Funko, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Limitations on Effectiveness of Controls and Procedures In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Evaluation of Disclosure Controls and Procedures Our management, with the participation of our chief executive officer and chief financial officer, has concluded, based on its evaluation as of December 31, 2020, that our “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“the Exchange Act”)), were effective at the reasonable assurance level as of December 31, 2020. Management's Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our management, under the supervision and with the participation of our chief executive officer and chief financial officer, conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the framework and criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of December 31, 2020, our internal control over financial reporting was effective. This annual report does not include an attestation report of our independent registered public accounting firm on internal control over financial reporting due to an exemption established by the JOBS Act for "emerging growth companies". Changes in Internal Control Over Financial Reporting In the course of completing our assessment of internal control over financial reporting as of December 31, 2019, management identified a material weakness in internal control over financial reporting related to the Company's absence of controls to ensure the completeness and accuracy of the information used in the calculation of duties payable to U.S. Customs at our Loungefly subsidiary. In 2019 and 2020, the Company implemented a number of remediation efforts to address the material weakness and to improve and strengthen our internal controls including the following: • Identified key stakeholders within the Company, both within the Loungefly subsidiary and overall global operations. • Formalized a Customs Policy and created Customs procedures specific to the review of custom entry forms. • Hired additional Compliance personnel and expanded the resources in the functional areas that support and monitor our global import functions. • Implemented expanded on-the-job training focused on the design and function of our control procedures, and employed dedicated compliance personnel to drive the design, maintenance and optimization of our control framework, including monitoring activities. 112 Table of Contents During the fourth quarter of 2020, we completed our evaluation of internal control over financial reporting and determined that controls and procedures over the affected Customs reporting were designed, implemented and tested to be operating effectively. Management has therefore concluded that the previously reported material weakness in internal control over financial reporting related to the completeness and accuracy of the information used in the calculation of duties payable to U.S. Customs had been remediated as of December 31, 2020. Except as described above, there have been no changes in the Company’s internal control over financial reporting that occurred during the three months ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B. OTHER INFORMATION Not applicable. 113 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Code of Ethics Our Code of Business Conduct and Ethics (the “Code of Conduct”) applies to all of our officers, directors and employees, including our principal executive officer, principal financial officer and principal accounting officer. The Code of Conduct is publicly available on our Internet website at www.funko.com. We intend to satisfy the disclosure required by law or Nasdaq Stock Market listing standards regarding any amendment to, or waiver from, a provision of the Code of Conduct by posting such information on our website at www.funko.com. Executive Officers and Directors Pursuant to General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, information regarding our executive officers is provided in Item 1 of this Annual Report on Form 10-K under the caption “Information about our Executive Officers and Board of Directors,” and will also appear in our definitive proxy statement for our 2021 Annual Meeting of Stockholders. The remaining information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K will be included under the headings “Election of Directors,” “Corporate Governance,” and “Delinquent Section 16(a) Reports” (if applicable) in our definitive proxy statement for our 2021 Annual Meeting of Stockholders, and such required information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by Items 402, 407(e)(4), and (e)(5) of Regulation S-K will be included under the headings “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” (if applicable) in our definitive proxy statement for our 2021 Annual Meeting of Stockholders, and such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Securities Authorized for Issuance Under Equity Compensation Plans (as of December 31, 2020) 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 Available for Future Issuance Under Equity Compensation Plans (Excludes Securities Reflected in First Column) Equity compensation plans approved by security holders 2,978,048 (1) Stock Options 2,904,979 $ 13.05 — Restricted Stock Units 1,868,427 — — Equity compensation plans not approved by security holders — — — Total 4,773,406 $ 13.05 2,978,048 (1) Includes 686,263 shares of Class A common stock available for issuance under our 2017 Incentive Award Plan and 2,291,785 shares of Class A common stock available for issuance under our 2019 Incentive Award Plan. The number of shares authorized under our 2019 Incentive Award Plan will 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 of Class A Common Stock outstanding as of the last day of the immediately preceding fiscal year on a fully-diluted basis and (B) such lesser number of shares of Class A common stock as determined by our Board of Directors. Other The remaining information required by Item 403 of Regulation S-K will be included under the heading “Security Ownership of Certain Beneficial Owners and Management” in our definitive proxy statement for our 2021 Annual Meeting of Stockholders, and such required information is incorporated herein by reference. 114 Table of Contents ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Items 404 and 407(a) of Regulation S-K will be included under the headings “Certain Relationships and Related Person Transactions,” “Corporate Governance” and “Director Independence” in our definitive proxy statement for our 2021 Annual Meeting of Stockholders, and such information is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by Item 9(e) of Schedule 14A of the Exchange Act will be included under the heading “Independent Registered Public Accounting Firm Fees and Other Matters” in our definitive proxy statement for our 2021 Annual Meeting of Stockholders, and such information is incorporated herein by reference. 115 Table of Contents PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Documents filed as part of this report: 1. Financial Statements The consolidated financial statements of the Company are listed in the index under Part II, Item 8, of this Annual Report on Form 10-K. 2. Financial Statement Schedules Schedule I: Condensed Financial Information of Registrant All other schedules are omitted because they are not applicable, not required or the required information is shown in the consolidated financial statements or notes thereto. 3. List of Exhibits EXHIBIT INDEX Exhibit Number Exhibit Description Incorporated by Reference Form File No. Exhibit Filing Date Filed/ Furnished Herewith 3.1 Amended and Restated Certificate of Incorporation of Funko, Inc. S-8 333-221390 4.1 11/7/2017 3.2 Amended and Restated Bylaws of Funko, Inc. S-8 333-221390 4.2 11/7/2017 4.1 Specimen Stock Certificate evidencing the shares of Class A common stock S-1/A 333-220856 4.1 10/23/2017 4.2 Description of Securities 10-K 001-38274 4.2 3/5/2020 10.1 † Funko Acquisition Holdings, L.L.C. 2015 Option Plan, Amended and Restated as of November 1, 2017. 10-K 001-38274 10.1 3/19/2018 10.2 † Form of Option Agreement Form of Option Agreement under Funko Acquisition Holdings, L.L.C. 2015 Option Plan. Funko Acquisition Holdings, L.L.C. 2015 Option Plan. S-1 333-220856 10.15 10/6/2017 10.3 † 2017 Incentive Award Plan, dated October 23, 2017. 10-K 001-38274 10.3 3/19/2018 10.4 † Form of Stock Option Agreement under 2017 Incentive Award Plan. S-1/A 333-220856 10.19 10/23/2017 10.5 † 2017 Executive Annual Incentive Plan, dated October 23, 2017. 10-K 001-38274 10.5 3/19/2018 10.6 † Employment Agreement, dated October 30, 2015, by and between Funko, LLC and Brian Mariotti. S-1 333-220856 10.18 10/6/2017 10.7 † Employment Agreement, dated October 20, 2017, by and between Funko, Inc. and Tracy Daw. 10-K 001-38274 10.10 3/19/2018 10.8 † Employment Agreement, dated October 20, 2017, by and between Funko, Inc. and Andrew Perlmutter. 10-K 001-38274 10.13 3/19/2018 10.9 † Form of Indemnification Agreement for Directors and Officers. S-1/A 333-220856 10.27 10/12/2017 116 Table of Contents Exhibit Number Exhibit Description Incorporated by Reference Form File No. Exhibit Filing Date Filed/ Furnished Herewith 10.10 † Form of Restricted Stock Unit Award Agreement under 2017 Incentive Award Plan 10-Q 001-38274 10.1 8/10/2018 10.11 † Funko, Inc. Non-Employee Director Compensation Policy. 10-K 001-38274 10.16 3/6/2019 10.12 Tax Receivable Agreement, dated as of November 1, 2017, between Funko, Inc., Funko Acquisition Holdings, L.L.C., the Members of the LLC, and Tax Receivable Agreement, dated as of November 1, 2017, between Funko, Inc., Funko Acquisition Holdings, L.L.C., the Members of the LLC, and the Management Representative. Management Representative. 10-K 001-38274 10.25 3/19/2018 10.13 Stockholders Agreement, dated as of November 1, 2017, between Funko, Inc., ACON Funko Investors, L.L.C. and related entities, Fundamental Capital, LLC, Funko International, LLC, and Brian Mariotti. 10-K 001-38274 10.26 3/19/2018 10.14 Second Amended and Restated LLC Agreement of Funko Acquisition Holdings, L.L.C., dated as of November 1, 2017. 10-K 001-38274 10.27 3/19/2018 10.15 Amendment No. 1 to Second Amended and Restated Limited Liability Company Agreement of Funko Acquisition Holdings L.L.C., dated as of May 10, 2018. 10-Q 001-38274 10.2 5/11/2018 10.16 Registration Rights Agreement, dated as of November 1, 2017, between Funko, Inc., ACON Funko Investors, L.L.C. and related entities, Fundamental Capital, LLC, Funko International, LLC, Brian Mariotti, Tracy Daw, The Jon P. and Trishawn P. Kipp Children’s Trust uad 5/31/14, Russell Nickel, and Andrew Perlmutter. 10-K 001-38724 10.28 3/19/2018 10.17 Credit Agreement dated October 22, 2018, among Funko Acquisition Holdings, L.L.C., Funko Holdings LLC, Funko, LLC and Loungefly, LLC, PNC Bank, National Association, as Administrative Agent and Collateral Agent, and each other financial institution from time to time party thereto 8-K 001-38274 10.1 10/25/2018 10.18 First Amendment to Credit Agreement, dated February 11, 2019, among Funko Acquisition Holdings, L.L.C., Funko Holdings LLC, Funko, LLC and Loungefly, LLC, PNC Bank, National Association, as Administrative Agent, Collateral Agent and L/C Issuer. 10-K 001-38274 10.33 3/6/2019 10.19 Amendment No. 2, dated as of September 23, 2019, among Funko Acquisition Holdings, L.L.C., Funko Holdings LLC, Funko, LLC, Loungefly, LLC, Funko Games, LLC, PNC Bank, National Association, as administrative agent and collateral agent, and each other financial institution from time to time party thereto. 8-K 001-38274 10.1 9/24/2019 117 Table of Contents Exhibit Number Exhibit Description Incorporated by Reference Form File No. Exhibit Filing Date Filed/ Furnished Herewith 10.20 Amendment No. 3 dated as of May 5, 2020, among Funko Acquisition Holdings, L.L.C., Funko Holdings LLC, Funko, LLC, Loungefly, LLC, Funko Games, LLC a, and each lender from time to time party thereto 8-K 001-38274 10.1 5/5/2020 10.21 † Amendment to Employment Agreement, dated April 24, 2019, by and between Funko, Inc. and Andrew Perlmutter. 10-Q 001-38274 10.2 5/3/2019 10.22† Employment Agreement, dated July 22, 2019, between Funko, Inc. and Jennifer Fall Jung. 8-K 001-38274 10.1 7/23/2019 10.23† Funko, Inc. 2019 Incentive Award Plan. 8-K 001-38274 10.1 6/27/2019 21.1 List of Subsidiaries 10-K 001-38274 21.1 3/5/2020 23.1 Consent of Independent Registered Public Accounting Firm * 31.1 Certification of Chief Executive Officer pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. * 31.2 Certification of Chief Financial Officer pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. * 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** 101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. *** 101.SCH Inline XBRL Taxonomy Extension Schema Document. *** 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. *** 101.DEF Inline XBRL Taxonomy Definition Linkbase Document. *** 101.LAB Inline XBRL Taxonomy Label Linkbase Document. *** 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. *** 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) *** * Filed herewith ** Furnished herewith *** Submitted electronically herewith † Management contract or compensation plan or arrangement 118 Table of Contents ITEM 16. FORM 10-K SUMMARY None. 119 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FUNKO, INC.(Registrant) Date: March 11, 2021 By: /s/ Jennifer Fall Jung Jennifer Fall Jung Chief Financial Officer (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Brian Mariotti Chief Executive Officer and Director (Principal Executive Officer) March 11, 2021 Brian Mariotti /s/ Jennifer Fall Jung Chief Financial Officer (Principal Financial and Accounting Officer) March 11, 2021 Jennifer Fall Jung /s/ Ken Brotman Chairman of the Board and Director March 11, 2021 Ken Brotman /s/ Gino Dellomo Director March 11, 2021 Gino Dellomo /s/ Charles Denson Director March 11, 2021 Charles Denson /s/ Diane Irvine Director March 11, 2021 Diane Irvine /s/ Adam Kriger Director March 11, 2021 Adam Kriger /s/ Sarah Kirshbaum Levy Director March 11, 2021 Sarah Kirshbaum Levy /s/ Michael Lunsford Director March 11, 2021 Michael Lunsford 120