Funko Agrees on Terms to Resolve Shareholder Derivative Litigation

Rhea-AI Summary

Funko Inc. (FNKO) has agreed to settle multiple stockholder derivative lawsuits filed in California and Delaware courts. The settlement, preliminarily approved on July 26, 2024, aims to resolve claims of breach of fiduciary duties by making allegedly false and misleading statements about the company's sales, growth, and inventory management. As part of the settlement, Funko will implement corporate governance measures. The court has scheduled a hearing for November 15, 2024, to consider final approval. Stockholders have until October 17, 2024, to object to the settlement terms. The settlement includes a $2,150,000 fee to be paid to Plaintiffs' Counsel by Funko's insurers and $2,500 service awards for each Plaintiff.

Positive

• Settlement of multiple derivative lawsuits, potentially reducing legal risks and expenses
• Implementation of new corporate governance measures, which could improve company operations
• No direct financial impact on Funko, as fees will be paid by insurers

Negative

• Admission of alleged false and misleading statements about sales, growth, and inventory management
• Potential reputational damage due to the nature of the allegations
• Time and resources spent on legal proceedings and settlement negotiations

Insights

Legal Expert

The settlement of shareholder derivative litigation is a significant development for Funko. While the company doesn't admit wrongdoing, this agreement could help mitigate legal risks and associated costs. Key points:

• The settlement includes implementation of new corporate governance measures, potentially improving Funko's operations and transparency.
• A $2.15 million fee will be paid to plaintiffs' counsel by Funko's insurers, not directly impacting the company's finances.
• The resolution of these claims may help restore investor confidence and reduce uncertainty surrounding the company.

However, the settlement's impact on Funko's stock price might be , as the market often prices in such legal resolutions before they're finalized. Investors should monitor for any changes in Funko's corporate governance and financial reporting practices resulting from this settlement.

Financial Analyst

This settlement, while resolving legal uncertainties, has minimal direct financial impact on Funko. Key financial considerations:

• The $2.15 million legal fees are covered by insurance, preserving Funko's cash position.
• No significant financial penalties or restatements were mentioned, suggesting material impact on past financial reports.
• Implementation of new governance measures may lead to improved operational efficiency and risk management, potentially benefiting long-term financial performance.

However, investors should be aware that the allegations related to inventory management and sales forecasting. These are important areas for a consumer products company like Funko. Future financial reports should be scrutinized for improvements in these areas, as they directly impact revenue, margins and cash flow. The settlement's true value will be in preventing similar issues and enhancing shareholder value going forward.

EVERETT, Wash.--(BUSINESS WIRE)-- Funko, Inc. (Nasdaq: FNKO), a leading pop culture lifestyle brand, today announced that it has agreed to resolve derivative claims asserted on the company's behalf and for the company's benefit in multiple stockholder derivative lawsuits filed in the United States District Court for the Central District of California and the Court of Chancery of the State of Delaware.

On July 26, 2024, the Court entered an order preliminarily approving the settlement terms and providing for the notice of the settlement terms to be made to Funko stockholders. The settlement terms are subject to final approval by the Court, and the Court has scheduled a hearing for November 15, 2024 at 1:30 p.m. Pacific Time at the First Street Courthouse, Courtroom 9B, 9^th Floor, Los Angeles, CA 90012, to consider approval of the settlement terms. Stockholders have the right to object to the settlement terms. The deadline for stockholders to submit an objection to the settlement terms is October 17.

Upon final approval by the Court, the settlement will fully resolve the derivative actions. Further information can be found in the Summary Notice attached hereto as an Exhibit.

ABOUT FUNKO:

Headquartered in Everett, Washington, Funko is a leading pop culture lifestyle brand. Funko designs, sources and distributes licensed pop culture products across multiple categories, including vinyl figures, action toys, plush, apparel, housewares and accessories for consumers who seek tangible ways to connect with their favorite pop culture brands and characters. Learn more at www.funko.com, and follow us on X (@OriginalFunko) and Instagram (@OriginalFunko).

Exhibit

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
SMITH v. MARIOTTI, et al.,			Case No. 2:22-cv-03155-WLH-MAA
This Document Relates To:
ALL ACTIONS.			SUMMARY NOTICE OF
			PENDENCY PROPOSED SETTLEMENT OF
			DERIVATIVE MATTERS

TO:

ALL PERSONS OR ENTITIES WHO HOLD OR BENEFICIALLY OWN, DIRECTLY OR INDIRECTLY, FUNKO, INC. (“FUNKO” OR THE “COMPANY”) COMMON STOCK OF AS OF MARCH 4, 2024 (“CURRENT FUNKO STOCKHOLDERS”)

YOU ARE HEREBY NOTIFIED, pursuant to the July 26, 2024 Preliminary Approval Order entered in the above-captioned stockholder derivative action, that a Stipulation and Agreement of Settlement dated March 4, 2024 (the “Stipulation” or “Settlement”)¹ has been entered to resolve all stockholder derivative claims pending on behalf of nominal defendant Funko pending in several related stockholder derivative actions in state and federal courts (the “Litigation”).

The Litigation alleges that the Individual Defendants breached their fiduciary duties to Funko by making or causing Funko to make allegedly false and misleading statements to Funko stockholders and the public regarding the Company’s sales and growth and allegedly failing to disclose important adverse facts about Funko’s operations and financial forecast regarding the Company’s lower-than-expected sales and the risk that Funko may need to “write-down” slower moving inventory. The Litigation alleges that the Individual Defendants failed to disclose material issues with the Company’s primary operations, including its inventory management, and that the price of the Company’s securities was artificially inflated as a result.

In connection with, and conditioned upon, the Settlement, Funko has agreed to implement and/or maintain corporate governance Measures, as defined and set forth in the Stipulation. The outside non-employee members of Funko’s Board (including all independent, non-defendant members) have determined, in an exercise of their business judgment, that: (a) the litigation demands, the Litigation, and the Plaintiffs’ and Plaintiffs’ Counsels’ efforts were a substantial and material factor in the Board’s agreement to adopt, implement, and maintain the Measures for the agreed term; (b) the Measures provide a significant and material benefit to the Company and its stockholders; and (c) the settlement is fair, reasonable, and in the best interests of the Company and its stockholders. The Defendants dispute the allegations in the Litigation and enter into the Stipulation and Settlement without in any way acknowledging any fault, liability, or wrongdoing of any kind.

On November 15, 2024, at 1:30 p.m., First Street Courthouse, Courtroom 9B, 9th Floor, Los Angeles, California 90012, the Honorable Judge Wesley Hsu will hold a hearing (the “Settlement Hearing”) in the Action. The purpose of the Settlement Hearing is to determine, pursuant to Federal Rule of Civil Procedure 23.1: (i) whether the terms of the Settlement are fair, reasonable, and adequate and should be approved; (ii) whether the notice of the Settlement to Current Funko Stockholders fully satisfied the requirements of Federal Rule of Civil Procedure 23.1 and the requirements of due process; (iii) whether a final judgment should be entered; (iv) whether the separately negotiated and agreed-to Fee and Expense amount of $2,150,000 million to be paid to Plaintiffs’ Counsel by Funko’s insurers should be approved; (v) whether Service Awards for each of the Plaintiffs in the amount of $2,500 each, to be paid out of the Fee and Expense Amount, should be approved; and (vi) such other matters as may be necessary or proper under the circumstances.

The Court may: (i) approve the Settlement, with such modifications as may be agreed to by counsel for the Settling Parties consistent with such Settlement, without further notice to Current Funko Stockholders; (ii) continue or adjourn the Settlement Hearing from time to time, by oral announcement at the hearing or at any adjournment thereof, without further notice to Current Funko Stockholders; and (iii) conduct the Settlement Hearing remotely without further notice to Current Funko Stockholders. If you intend to attend the Settlement Hearing, please consult the Court’s calendar and/or the website of Funko (http://funko.com) for any change in date, time or format of the Settlement Hearing.

PLEASE READ THIS SUMMARY NOTICE CAREFULLY AND IN ITS ENTIRETY. IF YOU ARE A CURRENT FUNKO STOCKHOLDER, YOUR RIGHTS MAY BE AFFECTED BY THE SETTLEMENT OF THE ACTION.

This is a summary notice only. For additional information about the claims asserted in the Action and the terms of the proposed Settlement, please refer to the documents filed with the Court in the Action, the Stipulation and its exhibits (they are filed as an exhibit to the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission and available at www.sec.gov), and the full-length Notice of Pendency and Proposed Settlement of Derivative Matters (the “Notice”). The “Investor Relations” section of Funko website (http://investor.funko.com) provides hyperlinks to the Notice and to the Stipulation and its exhibits.

PLEASE DO NOT CONTACT THE COURT REGARDING
THIS SUMMARY NOTICE.

If you have any questions about matters in this Summary Notice you may contact Brett M. Middleton, Johnson Fistel, LLP, 501 West Broadway, Suite 800, San Diego, CA 92101, Telephone: (619) 230-0063, E-mail: brettm@johnsonfistel.com; or Shane P. Sanders, Robbins LLP, 5060 Shoreham Place, Suite 300, San Diego, CA 92122, Telephone: (619) 525-3990, E-mail ssanders@robbinsllp.com.

If you are a Current Funko Stockholder, you will be bound by the Final Order and Judgment of the Court granting final approval of the Settlement and shall be deemed to have waived the right to object (including the right to appeal) and forever shall be barred, in this proceeding or in any other proceeding, from raising such objection.

Any objections to the Settlement must be filed on or before October 17, 2024, in accordance with the procedures set forth in the Notice.

¹Except as otherwise defined herein, all capitalized terms shall have the same meanings as set forth in the Stipulation.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240802881331/en/

Investor Relations:

Investorrelations@funko.com

Media:

pr@funko.com

Source: Funko, Inc.

FAQ

What is the deadline for Funko (FNKO) stockholders to object to the settlement terms?

Funko (FNKO) stockholders have until October 17, 2024, to submit objections to the settlement terms.

When is the court hearing scheduled for the Funko (FNKO) derivative lawsuit settlement?

The court hearing for the Funko (FNKO) derivative lawsuit settlement is scheduled for November 15, 2024, at 1:30 p.m. Pacific Time.

How much will be paid in legal fees for the Funko (FNKO) derivative lawsuit settlement?

The settlement includes a $2,150,000 fee to be paid to Plaintiffs' Counsel by Funko's (FNKO) insurers.

What were the main allegations in the Funko (FNKO) derivative lawsuits?

The main allegations were that Funko (FNKO) made false and misleading statements about sales, growth, and inventory management, and failed to disclose important adverse facts about operations and financial forecasts.