DEFA14A: Funko Appoints Cynthia Williams as CEO, Announces Accounting Firm Change

Funko names Cynthia Williams as its new CEO and switches from Ernst & Young to PricewaterhouseCoopers as its independent auditor.

Summary

• Funko has appointed Cynthia Williams as the new Chief Executive Officer, effective May 20, 2024.
• Michael Lunsford, the Interim CEO, will remain on the Board.
• Andrew Perlmutter resigned as a Class II director, effective the same date.
• Ms. Williams's compensation includes a $1,000,000 annual base salary and eligibility for performance-based bonuses and long-term equity awards.
• She will receive sign-on equity awards, including an option to purchase shares, a restricted stock unit grant, and a new hire grant.
• The Board adopted the Funko, Inc. 2024 Inducement Award Plan, reserving 1,500,000 shares for issuance.
• PricewaterhouseCoopers LLP (PwC) has been engaged as the independent registered public accounting firm for the fiscal year ending December 31, 2024, replacing Ernst & Young LLP (EY).
• The change in accounting firm became effective upon the filing of the quarterly report on Form 10-Q for the quarter ended March 31, 2024, on May 9, 2024.

Sentiment

Score: 7

Explanation: The document conveys a neutral to slightly positive sentiment. The appointment of a new CEO and the change in accounting firm are presented as positive developments, although the previously reported material weaknesses in internal control are a concern.

Positives

• The appointment of Cynthia Williams as CEO brings extensive experience in consumer products, gaming, and e-commerce.
• The new CEO's compensation package includes performance-based incentives, aligning her interests with the company's success.
• The engagement of PwC as the new independent auditor follows a competitive process, potentially improving audit quality.
• The 2024 Inducement Award Plan provides a mechanism to attract and retain key employees.

Negatives

• Andrew Perlmutter's resignation as a Class II director creates a vacancy on the Board.
• The company previously reported material weaknesses in its internal control over financial reporting for the years ended December 31, 2022 and 2023.

Risks

• The new CEO's success depends on her ability to navigate the challenges in the consumer products and collectibles market.
• The company's ability to remediate the identified material weaknesses in internal control over financial reporting is crucial for maintaining investor confidence.
• The vesting of the Option award is contingent on achieving a stock price hurdle, which may not be met.

Future Outlook

The document does not contain specific forward-looking financial guidance, but the appointment of a new CEO and the implementation of an inducement plan suggest a focus on future growth and performance.

Management Comments

• The Company believes Ms. Williams is qualified to serve on the Board due to her extensive experience in the consumer products, gaming and e-commerce industries as well as her board management experience at large multinational public companies.

Industry Context

The appointment of Cynthia Williams, with her background at Hasbro and Microsoft, reflects a trend of companies seeking leaders with experience in both traditional consumer products and digital gaming to navigate the evolving entertainment landscape.

Comparison to Industry Standards

• Executive compensation packages, including base salary, bonus potential, and equity awards, are generally benchmarked against peer companies in the consumer products and entertainment industries.
• The size of the inducement award plan, with 1,500,000 shares reserved, is comparable to similar plans adopted by companies of Funko's size to attract and retain key talent.
• The change in accounting firms is not uncommon and often follows a competitive bidding process to ensure the best value and expertise.

Management Changes

Corporate Governance

Stakeholder Impact

• Shareholders will be impacted by the changes in leadership and auditing firm, as well as the potential dilution from the Inducement Award Plan.
• Employees may be affected by the new CEO's strategic direction and the opportunities provided by the Inducement Award Plan.
• The change in auditing firm could impact the credibility and reliability of financial reporting.

Next Steps

• Stockholders will vote on the ratification of the appointment of PricewaterhouseCoopers as the independent registered public accounting firm at the Annual Meeting on June 4, 2024.
• The company will grant the sign-on equity awards to Cynthia Williams pursuant to the 2024 Inducement Award Plan.

Key Dates

Keywords

CEO, Cynthia Williams, PricewaterhouseCoopers, Accounting Firm, Inducement Award Plan, Funko, Appointment