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Kessler Topaz Commences Litigation Challenging Issuances of Non-Voting Stock

November 5, 2015

Recently, Kessler Topaz commenced litigation challenging the issuances of new classes of non-voting stock of two public companies, Under Armour, Inc. (“Under Armour”) and Zillow Group, Inc. (“Zillow Group”). The issuance of a new class of non-voting stock unfairly entrenches in power each company’s founders and majority stockholders and causes each company’s public stockholders serious economic harm. This article provides an overview of the litigation and the efforts Kessler Topaz is taking to recover for the minority stockholders the damages they will suffer in connection with the stock issuances.

UNDER ARMOUR, INC.

Representing one of the firm’s institutional clients and serving as co-lead Class Counsel, Kessler Topaz lawyers in August 2015 filed a class action and derivative complaint against Under Armour’s board of directors, including Under Armour’s founder, Chairman and CEO Kevin A. Plank. Mr. Plank is Under Armour’s majority stockholder, beneficially owning 66.5% of the total voting power of all outstanding shares of Under Armour Class A and Class B stock. Class A stock is entitled to one vote per share and Class B stock is entitled to ten votes per share. On June 15, 2015, Under Armour announced that its board of directors had approved a new class of non-voting common stock (“Class C stock”) to be issued as a dividend to the holders of outstanding shares of Class A and Class B stock. Class C stock is substantially identical to Class A stock, except the Class C stock has no voting rights. In effect, the dividend amounts to a 2-for-1 stock split, with the issuance of one share of Class C stock for each outstanding share of Class A stock and Class B stock. The issuance of Class C stock is intended to, and will, entrench Mr. Plank in power by allowing him to sell Class C stock without affecting his voting control over Under Armour.

Kessler Topaz argues that because it has no voting rights, the Class C stock will, based on precedent, trade at a discount to Class A stock, and thereby reduce the value of stock held by the current Class A stockholders other than Mr. Plank. Because Mr. Plank holds only 0.04% of the Class A stock and the overwhelming majority of his stockholdings are in Class B stock, he will not suffer the same economic harm as Under Armour’s public stockholders, on whose behalf the litigation is brought. The parties have agreed that Under Armour will not issue the Class C stock until judgment is rendered on plaintiffs’ claims and becomes final for purposes of appeal. An expedited trial on the merits is currently scheduled for November 2015. The case is In re: Under Armour S’holder Litig., Case No. 24-C-15-003240 (Baltimore City Cir. Ct).

ZILLOW GROUP, INC.

In July 2015, Kessler Topaz lawyers filed a class action on behalf of the one of the firm’s institutional clients against Zillow Group’s controlling stockholders Richard N. Barton and Lloyd D. Frink. Messrs. Barton and Frink beneficially own 54.4% of the total voting power of all outstanding shares of Class A stock, which is entitled to one vote per share, and Class B stock, which is entitled to ten votes per share. On July 21, 2015, Zillow Group announced that the board of directors had approved the issuance of non-voting Class C stock as a dividend to the holders of outstanding shares of Class A and Class B stock. In effect, the dividend amounts to a 3-for-1 stock split, with the issuance of two shares of Class C stock for each outstanding share of Class A and Class B stock, and will entrench Messrs. Barton and Frink in power.

Like in Under Armour, Kessler Topaz alleges that since the Class C stock trades at a discount to the Class A stock, it reduces the value of the stock held by the current Class A stockholders other than Messrs. Barton and Frink, who hold relatively few shares of Class A stock. The Class C stock began trading on August 3, 2015 and Zillow Group issued the dividend on August 14, 2015. Since that date, the Class C stock has consistently traded at a discount to the Class A stock, reaching a discount of approximately 4.7% on September 11, 2015. A trial on the merits is currently scheduled for July 2016. The case is Elder v. Barton, et al., No. 15-2-18005-3 (King Ct. Sup. Ct).

KESSLER TOPAZ’S LITIGATION EFFORTS

Through the actions involving Under Armour and Zillow Group, Kessler Topaz seeks to recover for the public Class A stockholders damages in connection with the stock issuances, specifically, the damages suffered as a result of the reduction in value of the Class A shares. Kessler Topaz has researched the issues surrounding the stock issuances, filed high quality complaints and has vigorously prosecuted both actions. The litigation shows Kessler Topaz’s willingness and ability to litigate cases to protect minority stockholders.

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