Document:

fnko-ex1025_587.htm

 

Exhibit 10.25

 

 

TAX RECEIVABLE AGREEMENT

by and among

FUNKO, INC.

FUNKO ACQUISITION HOLDINGS, LLC

the several MEMBERS (as defined herein)

MANAGEMENT REPRESENTATIVE (as defined herein) and 

OTHER MEMBERS OF FUNKO ACQUISITION HOLDINGS, LLC
FROM TIME TO TIME PARTY HERETO

 

Dated as of November 1, 2017

 

 

 

 

 

 

 

 

 

 

CONTENTS

 

	
 
	
Page

	
Article I. DEFINITIONS
	
2

	
Section 1.1
	
Definitions
	
2

	
Section 1.2
	
Rules of Construction
	
11

	
Article II. DETERMINATION OF REALIZED TAX BENEFIT
	
12

	
Section 2.1
	
Basis Adjustments; the LLC 754 Election
	
12

	
Section 2.2
	
Basis Schedules
	
13

	
Section 2.3
	
Tax Benefit Schedules
	
13

	
Section 2.4
	
Procedures; Amendments
	
14

	
Article III. TAX BENEFIT PAYMENTS
	
15

	
Section 3.1
	
Timing and Amount of Tax Benefit Payments
	
15

	
Section 3.2
	
No Duplicative Payments
	
19

	
Section 3.3
	
Pro-Ration of Payments as Between the Members
	
19

	
Section 3.4
	
Optional Estimated Payment Procedure
	
20

	
Section 3.5
	
Changes; Reserves; Suspension of Payments
	
21

	
Article IV. TERMINATION
	
23

	
Section 4.1
	
Early Termination of Agreement; Breach of Agreement
	
23

	
Section 4.2
	
Early Termination Notice
	
25

	
Section 4.3
	
Payment Upon Early Termination
	
26

	
Article V. SUBORDINATION AND LATE PAYMENTS
	
27

	
Section 5.1
	
Subordination
	
27

	
Section 5.2
	
Late Payments by the Corporation
	
27

	
Article VI. TAX MATTERS; CONSISTENCY; COOPERATION
	
27

	
Section 6.1
	
Participation in the Corporation’s and the LLC’ Tax Matters
	
27

	
Section 6.2
	
Consistency
	
28

	
Section 6.3
	
Cooperation
	
28

	
Article VII. MISCELLANEOUS
	
29

	
Section 7.1
	
Notices
	
29

	
Section 7.2
	
Counterparts
	
30

i

 

 

 

 

 

 

 

	
Section 7.3
	
Entire Agreement; No Third Party Beneficiaries
	
30

	
Section 7.4
	
Governing Law
	
31

	
Section 7.5
	
Severability
	
31

	
Section 7.6
	
Assignments; Amendments; Successors; No Waiver
	
31

	
Section 7.7
	
Titles and Subtitles
	
32

	
Section 7.8
	
Resolution of Disputes
	
32

	
Section 7.9
	
Reconciliation
	
33

	
Section 7.10
	
Withholding
	
34

	
Section 7.11
	
Admission of the Corporation into a Consolidated Group; Transfers of Corporate Assets
	
34

	
Section 7.12
	
Confidentiality
	
35

	
Section 7.13
	
Change in Law
	
35

	
Section 7.14
	
Interest Rate Limitation
	
36

	
Section 7.15
	
Independent Nature of Rights and Obligations
	
36

	
Section 7.16
	
LLC Agreement
	
37

	
Section 7.17
	
Management Representative
	
37

 

Exhibits

 

Exhibit A     -     Form of Joinder Agreement

 

 

ii

 

 

 

 

 

 

 

TAX RECEIVABLE AGREEMENT

This TAX RECEIVABLE AGREEMENT (as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time, this “Agreement”), dated as of November 1, 2017, is hereby entered into by and among Funko, Inc., a Delaware corporation (the “Corporation”), Funko Acquisition Holdings, LLC, a Delaware limited liability company (the “LLC”), each of the Members from time to time party hereto, and the Management Representative.  Capitalized terms used but not otherwise defined herein have the respective meanings set forth in Section 1.01.

RECITALS

WHEREAS, the LLC is treated as a partnership for U.S. federal income tax purposes;

WHEREAS, each of the members of the LLC other than the Corporation (such members who are parties hereto, and each other Person who becomes party hereto by satisfying the Joinder Requirement, the “Members”) owns (or, in the case of such other Persons, will own) limited liability company interests in the LLC (the “Units”);

WHEREAS, on the date hereof, the Corporation will become the managing member of the LLC;

WHEREAS, exclusive of the Over-Allotment Option (as defined below), the Corporation will issue 10,416,666 shares of its Class A common stock, par value $0.0001 per share (the “Class A Common Stock”) to certain purchasers in an initial public offering of its Class A Common Stock (the “IPO”);

WHEREAS, the Corporation will use a portion of the net proceeds from the IPO to purchase newly-issued Units directly from the LLC, which proceeds will be used to repay or prepay certain indebtedness of the LLC and for general company purposes;

WHEREAS, the Corporation may issue additional Class A Common Stock in connection with the IPO as a result of the exercise by the underwriters of their over-allotment option (the “Over-Allotment Option”) and, if the Over-Allotment Option is in fact exercised in whole or in part, any additional net proceeds received by the Corporation will be used by the Corporation to acquire additional newly-issued Units directly from the LLC, which proceeds that are received by the LLC will be used to repay certain indebtedness of the LLC and for general company purposes;

WHEREAS, on and after the date hereof, pursuant to the LLC Agreement, each Member has the right from time to time to require the LLC to redeem (a “Redemption”) all or a portion of such Member’s Units for cash or, at the Corporation’s election, Class A Common Stock; provided that, at the election of the Corporation in its sole discretion, the Corporation may effect a direct exchange (a “Direct Exchange”) of such cash or shares of Class A Common Stock for such Units;

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WHEREAS, the LLC and any direct subsidiary or indirect subsidiary (owned through a chain of pass-through entities) of the LLC that is treated as a partnership for U.S. federal income tax purposes (together with the LLC and any direct or indirect subsidiary (owned through a chain of pass-through entities) of the LLC that is treated as a disregarded entity for U.S. federal income tax purposes, the “the LLC Group”) will have in effect an election under Section 754 of the Code (as defined herein) for the Taxable Year (as defined herein) in which any Exchange (as defined below) occurs, which election should result in an adjustment to the Corporation’s share of the tax basis of the assets owned by the LLC Group as of the date of the Exchange, with a consequent result on the taxable income subsequently derived therefrom; and

WHEREAS, the parties to this Agreement desire to provide for certain payments and make certain arrangements with respect to any tax benefits to be derived by the Corporation as the result of Exchanges and the receipt of payments under this Agreement.

NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:

Article I.
DEFINITIONS

Section 1.1Definitions.  As used in this Agreement, the terms set forth in this Article I shall have the following meanings (such meanings to be equally applicable to both (i) the singular and plural and (ii) the active and passive forms of the terms defined).

“ACON” means ACON Funko Investors, L.L.C., a Delaware limited liability company, and its Permitted Transferees.. 

“Actual Interest Amount” is defined in Section 3.1(b)(vii) of this Agreement.

“Advisory Firm” means Ernst & Young LLP or any other accounting firm that is nationally recognized as being an expert in Covered Tax matters and is not an Affiliate of the Corporation.

“Advisory Firm Letter” means a letter, that has been prepared by the Advisory Firm used by the Corporation in connection with the performance of its obligations under this Agreement, which states that the relevant Schedules, notices or other information to be provided by the Corporation to the Members, along with all supporting schedules and work papers, were prepared in a manner that is consistent with the terms of this Agreement and, to the extent not expressly provided in this Agreement, on a reasonable basis in light of the facts and law in existence on the date such Schedules, notices or other information were delivered by the Corporation to the Members.

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“Affiliate” means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person.

“Agreed Rate” means LIBOR plus 100 basis points.

“Agreement” is defined in the preamble.

“Amended Schedule” is defined in Section 2.4(b) of this Agreement.

“Assumed State and Local Tax Rate” means the tax rate equal to the sum of the products of (x) the Corporation’s income tax apportionment rate(s) for each state and local jurisdiction in which the Corporation files income or franchise tax returns for the relevant Taxable Year and (y) the highest corporate income and franchise tax rate(s) for each such state and local jurisdiction in which the Corporation files income tax returns for each relevant Taxable Year

“Attributable” is defined in Section 3.1(b)(i) of this Agreement.

“Audit Committee” means the audit committee of the Board.

“Basis Adjustment” means the increase or decrease to the tax basis of, or the Corporation’s share of, the tax basis of the Reference Assets (i) under Section 734(b), 743(b) and 754 of the Code and, in each case, the comparable sections of U.S. state and local  tax law (in situations where, following an Exchange, the LLC remains in existence as an entity for tax purposes) and (ii) under Sections 732 and 1012 of the Code and, in each case, the comparable sections of U.S. state and local tax law (in situations where, as a result of one or more Exchanges, the LLC becomes an entity that is disregarded as separate from its owner for tax purposes), in each case, as a result of any Exchange and any payments made under this Agreement.  Notwithstanding any other provision of this Agreement, the amount of any Basis Adjustment resulting from an Exchange of one or more Units shall be determined without regard to any Pre-Exchange Transfer of such Units and as if any such Pre-Exchange Transfer had not occurred.

“Basis Schedule” is defined in Section 2.2 of this Agreement.

“Beneficial Owner” means, with respect to any security, a Person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares: (i) voting power, which includes the power to vote, or to direct the voting of, with respect to such security and/or (ii) investment power, which includes the power to dispose of, or to direct the disposition of, such security.

“Board” means the Board of Directors of the Corporation.

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“Business Day” means any day excluding Saturday, Sunday and any day that is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in New York are closed.

“Change Notice” is defined in Section 3.5(a) of this Agreement.

“Change of Control” means the occurrence of any of the following events:

(1) any “person” or “group” (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, or any successor provisions thereto (the “Exchange Act”), but excluding any employee benefit plan of such person and its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan, and excluding the Permitted Transferees) becomes the “beneficial owner” (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of shares of Class A Common Stock, Class B Common Stock, Preferred Stock and/or any other class or classes of capital stock of the Corporation (if any) representing in the aggregate more than fifty percent (50%) of the voting power of all of the outstanding shares of capital stock of the Corporation entitled to vote;

(2) the shareholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or there is consummated an agreement or series of related agreements for the sale or other disposition, directly or indirectly, by the Corporation of all or substantially all of the Corporation’s assets (including a sale of all or substantially all of the assets of the LLC);

(3)  there is consummated a merger or consolidation of the Corporation with any other corporation or entity, and, immediately after the consummation of such merger or consolidation, the voting securities of the Corporation immediately prior to such merger or consolidation do not continue to represent, or are not converted into, more than 50% of the combined voting power of the then outstanding voting securities of the Person resulting from such merger or consolidation or, if the surviving company is a Subsidiary, the ultimate parent thereof; or

(4) the Corporation ceases to be the sole managing member of the LLC.

Notwithstanding the foregoing, a “Change of Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the Class A Common Stock and Class B Common Stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in and voting control over, and own substantially all of the shares of, an entity which owns all or 

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substantially all of the assets of the Corporation immediately following such transaction or series of transactions.

“Class B Common Stock” means shares of Class B common stock, par value $0.0001 per share, of the Corporation.

“Code” means the U.S. Internal Revenue Code of 1986, as amended.  

“Control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or other agreement.

“Corporation” is defined in the preamble to this Agreement.

 “Covered Person” is defined in Section 7.17 of this Agreement.

“Covered Tax Benefit” is defined in Section 3.3(a) of this Agreement.

“Covered Taxes” means any and all U.S. federal, state, local and foreign taxes, assessments or similar charges that are based on or measured with respect to net income or profits  and any interest related thereto.

 “Cumulative Net Realized Tax Benefit” is defined in Section 3.1(b)(iii) of this Agreement.

“Default Rate” means the sum of (i) the highest rate applicable at the time under the Senior Secured Credit Facilities plus (ii) 200 basis points, it being understood that if there are no Senior Secured Credit Facilities then the Default Rate shall be LIBOR plus 500 basis points.

“Default Rate Interest” is defined in Section 3.1(b)(ix) of this Agreement.

“Determination” shall have the meaning ascribed to such term in Section 1313(a) of the Code or similar provision of U.S. state tax law, as applicable, or any other event (including the execution of IRS Form 870-AD) that finally and conclusively establishes the amount of any liability for tax.

“Direct Exchange” is defined in the recitals to this agreement.

“Dispute” is defined in Section 7.8(a) of this Agreement.

“Early Termination Agreed Rate” means LIBOR plus 200 basis points. 

“Early Termination Effective Date” means the date of an Early Termination Notice for purposes of determining the Early Termination Payment.

“Early Termination Notice” is defined in Section 4.2 of this Agreement.

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“Early Termination Payment” is defined in Section 4.3(b) of this Agreement.

“Early Termination Rate” means the lesser of (i) 6.50 % per annum, compounded annually, and (ii) the Early Termination Agreed Rate.

“Early Termination Reference Date” is defined in Section 4.2 of this Agreement.

“Early Termination Schedule” is defined in Section 4.2 of this Agreement.

“Estimated Tax Benefit Payment” is defined in Section 3.4 of this Agreement.

“Exchange” means any Direct Exchange or Redemption.

“Exchange Date” means the date of any Exchange.

“Expert” is defined in Section 7.9 of this Agreement.

“Extension Rate Interest” is defined in Section 3.1(b)(viii) of this Agreement.

“Final Payment Date” means any date on which a payment is required to be made pursuant to this Agreement.  For the avoidance of doubt, the Final Payment Date in respect of a Tax Benefit Payment is determined pursuant to Section 3.1(a) of this Agreement.

“Fundamental” is defined in Section 2.2 of this Agreement.

“GAAP” means generally accepted accounting principles in the United States, as in effect from time to time; provided, however, that if the Corporation notifies the Members that the Corporation requests an amendment to any provision hereof to eliminate the effect of any change in GAAP or in the application thereof occurring after the date of this Agreement (including through the adoption of International Financial Reporting Standards and applicable accounting requirements set by the International Accounting Standards Board or any successor thereto (the “IFRS”)), on the operation of such provision (or if the Members notify the Corporation that they request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof (including through the adoption of IFRS), then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.

“Hypothetical Tax Liability” means, with respect to any Taxable Year, the hypothetical liability of the Corporation that would arise in respect of Covered Taxes, using the same methods, elections, conventions and similar practices used on the actual relevant Tax Returns of the Corporation but (i) calculating depreciation, amortization, or other similar deductions, or otherwise calculating any items of income, gain, or loss, using the Corporation’s share of the Non-Adjusted Tax Basis as reflected 

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on the Basis Schedule, including amendments thereto for the Taxable Year and (ii) excluding any deduction attributable to Imputed Interest, Actual Interest Amounts or Default Rate Interest for the Taxable Year; provided, that for purposes determining the Hypothetical Tax Liability, the combined tax rate for U.S. state and local Covered Taxes (but not, for the avoidance of doubt, federal Covered Taxes) shall be the Assumed State and Local Tax Rate.  For the avoidance of doubt, (i) the Hypothetical Tax Liability shall be determined without taking into account the carryover or carryback of any tax item attributable to Imputed Interest, Actual Interest, Default Rate Interest or a Basis Adjustment (or portions thereof); and (ii) the calculation of the Hypothetical Tax Liability shall take into account the federal benefit received by the Corporation with respect to state and local jurisdiction income taxes (with such benefit taking into account the Corporation’s marginal U.S. federal income tax rate for the relevant Taxable Year, the Assumed State and Local Tax Rate, and the deductibility, if any, of state and local jurisdiction income taxes).

“Imputed Interest” is defined in Section 3.1(b)(vi) of this Agreement.

“Independent Directors” means the members of the Board who are “independent” under the standards set forth in Rule 10A-3 promulgated under the Exchange Act and the corresponding rules of the applicable exchange on which the Class A Common Stock is traded or quoted.

“IPO” is defined in the recitals to this Agreement.

“IRS” means the U.S. Internal Revenue Service.

“Joinder” means a joinder to this Agreement, in form and substance substantially similar to Exhibit A to this Agreement.

“Joinder Requirement” is defined in Section 7.6(b) of this Agreement.

“LIBOR” means during any period, the rate which appears on the Bloomberg Page BBAM1 (or on such other substitute Bloomberg page that displays rates at which U.S. dollar deposits are offered by leading banks in the London interbank deposit market), or the rate which is quoted by another source selected by the Corporation as an authorized information vendor for the purpose of displaying rates at which U.S. dollar deposits are offered by leading banks in the London interbank deposit market (a "Alternate Source"), at approximately 11:00 a.m., London time, two (2) Business Days prior to the first day of such period as the London interbank offered rate for U.S. dollars having a borrowing date and a maturity comparable to such period (or if there shall at any time, for any reason, no longer exist a Bloomberg Page BBAM1 (or any substitute page) or any LIBOR Alternate Source, a comparable replacement rate determined by the Corporation at such time, which determination shall be conclusive absent manifest error; provided, that at no time shall LIBOR be less than 0%.

“LLC” is defined in the recitals to this Agreement.

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“LLC Agreement” means that certain Second Amended and Restated Limited Liability Company Agreement of the LLC, dated as of the date hereof, as such agreement may be further amended, restated, supplemented and/or otherwise modified from time to time.

“Management Representative” is defined in Section 7.17 of this Agreement. 

“Market Value” means the Common Unit Redemption Price, as defined in the LLC Agreement, determined as of an Early Termination Date.

“Members” is defined in the recitals to this Agreement.

“Net Tax Benefit” is defined in Section 3.1(b)(ii) of this Agreement.

“Non-Adjusted Tax Basis” means, with respect to any Reference Asset at any time, the tax basis that such asset would have had at such time if no Basis Adjustments had been made.

“Objection Notice” is defined in Section 2.4(a)(i) of this Agreement.

“Over-Allotment Option” is defined in the recitals to this Agreement.

“Parties” means the parties named on the signature pages to this agreement and each additional party that satisfies the Joinder Requirement, in each case with their respective successors and assigns.

“Person” means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity.

“Permitted Transfer” means the transfer of Units by a holder of Units to any transferee as permitted by the LLC Agreement.

“Permitted Transferee” means a holder of Units pursuant to a Permitted Transfer.

“Pre-Exchange Transfer” means any transfer of one or more Units (including upon the death of a Member) (i) that occurs after the IPO but prior to an Exchange of such Units and (ii) to which Section 743(b) of the Code applies.

“Realized Tax Benefit” is defined in Section 3.1(b)(iv) of this Agreement.

“Realized Tax Detriment” is defined in Section 3.1(b)(v) of this Agreement.

“Reconciliation Dispute” is defined in Section 7.9 of this Agreement.

“Reconciliation Procedures” is defined in Section 2.4(a) of this Agreement.

“Redemption” has the meaning in the recitals to this Agreement.

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“Reference Asset” means any tangible or intangible asset of the LLC or any of its successors or assigns, and whether held directly by the LLC or indirectly by the LLC through any entity in which the LLC now holds or may subsequently hold an ownership interest (but only if such entity is treated as a partnership or disregarded entity for purposes of the applicable tax), at the time of an Exchange.  A Reference Asset also includes any asset the tax basis of which is determined, in whole or in part, by reference to the tax basis of an asset that is described in the preceding sentence, including “substituted basis property” within the meaning of Section 7701(a)(42) of the Code.

“Schedule” means any of the following: (i) a Basis Schedule, (ii) a Tax Benefit Schedule, or (iii) the Early Termination Schedule, and, in each case, any amendments thereto.

“Senior Obligations” is defined in Section 5.1 of this Agreement.

“Senior Secured Credit Facilities” means the indebtedness described in that certain agreement entered into on October 30, 2015 by and among FAH LLC, Funko Holdings LLC, and Funko, LLC, as borrowers, PNC Bank, National Association, as administrative agent, Cerebus Business Finance, LLC, as collateral agent, and the other persons party thereto, as amended from time to time, or any replacement or refinancing thereof.

“Subsidiary” means, with respect to any Person and as of the date of any determination, any other Person as to which such Person, owns, directly or indirectly, or otherwise controls, more than 50% of the voting power or other similar interests, or the sole general partner interest, or managing member or similar interest, of such Person.

“Subsidiary Stock” means any stock or other equity interest in any Subsidiary of the Corporation that is treated as a corporation for U.S. federal income tax purposes.

“Tax Benefit Payment” is defined in Section 3.1(b) of this Agreement.

“Tax Benefit Schedule” is defined in Section 2.3(a) of this Agreement.

“Tax Return” means any return, declaration, report or similar statement required to be filed with respect to taxes (including any attached schedules), including, without limitation, any information return, claim for refund, amended return and declaration of estimated tax.

“Taxable Year” means a taxable year of the Corporation as defined in Section 441(b) of the Code or comparable section of U.S. state or local tax law, as applicable (and, therefore, for the avoidance of doubt, may include a period of less than 12 months for which a Tax Return is made), ending on or after the closing date of the IPO.

“Taxing Authority” means any national, federal, state, county, municipal, or local government, or any subdivision, agency, commission or authority thereof, or any quasi-

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governmental body, or any other authority of any kind, exercising regulatory or other authority in relation to tax matters.

“Termination Objection Notice” is defined in Section 4.2 of this Agreement.

“Treasury Regulations” means the final, temporary, and (to the extent they can be relied upon) proposed regulations under the Code, as promulgated from time to time (including corresponding provisions and succeeding provisions) as in effect for the relevant taxable period.

“True-Up” is defined in Section 3.4 of this Agreement.

“U.S.” means the United States of America.

“Units” is defined in the recitals to this Agreement.

“Valuation Assumptions” means, as of an Early Termination Effective Date, the assumptions that:

(1)in each Taxable Year ending on or after such Early Termination Effective Date, the Corporation will have taxable income sufficient to fully use the deductions arising from the Basis Adjustments and the Imputed Interest during such Taxable Year or future Taxable Years (including, for the avoidance of doubt, Basis Adjustments and Imputed Interest that would result from future Tax Benefit Payments that would be paid in accordance with the Valuation Assumptions) in which such deductions would become available;

(2)the U.S. federal income tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code and other law as in effect on the Early Termination Effective Date, except to the extent any change to such tax rates for such Taxable Year have already been enacted into law and the combined U.S. state and local income tax rates (but not, for the avoidance of doubt,  federal income tax rates) for each such Taxable Year shall be the Assumed State and Local Tax Rate for the Taxable Year that includes the Early Termination Effective Date;

(3)all taxable income of the Corporation will be subject to the maximum applicable tax rates for each Covered Tax throughout the relevant period; provided, that the combined tax rate for U.S. state and local income taxes (but not, for the avoidance of doubt, federal income tax) shall be the Assumed State and Local Tax Rate, and, for the avoidance of doubt, the applicable calculations shall take into account the federal benefit received by the Corporation with respect to state and local jurisdiction income taxes (with such benefit taking into account the Corporation’s applicable marginal U.S. federal income tax rate, the Assumed State and Local Tax Rate, and the deductibility, if any, of state and local jurisdiction income taxes);

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(4)any loss carryovers or carrybacks generated by any Basis Adjustment or Imputed Interest (including such Basis Adjustment and Imputed Interest generated as a result of payments under this Agreement) and available as of the Early Termination Effective Date will be used by the Corporation on a pro rata basis from the date of the Early Termination Effective Date through the scheduled expiration date of such loss carryovers or carrybacks;

(5)any non-amortizable assets (other than Subsidiary Stock) will be disposed of on the earlier of the fifteenth anniversary of (i) the applicable Basis Adjustment and (ii) the Early Termination Effective Date;

(6)any Subsidiary Stock will be deemed never to be disposed of except if Subsidiary Stock is directly disposed of in the Change of Control;

(7)if, on the Early Termination Effective Date, any Member has Units that have not been Exchanged, then such Units shall be deemed to be Exchanged for the Market Value that would be received by such Member if such Units had been Exchanged on the Early Termination Effective Date, and such Member shall be deemed to receive the amount of cash such Member would have been entitled to pursuant to Section 4.3(a) had such Units actually been Exchanged on the Early Termination Effective Date; 

(8)any proposed adjustment to a tax item of a Party that has given rise to a Change Notice, and any reserve or contingent liability associated with a tax position that has given rise to a Reserve Notice, shall be deemed to have been favorably resolved such that the proposed adjustment or reserve or contingent liability associated with such tax position shall not be taken into account in determining the amount of any Tax Benefit Payment due to a Member; and

(9)any payment obligations pursuant to this Agreement will be satisfied on the date that any Tax Return to which such payment obligation relates is required to be filed excluding any extensions.

Section 1.2Rules of Construction.  Unless otherwise specified herein:

(a)The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

(b)For purposes of interpretation of this Agreement:

(i)The words “herein,” “hereto,” “hereof” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision thereof.

(ii)References in this Agreement to a Schedule, Article, Section, clause or sub-clause refer to the appropriate Schedule to, or Article, Section, clause or subclause in, this Agreement.

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(iii)References in this Agreement to dollars or “$” refer to the lawful currency of the United States of America.

(iv)The term “including” is by way of example and not limitation.

(v)The term “documents” includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form.

(c)In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

(d)Section headings herein are included for convenience of reference only and shall not affect the interpretation of this Agreement.

(e)Unless otherwise expressly provided herein, (a) references to organization documents (including the LLC Agreement), agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are permitted hereby; and (b) references to any law (including the Code and the Treasury Regulations) shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such law.

Article II.
DETERMINATION OF REALIZED TAX BENEFIT

Section 2.1Basis Adjustments; the LLC 754 Election.

(a)Basis Adjustments.  The Parties acknowledge and agree that (A) each Direct Exchange shall give rise to Basis Adjustments and (B) each Redemption using cash or Class A Common Stock contributed to the LLC by the Corporation shall be treated as a direct purchase of Units by the Corporation from the applicable Member pursuant to Section 707(a)(2)(B) of the Code that shall give rise to Basis Adjustments.  In connection with a  Direct Exchange or Redemption, the Parties acknowledge and agree that pursuant to applicable law the Corporation’s share of the basis in the Reference Assets shall be increased by the excess, if any, of (A) the sum of (x) the fair market value of Class A Common Stock or the cash transferred to a Member pursuant to an Exchange as payment for the Units, (y) the amount of payments made pursuant to this Agreement with respect to such Exchange and (z) the amount of liabilities allocated to the Units acquired pursuant to the Exchange, over (B) the Corporation’s share of the basis of the Reference Assets immediately after the Exchange attributable to the Units exchanged, determined as if each member of the LLC Group remains in existence as an entity for tax purposes and no member of the LLC Group made the election provided by Section 754 of the Code.  

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For the avoidance of doubt, payments made under this Agreement shall not be treated as resulting in a Basis Adjustment to the extent that such payments are treated as Imputed Interest or are Actual Interest Amounts or Default Rate Interest.

(b)Section 754 Election.  In its capacity as the sole managing member of the LLC, the Corporation will ensure that, on and after the date hereof and continuing throughout the term of this Agreement, the LLC and each of its direct and indirect Subsidiaries that is treated as a partnership for U.S. federal income tax purposes will have in effect an election under Section 754 of the Code (and under any similar provisions of applicable U.S. state or local law). 

Section 2.2Basis Schedules.  Within ninety (90) calendar days after the filing of the U.S. federal income Tax Return of the Corporation for each relevant Taxable Year, the Corporation shall deliver to ACON, the Management Representative and Fundamental Capital, LLC (“Fundamental”), as applicable, a schedule (the “Basis Schedule”) that shows, in reasonable detail as necessary in order to understand the calculations performed under this Agreement: (a) the Basis Adjustments with respect to the Reference Assets as a result of the relevant Exchanges effected in such Taxable Year and (b) the period (or periods) over which each Basis Adjustment is amortizable and/or depreciable. The Basis Schedule will become final and binding on the Parties pursuant to the procedures set forth in Section 2.4(a) and may be amended by the Parties pursuant to the procedures set forth in Section 2.4(b).

Section 2.3Tax Benefit Schedules.

(a)Tax Benefit Schedule.  Within ninety (90) calendar days after the filing of the U.S. federal income Tax Return of the Corporation for any Taxable Year in which there is a Realized Tax Benefit or Realized Tax Detriment, the Corporation shall provide to ACON, the Management Representative and Fundamental, as applicable, a schedule showing, in reasonable detail, the calculation of the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year (a “Tax Benefit Schedule”).  The Tax Benefit Schedule will become final and binding on the Parties pursuant to the procedures set forth in Section 2.4(a), and may be amended by the Parties pursuant to the procedures set forth in Section 2.4(b).

(b)Applicable Principles.  Subject to the provisions of this Agreement, the Realized Tax Benefit or Realized Tax Detriment for each Taxable Year is intended to measure the decrease or increase in the actual liability of the Corporation for Covered Taxes for such Taxable Year attributable to the Basis Adjustments, Imputed Interest, Actual Interest Amounts, and Default Rate Interest as determined using a “with and without” methodology described in Section 2.4(a).  Carryovers or carrybacks of any Tax item attributable to any Basis Adjustment, Imputed Interest, Actual Interest Amounts, and Default Rate Interest shall be considered to be subject to the rules of the Code and the Treasury Regulations or the appropriate provisions of U.S. state or local tax law, as applicable, governing the use, limitation and expiration of carryovers or carrybacks of the relevant type.  If a carryover or carryback of any Tax item includes a portion that is 

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attributable to a Basis Adjustment, Imputed Interest, Actual Interest Amounts, and Default Rate Interest (a “TRA Portion”) and another portion that is not (a “Non-TRA Portion”), such portions shall be considered to be used in accordance with the “with and without” methodology so that: (i) the amount of any Non-TRA Portion is deemed utilized first, followed by the amount of any TRA Portion (with the TRA Portion being applied on a proportionate basis consistent with the provisions of Section 3.3(a)); and (ii) in the case of a carryback of a Non-TRA Portion, such carryback shall not affect the original “with and without” calculation made in the prior Taxable Year.  The Parties agree that (i) all Tax Benefit Payments (other than Imputed Interest, Actual Interest Amounts and Default Rate Interest) attributable to an Exchange will to the extent permitted by applicable law (A) be treated as subsequent upward purchase price adjustments that give rise to further Basis Adjustments for the Corporation and (B) have the effect of creating additional Basis Adjustments for the Corporation in the year of payment, and (ii) as a result, such additional Basis Adjustments will be incorporated into the current Taxable Year continuing until any incremental current Taxable Year benefits equal an immaterial amount.  

Section 2.4Procedures; Amendments.

(a)Procedures.  Each time the Corporation delivers an applicable Schedule to ACON,   the Management Representative and Fundamental, as applicable under this Agreement, including any Amended Schedule delivered pursuant to Section 2.4(b), but excluding any Early Termination Schedule or amended Early Termination Schedule delivered pursuant to the procedures set forth in Section 4.2, the Corporation shall also: (x) deliver supporting schedules and work papers, as determined by the Corporation or as reasonably requested by ACON and the Management Representative, as applicable, that provide a reasonable level of detail regarding the data and calculations that were relevant for purposes of preparing the Schedule; (y) deliver an Advisory Firm Letter supporting such Schedule; and (z) allow ACON  and the Management Representative, as applicable, and their advisors to have reasonable access to the appropriate representatives, as determined by the Corporation or as reasonably requested by ACON  and the Management Representative, as applicable, at the Corporation and the Advisory Firm in connection with a review of such Schedule.  Without limiting the generality of the preceding sentence, the Corporation shall ensure that any Tax Benefit Schedule that is delivered to ACON,  the Management Representative and Fundamental, as applicable, along with any supporting schedules and work papers, provides a reasonably detailed presentation of the calculation of the actual liability of the Corporation for Covered Taxes (the “with” calculation) and the Hypothetical Tax Liability of the Corporation (the “without” calculation), and identifies any material assumptions or operating procedures or principles that were used for purposes of such calculations.  An applicable Schedule or amendment thereto shall become final and binding on the Parties thirty (30) calendar days from the date on which ACON, the Management Representative and Fundamental, as applicable, first received the applicable Schedule or amendment thereto unless:

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(i)ACON  or the Management Representative, as applicable, within thirty (30) calendar days after receiving the applicable Schedule or amendment thereto, provides the Corporation with written notice of a material objection to such Schedule that is made in good faith and that sets forth in reasonable detail ACON’s or the Management Representative’s, as applicable, material objection (an “Objection Notice”) or

(ii)each of ACON  and the Management Representative, as applicable,  provides a written waiver of its right to deliver an Objection Notice within the time period described in clause (i) above, in which case such Schedule or amendment thereto becomes binding on the date the waiver from each of ACON and the Management Representative, as applicable, is received by the Corporation.

In the event that ACON  or the Management Representative, as applicable, timely delivers an Objection Notice pursuant to clause (i) above, and if the Parties, for any reason, are unable to successfully resolve the issues raised in the Objection Notice within thirty (30) calendar days after receipt by the Corporation of the Objection Notice, the Corporation and ACON or the Management Representative, as applicable, shall employ the reconciliation procedures as described in Section 7.9 of this Agreement (the “Reconciliation Procedures”).

(b)Amended Schedule.  The applicable Schedule for any Taxable Year may be amended from time to time by the Corporation: (i) in connection with a Determination affecting such Schedule; (ii) to correct inaccuracies in the Schedule identified as a result of the receipt of additional factual information relating to a Taxable Year after the date the Schedule was originally provided to ACON  and the Management Representative, as applicable; (iii) to comply with an Expert’s determination under the Reconciliation Procedures applicable to this Agreement; (iv) to reflect a change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to a carryback or carryforward of a loss or other Tax item to such Taxable Year; (v) to reflect a change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to an amended Tax Return filed for such Taxable Year; or (vi) to adjust a Basis Schedule to take into account any Tax Benefit Payments made pursuant to this Agreement (any such Schedule, an “Amended Schedule”).  

Article III.
TAX BENEFIT PAYMENTS

Section 3.1Timing and Amount of Tax Benefit Payments.

(a)Timing of Payments.  Except as provided in Sections 3.4 and 3.5, and subject to Sections 3.2 and 3.3, within three (3) Business Days following the date on which each Tax Benefit Schedule that is required to be delivered by the Corporation to ACON and the Management Representative, as applicable, pursuant to Section 2.3(a) of this Agreement becomes final in accordance with Section 2.4(a) of this Agreement, 

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the Corporation shall pay to each relevant Member the Tax Benefit Payment as determined pursuant to Section 3.1(b).  Each such Tax Benefit Payment shall be made by wire transfer of immediately available funds to the bank account previously designated by such Members or as otherwise agreed by the Corporation and such Members.  For the avoidance of doubt, the Members shall not be required under any circumstances to return any portion of any Tax Benefit Payment previously paid by the Corporation to the Members (including any portion of any Estimated Tax Benefit Payment or any Early Termination Payment).

(b)Amount of Payments.  For purposes of this Agreement, a “Tax Benefit Payment” with respect to any Member means an amount, not less than zero, equal to the sum of: (i) the portion of the Net Tax Benefit that is Attributable to such Member (including Imputed Interest calculated in respect of such amount); and (ii) the Actual Interest Amount with respect to the Net Tax Benefit described in (i).

(i)Attributable.  A Net Tax Benefit is “Attributable” to a Member to the extent that it is derived from any Basis Adjustment, Imputed Interest, or Actual Interest Amount that is attributable to an Exchange undertaken by or with respect to such Member.

(ii)Net Tax Benefit.  The “Net Tax Benefit” for a Taxable Year equals the amount of the excess, if any, of (x) 85% of the Cumulative Net Realized Tax Benefit as of the end of such Taxable Year over (y) the aggregate amount of all Tax Benefit Payments previously made under this Section 3.1.  For the avoidance of doubt, if the Cumulative Net Realized Tax Benefit as of the end of any Taxable Year is less than the aggregate amount of all Tax Benefit Payments previously made, no Member shall be required to return any portion of any Tax Benefit Payment previously made by the Corporation to such Member.

(iii)Cumulative Net Realized Tax Benefit.  The “Cumulative Net Realized Tax Benefit” for a Taxable Year equals the cumulative amount of Realized Tax Benefits for all Taxable Years of the Corporation, up to and including such Taxable Year, net of the cumulative amount of Realized Tax Detriments for the same period.  The Realized Tax Benefit and Realized Tax Detriment for each Taxable Year shall be determined based on the most recent Tax Benefit Schedule or Amended Schedule, if any, in existence at the time of such determination.

(iv)Realized Tax Benefit.  The “Realized Tax Benefit” for a Taxable Year equals the excess, if any, of the Hypothetical Tax Liability over the actual liability of the Corporation for Covered Taxes; provided, that for purposes of determining the Hypothetical Tax Liability and actual liability of the Corporation for Covered Taxes, the Corporation shall use the Assumed State and Local Tax Rate for purposes of determining such liabilities for all state and local Covered Taxes.  For the avoidance of doubt, the calculation of the Hypothetical Tax Liability and the actual liability of the Corporation for Covered Taxes shall take 

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into account the federal benefit received by the Corporation with respect to state and local jurisdiction income taxes (with such benefit taking into account the Corporation’s marginal U.S. federal income tax rate for the relevant Taxable Year, the Assumed State and Local Tax Rate, and the deductibility, if any, of state and local jurisdiction income taxes).  If all or a portion of the actual liability for such Covered Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Benefit unless and until there has been a Determination.

(v)Realized Tax Detriment.  The “Realized Tax Detriment” for a Taxable Year equals the excess, if any, of the actual liability of the Corporation for Covered Taxes over the Hypothetical Tax Liability for such Taxable Year; provided, that for purposes of determining the Hypothetical Tax Liability and actual liability of the Corporation for Covered Taxes, the Corporation shall use the Assumed State and Local Tax Rate for purposes of determining such liabilities for all state and local Covered Taxes.  For the avoidance of doubt, the calculation of the Hypothetical Tax Liability and the actual liability of the Corporation for Covered Taxes shall take into account the federal benefit received by the Corporation with respect to state and local jurisdiction income taxes (with such benefit taking into account the Corporation’s marginal U.S. federal income tax rate for the relevant Taxable Year, the Assumed State and Local Tax Rate, and the deductibility, if any, of state and local jurisdiction income taxes).  If all or a portion of the actual liability for such Covered Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Detriment unless and until there has been a Determination.

(vi)Imputed Interest.  The parties acknowledge that the principles of Sections 1272, 1274, or 483 of the Code, as applicable, and the principles of any similar provision of U.S. state and local law, will, as applicable, apply to cause a portion of any Net Tax Benefit payable by the Corporation to a Member under this Agreement to be treated as imputed interest (“Imputed Interest”).  For the avoidance of doubt, the deduction for the amount of Imputed Interest as determined with respect to any Net Tax Benefit payable by the Corporation to a Member shall be excluded in determining the Hypothetical Tax Liability of the Corporation for purposes of calculating Realized Tax Benefits and Realized Tax Detriments pursuant to this Agreement.

(vii)Actual Interest Amount.  The “Actual Interest Amount” calculated in respect of the Net Tax Benefit for a Taxable Year will equal the amount of any Extension Rate Interest.  For the avoidance of doubt, any deduction for any Actual Interest Amount as determined with respect to any Net Tax Benefit payable by the Corporation to a Member shall be excluded in determining the Hypothetical Tax Liability of the Corporation for purposes of calculating Realized Tax Benefits and Realized Tax Detriments pursuant to this Agreement.

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(viii)Extension Rate Interest.  Subject to Section 3.4, the amount of “Extension Rate Interest” calculated in respect of the Net Tax Benefit (including previously accrued Imputed Interest) for a Taxable Year will equal interest calculated at the Agreed Rate from the due date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for such Taxable Year until the date on which the Corporation makes a timely Tax Benefit Payment to the Member on or before the Final Payment Date as determined pursuant to Section 3.1(a).

(ix)Default Rate Interest.  In the event that the Corporation does not make timely payment of all or any portion of a Tax Benefit Payment to a Member on or before the Final Payment Date as determined pursuant to Section 3.1(a), the amount of “Default Rate Interest” calculated in respect of the Net Tax Benefit (including previously accrued Imputed Interest and Extension Rate Interest) for a Taxable Year will equal interest calculated at the Default Rate from the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a) until the date on which the Corporation makes such Tax Benefit Payment to such Member.  For the avoidance of doubt, any deduction for any Default Rate Interest with respect to any Net Tax Benefit payable by the Corporation to a Member shall be excluded in determining the Hypothetical Tax Liability of the Corporation for purposes of calculating Realized Tax Benefits and Realized Tax Detriments pursuant to this Agreement.

(x)The Corporation and the Members hereby acknowledge and agree that, as of the date of this Agreement and as of the date of any future Exchange that may be subject to this Agreement, the aggregate value of the Tax Benefit Payments cannot be reasonably ascertained for U.S. federal income or other applicable tax purposes.  Notwithstanding anything to the contrary in this Agreement, unless a Member notifies the Corporation otherwise, the stated maximum selling price (within the meaning of Treasury Regulation 15A.453-1(c)(2)) with respect to any Exchange by such Member shall not exceed 175% of the amount of the initial consideration received in connection with such Exchange (which, for the avoidance of doubt, shall include the amount of any cash and the fair market value of any Class A Common Stock received in such Exchange and shall exclude the fair market value of any Tax Benefit Payments) and the amount of the initial consideration received in connection with such Exchange and the aggregate Tax Benefit Payments to such Member in respect of such Exchange (other than amounts accounted for as interest under the Code) shall not exceed such stated maximum selling price. 

(c)Interest.  The provisions of Section 3.1(b) are intended to operate so that interest will effectively accrue in respect of the Net Tax Benefit for any Taxable Year as follows:

(i)first, at the applicable rate used to determine the amount of Imputed Interest under the Code (from the relevant Exchange Date until the due 

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date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for such Taxable Year and, if required under applicable law, through the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a));

(ii)second, at the Agreed Rate in respect of any Extension Rate Interest (from the due date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for such Taxable Year until the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a)); and

(iii)third, at the Default Rate in respect of any Default Rate Interest (from the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a) until the date on which the Corporation makes the relevant Tax Benefit Payment to a Member).

Section 3.2No Duplicative Payments.  It is intended that the provisions of this Agreement will not result in the duplicative payment of any amount (including interest) that may be required under this Agreement, and the provisions of this Agreement shall be consistently interpreted and applied in accordance with that intent.  For purposes of this Agreement, and also for the avoidance of doubt, no Tax Benefit Payment shall be required to be calculated or made in respect of any estimated tax payments, including, without limitation, any estimated U.S. federal income tax payments.

Section 3.3Pro-Ration of Payments as Between the Members.

(a)Insufficient Taxable Income.  Notwithstanding anything in Section 3.1(b) to the contrary, if the aggregate potential depreciation, amortization or other similar deductions in respect of the Basis Adjustments, Imputed Interest, Actual Interest Amounts, and Default Rate Interest for purposes of determining the Corporation’s liability for Covered Taxes (the “Covered Tax Benefit”) is limited in a particular Taxable Year because the Corporation does not have sufficient actual taxable income, then the available Covered Tax Benefit for the Corporation shall be allocated among the Members in proportion to the respective Tax Benefit Payment that would have been payable if the Corporation had in fact had sufficient taxable income so that there had been no such limitation.  As an illustration of the intended operation of this Section 3.3(a), if the Corporation had $200 of aggregate potential Covered Tax Benefits in a particular Taxable Year (with $50 of such Covered Tax Benefits being attributable to Member 1 and $150 of such Covered Tax Benefits being attributable to Member 2), such that Member 1 would have potentially been entitled to a Tax Benefit Payment of $42.50 and Member 2 would have been entitled to a Tax Benefit Payment of $127.50 if the Corporation had $200 of actual taxable income, and if at the same time the Corporation only had $100 of actual taxable income in such Taxable Year, then $25 of the aggregate $100 actual Covered Tax Benefit for the Corporation for such Taxable Year would be allocated to Member 1 and $75 of the aggregate $100 actual Covered Tax benefit for the Corporation would be allocated to Member 2, such that Member 1 

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would receive a Tax Benefit Payment of $21.25 and Member 2 would receive a Tax Benefit Payment of $63.75.  

(b)Late Payments.  If for any reason the Corporation is not able to timely and fully satisfy its payment obligations under this Agreement in respect of a particular Taxable Year, then Default Rate Interest will begin to accrue pursuant to Section 5.2 and the Corporation and other Parties agree that (i) the Corporation shall pay the Tax Benefit Payments due in respect of such Taxable Year to each Member pro rata in proportion to the amount of such Tax Benefit Payments, without favoring one obligation over the other, and (ii) no Tax Benefit Payment shall be made in respect of any Taxable Year until all Tax Benefit Payments to all Members in respect of all prior Taxable Years have been made in full.

Section 3.4Optional Estimated Tax Benefit Payment Procedure. As long as the Corporation is current in respect of its payment obligations owed to each Member pursuant to this Agreement and there are no delinquent Tax Benefit Payments (including interest thereon) outstanding in respect of prior Taxable Years for any Member, the Corporation may, at any time on or after the due date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for a Taxable Year and at the Corporation’s option, in its sole discretion, make one or more estimated payments to the Members in respect of any anticipated amounts to be owed with respect to a Taxable Year to the Members pursuant to Section 3.1 of this Agreement (any such estimated payments referred to as an “Estimated Tax Benefit Payment”); provided that any Estimated Tax Benefit Payment made to a Member pursuant to this Section 3.4 is matched by a proportionately equal Estimated Tax Benefit Payment to all other Members then entitled to a Tax Benefit Payment.  Any Estimated Tax Benefit Payment made under this Section 3.4 shall be paid by the Corporation to the Members and applied against the final amount of any Tax Benefit Payment to be made pursuant to Section 3.1.  The payment of an Estimated Tax Benefit Payment by the Corporation to the Members pursuant to this Section 3.4 shall also terminate the obligation of the Corporation to make payment of any Extension Rate Interest that might have otherwise accrued with respect to the proportionate amount of the Tax Benefit Payment that is being paid in advance of the applicable Tax Benefit Schedule being finalized pursuant to Section 2.4.  Upon the making of any Estimated Tax Benefit Payment pursuant to this Section 3.4, the amount of such Estimated Tax Benefit Payment shall first be applied to any estimated Extension Rate Interest, then to Imputed Interest, and then applied to the remaining residual amount of the Tax Benefit Payment to be made pursuant to Section 3.1.  In determining the final amount of any Tax Benefit Payment to be made pursuant to Section 3.1, and for purposes of finalizing the Tax Benefit Schedule pursuant to Section 2.4, the amount of any Estimated Tax Benefit Payments that may have been made with respect to the Taxable Year shall be increased, if the finally determined Tax Benefit Payment for a Taxable Year exceeds the Estimated Tax Benefit Payments made for such Taxable Year, with such increase being paid by the Corporation to the Members along with an appropriate amount of Extension Rate Interest in respect of the amount of such increase (a “True-Up”).  If the Estimated Tax Benefit Payment for a Taxable Year exceeds the finally determined Tax Benefit Payment for such Taxable 

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Year, such excess, along with an appropriate amount of Extension Rate Interest in respect of such excess (being charged by the Corporation to the Member), shall be applied to reduce the amount of any subsequent future Tax Benefit Payments (including Estimated Tax Benefit Payments, if any) to be paid by the Corporation to such Member.  As of the date on which any Estimated Tax Benefit Payments are made, and as of the date on which any True-Up is made, all such payments shall be made in the same manner and subject to the same terms and conditions as otherwise contemplated by Section 3.1 and all other applicable terms of this Agreement.  For the avoidance of doubt, as is the case with Tax Benefit Payments made by the Corporation to the Members pursuant to Section 3.1, the amount of any Estimated Tax Benefit Payments made pursuant to this Section 3.4 that are attributable to an Exchange shall also be treated, in part, as subsequent upward purchase price adjustments that give rise to Basis Adjustments in the Taxable Year of payment to the extent permitted by applicable law and as of the date on which such payments are made (to the extent of the estimated Net Tax Benefit associated with such Estimated Tax Benefit Payment, less any Imputed Interest, and exclusive of any Extension Rate Interest).

Section 3.5 Changes; Reserves; Suspension of Payments.

(a)Receipt of Change Notice.  If any Party, or any Affiliate or Subsidiary of any Party, receives a 30-day letter, a final audit report, a statutory notice of deficiency, or similar written notice from any Taxing Authority that proposes an adjustment to a tax item of a Party that would reduce the Tax Benefit Payments that may be payable by the Corporation to the Members (a “Change Notice”), prompt written notification and a copy of the relevant Change Notice shall be delivered by the Party, or its Affiliate or Subsidiary, that received such Change Notice to each of the Corporation, ACON, the Management Representative and Fundamental.

(b)Receipt of Reserve Notice.  Prior to the delivery of any Tax Benefit Schedule or other Schedule by the Corporation to ACON, the Management Representative and Fundamental, management of the Corporation shall consult with the auditors for the Corporation and, if necessary, the Advisory Firm or other legal or accounting advisors to the Corporation regarding the substantive tax issues and related conclusions that underlie the calculations related to the determination of the Tax Benefit Payments required under this Agreement.  If, following such consultation, the management for the Corporation shall reasonably determine that a tax reserve or contingent liability must be established by the Corporation for financial accounting purposes (as determined in accordance with GAAP) in relation to any past or future tax position that affects the amount of any past or future Tax Benefit Payments that have been made or that may be made under this Agreement, then ACON and Fundamental shall be notified of such determination (a “Reserve Notice”).

(c)Suspension of Payments.  From and after the date on which a Change Notice is received, to the extent provided in the following sentence, Tax Benefit Payments required to be made under this Agreement shall be paid by the Corporation to a national bank mutually agreeable to the Parties to act as escrow agent to hold such 

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funds in escrow pursuant to an escrow agreement until a Determination in respect of the applicable Change Notice is received.  For purposes of the preceding sentence and for purposes of the determination of the amount to be placed in escrow pending a Determination, the Corporation shall suspend all future Tax Benefit Payments required under this Agreement until the amount of such suspended future Tax Benefit Payments equals the aggregate amount of Tax Benefit Payments that the Corporation reasonably determines would not be payable if such Change Notice results in an adverse Determination.   From and after the date on which a Reserve Notice is issued, to the extent that the tax position that gives rise to a tax reserve or contingent liability would have the effect of reducing the Tax Benefit Payments required to be made under this Agreement, the Tax Benefit Payments required to be made under this Agreement shall, to the extent determined reasonably necessary by the Audit Committee, be paid by the Corporation to a national bank mutually agreeable to the Parties to act as escrow agent to hold such funds in escrow pursuant to an escrow agreement until the relevant reserve is released or the relevant contingent liability is eliminated or it is otherwise determined that the tax position is not reasonably expected to have the effect of reducing the Tax Benefit Payments.  For purposes of the preceding sentence and for purposes of the Audit Committee’s determination of the amount to be placed in escrow pending the release of the reserve or the elimination of the contingent liability, the Corporation shall be entitled to suspend all future Tax Benefit Payments required under this Agreement until the amount of such suspended future Tax Benefit Payments equals the aggregate amount of Tax Benefit Payments that the Corporation reasonably determines would not be payable if the tax position giving rise to the reserve is sustained.  The amount to be placed in escrow shall be held in an interest-bearing escrow account.   The date on which the Corporation pays any such Tax Benefit Payments to the escrow agent shall not be considered the date on which such Tax Benefit Payments are paid to the Members; provided, however,  the Actual Interest Amount and Default Rate Interest shall not accrue on the amount of the Tax Benefit Payments after the date on which such amount is placed in the escrow, and the amount of Tax Benefit Payments payable to Members with respect to the Tax Benefit Payments at issue shall be net of expenses and taxes as set forth in Section 3.5(d).

(d)Release of Escrowed Funds.  As of the date on which a reserve is released or contingent liability is eliminated (in the case of a Reserve Notice), and provided that no Change Notice has previously been issued and is still outstanding in relation to the same tax position that was the subject of the Reserve Notice, the relevant escrowed funds (along with any interest earned on such funds, and less (1) the out-of-pocket expenses incurred by the Corporation  or the LLC in administering the escrow, and (2) any taxes imposed on the Corporation or the LLC with respect to any income earned on the investment of such funds) shall be distributed to the relevant Members.  The portion of the relevant escrowed funds held back pursuant to clauses (1) and (2) of the immediately preceding sentences shall be distributed to the Corporation or the LLC, as applicable.  If a Determination is received (in the case of a Change Notice), and if such Determination results in no adjustment in any Tax Benefit Payments under this Agreement, and provided that no Reserve Notice has previously been issued and is still outstanding in relation to the same tax position that was the subject of the Change 

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Notice, then the relevant escrowed funds (along with any interest earned on such funds, and less (1) the out-of-pocket expenses incurred by the Corporation or the LLC in administering the escrow, and (2) any taxes imposed on the Corporation or the LLC with respect to any income earned on the investment of such funds) shall be distributed to the relevant Members.  If a Determination is received (in the case of a Change Notice), and if such Determination results in an adjustment in any Tax Benefit Payments under this Agreement, and provided that no Reserve Notice has previously been issued and is still outstanding in relation to the same tax position that was the subject of the Change Notice, then the relevant escrowed funds (along with any interest earned on such funds) shall be distributed as follows: (i) first, to the Corporation or the LLC in an amount equal to (1) the out-of-pocket expenses incurred by the Corporation or the LLC in administering the escrow and in contesting the Determination and (2) any taxes imposed on the Corporation or the LLC with respect to any income earned on the investment of such funds; and (ii) second, to the relevant Parties (which, for the avoidance of doubt and depending on the nature of the adjustments, may include the Corporation or the relevant Members, or some combination thereof) in accordance with the relevant Amended Schedule prepared pursuant to Section 2.4 of this Agreement.

(e)Early Termination.  Notwithstanding any other provision of this Agreement, in the event of an Early Termination Notice prior to release of the escrow pursuant to Section 3.5(d), the escrowed funds shall be released to the Corporation, and any Early Termination Payment payable by the Corporation to the Members pursuant to Section 4.3 shall be computed without regard to any proposed adjustment to a tax item of a Party that has given rise to a Change Notice or any tax position that has given rise to a Reserve Notice.

Article IV.
TERMINATION

Section 4.1Early Termination of Agreement; Breach of Agreement.

(a)Corporation’s Early Termination Right.  With the written approval of a majority of the Independent Directors, the Corporation may completely terminate this Agreement, as and to the extent provided herein, with respect to all amounts payable to the Members pursuant to this Agreement by paying to the Members the Early Termination Payment; provided that Early Termination Payments may be made pursuant to this Section 4.1(a) only if made to all Members that are entitled to such a payment simultaneously, and provided further, that the Corporation may withdraw any notice to execute its termination rights under this Section 4.1(a) prior to the time at which any Early Termination Payment has been paid.  Upon the Corporation’s payment of the Early Termination Payment, the Corporation shall not have any further payment obligations under this Agreement, other than with respect to any: (i) prior Tax Benefit Payments that are due and payable under this Agreement but that still remain unpaid as of the date of the Early Termination Notice; and (ii) current Tax Benefit Payment due for the Taxable Year ending on or including the date of the Early Termination Notice (except to the extent that the amount described in clause (ii) is included in the 

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calculation of the Early Termination Payment).  If an Exchange subsequently occurs with respect to Units for which the Corporation has exercised its termination rights under this Section 4.1(a), the Corporation shall have no obligations under this Agreement with respect to such Exchange.

(b)Acceleration Upon Change of Control.  In the event of a Change of Control, all obligations hereunder shall be accelerated and such obligations shall be calculated pursuant to this Article IV as if an Early Termination Notice had been delivered on the closing date of the Change of Control and utilizing the Valuation Assumptions by substituting the phrase “the closing date of a Change of Control” in each place where the phrase “Early Termination Effective Date” appears.  Such obligations shall include, but not be limited to, (1) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the closing date of the Change of Control, (2) any Tax Benefit Payments agreed to by the Corporation and the Members as due and payable but unpaid as of the Early Termination Notice and (3) any Tax Benefit Payments due for any Taxable Year ending prior to, with or including the closing date of a Change of Control (except to the extent that any amounts described in clauses (2) or (3) are included in the Early Termination Payment).  For the avoidance of doubt, Sections 4.2 and 4.3 shall apply to a Change of Control, mutadis mutandi.

(c)Acceleration Upon Breach of Agreement.  In the event that the Corporation materially breaches any of its material obligations under this Agreement, whether as a result of failure to make any payment when due, failure to honor any other material obligation required hereunder, or by operation of law as a result of the rejection of this Agreement in a case commenced under the Bankruptcy Code or otherwise, then all obligations hereunder shall be accelerated and become immediately due and payable upon notice of acceleration from a Member (provided that in the case of any proceeding under the Bankruptcy Code or other insolvency statute, such acceleration shall be automatic without any such notice), and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of such notice of acceleration (or, in the case of any proceeding under the Bankruptcy Code or other insolvency statute, on the date of such breach) and shall include, but not be limited to: (i) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the date of such acceleration; (ii) any prior Tax Benefit Payments that are due and payable under this Agreement but that still remain unpaid as of the date of such acceleration; and (iii) any current Tax Benefit Payment due for the Taxable Year ending with or including the date of such acceleration (except to the extent included in the Early Termination Payment).  Notwithstanding the foregoing, in the event that the Corporation breaches this Agreement and such breach is not a material breach of a material obligation, a Member shall still be entitled to enforce all of its rights otherwise available under this Agreement, excluding, for the avoidance of doubt, seeking an acceleration of amounts payable under this Agreement.  For purposes of this Section 4.1(c), and subject to the following sentence, the Parties agree that the failure to make any payment due pursuant to this Agreement within sixty (60) days of the relevant Final Payment Date shall be deemed to be a material breach of a material obligation under 

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this Agreement for all purposes of this Agreement, and that it will not be considered to be a material breach of a material obligation under this Agreement to make a payment due pursuant to this Agreement within sixty (60) days of the relevant Final Payment Date.  For the avoidance of doubt, a suspension of payments pursuant to Section 3.5 will not be considered to be a failure to make a payment due pursuant to this Agreement, provided that the Corporation complies with the provisions of Section 3.5(c) that require the Corporation to pay the Tax Benefit Payments to an escrow.  Notwithstanding anything in this Agreement to the contrary, it shall not be a material breach of a material obligation of this Agreement if the Corporation fails to make any Tax Benefit Payment within sixty (60) days of the relevant Final Payment Date to the extent that the Corporation has insufficient funds or cannot make such payment as a result of obligations imposed in connection with the Senior Obligations or under applicable law, and cannot obtain sufficient funds to make such payments by taking commercially reasonable actions; provided that the interest provisions of Section 5.2 shall apply to such late payment (unless the Corporation does not have sufficient funds to make such payment as a result of limitations imposed by any Senior Obligations, in which case Section 5.2 shall apply, but the Default Rate shall be replaced by the Agreed Rate); and further provided that such payment obligation shall nonetheless accrue for the benefit of the Members and the Corporation shall make such payment at the first opportunity that it has sufficient funds and is otherwise able to make such payment.

Section 4.2Early Termination Notice.  If the Corporation chooses to exercise its right of early termination under Section 4.1 above, the Corporation shall deliver to ACON, the Management Representative and Fundamental a notice of the Corporation’s decision to exercise such right (an “Early Termination Notice”) and a schedule (the “Early Termination Schedule”) showing in reasonable detail the calculation of the Early Termination Payment.  The Corporation shall also (x) deliver to ACON, the Management Representative and Fundamental supporting schedules and work papers, as determined by the Corporation or as reasonably requested by ACON  or the Management Representative, that provide a reasonable level of detail regarding the data and calculations that were relevant for purposes of preparing the Early Termination Schedule; (y) deliver to ACON, the Management Representative and Fundamental an Advisory Firm Letter supporting such Early Termination Schedule; and (z) allow ACON  and the Management Representative and their advisors to have reasonable access to the appropriate representatives, as determined by the Corporation or as reasonably requested by ACON  or the Management Representative, at the Corporation and the Advisory Firm in connection with a review of such Early Termination Schedule.  The Early Termination Schedule shall become final and binding on each Party thirty (30) calendar days from the first date on which ACON, the Management Representative and Fundamental received such Early Termination Schedule unless:

(i)ACON or the Management Representative within thirty (30) calendar days after receiving the Early Termination Schedule, provides the Corporation with (A) notice of a material objection to such Early Termination Schedule made in good faith and setting forth in reasonable detail ACON  or the 

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Management Representative’s, as applicable, material objection (a “Termination Objection Notice”) and (B) a letter from an Advisory Firm (that is different from the Advisory Firm that was used by the Corporation to prepare the Early Termination Schedule) in support of such Termination Objection Notice; or

(ii)each of ACON and the Management Representative provides a written waiver of such right of a Termination Objection Notice within the period described in clause (i) above, in which case such Early Termination Schedule becomes binding on the date the waiver from ACON  and the Management Representative is received by the Corporation.

In the event that ACON or the Management Representative timely delivers a Termination Objection Notice pursuant to clause (i) above, and if the Parties, for any reason, are unable to successfully resolve the issues raised in the Termination Objection Notice within thirty (30) calendar days after receipt by the Corporation of the Termination Objection Notice, the Corporation and ACON  or the Management Representative, as applicable, shall employ the Reconciliation Procedures.  For the avoidance of doubt, and notwithstanding anything to the contrary herein, the expense of preparing and obtaining the letter from an Advisory Firm referenced in clause (i) above shall be borne solely by ACON or the Management Representative, as applicable, and the Corporation shall have no liability with respect to such letter or any of the expenses associated with its preparation and delivery.  The date on which the Early Termination Schedule becomes final in accordance with this Section 4.2 shall be the “Early Termination Reference Date.”

Section 4.3Payment Upon Early Termination.

(a)Timing of Payment.  Within three (3) Business Days after the Early Termination Reference Date, the Corporation shall pay to each Member an amount equal to the Early Termination Payment for such Member.  Such Early Termination Payment shall be made by the Corporation by wire transfer of immediately available funds to a bank account or accounts designated by the Members or as otherwise agreed by the Corporation and the Members.

(b)Amount of Payment.  The “Early Termination Payment” payable to a Member pursuant to Section 4.3(a) shall equal the present value, discounted at the Early Termination Rate as determined as of the Early Termination Reference Date, of all Tax Benefit Payments that would be required to be paid by the Corporation to such Member, whether payable with respect to Units that were Exchanged prior to the Early Termination Effective Date or on or after the Early Termination Effective Date, beginning from the Early Termination Effective Date and using the Valuation Assumptions.   For the avoidance of doubt, notwithstanding any other provision in this Agreement, neither (i) any proposed adjustment to a tax item of a Party that has given rise to a Change Notice, nor (ii) any reserve or contingent liability associated with a tax position that has given rise to a Reserve Notice, shall be taken into account in determining the amount of 

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any Early Termination Payment, which shall be computed as if the adjustment or tax item has been favorably resolved.

Article V.
SUBORDINATION AND LATE PAYMENTS

Section 5.1Subordination.  Notwithstanding any other provision of this Agreement to the contrary, any Tax Benefit Payment or Early Termination Payment required to be made by the Corporation to the Members under this Agreement shall rank subordinate and junior in right of payment to any principal, interest, or other amounts due and payable in respect of any obligations owed in respect of secured or unsecured indebtedness for borrowed money of the Corporation and its Subsidiaries (“Senior Obligations”) and shall rank pari passu in right of payment with all current or future unsecured obligations of the Corporation that are not Senior Obligations.  To the extent that any payment under this Agreement is not permitted to be made at the time payment is due as a result of this Section 5.1 and the terms of the agreements governing Senior Obligations, such payment obligation nevertheless shall accrue for the benefit of the Members and the Corporation shall make such payments at the first opportunity that such payments are permitted to be made in accordance with the terms of the Senior Obligations.

Section 5.2Late Payments by the Corporation.  Except as otherwise provided in this Agreement, the amount of all or any portion of any Tax Benefit Payment or Early Termination Payment not made to the Members when due under the terms of this Agreement, whether as a result of Section 5.1 and the terms of the Senior Obligations or otherwise, shall be payable together with any interest thereon, computed at the Default Rate and commencing from the Final Payment Date on which such Tax Benefit Payment or Early Termination Payment was first due and payable to the date of actual payment.

Article VI.
TAX MATTERS; CONSISTENCY; COOPERATION

Section 6.1Participation in the Corporation’s and the LLC’s Tax Matters.  Except as otherwise provided herein, the Corporation shall have full responsibility for, and sole discretion over, all tax matters concerning the Corporation and the LLC, including without limitation the preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to taxes; provided, however, that if ACON owns (or would own upon an Exchange of all outstanding Units) at least five (5) percent of the Class A Common Stock, the Corporation shall not settle or fail to contest any issue pertaining to Covered Taxes that is reasonably expected to materially adversely affect the Members’ rights and obligations under this Agreement without the consent of ACON, such consent not to be unreasonably withheld or delayed.  If ACON fails to respond to any notice with respect to the settlement or other disposition of any such issue within fifteen (15) days of its receipt of the applicable notice, ACON shall be deemed to have consented to the proposed settlement or other disposition. 

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Notwithstanding the foregoing, the Corporation shall notify ACON, the Management Representative and Fundamental of, and keep them reasonably informed with respect to, the portion of any tax audit of the Corporation or the LLC, or any of the LLC’s Subsidiaries, the outcome of which is reasonably expected to materially affect the Tax Benefit Payments payable to such Members under this Agreement, and ACON  and the Management Representative, as applicable, shall have the right to participate in and to monitor at their own expense (but, for the avoidance of doubt, not to control) any such portion of any such Tax audit.  To the extent there is a conflict between this Agreement and the LLC Agreement as it relates to tax matters concerning Covered Taxes and the Corporation and the LLC, including preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to taxes, this Agreement shall control; provided, however, that to the extent there is a conflict between this Agreement and Sections 5.05 and 9.02 of the LLC Agreement, Sections 5.05 and 9.02 of the LLC Agreement shall control.

Section 6.2Consistency.  Except as otherwise required by law, all calculations and determinations made hereunder, including, without limitation, any Basis Adjustments, the Schedules and the determination of any Realized Tax Benefits or Realized Tax Detriments, shall be made in accordance with the elections, methodologies or positions taken by the Corporation and the LLC on their respective Tax Returns.  Each Member shall prepare its Tax Returns in a manner that is consistent with the terms of this Agreement, and any related calculations or determinations that are made hereunder, including, without limitation, the terms of Section 2.1 of this Agreement and the Schedules provided to the Members under this Agreement.  In the event that an Advisory Firm is replaced with another Advisory Firm, such replacement Advisory Firm shall perform its services under this Agreement using procedures and methodologies consistent with the previous Advisory Firm, unless otherwise required by law or unless the Corporation and all of the Members agree to the use of other procedures and methodologies.

Section 6.3Cooperation.

(a)Each Member shall (i) furnish to the Corporation in a timely manner such information, documents and other materials as the Corporation may reasonably request for purposes of making any determination or computation necessary or appropriate under this Agreement, preparing any Tax Return or contesting or defending any audit, examination or controversy with any Taxing Authority, (ii) make itself available to the Corporation and its representatives to provide explanations of documents and materials and such other information as the Corporation or its representatives may reasonably request in connection with any of the matters described in clause (i) above, and (iii) reasonably cooperate in connection with any such matter.

(b)The Corporation shall reimburse the Members for any reasonable and documented out-of-pocket costs and expenses incurred pursuant to Section 6.3(a).

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Article VII.
MISCELLANEOUS

Section 7.1Notices.  All notices, requests, consents and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by courier service, by fax, by electronic mail (delivery receipt requested) or by certified or registered mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be as specified in a notice given in accordance with this Section 7.1).  All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the Party to receive such notice:

If to the Corporation, to:

Funko, Inc.
2802 Wetmore Avenue
Everett, Washington 98201

Attn: Russell Nickel

with a copy (which shall not constitute notice to the Corporation) to:

Latham & Watkins LLP
885 Third Avenue
New York, New York 10022

Attn: Marc Jaffe

If to ACON:

ACON Funko Investors, L.L.C.

1133 Connecticut Ave. N.W., Suite 700

Washington, D.C.  20036

 

Attn: Kenneth R. Brotman

 

with a copy (which shall not constitute notice to ACON) to:

Hogan Lovells US LLP
7930 Jones Branch Drive, Ninth Floor

McLean, VA 22102

 

Attn: Robert Welp

         Adam Brown

 

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If to Fundamental:

Fundamental Capital, LLC
4 Embarcadero Center
Suite 1400
San Francisco, CA 94111

Attn: Kevin Keenley

with a copy (which shall not constitute notice to Fundamental) to:

Reed Smith LLP
1510 Page Mill Road Suite 110
Palo Alto, CA 94304-1127

Attn: Donald C. Reinke

 

If to the Management Representative (on behalf of applicable Members):

Russell Nickel

Funko, Inc.
2802 Wetmore Avenue
Everett, Washington 98201

 

Any Party may change its address, fax number or e-mail address by giving each of the other Parties written notice thereof in the manner set forth above.

Section 7.2Counterparts.  This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties, it being understood that all Parties need not sign the same counterpart.  Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.

Section 7.3Entire Agreement; No Third Party Beneficiaries.  This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the Parties with respect to the subject matter hereof.  This Agreement shall be binding upon and inure solely to the benefit of each Party hereto and their respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

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Section 7.4Governing Law.  This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, without regard to the conflicts of laws principles thereof that would mandate the application of the laws of another jurisdiction.

Section 7.5Severability.  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.

Section 7.6Assignments; Amendments; Successors; No Waiver.

(a)Assignment.  No Member may assign, sell, pledge, or otherwise alienate or transfer any interest in this Agreement, including the right to receive any Tax Benefit Payments under this Agreement, to any Person (other than a Permitted Transferee) without (i) the prior written consent of the Corporation (such consent not to be unreasonably withheld, conditioned or delayed) and (ii) such Person executing and delivering a Joinder agreeing to succeed to the applicable portion of such Member’s interest in this Agreement and to become a Party for all purposes of this Agreement (the “Joinder Requirement”).  For the avoidance of doubt, if a Member transfers Units in accordance with the terms of the LLC Agreement but does not assign to the transferee of such Units its rights under this Agreement with respect to such transferred Units, such Member shall continue to be entitled to receive the Tax Benefit Payments arising in respect of a subsequent Exchange of such Units (and any such transferred Units shall be separately identified, so as to facilitate the determination of Tax Benefit Payments hereunder).  The Corporation may not assign any of its rights or obligations under this Agreement to any Person (other than any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation) without the prior written consent of each of the Members (and any purported assignment without such consent shall be null and void).  

(b)Amendments.  No provision of this Agreement may be amended unless such amendment is approved in writing by each of a majority of the Independent Directors, ACON, the Management Representative and Fundamental, in which case such amendment shall be permitted.  No provision of this Agreement may be waived unless such waiver is in writing and signed by the Party against whom the waiver is to be effective.

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(c)Successors.  Except as provided in Section 7.6(a), all of the terms and provisions of this Agreement shall be binding upon, and shall inure to the benefit of and be enforceable by, the Parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives.  The Corporation shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place.

(d)Waiver.  No failure by any Party to insist upon the strict performance of any covenant, duty, agreement, or condition of this Agreement, or to exercise any right or remedy consequent upon a breach thereof, shall constitute a waiver of any such breach or any other covenant, duty, agreement, or condition.

Section 7.7Titles and Subtitles.  The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

Section 7.8Resolution of Disputes.

(a)Except for Reconciliation Disputes subject to Section 7.9, any and all disputes which cannot be settled amicably, including any ancillary claims of any Party, arising out of, relating to or in connection with the validity, negotiation, execution, interpretation, performance or non-performance of this Agreement (including the validity, scope and enforceability of this arbitration provision) (each a “Dispute”) shall be finally resolved by arbitration in accordance with the International Institute for Conflict Prevention and Resolution Rules for Administered Arbitration (the “Rules”) by three arbitrators, of which the Corporation shall appoint one arbitrator and the Members party to such Dispute shall appoint one arbitrator in accordance with the “screened” appointment procedure provided in Rule 5.4.  The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C.  §§ 1 et seq., and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof.  The place of the arbitration shall be Seattle, Washington.

(b)Notwithstanding the provisions of paragraph (a), any Party may bring an action or special proceeding in any court of competent jurisdiction for the purpose of compelling another Party to arbitrate, seeking temporary or preliminary relief in aid of an arbitration hereunder, and/or enforcing an arbitration award and, for the purposes of this paragraph (b), each Party (i) expressly consents to the application of paragraph (c) of this Section 7.8 to any such action or proceeding, and (ii) agrees that proof shall not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate and that remedies at law would be inadequate.  For the avoidance of doubt, this Section 7.8 shall not apply to Reconciliation Disputes to be settled in accordance with the procedures set forth in Section 7.9.

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(c)Each Party irrevocably consents to service of process by means of notice in the manner provided for in Section 7.1.  Nothing in this Agreement shall affect the right of any Party to serve process in any other manner permitted by law.

(d)WAIVER OF RIGHT TO TRIAL BY JURY.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).

(e)In the event the parties are unable to agree whether a dispute between them is a Reconciliation Dispute subject to the dispute resolution procedure set forth in Section 7.9 or a Dispute subject to the dispute resolution procedure set forth in this Section 7.8, such disagreement shall be decided and resolved in accordance with the procedure set forth in this Section 7.8.

Section 7.9Reconciliation.  In the event that the Corporation and any Member are unable to resolve a disagreement with respect to a Schedule (other than an Early Termination Schedule) prepared in accordance with the procedures set forth in Section 2.4, or with respect to an Early Termination Schedule prepared in accordance with the procedures set forth in Section 4.2, within the relevant time period designated in this Agreement (a “Reconciliation Dispute”), the Reconciliation Dispute shall be submitted for determination to a nationally recognized expert (the “Expert”) in the particular area of disagreement mutually acceptable to both Parties.  The Expert shall be a partner or principal in a nationally recognized accounting firm, and unless the Corporation and such Member agree otherwise, the Expert shall not, and the firm that employs the Expert shall not, have any material relationship with the Corporation or such Member or other actual or potential conflict of interest.  If the Parties are unable to agree on an Expert within fifteen (15) calendar days of receipt by the respondent(s) of written notice of a Reconciliation Dispute, the selection of an Expert shall be treated as a Dispute subject to Section 7.8 and an arbitration panel shall pick an Expert from a nationally recognized accounting firm that does not have any material relationship with the Corporation or such Member or other actual or potential conflict of interest.  The Expert shall resolve any matter relating to the Basis Schedule or an amendment thereto or the Early Termination Schedule or an amendment thereto within thirty (30) calendar days and shall resolve any matter relating to a Tax Benefit Schedule or an amendment thereto within fifteen (15) calendar days or as soon thereafter as is reasonably practicable, in each case after the matter has been submitted to the Expert for resolution.  Notwithstanding the preceding sentence, if the matter is not resolved before any payment that is the subject of a disagreement would be due (in the absence of such disagreement) or any Tax Return reflecting the subject of a disagreement is due, the undisputed amount shall be paid on the date prescribed by this Agreement and such Tax Return may be filed as prepared by the Corporation, subject to adjustment or amendment upon resolution.  The costs and expenses relating to the engagement of such Expert or amending any Tax Return shall be borne by the Corporation except as 

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provided in the next sentence.  The Corporation and the Members shall bear their own costs and expenses of such proceeding, unless (i) the Expert adopts the Member’s position, in which case the Corporation shall reimburse the Member for any reasonable and documented out-of-pocket costs and expenses in such proceeding (including for the avoidance of doubt any costs and expenses incurred by the Member relating to the engagement of the Expert or amending any applicable Tax Return), or (ii) the Expert adopts the Corporation’s position, in which case the Member shall reimburse the Corporation for any reasonable and documented out-of-pocket costs and expenses in such proceeding (including for the avoidance of doubt costs and expenses incurred by the Corporation relating to the engagement of the Expert or amending any applicable Tax Return).  The Expert shall finally determine any Reconciliation Dispute and the determinations of the Expert pursuant to this Section 7.9 shall be binding on the Corporation and the Members and may be entered and enforced in any court having competent jurisdiction.

Section 7.10Withholding.  The Corporation and its affiliates and representatives shall be entitled to deduct and withhold from any payment that is payable to any Member pursuant to this Agreement such amounts as the Corporation is required to deduct and withhold with respect to the making of such payment under the Code or any provision of U.S. state, local or foreign tax law.  To the extent that amounts are so withheld and paid over to the appropriate Taxing Authority, such withheld amounts shall be treated for all purposes of this Agreement as having been paid by the Corporation to the relevant Member.  Each Member shall promptly provide the Corporation with any applicable tax forms and certifications reasonably requested by the Corporation in connection with determining whether any such deductions and withholdings are required under the Code or any provision of U.S. state, local or foreign tax law.

Section 7.11Admission of the Corporation into a Consolidated Group; Transfers of Corporate Assets.

(a)If the Corporation is or becomes a member of an affiliated or consolidated group of corporations that files a consolidated income Tax Return pursuant to Section 1501 or other applicable Sections of the Code governing affiliated or consolidated groups, or any corresponding provisions of U.S. state or local law, then: (i) the provisions of this Agreement shall be applied with respect to the group as a whole; and (ii) Tax Benefit Payments, Early Termination Payments, and other applicable items hereunder shall be computed with reference to the consolidated taxable income of the group as a whole.  

(b)If the Corporation, its successor in interest or any member of a group described in Section 7.11(a) transfers one or more assets to a corporation (or a Person classified as a corporation for U.S. income tax purposes) with which such entity does not file a consolidated Tax Return pursuant to Section 1501 of the Code, such entity, for purposes of calculating the amount of any Tax Benefit Payment or Early Termination Payment due hereunder, shall be treated as having disposed of such asset in a fully taxable transaction on the date of such transfer.  The consideration deemed to be 

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received by such entity shall be equal to the fair market value of the contributed asset as determined by the Advisory Firm or a valuation expert selected by the Corporation.  For purposes of this Section 7.11, a transfer of a partnership interest shall be treated as a transfer of the transferring partner’s share of each of the assets and liabilities of that partnership.  Notwithstanding anything to the contrary set forth herein, if the Corporation, its successor in interest or any member of a group described in Section 7.11(a), transfers its assets pursuant to a transaction that qualifies as a “reorganization” (within the meaning of Section 368(a) of the Code) in which such entity does not survive or pursuant to any other transaction to which Section 381(a) of the Code applies (other than any such reorganization or any such other transaction, in each case, pursuant to which such entity transfers assets to a corporation with which the Corporation, its successor in interest or any member of the group described in Section 7.11(a) (other than any such member being transferred in such reorganization or other transaction)  does not file a consolidated Tax Return pursuant to Section 1501 of the Code), the transfer will not cause such entity to be treated as having transferred any assets to a corporation (or a Person classified as a corporation for U.S. income tax purposes) pursuant to this Section 7.11(b).  

Section 7.12Confidentiality.  Each Member and its assignees acknowledges and agrees that the information of the Corporation is confidential and, except in the course of performing any duties as necessary for the Corporation and its Affiliates, as required by law or legal process or to enforce the terms of this Agreement, such Person shall keep and retain in the strictest confidence and not disclose to any Person any confidential matters, acquired pursuant to this Agreement, of the Corporation and its Affiliates and successors, learned by any Member heretofore or hereafter.  This Section 7.12 shall not apply to (i) any information that has been made publicly available by the Corporation or any of its Affiliates, becomes public knowledge (except as a result of an act of any Member in violation of this Agreement) or is generally known to the business community, (ii) the disclosure of information to the extent necessary for a Member to prosecute or defend claims arising under or relating to this Agreement, and (iii) the disclosure of information to the extent necessary for a Member to prepare and file its Tax Returns, to respond to any inquiries regarding the same from any Taxing Authority or to prosecute or defend any action, proceeding or audit by any Taxing Authority with respect to such Tax Returns.  If a Member or an assignee commits a breach, or threatens to commit a breach, of any of the provisions of this Section 7.12, the Corporation shall have the right and remedy to have the provisions of this Section 7.12 specifically enforced by injunctive relief or otherwise by any court of competent jurisdiction without the need to post any bond or other security, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to the Corporation or any of its Subsidiaries and that money damages alone shall not provide an adequate remedy to such Persons.  Such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available at law or in equity.

Section 7.13Change in Law.  Notwithstanding anything herein to the contrary, if, as a result of or, in connection with an actual or proposed change in law, a Member reasonably believes that the existence of this Agreement could cause income (other 

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than income arising from receipt of a payment under this Agreement) recognized by such Member (or direct or indirect equity holders in such Member) in connection with any Exchange to be treated as ordinary income rather than capital gain (or otherwise taxed at ordinary income rates) for U.S. federal income tax purposes or would have other material adverse tax consequences to such Member or any direct or indirect owner of such Member, then at the written election of such Member in its sole discretion (in an instrument signed by such Member and delivered to the Corporation) and to the extent specified therein by such Member, this Agreement shall cease to have further effect and shall not apply to an Exchange with respect to such Member occurring after a date specified by such Member, or may be amended by in a manner reasonably determined by such Member, provided that such amendment shall not result in an increase in any payments owed by the Corporation under this Agreement at any time as compared to the amounts and times of payments that would have been due in the absence of such amendment.

Section 7.14Interest Rate Limitation.  Notwithstanding anything to the contrary contained herein, the interest paid or agreed to be paid hereunder with respect to amounts due to any Member hereunder shall not exceed the maximum rate of non-usurious interest permitted by applicable law (the “Maximum Rate”).  If any Member shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the Tax Benefit Payment, Estimated Tax Benefit Payment or Early Termination Payment, as applicable (but in each case exclusive of any component thereof comprising interest) or, if it exceeds such unpaid non-interest amount, refunded to the Corporation.  In determining whether the interest contracted for, charged, or received by any Member exceeds the Maximum Rate, such Member may, to the extent permitted by applicable law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the payment obligations owed by the Corporation to such Member hereunder.  Notwithstanding the foregoing, it is the intention of the Parties to conform strictly to any applicable usury laws.

Section 7.15Independent Nature of Rights and Obligations.  The rights and obligations of the each Member hereunder are several and not joint with the rights and obligations of any other Person.  A Member shall not be responsible in any way for the performance of the obligations of any other Person hereunder, nor shall a Member have the right to enforce the rights or obligations of any other Person hereunder (other than the Corporation).  The obligations of a Member hereunder are solely for the benefit of, and shall be enforceable solely by, the Corporation.  Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Member pursuant hereto or thereto, shall be deemed to constitute the Members acting as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Members are in any way acting in concert or as a group with respect to such rights or obligations or the transactions contemplated hereby, and the Corporation acknowledges that the Members are not acting in concert or as a group and 

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will not assert any such claim with respect to such rights or obligations or the transactions contemplated hereby.

Section 7.16LLC Agreement.  This Agreement shall be treated as part of the LLC Agreement as described in Section 761(c) of the Code and Sections 1.704-1(b)(2)(ii)(h) and 1.761-1(c) of the Treasury Regulations. 

Section 7.17Management Representative.   By executing this Agreement, each of the Members (other than ACON and any of its Affiliates) shall be deemed to have irrevocably constituted and appointed Russell Nickel (in the capacity described in this Section 7.17 and each successor as provided below, the “Management Representative”) as his, her or its agent and attorney in fact with full power of substitution to act from and after the date hereof and to do any and all things and execute any and all documents on behalf of such Members which may be necessary, convenient or appropriate to facilitate any matters under this Agreement, including but not limited to: (i) execution of the documents and certificates required pursuant to this Agreement; (ii) except to the extent specifically provided in this Agreement that notice shall be sent to Fundamental, receipt and forwarding of notices and communications pursuant to this Agreement; (iv) administration of the provisions of this Agreement; (v) except with respect to Fundamental in respect of matters for which Fundamental has negotiated separate protections as described herein, giving or agreeing to, on behalf of such Members, any and all consents, waivers, amendments or modifications deemed by the Management Representative, in its sole and absolute discretion, to be necessary or appropriate under this Agreement and the execution or delivery of any documents that may be necessary or appropriate in connection therewith; (vi) except with respect to Fundamental, amending this Agreement or any of the instruments to be delivered to the Corporation pursuant to this Agreement; (vii) taking actions Management Representative is expressly authorized to take pursuant to the other provisions of this Agreement; (viii) except with respect to Fundamental, negotiating and compromising, on behalf of such Members, any dispute that may arise under, and exercising or refraining from exercising any remedies available under, this Agreement or any other agreement contemplated hereby and executing, on behalf of such Members, any settlement agreement, release or other document with respect to such dispute or remedy; and (ix) engaging attorneys, accountants, agents or consultants on behalf of such Members in connection with this Agreement or any other agreement contemplated hereby and paying any fees related thereto.  If the Management Representative is unable or unwilling to so serve, then the Members (other than ACON and its Affiliates), as applicable, holding a majority of the common units owned by such Members outstanding on the date hereof, shall elect a new Management Representative.  To the fullest extent permitted by law, none of the Management Representative, any of its Affiliates, or any of the Management Representative’s or Affiliate’s directors, officers, employees or other agents (each a “Covered Person”) shall be liable, responsible or accountable in damages or otherwise to any Member, the LLC or the Corporation for damages arising from any action taken or omitted to be taken by the Management Representative or any other Person with respect to the LLC or the Corporation, except in the case of any action or omission which constitutes, with respect to such Person, 

37

 

 

 

 

 

willful misconduct or fraud.  Each of the Covered Persons may consult with legal counsel, accountants, and other experts selected by it, and any act or omission suffered or taken by it on behalf of the LLC or the Corporation or in furtherance of the interests of the LLC or the Corporation in good faith in reliance upon and in accordance with the advice of such counsel, accountants, or other experts shall create a rebuttable presumption of the good faith and due care of such Covered Person with respect to such act or omission; provided that such counsel, accountants, or other experts were selected with reasonable care.  Each of the Covered Persons may rely in good faith upon, and shall have no liability to the LLC, the Corporation or the Members for acting or refraining from acting upon, any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties.

[Signature Page Follows This Page]

 

38

 

 

 

 

 

IN WITNESS WHEREOF, the undersigned have executed or caused to be executed on their behalf this Agreement as of the date first written above.

CORPORATION:

FUNKO, INC.

 

	
By:
	
/s/ Tracy Daw

	
Name:
	
 

	
Title:
	
 

[Signature Page to Tax Receivable Agreement]

 

 

THE LLC:

FUNKO ACQUISITION HOLDINGS, L.L.C.

 

	
By:
	
/s/ Tracy Daw

	
Name:
	
 

	
Title:
	
 

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER

ACON FUNKO INVESTORS, L.L.C.

By ACON Funko Manager, L.L.C., its
Manager

	
By:
	
/s/ Kenneth Brotman

	
 
	
Name:
	
Kenneth Brotman

	
 
	
Title:
	
Managing Director

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Russell Nickel

	
 
	
Name:
	
Russell Nickel

	
 
	
Title:
	
 

 

MANAGEMENT REPRESENTATIVE:

	
By:
	
/s/ Russell Nickel

	
 
	
Name:
	
Russell Nickel

	
 
	
Title:
	
 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Sean Wilkinson

	
 
	
Name:
	
Sean Wilkinson

	
 
	
Title:
	
 

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Jacob Matson

	
 
	
Name:
	
Jacob Matson

	
 
	
Title:
	
Dir. Innovation

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

VICTORIA ANNE MARIOTTI, AS TRUSTEE OF BRIAN R. MARIOTTI GRANTOR RETAINED ANNUITY TRUST

	
By:
	
/s/ Victoria Anne Mariotti

	
 
	
Name:
	
Victoria Anne Mariotti

	
 
	
Title:
	
Trustee

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

VICTORIA ANNE MARIOTTI, AS TRUSTEE OF MARIOTTI FAMILY IRREVOCABLE TRUST

	
By:
	
/s/ Victoria Anne Mariotti

	
 
	
Name:
	
Victoria Anne Mariotti

	
 
	
Title:
	
Trustee

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Kurt Dicus

	
 
	
Name:
	
Kurt Dicus

	
 
	
Title:
	
10-18-2017

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Laurie Anderson

	
 
	
Name:
	
Laurie Anderson

	
 
	
Title:
	
Controller

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

CERBERUS ASRS HOLDINGS, LLC

	
By:
	
/s/ Daniel E. Wolf

	
 
	
Name:
	
Daniel E. Wolf

	
 
	
Title:
	
Vice President

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Mark Robben

	
 
	
Name:
	
Mark Robben

	
 
	
Title:
	
Director of Marketing

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Timothy Spiller

	
 
	
Name:
	
Timothy Spiller

	
 
	
Title:
	
Director of Operations

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

TREVOR SCHULTZ, AS TRUSTEE OF THE TREVOR SCHULTZ FAMILY TRUST,
DATED DECEMBER 8, 2011

	
By:
	
/s/ Trevor Schultz

	
 
	
Name:
	
Trevor Schultz

	
 
	
Title:
	
Trustee

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Johanna Gepford

	
 
	
Name:
	
Johanna Gepford

	
 
	
Title:
	
SVP Sales

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Sanjay Srivastava

	
 
	
Name:
	
Sanjay Srivastava

	
 
	
Title:
	
Director, Analytics

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

DALE SCHULTZ, AS TRUSTEE OF THE DALE SCHULTZ FAMILY TRUST, DATED
DECEMBER 8, 2011

	
By:
	
/s/ Dale Schultz

	
 
	
Name:
	
Dale Schultz

	
 
	
Title:
	
Trustee

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Andrew Perlmutter

	
 
	
Name:
	
Andrew Perlmutter

	
 
	
Title:
	
 

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Andrew Oddie

	
 
	
Name:
	
Andrew Oddie

	
 
	
Title:
	
 

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Robert Mitchell

	
 
	
Name:
	
Robert Mitchell

	
 
	
Title:
	
Sr. Director, Operations

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Adam Kriger

	
 
	
Name:
	
Adam Kriger

	
 
	
Title:
	
 

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Brian Mariotti

	
 
	
Name:
	
Brian Mariotti

	
 
	
Title:
	
 

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

GLADSTONE CAPITAL CORPORATION

	
By:
	
/s/ Bob Marcotte

	
 
	
Name:
	
Bob Marcotte

	
 
	
Title:
	
President

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

 

	
By:
	
/s/ Doug Kikendall

	
 
	
Name:
	
Doug Kikendall

	
 
	
Title:
	
Member

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

JON P. AND TRISHAWN P. KIPP CHILDREN’S TRUST U/A/D 5/31/14

	
By:
	
/s/ Shauna M. Kipp      trustee

	
 
	
Name:
	
 

	
 
	
Title:
	
Trustee

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Gustavio Rubio Escudero

	
 
	
Name:
	
Gustavo Rubio Escudero

	
 
	
Title:
	
 

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Sarathy Annamraju

	
 
	
Name:
	
Sarathy Annamraju

	
 
	
Title:
	
CIO

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Robert Schwartz

	
 
	
Name:
	
Robert Schwartz

	
 
	
Title:
	
Designer

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Melissa Alton

	
 
	
Name:
	
Melissa Alton

	
 
	
Title:
	
Director of Procurement

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Anne Aquino

	
 
	
Name:
	
Anne Aquino

	
 
	
Title:
	
Retail Fulfillment Manager

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Allison Dinan

	
 
	
Name:
	
Allison Dinan

	
 
	
Title:
	
 

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Charles Denson

	
 
	
Name:
	
Charles Denson

	
 
	
Title:
	
Director

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Tracy Daw

	
 
	
Name:
	
Tracy Daw

	
 
	
Title:
	
SVP & General Counsel

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Benjamin Butcher

	
 
	
Name:
	
Benjamin Butcher

	
 
	
Title:
	
 

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

	
By:
	
/s/ Michael Becker

	
 
	
Name:
	
Michael Becker

	
 
	
Title:
	
V.P. Apparel

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

GLADSTONE INVESTMENT CORPORATION

	
By:
	
/s/ David Gladstone

	
 
	
Name:
	
David Gladstone

	
 
	
Title:
	
CEO

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

FUNDAMENTAL CAPITAL, LLC, a Delaware limited liability company,

By:  FUNDAMENTAL CAPITAL PARTNERS, LLC,
a Delaware limited liability company
Manager

	
By:
	
/s/ Richard McNally

	
 
	
Name:
	
Richard McNally

	
 
	
Title:
	
Member

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

FUNKO INTERNATIONAL, LLC, a Delaware Limited Liability Company,

By:  FUNDAMENTAL CAPITAL, LLC, a Delaware limited liability company

By:  FUNDAMENTAL CAPITAL PARTNERS, LLC, a Delaware limited liability company
Manager

	
By:
	
/s/ Richard McNally

	
 
	
Name:
	
Richard McNally

	
 
	
Title:
	
Manager

 

[Signature Page to Tax Receivable Agreement]

 

 

MEMBER:

DRAWBRIDGE SPECIAL OPPORTUNITIES FUND LP

By:  Drawbridge Special Opportunities GP LLC, its general partner

	
By:
	
/s/ Constantine M. Dakolias

	
 
	
Name:
	
Constantine M. Dakolias

	
 
	
Title:
	
President

 

 

 

[Signature Page to Tax Receivable Agreement]

 

 

Exhibit A

FORM OF JOINDER AGREEMENT

This JOINDER AGREEMENT, dated as of _________________, 20___ (this “Joinder”), is delivered pursuant to that certain Tax Receivable Agreement, dated as of November 1, 2017 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Tax Receivable Agreement”) by and among Funko, Inc., a Delaware corporation (the “Corporation”), Funko Acquisition Holdings, LLC, a Delaware limited liability company (“the LLC”), and each of the Members from time to time party thereto.  Capitalized terms used but not otherwise defined herein have the respective meanings set forth in the Tax Receivable Agreement.

	
 
	
1.
	
Joinder to the Tax Receivable Agreement.  Upon the execution of this Joinder by the undersigned and delivery hereof to the Corporation, the undersigned hereby is and hereafter will be a Member under the Tax Receivable Agreement and a Party thereto, with all the rights, privileges and responsibilities of a Member thereunder.  The undersigned hereby agrees that it shall comply with and be fully bound by the terms of the Tax Receivable Agreement as if it had been a signatory thereto as of the date thereof.

	
 
	
2.
	
Incorporation by Reference.  All terms and conditions of the Tax Receivable Agreement are hereby incorporated by reference in this Joinder as if set forth herein in full.

	
 
	
3.
	
Address.  All notices under the Tax Receivable Agreement to the undersigned shall be direct to:

[Name] 
[Address] 
[City, State, Zip Code] 
Attn: 
Facsimile: 
E-mail: 

IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Joinder as of the day and year first above written.

[NAME OF NEW PARTY]

	
By:
	
 

	
Name:
	
 

	
Title:
	
 

 

 

 

 

 

 

Acknowledged and agreed
as of the date first set forth above:

 

FUNKO, INC.

	
By:
	
 

	
Name:
	
 

	
Title:fnko-ex1026_585.htm

 

Exhibit 10.26

STOCKHOLDERS agreement OF

FUNKO, INC.

THIS STOCKHOLDERS AGREEMENT, dated as of November 1, 2017 (as it may be amended, amended and restated or otherwise modified from time to time in accordance with the terms hereof, this “Agreement”), is entered into by and among Funko, Inc., a Delaware corporation (the “Corporation”), ACON Funko Investors, L.L.C., a Delaware limited liability company (“ACON”), ACON Funko Investors Holdings 1, L.L.C., a Delaware limited liability company (“ACON Funko Investors Holdco 1”), ACON Funko Investors Holdings 2, L.L.C., a Delaware limited liability company (“ACON Funko Investors Holdco 2”), ACON Funko Investors Holdings 3, L.L.C., a Delaware limited liability company (“ACON Funko Investors Holdco 3”, and together with ACON Funko Investors Holdco 1 and ACON Funko Investors Holdco 2, the “ACON Holdcos”), Fundamental Capital, LLC, a Delaware limited liability company (“Fundamental Capital”), Funko International, LLC, a Delaware limited liability company (“Funko International”) and Brian Mariotti, an individual (“Mr. Mariotti”, and together with ACON, Fundamental Capital and Funko International, the “Original Members”).  Certain terms used in this Agreement are defined in Section 7.

recitals

WHEREAS, each Original Member owns, directly or indirectly, outstanding membership interests in Funko Acquisition Holdings, L.L.C., a Delaware limited liability company (“FAH LLC”), which membership interests constitute and are defined as “Common Units” pursuant to the Second Amended and Restated Limited Liability Company Agreement of FAH LLC, dated as of November 1, 2017, as such agreement may be further amended, restated, amended and restated, supplemented or otherwise modified from time to time (the “LLC Agreement” and such membership interests, the “Common Units”);

WHEREAS, the Corporation is contemplating an offering and sale of the shares of Class A common stock, par value $0.0001 per share, of the Corporation (the “Class A Common Stock”) in an underwritten initial public offering (the “IPO”) and using a portion of the net proceeds received from the IPO to purchase Common Units; 

WHEREAS, pursuant to that certain Common Unit Subscription Agreement by and between the Corporation and FAH LLC, dated as of November 1, 2017 (the “Common Unit Subscription Agreement”) and that certain Common Unit Purchase Agreement by and among the Corporation and certain member(s) of FAH LLC parties thereto, dated as of November 1, 2017 (the “Common Unit Purchase Agreement”), the Corporation will hold Common Units;  

WHEREAS, upon consummation of the transactions contemplated by the Common Unit Subscription Agreement and the Common Unit Purchase Agreement, it is contemplated that the Corporation will be admitted as a member, and appointed as the sole managing member of FAH LLC;

1

7

 

WHEREAS, in connection with, and prior to, the consummation of the IPO, it is anticipated that ACON, the ACON Holdcos, the Corporation and certain of their respective affiliates will enter into a series of related transactions pursuant to which the ACON Holdcos will become holders of Class A Common Stock; 

WHEREAS, immediately following the consummation of the IPO, ACON (together with the ACON Holdcos and any other Permitted Transferees of ACON (and any affiliate of an ACON Holdco to which any such ACON Holdco transfers Class A Common Stock), in such capacity, the “ACON Related Parties”) will be the record holder of shares of Class A Common Stock and Class B common stock, par value $0.0001 per share, of the Corporation (“Class B Common Stock”); 

WHEREAS, immediately following the consummation of the IPO, Fundamental Capital and Funko International (collectively, “Fundamental”, and together with each of their Permitted Transferees, in such capacity, the “Fundamental Related Parties”) will be the record holders of shares of Class B Common Stock; 

WHEREAS, immediately following the consummation of the IPO, Mr. Mariotti will be the record holder of Class B Common Stock; and

WHEREAS, in order to induce the Original Members (x) to approve the sale and issuance of Common Units by FAH LLC to the Corporation and the appointment of the Corporation as the sole managing member of FAH LLC in connection with the IPO and (y) to take such other actions as shall be necessary to effectuate the transactions contemplated by the IPO, the parties hereto desire to set forth their agreement with respect to the matters set forth herein in connection with their respective investments in the Corporation.

NOW, THEREFORE, in consideration of the covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Corporation and the Original Members agree as follows: 

Agreement

Section 1.Election of the Board of Directors. 

(a)Subject to this Section 1(a), the ACON Related Parties shall be entitled to designate for nomination by the Board up to three (3) Directors from time to time (any Director designated by the ACON Related Parties, an “ACON Director”).  The ACON Directors shall be apportioned among the three (3) classes of Directors as nearly equal in number as possible.  The right of the ACON Related Parties to designate the ACON Directors as set forth in this Section 1(a) shall be subject to the following: (i) if at any time the ACON Related Parties beneficially own, directly or indirectly, in the aggregate less than thirty-five percent (35%) but at least twenty-five percent (25%) or more of all issued and outstanding shares of Class A Common Stock (including for this purpose the Underlying Class A Shares), the ACON Related Parties shall only be entitled to designate two (2) ACON Directors, and (ii) if at any time the ACON Related Parties beneficially own, directly or indirectly, in the aggregate less than twenty-five percent (25%) but at least 

2

 

fifteen percent (15%) or more of all issued and outstanding shares of Class A Common Stock (including for this purpose the Underlying Class A Shares), the ACON Related Parties shall only be entitled to designate one (1) ACON Director.  The ACON Related Parties shall not be entitled to designate any ACON Directors in accordance with this Section 1(a) if at any time the ACON Related Parties beneficially own, directly or indirectly, in the aggregate less than fifteen percent (15%) of all issued and outstanding shares of Class A Common Stock (including for this purpose Underlying Class A Shares).  Commencing on the one year anniversary of the date on which the Class A Common Stock is listed on a national securities exchange and ending on the earlier of (x) the date on which the Fundamental Related Parties no longer have any Director designation rights under Section 1(b) and (y) the date on which the ACON Related Parties are no longer entitled to designate three (3) ACON Directors in accordance with this Section 1(a), one of the ACON Directors shall be “independent” in accordance with the Nasdaq Stock Market and U.S. Securities and Exchange Commission rules regarding audit committee independence.

(b)Subject to this Section 1(b), the Fundamental Related Parties shall be entitled to designate for nomination by the Board one (1) Director from time to time (such Director designated by Fundamental, the “Fundamental Director”).  The Fundamental Related Parties shall not be entitled to designate the Fundamental Director in accordance with this Section 1(b) from and after October 1, 2018 or if at any time prior thereto the Fundamental Related Parties beneficially own, directly or indirectly, in the aggregate less than ten percent (10%) of all issued and outstanding shares of Class A Common Stock (including for this purpose the Underlying Class A Shares).

(c)Subject to this Section 1(c), Mr. Mariotti shall be entitled to be designated for nomination by the Board as a Director.  The right of Mr. Mariotti to be designated as a Director as set forth in this Section 1(c) shall be subject to Mr. Mariotti serving as the Chief Executive Officer of the Corporation.  Mr. Mariotti shall not be entitled to be designated as a Director in accordance with this Section 1(c) once Mr. Mariotti ceases to be the Chief Executive Officer of the Corporation.  

(d)Subject to Section 1(a), Section 1(b) and Section 1(c), each of ACON, the ACON Holdcos, Fundamental and Mr. Mariotti hereby agrees to vote, or cause to be voted, all outstanding shares of Class A Common Stock and/or Class B Common Stock, as applicable, held by the ACON Related Parties, the Fundamental Related Parties or Mr. Mariotti (or any of the Permitted Transferees) at any annual or special meeting of stockholders of the Corporation at which Directors of the Corporation are to be elected or removed, or to take all Necessary Action to cause the election or removal of the ACON Directors, the Fundamental Director and Mr. Mariotti as a Director, as provided herein.

Section 2.Vacancies and Replacements.  

(a)If the number of Directors that the ACON Related Parties or the Fundamental Related Parties have the right to designate to the Board is decreased pursuant to Section 1(a) or Section 1(b), or if Mr. Mariotti is no longer entitled to serve on 

3

 

the Board pursuant to Section 1(c) (each such occurrence, a “Decrease in Designation Rights”), then:

(i)unless a majority of Directors agree in writing that a Director or Directors shall not resign as a result of a Decrease in Designation Rights, each of the ACON Related Parties, the Fundamental Related Parties or Mr. Mariotti, as applicable, shall use its reasonable best efforts to cause each of (x) the appropriate number of ACON Directors that the ACON Related Parties cease to have the right to designate to serve as an ACON Director, (y) the Fundamental Director that the Fundamental Related Parties cease to have the right to designate to serve as the Fundamental Director or (z) Mr. Mariotti, if Mr. Mariotti ceases to the have the right to be designated as a Director, respectively, to offer to tender his, her or their resignation(s), and each of such ACON Directors, Fundamental Director or Mr. Mariotti so tendering a resignation, as applicable, shall resign within thirty (30) days from the date that the ACON Related Parties, the Fundamental Related Parties and/or Mr. Mariotti, as applicable, incurs a Decrease in Designation Rights; provided, however, that with respect to the Fundamental Related Parties, if the Decrease in Designation Rights occurs as a result of reaching the October 1, 2018 expiration date for such designation right as set forth in Section 1(b), then the Fundamental Director shall not be required to resign prior to the first business day after the date on which the Corporation files its Quarterly Report on Form 10-Q for the period ended September 30, 2018.  In the event any such ACON Director, Fundamental Director or Mr. Mariotti, as applicable, does not resign as a Director by such time as is required by the foregoing, the ACON Related Parties, the Fundamental Related Parties and Mr. Mariotti, as holders of Class A Common Stock and Class B Common Stock, the Corporation and the Board, to the fullest extent permitted by law and, with respect to the Board, subject to its fiduciary duties to the Corporation’s stockholders, shall thereafter take all Necessary Action, including voting in accordance with Section 1(d), to cause the removal of such individual as a Director; and 

(ii)the vacancy or vacancies created by such resignation(s) and/or removal(s) shall be filled with one or more Directors, as applicable, designated by the Board upon the recommendation of the Nominating and Corporate Governance Committee, so long as it is established.  

(b)Each of the ACON Related Parties and the Fundamental Related Parties shall have the sole right to request that one or more of their respective designated Directors, as applicable, tender their resignations as Directors of the Board (each, a “Removal Right”), in each case, with or without cause at any time, by sending a written notice to such Director and the Corporation’s Secretary stating the name of the Director or Directors whose resignation from the Board is requested (the “Removal Notice”).  If the Director subject to such Removal Notice does not resign within thirty (30) days from receipt thereof by such Director, the ACON Related Parties, the Fundamental Related Parties and Mr. Mariotti, as holders of Class A Common Stock and Class B Common Stock, the Corporation and the Board, to the fullest extent permitted by law and, with respect to the Board, subject to its fiduciary duties to the Corporation’s stockholders, shall 

4

 

thereafter take all Necessary Action, including voting in accordance with Section 1(d) to cause the removal of such Director from the Board (and such Director shall only be removed by the parties to this Agreement in such manner as provided herein).  

(c)Each of the ACON Related Parties and the Fundamental Related Parties, as applicable, shall have the exclusive right to designate a replacement Director for nomination or election by the Board to fill vacancies created as a result of not designating their respective Director(s) initially or by death, disability, retirement, resignation, removal (with or without cause) of their respective Director(s), or otherwise by designating a successor for nomination or election by the Board to fill the vacancy of their respective Director(s) created thereby on the terms and subject to the conditions of Section 1.

Section 3.Initial Directors. The initial ACON Directors pursuant to Section 1(a) shall be Kenneth R. Brotman (as a Class III Director), Gino Dellomo (as a Class II Director) and Adam Kriger (as a Class I Director).  The initial Fundamental Director pursuant to Section 1(b) shall be Richard McNally (as a Class II Director). Pursuant to Section 1(c), Mr. Mariotti shall be a Class I Director. Kenneth R. Brotman shall serve as the initial Chairperson of the Board (as defined in the Bylaws) for the initial term, in accordance with this Agreement and the Bylaws, after which the Chairperson of the Board shall be determined in accordance with this Agreement and the Bylaws.

Section 4.Rights of the ACON Related Parties.  In addition to any voting requirements contained in the organizational documents of the Corporation or any of its Subsidiaries, the Corporation shall not take, and shall cause FAH LLC and its Subsidiaries not to take, any of the following actions (whether by merger, consolidation or otherwise) without the prior written approval of ACON and each of the ACON Holdcos for as long as the ACON Related Parties beneficially own, directly or indirectly, in the aggregate thirty percent (30%) or more of all issued and outstanding shares of Class A Common Stock (including for these purposes the Underlying Class A Shares): 

(a)any transaction or series of related transactions, in each case, to the extent within the reasonable control of the Corporation, (i) in which any “person” or “group” (within the meaning of Sections 13(d) and 14(d) of the Exchange Act (excluding the ACON Related Parties and any “group” that includes the ACON Related Parties, the Fundamental Related Parties and Mr. Mariotti)) acquires, directly or indirectly, in excess of fifty percent (50%) of the then outstanding shares of any class of capital stock (or equivalent) of the Corporation, FAH LLC or any of their respective Subsidiaries (whether by merger, consolidation, sale or transfer of capital stock or partnership, membership or other equity interests, tender offer, exchange offer, reorganization, recapitalization or otherwise) or (ii) following which any “person” or “group” referred to in clause (i) hereof has the direct or indirect power to elect a majority of the members of the Board or to replace the Corporation as the sole manager of FAH LLC (or to add another Person as a co-manager of FAH LLC);

(b)the reorganization, recapitalization, voluntary bankruptcy, liquidation, dissolution or winding-up of the Corporation, FAH LLC or any of their respective Subsidiaries;

5

 

(c)the sale, lease or exchange of all or substantially all of the property and assets of the Corporation and its Subsidiaries, taken as a whole;

(d)the (i) resignation, replacement or removal of the Corporation as the sole manager of FAH LLC or (ii) appointment of any additional Person as a manager of FAH LLC; 

(e)any acquisition or disposition of assets of the Corporation or any of its Subsidiaries where the aggregate consideration for such assets is greater than ten million dollars ($10,000,000) in any single transaction or series of related transactions, other than transactions solely between or among the Corporation and/or one or more of the Corporation’s direct or indirect wholly owned subsidiaries;

(f)the creation of a new class or series of capital stock or equity securities of the Corporation, FAH LLC or any of their respective Subsidiaries; 

(g)any issuance of additional shares of Class A Common Stock, Class B Common Stock, Preferred Stock or other equity securities of the Corporation, FAH LLC or any of their respective Subsidiaries after the date hereof, other than any issuance of additional shares of Class A Common Stock or other equity securities of the Corporation or its Subsidiaries (i) under any stock option or other equity compensation plan of the Corporation or any of its Subsidiaries approved by the Board or the compensation committee of the Board, (ii) pursuant to the exercise or conversion of any options, warrants or other securities existing as of the date of this Agreement, or (iii) in connection with any redemption of Common Units as set forth in the LLC Agreement;

(h)any amendment or modification of the organizational documents of the Corporation, FAH LLC or any of their respective Subsidiaries, other than the LLC Agreement, which shall be subject to amendment or modification solely in accordance with the terms set forth therein; or

(i)any increase or decrease of the size of the Board.

Section 5.Covenants of the Corporation.  

(a)The Corporation agrees to take all Necessary Action to cause (i) the Board to be comprised at least of seven (7) Directors or such other number of Directors as the Board may determine, subject to the terms of this Agreement, the Charter or the Bylaws of the Corporation; (ii) the individuals designated in accordance with Section 1 to be included in the slate of nominees to be elected to the Board at the next annual or special meeting of stockholders of the Corporation at which Directors are to be elected, in accordance with the Bylaws, Charter and General Corporation Law of the State of Delaware and at each annual meeting of stockholders of the Corporation thereafter at which such Director’s term expires; (iii) the individuals designated in accordance with Section 2(c) to fill the applicable vacancies on the Board, in accordance with the Bylaws, Charter, Securities Laws, General Corporation Law of the State of Delaware and the Nasdaq Stock Market rules; (iv) an ACON Director to be the Chairperson of the Board and (v) to adhere to, implement and enforce the provisions set forth in Section 4.

6

 

(b)The ACON Related Parties, the Fundamental Related Parties and Mr. Mariotti shall comply with the requirements of the Charter and Bylaws when designating and nominating individuals as Directors, in each case, to the extent such requirements are applicable to Directors generally.  Notwithstanding anything to the contrary set forth herein, in the event that the Board determines, within sixty (60) days after compliance with the first sentence of this Section 5(b), in good faith, after consultation with outside legal counsel, that its nomination, appointment or election of a particular Director designated in accordance with Section 1 or Section 2, as applicable, would constitute a breach of its fiduciary duties to the Corporation’s stockholders or does not otherwise comply with any requirements of the Charter or Bylaws, then the Board shall inform the ACON Related Parties, the Fundamental Related Parties and/or Mr. Mariotti, as applicable, of such determination in writing and explain in reasonable detail the basis for such determination and shall, to the fullest extent permitted by law, nominate, appoint or elect another individual designated for nomination, election or appointment to the Board by the ACON Related Parties and/or the Fundamental Related Parties, as applicable (subject in each case to this Section 5(b)); provided, however, that if the Board informs Mr. Mariotti that Mr. Mariotti cannot be appointed or elected as set forth in this Section 5(b), Mr. Mariotti shall not be entitled to nominate a substitute to the Board.  The Board and the Corporation shall, to the fullest extent permitted by law, take all Necessary Action required by this Section 5 with respect to the election of such substitute designees to the Board.

Section 6.Termination.  This Agreement shall terminate upon the earliest to occur of any one of the following events: 

(a)each of (i) the ACON Related Parties, (ii) the Fundamental Related Parties and (iii) Mr. Mariotti ceasing to own any shares of Class A Common Stock or Class B Common Stock;

(b)each of (i) the ACON Related Parties, (ii) the Fundamental Related Parties and (iii) Mr. Mariotti ceasing to have any Director designation rights under Section 1 and 

(c)the unanimous written consent of the parties hereto.  

For the avoidance of doubt, the rights and obligations (x) of the ACON Related Parties under this Agreement shall terminate upon the ACON Related Parties ceasing to own any shares of Class A Common Stock or Class B Common Stock, (y) of the Fundamental Related Parties under this Agreement shall terminate upon the Fundamental Related Parties ceasing to own any shares of Class A Common Stock or Class B Common Stock and (z) Mr. Mariotti under this Agreement shall terminate upon Mr. Mariotti ceasing to own any shares of Class A Common Stock or Class B Common Stock. Notwithstanding the foregoing, nothing in this Agreement shall modify, limit or otherwise affect, in any way, any and all rights to indemnification, exculpation and/or contribution owed by any of the parties hereto, to the extent arising out of or relating to events occurring prior to the date of termination of this Agreement or the date the rights and obligations of such party under this Agreement terminates in accordance with this Section 6.

7

 

Section 7.Definitions.  As used in this Agreement, any term that it is not defined herein, shall have the following meanings:

“Board” means the board of directors of the Corporation.

“Bylaws” means the amended and restated bylaws of the Corporation, dated as of the date hereof, as the same may be further amended, restated, amended and restated or otherwise modified from time to time.

“Charter” means the amended and restated certificate of incorporation of the Corporation, effective as of the date hereof, as the same may be further amended, restated, amended and restated or otherwise modified from time to time.

“Director” means a member of the Board.

“Necessary Action” means, with respect to a specified result, all commercially reasonable actions required to cause such result that are within the power of a specified Person, including (i) voting or providing a written consent or proxy with respect to the equity securities owned by the Person obligated to undertake the necessary action, (ii) voting in favor of the adoption of stockholders’ resolutions and amendments to the organizational documents of the Corporation, (iii) executing agreements and instruments, and (iv) making, or causing to be made, with governmental, administrative or regulatory authorities, all filings, registrations or similar actions that are required to achieve such result. 

“Nominating and Corporate Governance Committee” means the nominating and corporate governance committee of the Board or any committee of the Board authorized to perform the function of recommending to  the Board the nominees for election as Directors or nominating the nominees for election as Directors.

“Permitted Transferees” has the meaning set forth in the Charter.

“Person” means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other entity or organization, including a government or any subdivision or agency thereof.

“Preferred Stock” means the shares of preferred stock, par value $0.0001 per share, of the Corporation.

“Securities Laws” means the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder.

“Subsidiary” means with respect to any Person, any corporation, limited liability company, partnership, association, trust or other form of legal entity, of which (a) such first Person directly or indirectly owns or controls at least a majority of the securities or other interests having by their terms voting power to elect a majority of the board of directors or others performing similar functions, or (b) such first Person is a general 

8

 

partner or managing member (excluding partnerships in which such Person or any Subsidiary thereof does not have a majority of the voting interests in such partnership).

“Underlying Class A Shares” means all shares of Class A Common Stock issuable upon redemption of Common Units, assuming all such Common Units are redeemed for Class A Common Stock on a one-for-one basis.

Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; (iii) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement; (iv) the terms “Article” or “Section” refer to the specified Article or Section of this Agreement; (v) the word “including” shall mean “including, without limitation”; (vi) each defined term has its defined meaning throughout this Agreement, whether the definition of such term appears before or after such term is used; and (vii) the word “or” shall be disjunctive but not exclusive.  References to agreements and other documents shall be deemed to include all subsequent amendments and other modifications thereto. References to statutes shall include all regulations promulgated thereunder and references to statutes or regulations shall be construed as including all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation.

Section 8.Choice of Law and Venue; Waiver of Right to Jury Trial. 

(a)THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE.  EACH OF THE PARTIES HERETO ACKNOWLEDGES AND AGREES THAT IN THE EVENT OF ANY BREACH OF THIS AGREEMENT, THE NON-BREACHING PARTY WOULD BE IRREPARABLY HARMED AND COULD NOT BE MADE WHOLE BY MONETARY DAMAGES, AND THAT, IN ADDITION TO ANY OTHER REMEDY TO WHICH THEY MAY BE ENTITLED AT LAW OR IN EQUITY, THE PARTIES SHALL BE ENTITLED TO SUCH EQUITABLE OR INJUNCTIVE RELIEF AS MAY BE APPROPRIATE.  THE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OF A DELAWARE FEDERAL OR STATE COURT, OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SUCH A JUDGMENT, IN ANY OTHER APPROPRIATE JURISDICTION.

(b)IN THE EVENT ANY PARTY TO THIS AGREEMENT COMMENCES ANY LITIGATION, PROCEEDING OR OTHER LEGAL ACTION IN CONNECTION WITH OR RELATING TO THIS AGREEMENT, ANY RELATED AGREEMENT OR ANY MATTERS DESCRIBED OR CONTEMPLATED HEREIN OR THEREIN, THE PARTIES TO THIS AGREEMENT HEREBY (1) AGREE UNDER ALL CIRCUMSTANCES ABSOLUTELY AND IRREVOCABLY TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURT OF CHANCERY OF THE STATE OF DELAWARE, OR IF (AND ONLY IF) SUCH COURT FINDS IT LACKS SUBJECT MATTER JURISDICTION, THE SUPERIOR COURT OF THE STATE OF DELAWARE (COMPLEX COMMERCIAL DIVISION), OR IF UNDER APPLICABLE LAW, SUBJECT MATTER JURISDICTION OVER THE MATTER 

9

 

THAT IS THE SUBJECT OF THE ACTION OR PROCEEDING IS VESTED EXCLUSIVELY IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA, THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE, AND APPELATE COURTS FROM ANY THEREOF, WITH RESPECT TO ALL ACTIONS AND PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY; (2) AGREE THAT IN THE EVENT OF ANY SUCH LITIGATION, PROCEEDING OR ACTION, SUCH PARTIES WILL CONSENT AND SUBMIT TO THE PERSONAL JURISDICTION OF ANY SUCH COURT DESCRIBED IN CLAUSE (1) OF THIS SECTION 8(B) AND TO SERVICE OF PROCESS UPON THEM IN ACCORDANCE WITH THE RULES AND STATUTES GOVERNING SERVICE OF PROCESS; (3) AGREE TO WAIVE TO THE FULL EXTENT PERMITTED BY LAW ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH LITIGATION, PROCEEDING OR ACTION IN ANY SUCH COURT OR THAT ANY SUCH LITIGATION, PROCEEDING OR ACTION WAS BROUGHT IN ANY INCONVENIENT FORUM; (4) AGREE TO WAIVE ANY RIGHTS TO A JURY TRIAL TO RESOLVE ANY DISPUTES OR CLAIMS RELATING TO THIS AGREEMENT; (5) AGREE TO SERVICE OF PROCESS IN ANY LEGAL PROCEEDING BY MAILING OF COPIES THEREOF TO SUCH PARTY AT ITS ADDRESS SET FORTH HEREIN FOR COMMUNICATIONS TO SUCH PARTY; (6) AGREE THAT ANY SERVICE MADE AS PROVIDED HEREIN SHALL BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (7) AGREE THAT NOTHING HEREIN SHALL AFFECT THE RIGHTS OF ANY PARTY TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

Section 9.Notices.  Any notice, request, claim, demand, document and other communication hereunder to any party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by facsimile, or by electronic mail, or first class mail, or by Federal Express or other similar courier or other similar means of communication, as follows:

	
 
	
(a)
	
If to ACON, addressed as follows:

ACON Funko Investors, L.L.C.

1133 Connecticut Ave. N.W., Suite 700

Washington, D.C.  22102
Attn: Kenneth R. Brotman
Facsimile: (202) 454-1101

E-mail: kbrotman@aconinvestments.com

 

with a copy (which copy shall not constitute notice) to:

Hogan Lovells US LLP

7930 Jones Branch Drive, Ninth Floor

McLean, VA 22102

Attn: Robert Welp

         Adam Brown

10

 

Facsimile: (703) 610-6200
E-mail: robert.welp@hoganlovells.com

            adam.brown@hoganlovells.com

 

	
 
	
(b)
	
If to Fundamental, addressed as follows:

Fundamental Capital, LLC
4 Embarcadero Center
Suite 1400
San Francisco, CA 94111
Attn: Kevin Keenley
Facsimile: (415) 543-1491
E-mail: keenley@fundamentalcapital.com

with a copy (which shall not constitute notice) to:

Reed Smith LLP
1510 Page Mill Road Suite 110
Palo Alto, CA 94304-1127
Attn:. Donald C. Reinke
Facsimile: (650) 352 0699

E-mail: dreinke@reedsmith.com

 

  

	
 
	
(c) 
	
If to Mr. Mariotti, addressed as follows:
	
 

Brian Mariotti

2802 Wetmore Avenue 

Everett, Washington 98201 

E-mail: brian@funko.com

 

	
 
	
(d)
	
If to the Corporation, addressed as follows:

Funko, Inc.

2802 Wetmore Avenue 

Everett, Washington 98201 

Telephone: (425) 261-0457

Attn: Russell Nickel, Chief Financial Officer

         Tracy Daw, Senior Vice President, General Counsel and Secretary

E-mail: russell@funko.com

            tracy@funko.com

 

with a copy (which copy shall not constitute notice) to:

 

11

 

Latham & Watkins LLP
885 Third Avenue
New York, New York 10022
Attn:  Marc Jaffe

Ian Schuman
Facsimile: (212) 751-4864
E-mail: marc.jaffe@lw.com

ian.schuman@lw.com

or, in each case, to such other address or email address as such party may designate in writing to each party by written notice given in the manner specified herein. All such communications shall be deemed to have been given, delivered or made when so delivered by hand or sent by facsimile (with confirmed transmission), on the next business day if sent by overnight courier service (with confirmed delivery) or when received if sent by first class mail, or in the case of notice by electronic mail, when the relevant email enters the recipient’s server.

Section 10.Assignment.  Except as otherwise provided herein, all of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and permitted assigns of the parties hereto.  This Agreement may not be assigned (by operation of law or otherwise) without the express prior written consent of the other parties hereto, and any attempted assignment, without such consents, will be null and void; provided, however, that each of ACON, Fundamental and Mr. Mariotti is permitted to assign this Agreement to their respective Permitted Transferees of the Class B Common Stock and each ACON Holdco and Fundamental is permitted to assign this Agreement to its respective affiliates in connection with a transfer of the Class A Common Stock to such affiliate.  Each of ACON, the ACON Holdcos, Fundamental and Mr. Mariotti shall cause any of their respective Permitted Transferees of the Class B Common Stock (or, in the case of an assignment of this Agreement by an ACON Holdco to one or more of its affiliates in connection with a transfer of Class A Common Stock, such ACON Holdco’s affiliate), to become a party to this Agreement.   

Section 11.Amendment and Modification; Waiver of Compliance. This Agreement may not be amended, modified, altered or supplemented except by means of a written instrument executed on behalf of each of the Corporation, ACON, Fundamental and Mr. Mariotti. Except as otherwise provided in this Agreement, any failure of any of the parties to comply with any obligation, covenant, agreement or condition herein may be waived by the party or parties entitled to the benefits thereof only by a written instrument signed by the party or parties granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

Section 12.Waiver. No failure on the part of either party hereto to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of either party hereto in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver thereof; and no single or partial exercise of any such power, 

12

 

right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy.

Section 13.Severability.  If any provision of this Agreement, or the application of such provision to any Person or circumstance or in any jurisdiction, shall be held to be invalid or unenforceable to any extent, (i) the remainder of this Agreement shall not be affected thereby, and each other provision hereof shall be valid and enforceable to the fullest extent permitted by law, (ii) as to such Person or circumstance or in such jurisdiction such provision shall be reformed to be valid and enforceable to the fullest extent permitted by law and (iii) the application of such provision to other Persons or circumstances or in other jurisdictions shall not be affected thereby.

Section 14.Counterparts.  This Agreement may be executed in any number of counterparts and signatures may be delivered by facsimile, each of which may be executed by less than all parties, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument.

Section 15.Further Assurances.  At any time or from time to time after the date hereof, the parties hereto agree to cooperate with each other, and at the request of any other party, to execute and deliver any further instruments or documents and to take all such further action as any other party may reasonably request in order to evidence or effectuate the provisions of this Agreement and to otherwise carry out the intent of the parties hereunder.

Section 16.Titles and Subtitles.  The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

Section 17.Representations and Warranties.

(a)Each of ACON, Fundamental, Brian Mariotti, and each Person who becomes a party to this Agreement after the date hereof, severally and not jointly and solely with respect to itself, represents and warrants to the Corporation as of the time such party becomes a party to this Agreement that (a) if applicable, it is duly authorized to execute, deliver and perform this Agreement; (b) this Agreement has been duly executed by such party and is a valid and binding agreement of such party, enforceable against such party in accordance with its terms; and (c) the execution, delivery and performance by such party of this Agreement does not violate or conflict with or result in a breach of or constitute (or with notice or lapse of time or both constitute) a default under any agreement to which such party is a party or, if applicable, the organizational documents of such party.

(b)The Corporation represents and warrants to each other party hereto that (a) the Corporation is duly authorized to execute, deliver and perform this Agreement; (b) this Agreement has been duly authorized, executed and delivered by the Corporation and is a valid and binding agreement of the Corporation, enforceable against the Corporation in accordance with its terms; and (c) the execution, delivery and performance 

13

 

by the Corporation of this Agreement does not violate or conflict with or result in a breach by the Corporation of or constitute (or with notice or lapse of time or both constitute) a default by the Corporation under the Charter or Bylaws, any existing applicable law, rule, regulation, judgment, order, or decree of any governmental authority exercising any statutory or regulatory authority of any of the foregoing, domestic or foreign, having jurisdiction over the Corporation or any of its Subsidiaries or any of their respective properties or assets, or any agreement or instrument to which the Corporation or any of its Subsidiaries is a party or by which the Corporation or any of its Subsidiaries or any of their respective properties or assets may be bound.

Section 18.No Strict Construction.  This Agreement shall be deemed to be collectively prepared by the parties hereto, and no ambiguity herein shall be construed for or against any party based upon the identity of the author of this Agreement or any provision hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

14

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written.

FUNKO, INC.

By:/s/Tracy Daw

Name:

Title:

[Signature Page to Stockholders Agreement]

 

ACON FUNKO INVESTORS, L.L.C.

By ACON Funko Manager, L.L.C., its
Manager

	
 
	
By:
	
/s/Kenneth Brotman
Name:  Kenneth Brotman
Title:  Managing Director

[Signature Page to Stockholders Agreement]

 

ACON FUNKO INVESTORS HOLDINGS 1, L.L.C.

By ACON Funko Manager, L.L.C., its
Managing Member

	
 
	
By:
	
/s/Kenneth Brotman
Name:  Kenneth Brotman
Title:  Managing Director

[Signature Page to Stockholders Agreement]

 

ACON FUNKO INVESTORS HOLDINGS 2, L.L.C.

Bby ACON Equity GenPar, L.L.C., its
Managing Member

	
 
	
By:
	
/s/Kenneth Brotman
Name:  Kenneth Brotman
Title:  Managing Member

[Signature Page to Stockholders Agreement]

 

ACON FUNKO INVESTORS HOLDINGS 3, L.L.C.

By ACON Equity GenPar, L.L.C., its
Managing Member

	
 
	
By:
	
/s/Kenneth Brotman
Name:  Kenneth Brotman
Title:  Managing Member

[Signature Page to Stockholders Agreement]

 

	
 
	
By:
	
/s/Brian Mariotti
Name:  Brian Mariotti
Title:  

[Signature Page to Stockholders Agreement]

 

FUNDAMENTAL CAPITAL, LLC, a Delaware limited liability company,

 

By:  FUNDAMENTAL CAPITAL PARTNERS, LLC,
a Delaware limited liability company
Manager

 

	
 
	
By:
	
/s/ Richard McNally
Name:  Richard McNally
Title:  Manager

[Signature Page to Stockholders Agreement]

 

FUNKO INTERNATIONAL, LLC, a Delaware Limited Liability Company,

 

By:  FUNDAMENTAL CAPITAL, LLC,
a Delaware limited liability company

 

By:  FUNDAMENTAL CAPITAL PARTNERS, LLC, a Delaware limited liability company
Manager

 

	
 
	
By:
	
/s/Richard McNally
Name:  Richard McNally
Title:  

 

[Signature Page to Stockholders Agreement]

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