SCHEDULE 13D/A: Baron Capital Solidifies Major Stake in FIGS, Enters Binding Governance Agreement

Baron Capital has significantly increased its ownership in FIGS, Inc. through a $119 million share purchase and entered into a binding term sheet outlining future governance and voting arrangements.

Summary

• Baron Capital Management, Inc. (BCM) and BAMCO, Inc. (collectively, Baron) purchased 19,039,999 shares of FIGS, Inc. Class A Common Stock on January 13, 2025, at a price of $6.25 per share, totaling approximately $119 million.
• The share purchase was initiated by the sellers (Thomas J. Tull, Tull Family Trust, and First Light Investors, LLC) exercising their right under a Put-Call Agreement dated January 7, 2025.
• Baron's beneficial ownership in FIGS, Inc. now stands at 30.88% of the Class A Common Stock, representing 49,877,758 shares, based on 161,526,637 shares outstanding as of October 31, 2024.
• A Binding Term Sheet was entered into on January 13, 2025, between FIGS, Inc. and Baron, which will lead to a definitive Stockholders Agreement (SHA).
• The SHA will include provisions for voting, transfer restrictions, and a standstill period for Baron and its affiliated investment advisers (the Stockholder Group).
• During the Standstill Period, the Stockholder Group's voting power for shares exceeding 25% of outstanding Class A Common Stock will be directed to vote in favor of Board-nominated directors.
• The Standstill Period restricts the Stockholder Group from acquiring additional equity (with exceptions), engaging in proxy contests, or initiating extraordinary transactions without Board approval.
• The Stockholder Group will receive customary demand, piggyback, and shelf registration rights for their Class A Common Stock holdings.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. A major institutional investor like Baron Capital increasing its stake and entering into a structured governance agreement suggests confidence in the company's future and provides a framework for stability. While there are restrictions on Baron's actions, these are typical for such agreements and aim to maintain corporate stability. The transaction is a planned outcome of a prior agreement, indicating a controlled process.

Positives

• Baron Capital's significant investment of approximately $119 million demonstrates strong confidence in FIGS, Inc.'s long-term prospects.
• The establishment of a Binding Term Sheet and forthcoming Stockholders Agreement provides a clear framework for corporate governance and the relationship between a major investor and the company.
• The agreement includes customary registration rights for Baron, facilitating potential future liquidity for their investment.

Negatives

• The Standstill Period imposes restrictions on Baron's ability to acquire additional shares, engage in activist actions, or initiate certain corporate transactions without the Company's consent.
• Baron's voting power is capped at 25% for director nominations, requiring shares above this threshold to be voted in favor of Board-nominated candidates, which limits their influence on Board composition.

Risks

• The Standstill Period's duration is tied to Trina Spear remaining Chief Executive Officer or co-Chief Executive Officer, introducing a dependency on management continuity.
• While a binding term sheet is in place, the definitive Stockholders Agreement still needs to be negotiated and finalized, which could present minor challenges.

Future Outlook

The Company and Baron Capital have agreed to negotiate in good faith to enter into a definitive Stockholders Agreement (SHA) promptly after the Term Sheet Date, reflecting the terms set forth in the binding term sheet. This SHA will govern the ongoing relationship, including voting rights, transfer restrictions, and standstill provisions, for the foreseeable future.

Management Comments

• Catherine Spear, Chief Executive Officer of FIGS, Inc., signed the Binding Term Sheet on behalf of the Company.
• The Standstill Period is defined to end, among other conditions, when Trina Spear ceases to be Chief Executive Officer or co-Chief Executive Officer of the Company.

Industry Context

This filing primarily details a specific investment and governance agreement between a publicly traded company (FIGS, Inc.) and a major institutional investor (Baron Capital). While not directly indicative of broader industry trends, it highlights the increasing importance of structured relationships between companies and significant shareholders, particularly in sectors where long-term strategic alignment is crucial.

Comparison to Industry Standards

• The terms outlined in the Binding Term Sheet, such as standstill provisions, voting agreements, and registration rights, are customary in agreements between public companies and large institutional investors, particularly when an investor acquires a significant stake.
• The 25% voting threshold for director nominations, with excess shares voted in favor of Board nominees, is a common mechanism to balance investor influence with existing corporate governance structures.
• The provision for customary demand, piggyback, and shelf registration rights aligns with standard practices to provide liquidity options for large block holders.

Corporate Governance

Related Party Transactions

• The purchase of 19,039,999 shares of Class A Common Stock by Baron Capital was from Thomas J. Tull, the Tull Family Trust, and First Light Investors, LLC, pursuant to a Put-Call Agreement dated January 7, 2025. While not explicitly labeled as 'related party' in the document, this transaction involves significant shareholders and is a material dealing.

Stakeholder Impact

• **Shareholders:** The agreement provides clarity on the governance structure with a major investor, potentially reducing uncertainty. The standstill provisions may limit future activist pressure from Baron, which could be viewed positively for stability or negatively for potential change.
• **Management:** The binding term sheet and forthcoming SHA establish clear boundaries and expectations for the relationship with a significant shareholder, potentially streamlining decision-making and reducing potential conflicts.
• **Creditors:** The share purchase was funded by existing lines of credit, which could impact Baron's financial leverage, but the direct impact on FIGS's creditors is not detailed.

Next Steps

• The Company and Baron Capital will negotiate in good faith to enter into a definitive Stockholders Agreement (SHA) as promptly as practicable after January 13, 2025, and in any event by the HSR Satisfaction Date (as defined in the Put-Call Agreement).

Key Dates

Keywords

FIGS Inc., Baron Capital, SEC Filing, Schedule 13D/A, Stockholders Agreement, Share Purchase, Corporate Governance, Investment, Class A Common Stock, Standstill Agreement, Registration Rights