Securities Exchange Act of 1934
☐ | Preliminary Proxy Statement | |||||
☐ | Confidential, for Use of the Commission Only (as permitted byRule 14a-6(e)(2)) | |||||
☒ | Definitive Proxy Statement | |||||
☐ | Definitive Additional Materials | |||||
☐ | Soliciting Material Pursuant to |
☒ | No fee required. | ||||||||||
☐ | Fee computed on table below per Exchange ActRules 14a-6(i)(1) and0-11. | ||||||||||
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☐ | Check box if any part of the fee is offset as provided by Exchange ActRule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | ||||||||||
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4th, 2021
20, 2021
audio of the entire Annual Meeting will be available on Funko’s Investor Relations website after the meeting. For further information on how to participate in the meeting, please see “Questions and Answers about the 2021 Annual Meeting of Stockholders” in the accompanying proxy statement.
4th, 2021
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In connection with the closing of our initial public offering of our Class A common stock in November 2017 (the “IPO”), we effected certain organizational transactions which we refer to as the “Transactions”.
•“we,” “us,” “our,” the “Company,” “Funko” and similar references refer: (1) following November 1, 2017,the consummation of the Transactions, to Funko, Inc., and unless otherwise stated, all of its direct and indirect subsidiaries, including FAH, LLC and unless otherwise stated, all of its subsidiaries, and (2) prior to November 1, 2017,the completion of the Transactions, to FAH, LLC and, unless otherwise stated, all of its subsidiaries.
•“ACON” refers to ACON Funko Investors, L.L.C., a Delaware limited liability company, and certain funds affiliated with ACON Funko Investors, L.L.C. (including any such fund or entity formed to hold shares of Class A common stock for the Former Equity Owners).
•“Continuing Equity Owners” refers collectively to ACON, Fundamental, the Former Profits Interests Holders, the Warrant Holderscertain former warrant holders and certain current and former executive officers, employees and directors and each of their permitted transferees that owned common units in FAH, LLC after the Transactions and who may redeem at each of their options (subject in certain circumstances to time-based vesting requirements) their common units for, at our election, (determined solely by our independent directors (within the meaning of the rules of the Nasdaq) who are disinterested), cash or newly-issued shares of ourFunko, Inc.'s Class A common stock.
•“FAH LLC” refers to Funko Acquisition Holdings, L.L.C, a Delaware limited liability company.
•“FAH LLC Agreement” refers to FAH, LLC’s second amended and restated limited liability company agreement, which became effective on November 1, 2017.
“FHL” refersas amended from time to Funko Holdings LLC, a Delaware limited liability company.
•“Former Equity Owners” refers to those Original Equity Owners affiliated with ACON who transferred their indirect ownership interests in common units of FAH, LLC for shares of ourFunko, Inc. Class A common stock (to be held by them either directly or indirectly) in connection with the consummation of the Transactions.
•“Former Profits Interests Holders” refers collectively to certain of our directors and certain current executive officers and employees, in each case, who, prior to the consummation of the Transactions, held existing vested and unvested profits interests in FAH, LLC pursuant to FAH, LLC’s existingprior equity incentive plan and who received common units of FAH, LLC in exchange for their profits interests (subject to any common units received in exchange for unvested profits interests remaining subject to their existing time-based vesting requirements) in connection with the Transactions.
•“Fundamental” refers collectively to Fundamental Capital, LLC and Funko International, LLC.
•“Original Equity Owners” refers to the owners of ownership interests in FAH, LLC, collectively, prior to the Transactions, which include ACON, Fundamental, the Former Profits Interests Holders and certain current and former executive officers, employees and directors.
“Warrant Holders”•"Tax Receivable Agreement" refers to lenders under our senior secured credit facilities that formerly held warrants to purchase ownership interests ina tax receivable agreement entered into between Funko, Inc., FAH, LLC which converted into common unitsand each of FAH, LLCthe Continuing Equity Owners as part of the Transactions.
Proxy Statement
Proxy Statement |
4, 2021
DIRECTIONS TO THE ANNUAL MEETING
Directions to the Annual Meeting are available by calling (425)
PROPOSALS |
➊ | To elect | |||||
➋ | To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, | |||||
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| To transact such other business as may properly come before the Annual Meeting or any continuation, postponement, or adjournment of the Annual Meeting. |
RECOMMENDATIONS OF THE BOARD |
➊ | FOR the election of | |||||
➋ | FOR the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, |
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INFORMATION ABOUT THIS PROXY STATEMENT
ContentsWHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?
Questions and Answers about the 2021 Annual Meeting of Stockholders | ||
WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING? |
WHAT IS THE DIFFERENCE BETWEEN BEING A “RECORD HOLDER” AND HOLDING SHARES IN “STREET NAME”?
WHAT IS THE DIFFERENCE BETWEEN BEING A “RECORD HOLDER” AND HOLDING SHARES IN “STREET NAME”? |
AM I ENTITLED TO VOTE IF MY SHARES ARE HELD IN “STREET NAME”?
AM I ENTITLED TO VOTE IF MY SHARES ARE HELD IN “STREET NAME”? |
HOW MANY SHARES MUST BE PRESENT TO HOLD THE ANNUAL MEETING? |
WHO CAN ATTEND THE 2021 ANNUAL MEETING OF STOCKHOLDERS? |
ContentsWHAT IF A QUORUM IS NOT PRESENT AT THE ANNUAL MEETING?
WHAT IF A QUORUM IS NOT PRESENT AT THE ANNUAL MEETING? |
Questions and Answers about the 2019 Annual Meeting of Stockholders
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE INTERNET NOTICE OR MORE THAN ONE SET OF PROXY MATERIALS?
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE INTERNET NOTICE OR MORE THAN ONE SET OF PROXY MATERIALS? |
HOW DO I VOTE? |
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•by Internet—You can vote over the Internet at www.proxyvote.com by following the instructions on the Internet Notice or proxy card;
•by Mail—You can vote by mail by signing, dating and mailing the proxy card, which you may have received by mail.
3, 2021.
CAN I CHANGE MY VOTE AFTER I SUBMIT MY PROXY?
materials.
CAN I CHANGE MY VOTE AFTER I SUBMIT MY PROXY? |
•by submitting a duly executed proxy bearing a later date;
•by granting a subsequent proxy through the Internet or telephone;
•by giving written notice of revocation to the Secretary of Funko prior to the Annual Meeting; or
by voting in person at the Annual Meeting.
Your most recent proxy card or Internet or telephone proxy is the one that is counted. Your attendance at the Annual Meeting by itself will not revoke your proxy unless you give written notice of revocation to the Secretary before your proxy is voted or you vote in personelectronically at the Annual Meeting.
Questions and Answers about the 2019 Annual Meeting
WHO WILL COUNT THE VOTES? |
WHAT IF I DO NOT SPECIFY HOW MY SHARES ARE TO BE VOTED? |
WILL ANY OTHER BUSINESS BE CONDUCTED AT THE ANNUAL MEETING? |
HOW MANY VOTES ARE REQUIRED FOR THE APPROVAL OF THE PROPOSALS TO BE VOTED UPON AND HOW WILL ABSTENTIONS AND BROKER
HOW MANY VOTES ARE REQUIRED FOR THE APPROVAL OF THE PROPOSALS TO BE VOTED UPON AND HOW WILL ABSTENTIONS AND BROKER NON-VOTES BE TREATED? |
Proposal | Votes required | Effect of Votes Withheld /Abstentions and BrokerNon-Votes | ||||||||
Proposal | The plurality of the votes cast. This means that the | Votes withheld and brokernon-votes will have no effect. | ||||||||
Proposal | The affirmative vote of the holders of a majority in voting power of the shares of Common Stock of the Company which are present | Abstentions will have the same effect as votes against the proposal. We do not expect any brokernon-votes on this proposal. |
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WHAT IS AN ABSTENTION AND HOW WILL VOTES WITHHELD AND ABSTENTIONS BE TREATED?
Questions and Answers about the 2019 Annual Meeting of Stockholders
WHAT ARE BROKERNON-VOTES AND DO THEY COUNT FOR DETERMINING A QUORUM?
WHAT ARE BROKER NON-VOTES AND DO THEY COUNT FOR DETERMINING A QUORUM? |
WHY HOLD A VIRTUAL MEETING? |
WHAT IF DURING THE CHECK-IN TIME OR DURING THE ANNUAL MEETING I HAVE TECHNICAL DIFFICULTIES OR TROUBLE ACCESSING THE VIRTUAL MEETING WEBSITE? |
WILL THERE BE A QUESTION AND ANSWER SESSION DURING THE ANNUAL MEETING? |
limited to no more than two questions. Questions should be succinct and only cover a single topic. We will not address questions that are, among other things:
WHERE CAN I FIND THE VOTING RESULTS OF THE 2021 ANNUAL MEETING OF STOCKHOLDERS? |
PROPOSAL 1: Election of Directors
PROPOSAL 1: Election of Directors |
Sarah Kirshbaum Levy.
VOTE REQUIRED |
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The Board of Directors unanimously recommends a vote FOR the election of the below Class | |||||
Proposal 1: Election
CLASS I DIRECTOR NOMINEES (TERMS TO EXPIRE AT THE 2024 ANNUAL MEETING) |
Name | Age | Served as a Director Since | Positions with Funko | |||
Gino Dellomo | 40 | 2017 | Director | |||
Michael Lunsford | 51 | 2018 | Director |
The principal occupations and business experience, for at least the past five years, of each Class II Director nominee are as follows:
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Gino Dellomo has served on the Board of Directors of Funko, Inc. since its formation in April 2017, and on the board of directors of FAH, LLC since October 2015. Mr. Dellomo is a Director at ACON Investments L.L.C. (“ACON Investments”), which he joined in October 2006. Since October 2006, he has also served on the board of directors of various ACON Investments portfolio companies. Between 2001 and 2006, Mr. Dellomo held various positions at various investment banks, including Deutsche Bank Securities, Inc., FBR Capital Markets & Co. and MCG Capital Corp. Mr. Dellomo received a B.S. in Finance from Georgetown University. We believe Mr. Dellomo’s private equity investment and company oversight experience and background with respect to acquisitions, debt financings and equity financings makes him well-qualified to serve as a member of our Board of Directors.
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Michael Lunsford has served on the board of directors of Funko, Inc. since October 2018. Mr. Lunsford has served as an advisor to McClatchy, Inc. since November 2017. Mr. Lunsford previously served as the Chief Executive Officer of SK Planet, Inc., an internet platform development company, from September 2014 until August 2018 and as interim Chief Executive Officer of shopkick, Inc., ane-commerce business, in 2016. From January 2008 to May 2013, Mr. Lunsford held various management roles with RealNetworks, Inc., a provider of internet streaming media delivery software and services, including interim Chief Executive Officer and Executive Vice President and General Manager of RealNetworks’ Core Business and Chief Executive Officer of Rhapsody. Mr. Lunsford also served on the board of directors of shopkick, Inc. from 2013 to 2018, and on the boards of directors of various portfolio companies owned by SK Planet, Inc. from 2013 to 2018. Since 2014, Mr. Lunsford has served on the board of directors of the University of North Carolina Board of Visitors and IslandWood. Mr. Lunsford received an M.B.A. and a B.A. in Economics from The University of North Carolina. We believe Mr. Lunsford’s broad management, retail ande-commerce experience make him well-qualified to serve on our board of directors.
CONTINUING MEMBERS OF THE BOARD OF DIRECTORS:
CLASS I DIRECTORS (TERMS TO EXPIRE AT THE 2021 ANNUAL MEETING)
The current members of the Board who are Class I Directors are as follows:
Name | Age | Served as a Director Since | Positions with Funko | |||
Charles Denson | 62 | 2017 | Director | |||
Adam Kriger | 52 | 2017 | Director | |||
Brian Mariotti | 51 | 2017 | Chief Executive Officer, Director |
Proposal 1: Election of Directors
Name Age Served as a Director Since Positions with Funko Charles Denson 64 2017 Director Adam Kriger 54 2017 Director Brian Mariotti 53 2017 Chief Executive Officer, Director
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CLASS III DIRECTORS (TERMS TO EXPIRE AT THE 2020 ANNUAL MEETING)
CONTINUING MEMBERS OF THE BOARD OF DIRECTORS: CLASS II DIRECTORS (TERMS TO EXPIRE AT THE 2022 ANNUAL MEETING) |
Name | Age | Served as a Director Since | Positions with Funko | |||
Ken Brotman | 53 | 2017 | Chairman of the Board | |||
Diane Irvine | 60 | 2017 | Director |
Proposal 1: Election of Directors
Name Age Served as a Director Since Positions with Funko Gino Dellomo 42 2017 Director Michael Lunsford 53 2018 Director
Gino Dellomo | Age 42 |
Michael Lunsford | Age 53 |
CONTINUING MEMBERS OF THE BOARD OF DIRECTORS: CLASS III DIRECTORS (TERMS TO EXPIRE AT THE 2023 ANNUAL MEETING) |
Name | Age | Served as a Director Since | Positions with Funko | ||||||||
Ken Brotman | 55 | 2017 | Chairman of the Board | ||||||||
Diane Irvine | 62 | 2017 | Director | ||||||||
Sarah Kirshbaum Levy | 50 | 2019 | Director |
| Age |
| Age |
Sarah Kirshbaum Levy | Age 50 |
PROPOSAL 2: Ratification of Appointment of Independent Registered Public Accounting Firm |
VOTE REQUIRED |
RECOMMENDATION OF THE BOARD OF DIRECTORS |
The Board of Directors unanimously recommends a vote FOR the Ratification of the Appointment of Ernst & Young LLP as our Independent Registered Public Accounting Firm. |
Report of the Audit Committee of the Board of Directors |
and Securities and Exchange Commission.
2020.
Charles Denson
Sarah Kirshbaum Levy
Independent Registered Public Accounting Firm Fees and Other Matters |
Fee Category | Fiscal 2018 | Fiscal 2017 | ||||||
Audit Fees | $ | 1,365,529 | $ | 1,993,161 | ||||
Audit-Related Fees | 12,600 | 86,825 | ||||||
Tax Fees | 139,500 | 419,359 | ||||||
All Other Fees | 1,980 | 1,995 | ||||||
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Total Fees | $ | 1,519,609 | $ | 2,501,340 | ||||
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Fee Category | Fiscal 2020 | Fiscal 2019 | ||||||
Audit Fees | $ | 1,158,318 | $ | 2,153,132 | ||||
Audit-Related Fees | — | — | ||||||
Tax Fees | 218,985 | 178,558 | ||||||
All Other Fees | 970 | 7,440 | ||||||
Total Fees | $ | 1,378,273 | $ | 2,339,130 |
AUDIT FEES |
internal investigation of the underpayment of certain duties owed to U.S. Customs and Border Protection.
AUDIT-RELATED FEES |
TAX FEES |
ALL OTHER FEES |
2019.
AUDIT COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES |
Independent Registered Public Accounting Firm Fees and Other Matters
Committee will also consider whether the independent auditor is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with the Company’s business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance the Company’s ability to manage or control risk or improve audit quality. All such factors will be considered as a whole, and no one factor should necessarily be determinative. On an annual basis, the Audit Committee reviews and generallypre-approves any services (and related fee levels or budgeted amounts) that may be provided by Ernst & Young LLP without first obtaining specific preapproval from the Audit Committee or the Chair of the Audit Committee. The Audit Committee may revise the list of generalpre-approved services from time to time, based on subsequent determinations. All services to the Company provided by Ernst & Young LLP in each of 20182020 and 20172019 were approved in accordance with the Pre-Approval Policy.
PROPOSAL 3: ApprovalTable of the Funko, Inc. 2019 Incentive Award Plan
We are asking you to approve the Funko, Inc. 2019 Incentive Award Plan (the “2019 Plan”). On the recommendation of our Compensation Committee, our Board has approved the 2019 Plan and recommends approval by our stockholders. The 2019 Plan supplements our existing 2015 Option Plan and 2017 Plan, which were implemented prior to our initial public offering, and which will remain in effect in accordance with their terms.
The Board considers equity compensation to be an important component of ourContents
An initial pool of 3,000,000 shares of our common stock will be authorized for issuance under our 2019 Plan, and this amount will be subject to increase each year during the term of the 2019 Plan as described in the “Limitation on Awards and Shares Available”section,below. The 2019 Plan will remain in place through the tenth anniversary of adoption of the 2019 Plan by our Board. The Compensation Committee and the Board considered that the shares of our common stock available under the 2017 Plan may not be sufficient to cover future equity awards in the near term. The 2019 Plan is intended to provide us with the continuing ability to grant equity awards to our eligible employees, directors and consultants for the
Stockholder approval of the 2019 Plan is necessary in order for Funko to (1) meet the Nasdaq stockholder approval requirements, and (2) be permitted to grant incentive stock options (“ISOs”) under the 2019 Plan. Shares of our common stock issued under the 2019 Plan may consist of authorized but unissued shares, treasury shares or shares purchased on the open market. As of April 22, 2019, the closing price of our common stock as reported on the Nasdaq was $18.54 per share.
The principal features of the 2019 Plan are summarized below. The entire text of the 2019 Plan is set forth on Exhibit A.
Highlights of the 2019 Plan
The 2019 Plan allows Funko to grant cash and equity-based incentive awards to employees, consultants and directors of Funko and any of its parents and subsidiaries as incentives and rewards for superior performance. Some of the key features of the 2019 Plan that reflect Funko’s commitment to effective management of incentive compensation are as follows:
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Proposal 3: Approval of the Funko, Inc. 2019 Incentive Award Plan
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Administration
The 2019 Plan will generally be administered by the Compensation Committee. However, the Compensation Committee may delegate to a committee of one or more members of the Board or one or more of Funko’s officers the authority to grant or amend awards to participants other than Funko’s senior executives who are subject to Section 16 of the Exchange Act. Unless otherwise determined by the Board, the Compensation Committee shall consist of one or more directors and/or officers of the Companyappointed by and holding office at the pleasure of our Board, each of whom is anon-employee director within the meaning of Rule16b-3 under the Securities Exchange Act of 1934, as amended, and an “independent director” under the rules of the Nasdaq (or other principal securities market on which shares of Funko common stock are traded), to the extent required by Rule16b-3 and applicable law. In addition, the full Board will administer the 2019 Plan with respect to awards made tonon-employee directors. The Compensation Committee and the Board, as applicable, are sometimes referred to herein as the “Administrator.”
Eligibility
Persons eligible to participate in the 2019 Plan include allnon-employee members of the Board, consisting of six directors following the 2019 Annual Meeting of Stockholders and approximately 702 employees of Funko and its parents and subsidiaries, as determined by the Administrator.
Limitation on Awards and Shares Available
The maximum number of shares of Funko common stock available for issuance under the 2019 Plan is equal to the sum of (i) 3,000,000, and (ii) an annual increase on the first day of each year beginning in 2020 and ending in and including 2029, equal to the lesser of (A) 2% of the outstanding shares on the last day of the immediately preceding fiscal year and (B) such lesser amount as determined by our Board, provided, however, no more than 3,000,000 shares may be issued upon the exercise of ISOs. The shares may be authorized but unissued shares, treasury shares or shares purchased in the open market.
If any shares subject to an award under the 2019 Plan are forfeited or expire or an award under the 2019 Plan is settled for cash, then any shares subject to such award may, to the extent of such forfeiture, expiration or cash settlement, be used again for new grants under the 2019 Plan. However, any shares tendered or withheld to satisfy the grant or exercise price or tax withholding obligation pursuant to any award, shares subject to a SAR, that are not issued in connection with the stock settlement of the SAR or its exercise, and any shares purchased on the open market with the cash proceeds from the exercise of options, under the 2019 Plan, may not be used again for new grants.
Awards granted under the 2019 Plan upon the assumption of, or in substitution for, outstanding equity awards previously granted by an entity in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock (“Substitute Awards”) will not reduce the shares authorized for grant under the 2019 Plan.
Proposal 3: Approval of the Funko, Inc. 2019 Incentive Award Plan
The maximum grant date fair value of awards granted to anynon-employee director pursuant to the 2019 Plan during any calendar year is $600,000.
Awards
The 2019 Plan provides for the grant of stock options, including ISOs, and nonqualified stock options (“NSOs”), restricted stock, dividend equivalents, stock payments, restricted stock units, or RSUs, other incentive awards, SARs, and cash awards. No determination has been made as to the types or amounts of awards that will be granted to certain individuals pursuant to the 2019 Plan. Certain awards under the 2019 Plan may constitute or provide for a deferral of compensation, subject to Section 409A of the Code, which may impose additional requirements on the terms and conditions of such awards. All awards under the 2019 Plan will be set forth in award agreements, which will detail all terms and conditions of the awards, including any applicable vesting and payment terms and post-termination exercise limitations. Awards other than cash awards generally will be settled in shares of Funko common stock, but the Administrator may provide for cash settlement of any award. A brief description of each award type follows.
Stock Options and SARs. Stock options provide for the purchase of shares of Funko common stock in the future at an exercise price set on the grant date. ISOs, by contrast to NSOs, may provide tax deferral beyond exercise and favorable capital gains tax treatment to their holders if certain holding period and other requirements of the Code are satisfied. SARs entitle their holder, upon exercise, to receive from us an amount equal to the appreciation of the shares subject to the award between the grant date and the exercise date. The exercise price of all stock options and SARs (other than with respect to certain substitute SARs granted in connection with a corporate transaction) granted pursuant to the 2019 Plan will not be less than 100% of the fair market value of Funko common stock on the date of grant. Stock options and SARs may be exercised as determined by the Administrator, but in no event may have a term extending beyond the tenth anniversary of the date of grant. ISOs granted to any person who owns, as of the date of grant, stock possessing more than ten percent of the total combined voting power of all classes of Funko stock, however, shall have an exercise price that is not less than 110% of the fair market value of Funko common stock on the date of grant and may not have a term extending beyond the fifth anniversary of the date of grant. The aggregate fair market value of the shares with respect to which options intended to be ISOs are exercisable for the first time by an employee in any calendar year may not exceed $100,000.
Restricted Stock and RSUs. Restricted stock is an award of nontransferable shares of Funko common stock that remain forfeitable unless and until specified conditions are met, and which may be subject to a purchase price. RSUs are contractual promises to deliver shares of Funko common stock in the future, which may also remain forfeitable unless and until specified conditions are met. Delivery of the shares underlying RSUs may be deferred under the terms of the award or at the election of the participant, if the Administrator permits such a deferral.
Other Incentive Awards. Stock payments are awards of fully vested shares of Funko common stock that may, but need not, be made in lieu of base salary, bonus, fees or other cash compensation otherwise payable to any individual who is eligible to receive awards. Other incentive awards are awards other than those enumerated in this summary that are denominated in, linked to or derived from shares of Funko common stock or value metrics related to our shares, and may remain forfeitable unless and until specified conditions are met. Cash awards are cash incentive bonuses subject to performance goals.Dividend equivalents represent the right to receive the equivalent value of dividends paid on shares of Funko common stock and may be granted alone or in tandem with awards other than stock options or SARs. Dividend equivalents are credited as of dividend record dates during the period between the date an award is granted and the date such award vests, is exercised, is distributed or expires, as determined by the Administrator.
Proposal 3: Approval of the Funko, Inc. 2019 Incentive Award Plan
Vesting
Vesting conditions determined by the Administrator may apply to each award and may include continued service, performance and/or other conditions. Unless determined otherwise by the Company, in the event that on the last business day of the term of an option or SAR (other than an ISO) (a) the exercise of the option or SAR is prohibited by applicable law, as determined by the Company, or (b) shares may not be purchased or sold by the applicable participant due to any Company insider trading policy (including blackout periods) or a“lock-up” agreement undertaken in connection with an issuance of securities by Funko, the term of the option or SAR shall be extended until the date that is thirty (30) days after the end of the legal prohibition,black-out period orlock-up agreement, as determined by the Company; provided, however, in no event shall the extension last beyond the ten year term of the applicable option or SAR.
Certain Transactions
The Administrator has broad discretion to take action under the 2019 Plan, as well as make adjustments to the terms and conditions of existing and future awards, to prevent the dilution or enlargement of intended benefits and facilitate necessary or desirable changes in the event of certain transactions and events affecting Funko common stock, such as stock dividends, stock splits, mergers, acquisitions, consolidations and other corporate transactions. In addition, in the event of certainnon-reciprocal transactions with our stockholders known as “equity restructurings,” the Administrator will make equitable adjustments to the 2019 Plan and outstanding awards. In the event of a change in control of the Company (as defined in the 2019 Plan), to the extent that the surviving entity declines to continue, convert, assume or replace outstanding awards, then all such awards will become fully vested and exercisable in connection with the transaction. Upon or in anticipation of a change in control, the Administrator may cause any outstanding awards to terminate at a specified time in the future and give the participant the right to exercise such awards during a period of time determined by the Administrator in its sole discretion. In the event a participant’s service is terminated upon or within the12-month period following a change in control, the outstanding equity awards held by such participant will immediately and fully vest and become exercisable, as applicable. Individual award agreements may provide for additional accelerated vesting and payment provisions.
Except as otherwise determined by the Administrator, in the event a participant’s service is terminated during the applicable restriction period and such participant holds an award of restricted stock, then (i) if such participant paid no price for the restricted stock award, the unvested portion of such restricted stock award shall be forfeited and cancelled for no consideration on the participant’s date of termination, or (ii) if such participant paid a price for the restricted stock award, then Funko will have the right to repurchase the unvested portion of such restricted stock award at a cash price per share equal to the price paid by the participant for such restricted stock award or such other amount as may be specified in the applicable award agreement or restricted stock program adopted by the Administrator.
Foreign Participants, Claw-Back Provisions, Transferability, and Participant Payments
The Administrator may modify award terms, establish subplans and/or adjust other terms and conditions of awards, subject to the share limits described above, in order to facilitate grants of awards subject to the laws and/or stock exchange rules of countries outside of the United States. All awards will be subject to the provisions of any claw-back policy implemented by us to the extent set forth in such claw-back policy and/or in the applicable award agreement. With limited exceptions for estate planning, domestic relations orders, certain beneficiary designations and the laws of descent and distribution, awards under the 2019 Plan are generallynon-transferable prior to vesting, and are exercisable only by the participant. With regard to tax withholding, exercise price and purchase price obligations arising in connection with awards under the 2019 Plan, the plan administrator may, in its discretion, accept cash or check, shares of our common stock that meet specified conditions, a “market sell order” or such other consideration as it deems suitable.
Proposal 3: Approval of the Funko, Inc. 2019 Incentive Award Plan
Plan Amendment and Termination
Our board of directors may amend or terminate the 2019 Plan at any time; however, except in connection with certain changes in our capital structure, stockholder approval will be required for any amendment that increases the number of shares available under the 2019 Plan, “reprices” any stock option or SAR, or cancels any stock option or SAR in exchange for cash or another award when the option or SAR price per share exceeds the fair market value of the underlying shares. No award may be granted pursuant to the 2019 Plan after the tenth anniversary of the date on which our board of directors adopts the 2019 Plan.
Federal Income Tax Consequences
This discussion regarding federal tax consequences is intended for the general information of our shareholders, not participants in the 2019 Plan. State and local income taxes are not discussed, and may vary depending on individual circumstances and from locality to locality.
Section 162(m) of the Code denies a deduction to any publicly held corporation for compensation paid to certain “covered employees” in a taxable year to the extent that compensation to such covered employee exceeds $1 million. It is possible that compensation attributable to awards under the 2019 Plan, when combined with all other types of compensation received by a covered employee from us, may cause this limitation to be exceeded in any particular year.
Certain awards under the 2019 Plan may be considered “nonqualified deferred compensation” subject to Section 409A of the Code, which imposes additional requirements on the payment of deferred compensation. Generally, if at any time during a taxable year a nonqualified deferred compensation plan fails to meet the requirements of Section 409A of the Code or is not operated in accordance with those requirements, all amounts deferred under the nonqualified deferred compensation plan for the current taxable year and all preceding taxable years, by or for any participant with respect to whom the failure relates, are includible in the gross income of the participant for the taxable year to the extent not subject to a substantial risk of forfeiture and not previously included in gross income. If a deferred amount is required to be included in income under Section 409A of the Code, the amount will be subject to income tax at regular income tax rates plus an additional 20 percent tax, as well as potential premium interest tax.
Stock Options. With respect to nonqualified stock options, Funko is generally entitled to deduct and the optionee recognizes taxable income in an amount equal to the difference between the option exercise price and the fair market value of the shares at the time of exercise. A participant receiving ISOs will not recognize taxable income upon grant. Additionally, if applicable holding period requirements are met, the participant will not recognize taxable income at the time of exercise. However, the excess of the fair market value of Funko common stock received over the option price is an item of tax preference income potentially subject to the alternative minimum tax. If stock acquired upon exercise of an ISO is held for a minimum of two years from the date of grant and one year from the date of exercise, the gain or loss (in an amount equal to the difference between the fair market value on the date of sale and the exercise price) upon disposition of the stock will be treated as a long-term capital gain or loss, and we will not be entitled to any deduction. If the holding period requirements are not met, the ISO will be treated as one that does not meet the requirements of the Code for ISOs and the tax consequences described for nonqualified stock options will apply.
SARs. An awardee of SARs realizes no taxable income at the time of receipt of a SAR. Upon exercise, the fair market value of the shares (or cash in lieu of shares) received is taxable as ordinary income in the year of the SAR’s exercise. We are entitled to a deduction for compensation paid in the same amount that the awardee realizes as ordinary income.
Proposal 3: Approval of the Funko, Inc. 2019 Incentive Award Plan
Restricted Stock. Unless an election is made under Section 83(b) of the Code, an awardee of restricted stock does not have taxable income upon receipt of restricted stock and we are not entitled to a deduction upon issuance. However, when the restrictions lapse such that the shares are no longer subject to forfeiture or, if applicable, repurchase by us, the recipient realizes ordinary income and we are entitled to a deduction in an amount equal to the fair market value of the shares at the date such restrictions lapse, less the purchase price thereof. If an election is made under Section 83(b), the awardee realizes ordinary income at the date of issuance equal to the difference between the fair market value of the shares at that date less the purchase price thereof and we are entitled to a deduction in the same amount.
RSUs. An awardee of RSUs does not realize taxable income until he or she receives shares or cash pursuant to the award, at which time the awardee realizes ordinary income equal to the full fair market value of the shares delivered or the amount of cash paid. At that time, we are allowed a corresponding tax deduction equal to the compensation taxable to the recipient, subject to any other Code restrictions.
Stock Payments. An awardee of a stock payment in lieu of a cash payment that would otherwise have been made is taxed as if the cash payment has been received, and we have a deduction in the same amount.
Dividend Equivalents. An awardee of dividend equivalents does not realize taxable income at the time of grant, and we are not entitled to a deduction at that time. When a dividend equivalent is paid, the awardee recognizes ordinary income and we are entitled to a corresponding deduction.
New Plan Benefits
It is not possible at this time to determine the benefits or amounts of awards that will be made in the future under the 2019 Plan.
Interest of Certain Persons in the 2019 Plan
Stockholders should understand that Funko’s executive officers andnon-employee directors may be considered to have an interest in the approval of the 2019 Plan because they may in the future receive awards under it. Nevertheless, our board of directors believes that it is important to provide incentives and rewards for superior performance and the retention of experienced directors by implementing the 2019 Plan.
Equity Compensation Plan Information
The following table provides information for the year ended December 31, 2018 regarding compensation plans under which our equity securities were authorized for issuance:
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | |||||||||
Equity compensation plans approved by stockholders | 2,056,755 | (3) | ||||||||||
Options | 2,340,229 | (1) | $ | 12.80 | (2) | |||||||
Restricted Stock Units | 1,673,885 | (1) | ||||||||||
Equity compensation plans not approved by stockholders | — | — | — | |||||||||
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Total | 4,014,114 | $ | 12.80 | 2,056,755 | ||||||||
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Proposal 3: Approval of the Funko, Inc. 2019 Incentive Award Plan
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This proposal requires the approval of the affirmative vote of the holders of a majority in voting power of the shares of Common Stock of the Company which are present in person or by proxy and entitled to vote thereon. Abstentions will have the same effect as votes against the proposal. Brokernon-votes will have no effect on the outcome of this proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
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EXECUTIVE OFFICERS |
Name | Age | |||||||||
Brian Mariotti | 53 | Chief Executive Officer and Director | ||||||||
Jennifer Fall Jung (2) | 50 | Chief Financial Officer | ||||||||
Andrew Perlmutter | 43 | President | ||||||||
Tracy Daw | 55 | Senior Vice President, General Counsel and Secretary |
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Corporate |
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Our Board has adopted Corporate Governance Guidelines, a Code of Business Conduct and Ethics and charters for our Nominating and Corporate Governance Committee, Audit Committee and Compensation Committee to assist the Board in the exercise of its responsibilities and to serve as a framework for the effective governance of Funko. You can access our current committee charters, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics in the “Governance” section of the “Investor Relations” page of our website located atwww.funko.com, or by writing to our Secretary at our offices at 2802 Wetmore Avenue, Everett, Washington 98201.
BOARD COMPOSITION |
STOCKHOLDERS AGREEMENT |
DIRECTOR INDEPENDENCE |
Corporate Governance
Investments, affiliates of which own approximately 48.0%39.7% of our combined voting power as of April 22, 2019.9, 2021. However, the Board determined that this relationship does not impair the independence of Mr. Brotman, Mr. Dellomo and Mr. Kriger under the Nasdaq Rules.
Pursuant to the termsTable of the Stockholders Agreement, ACON, Fundamental and Brian Mariotti, in the aggregate, have more than 50% of the voting power for the election of directors, and, as a result, we are considered a “controlled company” for the purposes of the Nasdaq Rules. As such, we qualify for, and rely on, exemptions from certain corporate governance requirements. As a result, we are not subject to certain corporate governance requirements, including that a majority of our Board consists of “independent directors,” as defined under the Nasdaq Rules. In addition, we are not required to have a nominating and corporate governance committee or compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities or to conduct annual performance evaluations of the nominating and corporate governance and compensation committees. Accordingly, our stockholders do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Nasdaq Rules.
Currently, six out of seven of the directors on our Board are independent, and our Compensation Committee and Nominating and Corporate Governance Committee each consist entirely of independent directors. However, for so long as we remain a “controlled company,” we may avail ourselves of the exemptions available to “controlled companies” in the future.
If at any time we cease to be a “controlled company” under the Nasdaq Rules, our Board intends to take any action that may be necessary to comply with the Nasdaq Rules, subject to a permittedContents
DIRECTOR CANDIDATES |
ACON designated Mr. Dellomo and a member of management recommended Mr. Lunsford for election to our Board as Class II director nominees at the Annual Meeting.
Corporate Governance
corporate management, experience as a board member of other public companies, relevant professional or academic experience, leadership skills, financial and accounting background, executive compensation background and whether the candidate has the time required to fully participate as a director of the Company. In addition, the board will consider whether there are potential conflicts of interest with a candidate’s other personal and professional pursuits. Our Corporate Governance Guidelines provide that the Board should monitor the mix of specific experience, qualifications and skills of its directors in order to assure that the Board, as a whole, has the necessary tools to perform its oversight function effectively in light of the Company’s business and structure.
The Board is committed to diversified membership and will not discriminate on the basis of race, color, national origin, gender, religion or disability in selecting nominees. It is also the policy of the Board to include, and to instruct any search firms to include, diverse candidates in the pool of potential director candidates to be considered by the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee assesses the effectiveness of this policy as part of its periodic self-evaluation.
COMMUNICATIONS FROM STOCKHOLDERS |
BOARD LEADERSHIP STRUCTURE AND ROLE IN RISK OVERSIGHT |
Corporate Governance
Risk assessment and oversight are an integral part of our governance and management processes. Our management is responsible for ourday-to-day risk management activities. Our Audit Committee is responsible for overseeing our risk management process. Our Audit Committee focuses on our general risk management policies and strategy, the most significant risks facing us, including cybersecurity, and oversees the implementation of risk mitigation strategies by management. Our Board of Directors is also apprised of particular risk management matters in connection with its general oversight role, including business continuity and other risks relating to the COVID-19 pandemic, and approval of corporate matters and significant transactions. The Board does not believe that its role in the oversight of our risks affects the Board’s leadership structure.
CODE OF ETHICS |
ANTI-HEDGING POLICY |
EXECUTIVE SESSIONS |
ATTENDANCE BY MEMBERS OF THE BOARD OF DIRECTORS AT MEETINGS |
Committees of the Board |
Name | Audit | Compensation | Nominating and Corporate Governance | |||||||||||
Ken Brotman | X | Chair | ||||||||||||
Charles Denson | Chair | X | ||||||||||||
Diane Irvine | Chair | X | ||||||||||||
Michael Lunsford | X | |||||||||||||
Adam Kriger | X | |||||||||||||
Sarah Kirshbaum Levy | X | X |
AUDIT COMMITTEE |
•appointing, compensating, retaining and overseeing our independent registered public accounting firm;
•discussing with our independent registered public accounting firm their independence from management;
•discussing with our independent registered public accounting firm any audit problems or difficulties and management’s response;
•approving all audit and permissiblenon-audit services to be performed by our independent registered public accounting firm;
•discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;
•reviewing our policies on risk assessment and risk management;
•reviewing related person transactions; and
•establishing procedures for the confidential anonymous submission of complaints regarding questionable accounting, internal controls or auditing matters, and for the confidential anonymous submission of concerns regarding questionable accounting or auditing matters.
Committees of the Board
as such term is defined in Item 407(d)(5) ofRegulation S-K, and under the similar Nasdaq Rules requirement that the Audit Committee have a financially sophisticated member.
2020.
COMPENSATION COMMITTEE |
•reviewing and approving, or recommending that the board of directors approve, the compensation of our Chief Executive Officer and other executive officers;
•reviewing and making recommendations to the board of directors regarding director compensation; and
•reviewing and approving incentive compensation and equity-based plans and arrangements and making grants of cash-based and equity-based awards under such plans.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE |
•identifying individuals qualified to become members of our board of directors, consistent with criteria set forth in our corporate governance guidelines and in accordance with the terms of the Stockholders Agreement;
•annually reviewing the committee structure of the board of directors and recommending to the board of the directors the directors to serve as members of each committee; and
developing•reviewing and recommending to our board of directors a set of corporate governance guidelines.
Executive Compensation |
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•Brian Mariotti, Chief Executive Officer; •Andrew |
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During 2017, Mr. Perlmutter, initially served as our Senior Vice President of Sales. He was promoted to President in October 2017.
; and
2020.
SUMMARY COMPENSATION TABLE |
Name and Principal
| Year
| Salary ($)
| Bonus ($)
| Stock
| Option
| Non-Equity
| All Other
| Total ($)
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Brian Mariotti | 2016 | 600,000 | — | — | — | 892,985 | 24,721 | 1,517,706 | ||||||||
Chief Executive Officer | 2017 | 899,658 | 1,000,000 (3) | — | — | 33,652 | 1,933,310 | |||||||||
2018 | 1,000,000 | — | 11,679,258 | 2,104,668 | 1,590,000 | 21,688 | 16,395,614 | |||||||||
Andrew Perlmutter | 2017 | 274,077 | — | — | 495,690 | 1,808,124 (4) | 370,184 | 2,948,075 | ||||||||
President | 2018 | 500,000 | — | 8,474,295 | 1,052,367 | 795,000 | 22,659 | 10,844,321 | ||||||||
Russell Nickel | 2016 | 266,667 | — | — | — | 81,250 | 169,411 | 517,328 | ||||||||
Chief Financial Officer | 2017 | 354,069 | 93,500 (3) | — | — | — | 270,010 | 717,579 | ||||||||
2018 | 373,300 | — | 523,378 | 100,940 | 158,279 | 22,659 | 1,178,556 |
Name and Principal Position | Year | Salary ($) | Stock Awards(1) ($) | Option Awards(2) ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation(6) ($) | Total ($) | |||||||||||||||||||
Brian Mariotti | 2018 | 1,000,000 | 11,679,258 | 2,104,668 | 1,590,000 | (3) | 21,688 | 16,395,614 | ||||||||||||||||||
Chief Executive Officer | 2019 | 1,000,000 | 357,938 | 1,341,827 | 1,313,250 | (4) | 12,442 | 4,025,457 | ||||||||||||||||||
2020 | 957,692 | 290,019 | 204,038 | 1,163,400 | (5) | 12,096 | 2,627,245 | |||||||||||||||||||
Andrew Perlmutter | 2018 | 500,000 | 8,474,295 | 1,052,367 | 795,000 | (3) | 22,659 | 10,844,321 | ||||||||||||||||||
President | 2019 | 538,462 | 232,713 | 879,165 | 707,135 | (4) | 19,240 | 2,376,715 | ||||||||||||||||||
2020 | 526,731 | 159,510 | 112,290 | 639,870 | (5) | 12,081 | 1,450,482 | |||||||||||||||||||
Jennifer Fall Jung | 2019 | 153,654 | 212,486 | 790,622 | 67,262 | (4) | 24,131 | 1,248,155 | ||||||||||||||||||
Chief Financial Officer | 2020 | 407,019 | 548,257 | 86,699 | 164,815 | (5) | 57,839 | 1,264,629 |
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Executive Compensation
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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END |
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Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Award | Common Units/ Restricted Stock | ||||||||||||
Option Exercise Price ($) | Option Expiration Date | Number of Common Units/ Restricted That Have Not Vested (#) | Market Value of Common Units/ Restricted Stock That Have Not Vested (1) ($) | |||||||||||||||
Brian Mariotti | 12/21/2015 | - | - | - | - | - | 242,269 (3) | 3,185,837 | ||||||||||
6/27/2018 | - | 315,070 | - | 11.71 | 6/27/2028 | 34,660 | 455,779 | |||||||||||
7/30/2018 | - | - | - | - | - | 666,670 | 8,766,711 | |||||||||||
Andrew Perlmutter | 10/30/2015 | 166,529 (2) | - | - | 0.05 | 05/31/2023 | -- | -- | ||||||||||
12/21/2015 | - | - | - | -- | -- | 86,526 (3) | 1,137,817 | |||||||||||
11/01/2017 | 30,750 (4) | 92,250 | - | 12.00 | 11/01/2027 | -- | -- | |||||||||||
6/27/2018 | - | 157,540 | - | 11.71 | 6/27/2028 | 242,330 | 3,186,640 | |||||||||||
7/30/2018 | - | - | - | - | 333,330 | 4,383,290 | ||||||||||||
Russell Nickel | 10/30/2015 | 87,927 (2) | - | - | 0.05 | 10/20/2023 | -- | -- | ||||||||||
12/21/2015 | - | - | - | - | - | 69,221 (3) | 910,256 | |||||||||||
6/27/2018 | - | 78,350 | - | 11.71 | 6/27/2028 | 8,620 | 113,353 |
Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Award | Restricted Stock Units | ||||||||||||||||||||||||||||||||||||||||||||
Option Exercise Price ($) | Option Expiration Date | Number of Restricted Stock Units That Have Not Vested (#) | Market Value of Restricted Stock Units That Have Not Vested ($) | |||||||||||||||||||||||||||||||||||||||||||||||
Brian Mariotti | 6/27/2018 | 196,918 | 118,152 | (1) | — | 11.71 | 6/27/2028 | 17,330 | (4) | 179,885 | ||||||||||||||||||||||||||||||||||||||||
7/30/2018 | — | — | — | — | — | 666,670 | (6) | 6,920,035 | ||||||||||||||||||||||||||||||||||||||||||
4/17/2019 | 71,020 | 99,430 | (1) | — | 19.09 | 4/17/2029 | 14,063 | (4) | 145,974 | |||||||||||||||||||||||||||||||||||||||||
4/29/2020 | — | 117,200 | (2) | — | 4.01 | 4/29/2030 | 72,324 | (5) | 750,723 | |||||||||||||||||||||||||||||||||||||||||
Andrew Perlmutter | 10/30/2015 | 161,529 | (3) | — | — | 0.05 | 5/31/2023 | — | — | |||||||||||||||||||||||||||||||||||||||||
11/1/2017 | 123,000 | — | (1) | — | 12.00 | 11/1/2027 | — | — | ||||||||||||||||||||||||||||||||||||||||||
6/27/2018 | 98,462 | 59,078 | (1) | — | 11.71 | 6/27/2028 | 64,915 | (4) | 673,818 | |||||||||||||||||||||||||||||||||||||||||
7/30/2018 | — | — | — | — | — | 333,330 | (6) | 3,459,965 | ||||||||||||||||||||||||||||||||||||||||||
3/4/2019 | 46,593 | 59,907 | (1) | — | 19.89 | 3/4/2029 | 8,775 | (4) | 91,085 | |||||||||||||||||||||||||||||||||||||||||
4/29/2020 | — | 64,500 | (2) | — | 4.01 | 4/29/2030 | 39,778 | (5) | 412,896 | |||||||||||||||||||||||||||||||||||||||||
Jennifer Fall Jung | 8/13/2019 | 27,056 | 54,112 | (1) | — | 23.80 | 8/13/2029 | 6,696 | (4) | 69,504 | ||||||||||||||||||||||||||||||||||||||||
4/29/2020 | — | 49,800 | (2) | — | 4.01 | 4/29/2030 | 30,738 | (5) | 319,060 | |||||||||||||||||||||||||||||||||||||||||
9/16/2020 | — | — | — | — | — | 71,189 | 738,942 |
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NARRATIVE TO SUMMARY COMPENSATION TABLE |
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Executive Compensation
In response to the COVID-19 pandemic, we imposed a reduction on the base salaries for certain of our employees, including our named executive officers. Effective April 8, 2020, the base salaries of our named executive officers were reduced by 20% through June 30, 2020, after which base salaries were fully restored to pre-reduction rates.
Name | Salary ($) | |||||||
Brian Mariotti | 1,000,000 | |||||||
Andrew Perlmutter | 550,000 | |||||||
Jennifer Fall Jung | 425,000 | |||||||
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Additionally, prior to our initial public offering, certain of our employees, including Mr. Mariotti and Mr. Nickel had been granted Home Run Units pursuant to the FAH LLC Agreement, or HR Units. The HR Units were fully vested at the time of grant. No HR Units were granted in 2017. Upon our initial public offering, the HR Units were converted into Common Units.
$0.05.
Executive Compensation
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.
$13.05 were outstanding, and restricted stock units with respect to 1,868,427 shares of Common Stock were outstanding.
•medical, dental and vision benefits;
•medical and dependent care flexible spending accounts;
•short-term and long-term disability insurance; and
•life insurance.
Position Salary/Fee Multiple Threshold ($) 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 2016, Mr. Mariotti’s annual bonus was calculated as (1) an amount equal to 1% of “incremental EBITDA” plus (2) an amount equal to 2% of “incremental gross profit” (as each of the terms is defined in the Mariotti Employment Agreement). The Mariotti Employment Agreement also contains standardnon-solicitation2018, 2019 and confidentiality provisions. For 2017, Mr. Mariotti received a discretionary annual bonus that reflected his performance and achievements for 2017 calculated based on 100% of his base salary. For 2018,2020, Mr. Mariotti received an annual bonus as per the Executive Incentive Plan that reflected his performance and achievements for 2018each respective year calculated based on 150%, 130% and 120%, respectively of his base salary.
Executive Compensation
If Mr. Mariotti is terminated by us without “Cause” or by Mr. Mariotti for “Good Reason” (as such terms are defined below), 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) apro-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.
Pursuant to the Mariotti Employment Agreement,
Mr. Mariotti may terminate his employment with us at any time with “Good Reason” upon the occurrence or existence of any of the following: (1) Mr. Mariotti’s duties or responsibilities are materially diminished or Mr. Mariotti is assigned duties that are demeaning or are otherwise materially inconsistent with the duties then currently performed by him; (2) Mr. Mariotti’s base compensation is materially reduced from the annual rate then currently in effect; or (3) without a corresponding relative reduction in all our employees’ benefits, Mr. Mariotti’s benefits are reduced materially in the aggregate from those then currently in effect. Mr. Mariotti must give us written notice of his intention to terminate for Good Reason within 90 days after the event triggering Good Reason and we have 15 days after receiving such written notice to remedy the situation, if possible.
Andrew Perlmutter and Russell Nickel
As of December 31, 2018, each of Messrs. Perlmutter and Nickel currently serve pursuantwere party to an employment agreement the material terms of which are summarized below, which we entered into in connection with our initial public offering. In April 2019, Mr. Nickel notified us of his resignation as Chief Financial Officer, effective as of the earlier of December 31, 2019 or the date on which his successor commences employment with the Company. Mr. Nickel’s employment with us will end on December 31, 2019. In connection with Mr. Nickel’s resignation, we entered into a transition and release of claims agreement with Mr. NickelPerlmutter pursuant to which he is eligible, subject to his execution and non-revocation of a release of claims agreement, to receive certain severance benefits and in which he acknowledges his agreement to comply with certain restrictive covenants. In addition,serves as described below, in April 2019 Mr. Perlmutter’sour President.
Employment Term and Position
Theinitial term of employment of each of Messrs. Perlmutter, Nickel and Daw is three years from our initial public offering, subject to two automaticone-year extensions provided that neither party provides prior written notice of
Executive Compensation
non-extension of the then-current term.
Base Salary, Annual Bonus
Pursuant to their employment agreements, Messrs. Perlmutter and Nickel areis entitled to an annual base salaries of $500,000salary (currently $550,000) and $373,300 (currently $400,300), respectively.. Additionally, the executives areMr. Perlmutter is eligible to receive an annual performance-based cash bonusesbonus upon the attainment of individual and company performance goals established by our board of directors or the compensation committee. The amount of the annual performance-based cash bonus that may be received by Messrs. Perlmutter and Nickel upon attainment of target performance for any fiscal year is 150% and 40% of base salary, respectively. The maximum amount of Mr. Perlmutter’s annual performance-based cash bonus is 150%200% of his base salary.
Furthermore, pursuant
Severance
Each
Mr. Perlmutter.
For purposes of the employment agreements, we have “cause”
Executive Compensation
For purposes of the employment agreements, each executive officer has “good reason” to terminate his employment after the occurrence of (1) a material adverse change in his title or reporting line or material duties, authorities or responsibilities, as determined by our board of directors; (2) a material breach by us of any material provision of the employment agreement; (3) a material reduction of executive officer’s base salary or benefits or target bonus opportunity (other than such a reduction that is generally consistent with a general reduction affecting other similarly situated executive officers); (4) failure by us to pay any portion of executive officer’s earned base salary or bonus; or (5) our requiring executive officer 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, executive officer may not resign from his employment for good reason unless he provides us written notice within 90 days after the initial occurrence of the event and at least 60 days prior to the date of termination, and we have not corrected the event prior to the date of termination.
Restrictive Covenants
Pursuant to their respective employment agreements, each of Messrs.agreement, Mr. Perlmutter and Nickel is subject to certainnon-competition andnon-solicitation restrictions for a12-month period after termination of employment. During the restricted period, each executive officerMr. 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. TheMr. Perlmutter’s employment agreementsagreement also containcontains a perpetual mutualnon-disparagement covenant.
Section 280G
Jennifer Fall Jung
Director Compensation |
Name (1) | Fees Earned or Paid in Cash ($) | Option Awards (2) ($) | Total ($) | |||||||
Ken Brotman | -- | -- | -- | |||||||
Gino Dellomo | -- | -- | -- | |||||||
Charles Denson | 32,500 | 130,400 | 150,400 | |||||||
Diane Irvine | 32,500 | 130,400 | 157,900 | |||||||
Adam Kriger | -- | -- | ||||||||
Michael Lunsford | 10,000 | 39,108 | 49,108 |
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 | ||||||||||
Gino Dellomo | 47,500 | 14,698 | 20,973 | 83,171 | ||||||||||
Charles Denson (3) | 83,500 | 14,698 | 20,973 | 119,171 | ||||||||||
Diane Irvine (3) | 87,063 | 14,698 | 20,973 | 122,734 | ||||||||||
Adam Kriger | 47,500 | 14,698 | 20,973 | 83,171 | ||||||||||
Michael Lunsford (3) | 74,250 | 14,698 | 20,973 | 109,921 | ||||||||||
Sarah Kirshbaum Levy (3) | 69,250 | 14,698 | 20,973 | 104,921 |
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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 | ||||||||
Gino Dellomo | 3,927 | 5,900 | 3,616 | ||||||||
Charles Denson | 36,427 | 5,900 | 3,616 | ||||||||
Diane Irvine | 66,927 | 5,900 | 3,616 | ||||||||
Adam Kriger | 3,927 | 5,900 | 3,616 | ||||||||
Michael Lunsford | 9,025 | 5,900 | 3,616 | ||||||||
Sarah Kirshbaum Levy | 3,916 | 5,900 | 3,616 |
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Security Ownership of |
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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.
Security Ownership of Certain Beneficial Owners and Management
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 29,836,95737,342,222 shares of Class A common stock and 18,993,57312,540,296 shares of Class B common stock outstanding as of April 22, 2019.9, 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 22, 2019,9, 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 Owned1 | Shares of Class B Common Stock Beneficially Owned | Combined Power2 | ||||||||||||||||||
Name of beneficial owner3 | Number | Percentage | Number | Percentage | Percentage | |||||||||||||||
5% Stockholders | ||||||||||||||||||||
ACON4 | 23,416,726 | 58.1 | % | 10,495,687 | 55.3 | % | 48.0 | % | ||||||||||||
Fundamental5 | 4,429,676 | 15.9 | % | 5,429,676 | 23.3 | % | 11.1 | % | ||||||||||||
Fifth Street Station6 | 2,569,370 | 8.6 | % | - | - | 5.3 | % | |||||||||||||
Woodson Capital Master Fund, LP7 | 1,589,020 | 5.3 | % | 3.3 | % | |||||||||||||||
Named Executive Officers and Directors | ||||||||||||||||||||
Brian Mariotti8 | 3,666,227 | 10.9 | % | 3,181,689 | 16.8 | % | 6.5 | % | ||||||||||||
Russell Nickel9 | 310,530 | 1.0 | % | 84,163 | * | * | ||||||||||||||
Andrew Perlmutter10 | 430,587 | 1.4 | % | - | * | * | ||||||||||||||
Ken Brotman | - | * | - | * | * | |||||||||||||||
Gino Dellomo | - | * | - | * | * | |||||||||||||||
Charles Denson11 | 45,417 | * | 16,058 | * | * | |||||||||||||||
Diane Irvine12 | 33,050 | * | - | * | * | |||||||||||||||
Michael Lunsford | - | * | - | * | * | |||||||||||||||
Adam Kriger11 | 32,117 | * | 16,058 | * | * | |||||||||||||||
All executive officers and directors as a group (10 individuals)13 | 4,607,012 | 13.4 | % | 3,331,404 | 17.5 | % | 7.0 | % |
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 (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% |
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Certain Relationships and |
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Security Ownership of Certain Beneficial Owners and Management
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On October 30, 2015, ACON, through FAH, LLC, an entity formed in contemplation of the transaction, acquired a controlling interest in FHL and its subsidiary, Funko, LLC (the “ACON Acquisition”). We consummated the ACON Acquisition pursuant to a Securities Purchase and Contribution Agreement (the “SPCA”), by and among FAH, LLC, FHL, Funko, LLC, Fundamental, and the sellers named in the SPCA, including certain of our current executive officers and certain holders of 5% or more of our voting securities.
Certain Relationships and Related Person Transactions
Pursuant to the SPCA, we agreed to make certain earnout payments to the sellers, referred to as the 2015 Earnout Payment and the 2016 Earnout Payment, upon the achievement of certain performance thresholds and events. Pursuant to the SPCA, ACON agreed, subject to certain exceptions, to make a capital contribution in the amount of $15.0 million in respect of the 2015 Earnout Payment and, under certain circumstances, had the right to make an additional capital contribution in the amount of up to $5.0 million, in each case, in exchange for Class A units of FAH, LLC. ACON also had the right, subject to certain exceptions, to make an additional capital contribution of up to $5.0 million in respect of the 2016 Earnout Payment in exchange for Class A Units of FAH, LLC, which is referred to as the 2016 Earnout Contribution.
The 2016 Earnout Payment was equal to $25.0 million and was paid to the sellers in June 2017. In connection therewith, $13.2 million was paid to Fundamental, $3.9 million was paid to Mr. Mariotti, $156,750 was paid to Mr. Nickel and $1.9 million was paid to The Jon P. and Trishawn P. Kipp Children’s Trust uad 5/31/14. In connection with the 2016 Earnout Payment, ACON made a capital contribution of $3.9 million in exchange for 3,841 Class A Units of FAH, LLC, and assigned its right to contribute the remaining $1.2 million of the 2016 Earnout Contribution to certain members of FAH, LLC, including Mr. Nickel (who contributed approximately $140,012 in exchange for approximately 140 Class A Units), Mr. Perlmutter (who contributed approximately $151,977 in exchange for approximately 152 Class A Units), Mr. Daw (who contributed approximately $120,999 in exchange for approximately 121 Class A Units), and The Jon P. and Trishawn P. Kipp Children’s Trust uad 5/31/14 (which contributed approximately $403,827 in exchange for approximately 404 Class A Units).
The remainder of the 2016 Earnout Payment was funded with the proceeds of promissory notes in the aggregate principal amount of $20.0 million, which we refer to as the Subordinated Promissory Notes. The Subordinated Promissory Notes were issued to certain members of FAH, LLC, including ACON (which held a Subordinated Promissory Note with a principal amount of approximately $17.3 million), Mr. Nickel (who held Subordinated Promissory Notes having an aggregate principal amount of approximately $120,000), Mr. Perlmutter (who held Subordinated Promissory Notes having an aggregate principal amount of approximately $250,000) and The Jon P. and Trishawn P. Kipp Children’s Trust uad 5/31/14 (which held Subordinated Promissory Notes having an aggregate principal amount of approximately $2.0 million). The unpaid principal balance and accrued interest of $20.9 million on our Subordinated Promissory Notes was repaid upon the completion of our IPO.
In October 2015, in connection with the ACON Acquisition, ACON Equity Management, L.L.C., or ACON Equity Management, an affiliate of ACON, and Funko, LLC entered into a management services agreement, pursuant to which ACON Equity Management agreed to provide certain financial, operational and other consulting and advisory services to Funko, LLC. Pursuant to the management services agreement, Funko, LLC agreed to pay ACON Equity Management a monitoring fee equal to the greater of (1) $500,000 and (2) 2% of prior year EBITDA (as defined in our senior secured credit facilities), but not greater than $2.0 million in any calendar year. Funko, LLC also agreed to pay ACON Equity Management a
Certain Relationships and Related Person Transactions
Pursuant to the management services agreement, we incurred monitoring fees of $1.7 million in the year ended December 31, 2017. The management services agreement was terminated in connection with our IPO and ACON agreed to waive its right to receive an accelerated monitoring fee of $5.8 million in connection with such termination.
In October 2015, certain officers and other employees of FAH, LLC entered into subscription agreements with FAH, LLC to purchase Class A Units of FAH, LLC, including Mr. Nickel (who subscribed for Class A Units having an aggregate purchase price of $150,000) and Mr. Perlmutter (who subscribed for Class A Units having an aggregate purchase price of $100,000). Each of Mr. Nickel and Mr. Perlmutter entered into a secured promissory note payable to Funko, LLC in an amount equal to the purchase price of such Class A Units. Amounts outstanding under the promissory notes were secured by all direct or indirect ownership interests of Mr. Nickel and Mr. Perlmutter (as applicable) in FAH, LLC (or any corporate successor of FAH, LLC), and were required to be repaid, in full or in part, with 100% of theafter-tax portion of any cash distribution or dividend in respect of, or upon the transfer, sale or other disposition of, the Class A Units of FAH, LLC. Amounts outstanding under each promissory note accrued interest at a rate of 8.00%, compounded annually. The promissory notes were forgiven in full in October 2017. The largest aggregate principal amount outstanding under Mr. Nickel’s promissory note during the year ended December 31, 2017 was $95,850, and the largest aggregate principal amount outstanding under Mr. Perlmutter’s promissory note during the year ended December 31, 2017 was $63,899. Principal and interest payments on Mr. Nickel’s promissory note were $95,850 and $5,441, respectively, during the year ended December 31, 2017. Principal and interest payments on Mr. Perlmutter’s promissory note were $63,889 and $3,627, respectively, during the year ended December 31, 2017.
In connection with our IPO, we completed the following reorganization transactions (as described below, the “Reorganization Transactions”), which include transactions with certain of our directors, executive officers and other persons and entities which were or became holders of 5% or more of our voting securities upon the consummation of the IPO.
TAX RECEIVABLE AGREEMENT |
FAH, LLC amended and restated its limited liability company agreement of FAH, LLC (see “FAH LLC Agreement” below);
the Company amended and restated its certificate of incorporation to, among other things, provide (i) for Class A common stock, with each share of Class A common stock entitling its holders to one vote per share on all matters presented to stockholders generally and (ii) for Class B common stock, with each share of Class B common stock entitling its holders to one vote per share on all matters presented to stockholders generally and that shares of Class B common stock may only be held by the Continuing Equity Owners and their permitted transferees;
certain funds affiliated with ACON exchanged their indirect ownership interests in common units of FAH, LLC for 12,921,039 shares of Class A common stock on aone-for-one basis;
the Company entered into (1) the Stockholders Agreement with ACON, Fundamental and Brian Mariotti, our Chief Executive Officer (see “Stockholders Agreement” below), (2) a registration rights agreement, which we refer to as the Registration Rights Agreement, with certain of the Original Equity Owners (see “Registration Rights Agreement” below) and (3) a tax receivable agreement, which we refer to as the Tax Receivable Agreement, with FAH, LLC and each of the Continuing Equity Owners (see “Tax Receivable Agreement” below); and
Certain Relationships and Related Person Transactions
the Company purchased, with the net proceeds from our IPO, 10,416,666 common units directly from FAH, LLC at a price per unit equal to the IPO price per share of Class A common stock in our IPO less the underwriting discounts and commissions.
As of the completion of the Reorganization Transactions and IPO, Funko, Inc. owned 48.3% of the economic interest in FAH, LLC. The remaining 51.7% of FAH, LLC was held by the Continuing Equity Owners. The Continuing Equity Owners also owned 24,975,932 shares of Class B common stock, representing 51.7% of the combined voting power of all of our common stock.
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
2019, respectively.
FAH LLC AGREEMENT |
Certain Relationships and Related Person Transactions
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 aone-for-one basis with the number of common units so redeemed or exchanged.
STOCKHOLDERS AGREEMENT |
Certain Relationships and Related Person Transactions
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 asco-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.
REGISTRATION RIGHTS AGREEMENT |
Certain Relationships and Related Person Transactions
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 |
Delinquent Section 16(a) Reports |
Compensation Committee Interlocks and Insider Participation
for Jennifer Fall Jung.
Compensation Committee Interlocks and Insider Participation |
Stockholders’ Proposals |
December 21, 2021.
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.
Other Matters |
Solicitation of Proxies |
Funko’s Annual Report on
Funko’s Annual Report on Form 10-K |
2019 INCENTIVE AWARD PLAN
ARTICLE 1.
PURPOSE
The purpose of the Funko, Inc. 2019 Incentive Award Plan (as it may be amended or restated from time to time, the “Plan”) is to promote the success and enhance the value of Funko, Inc. (the “Company”) by linking the individual interests of Directors, Employees, and Consultants to those of Company stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to Company stockholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Directors, Employees, and Consultants upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent.
ARTICLE 2.
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.
2.1 “Administrator” shall mean the Board or a Committee to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee.
2.2 “Applicable Accounting Standards” shall mean Generally Accepted Accounting Principles in the United States, International Financial Reporting Standards or such other accounting principles or standards as may apply to the Company’s financial statements under United States federal securities laws from time to time.
2.3 “Applicable Law” shall mean any applicable law, including, without limitation: (a) provisions of the Code, the Securities Act, the Exchange Act and any rules or regulations thereunder; (b) corporate, securities, tax or other laws, statutes, rules, requirements or regulations, whether federal, state, local or foreign; and (c) rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded.
2.4 “Award” shall mean an Option, a Stock Appreciation Right, a Restricted Stock award, a Restricted Stock Unit award, an Other Stock or Cash Based Award or a Dividend Equivalent award, which may be awarded or granted under the Plan.
2.5 “Award Agreement” shall mean any written notice, agreement, terms and conditions, contract or other instrument or document evidencing an Award, including through electronic medium, which shall contain such terms and conditions with respect to an Award as the Administrator shall determine consistent with the Plan.
2.6 “Board” shall mean the Board of Directors of the Company.
2.7 “Change in Control” shall mean
(a) a transaction or series of transactions (other than an offering of Common Stock or other securities to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its Subsidiaries or any employee benefit plan maintained by the Company or any of its Subsidiaries), directly or indirectly acquires beneficial ownership (within the meaning of Rule13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total
combined voting power of such entity’s securities outstanding immediately after such acquisition;provided,however, that the following acquisitions shall not constitute a Change in Control: (i) any acquisition by the Company or any of its Subsidiaries; (ii) any acquisition by an employee benefit plan maintained by the Company or any of its Subsidiaries, (iii) any acquisition which complies with Sections 2.7(c)(i), 2.7(c)(ii) or 2.7(c)(iii); or (iv) in respect of an Award held by a particular Holder, any acquisition by the Holder or any group of persons including the Holder (or any entity controlled by the Holder or any group of persons including the Holder); or
(b) The Incumbent Directors cease for any reason to constitute a majority of the Board;
(c) The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination, (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(i) which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and
(ii) after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity;provided,however, that no person or group shall be treated for purposes of this Section 2.7(c)(ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; and
(iii) after which at least a majority of the members of the board of directors (or the analogous governing body) of the Successor Entity were Board members at the time of the Board’s approval of the execution of the initial agreement providing for such transaction; or
(d) The date which is 10 business days prior to the completion of a liquidation or dissolution of the Company.
Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or any portion of an Award) that provides for the deferral of compensation that is subject to Section 409A, to the extent required to avoid the imposition of additional taxes under Section 409A, the transaction or event described in subsection (a), (b), (c) or (d) with respect to such Award (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes a “change in control event,” as defined in Treasury RegulationSection 1.409A-3(i)(5).
The Administrator shall have full and final authority, which shall be exercised in its sole discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in control event” as defined in Treasury Regulation
2.8 “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, together with the regulations and official guidance promulgated thereunder, whether issued prior or subsequent to the grant of any Award.
2.9 “Committee” shall mean the Compensation Committee of the Board, or another committee or subcommittee of the Board which may be comprised of one or more Directors and/or executive officers of the Company as appointed by the Board, to the extent permitted in accordance with Applicable Law.
2.10 “Common Stock” shall mean the common stock of the Company.
2.11 “Company” shall have the meaning set forth in Article 1.
2.12 “Consultant” shall mean any consultant or adviser engaged to provide services to the Company or any parent of the Company or Subsidiary who qualifies as a consultant or advisor under the applicable rules of the Securities and Exchange Commission for registration of shares on a FormS-8 Registration Statement.
2.13 “Director” shall mean a member of the Board, as constituted from time to time.
2.14 “Director Limit” shall have the meaning set forth in Section 4.6.
2.15 “Dividend Equivalent” shall mean a right to receive the equivalent value (in cash or Shares) of dividends paid on Shares, awarded under Section 9.2.
2.16 “DRO” shall mean a “domestic relations order” as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended from time to time, or the rules thereunder.
2.17 “Effective Date” shall mean the date the Plan is adopted by the Board, subject to approval of the Plan by the Company’s stockholders.
2.18 “Eligible Individual” shall mean any person who is an Employee, a Consultant or aNon-Employee Director, as determined by the Administrator.
2.19 “Employee” shall mean any officer or other employee (as determined in accordance with Section 3401(c) of the Code and the Treasury Regulations thereunder) of the Company or of any parent of the Company or Subsidiary.
2.20 “Equity Restructuring” shall mean a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split,spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of Shares (or other securities of the Company) or the share price of Common Stock (or other securities) and causes a change in theper-share value of the Common Stock underlying outstanding Awards.
2.21 “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.
2.22 “Expiration Date” shall have the meaning given to such term in Section 12.1(c).
2.23 “Fair Market Value” shall mean, as of any given date, the value of a Share determined as follows:
(a) If the Common Stock is (i) listed on any established securities exchange (such as the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market and the Nasdaq Global Select Market), (ii) listed on any national market system or (iii) quoted or traded on any automated quotation system, its Fair Market Value shall be the closing sales price for a Share as quoted on such exchange or system for such date or, if there is no closing sales price for a Share on the date in question, the closing sales price for a Share on the last preceding date for which such quotation exists, as reported inThe Wall Street Journal or such other source as the Administrator deems reliable;
(b) If the Common Stock is not listed on an established securities exchange, national market system or automated quotation system, but the Common Stock is regularly quoted by a recognized securities dealer, its Fair Market Value shall be the mean of the high bid and low asked prices for such date or, if there are no high bid and
low asked prices for a Share on such date, the high bid and low asked prices for a Share on the last preceding date for which such information exists, as reported inThe Wall Street Journal or such other source as the Administrator deems reliable; or
(c) If the Common Stock is neither listed on an established securities exchange, national market system or automated quotation system nor regularly quoted by a recognized securities dealer, its Fair Market Value shall be established by the Administrator in its discretion.
2.24 “Greater Than 10% Stockholder” shall mean an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any subsidiary corporation (as defined in Section 424(f) of the Code) or parent corporation thereof (as defined in Section 424(e) of the Code).
2.25 “Holder” shall mean a person who has been granted an Award.
2.26 “Incentive Stock Option” shall mean an Option that is intended to qualify as an incentive stock option and conforms to the applicable provisions of Section 422 of the Code.
2.27 “Incumbent Directors” shall mean for any period of 12 consecutive months, individuals who, at the beginning of such period, constitute the Board together with any new Director(s) (other than a Director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Section 2.7(a) or 2.7(c)) whose election or nomination for election to the Board was approved by a vote of at least a majority (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for Director without objection to such nomination) of the Directors then still in office who either were Directors at the beginning of the12-month period or whose election or nomination for election was previously so approved. No individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to Directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director.
2.28 “Non-Employee Director” shall mean a Director of the Company who is not an Employee.
2.29 “Non-Employee Director Equity Compensation Policy” shall have the meaning set forth in Section 4.6.
2.30 “Non-Qualified Stock Option” shall mean an Option that is not an Incentive Stock Option or which is designated as an Incentive Stock Option but does not meet the applicable requirements of Section 422 of the Code.
2.31 “Option” shall mean a right to purchase Shares at a specified exercise price, granted under Article 5. An Option shall be either aNon-Qualified Stock Option or an Incentive Stock Option;provided,however, that Options granted toNon-Employee Directors and Consultants shall only beNon-Qualified Stock Options.
2.32 “Option Term” shall have the meaning set forth in Section 5.4.
2.33 “Organizational Documents” shall mean, collectively, (a) the Company’s articles of incorporation, certificate of incorporation, bylaws or other similar organizational documents relating to the creation and governance of the Company, and (b) the Committee’s charter or other similar organizational documentation relating to the creation and governance of the Committee.
2.34 “Other Stock or Cash Based Award” shall mean a cash payment, cash bonus award, stock payment, stock bonus award, performance award or incentive award that is paid in cash, Shares or a combination of both, awarded under Section 9.1, which may include, without limitation, deferred stock, deferred stock units, performance awards, retainers, committee fees, and meeting-based fees.
2.35 “Performance Criteria” shall mean the criteria (and adjustments) that the Administrator selects for an Award for purposes of establishing the Performance Goal or Performance Goals for a Performance Period. The Performance Criteria that may be used to establish Performance Goals include, but are not limited to, the following: (i) net earnings or losses (either before or after one or more of the following: (A) interest, (B) taxes, (C) depreciation, (D) amortization and(E) non-cash equity-based compensation expense); (ii) gross or net sales or revenue or sales or revenue growth; (iii) net income (either before or after taxes); (iv) adjusted net income; (v) operating earnings or profit (either before or after taxes); (vi) cash flow (including, but not limited to, operating cash flow and free cash flow); (vii) return on assets; (viii) return on capital (or invested capital) and cost of capital; (ix) return on stockholders’ equity; (x) total stockholder return; (xi) return on sales; (xii) gross or net profit or operating margin; (xiii) costs, reductions in costs and cost control measures; (xiv) funds from operations; (xv) expenses; (xvi) working capital; (xvii) earnings or loss per share; (xviii) adjusted earnings or loss per share; (xix) price per share or dividends per share (or appreciation in and/or maintenance of such price or dividends); (xx) regulatory achievements or compliance (including, without limitation, regulatory body approval for commercialization of a product); (xxi) implementation or completion of critical projects; (xxii) market share; (xxiii) economic value; (xxiv) debt levels or reduction; (xxv) sales related goals; (xxvi) comparisons with other stock market indices; (xxvii) operating efficiency; (xxviii) employee satisfaction; (xxix) financing and other capital raising transactions; (xxx) recruiting and maintaining personnel; (xxxi) year end cash; and (xxxii) individual employee performance, any of which may be measured either in absolute terms or as compared to any incremental increase or decrease or as compared to results of a peer group or other employees or to market performance indicators or indices.
2.36 “Performance Goals” shall mean, for a Performance Period, one or more goals established in writing by the Administrator for the Performance Period based upon one or more Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of a Subsidiary, division, business unit, or an individual. The achievement of each Performance Goal shall be determined with reference to Applicable Accounting Standards or other methodology as determined appropriate by the Administrator.
2.37 “Performance Period” shall mean one or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Holder’s right to, vesting of, and/or the payment in respect of, an Award.
2.38 “Permitted Transferee” shall mean, with respect to a Holder, any “family member” of the Holder, as defined in the General Instructions to FormS-8 Registration Statement under the Securities Act (or any successor form thereto), or any other transferee specifically approved by the Administrator after taking into account Applicable Law.
2.39 “Plan” shall have the meaning set forth in Article 1.
2.40 “Program” shall mean any program adopted by the Administrator pursuant to the Plan containing the terms and conditions intended to govern a specified type of Award granted under the Plan and pursuant to which such type of Award may be granted under the Plan.
2.41 “Public Trading Date” shall mean the first date upon which Common Stock is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system.
2.42 “Restricted Stock” shall mean Common Stock awarded under Article 7 that is subject to certain restrictions and may be subject to risk of forfeiture or repurchase.
2.43 “Restricted Stock Units” shall mean the right to receive Shares awarded under Article 8.
2.44 “SAR Term” shall have the meaning set forth in Section 5.4.
2.45 “Section 409A” shall mean Section 409A of the Code and the Department of Treasury regulations and other interpretive guidance issued thereunder, including, without limitation, any such regulations or other guidance that may be issued after the Effective Date.
2.46 “Securities Act” shall mean the Securities Act of 1933, as amended.
2.47 “Shares” shall mean shares of Common Stock.
2.48 “Stock Appreciation Right” shall mean an Award entitling the Holder (or other person entitled to exercise pursuant to the Plan) to exercise all or a specified portion thereof (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying (i) the difference obtained by subtracting (x) the exercise price per share of such Award from (y) the Fair Market Value on the date of exercise of such Award by (ii) the number of Shares with respect to which such Award shall have been exercised, subject to any limitations the Administrator may impose.
2.49 “Subsidiary” shall mean any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing at least fifty percent (50%) of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.
2.50 “Substitute Award” shall mean an Award granted under the Plan in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock, in any case, upon the assumption of, or in substitution for, outstanding equity awards previously granted by a company or other entity;provided,however, that in no event shall the term “Substitute Award” be construed to refer to an award made in connection with the cancellation and repricing of an Option or Stock Appreciation Right.
2.51 “Termination of Service” shall mean the date the Holder ceases to be an Eligible Individual. The Administrator, in its sole discretion, shall determine the effect of all matters and questions relating to any Termination of Service, including, without limitation, whether a Termination of Service has occurred, whether a Termination of Service resulted from a discharge for cause and all questions of whether particular leaves of absence constitute a Termination of Service;provided,however, that, with respect to Incentive Stock Options, unless the Administrator otherwise provides in the terms of any Program, Award Agreement or otherwise, or as otherwise required by Applicable Law, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship shall constitute a Termination of Service only if, and to the extent that, such leave of absence, change in status or other change interrupts employment for the purposes of Section 422(a)(2) of the Code and the then-applicable regulations and revenue rulings under said Section. For purposes of the Plan, a Holder’s employee-employer relationship or consultancy relations shall be deemed to be terminated in the event that the Subsidiary employing or contracting with such Holder ceases to remain an Subsidiary following any merger, sale of stock or other corporate transaction or event (including, without limitation, aspin-off).
ARTICLE 3.
SHARES SUBJECT TO THE PLAN
3.1Number of Shares.
(a) Subject to Sections 3.1(b) and 12.2, Awards may be made under the Plan covering an aggregate number of Shares equal to the sum of: (i) 3,000,000, and (ii) an annual increase on the first day of each calendar year beginning on January 1, 2020 and ending on and including January 1, 2029, equal to the lesser of (A) 2% of the Shares outstanding (on anas-converted basis) on the last day of the immediately preceding fiscal year and
(B) such lesser number of Shares as determined by the Board;provided,however, no more than 3,000,000Shares may be issued upon the exercise of Incentive Stock Options. Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Common Stock, treasury Common Stock or Common Stock purchased on the open market.
(b) If any Shares subject to an Award are forfeited or expire, are converted to shares of another person in connection with a recapitalization, reorganization, merger, consolidation,split-up,spin-off, combination, exchange of shares or other similar event, or such Award is settled for cash (in whole or in part) (including Shares repurchased by the Company under Section 7.4 at the same price paid by the Holder), the Shares subject to such Award shall, to the extent of such forfeiture, expiration or cash settlement, again be available for future grants of Awards under the Plan. Notwithstanding anything to the contrary contained herein, the following Shares shall not be added to the Shares authorized for grant under Section 3.1(a) and shall not be available for future grants of Awards: (i) Shares tendered by a Holder or withheld by the Company in payment of the exercise price of an Option; (ii) Shares tendered by the Holder or withheld by the Company to satisfy any tax withholding obligation with respect to an Award; (iii) Shares subject to a Stock Appreciation Right or other stock-settled Award (including Awards that may be settled in cash or stock) that are not issued in connection with the settlement or exercise, as applicable, of the Stock Appreciation Right or other stock-settled Award; and (iv) Shares purchased on the open market by the Company with the cash proceeds received from the exercise of Options. Any Shares repurchased by the Company under Section 7.4 at the same price paid by the Holder so that such Shares are returned to the Company shall again be available for Awards. The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not be counted against the Shares available for issuance under the Plan. Notwithstanding the provisions of this Section 3.1(b), no Shares may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code.
(c) Substitute Awards may be granted on such terms as the Administrator deems appropriate, notwithstanding limitations on Awards in the Plan. Substitute Awards shall not reduce the Shares authorized for grant under the Plan, except as may be required by reason of Section 422 of the Code, and Shares subject to such Substitute Awards shall not be added to the Shares available for Awards under the Plan as provided in Section 3.1(b) above. Additionally, in the event that a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines has shares available under apre-existing plan approved by its stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of suchpre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for grant under the Plan (and Shares subject to such Awards shall not be added to the Shares available for Awards under the Plan as provided in Section 3.1(b) above);provided that Awards using such available Shares shall not be made after the date awards or grants could have been made under the terms of thepre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not employed by or providing services to the Company or its Subsidiaries immediately prior to such acquisition or combination.
ARTICLE 4.
GRANTING OF AWARDS
4.1Participation. The Administrator may, from time to time, select from among all Eligible Individuals those to whom an Award shall be granted and shall determine the nature and amount of each Award, which shall not be inconsistent with the requirements of the Plan. Except for anyNon-Employee Director’s right to Awards that may be required pursuant to theNon-Employee Director Equity Compensation Policy as described in Section 4.6, no Eligible Individual or other person shall have any right to be granted an Award pursuant to the Plan and neither the Company nor the Administrator is obligated to treat Eligible Individuals, Holders or any
other persons uniformly. Participation by each Holder in the Plan shall be voluntary and nothing in the Plan or any Program shall be construed as mandating that any Eligible Individual or other person shall participate in the Plan.
4.2Award Agreement. Each Award shall be evidenced by an Award Agreement that sets forth the terms, conditions and limitations for such Award as determined by the Administrator in its sole discretion (consistent with the requirements of the Plan and any applicable Program). Award Agreements evidencing Incentive Stock Options shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 422 of the Code. The Administrator, in its sole discretion, may grant Awards to Eligible Individuals that are based on one or more Performance Criteria or achievement of one or more Performance Goals or any such other criteria or goals as the Administrator shall establish.
4.3Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any individual who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including Rule16b-3 of the Exchange Act and any amendments thereto) that are requirements for the application of such exemptive rule. To the extent permitted by Applicable Law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
4.4At-Will Service. Nothing in the Plan or in any Program or Award Agreement hereunder shall confer upon any Holder any right to continue in the employ of, or as a Director or Consultant for, the Company or any Subsidiary, or shall interfere with or restrict in any way the rights of the Company and any Subsidiary, which rights are hereby expressly reserved, to discharge any Holder at any time for any reason whatsoever, with or without cause, and with or without notice, or to terminate or change all other terms and conditions of employment or engagement, except to the extent expressly provided otherwise in a written agreement between the Holder and the Company or any Subsidiary.
4.5Foreign Holders. Notwithstanding any provision of the Plan or applicable Program to the contrary, in order to comply with the laws in countries other than the United States in which the Company and its Subsidiaries operate or have Employees,Non-Employee Directors or Consultants, or in order to comply with the requirements of any foreign securities exchange or other Applicable Law, the Administrator, in its sole discretion, shall have the power and authority to: (a) determine which Subsidiaries shall be covered by the Plan; (b) determine which Eligible Individuals outside the United States are eligible to participate in the Plan; (c) modify the terms and conditions of any Award granted to Eligible Individuals outside the United States to comply with Applicable Law (including, without limitation, applicable foreign laws or listing requirements of any foreign securities exchange); (d) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable;provided,however, that no such subplans and/or modifications shall increase the share limitation contained in Section 3.1 or the Director Limit; and (e) take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals or listing requirements of any foreign securities exchange.
4.6Non-Employee Director Awards.
(a)Non-Employee Director Equity Compensation Policy. The Administrator, in its sole discretion, may provide that Awards granted toNon-Employee Directors shall be granted pursuant to a written nondiscretionary formula established by the Administrator (the “Non-Employee Director Equity Compensation Policy”), subject to the limitations of the Plan. TheNon-Employee Director Equity Compensation Policy shall set forth the type of Award(s) to be granted toNon-Employee Directors, the number of Shares to be subject toNon-Employee Director Awards, the conditions on which such Awards shall be granted, become exercisable and/or payable and expire, and such other terms and conditions as the Administrator shall determine in its sole discretion. TheNon-Employee Director Equity Compensation Policy may be modified by the Administrator from time to time in
its sole discretion and pursuant to the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from time to time.
(b)Director Limit. Notwithstanding any provision to the contrary in the Plan or in theNon-Employee Director Equity Compensation Policy, the sum of the grant date fair value of equity-based Awards granted to aNon-Employee Director during any calendar year shall not exceed $600,000 (the “Director Limit”). The Administrator may make exceptions to this limit for individualNon-Employee Directors in extraordinary circumstances, as the Administrator may determine in its discretion, provided that theNon-Employee Director receiving such additional compensation may not participate in the decision to award such compensation or in other contemporaneous compensation decisions involvingNon-Employee Directors.
ARTICLE 5.
GRANTING OF OPTIONS AND STOCK APPRECIATION RIGHTS
5.1Granting of Options and Stock Appreciation Rights to Eligible Individuals. The Administrator is authorized to grant Options and Stock Appreciation Rights to Eligible Individuals from time to time, in its sole discretion, on such terms and conditions as it may determine, which shall not be inconsistent with the Plan, including any limitations in the Plan that apply to Incentive Stock Options.
5.2Qualification of Incentive Stock Options. The Administrator may grant Options intended to qualify as Incentive Stock Options only to employees of the Company, any of the Company’s present or future “parent corporations” or “subsidiary corporations” as defined in Sections 424(e) or (f) of the Code, respectively, and any other entities the employees of which are eligible to receive Incentive Stock Options under the Code. No person who qualifies as a Greater Than 10% Stockholder may be granted an Incentive Stock Option unless such Incentive Stock Option conforms to the applicable provisions of Section 422 of the Code. To the extent that the aggregate fair market value of stock with respect to which “incentive stock options” (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by a Holder during any calendar year under the Plan, and all other plans of the Company and any parent corporation or subsidiary corporation thereof (as defined in Section 424(e) and 424(f) of the Code, respectively), exceeds $100,000, the Options shall be treated asNon-Qualified Stock Options to the extent required by Section 422 of the Code. The rule set forth in the immediately preceding sentence shall be applied by taking Options and other “incentive stock options” into account in the order in which they were granted and the fair market value of stock shall be determined as of the time the respective options were granted. Any interpretations and rules under the Plan with respect to Incentive Stock Options shall be consistent with the provisions of Section 422 of the Code. Neither the Company nor the Administrator shall have any liability to a Holder, or any other person, (a) if an Option (or any part thereof) which is intended to qualify as an Incentive Stock Option fails to qualify as an Incentive Stock Option or (b) for any action or omission by the Company or the Administrator that causes an Option not to qualify as an Incentive Stock Option, including, without limitation, the conversion of an Incentive Stock Option to aNon-Qualified Stock Option or the grant of an Option intended as an Incentive Stock Option that fails to satisfy the requirements under the Code applicable to an Incentive Stock Option.
5.3Option and Stock Appreciation Right Exercise Price. The exercise price per Share subject to each Option and Stock Appreciation Right shall be set by the Administrator, but shall not be less than 100% of the Fair Market Value of a Share on the date the Option or Stock Appreciation Right, as applicable, is granted (or, as to Incentive Stock Options, on the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code). In addition, in the case of Incentive Stock Options granted to a Greater Than 10% Stockholder, such price shall not be less than 110% of the Fair Market Value of a Share on the date the Option is granted (or the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code). Notwithstanding the foregoing, in the case of an Option or Stock Appreciation Right that is a Substitute Award, the exercise price per share of the Shares subject to such Option or Stock Appreciation Right, as applicable, may be less than the Fair Market Value per share on the date of grant;provided that the exercise price of any
Substitute Award shall be determined in accordance with the applicable requirements of Section 424 and 409A of the Code.
5.4Option and SAR Term. The term of each Option (the “Option Term”) and the term of each Stock Appreciation Right (the “SAR Term”) shall be set by the Administrator in its sole discretion;provided,however, that the Option Term or SAR Term, as applicable, shall not be more than (a) ten (10) years from the date the Option or Stock Appreciation Right, as applicable, is granted to an Eligible Individual (other than a Greater Than 10% Stockholder), or (b) five (5) years from the date an Incentive Stock Option is granted to a Greater Than 10% Stockholder. Except as limited by the requirements of Section 409A or Section 422 of the Code and regulations and rulings thereunder or the first sentence of this Section 5.4 and without limiting the Company’s rights under Section 10.7, the Administrator may extend the Option Term of any outstanding Option or the SAR Term of any outstanding Stock Appreciation Right, and may extend the time period during which vested Options or Stock Appreciation Rights may be exercised, in connection with any Termination of Service of the Holder or otherwise, and may amend, subject to Section 10.7 and 12.1, any other term or condition of such Option or Stock Appreciation Right relating to such Termination of Service of the Holder or otherwise.
5.5Option and SAR Vesting. The period during which the right to exercise, in whole or in part, an Option or Stock Appreciation Right vests in the Holder shall be set by the Administrator and set forth in the applicable Award Agreement. Notwithstanding the foregoing and unless determined otherwise by the Company, in the event that on the last business day of the term of an Option or Stock Appreciation Right (other than an Incentive Stock Option) (a) the exercise of the Option or Stock Appreciation Right is prohibited by Applicable Law, as determined by the Company, or (b) Shares may not be purchased or sold by the applicable Participant due to any Company insider trading policy (including blackout periods) or a“lock-up” agreement undertaken in connection with an issuance of securities by the Company, the term of the Option or Stock Appreciation Right shall be extended until the date that is thirty (30) days after the end of the legal prohibition,black-out period orlock-up agreement, as determined by the Company; provided, however, in no event shall the extension last beyond the ten year term of the applicable Option or Stock Appreciation Right. Unless otherwise determined by the Administrator in the Award Agreement, the applicable Program or by action of the Administrator following the grant of the Option or Stock Appreciation Right, (i) no portion of an Option or Stock Appreciation Right which is unexercisable at a Holder’s Termination of Service shall thereafter become exercisable and (ii) the portion of an Option or Stock Appreciation Right that is unexercisable at a Holder’s Termination of Service shall automatically expire thirty (30) days folloing such Termination of Service.
ARTICLE 6.
EXERCISE OF OPTIONS AND STOCK APPRECIATION RIGHTS
6.1Exercise and Payment. An exercisable Option or Stock Appreciation Right may be exercised in whole or in part. However, unless the Administrator otherwise determines, an Option or Stock Appreciation Right shall not be exercisable with respect to fractional Shares and the Administrator may require that, by the terms of the Option or Stock Appreciation Right, a partial exercise must be with respect to a minimum number of Shares. Payment of the amounts payable with respect to Stock Appreciation Rights pursuant to this Article 6 shall be in cash, Shares (based on its Fair Market Value as of the date the Stock Appreciation Right is exercised), or a combination of both, as determined by the Administrator.
6.2Manner of Exercise. All or a portion of an exercisable Option or Stock Appreciation Right shall be deemed exercised upon delivery of all of the following to the Secretary of the Company, the stock plan administrator of the Company or such other person or entity designated by the Administrator, or his, her or its office, as applicable:
(a) A written notice of exercise in a form the Administrator approves (which may be electronic) complying with the applicable rules established by the Administrator. The notice shall be signed or otherwise
acknowledge electronically by the Holder or other person then entitled to exercise the Option or Stock Appreciation Right or such portion thereof;
(b) Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with Applicable Law.
(c) In the event that the Option shall be exercised pursuant to Section 10.3 by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Option or Stock Appreciation Right, as determined in the sole discretion of the Administrator; and
(d) Full payment of the exercise price and applicable withholding taxes for the Shares with respect to which the Option or Stock Appreciation Right, or portion thereof, is exercised, in a manner permitted by the Administrator in accordance with Sections 10.1 and 10.2.
6.3Notification Regarding Disposition. The Holder shall give the Company prompt written or electronic notice of any disposition or other transfers (other than in connection with a Change in Control) of Shares acquired by exercise of an Incentive Stock Option which occurs within (a) two years from the date of granting (including the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code) such Option to such Holder, or (b) one year after the date of transfer of such Shares to such Holder. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by the Holder in such disposition or other transfer.
ARTICLE 7.
AWARD OF RESTRICTED STOCK
7.1Award of Restricted Stock. The Administrator is authorized to grant Restricted Stock, or the right to purchase Restricted Stock, to Eligible Individuals, and shall determine the terms and conditions, including the restrictions applicable to each award of Restricted Stock, which terms and conditions shall not be inconsistent with the Plan or any applicable Program, and may impose such conditions on the issuance of such Restricted Stock as it deems appropriate. The Administrator shall establish the purchase price, if any, and form of payment for Restricted Stock;provided,however, that if a purchase price is charged, such purchase price shall be no less than the par value, if any, of the Shares to be purchased, unless otherwise permitted by Applicable Law. In all cases, legal consideration shall be required for each issuance of Restricted Stock to the extent required by Applicable Law.
7.2Rights as Stockholders. Subject to Section 7.4, upon issuance of Restricted Stock, the Holder shall have, unless otherwise provided by the Administrator, all of the rights of a stockholder with respect to said Shares, subject to the restrictions in the Plan, any applicable Program and/or the applicable Award Agreement, including the right to receive all dividends and other distributions paid or made with respect to the Shares to the extent such dividends and other distributions have a record date that is on or after the date on which the Holder to whom such Restricted Stock are granted becomes the record holder of such Restricted Stock;provided,however, that, in the sole discretion of the Administrator, any extraordinary dividends or distributions with respect to the Shares may be subject to the restrictions set forth in Section 7.3.
7.3Restrictions. All shares of Restricted Stock (including any shares received by Holders thereof with respect to shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization) and, unless the Administrator provides otherwise, any property (other than cash) transferred to Holders in connection with an extraordinary dividend or distribution shall be subject to such restrictions and vesting requirements as the Administrator shall provide in the applicable Program or Award Agreement.
7.4Repurchase or Forfeiture of Restricted Stock. Except as otherwise determined by the Administrator, if no price was paid by the Holder for the Restricted Stock, upon a Termination of Service during the applicable
restriction period, the Holder’s rights in unvested Restricted Stock then subject to restrictions shall lapse, and such Restricted Stock shall be surrendered to the Company and cancelled without consideration on the date of such Termination of Service. If a price was paid by the Holder for the Restricted Stock, upon a Termination of Service during the applicable restriction period, the Company shall have the right to repurchase from the Holder the unvested Restricted Stock then subject to restrictions at a cash price per share equal to the price paid by the Holder for such Restricted Stock or such other amount as may be specified in the applicable Program or Award Agreement.
7.5Section 83(b) Election. If a Holder makes an election under Section 83(b) of the Code to be taxed with respect to the Restricted Stock as of the date of transfer of the Restricted Stock rather than as of the date or dates upon which the Holder would otherwise be taxable under Section 83(a) of the Code, the Holder shall be required to deliver a copy of such election to the Company promptly after filing such election with the Internal Revenue Service along with proof of the timely filing thereof with the Internal Revenue Service.
ARTICLE 8.
AWARD OF RESTRICTED STOCK UNITS
8.1Grant of Restricted Stock Units. The Administrator is authorized to grant Awards of Restricted Stock Units to any Eligible Individual selected by the Administrator in such amounts and subject to such terms and conditions as determined by the Administrator. A Holder will have no rights of a stockholder with respect to Shares subject to any Restricted Stock Unit unless and until the Shares are delivered in settlement of the Restricted Stock Unit.
8.2Vesting of Restricted Stock Units. At the time of grant, the Administrator shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate, including, without limitation, vesting based upon the Holder’s duration of service to the Company or any Subsidiary, one or more Performance Goals or other specific criteria, in each case on a specified date or dates or over any period or periods, as determined by the Administrator. An Award of Restricted Stock Units shall only be eligible to vest while the Holder is an Employee, a Consultant or a Director, as applicable;provided,however, that the Administrator, in its sole discretion, may provide (in an Award Agreement or otherwise) that a Restricted Stock Unit award may become vested subsequent to a Termination of Service in the event of the occurrence of certain events, including a Change in Control, the Holder’s death, retirement or disability or any other specified Termination of Service subject to Section 11.7.
8.3Maturity and Payment. At the time of grant, the Administrator shall specify the maturity date applicable to each grant of Restricted Stock Units, which shall be no earlier than the vesting date or dates of the Award and may be determined at the election of the Holder (if permitted by the applicable Award Agreement);provided that, except as otherwise determined by the Administrator, and subject to compliance with Section 409A, in no event shall the maturity date relating to each Restricted Stock Unit occur following the later of (a) the 15th day of the third month following the end of the calendar year in which the applicable portion of the Restricted Stock Unit vests; and (b) the 15th day of the third month following the end of the Company’s fiscal year in which the applicable portion of the Restricted Stock Unit vests. On the maturity date, the Company shall, in accordance with the applicable Award Agreement and subject to Section 10.4(f), transfer to the Holder one unrestricted, fully transferable Share for each Restricted Stock Unit scheduled to be paid out on such date and not previously forfeited, or in the sole discretion of the Administrator, an amount in cash equal to the Fair Market Value of such Shares on the maturity date or a combination of cash and Common Stock as determined by the Administrator.
ARTICLE 9.
AWARD OF OTHER STOCK OR CASH BASED AWARDS AND DIVIDEND EQUIVALENTS
9.1Other Stock or Cash Based Awards. The Administrator is authorized to grant Other Stock or Cash Based Awards, including awards entitling a Holder to receive Shares or cash to be delivered immediately or in the future, to any Eligible Individual. Subject to the provisions of the Plan and any applicable Program, the Administrator shall determine the terms and conditions of each Other Stock or Cash Based Award, including the term of the Award, any exercise or purchase price, Performance Criteria and Performance Goals, transfer restrictions, vesting conditions and other terms and conditions applicable thereto, which shall be set forth in the applicable Award Agreement. Other Stock or Cash Based Awards may be paid in cash, Shares, or a combination of cash and Shares, as determined by the Administrator, and may be available as a form of payment in the settlement of other Awards granted under the Plan, as stand-alone payments, as a part of a bonus, deferred bonus, deferred compensation or other arrangement, and/or as payment in lieu of compensation to which an Eligible Individual is otherwise entitled.
9.2Dividend Equivalents. Dividend Equivalents may be granted by the Administrator, either alone or in tandem with another Award, based on dividends declared on the Common Stock, to be credited as of dividend payment dates during the period between the date the Dividend Equivalents are granted to a Holder and the date such Dividend Equivalents terminate or expire, as determined by the Administrator. Such Dividend Equivalents shall be converted to cash or additional Shares by such formula and at such time and subject to such restrictions and limitations as may be determined by the Administrator. Notwithstanding the foregoing, no Dividend Equivalents shall be payable with respect to Options or Stock Appreciation Rights.
ARTICLE 10.
ADDITIONAL TERMS OF AWARDS
10.1Payment. The Administrator shall determine the method or methods by which payments by any Holder with respect to any Awards granted under the Plan shall be made, including, without limitation: (a) cash, wire transfer of immediately available funds or check, (b) Shares (including, in the case of payment of the exercise price of an Award, Shares issuable pursuant to the exercise of the Award) or Shares held for such minimum period of time as may be established by the Administrator, in each case, having a Fair Market Value on the date of delivery equal to the aggregate payments required, (c) delivery of a written or electronic notice that the Holder has placed a market sell order with a broker acceptable to the Company with respect to Shares then issuable upon exercise or vesting of an Award, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate payments required;provided that payment of such proceeds is then made to the Company upon settlement of such sale, (d) other form of legal consideration acceptable to the Administrator in its sole discretion, or (e) any combination of the above permitted forms of payment. Notwithstanding any other provision of the Plan to the contrary, no Holder who is a Director or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to make payment with respect to any Awards granted under the Plan, or continue any extension of credit with respect to such payment, with a loan from the Company or a loan arranged by the Company in violation of Section 13(k) of the Exchange Act.
10.2Tax Withholding. The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Holder to remit to the Company, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Holder’s FICA, employment tax or other social security contribution obligation) required by law to be withheld with respect to any taxable event concerning a Holder arising as a result of the Plan or any Award. The Administrator may, in its sole discretion and in satisfaction of the foregoing requirement, or in satisfaction of such additional withholding obligations as a Holder may have elected, allow a Holder to satisfy such obligations by any payment means described in Section 10.1 hereof, including without limitation, by
allowing such Holder to elect to have the Company or any Subsidiary withhold Shares otherwise issuable under an Award (or allow the surrender of Shares). The number of Shares that may be so withheld or surrendered shall be limited to the number of Shares that have a fair market value on the date of withholding or repurchase no greater than the aggregate amount of such liabilities based on the maximum statutory withholding rates in such Holder’s applicable jurisdictions for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such taxable income. The Administrator shall determine the fair market value of the Shares, consistent with applicable provisions of the Code, for tax withholding obligations due in connection with a broker-assisted cashless Option or Stock Appreciation Right exercise involving the sale of Shares to pay the Option or Stock Appreciation Right exercise price or any tax withholding obligation.
10.3Transferability of Awards.
(a) Except as otherwise provided in Sections 10.3(b) and 10.3(c):
(i) No Award under the Plan may be sold, pledged, assigned or transferred in any manner other than (A) by will or the laws of descent and distribution or (B) subject to the consent of the Administrator, pursuant to a DRO, unless and until such Award has been exercised or the Shares underlying such Award have been issued, and all restrictions applicable to such Shares have lapsed;
(ii) No Award or interest or right therein shall be liable for or otherwise subject to the debts, contracts or engagements of the Holder or the Holder’s successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, hypothecation, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy) unless and until such Award has been exercised, or the Shares underlying such Award have been issued, and all restrictions applicable to such Shares have lapsed, and any attempted disposition of an Award prior to satisfaction of these conditions shall be null and void and of no effect, except to the extent that such disposition is permitted by Section 10.3(a)(i); and
(iii) During the lifetime of the Holder, only the Holder may exercise any exercisable portion of an Award granted to such Holder under the Plan, unless it has been disposed of pursuant to a DRO. After the death of the Holder, any exercisable portion of an Award may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Program or Award Agreement, be exercised by the Holder’s personal representative or by any person empowered to do so under the deceased Holder’s will or under the then-applicable laws of descent and distribution.
(b) Notwithstanding Section 10.3(a), the Administrator, in its sole discretion, may determine to permit a Holder or a Permitted Transferee of such Holder to transfer an Award other than an Incentive Stock Option (unless such Incentive Stock Option is intended to become a Nonqualified Stock Option) to any one or more Permitted Transferees of such Holder, subject to the following terms and conditions: (i) an Award transferred to a Permitted Transferee shall not be assignable or transferable by the Permitted Transferee other than (A) to another Permitted Transferee of the applicable Holder or (B) by will or the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a DRO; (ii) an Award transferred to a Permitted Transferee shall continue to be subject to all the terms and conditions of the Award as applicable to the original Holder (other than the ability to further transfer the Award to any person other than another Permitted Transferee of the applicable Holder); (iii) the Holder (or transferring Permitted Transferee) and the receiving Permitted Transferee shall execute any and all documents requested by the Administrator, including, without limitation documents to (A) confirm the status of the transferee as a Permitted Transferee, (B) satisfy any requirements for an exemption for the transfer under Applicable Law and (C) evidence the transfer; and (iv) the transfer of an Award to a Permitted Transferee shall be without consideration. In addition, and further notwithstanding Section 10.3(a), hereof, the Administrator, in its sole discretion, may determine to permit a Holder to transfer Incentive Stock Options to a trust that constitutes a Permitted Transferee if, under Section 671 of the Code and other Applicable Law, the Holder is considered the sole beneficial owner of the Incentive Stock Option while it is held in the trust.
(c) Notwithstanding Section 10.3(a), a Holder may, in the manner determined by the Administrator, designate a beneficiary to exercise the rights of the Holder and to receive any distribution with respect to any Award upon the Holder’s death. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Program or Award Agreement applicable to the Holder and any additional restrictions deemed necessary or appropriate by the Administrator. If the Holder is married or a domestic partner in a domestic partnership qualified under Applicable Law and resides in a community property state, a designation of a person other than the Holder’s spouse or domestic partner, as applicable, as the Holder’s beneficiary with respect to more than 50% of the Holder’s interest in the Award shall not be effective without the prior written or electronic consent of the Holder’s spouse or domestic partner. If no beneficiary has been designated or survives the Holder, payment shall be made to the person entitled thereto pursuant to the Holder’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Holder at any time;provided that the change or revocation is delivered in writing to the Administrator prior to the Holder’s death.
10.4Conditions to Issuance of Shares.
(a) The Administrator shall determine the methods by which Shares shall be delivered or deemed to be delivered to Holders. Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates or make any book entries evidencing Shares pursuant to the exercise of any Award, unless and until the Administrator has determined that the issuance of such Shares is in compliance with Applicable Law and the Shares are covered by an effective registration statement or applicable exemption from registration. In addition to the terms and conditions provided herein, the Administrator may require that a Holder make such reasonable covenants, agreements and representations as the Administrator, in its sole discretion, deems advisable in order to comply with Applicable Law.
(b) All share certificates delivered pursuant to the Plan and all Shares issued pursuant to book entry procedures are subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with Applicable Law. The Administrator may place legends on any share certificate or book entry to reference restrictions applicable to the Shares (including, without limitation, restrictions applicable to Restricted Stock).
(c) The Administrator shall have the right to require any Holder to comply with any timing or other restrictions with respect to the settlement, distribution or exercise of any Award, including a window-period limitation, as may be imposed in the sole discretion of the Administrator.
(d) Unless the Administrator otherwise determines, no fractional Shares shall be issued and the Administrator, in its sole discretion, shall determine whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding down.
(e) The Company, in its sole discretion, may (i) retain physical possession of any stock certificate evidencing Shares until any restrictions thereon shall have lapsed and/or (ii) require that the stock certificates evidencing such Shares be held in custody by a designated escrow agent (which may but need not be the Company) until the restrictions thereon shall have lapsed, and that the Holder deliver a stock power, endorsed in blank, relating to such Shares.
(f) Notwithstanding any other provision of the Plan, unless otherwise determined by the Administrator or required by Applicable Law, the Company shall not deliver to any Holder certificates evidencing Shares issued in connection with any Award and instead such Shares shall be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator).
10.5Forfeiture and Claw-Back Provisions. All Awards (including any proceeds, gains or other economic benefit actually or constructively received by a Holder upon any receipt or exercise of any Award or upon the receipt or resale of any Shares underlying the Award and any payments of a portion of an incentive-based bonus
pool allocated to a Holder) shall be subject to the provisions of any claw-back policy implemented by the Company, including, without limitation, any claw-back policy adopted to comply with the requirements of Applicable Law, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder, whether or not such claw-back policy was in place at the time of grant of an Award, to the extent set forth in such claw-back policy and/or in the applicable Award Agreement.
10.6Repricing. Subject to Section 12.2, the Administrator shall not, without the approval of the stockholders of the Company, (a) authorize the amendment of any outstanding Option or Stock Appreciation Right to reduce its price per Share, or (b) cancel any Option or Stock Appreciation Right in exchange for cash or another Award when the Option or Stock Appreciation Right price per Share exceeds the Fair Market Value of the underlying Shares. Furthermore, for purposes of this Section 10.6, except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation,split-up,spin-off, combination or exchange of shares), the terms of outstanding Awards may not be amended to reduce the exercise price per Share of outstanding Options or Stock Appreciation Rights or cancel outstanding Options or Stock Appreciation Rights in exchange for cash, other Awards or Options or Stock Appreciation Rights with an exercise price per Share that is less than the exercise price per Share of the original Options or Stock Appreciation Rights without the approval of the stockholders of the Company.
10.7Amendment of Awards. Subject to Applicable Law, the Administrator may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or settlement, and converting an Incentive Stock Option to aNon-Qualified Stock Option. The Holder’s consent to such action shall be required unless (a) the Administrator determines that the action, taking into account any related action, would not materially and adversely affect the Holder, or (b) the change is otherwise permitted under the Plan (including, without limitation, under Section 12.2 or 12.10).
10.8Lock-Up Period. The Company may, in connection with registering the offering of any Company securities under the Securities Act, prohibit Holders from, directly or indirectly, selling or otherwise transferring any Shares or other Company securities during a period of up to one hundred eighty days following the effective date of a Company registration statement filed under the Securities Act, or such longer period as determined by the underwriter. In order to enforce the foregoing, the Company shall have the right to place restrictive legends on the certificates of any securities of the Company held by the Holder and to impose stop transfer instructions with the Company’s transfer agent with respect to any securities of the Company held by the Holder until the end of such period.
10.9Data Privacy. As a condition of receipt of any Award, each Holder explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of personal data as described in this Section 10.9 by and among, as applicable, the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Holder’s participation in the Plan. The Company and its Subsidiaries may hold certain personal information about a Holder, including but not limited to, the Holder’s name, home address and telephone number, date of birth, social security or insurance number or other identification number, salary, nationality, job title(s), any shares of stock held in the Company or any of its Subsidiaries, details of all Awards, in each case, for the purpose of implementing, managing and administering the Plan and Awards (the “Data”). The Company and its Subsidiaries may transfer the Data amongst themselves as necessary for the purpose of implementation, administration and management of a Holder’s participation in the Plan, and the Company and its Subsidiaries may each further transfer the Data to any third parties assisting the Company and its Subsidiaries in the implementation, administration and management of the Plan. These recipients may be located in the Holder’s country, or elsewhere, and the Holder’s country may have different data privacy laws and protections than the recipients’ country. Through acceptance of an Award, each Holder authorizes such recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Holder’s participation in the Plan, including any
requisite transfer of such Data as may be required to a broker or other third party with whom the Company or any of its Subsidiaries or the Holder may elect to deposit any Shares. The Data related to a Holder will be held only as long as is necessary to implement, administer, and manage the Holder’s participation in the Plan. A Holder may, at any time, view the Data held by the Company with respect to such Holder, request additional information about the storage and processing of the Data with respect to such Holder, recommend any necessary corrections to the Data with respect to the Holder or refuse or withdraw the consents herein in writing, in any case without cost, by contacting his or her local human resources representative. The Company may cancel the Holder’s ability to participate in the Plan and, in the Administrator’s discretion, the Holder may forfeit any outstanding Awards if the Holder refuses or withdraws his or her consents as described herein. For more information on the consequences of refusal to consent or withdrawal of consent, Holders may contact their local human resources representative.
ARTICLE 11.
ADMINISTRATION
11.1Administrator. The Committee shall administer the Plan (except as otherwise permitted herein). To the extent required to comply with the provisions of Rule16b-3, it is intended that each member of the Committee will be, at the time the Committee takes any action with respect to an Award that is subject to Rule16b-3, a“non-employee director” within the meaning of Rule16b-3. Additionally, to the extent required by Applicable Law, each of the individuals constituting the Committee shall be an “independent director” under the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded. Notwithstanding the foregoing, any action taken by the Committee shall be valid and effective, whether or not members of the Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in this Section 11.1 or the Organizational Documents. Except as may otherwise be provided in the Organizational Documents or as otherwise required by Applicable Law, (a) appointment of Committee members shall be effective upon acceptance of appointment, (b) Committee members may resign at any time by delivering written or electronic notice to the Board and (c) vacancies in the Committee may only be filled by the Board. Notwithstanding the foregoing, (i) the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to Awards granted toNon-Employee Directors and, with respect to such Awards, the term “Administrator” as used in the Plan shall be deemed to refer to the Board and (ii) the Board or Committee may delegate its authority hereunder to the extent permitted by Section 11.6.
11.2Duties and Powers of Administrator. It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with its provisions. The Administrator shall have the power to interpret the Plan, all Programs and Award Agreements, and to adopt such rules for the administration, interpretation and application of the Plan and any Program as are not inconsistent with the Plan, to interpret, amend or revoke any such rules and to amend the Plan or any Program or Award Agreement;provided that the rights or obligations of the Holder of the Award that is the subject of any such Program or Award Agreement are not materially and adversely affected by such amendment, unless the consent of the Holder is obtained or such amendment is otherwise permitted under Section 10.7 or Section 12.10. In its sole discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee in its capacity as the Administrator under the Plan except with respect to matters which under Rule16b-3 under the Exchange Act or any successor rule, or any regulations or rules issued thereunder, or the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded are required to be determined in the sole discretion of the Committee.
11.3Action by the Administrator. Unless otherwise established by the Board, set forth in any Organizational Documents or as required by Applicable Law, a majority of the Administrator shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by all members of the Administrator in lieu of a meeting, shall be deemed the acts of the Administrator.
Each member of the Administrator is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Subsidiary, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan. Neither the Administrator nor any member or delegate thereof shall have any liability to any person (including any Holder) for any action taken or omitted to be taken or any determination made in good faith with respect to the Plan or any Award.
11.4Authority of Administrator. Subject to the Organizational Documents, any specific designation in the Plan and Applicable Law, the Administrator has the exclusive power, authority and sole discretion to:
(a) Designate Eligible Individuals to receive Awards;
(b) Determine the type or types of Awards to be granted to each Eligible Individual (including, without limitation, any Awards granted in tandem with another Award granted pursuant to the Plan);
(c) Determine the number of Awards to be granted and the number of Shares to which an Award will relate;
(d) Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, purchase price, any Performance Criteria and/or Performance Goals, any restrictions or limitations on the Award, any schedule for vesting, lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, and any provisions related tonon-competition and claw-back and recapture of gain on an Award, based in each case on such considerations as the Administrator in its sole discretion determines;
(e) Determine whether, to what extent, and under what circumstances an Award may be settled in, or the exercise price of an Award may be paid in cash, Shares, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which need not be identical for each Holder;
(g) Decide all other matters that must be determined in connection with an Award;
(h) Establish, adopt, or revise any Programs, rules and regulations as it may deem necessary or advisable to administer the Plan;
(i) Interpret the terms of, and any matter arising pursuant to, the Plan, any Program or any Award Agreement; and
(j) Make all other decisions and determinations that may be required pursuant to the Plan or as the Administrator deems necessary or advisable to administer the Plan.
11.5Decisions Binding. The Administrator’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Program or any Award Agreement and all decisions and determinations by the Administrator with respect to the Plan are final, binding and conclusive on all persons.
11.6Delegation of Authority. The Board or Committee may from time to time delegate to a committee of one or more Directors or one or more officers of the Company the authority to grant or amend Awards or to take other administrative actions pursuant to this Article 11;provided,however, that in no event shall an officer of the Company be delegated the authority to grant Awards to, or amend Awards held by, the following individuals: (a) individuals who are subject to Section 16 of the Exchange Act, or (b) officers of the Company (or Directors) to whom authority to grant or amend Awards has been delegated hereunder;provided,further, that any delegation of administrative authority shall only be permitted to the extent it is permissible under any Organizational Documents and Applicable Law. Any delegation hereunder shall be subject to the restrictions and
limits that the Board or Committee specifies at the time of such delegation or that are otherwise included in the applicable Organizational Documents, and the Board or Committee, as applicable, may at any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee appointed under this Section 11.6 shall serve in such capacity at the pleasure of the Board or the Committee, as applicable, and the Board or the Committee may abolish any committee at any time andre-vest in itself any previously delegated authority.
11.7Acceleration. Subject to the Organizational Documents, any specific designation in the Plan and Applicable Law, the Administrator has the exclusive power, authority and sole discretion to accelerate, wholly or partially, the vesting or lapse of restrictions (and, if applicable, the Company shall cease to have a right of repurchase) of any Award or portion thereof at any time after the grant of an Award, subject to whatever terms and conditions it selects and Section 12.2.
ARTICLE 12.
MISCELLANEOUS PROVISIONS
12.1Amendment, Suspension or Termination of the Plan.
(a) Except as otherwise provided in Section 12.1(b), the Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board;provided that, except as provided in Section 10.7 and Section 12.10, no amendment, suspension or termination of the Plan shall, without the consent of the Holder, materially and adversely affect any rights or obligations under any Award theretofore granted or awarded, unless the Award itself otherwise expressly so provides.
(b) Notwithstanding Section 12.1(a), the Board may not, except as provided in Section 12.2, take any of the following actions without approval of the Company’s stockholders given within twelve (12) months before or after such action: (i) increase the limit imposed in Section 3.1 on the maximum number of Shares which may be issued under the Plan, (ii) reduce the price per share of any outstanding Option or Stock Appreciation Right granted under the Plan or take any action prohibited under Section 11.6, or (iii) cancel any Option or Stock Appreciation Right in exchange for cash or another Award in violation of Section 10.6.
(c) No Awards may be granted or awarded during any period of suspension or after termination of the Plan, and notwithstanding anything herein to the contrary, in no event may any Award be granted under the Plan after the tenth (10th) anniversary of the earlier of (i) the date on which the Plan was adopted by the Board or (ii) the date the Plan was approved by the Company’s stockholders (such anniversary, the “Expiration Date”). Any Awards that are outstanding on the Expiration Date shall remain in force according to the terms of the Plan, the applicable Program and the applicable Award Agreement.
12.2Changes in Common Stock or Assets of the Company, Acquisition or Liquidation of the Company and Other Corporate Events.
(a) In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the shares of the Company’s stock or the share price of the Company’s stock other than an Equity Restructuring, the Administrator may make equitable adjustments to reflect such change with respect to: (i) the aggregate number and kind of Shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3.1 on the maximum number and kind of Shares which may be issued under the Plan); (ii) the number and kind of Shares (or other securities or property) subject to outstanding Awards; (iii) the terms and conditions of any outstanding Awards (including, without limitation, any applicable Performance Criteria and Performance Goals with respect thereto); (iv) the grant or exercise price per share for any outstanding Awards under the Plan; and (v) the number and kind of Shares (or other securities or property) for which automatic grants are subsequently to be made to new and continuingNon-Employee Directors pursuant to anyNon-Employee Director Compensation Policy adopted in accordance with Section 4.6.
(b) In the event of any transaction or event described in Section 12.2(a) or any unusual or nonrecurring transactions or events affecting the Company, any Subsidiary of the Company, or the financial statements of the Company or any Subsidiary, or of changes in Applicable Law or Applicable Accounting Standards, the Administrator, in its sole discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in Applicable Law or Applicable Accounting Standards:
(i) To provide for the termination of any such Award in exchange for an amount of cash and/or other property with a value equal to the amount that would have been attained upon the exercise of such Award or realization of the Holder’s rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in this Section 12.2 the Administrator determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Holder’s rights, then such Award may be terminated by the Company without payment);
(ii) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and applicable exercise or purchase price, in all cases, as determined by the Administrator;
(iii) To make adjustments in the number and type of Shares of the Company’s stock (or other securities or property) subject to outstanding Awards, and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Awards and Awards which may be granted in the future;
(iv) To provide that such Award shall be exercisable or payable or fully vested with respect to all Shares covered thereby, notwithstanding anything to the contrary in the Plan or the applicable Program or Award Agreement;
(v) To replace such Award with other rights or property selected by the Administrator; and/or
(vi) To provide that the Award cannot vest, be exercised or become payable after such event.
(c) In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in Sections 12.2(a) and 12.2(b):
(i) The number and type of securities subject to each outstanding Award and the exercise price or grant price thereof, if applicable, shall be equitably adjusted (and the adjustments provided under this Section 12.2(c)(i) shall be nondiscretionary and shall be final and binding on the affected Holder and the Company); and/or
(ii) The Administrator shall make such equitable adjustments, if any, as the Administrator, in its sole discretion, may deem appropriate to reflect such Equity Restructuring with respect to the aggregate number and kind of Shares that may be issued under the Plan (including, but not limited to, adjustments of the limitation in Section 3.1 on the maximum number and kind of Shares which may be issued under the Plan).
(d) Notwithstanding any other provision of the Plan, in the event of a Change in Control, unless the Administrator elects to (i) terminate an Award in exchange for cash, rights or property, or (ii) cause an Award to become fully exercisable and no longer subject to any forfeiture restrictions prior to the consummation of a Change in Control, pursuant to Section 12.2, (A) such Award (other than any portion subject to performance-based vesting) shall continue in effect or be assumed or an equivalent Award (which may include, without
limitation, an Award settled in cash) substituted by the successor corporation or a parent or subsidiary of the successor corporation and (B) the portion of such Award subject to performance-based vesting shall be subject to the terms and conditions of the applicable Award Agreement and, in the absence of applicable terms and conditions, the Administrator’s discretion. In the event an Award continues in effect or is assumed or an equivalent Award substituted, and the surviving or successor company terminates Holder’s employment or service upon or within twelve (12) months following the Change in Control, then such Holder shall be fully vested in such continued, assumed or substituted Award.
(e) In the event that the successor corporation in a Change in Control refuses to assume or substitute for an Award (other than any portion subject to performance-based vesting), the Administrator may cause (i) any or all of such Award (or portion thereof) to terminate in exchange for cash, rights or other property pursuant to Section 12.2(b)(i) or (ii) any or all of such Award (or portion thereof) to become fully exercisable immediately prior to the consummation of such transaction and all forfeiture restrictions on any or all of such Award to lapse. If any such Award is exercisable in lieu of assumption or substitution in the event of a Change in Control, the Administrator shall notify the Holder that such Award shall be fully exercisable for a period of fifteen (15) days from the date of such notice, contingent upon the occurrence of the Change in Control, and such Award shall terminate upon the expiration of such period.
(f) For the purposes of this Section 12.2, an Award shall be considered assumed if, following the Change in Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) received in the Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares);provided,however, that if such consideration received in the Change in Control was not solely common stock of the successor corporation or its parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Award, for each Share subject to an Award, to be solely common stock of the successor corporation or its parent equal in fair market value to theper-share consideration received by holders of Common Stock in the Change in Control.
(g) The Administrator, in its sole discretion, may include such further provisions and limitations in any Award, agreement or certificate, as it may deem equitable and in the best interests of the Company that are not inconsistent with the provisions of the Plan.
(h) Unless otherwise determined by the Administrator, no adjustment or action described in this Section 12.2 or in any other provision of the Plan shall be authorized to the extent it would (i) cause the Plan to violate Section 422(b)(1) of the Code, (ii) result in short-swing profits liability under Section 16 of the Exchange Act or violate the exemptive conditions of Rule16b-3 of the Exchange Act, or (iii) cause an Award to fail to be exempt from or comply with Section 409A.
(i) The existence of the Plan, any Program, any Award Agreement and/or the Awards granted hereunder shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
(j) In the event of any pending stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the Shares or the share price of the Common Stock including any Equity Restructuring, for reasons of administrative convenience, the Administrator, in its sole discretion, may refuse to permit the
exercise of any Award during a period of up to thirty (30) days prior to the consummation of any such transaction.
12.3Approval of Plan by Stockholders. The Plan shall be submitted for the approval of the Company’s stockholders within twelve (12) months after the date of the Board’s initial adoption of the Plan. Awards may be granted or awarded prior to such stockholder approval;provided that such Awards shall not be exercisable, shall not vest and the restrictions thereon shall not lapse and no Shares shall be issued pursuant thereto prior to the time when the Plan is approved by the Company’s stockholders; andprovided,further, that if such approval has not been obtained at the end of said twelve (12) month period, all Awards previously granted or awarded under the Plan shall thereupon be canceled and become null and void.
12.4No Stockholders Rights. Except as otherwise provided herein or in an applicable Program or Award Agreement, a Holder shall have none of the rights of a stockholder with respect to Shares covered by any Award until the Holder becomes the record owner of such Shares.
12.5Paperless Administration. In the event that the Company establishes, for itself or using the services of a third party, an automated system for the documentation, granting or exercise of Awards, such as a system using an internet website or interactive voice response, then the paperless documentation, granting or exercise of Awards by a Holder may be permitted through the use of such an automated system.
12.6Effect of Plan upon Other Compensation Plans. The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company or any Subsidiary. Nothing in the Plan shall be construed to limit the right of the Company or any Subsidiary: (a) to establish any other forms of incentives or compensation for Employees, Directors or Consultants of the Company or any Subsidiary, or (b) to grant or assume options or other rights or awards otherwise than under the Plan in connection with any proper corporate purpose including without limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, limited liability company, firm or association.
12.7Compliance with Laws. The Plan, the granting and vesting of Awards under the Plan and the issuance and delivery of Shares and the payment of money under the Plan or under Awards granted or awarded hereunder are subject to compliance with all Applicable Law (including but not limited to state, federal and foreign securities law and margin requirements), and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with all Applicable Law. The Administrator, in its sole discretion, may take whatever actions it deems necessary or appropriate to effect compliance with Applicable Law, including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars. Notwithstanding anything to the contrary herein, the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate Applicable Law. To the extent permitted by Applicable Law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to Applicable Law.
12.8Titles and Headings, References to Sections of the Code or Exchange Act. The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. References to sections of the Code or the Exchange Act shall include any amendment or successor thereto.
12.9Governing Law. The Plan and any Programs and Award Agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof or of any other jurisdiction.
12.10Section 409A. To the extent that the Administrator determines that any Award granted under the Plan is subject to Section 409A, the Plan, the Program pursuant to which such Award is granted and the Award Agreement evidencing such Award shall incorporate the terms and conditions required by Section 409A. In that regard, to the extent any Award under the Plan or any other compensatory plan or arrangement of the Company or any of its Subsidiaries is subject to Section 409A, and such Award or other amount is payable on account of a Holder’s Termination of Service (or any similarly defined term), then (a) such Award or amount shall only be paid to the extent such Termination of Service qualifies as a “separation from service” as defined in Section 409A, and (b) if such Award or amount is payable to a “specified employee” as defined in Section 409A then, to the extent required in order to avoid a prohibited distribution under Section 409A, such Award or other compensatory payment shall not be payable prior to the earlier of (i) the expiration of thesix-month period measured from the date of the Holder’s Termination of Service, or (ii) the date of the Holder’s death. To the extent applicable, the Plan, the Program and any Award Agreements shall be interpreted in accordance with Section 409A. Notwithstanding any provision of the Plan to the contrary, in the event that, following the Effective Date the Administrator determines that any Award may be subject to Section 409A, the Administrator may (but is not obligated to), without a Holder’s consent, adopt such amendments to the Plan and the applicable Program and Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator determines are necessary or appropriate to (A) exempt the Award from Section 409A and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (B) comply with the requirements of Section 409A and thereby avoid the application of any penalty taxes under Section 409A. The Company makes no representations or warranties as to the tax treatment of any Award under Section 409A or otherwise. The Company shall have no obligation under this Section 12.10 or otherwise to take any action (whether or not described herein) to avoid the imposition of taxes, penalties or interest under Section 409A with respect to any Award and shall have no liability to any Holder or any other person if any Award, compensation or other benefits under the Plan are determined to constitutenon-compliant, “nonqualified deferred compensation” subject to the imposition of taxes, penalties and/or interest under Section 409A.
12.11Unfunded Status of Awards. The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Holder pursuant to an Award, nothing contained in the Plan or any Program or Award Agreement shall give the Holder any rights that are greater than those of a general creditor of the Company or any Subsidiary.
12.12Indemnification. To the extent permitted under Applicable Law and the Organizational Documents, each member of the Administrator (and each delegate thereof pursuant to Section 11.6) shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan or any Award Agreement and against and from any and all amounts paid by him or her, with the Board’s approval, in satisfaction of judgment in such action, suit, or proceeding against him or her;provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf and, once the Company gives notice of its intent to assume such defense, the Company shall have sole control over such defense with counsel of the Company’s choosing. The foregoing right of indemnification shall not be available to the extent that a court of competent jurisdiction in a final judgment or other final adjudication, in either case not subject to further appeal, determines that the acts or omissions of the person seeking indemnity giving rise to the indemnification claim resulted from such person’s bad faith, fraud or willful criminal act or omission. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Organizational Documents, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
12.13Relationship to Other Benefits. No payment pursuant to the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other
benefit plan of the Company or any Subsidiary except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.
12.14Expenses. The expenses of administering the Plan shall be borne by the Company and its Subsidiaries.
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I hereby certify that the foregoing Plan was duly adopted by the Board of Directors of Funko, Inc. on , 2019.
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I hereby certify that the foregoing Plan was approved by the stockholders of Funko, Inc. on , 2019.
Executed on this day of , 2019.
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DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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