments, as if Mr. Mariotti had remained an active employee, for any COBRA coverage that he timely elects, which shall be payable monthly, and (iii) with respect to any unvested equity awards held by Mr. Mariotti (A) subject to time-based vesting, such awards will accelerate and vest in full and (B) subject to performance-based vesting conditions, such awards will be eligible to vest and be settled based on the actual achievement of the applicable performance objective(s) as if the date of termination was the end of the applicable performance period (which was determined to be 23.5% for the 2022 PSUs and 0% for the 2023 PSUs). Nave Resignation The Company entered into a Separation and Release of Claims Agreement with Mr. Nave, dated March 6, 2024 (the “Nave Agreement”), pursuant to which Mr. Nave’s employment terminated on March 15, 2024. Pursuant to the Nave Agreement, which included a waiver and release of claims, Mr. Nave is entitled to receive: (i) continued base salary payments for six months following his termination date, less applicable withholdings, (ii) reimbursement for up to six months of the Company-paid portion of premium payments, as if Mr. Nave had remained an active employee, for any COBRA coverage that he timely elects, which shall be payable monthly, (iii) additional payments in an aggregate amount of $125,000, less applicable withholdings, payable in six equal monthly installments in accordance with the Company’s regular payroll practices, (iv) his fiscal year 2023 target annual bonus, which shall be payable at the same time annual bonuses are paid to similarly situated executives of the Company and (v) accelerated vesting of the 30,000 outstanding unvested restricted stock units granted to Mr. Nave on August 11, 2023 under the Company’s 2019 Incentive Award Plan and which were scheduled to vest on March 29, 2024. The payment of such separation benefits will also be subject to Mr. Nave’s continued compliance with certain applicable restrictive covenants set forth in his Employment Agreement with the Company.
Estimated Potential Payments
| DIRECTOR COMPENSATION |
Estimated Potential Payments
The following table provides information regarding the total compensation that was earned by or paid to each of our non-employee directors during the year ended December 31, 2023.
Estimated Potential Payments
| Name (1) | Fees Earned or Paid in Cash ($) | Option Awards (2) ($) | Stock Awards (3) ($) | Total ($) | | Charles Denson | 185,000 | 102,349 | 61,178 | 348,527 | | Diane Irvine | 120,000 | 102,349 | 61,178 | 283,527 | | Sarah Kirshbaum Levy | 95,000 | 102,349 | 61,178 | 258,527 | | Jesse Jacobs | 105,000 | 102,349 | 61,178 | 268,527 | | Trevor Edwards | 95,000 | 102,349 | 61,178 | 258,527 | | Michael Kerns(4) | 15,230 | 38,069 | 21,606 | 74,906 | | Richard Paul(5) | 79,769 | 102,349 | 211,378 | 393,496 |
Estimated Potential Payments
(1) Messrs. Lunsford, Mariotti and Perlmutter also served as executive officers and as a result have been excluded from this table. Their compensation for 2023 is described above in the “Summary Compensation Table”. (2) Amounts reflect the grant-date Black-Scholes value of the stock options granted during 2023, 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 directors, 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, 2023. (3) Amounts reflect the full grant-date value of the restricted stock units granted during 2023, 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 the restricted stock units made to our directors in 2023, 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, 2023. (4) Mr. Kerns was appointed to the Board effective November 2, 2023. (5) Mr. Paul resigned from the Board effective November 2, 2023. Following his resignation, Mr. Paul agreed to serve as an advisor to the Company. In connection with his service as an advisor, Mr. Paul received a grant of 20,000 restricted stock units. The table below shows the aggregate numbers of vested options to purchase Class A Common Stock, unvested options to purchase Class A Common Stock and unvested Restricted Stock Units held as of December 31, 2023 by each non-employee director who was serving as of December 31, 2023.
Estimated Potential Payments
| Name | Vested Options Outstanding at Fiscal Year End | Unvested Options Outstanding at Fiscal Year End | Unvested Restricted Stock Units Outstanding at Fiscal Year End | | Charles Denson | 51,510 | 11,700(1) | 4,688(2) | | Diane Irvine | 82,010 | 11,700(1) | 4,688(2) | | Sarah Levy | 18,999 | 11,700(1) | 4,688(2) | | Jesse Jacobs | 5,437 | 11,700(1) | 4,688(2) | | Trevor Edwards | 3,400 | 11,700(1) | 4,688(2) | | Michael Kerns | — | 7,180(3) | 2,877(4) | | Richard Paul(5) | 5,437 | 11,700(1) | 24,688(6) |
Estimated Potential Payments
(1) 100% of options vest and become exercisable on June 13, 2024, subject to continued service through the vesting date. (2) 100% of restricted stock units vest on June 13, 2024, subject to continued service through the vesting date. (3) 100% of options vest and become exercisable on November 2, 2024, subject to continued service through the vesting date. (4) 100% of restricted stock units vest on November 2, 2024, subject to continued service through the vesting date. (5) Mr. Paul resigned from the board of directors effective November 2, 2024. Following his resignation, Mr. Paul agreed to serve as an advisor to the Company. (6) 4,688 of restricted stock units vest on July 27, 2023, subject to continued service through the vesting date, and 20,000 of the restricted stock units vest in four equal installment on each of the first four annual anniversaries of November 2, 2024. Pursuant to our non-employee director compensation policy, each non-employee director will be eligible to receive annual cash retainers as follows:
Estimated Potential Payments
| Annual Retainers | | | Board: | | | All non-employee members of the Board | $90,000 | | Chairperson of the Board | $90,000 | | Audit Committee: | | | Additional Retainer for chairperson | $25,000 | | Additional retainer for other members of the Audit Committee | $5,000 | | Compensation Committee: | | | Additional Retainer for chairperson | $20,000 | | Additional retainer for other members of the Compensation Committee | $5,000 | | Nominating and Corporate Governance Committee: | | | Additional Retainer for chairperson | $15,000 | | Additional retainer for other members of the Nominating and Corporate Governance Committee | $5,000 |
Estimated Potential Payments
Each director will also receive an annual equity award comprised of stock options with a grant date fair value of $75,000 and restricted stock units with a grant date fair value of $75,000, with prorated awards made to directors who join on a date other than an annual meeting. Such awards will generally vest in full on the first anniversary of the grant date, subject to the non-employee director continuing in service through such date. The equity awards granted pursuant to this policy will accelerate and vest in full upon a change in control (as defined in the 2019 Plan). * * * * *
Estimated Potential Payments
| CEO Pay Ratio |
Estimated Potential Payments
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we are required to disclose the ratio of our Chief Executive Officer’s annual total compensation to the annual total compensation of our other employees. The annual total compensation for 2023 for Michael Lunsford, who was serving as our Interim Chief Executive Officer as of the determination date, was $1,335,897, as reported in the Summary Compensation Table. The annual total compensation for 2023 for our median employee, a manager in one of our retail stores identified as discussed below, was $71,163, calculated in accordance with the rules applicable to the Summary Compensation Table. Based on this information, for 2023, the ratio of the annual total compensation of our Chief Executive Officer to the median of the annual total compensation of our other employees was approximately 19 to 1.
Methodology, Assumptions and Estimates Used in Determining our Pay Ratio Disclosure
Methodology, Assumptions and Estimates Used in Determining our Pay Ratio Disclosure We chose December 31, 2023 as the date for establishing the employee population used in identifying the median employee and used calendar year 2023 as the measurement period. We identified the median employee using the consistently applied compensation measure of annual salary plus actual bonus for each employee employed as of December 31, 2023 (other than our Interim Chief Executive Officer). We annualized the compensation measure for permanent employees who joined in 2023. We captured all full-time, part-time, seasonal and temporary employees in the United States, European Union and United Kingdom consisting of approximately 1,300 individuals. In determining the median employee, we excluded our employees based in China who collectively comprise less than five percent of our total employee population. Although Mr. Lunsford began serving as Interim Chief Executive Officer effective July 13, 2023 on an interim basis, we determined that it was more appropriate to use his annualized compensation for purposes of this disclosure than to combine the compensation paid to Mr. Lunsford and Mr. Mariotti in 2023 given Mr. Mariotti’s 2023 compensation reflected Mr. Mariotti’s severance payments as well as payments in connection with his provision of advisory services following his resignation as Chief Executive Officer. The annual total compensation of the median employee and the annual total compensation of the CEO were calculated in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K. The pay ratio reported above is a reasonable estimate calculated in a manner consistent with SEC rules based on our internal records and the methodology described above. Because the SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices, the pay ratio reported above should not be used as a basis for comparison between companies by other companies. In addition, we expect the Company’s annually reported pay ratio may vary significantly year over year, given the size of the Company and the potential variability in Company employee compensation.
Methodology, Assumptions and Estimates Used in Determining our Pay Ratio Disclosure
| PAY VERSUS PERFORMANCE TABLE |
Methodology, Assumptions and Estimates Used in Determining our Pay Ratio Disclosure
The following table sets forth information concerning the compensation of our NEOs for each of the fiscal years ended December 31, 2020, 2021, 2022 and 2023, and our financial performance for each such fiscal year:
Methodology, Assumptions and Estimates Used in Determining our Pay Ratio Disclosure
| Year | Summary Compensation Table Total for PEO (Mariotti) ($)(4) | Compensation Actually Paid to PEO (Mariotti) ($)(1)(4) | Summary Compensation Table Total for PEO (Perlmutter) ($)(5) | Compensation Actually Paid to PEO (Perlmutter) ($)(1)(5) | Summary Compensation Table Total for PEO (Lunsford) ($)(6) | Compensation Actually Paid to PEO (Lunsford) ($)(1)(6) | Average Summary Compensation Table Total for Non-PEO NEOs ($) | Average Compensation Actually Paid to Non-PEO NEOs ($) (1) | Value of Initial Fixed $100 Investment Based on: | | Net Income ($) (in thousands) | Net Sales(3) ($) (in thousands) | | | | | | | | | | | Total Shareholder Return ($) | Peer Group Total Shareholder Return ($) (2) | | | | 2023 | 2,247,043 | (823,086) | — | — | 1,335,897 | 1,257,263 | 1,665,765 | 1,185,547 | 45.05 | 142.24 | (164,438) | 1,096,086 | | 2022 | 3,130,262 | (3,979,745) | 4,214,325 | (298,106) | — | — | 2,562,172 | 1,448,176 | 63.58 | 113.10 | (5,240) | 1,322,706 | | 2021 | 5,439,651 | 13,984,354 | — | — | — | — | 2,362,586 | 5,430,853 | 109.56 | 163.03 | 67,854 | 1,029,293 | | 2020 | 2,627,245 | (2,902,267) | — | — | — | — | 1,357,551 | (625,704) | 60.49 | 126.95 | 9,763 | 652,537 |
Methodology, Assumptions and Estimates Used in Determining our Pay Ratio Disclosure
(1)Amounts represent compensation actually paid to our PEO and the average compensation actually paid to our remaining NEOs for the relevant fiscal year, as determined under SEC rules (and described below), which includes the individuals indicated in the table below for each fiscal year:
Methodology, Assumptions and Estimates Used in Determining our Pay Ratio Disclosure
| Year | PEO | Non-PEO NEOs | | 2023 | Brian Mariotti and Michael Lunsford | Steve Nave, Andrew Perlmutter, Andrew Oddie, Tracy Daw, and Scott Yessner | | 2022 | Brian Mariotti and Andrew Perlmutter | Scott Yessner, Andrew Oddie, Tracy Daw, and Jennifer Fall Jung | | 2021 | Brian Mariotti | Andrew Perlmutter and Jennifer Fall Jung | | 2020 | Brian Mariotti | Andrew Perlmutter and Jennifer Fall Jung |
Methodology, Assumptions and Estimates Used in Determining our Pay Ratio Disclosure
Effective July 13, 2023, Mr. Mariotti ceased serving as our Chief Executive Officer, and Mr. Lunsford commenced serving as our Interim Chief Executive Officer. Effective February 27, 2023, Mr. Nave succeeded Mr. Yessner (who had been serving as the Company's Interim Chief Financial Officer) as Chief Financial Officer and Chief Operating Officer. Mr. Yessner did not receive any compensation other than a weekly flat fee of $38,000 paid to Tatum (as defined above) for his services as Interim Chief Financial Officer. Compensation actually paid to our NEOs represents the “Total” compensation reported in the Summary Compensation Table for the applicable fiscal year, as adjusted as follows:
Methodology, Assumptions and Estimates Used in Determining our Pay Ratio Disclosure
| | 2023 | | | | Adjustments | PEO (Lunsford) | PEO (Mariotti) | Average Non-PEO NEOs | | Deduction for Amounts Reported under the “Stock Awards” and “Option Awards” Columns in the Summary Compensation Table for Applicable FY | (1,113,927) | (1,113,149) | (790,553) | | Increase based on ASC 718 Fair Value of Awards Granted during Applicable FY that Remain Unvested as of Applicable FY End, determined as of Applicable FY End | 1,029,414 | — | 709,534 | | Increase based on ASC 718 Fair Value of Awards Granted during Applicable FY that Vested during Applicable FY, determined as of Vesting Date | — | 842,330 | — | | Increase/deduction for Awards Granted during Prior FY that were Outstanding and Unvested as of Applicable FY End, determined based on change in ASC 718 Fair Value from Prior FY End to Applicable FY End | — | — | (178,338) | | Increase/deduction for Awards Granted during Prior FY that Vested During Applicable FY, determined based on change in ASC 718 Fair Value from Prior FY End to Vesting Date | 5,879 | (2,799,310) | (220,561) | | Deduction of ASC 718 Fair Value of Awards Granted during Prior FY that were Forfeited during Applicable FY, determined as of Prior FY End | — | — | — | | TOTAL ADJUSTMENTS | (78,634) | (3,070,129) | (479,918) |
Methodology, Assumptions and Estimates Used in Determining our Pay Ratio Disclosure
The fair values of RSUs, PSUs, and stock options included in the compensation actually paid to our PEOs and the average compensation actually paid to our NEOs are calculated at the required measurement dates, consistent with the approach used to value the awards at the grant date as described in our Annual Report on Form 10-K for the year ended December 31, 2022. Any changes to the RSU and PSU fair values from the grant date (for current year grants) and from prior year-end (for prior year RSU grants) are based on our updated stock price at the respective measurement dates as well as updated performance metric projections (for PSUs). Changes to the stock option fair values are based on the updated stock price at the respective measurement dates, in addition to updated expected option term, peer volatility, and risk-free rate assumptions. For all years presented, the meaningful increases or decreases in the year-end stock option fair value from the fair value on the grant date were primarily driven by changes in the stock price. (2)For the relevant fiscal year, represents the cumulative TSR (the “Peer Group TSR”) of the Russell 2000 Consumer Discretionary Index (the “Peer Group”).I (3)Net Sales is a GAAP measure. The Company selected Net Sales as the Company-Selected Measure due to it being an important financial performance measure that helps link compensation actually paid to the Company’s NEOs to the Company’s performance for the most recently completed fiscal year. Specifically, Net Sales is used to evaluate performance under the 2022 Executive Incentive Plan, a short-term cash incentive plan under which participating employees are eligible to earn cash bonuses based on the Company’s achievement of Net Sales as well as several other Company and individual performance goals. Net Sales is also used as a performance metric in our long-term equity incentive program for our PSUs, which are eligible to be earned over a three-year performance period based on achievement of Net Sales and Adjusted EBITDA Margin targets. (4)Represent summary compensation and compensation actually paid to Mr. Mariotti, who reassumed the role of Chief Executive Officer effective December 5, 2022 until June 13, 2023. (5)Represents summary compensation and compensation actually paid to Mr. Perlmutter, who served as Chief Executive Officer from January 3, 2022 until December 5, 2022. (6)Represents summary compensation and compensation actually paid to Mr. Lunsford, who assumed the role of Interim Chief Executive Officer effective June 13, 2023.
Methodology, Assumptions and Estimates Used in Determining our Pay Ratio Disclosure
| NARRATIVE DISCLOSURE TO PAY VERSUS PERFORMANCE TABLE |
Pay Versus Performance Tabular List
Pay Versus Performance Tabular List We believe the following performance measures represent the most important financial performance measures used by us to link compensation actually paid to our NEOs for the fiscal year ended December 31, 2023: •Net Sales; •Adjusted EBITDA; and •Adjusted EBITDA Margin. For additional details regarding our most important financial performance measures, please see the sections titled “Elements of Compensation—Annual Performance-Based Cash Incentive Compensation” and “—Equity-Based Long-Term Incentive Awards”.
Pay Versus Performance Tabular List
| Security Ownership of Certain Beneficial Owners and Management |
Pay Versus Performance Tabular List
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 51,273,523 shares of Class A common stock and 2,276,132 shares of Class B common stock outstanding as of April 10, 2024. 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 10, 2024, 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.
Pay Versus Performance Tabular List
| | Shares of Class A Common Stock Beneficially Owned (1) | | Shares of Class B Common Stock Beneficially Owned | | Combined Voting Power (2) | | Name of beneficial owner | Number | Percentage | Number | Percentage | Percentage | | 5% Stockholders | | | | | | | TCG 3.0 Fuji, LP(3) | 12,528,171 | 26.5% | — | * | 23.4% | | Massachusetts Financial Services Company(4) | 2,938,799 | 5.7% | — | * | 5.5% | | Cooper Creek Partners Management LLC(5) | 3,638,044 | 7.1% | — | * | 6.8% | | Richard H. Pickup(6) | 3,922,045 | 7.6% | — | * | 7.3% | | Working Capital Partners, Ltd(7) | 7,129,838 | 13.9% | — | * | 13.3% | | Named Executive Officers and Directors | | | | | | | Michael Lunsford(8) | 32,989 | * | — | * | * | | Andrew Oddie(9) | 297,198 | * | 29,448 | * | * | | Tracy Daw(10) | 409,138 | * | 21,245 | * | * | | Brian Mariotti(11) | 619,630 | 1.2% | — | * | 1.2% | | Steve Nave(12) | 80,533 | * | | * | * | | Scott Yessner | — | * | — | * | * | | Andrew Perlmutter(13) | 1,337,172 | 2.6% | — | * | * | | Charles Denson(14) | 244,406 | * | 14,557 | * | * | | Trevor Edwards(15) | 4,742 | * | — | * | * | | Diane Irvine(16) | 91,691 | * | — | * | * | | Jesse Jacobs(17) | 7,612 | * | — | * | * | | Sarah Kirshbaum Levy(18) | 27,580 | * | — | * | * | | Michael Kerns | — | * | — | * | * | | All executive officers and directors as a group (11 individuals)(19) | 2,508,599 | 4.8% | 65,250 | 2.9% | 1.6% |
Pay Versus Performance Tabular List
*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, based on the applicable holder's ownership of Class A common stock and Class B common stock only (and not including any options or restricted stock units). 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) Based on a Schedule 13D filed on May 27, 2022. TCG 3.0 Fuji, LP (“Fuji”), TCG Capital Management, LP (“TCG Management”), TCG 3.0-A, LP (“TCG A”), TCG 3.0-B, LP (“TCG B”), TCG 3.0 Co-Invest, LP (“TCG Co-Invest”), and TCG 3.0 Fuji Co-Invest, LP (“Fuji Co-Invest” and collectively, “TCG”) have shared voting and dispositive power over 12,520,559 shares of Class A common stock. TCG A, TCG B, TCG Co-Invest and Fuji Co-Invest are referred to collectively as the “Partners.” Fuji directly owns 12,520,559 shares of Class A common stock. The Partners collectively own all of Fuji. TCG Management acts as investment manager for Fuji and the Partners. In addition, Jesse Jacobs holds 2,175 shares of Class A common stock and 5,437 options to purchase shares of Class A common stock that are currently vested for the benefit of TCG Management. The address for TCG is 12180 Millennium Drive, Suite 500, Playa Vista, CA 90094. (4) Based on a Schedule 13G filed on February 9, 2024. Massachusetts Financial Services Company (“MFS”) has sole voting and dispositive power with respect to 2,938,799 shares of Class A common stock. The address for MFS is 111 Huntington Avenue, Boston, MA 02199. (5) Based on a Schedule 13G/A filed on February 12, 2024. Cooper Creek Partners Management LLC has sole voting and dispositive power with respect to 3,638,044 shares of Class A common stock. The address of Cooper Creek Partners Management LLC is 501 Madison Avenue, Suite 302, New York, NY 10022. (6) Based on a Schedule 13G/A filed on February 13, 2023, Richard Pickup has sole voting and dispositive power with respect to 3,922,045 shares of Class A Common Stock, which consists of 21,750 shares owned directly by Mr. Pickup and held in an individual retirement account, 2,600,000 shares owned directly by RHP Trust, dated May 31, 2011, over which Mr. Pickup serves as sole Trustee thereof, 500,000 shares owned directly by Dito Caree LP, 500,000 shares owned directly by Dito Devcar LP, and 300,295 shares owned directly by D&D Community Property Trust, dated April 14, 2014. The address of Mr. Pickup is 1400 Newport Center Drive, Suite 230, Newport Beach, California 92660. (7) Based on information obtained from a Schedule 13G/A filed on February 13, 2024. Working Capital Partners, Ltd. (“Working Capital Fund”) has shared voting and dispositive power with respect to 3,819,001 shares of Class A common stock, High Street Partners, Ltd. (together with Working Capital Fund, the “Private Funds”) has shared voting and dispositive power with respect to 3,310,837 shares of Class A common stock, and each of Working Capital Advisors (UK) Ltd. (the "Investment Manager"), Working Capital Management Pte. Ltd. (the “Parent Company”) and Kenneth Chan has shared voting and dispositive power with respect to 7,129,838 shares of Class A common stock, respectively. Kenneth Chan is the sole owner of Parent Company, which is the sole owner of Investment Manager. Investment Manager is the investment manager of the Private Funds. The address of the Private Funds, Investment Manager, Parent Company and Kenneth Chan is Queripel House, Unit 2, 1 Duke of York Square, London SW3 4LY, United Kingdom. (8) Michael Lunsford has sole voting and dispositive power over 8,881 shares of Class A common stock and 24,108 options to purchase shares of Class A common stock that are currently vested. (9) Andrew Oddie has sole voting and dispositive power over 27,921 shares of Class A common stock, 29,448 common units of FAH, LLC, vested options to purchase 172,745 shares of Class A common stock, 31,546 restricted stock units that will vest within 60 days of April 10, 2024, and options to purchase 5,538 shares of Class A common stock that will vest within 60 days of April 10, 2024. (10) Tracy Daw has sole voting and dispositive power over 58,670 shares of Class A common stock, 73,485 common units of FAH, LLC, vested options to purchase 265,553 shares of Class A common stock, 7,510 restricted stock units that will vest within 60 days of April 10, 2024, and options to purchase 3,920 shares of Class A common stock that will vest within 60 days of April 10, 2024. (11) Based on information obtained from a Schedule 13G/A filed on February 23, 2024, Brian Mariotti has sole voting and dispositive power over 619,630 shares of Class A common stock. (12) Steve Nave has sole voting and dispositive power over 65,883 shares of Class A common stock and 14,650 options to purchase shares of Class A common stock that are currently vested. (13) Andrew Perlmutter has sole voting and dispositive power over 466,855 shares of Class A common stock, 261,177 common units of FAH, LLC, and vested options to purchase 609,140 shares of Class A common stock. (14) Charles Denson has sole voting and dispositive power over 203,081 shares of Class A common stock, including 14,300 shares of Class A common stock held by Fielding Road, LLC and 25,000 shares of Class A common stock held by Denson Investments, LLC, 29,115 common units of FAH, LLC that are currently vested, and 51,510 options to purchase shares of Class A common stock that are currently vested. (15) Trevor Edwards has sole voting and dispositive power over 1,342 shares of Class A common stock and 3,400 options to purchase shares of Class A common stock that are currently vested. (16) Diane Irvine has sole voting and dispositive power over 9,681 shares of Class A common stock and 82,010 options to purchase shares of Class A common stock that are currently vested. (17) Jesse Jacobs has sole voting and dispositive power over 2,175 shares of Class A common stock and 5,437 options to purchase shares of Class A common stock that are currently vested. Mr. Jacobs has entered into an arrangement with TCG pursuant to which he holds such restricted stock unit and option awards for the benefit of TCG. Mr. Jacobs disclaims any beneficial ownership, except to the extent of his pecuniary interest therein. (18) Sarah Kirshbaum Levy has sole voting and dispositive power over 8,581 shares of Class A common stock and 18,999 options to purchase shares of Class A common stock that are currently vested. (19) Includes 805,870 shares of Class A common stock, 393,225 common units of FAH, LLC, vested options to purchase 1,257,882 shares of Class A common stock, 40,232 restricted stock units that will vest within 60 days of April 10, 2024 and options to purchase 11,390 shares of Class A common stock that will vest within 60 days of April 10, 2024.
Pay Versus Performance Tabular List
| Certain Relationships and Related Person Transactions | | POLICIES AND PROCEDURES FOR RELATED PERSON TRANSACTIONS |
Pay Versus Performance Tabular List
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 transaction, 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, 2023. 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.
Pay Versus Performance Tabular List
| TAX RECEIVABLE AGREEMENT |
Pay Versus Performance Tabular List
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 and certain transferees of the Continuing Equity Owners that have been joined as parties to the Tax Receivable Agreement (the parties entitled to payments under the Tax Receivable Agreement are referred to herein as the “TRA Parties”) 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 TRA Parties 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 TRA Parties maintaining a continued ownership interest in FAH, LLC. If a TRA Party transfers common units of FAH, LLC but does not assign to the transferee of such units its rights under the Tax Receivable Agreement, such TRA Party 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 TRA Parties' 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 TRA Party’s interest therein. During the year ended December 31, 2023, we did not recognize Tax Receivable Agreement liabilities for payments due to the TRA Parties under the Tax Receivable Agreement. There were $4,000 of payments made pursuant to the Tax Receivable Agreement during the year ended December 31, 2023, all of which related to prior periods.
Pay Versus Performance Tabular List
| FAH LLC AGREEMENT |
Pay Versus Performance Tabular List
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. On May 3, 2022, we entered into a Stockholders Agreement with TCG . Pursuant to the Stockholders Agreement, TCG is entitled to designate up to two directors, apportioned among the classes, for as long as the TCG Related Parties beneficially own directly or indirectly, in the aggregate, at least 20% of our Class A common stock; and one director for as long as the TCG Related Parties beneficially own directly or indirectly, in the aggregate, less than 20% but at least 10% 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). The TCG Related Parties are not entitled to designate any director if at any time, the TCG Related Parties beneficially own directly or indirectly, in the aggregate less than 10% of all issued and outstanding shares of 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). Additionally, we are required to take all commercially reasonable action 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 each annual meeting of our stockholders at which a director’s term expires; and (3) the individuals designated in accordance with the terms of the Stockholders Agreement to fill the applicable vacancies on the Board. In addition, the Stockholders Agreement provides that for as long as the TCG Related Parties beneficially own directly or indirectly, in the aggregate, 22% 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 or enter into certain transactions (whether by merger, consolidation, or otherwise) without the prior written approval of TCG, including: •entering into any transaction or series of related transactions in which any person or group (other than the TCG Related Parties and any group that includes the TCG Related Parties) acquires, directly or indirectly, in excess of 50% of the then outstanding shares of any class of our or 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 us as the sole manager of FAH, LLC (or to add another person as co-manager of FAH, LLC); •the reorganization, 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 us as the sole manager of FAH, LLC, or the appointment of any additional person as a manager of FAH, LLC; •the creation of a new class or series of capital stock or other equity securities of us or, in the event such creation would materially and adversely impair the rights of the TCG Related Parties as holders of our Class A common stock, 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 other than (x) under any stock option or other equity compensation plan approved by our board of directors or the compensation committee, or (y) pursuant to the exercise or conversion of any options, warrants or other securities existing as of the date of the Stockholders Agreement or, in the event such creation would materially and adversely impair the rights of the TCG Related Parties as holders of our Class A common stock, equity securities of any of our subsidiaries; •any amendment or modification of our certificate of incorporation or bylaws or any similar organizational documents of any of our subsidiaries that would, in either case, materially and adversely impair the rights of the TCG Related Parties as holders of our Class A common stock; and •except to the extent of the express restrictions applicable to TCG and its controlled affiliates in the Stockholders Agreement, any action to adopt, approve or implement any plan, agreement or provision that would, among other things, negatively affect TCG’s or its controlled affiliates’ ability to continue to hold or acquire additional shares of our capital stock or other securities. The Stockholders Agreement will terminate upon the earliest to occur of (1) the TCG Related Parties cease to own any shares of our Class A common stock or other equity securities of the Company, (2) the TCG Related Parties no longer have any right to designate a director as set forth in the Stockholders Agreement, and (3) the unanimous written consent of the parties to the Stockholders Agreement.
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| REGISTRATION RIGHTS AGREEMENT |
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In connection with our IPO, we entered into a Registration Rights Agreement with the Original Equity Owners and we entered into a joinder and amendment to the Registration Rights Agreement with TCG on May 3, 2022. The Registration Rights Agreement, as amended, provides TCG with certain “demand” registration rights whereby TCG can require us to register under the Securities Act the offer and sale of shares of Class A common stock held by them. 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.
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| INDEMNIFICATION AGREEMENTS |
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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 |
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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, 2023, other than one Form 4 reporting one late transaction for Michael Lunsford.
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| Compensation Committee Interlocks and Insider Participation |
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During the fiscal year ended December 31, 2023, the members of our Compensation Committee were Sarah Kirshbaum Levy, Michael Lunsford (prior to his appointment as Interim Chief Executive Officer), Diane Irvine and Trevor Edwards. None of the members of our Compensation Committee is our current employee. During the fiscal year ended December 31, 2023, none of the relationships required to be disclosed by the rules of the SEC existed aside from those identified herein. 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.
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| Stockholders’ Proposals |
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Stockholders who intend to have a proposal considered for inclusion in our proxy materials for presentation at our 2025 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 25, 2024. Stockholders intending to present a proposal at the 2025 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 less than 90 nor more than 120 days prior to the one-year anniversary of the preceding year’s annual meeting. Therefore, we must receive notice of such a proposal or nomination for the 2025 Annual Meeting of Stockholders no earlier than February 4, 2025 and no later than March 6, 2025. The notice must contain the information required by the Amended and Restated Bylaws. In the event that the date of the 2025 Annual Meeting of Stockholders is more than 30 days before or more than 60 days after June 4, 2025, then our Secretary must receive such written notice not more than the 120th day prior to the 2025 Annual Meeting of Stockholders and not later than the 90th day prior to the 2025 Annual Meeting of Stockholders or, if later, the 10th day following the day on which public disclosure of the date of such meeting is first made by us. In addition to satisfying the foregoing requirements under our Amended and Restated Bylaws, to comply with the universal proxy rules, stockholders who intend to solicit proxies in support of director nominees other than our nominees for the 2025 Annual Meeting of Stockholders must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act.
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| Other Matters |
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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.
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| Solicitation of Proxies |
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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. Stockholders may obtain our proxy statement (and any amendments and supplements thereto) and other documents as and when filed with the SEC without charge from the SEC’s website at: www.sec.gov.
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| Funko’s Annual Report on Form 10-K |
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A copy of Funko’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, including financial statements and schedules but not including exhibits, as filed with the SEC, will be sent to any stockholder of record on April 10, 2024 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, 2023 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, Chief Legal Officer and Secretary Everett, Washington