Marathon Questions e.l.f. Mgmt’s Credibility

Purpose of Transaction.

Item 4 is hereby amended to add the following:

On January 25, 2019, Marathon Partners delivered a letter (the “Letter”) to the Issuer’s board of directors (the “Board”) recommending, among other things, that the Board undertake a comprehensive review of the Issuer’s operating strategy, corporate governance practices and executive compensation plans. Marathon Partners also delivered a list of current questions (the “Questions”) to the Issuer along with the Letter.

In the Letter, Marathon Partners stated its belief that the Issuer must adjust its operating strategy by resizing the organization, without regard to protected interests, to reflect the current dynamics of the business and industry.

To be consistent with best practices for corporate governance and to address what it views as TPG Growth II Advisors, Inc.’s (“TPG”) outsized level of influence and control over the Issuer, Marathon Partners recommended three courses of action for the Issuer:

· Separate the role of Chairman and CEO;
· Assign a non-TPG-designated director to the role of Lead Independent Director; and
· Engage independent counsel to fully reassess the Second Amended and Restated Stockholders Agreement (the “Agreement”) entered into on March 3, 2017 between the Issuer, TPG elf Holdings, L.P., J.A. Cosmetics Corp., certain of the Issuer’s executives (including Chairman and CEO Tarang Amin) and their related family trusts.



CUSIP NO. 26856L103

Marathon Partners expressed its concerns with the Agreement in the Letter, noting apparent deficiencies in the process through which the Issuer entered into the Agreement. Marathon Partners further stated that TPG’s designation of a third director to the Board at the Issuer’s previous two annual meetings of shareholders appeared to be excessive based on TPG’s ownership of less than 30% of the Issuer’s outstanding shares. Marathon Partners also cited concerns over an apparent lack of oversight from independent legal counsel to the Board and the Nominating and Corporate Governance Committee during the negotiation and execution of the Agreement.

Marathon Partners also stated in the Letter that it believes significant executive compensation changes are necessary due to compensation being excessive and widely disconnected from the Issuer’s poor stock performance. Marathon Partners also highlighted the historical conflicts of interest resulting from two TPG-designated directors serving on the Board’s Compensation Committee while negotiating compensation with an executive of the Issuer who has prior and current employment relationships with TPG-related companies.  The Letter further stated that independent proxy advisory firm ISS reported in its 2018 proxy analysis report that Mr. Amin’s compensation was “misaligned” from performance and was approximately 8x the median of the Issuer’s peer group.  Marathon Partners suggested in the Letter that the Issuer should consider significant reductions in executive compensation and make use of equity instruments aimed at improving shareholder value.

Marathon Partners also stated in the Letter its belief that, given the current share price, the Issuer should approve a share repurchase authorization to return capital to long-term shareholders while pursuing meaningful cost reductions.

Marathon Partners concluded the Letter by stating that it remains willing to engage in constructive dialogue and discussions with the Board regarding the meaningful changes it believes are necessary to address the Issuer’s operational and corporate governance issues.

The foregoing description of the Letter does not purport to be complete and is qualified in its entirety by reference to the full text of the Letter, which is filed as Exhibit 99.1, and is incorporated herein by reference. The foregoing description of the Questions does not purport to be complete and is qualified in its entirety by reference to the full text of the Questions, which is filed as Exhibit 99.2, and is incorporated herein by reference.

Link to SEC Filing: