Under Armour Inc. reached an agreement with shareholders who sued the firm over its plans, announced in mid-June, to create a new class of stock.
The new class of stock, without voting rights, was created to ensure that founder and CEO Kevin Plank would retain control of his company.
Under the settlement disclosed in a Securities & Exchange Commission filing, Under Armour will pay an additional $59 million to holders of Class C stock in the form of a dividend.
“[The] adjustment payment is intended to serve as consideration to the company’s Class C stockholders with respect to any potential discount in the trading price of the Class C stock, relative to the trading price of the company’s Class A common stock,” Under Armour said in the SEC filing.
The dividend will be payable in the form of the company’s Class A stock, Class C stock, cash or some combination to be determined at the sole discretion of the company’s board of directors.
The settlement still has to be approved by the Baltimore Circuit Court. UA’s board also has to approve the terms of the agreement although it’s expected to authorize “substantially all” of the payout amounts.
The settlement also expands the noncompete agreement Plank will sign as part of the stock-split plan. It stipulates that Plank can be in violation of the agreement if he fails to “devote the time necessary to the performance of his duties as CEO.”
Finally, if more than a specified number of Class C shares are used in certain acquisitions, the company's independent board members “must consider the effects of using those shares of Class C stock on the holders of Class A stock and upon the company,” UA said in its SEC filing.
The suit charged that Under Armour's board breached its fiduciary duty to shareholders by approving the new class of stock.
In a letter to shareholders in June, Plank wrote that dilution from regular employee equity-based compensation and other possible dilution, such as stock-based acquisitions or equity financings, could reduce his stake to less than 15 percent of its total Class A and Class B shares outstanding, and thereby undermine the company’s governance structure.
Plank stated, “After careful consideration by a special committee of independent board members and our board of directors, as well as advice from outside legal and financial advisors, the board has agreed that maintaining our founder-led approach is in the best interests of Under Armour and all of its stockholders.”
Plank added that the non-voting stock will also give Under Armour a new form of currency for corporate uses, including equity-based employee compensation and stock-based acquisitions “while maintaining our founder-led approach.”
The CEO stressed that his personal long-term financial success doesn’t come from his compensation, but “is driven almost entirely by the performance and success of our stock.”
UA currently has a dual stock structure: Class B common stock has 10 times the voting rights of Class A stock. Plank currently owns more than 35 million shares, mostly Class B common stock, giving him 16.6 percent of the firm's outstanding common shares and 66.5 percent of the voting power.
The split would give owners of each existing share of common stock one new share of the new non-voting class, effectively diluting the voting power of shareholders.
In mid-August, Under Armour indicated it would delay a planned two-for-one stock split, which would create the new class of non-voting stock, until the lawsuit was resolved. Shareholders approved the proposed stock split at a special meeting Aug. 26.
The company plans to file a stipulation of settlement describing the terms of the proposed settlement with Baltimore Circuit Court in the coming weeks.
