SCHEDULE 13D/A: Baron Capital Formalizes Significant Stake in FIGS, Inc. with New Stockholders Agreement

Baron Capital Group, a major investor in FIGS, Inc., has entered into a comprehensive Stockholders Agreement outlining voting limitations, transfer restrictions, and registration rights for its substantial Class A Common Stock holdings.

Summary

• Baron Capital Group, including BAMCO Inc. and Baron Capital Management, Inc., has formalized its significant investment in FIGS, Inc. through a Stockholders Agreement dated February 26, 2025.
• This agreement stems from a Binding Term Sheet dated January 13, 2025, and follows BAMCO's acquisition of 19,039,999 Class A Common Stock shares on January 13, 2025 (Tranche 1) and an additional 8,793,826 shares on February 20, 2025 (Tranche 2) from the Tull Sellers.
• As of the filing, Ronald Baron and Baron Capital Group, Inc. beneficially own 58,671,584 shares, representing 36.32% of FIGS' Class A Common Stock.
• The Stockholder Group (Baron and its affiliates) is subject to standstill restrictions, preventing further equity purchases without FIGS' consent if their holdings are above 17.5% of outstanding Class A Common Stock, and restricting proxy contests or extraordinary transactions during the Standstill Period.
• A key provision is a voting cutback: while the Stockholder Group can vote up to 25% of outstanding Class A Common Stock at its discretion, any Put-Call Shares owned in excess of this 25% threshold must be voted in favor of all director nominees put forth by FIGS' board of directors.
• The agreement also grants the Stockholder Group customary demand, piggyback, and shelf registration rights, allowing them to sell their shares in public offerings, with the Company bearing most registration expenses.
• Transfer restrictions apply to the Put-Call Shares during the Standstill Period, limiting sales except under specific conditions like transfers to wholly-owned subsidiaries or investor redemptions.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. The agreement formalizes a significant investment, provides governance stability through voting limitations and standstill provisions, and offers clear liquidity pathways for the investor. While it limits potential activist upside, it reduces uncertainty around a large shareholder's intentions. The terms appear mutually beneficial for the company and the investor.

Positives

• The Stockholders Agreement provides clarity and stability regarding a major shareholder's intentions and voting power, which can be viewed positively by other investors.
• The voting cutback provision, limiting the Stockholder Group's discretionary voting power to 25% and requiring excess shares to vote with the board's nominees, can promote corporate governance stability and reduce the risk of a single large shareholder dominating board elections.
• The standstill provisions prevent the Stockholder Group from engaging in hostile actions like proxy contests or unsolicited extraordinary transactions, offering management and the board a degree of protection.
• The inclusion of customary registration rights facilitates potential future liquidity for Baron Capital Group's significant stake, which could be beneficial for the stock's trading dynamics over time.

Negatives

• The standstill restrictions limit Baron Capital Group's ability to increase its stake or actively pursue strategic changes, which might be seen as limiting potential upside from a highly engaged activist investor.
• The transfer restrictions on Put-Call Shares during the Standstill Period could limit Baron's flexibility in managing its portfolio, though exceptions are provided.

Risks

• The Standstill Period's duration is tied to Catherine Spear remaining CEO/Co-CEO or the Stockholder Group holding above 17.5%, introducing a potential future change in governance dynamics if these conditions are met.
• While registration rights offer liquidity, large future sales by Baron Capital Group could create downward pressure on FIGS' stock price if not managed carefully.

Future Outlook

The document primarily details a past event (signing of the Stockholders Agreement) and the terms governing the relationship between FIGS, Inc. and Baron Capital Group. It does not provide explicit forward-looking statements or financial guidance from FIGS, Inc. itself. However, the agreement's terms, such as registration rights, imply potential future share sales by Baron Capital Group.

Industry Context

This filing reflects a significant institutional investment firm, Baron Capital Group, solidifying its position in FIGS, Inc., a company known for its healthcare apparel. Such agreements are common when a large investor takes a substantial stake, aiming to define the boundaries of their influence and provide a framework for future interactions. For FIGS, it provides a degree of stability regarding a major shareholder, potentially reducing concerns about activist pressure or sudden large-scale divestments, while also facilitating an orderly exit for the previous large shareholder (Tull Sellers).

Comparison to Industry Standards

• The standstill provisions, including restrictions on acquiring additional equity and engaging in proxy contests, are standard in agreements designed to manage relationships with significant, but non-controlling, shareholders.
• The voting cutback, limiting discretionary voting to 25% and mandating support for board nominees for shares above that threshold, is a specific governance mechanism often seen in situations where a large investor's stake approaches or exceeds a level that could be perceived as controlling, aiming to balance investor influence with board autonomy. This is a more restrictive voting arrangement than typically seen for a passive institutional investor.
• Customary demand, piggyback, and shelf registration rights are standard provisions granted to large investors to ensure liquidity for their holdings, aligning with common market practices for such agreements.
• The indemnification and expense allocation clauses are also typical for registration rights agreements, ensuring the company covers the costs associated with facilitating the investor's share sales, excluding underwriting fees.

Corporate Governance

Related Party Transactions

• BAMCO, Inc. purchased 19,039,999 shares of Class A Common Stock (Tranche 1) on January 13, 2025, and 8,793,826 shares (Tranche 2) on February 20, 2025, from Thomas J. Tull and the Tull Family Trust, u/a/d August 1, 2005, as amended, and First Light Investors, LLC (collectively, the Tull Sellers). This transaction is the basis for the Put-Call Shares and the subsequent Stockholders Agreement.

Stakeholder Impact

• **Shareholders**: The agreement provides transparency and stability regarding a major shareholder's role, potentially reducing uncertainty. The voting cutback ensures that Baron's significant stake does not disproportionately control board elections, which could be seen as beneficial for minority shareholders.
• **Management and Board**: The standstill provisions and voting cutback offer protection against activist challenges and ensure a degree of autonomy for the current management and board, allowing them to focus on long-term strategy without immediate pressure from this large investor.
• **Baron Capital Group (Investor)**: The agreement formalizes their significant investment, provides clear pathways for future liquidity through registration rights, and defines the terms of their engagement with the company, including limitations on their active involvement in governance beyond a certain threshold.

Next Steps

• The Company will continue to use commercially reasonable efforts to keep the Shelf Registration Statement continuously effective until all included Registrable Securities are sold or the agreement terminates.
• The Stockholder Group may request Shelf Offerings (up to six in aggregate, and not more than three in any 12-month period) or Demand Registrations to sell their Registrable Securities.

Key Dates

Recommendation

Keywords

FIGS Inc., Baron Capital Group, SEC Schedule 13D, Stockholders Agreement, Class A Common Stock, Beneficial Ownership, Voting Rights, Standstill Agreement, Transfer Restrictions, Registration Rights, Corporate Governance, Shareholder Agreement, Investment Management, Healthcare Apparel