DEFM14A 1 nc10018214x2_defm14a.htm FORM DEFM14A

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒
Filed by a Party other than the Registrant
Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12
ZAGG Inc
(Name of Registrant as Specified In Its Charter)
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
(1)
Title of each class of securities to which transaction applies:
 
 
 
 
(2)
Aggregate number of securities to which transaction applies:
 
 
 
 
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
 
 
(4)
Proposed maximum aggregate value of transaction:
 
 
 
 
(5)
Total fee paid:
 
 
 
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
(1)
Amount Previously Paid:
 
 
 
 
(2)
Form, Schedule, or Registration Statement No.:
 
 
 
 
(3)
Filing Party:
 
 
 
 
(4)
Date Filed:
 
 
 
DATED JANUARY 21, 2021

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910 Legacy Center Way, Suite 500
Midvale, UT 84047

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT
January 21, 2021
Dear Fellow Stockholders:
You are cordially invited to attend a special meeting of stockholders of ZAGG Inc, a Delaware corporation (“ZAGG,” the “Company,” “we,” or “us”), to be hosted on the internet through a live webcast at www.virtualshareholdermeeting.com/ZAGG2021SM, at 9:00 a.m. Mountain Standard Time (MST) on February 18, 2021. This proxy statement is dated January 21, 2021 and was first mailed to stockholders of ZAGG on or about January 21, 2021.
At the special meeting, you will be asked to consider and vote on three matters:
(i)
a proposal to adopt the Agreement and Plan of Merger, dated December 10, 2020 (as it may be amended from time to time, the “Merger Agreement”), by and among ZAGG, Zephyr Parent, Inc., a Delaware corporation (“Parent”), and Zephyr Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”). Parent and Merger Sub are indirectly controlled by Evercel, Inc., a Delaware corporation, and its co-investors (collectively, the “Evercel Group”). Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into ZAGG (the “Merger”), with ZAGG continuing as the surviving corporation of the Merger (the “Surviving Corporation”) and as a wholly owned subsidiary of Parent (the “Merger Proposal”);
(ii)
a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the special meeting, there are not sufficient votes received to approve the Merger Proposal; and
(iii)
a proposal to approve, on a non-binding, advisory basis, certain compensation that will or may become payable to our named executive officers in connection with the Merger.
If the Merger is completed, you will be entitled to receive $4.20 in cash (the “Closing Date Consideration”) and one “PPP Loan Forgiveness Right” representing the contingent right to receive an additional amount (the “Contingent Consideration Amount”) based on the forgiveness of the Company’s U.S. Small Business Administration Paycheck Protection Program Loan (the “PPP Loan”) issued to the Company on April 13, 2020 under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), without interest and subject to all applicable withholding taxes, for each share of ZAGG common stock you own (unless you have properly demanded appraisal for your shares in accordance with, and have complied in all respects with, Section 262 of the General Corporation Law of the State of Delaware). The Contingent Consideration Amount is contingent on a number of factors and could be zero.
Assuming a Contingent Consideration Amount of $0.25, which is the amount estimated at the time of the Merger Agreement, the Closing Date Consideration and the Contingent Consideration Amount collectively represent a premium of approximately 10.1% over the closing price of ZAGG common stock on December 9, 2020 ($4.04), the last trading day before the Merger Agreement was approved by our board of directors, and a premium of 22.6% and 33.2% over the 30-day average and 60-day average, respectively, on the same date. However, we make no assurance as to what the actual Contingent Consideration Amount might be or when it might be paid.
After reviewing and considering the terms and conditions of the Merger and the factors more fully described in the enclosed proxy statement, our board of directors unanimously (i) determined that the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of ZAGG and its stockholders, (ii) approved, adopted and declared advisable the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger, (iii) directed that the Merger Agreement be submitted to the stockholders of ZAGG for adoption at the special meeting, and (iv) recommended that ZAGG’s stockholders adopt the Merger Agreement.
Our board of directors recommends that you vote: (1) “FOR” the proposal to adopt the Merger Agreement; (2) “FOR” the proposal to adjourn the special meeting to a later date or dates, if necessary, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the special meeting; and (3) “FOR” the non-binding, advisory proposal to approve certain compensation that will or may become payable to our named executive officers in connection with the Merger (the “Merger-Related Compensation”).
The accompanying proxy statement contains, among other things, detailed information about ZAGG, the special meeting, the Merger, the Merger Agreement, and the Merger-related compensation. We encourage you to read the accompanying proxy statement,

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including its appendices and all documents incorporated by reference therein, carefully and in its entirety. You should also carefully consider the factors discussed in the sections entitled “Cautionary Statement Concerning Forward-Looking Statements” and Risk Factors” on pages 24 and 26, respectively, of the accompanying proxy statement.
Your vote is very important, regardless of the number of shares of ZAGG common stock that you own. We cannot complete the Merger unless the Merger Agreement is adopted by the affirmative vote of the holders of a majority of the shares of outstanding ZAGG common stock as of the record date entitled to vote on the matter. The failure of any stockholder of record to (i) vote online during the special meeting or (ii) submit a signed proxy card will have the same effect as a vote “AGAINST” the Merger Proposal. If you hold your shares in “street name,” the failure to instruct your broker, bank, or nominee on how to vote your shares will have the same effect as a vote “AGAINST” the Merger Proposal. If you sign, date, and return your proxy card without indicating how you wish to vote, your proxy will be voted “FOR” the Merger Agreement.
We hope that you will be able to virtually attend the special meeting. However, whether or not you plan to virtually attend, please complete, sign, date, and return the proxy card enclosed with the accompanying proxy statement, or if your shares are held in “street name” through a broker, bank, or nominee, instruct your broker, bank, or nominee on how to vote your shares using the voting instruction form furnished by your broker, bank, or nominee, as promptly as possible. Submitting a signed proxy by mail will ensure your shares are represented at the special meeting. If your shares are held in “street name” through a broker, bank, or nominee, you may provide voting instructions through your broker, bank, or nominee by completing and returning the voting form provided by your broker, bank, or nominee, or electronically over the Internet or by telephone through your broker, bank, or nominee if such a service is provided. To provide voting instructions over the Internet or by telephone through your broker, bank, or nominee, you should follow the instructions on the voting instruction form provided by your broker, bank, or nominee.
On behalf of the board of directors and management of ZAGG, I extend our appreciation for your continued support and your consideration of this matter.
 
Sincerely,
 
 
 
/s/ TAYLOR D. SMITH
 
Taylor D. Smith
Chief Financial Officer
Neither the U.S. Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the transactions described in this document or the accompanying proxy statement, including the Merger, passed upon the merits or fairness of such transactions or passed upon the adequacy or accuracy of the disclosure in the accompanying proxy statement. Any representation to the contrary is a criminal offense.
DATED JANUARY 21, 2021

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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 18, 2021
Notice is hereby given that a special meeting of stockholders of ZAGG Inc, a Delaware corporation (“ZAGG,” the “Company,” “we,” or “us”), will be hosted on the internet through a live webcast at www.virtualshareholdermeeting.com/ZAGG2021SM, at 9:00 a.m. Mountain Standard Time (MST) on February 18, 2021, for the following purposes:
1.
The Merger Proposal. To adopt the Agreement and Plan of Merger, dated December 10, 2020, by and among ZAGG, Zephyr Parent, Inc., a Delaware corporation (“Parent”), and Zephyr Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”) (as it may be amended from time to time, the “Merger Agreement”), pursuant to which, upon the satisfaction or waiver of the conditions to closing set forth therein, Merger Sub will merge with and into ZAGG (the “Merger”), with ZAGG surviving the Merger as a wholly owned subsidiary of Parent (the “Merger Proposal”);
2.
The Adjournment Proposal. To approve the adjournment of the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the special meeting, there are not sufficient votes received to approve the Merger Proposal (the “Adjournment Proposal”); and
3.
The Compensation Proposal. To approve, on a non-binding, advisory basis, certain compensation that will or may become payable to our named executive officers in connection with the Merger (the “Compensation Proposal”).
Only stockholders of record as of the close of business on January 14, 2021 (the “Record Date”) are entitled to notice of the special meeting and to vote at the special meeting or at any adjournment, continuation, rescheduling or postponement thereof.
The accompanying proxy statement contains, among other things, detailed information about the Merger Proposal, the Adjournment Proposal, and the Compensation Proposal. In addition, a copy of the Merger Agreement is attached as Appendix A to the accompanying proxy statement and is incorporated by reference therein. We encourage you to read the accompanying proxy statement, including its appendices and all documents incorporated by reference therein, carefully and in its entirety.
The affirmative vote of the holders of a majority of the shares of ZAGG common stock outstanding as of the Record Date and entitled to vote on the matter is required to approve the Merger Proposal. The affirmative vote of the holders of a majority of the shares of ZAGG common stock present by virtual attendance or by proxy representation at the special meeting and entitled to vote on the matter is required to approve each of the Adjournment Proposal and the Compensation Proposal.
Your vote is very important, regardless of the number of shares of ZAGG common stock that you own. The failure of any stockholder of record to (i) vote online during the special meeting or (ii) to submit a signed proxy card will have the same effect as a vote “AGAINST” the Merger Proposal, but assuming a quorum is present, will have no effect on the outcome of any vote on the Adjournment Proposal or the Compensation Proposal. If you hold your shares in “street name,” you should instruct your broker, bank, or nominee on how to vote your shares using the voting instruction form furnished by your broker, bank, or nominee. The failure to do so will have the same effect as a vote “AGAINST” the Merger Proposal, but assuming a quorum is present, will have no effect on the outcome of any vote on the Adjournment Proposal or the Compensation Proposal. Abstentions will have the same effect as a vote “AGAINST” the Merger Proposal, the Adjournment Proposal and the Compensation Proposal. If you sign, date, and return your proxy card without indicating how you wish to vote on a proposal, your proxy will be voted “FORsuch proposal.
The presence at the special meeting, virtually or by proxy, of the holders of a majority of the shares of outstanding ZAGG common stock entitled to vote at the special meeting will constitute a quorum for the transaction of business at the special meeting. Abstentions will be counted as present for purposes of determining the existence
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of a quorum. Shares held in “street name” for which the applicable broker, bank, or nominee receives no instructions regarding how to vote on any of the proposals before the special meeting will not be counted as present at the special meeting for quorum purposes. However, shares held in “street name” for which the applicable broker, bank, or nominee receives instructions regarding how to vote on one or more but not all of the proposals before the special meeting will be counted as present at the special meeting for quorum purposes.
Stockholders who do not vote in favor of the Merger Proposal and who otherwise meet the requirements of Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”) will have the right to seek appraisal of the fair value of their shares of ZAGG common stock, as determined in accordance with Section 262 of the DGCL. In addition to not voting in favor of the Merger Proposal, any stockholder wishing to exercise its appraisal rights must deliver a written demand for appraisal to ZAGG before the vote on the Merger Proposal and must comply in all respects with the requirements of Section 262 of the DGCL, the text of which is attached as Appendix C to the accompanying proxy statement and is incorporated by reference therein.
Our board of directors recommends that you vote: (i) “FOR” the Merger Proposal; (ii) “FOR” the Adjournment Proposal; and (iii) “FOR” the Compensation Proposal.
 
By Order of the Board of Directors,
 
 
 
/s/ TAYLOR D. SMITH
 
 
 
Taylor D. Smith
Chief Financial Officer
Midvale, Utah
January 21, 2021
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YOUR VOTE IS IMPORTANT
Ensure that your shares of ZAGG common stock are voted at the special meeting by submitting your proxy or, if your shares of ZAGG common stock are held in “street name” through a broker, bank, or nominee, by contacting your broker, bank, or nominee. If you do not submit a proxy, vote online during the special meeting, or instruct your broker, bank, or nominee how to vote your shares, it will have the same effect as voting “AGAINST” the Merger Proposal but, assuming a quorum is present, will have no effect on the outcome of any vote on the Adjournment Proposal or the Compensation Proposal.
If your shares of ZAGG common stock are registered directly in your name: If you are a stockholder of record, you may submit a proxy to vote your shares of ZAGG common stock by mail. Please follow the instructions on the enclosed proxy card. If you are a stockholder of record, you may also cast your vote online during the special meeting. Submitting a proxy now to vote your shares of ZAGG common stock will not prevent you from being able to vote online during the special meeting. If you virtually attend the special meeting and vote online, your online vote will revoke any proxy previously submitted.
If your shares of ZAGG common stock are held in the name of a broker, bank, or nominee: You will receive voting instructions from the organization holding your account and you must follow those instructions to vote your shares of ZAGG common stock. As a beneficial owner, you have the right to direct your broker, bank, or nominee on how to vote the shares of ZAGG common stock in your account. Your broker, bank, or nominee cannot vote on any of the proposals, including the Merger Proposal, without your instructions.
If you fail to submit a signed proxy card, fail to virtually attend the special meeting, or, if you hold your shares through a broker, bank, or nominee, fail to provide voting instructions to your broker, bank, or nominee, your shares of ZAGG common stock will not be counted for purposes of determining whether a quorum is present at the special meeting. However, shares held in “street name” for which the applicable broker, bank, or nominee receives instructions regarding how to vote on one or more but not all of the proposals before the special meeting, will be counted present at the special meeting for quorum purposes. If you hold your shares of ZAGG common stock through a broker, bank, or nominee, you must obtain from the record holder a valid legal proxy issued in your name in order to vote at the special meeting. A stockholder providing a proxy may revoke it at any time before 11:59 p.m., Eastern Time (ET) the day before the special meeting if such revocation is exercised by providing written notice of revocation to our Corporate Secretary, by voting online during the special meeting, or by providing a proxy of a later date, pursuant to the instructions set forth in “Revocability of Proxies” on page 21 of the accompanying proxy statement. Virtual attendance at the special meeting alone will not revoke a submitted proxy.
We encourage you to read the accompanying proxy statement, including its appendices and all documents incorporated by reference therein, carefully and in their entirety. If you have any questions concerning the Merger, the special meeting, or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need help voting your shares of ZAGG common stock, please contact our proxy solicitor:
Okapi Partners LLC
1212 Avenue of the Americas, 24th Floor
New York, New York 10036

+ 1 (212) 297-0720 (Main)
+ 1 (855) 208-8901 (Toll-Free)
Email: info@okapipartners.com
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO VIRTUALLY ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN, AND RETURN A PROXY CARD, OR INSTRUCT YOUR BROKER, BANK, OR NOMINEE ON HOW TO VOTE YOUR SHARES USING THE VOTING INSTRUCTION FORM FURNISHED BY YOUR BROKER, BANK, OR NOMINEE, AS PROMPTLY AS POSSIBLE.
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APPENDICES
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SUMMARY
This summary, together with the following section of this proxy statement entitled “Questions and Answers About the Special Meeting and the Merger,” highlights selected information from this proxy statement and may not contain all of the information that is important to you as a holder of ZAGG common stock or that you should consider before voting on the Merger Proposal. To better understand the Merger Proposal, you should read this proxy statement, including its appendices and the documents incorporated by reference herein, carefully and in its entirety. The Merger Agreement and the Voting and Support Agreement are attached to this proxy statement as Appendix A and Appendix B, respectively, and are incorporated by reference herein.
Parties Involved in the Merger (page 29)
ZAGG Inc
910 West Legacy Center Way, Suite 500,
Midvale, Utah 84047
ZAGG Inc (“ZAGG,” the “Company,” “we,” or “us”) is a global leader in accessories and technologies that empower mobile lifestyles. ZAGG has an award-winning product portfolio that includes screen protection, mobile keyboards, power management solutions, social tech, and personal audio sold under the ZAGG®, mophie®, InvisibleShield®, IFROGZ®, Gear4®, and HALO® brands. ZAGG has operations in the United States, Ireland, and China. ZAGG products are available worldwide, and can be found at leading retailers including Best Buy, Verizon, AT&T, T-Mobile, Walmart, Target, and Amazon.com.
ZAGG common stock is listed on the Nasdaq Stock Market, LLC (“Nasdaq”) under the symbol “ZAGG”.
Our principal executive offices are located at 910 West Legacy Center Way, Suite 500, Midvale, Utah, 84047, and our telephone number is (801) 263-0699. For more information about ZAGG, please visit our website, www.zagg.com. Our website address is provided as an inactive textual reference only. The information contained on our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC. See “Where You Can Find More Information” on page 99 of this proxy statement.
Zephyr Parent, Inc.
c/o Evercel, Inc.
382 NE 191st Street, Suite 90959
Miami, Florida 33179-3899
Zephyr Parent, Inc. (“Parent”) is a Delaware corporation that was formed solely for the purpose of entering into the Agreement and Plan of Merger, dated December 10, 2020 (as it may be amended from time to time, the “Merger Agreement”), by and among ZAGG, Parent, and Zephyr Merger Sub, Inc., and, subject to the terms and conditions thereof, completing the transactions contemplated by the Merger Agreement and the related financing transactions.
Parent’s principal executive offices are located at 382 NE 191st Street, Suite 90959, Miami, Florida 33179-3899 and its telephone number is (646) 666-3400.
Parent is indirectly controlled by Evercel, Inc., a Delaware corporation (“Evercel”), and its co-investors (collectively, the “Evercel Group”). Evercel is a company that acquires and manages high growth potential businesses which have been limited by their capital structure. Evercel’s principal executive offices are located at 382 NE 191st Street, Suite 90959, Miami, Florida 33179-3899 and its telephone number is (646) 666-3400. Further information is available at www.evercel.com. Evercel’s website address is provided as an inactive textual reference only. The information contained on Evercel’s website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC.
At the effective time of the Merger, ZAGG, as the surviving corporation (the “Surviving Corporation”), will be indirectly owned by the Evercel Group.
Zephyr Merger Sub, Inc.
c/o Evercel, Inc.
382 NE 191st Street, Suite 90959
Miami, Florida 33179-3899
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Zephyr Merger Sub, Inc. (“Merger Sub”) is a Delaware corporation that was formed by Parent solely for the purpose of entering into the Merger Agreement and completing the transactions contemplated thereby and the related financing transactions. Upon consummation of the merger of Merger Sub with and into ZAGG in accordance with the Merger Agreement (the “Merger”), Merger Sub will cease to exist, and ZAGG will survive the Merger as a wholly-owned subsidiary of Parent.
Merger Sub’s principal executive offices are located at 382 NE 191st Street, Suite 90959, Miami, Florida 33179-3899 and its telephone number is (646) 666-3400.
The Special Meeting (page 19)
Date, Time, and Place
A special meeting of our stockholders will be held on February 18, 2021 on the internet through a live webcast at www.virtualshareholdermeeting.com/ZAGG2021SM, at 9:00 a.m. Mountain Standard Time (MST), unless the special meeting is postponed, adjourned, continued or rescheduled.
Purpose
At the special meeting, we will ask our stockholders of record as of the Record Date (as defined below) to vote on the following proposals:
(i)
to adopt the Merger Agreement (the “Merger Proposal”);
(ii)
to approve the adjournment of the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the special meeting, there are not sufficient votes received to approve the Merger Proposal (the “Adjournment Proposal”); and
(iii)
to approve, on a non-binding, advisory basis, certain compensation that will or may become payable to our named executive officers in connection with the Merger (the “Compensation Proposal”).
Record Date; Shares Entitled to Vote; Quorum
Only stockholders of record as of the close of business on January 14, 2021 (the “Record Date”) are entitled to notice of the special meeting and to vote at the special meeting or at any adjournments, continuations, reschedulings, or postponements thereof. Each holder of record of ZAGG common stock on the Record Date will be entitled to one vote for each share of ZAGG common stock held by such holder as of the Record Date on each matter submitted to our stockholders for approval at the special meeting.
As of the Record Date, there were 30,448,003 shares of ZAGG common stock outstanding and entitled to be voted at the special meeting.
A quorum of stockholders is necessary to hold a special meeting. The holders of a majority of the shares of ZAGG common stock entitled to vote at the special meeting, present by virtual attendance or by proxy representation, will constitute a quorum at the special meeting. As a result, 15,224,002 shares must be represented by proxy or by stockholders virtually present and entitled to vote at the special meeting to have a quorum. In the event that a quorum is not present at the special meeting, we expect to adjourn the special meeting until a quorum is present.
Required Vote
Approval of the Merger Proposal requires the affirmative vote of the holders of a majority of the shares of ZAGG common stock outstanding as of the Record Date and entitled to vote on the matter. Approval of each of the Adjournment Proposal and the Compensation Proposal requires the affirmative vote of the holders of a majority of the shares of ZAGG common stock present by virtual attendance or by proxy representation at the special meeting and entitled to vote on the matter.
Stock Ownership and Interests of Certain Persons
As of the Record Date, our directors and executive officers beneficially owned and are entitled to vote an aggregate of 627,804 shares of ZAGG common stock (excluding any shares underlying awards of ZAGG restricted stock units (“Company RSUs”)), representing approximately 2.1% of the outstanding shares of ZAGG common stock.
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Our directors, chief executive officer and chief financial officer have informed us that they currently intend to vote all of their shares of ZAGG common stock: (i) “FOR” the Merger Proposal; (ii) “FOR” the Adjournment Proposal; and (iii) “FOR” the Compensation Proposal, and they are contractually required to vote all of their shares of ZAGG common stock in favor of the Merger Proposal, subject to certain limitations. See “The Merger—Voting and Support Agreement” on page 61 of this proxy statement.
Voting and Support Agreement (page 61)
Simultaneously with the execution of the Merger Agreement, certain stockholders of ZAGG, who are directors and officers of ZAGG beneficially owning approximately 2.0% of the outstanding shares of ZAGG, entered into a Voting and Support Agreement (the “Voting and Support Agreement”) with Parent and ZAGG under which such persons agreed, among other things, to vote in favor of the Merger Agreement and the transactions contemplated thereby, in favor of any proposal to adjourn the special meeting to solicit additional proxies in favor of the Merger Agreement and the transactions contemplated thereby, and against certain competing transactions.
The Voting and Support Agreement terminates upon the earliest to occur of (i) the conclusion of the special meeting at which the shares of stockholders party to the Voting and Support Agreement are voted as specified therein, (ii) the termination of the Voting and Support Agreement by mutual written consent of the parties thereto, (iii) the termination of the Merger Agreement prior to the effective time of the Merger, (iv) a change of recommendation to the extent permitted by the Merger Agreement, (v) ZAGG’s entry into an alternative acquisition agreement, (vi) the effective time of the Merger, and (vii) certain amendments to the Merger Agreement without the prior written consent of the stockholders.
Expenses of Proxy Solicitation (page 21)
Our board of directors (the “Board”) is soliciting your proxy, and ZAGG will bear the cost of soliciting proxies. We have engaged the services of Okapi Partners, LLC (“Okapi”) to provide consulting, analytic, and proxy solicitation services in connection with the special meeting. We have agreed to pay Okapi a fee of approximately $37,500, plus reasonable out-of-pocket expenses, for its services, and we will indemnify Okapi for certain losses arising out of its proxy solicitation services. In addition to the solicitation of proxies by mail, proxies may be solicited by our directors, officers and employees, or representatives of Okapi, by telephone, text message, email, fax, or other means of communication and we may pay persons holding shares for others their expenses for sending proxy materials to their principals. No additional compensation will be paid to our directors, officers, or employees for their services in connection with the solicitation of proxies.
Certain Effects of the Merger on ZAGG (page 29)
Upon the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger, Merger Sub will merge with and into ZAGG, with ZAGG continuing as the Surviving Corporation and as a wholly owned subsidiary of Parent. ZAGG common stock will be de-listed from Nasdaq and be de-registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable following the effective time of the Merger, and at such time, we will cease to be a publicly traded company and will no longer be obligated to file periodic reports with the SEC. If the Merger is completed, you will not own any shares of the capital stock of the Surviving Corporation, and instead will only be entitled to receive the Merger Consideration (as defined below) described in “—Merger Consideration” on page 30 of this proxy statement. Holders of shares of ZAGG common stock that have not voted in favor of the Merger, have properly demanded appraisal rights for such shares in accordance with Section 262 of the DGCL, and have complied in all respects with Section 262 of the DGCL with respect to such shares (“Dissenting Shares”) shall instead only be entitled to receive the “fair value” of such Dissenting Shares as determined by the Delaware Court of Chancery pursuant to an appraisal proceeding as contemplated by Delaware law.
The effective time of the Merger will occur upon the filing of the certificate of merger with the Secretary of State of the State of Delaware (or at such later time as we and Parent may agree and specify in the certificate of merger).
Effect on ZAGG if the Merger is Not Completed (page 30)
If the Merger Proposal is not approved by the holders of a majority of the outstanding shares of ZAGG common stock or if the Merger is not completed for any other reason, you will not receive any payment for your shares of ZAGG common stock. Instead, we will remain a public company, ZAGG common stock will continue to be listed
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and traded on Nasdaq and registered under the Exchange Act, and we will continue to be obligated to file periodic reports with the SEC. Under specified circumstances, we may be required to pay Parent a termination fee, or may be entitled to receive a reverse termination fee from Parent, upon the termination of the Merger Agreement, as described in “The Merger Agreement—Termination Fees” on page 91 of this proxy statement.
Merger Consideration (page 30)
At the effective time of the Merger, each outstanding share of ZAGG common stock (other than (i) shares held by ZAGG as treasury stock or held by Parent or Merger Sub or any wholly-owned subsidiary of ZAGG, Parent, or Merger Sub and (ii) Dissenting Shares) will be converted automatically into the right to receive the Merger Consideration. All shares of ZAGG common stock converted into the right to receive the Merger Consideration will automatically be cancelled and cease to exist at the effective time of the Merger, and each certificate formerly representing such shares will thereafter represent only the right to receive the Merger Consideration.
The Merger Consideration consists of $4.20 in cash (the “Closing Date Consideration”) and one right (the “PPP Loan Forgiveness Right,” and collectively with the Closing Date Consideration, the “Merger Consideration”) to receive an additional amount, net of certain fees and expenses, contingent upon the satisfaction of certain conditions related to the PPP Loan, without interest and less any applicable withholding taxes, for each share of ZAGG common stock that you own.
Based on management’s estimate of the amount of the PPP Loan expected to be forgiven, each PPP Loan Forgiveness Right could represent the right to receive an additional contingent amount of up to $0.30 per share, but we make no assurances as to what the actual amount might be or when it might be paid. The additional amount due to holders of PPP Loan Forgiveness Rights is contingent on a number of factors and could be zero. The PPP Loan Forgiveness Rights generally may not be transferred and, to the extent the conditions to payment of the PPP Loan Forgiveness Rights have not been satisfied, will expire on December 31, 2022.
After the completion of the Merger, under the terms of the Merger Agreement, you will have the right to receive the Merger Consideration, but you will no longer have any rights as a ZAGG stockholder (except that stockholders who hold Dissenting Shares will have the right to receive a payment for the “fair value” of their Dissenting Shares as determined by the Delaware Court of Chancery pursuant to an appraisal proceeding as contemplated by Delaware law, as described in “The Merger—Appraisal Rights” on page 62 of this proxy statement and Appendix C to this proxy statement).
PPP Loan Forgiveness Rights Agreement (page 60)
In connection with the closing of the Merger, ZAGG will enter into the PPP Loan Forgiveness Rights Agreement, a form of which is attached to the Merger Agreement (the “PPP Loan Forgiveness Rights Agreement”). The PPP Loan Forgiveness Rights Agreement generally restricts the transfer of PPP Loan Forgiveness Rights and provides that if certain conditions are not satisfied as of December 31, 2022, the PPP Loan Forgiveness Rights will expire.
Payment of the PPP Loan Forgiveness Rights is subject to the receipt by ZAGG on or prior to December 31, 2022 of (i) written confirmation from the U.S. Small Business Administration that the U.S. Small Business Administration’s audit of the PPP Loan has been satisfactorily completed and (ii) written confirmation from the U.S. Small Business Administration and KeyBank, N.A. of forgiveness of a portion of the amounts outstanding under the PPP Loan.
No later than three business days after the satisfaction of the conditions set forth in the immediately preceding paragraph, ZAGG will deliver to the rights agent designated in the PPP Loan Forgiveness Rights Agreement (the “Rights Agent”) the Additional Merger Consideration (as defined below). No later than five business days after receipt of the Additional Merger Consideration from ZAGG, the Rights Agent will pay to each holder, an amount equal to (i) the Additional Merger Consideration divided by (ii) the total number of PPP Loan Forgiveness Rights outstanding at the time of such payment, multiplied by (iii) the number of PPP Loan Forgiveness Rights held by such holder.
The “Additional Merger Consideration” represents an aggregate amount equal to (i) the amount of the PPP Loan that is being (or has been) forgiven, minus (ii) the sum of (x) the reasonable out-of-pocket costs and expenses incurred by ZAGG and its affiliates following the effective date of the Merger in applying for forgiveness of the PPP Loan, plus (y) the reasonable out-of-pocket costs and expenses incurred by ZAGG and its affiliates in connection with any audit of the PPP Loan, plus (z) the fees and expenses of the Rights Agent.
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Treatment of Equity and Equity-Based Awards (page 56)
Under the Merger Agreement, and at the effective time of the Merger, all Company RSUs, the only equity-based awards held by ZAGG’s directors and executive officers, will, automatically without any required action on the part of ZAGG, the Parent, or the holder thereof, be cancelled and terminated and converted into the right to receive (i) the Closing Date Consideration, multiplied by the aggregate number of shares of ZAGG common stock underlying such Company RSU award immediately prior to the effective time of the Merger and (ii) an aggregate number of PPP Loan Forgiveness Rights equal to the aggregate number of shares of ZAGG common stock underlying such Company RSU award immediately prior to the effective time of the Merger.
Recommendation of Our Board of Directors and Reasons for the Merger (page 43)
The Board, after considering various factors described in “The Merger—Recommendation of Our Board of Directors and Reasons for the Merger—Reasons for the Merger” beginning on page 43 of this proxy statement, unanimously (i) determined that the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of ZAGG and its stockholders, (ii) approved, adopted, and declared advisable the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger, (iii) directed that the Merger Agreement be submitted to the stockholders of ZAGG for adoption at the special meeting, and (iv) recommended that ZAGG’s stockholders adopt the Merger Agreement.
The Board recommends that you vote: (i) “FOR” the Merger Proposal, (ii) “FOR” the Adjournment Proposal and (iii) “FOR” the Compensation Proposal.
Opinion of BofA Securities, Inc. (page 47)
On December 10, 2020, at a meeting of the Board held to evaluate the Merger, representatives of BofA Securities, Inc. (“BofA Securities”) delivered to the Board the oral opinion of BofA Securities, which was confirmed by delivery of a written opinion dated December 10, 2020, to the effect that, as of the date of the opinion and based on and subject to various assumptions and limitations described in the written opinion, the Merger Consideration to be received in the Merger by holders of shares of ZAGG common stock, was fair, from a financial point of view, to such holders.
The full text of BofA Securities’ written opinion to the Board, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Appendix D to this proxy statement and is incorporated by reference herein in its entirety. The foregoing summary of BofA Securities’ opinion is qualified in its entirety by reference to the full text of the written opinion. BofA Securities delivered its opinion to the Board for the benefit and use of the Board (in its capacity as such) in connection with and for purposes of its evaluation of the Merger Consideration from a financial point of view. BofA Securities’ opinion does not address any other aspect or implication of the Merger and no opinion or view was expressed as to the relative merits of the Merger in comparison to other strategies or transactions that might be available to ZAGG or in which ZAGG might engage or as to the underlying business decision of ZAGG to proceed with or effect the Merger. BofA Securities’ opinion does not constitute a recommendation as to how any stockholder should vote or act in connection with the Merger or any related matter. See the section entitled “The Merger—Opinion of BofA Securities, Inc.” beginning on page 47 of this proxy statement.
Interests of the Directors and Executive Officers of ZAGG in the Merger (page 56)
When considering the recommendation of the Board that you vote “FOR” the Merger Proposal, you should be aware that certain of our directors and executive officers may have interests in the Merger that may be different from, or in addition to, your interests as a stockholder generally. The Board was aware of these interests in, among other matters, approving the Merger Agreement and the Merger and in recommending that the Merger Agreement be adopted by the stockholders of ZAGG. These interests include the following:
Executive Severance Plan. The ZAGG Inc Executive Severance Plan (the “Severance Plan”) provides, upon our termination of an executive officer’s employment without “Cause” or by the executive for “Good Reason(each as defined in the Severance Plan), for (i) certain severance payments; and (ii) payments relating to COBRA premium payments for a certain period of time after the termination date, as described in “The Merger—Interests of the Directors and Executive Officers of ZAGG in the Merger—Executive Severance Plan” on page 57 of this proxy statement;
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Conversion of Equity Awards. Certain of our directors and executive officers hold equity awards, the treatment of which is described in “The Merger—Interests of the Directors and Executive Officers of ZAGG in the Merger—Treatment of Equity and Equity-Based Awards” on page 56 of this proxy statement;
Retention Awards. Certain of our executive officers will receive retention awards, subject to the terms of the Merger Agreement and the consummation of the Merger and described in “The Merger—Interests of the Directors and Executive Officers of ZAGG in the Merger—Retention Awards” on page 58 of this proxy statement; and
Indemnification Rights. Our directors and executive officers are entitled to continued indemnification pursuant to the Merger Agreement, our organizational documents and certain indemnification agreements, as well as directors’ and officers’ liability insurance.
If the Merger Proposal is approved by holders of a majority of the outstanding shares of ZAGG common stock and the Merger is completed, any shares of ZAGG common stock held by our directors and executive officers will be treated in the same manner as outstanding shares of ZAGG common stock held by all other stockholders entitled to receive the Merger Consideration.
These interests are discussed in more detail in “The Merger—Interests of the Directors and Executive Officers of ZAGG in the Merger” on page 56 of this proxy statement.
Financing of the Merger (page 61)
The Evercel Group has committed to contribute, or cause to be contributed, $70 million to an indirect parent of Parent (“Holdings”) immediately prior to the time that Parent is obligated to consummate the Merger pursuant to the Merger Agreement (the “Equity Commitments”). Lynx Holdings V, LLC (“Lynx”) has committed to provide an amount in cash of $75 million, consisting of a $40 million term loan facility for Holdings (the “Holdings Debt Commitment”) and a $35 million term loan facility for ZAGG. KeyBank National Association and Keybanc Capital Markets Inc. have committed to provide and underwrite an $85 million senior secured revolving credit facility for ZAGG. Evercel has committed to cause Holdings to contribute the Equity Commitments and Holdings Debt Commitment to Parent to enable Parent to timely make the payments required of it under the Merger Agreement.
The proceeds of the debt financings will be used, among other things, (i) to finance, in part, the payment of the amounts payable under the Merger Agreement and the payment of related fees and expenses, (ii) to refinance existing indebtedness of ZAGG, (iii) to finance ongoing working capital and (iv) for general corporate purposes.
The Merger Agreement does not include a financing-related closing condition.
Limited Guaranty (page 62)
Pursuant to a limited guaranty delivered by Evercel, dated as of December 10, 2020, Evercel has agreed to guarantee Parent’s obligations under the Merger Agreement to pay any applicable termination fee, and Parent’s expense reimbursement and indemnification obligations under the Merger Agreement.
Appraisal Rights (page 62)
If the Merger is approved by our stockholders and becomes effective, holders of Dissenting Shares will be entitled to statutory appraisal rights pursuant to Section 262 of the DGCL. This means that such stockholders are entitled to seek appraisal of their Dissenting Shares and to receive payment in cash for the “fair value” of such Dissenting Shares, exclusive of any element of value arising from the accomplishment or expectation of the Merger, as determined by the Delaware Court of Chancery, together with interest, if any, to be paid upon the amount determined to be the fair value. The ultimate amount holders receive in an appraisal proceeding may be less than, equal to, or more than the amount such holders would have received under the Merger Agreement. For a description of the rights of holders of Dissenting Shares and of the procedures to be followed in order to assert such rights and obtain payment of the fair value of such Dissenting Shares, see Section 262 of the DGCL, which is attached as Appendix C to this proxy statement, as well as the information set forth below.
A HOLDER OF ZAGG COMMON STOCK WHO WISHES TO EXERCISE APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO SHOULD REVIEW THE DISCUSSIONS SET FORTH ON PAGE 62 AND APPENDIX C CAREFULLY. FAILURE TO COMPLY PRECISELY WITH THE PROCEDURES OF SECTION 262 OF THE DGCL IN A TIMELY AND PROPER MANNER WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS. BECAUSE OF THE COMPLEXITY OF THE PROCEDURES FOR EXERCISING THE
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RIGHT TO SEEK APPRAISAL UNDER SECTION 262 OF THE DGCL, A HOLDER OF ZAGG COMMON STOCK WHO IS CONSIDERING WHETHER TO EXERCISE ITS APPRAISAL RIGHTS, IS ENCOURAGED TO CONSULT WITH ITS OWN LEGAL COUNSEL. ANY SHARES OF ZAGG COMMON STOCK HELD BY A ZAGG STOCKHOLDER WHO FAILS TO PERFECT, SUCCESSFULLY WITHDRAWS OR OTHERWISE LOSES HIS, HER OR ITS APPRAISAL RIGHTS WILL BE DEEMED TO HAVE BEEN CONVERTED AS OF THE EFFECTIVE TIME OF THE MERGER INTO THE RIGHT TO RECEIVE THE MERGER CONSIDERATION.
Risk Factors (page 26)
In evaluating the proposals to be presented at the special meeting, you should carefully read this proxy statement and especially consider the factors discussed in the sections entitled “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” on pages 24 and 26 of this proxy statement, respectively.
U.S. Federal Income Tax Consequences of the Merger (page 67)
If you are a U.S. holder (as defined in “The Merger—U.S. Federal Income Tax Consequences of the Merger” on page 67 of this proxy statement), the exchange of your shares of ZAGG common stock for Merger Consideration (including any amounts required to be withheld for tax purposes) pursuant to the Merger will generally require you to recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of Merger Consideration you receive pursuant to the Merger (including any amounts required to be withheld for tax purposes) and your adjusted tax basis in such surrendered shares. A non-U.S. holder (as defined in “The Merger—U.S. Federal Income Tax Consequences of the Merger” on page 67 of this proxy statement) will generally not be subject to U.S. federal income tax with respect to the exchange of such non-U.S. holder’s ZAGG common stock for Merger Consideration in the Merger unless such non-U.S. holder has certain connections to the United States or ZAGG is, or was during the relevant period, a U.S. real property holding corporation. Because particular circumstances may differ, we recommend you consult your tax advisor to determine the U.S. federal income tax consequences to you of the Merger in light of your particular circumstances and any consequences arising under the laws of any state, local, or foreign taxing jurisdiction. A more complete description of the U.S. federal income tax consequences of the Merger is provided in “The Merger—U.S. Federal Income Tax Consequences of the Merger” on page 67 of this proxy statement.
Regulatory Approvals Required for the Merger (page 71)
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) and the rules promulgated thereunder by the Federal Trade Commission (the “FTC”), the Merger cannot be completed until ZAGG and Parent each file a notification and report form with the FTC and the Antitrust Division of the U.S. Department of Justice (the “DOJ”) under the HSR Act and the applicable waiting period thereunder has expired or been terminated. The parties filed the required HSR Act notifications with the FTC and the DOJ on January 15, 2021.
Non-Solicitation of Acquisition Proposals; Change of Recommendation (page 81)
From the date of the Merger Agreement until the earlier of the effective time of the Merger or termination of the Merger Agreement (the “Pre-Closing Period”), ZAGG is generally not permitted to solicit or discuss competing proposals with third parties, subject to certain exceptions.
Except as expressly permitted by the Merger Agreement, during the Pre-Closing Period, ZAGG will not, and will cause its subsidiaries not to, and will instruct its representatives not to on behalf of ZAGG, do any of the following:
initiate, solicit or encourage the submission of any acquisition proposal or engage in any discussions or negotiations with respect thereto;
approve or recommend, or publicly propose to approve or recommend, any acquisition proposal;
withdraw, change or qualify, in a manner adverse to Parent or Merger Sub, the Board recommendation that ZAGG’s stockholders approve and adopt the Merger Agreement;
enter into or negotiate any merger agreement, letter of intent or other similar agreement relating to any acquisition proposal; or
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resolve or agree to do any of the foregoing.
Notwithstanding anything to the contrary set forth in the Merger Agreement, if at any time following the date of the Merger Agreement and prior to receipt of the required stockholder approval (i) ZAGG has received a bona fide written acquisition proposal from a third party, (ii) ZAGG has not breached the non-solicitation covenants described above in any material respect with respect to such acquisition proposal and (iii) the Board (or a duly authorized committee thereof) determines in good faith, after consultation with its financial advisors and outside counsel, based on information then available, that such acquisition proposal constitutes or could reasonably be expected to lead to a superior proposal, then as to each such third party, in each case, ZAGG may (i) furnish information with respect to ZAGG and its subsidiaries to the third party making such acquisition proposal, its representatives and potential sources of financing and (ii) participate in discussions or negotiations with the third party making such acquisition proposal regarding such acquisition proposal, subject to compliance with certain notice and other requirements as set forth in the Merger Agreement (as described in “The Merger Agreement—Non-Solicitation of Acquisition Proposals; Change of Recommendation” on page 81 of this proxy statement).
Notwithstanding anything to the contrary contained in the Merger Agreement, if ZAGG has received a written acquisition proposal that the Board (or any duly authorized committee thereof) determines, after consultation with its financial advisors and outside counsel, constitutes a superior proposal (or could reasonably be expected to result in a superior proposal), the Board may at any time prior to receipt of the required stockholder approval, (i) effect a change of Board recommendation with respect to such superior proposal or fail to include the Board recommendation that ZAGG’s stockholders approve and adopt the Merger Agreement in any disclosure to stockholders required by Rule 14d-9 and/or (ii) terminate the Merger Agreement to enter into a definitive agreement with respect to such superior proposal, in either case subject to certain notice and other requirements as set forth in the Merger Agreement (as described in “The Merger Agreement—Non-Solicitation of Acquisition Proposals; Change of Recommendation” on page 81 of this proxy statement).
Notwithstanding anything to the contrary contained in the Merger Agreement, the Board (or any duly authorized committee thereof) may at any time prior to receipt of the required stockholder approval effect a change of Board recommendation if (i) the Board (or any duly authorized committee thereof) determines that an intervening event has occurred and is continuing and (ii) the Board (or such duly authorized committee thereof) determines in good faith, after consultation with outside counsel, that the failure to effect a change of Board recommendation in response to such intervening event would be inconsistent with its fiduciary duties to the stockholders of ZAGG.
For a further discussion of the limitations on solicitation of acquisition proposals from third parties and the Board’s ability to make a change of recommendation with respect to the Merger Proposal, see “The Merger Agreement—Non-Solicitation of Acquisition Proposals; Change of Recommendation” on page 81 of this proxy statement.
Conditions to the Closing of the Merger (page 89)
The parties expect to complete the Merger in the first quarter of 2021. However, it is possible that factors outside of each party’s control could require them to complete the Merger at a later time or not to complete it at all. The following are some of the conditions that must be satisfied or, where permitted by law, waived before the Merger may be completed:
the approval of the Merger Agreement and the Merger by the affirmative vote of the holders of a majority of the outstanding ZAGG common stock;
the absence of any governmental order preventing or prohibiting consummation of the Merger or any other transactions contemplated in the Merger Agreement or the PPP Loan Forgiveness Rights Agreement;
the expiration or termination of any applicable waiting periods, together with any extensions thereof, under the HSR Act and any other competition laws;
The accuracy of the representations and warranties of ZAGG, on the one hand, and Parent, on the other hand, in the Merger Agreement, subject in some instances to materiality or “material adverse effect” qualifiers, at and as of the effective date of the Merger (except for representations and warranties that expressly relate to a specific date or time);
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the compliance or performance by ZAGG, on the one hand, and Parent, on the other hand, in all material respects with all agreements, obligations and covenants required by the Merger Agreement to be performed or complied with by it on or prior to the effective time of the Merger; and
since the date of the Merger Agreement, there not having occurred any Company Material Adverse Effect (as defined in “The Merger Agreement—Representations and Warranties” on page 76 of this proxy statement).
Termination of the Merger Agreement (page 90)
In general, the Merger Agreement may be terminated at any time prior to the effective time of the Merger as follows (subject to certain limits and exceptions):
by mutual written consent of Parent and ZAGG by action of their respective boards of directors;
by either ZAGG or Parent:
if the Merger shall not have been consummated prior to May 7, 2021 (the “Outside Date”);
if any governmental entity shall have issued a final and nonappealable order permanently prohibiting the transactions contemplated by the Merger Agreement or the PPP Loan Forgiveness Rights Agreement;
if the required ZAGG stockholder approval shall not have been obtained at the ZAGG stockholder meeting;
by Parent:
if, prior to receipt of the required ZAGG stockholder approval, (i) a change of Board recommendation shall have occurred; provided that Parent’s right to terminate the Merger Agreement pursuant to this provision expires at 5:00 p.m., Eastern Time, on the fifth business day following the date on which such change of Board recommendation occurs, or (ii) a tender offer or exchange offer for outstanding ZAGG common stock shall have been publicly announced (other than by Parent or an affiliate of Parent) and, prior to the earlier of (x) the date prior to the date of the ZAGG stockholder meeting and (y) 11 business days after the commencement of such tender or exchange offer pursuant to Rule 14d-2 under the Exchange Act, the Board fails to recommend unequivocally against acceptance of such offer; or
subject to certain cure periods, if there is any breach of any representation, warranty, covenant or agreement on the part of ZAGG set forth in the Merger Agreement, such that the conditions to closing of the Merger related thereto would not be satisfied at the closing of the Merger;
by ZAGG:
at any time prior to the receipt of the required ZAGG stockholder approval, in order to enter into a definitive agreement with respect to a superior proposal;
subject to certain cure periods, if there is any breach of any representation, warranty, covenant or agreement on the part of Parent or Merger Sub set forth in the Merger Agreement, such that the conditions to closing of the Merger related thereto would not be satisfied at the closing of the Merger; or
if (i) all of the conditions to Parent’s obligations to consummate the Merger (other than conditions which are to be satisfied by actions taken at the closing) have been satisfied, (ii) Parent fails to consummate the closing of the Merger within three business days following the date the closing should have occurred pursuant to the terms of the Merger Agreement, (iii) ZAGG has irrevocably notified Parent in writing that ZAGG is ready, willing and able to effect the closing of the Merger within two business days, and (iv) Parent fails to consummate the closing of the Merger on or before the second business day following the date of delivery of such written notification by ZAGG.
Termination Fees (page 91)
Under the Merger Agreement, ZAGG may be required to pay Parent a termination fee of $3,000,000 and to reimburse Parent for any and all out-of-pocket expenses incurred by Parent or any of its affiliates in connection with
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the transactions contemplated by the Merger Agreement or the financing, up to a maximum of $2,000,000, under specified circumstances. In addition, Parent may be required to pay ZAGG a reverse termination fee of $5,000,000 under specified circumstances.
See “The Merger Agreement—Termination Fees” on page 91 of this proxy statement for a discussion of the circumstances under which either party will be required to pay a termination fee or reverse termination fee, as applicable.
Expenses (page 92)
All expenses incurred by the parties to the Merger Agreement will be paid solely by the party which has incurred them, subject to certain provisions of the Merger Agreement.
Specific Performance (page 92)
The parties to the Merger Agreement shall be entitled to an injunction or injunctions to prevent breaches of the Merger Agreement and to specific performance as to its terms (without any requirement for the securing or posting of any bond in connection with the obtaining of any specific performance or injunctive relief) and the parties will waive, in any action for specific performance, the defense of adequacy of a remedy at law. ZAGG’s or Parent’s pursuit of specific performance shall not preclude the pursuing party from (i) the right to pursue any other right or remedy to which such party may be entitled, including the right to pursue remedies for liabilities or damages incurred or suffered by the other party in the case of a breach of the Merger Agreement involving fraud and (ii) in the alternative and as applicable, seeking to terminate the Merger Agreement and collect the applicable termination fee (or enforcement of expense reimbursement obligations). However, in no event will a party be permitted or entitled to receive both a grant of an injunction, specific performance or other equitable relief or any other remedies under the Merger Agreement or available at law or equity, on the one hand, and payment of any monetary damages whatsoever or the payment of all or a portion of the applicable termination fee (and satisfaction of expense reimbursement obligations), on the other hand.
Notwithstanding the foregoing or any other provision to the contrary in the Merger Agreement, equity commitment letter or the limited guaranty, ZAGG is entitled to enforce specifically Parent’s obligation to cause all or any portion of the equity financing to be funded (whether under the Merger Agreement or the equity commitment letter) or otherwise cause Parent to consummate the Merger or the other transactions contemplated by the Merger Agreement in accordance with the terms of the Merger Agreement only if: (i) the parties’ mutual conditions to the closing of the Merger and the additional conditions to the closing of the Merger of Parent and Merger Sub (other than conditions which are to be satisfied by actions taken at the closing of the Merger) have been satisfied or waived at the time when the closing of the Merger should have occurred pursuant to the Merger Agreement; (ii) the debt financing has been funded or will be funded at the closing of the Merger upon the funding of the equity financing; (iii) ZAGG has notified Parent in writing that it is ready, willing and able to consummate the closing of the Merger if the equity financing and the debt financing are funded, and such notice has not been revoked; and (iv) Parent and Merger Sub have failed to consummate the Merger by the date the Merger should have occurred pursuant to the Merger Agreement.
Litigation Relating to the Merger (page 71)
Since the initial public announcement of the Merger on December 11, 2020, four lawsuits have been filed by purported ZAGG stockholders in connection with the Merger, including one purported class action. The complaints generally allege that the preliminary proxy statement filed by ZAGG in connection with the Merger fails to disclose allegedly material information in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder. Plaintiffs seek, among other things, to enjoin ZAGG from consummating the Merger, or in the alternative, rescission of the Merger and/or compensatory damages. The purported class action complaint also alleges breaches of fiduciary duty and additionally seeks declarative and equitable relief. For a more detailed description of such litigation relating to the Merger, see the section entitled “The Merger—Litigation Relating to the Merger.” ZAGG believes that the allegations in the complaints are without merit. Additional lawsuits arising out of the merger may also be filed in the future.
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers are intended to address briefly some commonly asked questions regarding the special meeting, the Agreement, and Plan of Merger, dated as of December 10, 2020 (as it may be amended from time to time, the “Merger Agreement”) by and among ZAGG Inc, a Delaware corporation (“ZAGG,” the “Company,” “we,” “us,” or “our”), Zephyr Parent, Inc., a Delaware corporation (“Parent”), and Zephyr Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), and the merger of Merger Sub with and into ZAGG in accordance with the Merger Agreement (the “Merger”). These questions and answers may not address all questions that may be important to you as a stockholder of ZAGG. Please refer to the preceding section of this proxy statement entitled “Summary” and the more detailed information contained elsewhere in this proxy statement, its appendices, including the Merger Agreement, and the documents incorporated by reference herein, which you should read carefully and in their entirety.
Q:
Why am I receiving these materials?
A:
On December 10, 2020, ZAGG entered into the Merger Agreement, pursuant to which, among other things, Merger Sub will merge with and into ZAGG, with ZAGG surviving (the “Surviving Corporation”) the Merger and becoming a wholly owned subsidiary of Parent. A copy of the Merger Agreement is attached as Appendix A to this proxy statement and is incorporated by reference herein. Our board of directors (the “Board”) is furnishing this proxy statement and proxy card to the holders of ZAGG common stock in connection with the solicitation of proxies in favor of the Merger Proposal, the Adjournment Proposal, and the Compensation Proposal (each as described below) to be voted on at a special meeting of stockholders or at any adjournments continuations, reschedulings or postponements thereof.
Q:
When and where is the special meeting?
A:
The special meeting will take place virtually via live webcast as indicated below. Should we decide to change the date, time, and location of our special meeting, we will issue a press release, file the announcement as definitive additional soliciting material with the U.S. Securities and Exchange Commission (the “SEC”), and take all reasonable steps necessary to inform other intermediaries in the proxy process.
Date: February 18, 2021
Time: 9:00 a.m. Mountain Standard Time (MST)
Place: www.virtualshareholdermeeting.com/ZAGG2021SM
Q:
Who is entitled to vote at the special meeting?
A:
To be able to vote on the matters presented at the special meeting, you must have been a stockholder of record at the close of business on January 14, 2021 (the “Record Date”). The aggregate number of shares entitled to vote at this special meeting is 30,448,003 shares of ZAGG common stock, which is the number of shares that were outstanding as of the Record Date.
Q:
How many votes do I have?
A:
Each share of ZAGG common stock that you owned as of the close of business on the Record Date entitles you to one vote on each matter that is voted on at the special meeting.
Q:
How can I attend the special meeting and vote?
A:
All stockholders of record as of the Record Date may virtually attend the special meeting on the internet through a live webcast at www.virtualshareholdermeeting.com/ZAGG2021SM. Our stockholders will continue to have the opportunity to engage with our Board during the special meeting. Our virtual meeting platform is provided by Broadridge Financial Solutions (www.virtualshareholdermeeting.com/ZAGG2021SM) and allows all participating stockholders to submit questions at any point during the special meeting. In addition, it also allows our stockholders to vote on proposals online during the special meeting. We believe that our virtual platform increases stockholder participation while also affording the same rights and opportunities to participate, as stockholders would have at a physical special meeting.
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A summary of the information you need to attend the special meeting online is provided below:
Any stockholder can virtually attend the special meeting via the Internet at www.virtualshareholdermeeting.com/ZAGG2021SM.
The webcast will start at 9:00 a.m. Mountain Standard Time (MST).
Please have your 16-digit control number to enter the special meeting.
Stockholders may vote and submit questions online while virtually attending the special meeting.
Instructions on how to attend and participate via the internet, including how to demonstrate proof of stock ownership, are posted at www.proxyvote.com.
Questions regarding how to attend and participate via the internet will be answered by calling 1-800-690-6903 on the day before the special meeting and the day of the special meeting.
Whether or not you plan to attend the special meeting, we encourage you to complete, sign, date, and return the enclosed proxy card to ensure that your shares of ZAGG common stock will be represented at the special meeting. If you virtually attend the special meeting and vote online, your online vote will revoke any proxy previously submitted.
If you are a beneficial owner and hold your shares of ZAGG common stock in “street name” through a broker, bank, or nominee, you should instruct your broker, bank, or nominee on how you wish to vote your shares of ZAGG common stock using the instructions provided by your broker, bank, or nominee. Your broker, bank, or nominee cannot vote on any of the proposals, including the Merger Proposal (as described below), without your instructions. If you hold your shares of ZAGG common stock in “street name,” because you are not the stockholder of record, you may not vote your shares of ZAGG common stock online during the special meeting unless you request and obtain a valid legal proxy in your name or a specific control number, respectively, from your broker, bank, or nominee.
Q:
What am I being asked to vote on at the special meeting?
A:
You are being asked to consider and vote on the following proposals:
to adopt the Merger Agreement (the “Merger Proposal”);
to approve the adjournment of the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the special meeting, there are not sufficient votes received to approve the Merger Proposal (the “Adjournment Proposal”); and
to approve, on a non-binding, advisory basis, certain compensation that will or may become payable to our named executive officers in connection with the Merger (the “Compensation Proposal”).
Q:
What will I receive if the Merger is completed?
A:
Upon completion of the Merger, you will be entitled to receive $4.20 in cash (the “Closing Date Consideration”) and one right (the “PPP Loan Forgiveness Right,” and collectively with the Closing Date Consideration, the “Merger Consideration”) to receive an additional amount, net of certain fees and expenses, contingent upon the satisfaction of certain conditions related to the U.S. Small Business Administration Paycheck Protection Program Loan issued to ZAGG on April 13, 2020 (the “PPP Loan”), without interest and less any applicable withholding taxes, for each share of ZAGG common stock that you own, unless you are entitled to and have properly demanded appraisal rights and have complied in all respects with Section 262 of the Delaware General Corporation Law (the “DGCL”) with respect to each such share. For example, if you own 100 shares of ZAGG common stock, you will be entitled to receive $420.00 in cash in exchange for such shares and 100 PPP Loan Forgiveness Rights upon the closing of the Merger, without interest and less any applicable withholding taxes. In either case, as a result of the Merger, your shares will be cancelled and you will not own shares in the Surviving Corporation which will be a wholly owned subsidiary of Parent following the Merger.
Q:
What are the PPP Loan Forgiveness Rights?
A:
The PPP Loan Forgiveness Rights represent the right to receive an additional contingent amount based on the forgiveness of the PPP Loan and the satisfactory completion of any audit related thereto, net of (i) expenses of
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ZAGG and its affiliates incurred following the effective time of the Merger in applying for forgiveness and any related audit and (ii) the fees and expenses of the rights agent (the “Rights Agent”) designated in the PPP Loan Forgiveness Rights Agreement, a form of which is attached to the Merger Agreement (the “PPP Loan Forgiveness Rights Agreement”).
Within eight (8) business days after ZAGG receives (i) written confirmation from the U.S. Small Business Administration that its audit of the PPP Loan has been satisfactorily completed and (ii) written confirmation from the U.S. Small Business Administration and KeyBank, N.A. of forgiveness of a portion of the amounts outstanding under the PPP Loan, the Rights Agent will pay to each holder an amount equal to (i) the Additional Merger Consideration divided by (ii) the total number of PPP Loan Forgiveness Rights outstanding at the time of such payment, multiplied by (iii) the number of PPP Loan Forgiveness Rights held by such holder.
The “Additional Merger Consideration” represents an aggregate amount equal to (i) the amount of the PPP Loan that is being (or has been) forgiven, minus (ii) the sum of (x) the reasonable out-of-pocket costs and expenses incurred by ZAGG and its affiliates following the effective date of the Merger in applying for forgiveness of the PPP Loan, plus (y) the reasonable out-of-pocket costs and expenses incurred by ZAGG and its affiliates in connection with any audit of the PPP Loan, plus (z) the fees and expenses of the Rights Agent.
The Additional Merger Consideration is contingent on a number of factors and could be zero. The PPP Loan Forgiveness Rights generally may not be transferred and, to the extent the conditions to payment of the PPP Loan Forgiveness Rights have not been satisfied, will expire on December 31, 2022. We expect the PPP Loan will be audited based on guidance issued by the U.S. Small Business Administration, and the audit may not be complete prior to the expiration of the PPP Loan Forgiveness Rights or the results of the audit may be unfavorable to ZAGG. On January 20, 2021 we applied for forgiveness of the entire $9.4 million, which if forgiven could result in additional consideration of up to $0.30 per share, based on updated information from the U.S. Small Business Administration (“SBA”), but we make no assurance as to what the actual amount might be or if or when it might be paid. See “The Merger—PPP Loan Forgiveness Rights Agreement” on page 60 of this proxy statement.
Q:
How does the Merger Consideration compare to the market price of ZAGG common stock prior to the public announcement of the Merger Agreement?
A:
Assuming a value of $0.25 per PPP Loan Forgiveness Right, the Merger Consideration represents a premium of approximately 10.1% over the closing price of ZAGG common stock on December 9, 2020 ($4.04), the last trading day before the Merger Agreement was approved by our Board, and a premium of 22.6% and 33.2% over the 30-day average and 60-day average, respectively, on the same date. However, we make no assurance as to what the actual amount might be or when it might be paid.
Q:
What do I need to do now? If I am going to attend the special meeting, should I still submit a proxy?
A:
We encourage you to read this proxy statement, its appendices, including the Merger Agreement, and the documents incorporated by reference herein, carefully and in their entirety and consider how the Merger affects you. Whether or not you expect to virtually attend the special meeting, we encourage you to complete, sign, date, and return, as promptly as possible, the enclosed proxy card so that your shares of ZAGG common stock may be represented and can be voted at the special meeting. Submitting a proxy now to vote your shares of ZAGG common stock will not prevent you from being able to vote online during the special meeting. If you virtually attend the special meeting and vote online, your online vote will revoke any proxy previously submitted. If you hold your shares of ZAGG common stock in “street name,” please refer to the voting instruction forms provided by your broker, bank, or nominee to vote such shares.
Q:
Should I send in my stock certificates now?
A:
No. If the Merger Proposal is approved, shortly after the Merger is completed, under the terms of the Merger Agreement, you will receive a letter of transmittal containing instructions for how to send your stock certificates to the paying agent in order to receive the Closing Date Consideration for each share of ZAGG common stock represented by the stock certificate or book-entry shares. You should use the letter of transmittal to exchange your stock certificates or book-entry shares for the Closing Date Consideration to which you are entitled upon completion of the Merger. If your shares of ZAGG common stock are held in “street name” through a broker, bank, or nominee, you will receive instructions from your broker, bank, or nominee as to how to effect the surrender of your “street name” shares of ZAGG common stock in exchange for the Merger Consideration. Please do not send in your stock certificates now.
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Q:
What happens if I sell or otherwise transfer my shares of ZAGG common stock after the Record Date but before the special meeting? What happens if I sell or otherwise transfer my shares of ZAGG common stock after the special meeting but before the effective time of the Merger?
A:
The Record Date for the special meeting is earlier than the date of the special meeting and earlier than the date the Merger is expected to be completed. If you sell or transfer your shares of ZAGG common stock after the Record Date but before the special meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you sell or transfer your shares and each of you notifies ZAGG in writing of such special arrangements, you will retain your right to vote such shares at the special meeting, but will transfer the right to receive the Merger Consideration if the Merger is completed to the person to whom you sell or transfer such shares.
If you sell or transfer your shares of ZAGG common stock after the special meeting, but before the effective time of the Merger, you will transfer the right to receive the Merger Consideration if the Merger is completed. In order to receive the Merger Consideration, you must hold your shares of ZAGG common stock through the completion of the Merger.
Even if you sell or otherwise transfer your shares of ZAGG common stock after the Record Date, we encourage you to sign, date, and return the enclosed proxy card or, if your shares are held in “street name” through a broker, bank, or nominee, instruct your broker, bank, or nominee on how to vote your shares using the voting instruction form furnished by your broker, bank, or nominee.
Q:
What vote is required to adopt the Merger Agreement?
A:
The affirmative vote of the holders of a majority of the shares of ZAGG common stock outstanding as of the Record Date and entitled to vote on the matter is required to approve the Merger Proposal.
The failure of any stockholder of record to submit a signed proxy card or to vote online during the special meeting will have the same effect as a vote “AGAINST” the Merger Proposal. Broker non-votes and abstentions will also have the same effect as a vote “AGAINST” the Merger Proposal. Properly executed proxies that do not contain voting instructions will be voted “FOR” the Merger Proposal.
As of the Record Date (January 14, 2021), there were 30,448,003 shares of ZAGG common stock issued and outstanding. Each holder of ZAGG common stock is entitled to one vote per share of ZAGG common stock owned by such holder as of the Record Date.
Q:
What vote is required to approve the Adjournment Proposal and the Compensation Proposal?
A:
Approval of the Adjournment Proposal or the Compensation Proposal requires the affirmative vote of the holders of a majority of the shares of ZAGG common stock present by virtual attendance or by proxy representation at the special meeting and entitled to vote on the matter.
Assuming a quorum is present, the failure of any stockholder of record to submit a signed proxy card or to vote online during the special meeting or, if shares are held through a broker, bank, or nominee, the failure to provide voting instructions to such broker, bank, or nominee, will not have any effect on the Adjournment Proposal or the Compensation Proposal. Abstentions will have the same effect as a vote “AGAINST” the Adjournment Proposal and the Compensation Proposal.
Q:
What is “Merger-related compensation”?
A:
“Merger-related compensation” is certain compensation that is tied to or based on the completion of the Merger and may be payable to ZAGG’s named executive officers under its existing plans or agreements, which is the subject of the Compensation Proposal. See “Proposal 3: Advisory Vote on Merger-Related Named Executive Officer Compensation” on page 96 of this proxy statement.
Q:
Why am I being asked to cast a non-binding, advisory vote to approve “Merger-related compensation” payable to ZAGG’s named executive officers under its plans or agreements?
A:
In accordance with the rules promulgated under Section 14(a) of the Exchange Act, we are providing you with the opportunity to cast a non-binding, advisory vote on the compensation that may be payable to our named executive officers in connection with the Merger.
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Q:
What will happen if the stockholders do not approve the Compensation Proposal at the special meeting?
A:
Approval of the Compensation Proposal is not a condition to the completion of the Merger. The vote with respect to the Compensation Proposal is on an advisory basis and will not be binding on ZAGG or Parent. Further, the underlying compensation plans and agreements are contractual in nature and are not, by their terms, subject to stockholder approval. Accordingly, payment of the “Merger-related compensation” is not contingent on stockholder approval of the Compensation Proposal.
Q:
What is a quorum?
A:
In order for business to be conducted at the special meeting, our bylaws require that a quorum must be present. A quorum will be present at the special meeting if the holders of a majority of the shares of the ZAGG common stock outstanding and entitled to vote at the special meeting is represented at the special meeting by virtual attendance or by proxy.
Shares of ZAGG common stock present by virtual attendance or by proxy representation (including shares that reflect abstentions) will be counted for the purpose of determining whether a quorum exists. Abstentions will be counted as present for purposes of determining the existence of a quorum. Shares held in “street name” for which the applicable broker, bank, or nominee receives no instructions regarding how to vote on any of the proposals before the special meeting will not be counted as present at the special meeting for quorum purposes. However, shares held in “street name” for which the applicable broker, bank, or nominee receives instructions regarding how to vote on one or more but not all of the proposals before the special meeting will be counted as present at the special meeting for quorum purposes.
If a quorum is not present, we expect to adjourn the special meeting until a quorum is obtained.
Q:
How do I vote?
A:
Stockholder of record: Shares registered in your name: If you are a stockholder of record (that is, your shares are registered in your own name, not in “street name” by a broker, bank, or nominee). If you are a stockholder of record on the Record Date, there are four ways to vote:
voting at the special meeting via the Internet at www.virtualshareholdermeeting.com/ZAGG2021SM;
completing, signing, dating, and returning your proxy card by mail, if you request a paper copy of the proxy materials;
making a toll-free telephone call within the U.S. or Canada using a touch-tone telephone to the telephone number provided on your proxy card; or
voting on the internet. To vote on the internet, go to the website address indicated on your proxy card. You will be asked to provide the control number from your proxy card.
If you return the proxy card, but do not give any instructions on a particular matter to be voted on at the special meeting, the persons named in the proxy card will vote the shares you own in accordance with the recommendations of the Board. The Board recommends that you vote FOR the Merger Proposal, FOR the Adjournment Proposal and FOR the Compensation Proposal. Your proxy card must be received no later than February 17, 2021, the day before the special meeting, for your proxy to vote your shares to be counted at the special meeting.
If you plan to vote by telephone or internet in advance of the special meeting, your vote must be received by 11:59 p.m. Eastern Time (ET) the day before the special meeting to be counted.
If you hold your shares in street name, which means your shares are held of record by a broker, bank, or nominee, you will receive a notice from your broker, bank, or other nominee that includes instructions on how to vote your shares. Many brokers, banks, and nominees will allow you to deliver your voting instructions over the internet and may also permit you to vote by telephone.
We provide internet proxy voting to allow you to vote your shares online both before and during the special meeting, with procedures designed to ensure the authenticity and correctness of your proxy vote instructions. However, please be aware that you must bear any costs associated with your internet access, such as usage charges from internet access providers and telephone companies.
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The presence at the special meeting, by virtual attendance or by proxy representation, of the holders of a majority of the shares of outstanding ZAGG common stock entitled to vote at the special meeting will constitute a quorum for the transaction of business at the special meeting. Abstentions will be counted as present for purposes of determining the existence of a quorum. Shares held in “street name” for which the applicable broker, bank, or nominee receives no instructions regarding how to vote on any of the proposals before the special meeting will not be counted as present at the special meeting for quorum purposes. However, shares held in “street name” for which the applicable broker, bank, or nominee receives instructions regarding how to vote on one or more, but not all, of the proposals before the special meeting will be counted as present at the special meeting for quorum purposes.
Beneficial owner: Shares held in “street name”: If the shares you own are held in “street name” by a broker, bank, or nominee, then your broker, bank, or nominee, as the record holder of your shares, is required to vote your shares according to your instructions. In order to vote your shares, you will need to follow the voting instructions your broker, bank, or nominee provides you. Many brokers, banks, or nominees also offer the option of submitting voting instructions over the Internet or by telephone, instructions for which would be provided to you by your broker, bank, or nominee.
If you wish to virtually attend the special meeting to vote your shares held in “street name,” you will need to obtain a legal proxy or a specific control number, respectively, from the holder of record (i.e., your broker, bank, or nominee); a legal proxy or your specific control number is not included in the proxy card enclosed with this proxy statement.
Q:
If my broker, bank, or nominee holds my shares in “street name,” will my broker, bank, or nominee vote my shares for me?
A:
Not without your direction. Your broker, bank, or nominee will only be permitted to vote your shares on any proposal at the special meeting if you instruct your broker, bank, or nominee on how to vote. Under applicable stock exchange rules, brokers, banks, or nominees have the discretion to vote your shares on routine matters if you fail to instruct your broker, bank, or nominee on how to vote your shares with respect to such matters. All of the proposals in this proxy statement are non-routine matters, and brokers, banks, and nominees therefore cannot vote on these proposals without your instructions. Therefore, it is important that you instruct your broker, bank, or nominee on how you wish to vote your shares of ZAGG common stock.
You should follow the procedures provided by your broker, bank, or nominee regarding the voting of your shares of ZAGG common stock. Without instructions, a broker non-vote will result, and your shares will not be voted. Broker non-votes with respect to the Merger Proposal will have the same effect as a vote “AGAINST” the Merger Proposal. Assuming a quorum is present, broker non-votes will have no effect on the outcome of any vote on the Adjournment Proposal or the Compensation Proposal.
Q:
May I revoke my proxy after I have mailed my signed proxy card or otherwise submitted my vote by proxy?
A:
Yes. If you are a stockholder of record, you may revoke your earlier proxy and/or change your vote at any time before the special meeting by taking one of the following actions (only your latest-dated proxy that is received prior to the special meeting will be counted):
completing, signing, dating, and mailing another proxy card with a later date;
submitting a proxy again via the Internet;
giving our Corporate Secretary written notice that you want to revoke your proxy at the following address: ZAGG Inc, Attention: Corporate Secretary, 910 West Legacy Center Way, Suite 500, Midvale, Utah 84047; or
virtually attending the special meeting and voting online during the special meeting. Your virtual attendance at the special meeting alone will not revoke your proxy; you must vote online or specifically request that your prior proxy be revoked.
If you own shares in “street name,” your broker, bank, or nominee should provide you with appropriate instructions for changing or revoking your voting instructions.
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Q:
If a stockholder submits a proxy, how are the shares voted?
A:
Regardless of the method you choose to submit your proxy, the individuals named on the enclosed proxy card, or your proxies, will vote your shares in the way that you indicate. When completing the proxy card, you may specify whether your shares should be voted for or against or to abstain from voting on all, some, or none of the specific items of business to come before the special meeting.
If you sign and properly return your proxy card, but do not include instructions on how to vote, your shares of ZAGG common stock will be voted as recommended by the Board with respect to each proposal. It is not currently anticipated that any other proposals for consideration will be presented at the special meeting. If you sign and properly return your proxy card and other proposals requiring a vote of stockholders are brought before the special meeting in a proper manner, the persons named in the enclosed proxy card will have discretion to vote the shares they represent in accordance with their best judgment.
Q:
What should I do if I receive more than one set of voting materials?
A:
You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction forms. For example, if you hold your shares of ZAGG common stock in more than one brokerage account, you will receive a separate voting instruction form for each brokerage account in which you hold shares. If you are a stockholder of record and your shares of ZAGG common stock are registered in more than one name, you will receive more than one proxy card. Please complete, date, sign, and return each proxy card and voting instruction form that you receive. Each proxy card you receive comes with its own prepaid return envelope; if you submit a proxy card by mail, make sure you return each proxy card in the return envelope that accompanies that proxy card.
Q:
Who will count the votes?
A:
The votes will be counted by the independent inspector of election appointed for the special meeting.
Q:
Where can I find the voting results of the special meeting?
A:
ZAGG intends to announce preliminary voting results of the special meeting and publish final results in a Current Report on Form 8-K that will be filed with the SEC following the special meeting. All reports that ZAGG files with the SEC are publicly available when filed. See “Where You Can Find More Information” on page 99 of this proxy statement.
Q:
What will the holders of ZAGG restricted stock units receive in the Merger?
A:
At the effective time of the Merger, each outstanding award of ZAGG restricted stock units (a “Company RSU”) will, automatically without any required action on the part of ZAGG, the Parent, or the holder thereof, be cancelled and terminated and converted into the right to receive (i) the Closing Date Consideration, multiplied by the aggregate number of shares of ZAGG common stock underlying such Company RSU award immediately prior to the effective time of the Merger and (ii) an aggregate number of PPP Loan Forgiveness Rights equal to the aggregate number of shares of ZAGG common stock underlying such Company RSU award immediately prior to the effective time of the Merger.
Q:
When do you expect the Merger to be completed?
A:
We are working towards completing the Merger as quickly as possible and currently expect to complete the Merger in the first quarter of 2021. However, the exact timing of completion of the Merger cannot be predicted because the Merger is subject to conditions, including adoption of the Merger Agreement by the stockholders of ZAGG and the receipt of various regulatory approvals. See “The Merger—Regulatory Approvals Required for the Merger” on page 71 of this proxy statement.
Q:
Am I entitled to appraisal rights under the DGCL?
A:
Yes. As a holder of ZAGG common stock, you are entitled to exercise appraisal rights under the DGCL in connection with the Merger if you take certain actions and meet certain conditions. See “The Merger—Appraisal Rights” on page 62 of this proxy statement.
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Q:
What is householding and how does it affect me?
A:
Some broker, bank, or nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of our proxy statement may have been sent to multiple stockholders in your household. We will promptly deliver a separate copy of our proxy statement to you if our Corporate Secretary receives a call or written request from you at the address, telephone number, or email address indicated below.
 
ZAGG Inc
 
Attention: Abby Barraclough, Corporate Secretary
 
910 West Legacy Center Way, Suite 500
 
Midvale, Utah 84047
 
Email: abby.barraclough@zagg.com
 
Phone: 801-506-7005
Q:
Who can help answer my questions?
A:
The information provided above in the Q&A format is for your convenience only and is merely a summary of some of the information in this proxy statement. We encourage you to read this proxy statement, its appendices, including the Merger Agreement, and the documents incorporated by reference herein, carefully and in their entirety and consider how the Merger affects you. If you have any questions concerning the Merger, the special meeting, or this proxy statement, would like additional copies of this proxy statement, or need help voting your shares of ZAGG common stock, please contact our proxy solicitor:
Okapi Partners LLC
1212 Avenue of the Americas, 24th Floor
New York, New York 10036

+ 1 (212) 297-0720 (Main)
+ 1 (855) 208-8901 (Toll-Free)
Email: info@okapipartners.com
You may also wish to consult your legal, tax, and/or financial advisors with respect to any aspect of the Merger, the Merger Agreement, or other matters discussed in this proxy statement.
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THE SPECIAL MEETING
The enclosed proxy is solicited on behalf of the Board for use at the special meeting of stockholders or at any adjournments, continuations, reschedulings or postponements thereof.
Date, Time, and Place
We will host the special meeting on February 18, 2021 on the internet through a live webcast at www.virtualshareholdermeeting.com/ZAGG2021SM, at 9:00 a.m. Mountain Standard Time (MST), unless the special meeting is postponed, adjourned, continued or rescheduled. If you plan to virtually attend the special meeting and wish to vote online during the special meeting, you will need the control number located on your proxy card in order to access www.virtualshareholdermeeting.com/ZAGG2021SM and to vote. Please note that if your shares of ZAGG common stock are held by a broker, bank, or other nominee, and you wish to vote online during the special meeting, you must obtain a specific control number from your broker, bank, or other nominee to virtually attend the special meeting and vote online at www.virtualshareholdermeeting.com/ZAGG2021SM.
Purpose of the Special Meeting
At the special meeting, we will ask our stockholders of record as of the Record Date to consider and vote on the following proposals:
(i)
to adopt the Merger Agreement (the “Merger Proposal”);
(ii)
to approve the adjournment of the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the special meeting, there are not sufficient votes received to approve the Merger Proposal; and
(iii)
to approve, on a non-binding, advisory basis, certain compensation that will or may become payable to our named executive officers in connection with the Merger.
Record Date; Shares Entitled to Vote; Quorum
Only stockholders of record as of the close of business on the Record Date (January 14, 2021) are entitled to notice of the special meeting and to vote at the special meeting or at any adjournments, continuations, reschedulings, or postponements thereof. Each holder of record of ZAGG common stock on the Record Date will be entitled to one vote for each share of ZAGG common stock held as of the Record Date on each matter submitted to our stockholders for approval at the special meeting. If you sell or transfer your shares of ZAGG common stock after the Record Date but before the special meeting, you will transfer the right to receive the Merger Consideration, if the Merger is completed, to the person to whom you sell or transfer your shares of ZAGG common stock, but you will retain your right to vote those shares at the special meeting. A list of stockholders entitled to vote at the special meeting will be available at www.virtualshareholdermeeting.com/ZAGG2021SM.
As of the Record Date, there were 30,448,003 shares of ZAGG common stock outstanding and entitled to be voted at the special meeting.
A quorum of stockholders is necessary to hold a special meeting. The holders of a majority of the shares of ZAGG common stock entitled to vote at the special meeting, present by virtual attendance or by proxy representation, will constitute a quorum at the special meeting. As a result, 15,224,002 shares must be represented by proxy or by stockholders virtually present and entitled to vote at the special meeting to have a quorum. Shares that abstain on one or more of the proposals before the special meeting will be deemed to be present for quorum purposes. If you hold your shares in “street name” and you fail to provide your broker, bank, or nominee with instructions how to vote such shares on any of the proposals before the special meeting, your shares will not be deemed to be present at the special meeting for quorum purposes. However, if you provide your broker, bank, or nominee with instructions on how to vote on one or more but not all of the proposals before the special meeting, your shares will be deemed to be present at the special meeting for quorum purposes.
In the event that a quorum is not present at the special meeting, we expect to adjourn the special meeting until a quorum is present.
Vote Required; Abstentions and Broker Non-Votes
The affirmative vote of the holders of a majority of the shares of ZAGG common stock outstanding as of the Record Date and entitled to vote on the matter is required to approve the Merger Proposal. Adoption of the Merger
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Agreement by our stockholders is a condition to the closing of the Merger. A failure to vote your shares of ZAGG common stock, an abstention from voting or a broker non-vote will have the same effect as a vote “AGAINST” the Merger Proposal.
Approval of the Adjournment Proposal or the Compensation Proposal requires the affirmative vote of the holders of a majority of the shares of ZAGG common stock present by virtual attendance or by proxy representation at the special meeting and entitled to vote on the matter.
Assuming a quorum is present, the failure of any stockholder of record to submit a signed proxy card or vote online during the special meeting or, if shares are held through a broker, bank, or nominee, the failure to provide voting instructions to such broker, bank, or nominee, will not have any effect on the Adjournment Proposal or the Compensation Proposal. Abstentions will have the same effect as a vote “AGAINST” the Adjournment Proposal and the Compensation Proposal.
Stock Ownership and Interests of Certain Persons
As of the Record Date, our directors and executive officers beneficially owned and are entitled to vote an aggregate of 627,804 shares of ZAGG common stock (excluding any shares underlying Company RSUs), representing approximately 2.1% of the outstanding shares of ZAGG common stock.
Our directors, chief executive officer and chief financial officer have informed us that they currently intend to vote all of their shares of ZAGG common stock: (i) “FOR” the Merger Proposal; (ii) “FOR” the Adjournment Proposal; and (iii) “FOR” the Compensation Proposal, and they are contractually required to vote all of their shares of ZAGG common stock in favor of the Merger Proposal, subject to certain limitations. See “The Merger—Voting and Support Agreement” on page 61 of this proxy statement.
Voting of Proxies
If your shares of ZAGG common stock are registered in your name with our transfer agent, Empire Stock Transfer, Inc., you may cause your shares to be voted at the special meeting by submitting your proxy or by voting online during the special meeting. Based on your proxy cards, the proxy holders will vote your shares of ZAGG common stock according to your directions. You are encouraged to vote by proxy even if you plan to virtually attend the special meeting. If you virtually attend the special meeting and vote online, your online vote will revoke any proxy previously submitted.
Voting instructions are included on your proxy card. All shares of ZAGG common stock represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in accordance with the instructions of the stockholder. Properly executed proxies that do not contain voting instructions will be voted (i) “FOR” the Merger Proposal; (ii) “FOR” the Adjournment Proposal; and (iii) “FOR” the Compensation Proposal.
If your shares of ZAGG common stock are held in “street name” through a broker, bank, or nominee, you may provide voting instructions through your broker, bank, or nominee by completing and returning the voting instruction form provided by your broker, bank, or nominee, or over the Internet or by telephone through your broker, bank, or nominee if such a service is provided. To vote over the Internet or by telephone through your broker, bank, or nominee, you should follow the instructions on the voting instruction form provided by your broker, bank, or nominee. Under applicable stock exchange rules, brokers, banks, or nominees have the discretion to vote your shares on routine matters if you fail to instruct your broker, bank, or nominee on how to vote your shares with respect to such matters. The proposals in this proxy statement are non-routine matters, and brokers, banks, and nominees therefore cannot vote on these proposals without your instructions. If you do not return your broker’s, bank’s, or nominee’s voting instruction form, do not provide voting instructions over the Internet or by telephone through your broker, bank, or other nominee, if applicable, or do not virtually attend the special meeting and vote online during the special meeting with a specific control number from your broker, bank, or nominee, such actions will result in a broker non-vote and will have the same effect as if you voted “AGAINST” the Merger Proposal but, assuming a quorum is present, will have no effect on the outcome of any vote on the Adjournment Proposal or the Compensation Proposal.
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Revocability of Proxies
If you are a stockholder of record, you may revoke your proxy at any time before it is voted at the special meeting by:
Delivering a written notice of revocation to ZAGG Inc, Attention: Corporate Secretary, 910 West Legacy Center Way, Suite 500, Midvale, Utah 84047, specifying such revocation;
Signing another proxy card with a later date and returning it to us prior to the special meeting; or
Virtually attending the special meeting and voting online during the special meeting.
Please note that to be effective, your new proxy card must be received by our Corporate Secretary by 11:59 p.m., Eastern Time (ET) the day before the special meeting. If you have submitted a proxy and you virtually attend the special meeting and vote online, your online vote will revoke any proxy previously submitted.
If you hold your shares of ZAGG common stock in “street name,” you should contact your broker, bank, or nominee for instructions regarding how to revoke your proxy. You may also vote online during the special meeting if you obtain a specific control number from your broker, bank, or nominee. Any adjournment of the special meeting for the purpose of soliciting additional proxies will allow stockholders of ZAGG who have already sent in their proxies to revoke them at any time prior to their use at the special meeting, as adjourned, however, any such proxies that are not revoked will be voted at any such special meeting, as adjourned. Additionally, if the special meeting is postponed, any proxies that are not revoked prior to their use at the special meeting, as postponed, will be voted at any such special meeting, as postponed.
Board of Directors’ Recommendation
The Board, after considering various factors described in “The Merger—Recommendation of Our Board of Directors and Reasons for the Merger” on page 43 of this proxy statement, unanimously (i) determined that the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of ZAGG and its stockholders, (ii) approved, adopted, and declared advisable the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger, (iii) directed that the Merger Agreement be submitted to the stockholders of ZAGG for adoption at the special meeting, and (iv) recommended that ZAGG’s stockholders adopt the Merger Agreement.
The Board recommends that you vote: (i) “FOR” the Merger Proposal; (ii) “FOR” the Adjournment Proposal; and (iii) “FOR” the Compensation Proposal.
Expenses of Proxy Solicitation
This proxy statement is being furnished in connection with the solicitation of proxies by the Board. Expenses incurred in connection with the printing and mailing of this proxy statement and in connection with notices or other filings with any governmental entities under any laws are our responsibility. We have engaged the services of Okapi Partners, LLC (“Okapi”) to solicit proxies for the special meeting. In connection with its retention, Okapi has agreed to provide consulting, analytic, and proxy solicitation services in connection with the special meeting. We have agreed to pay Okapi a fee of approximately $37,500, plus reasonable out-of-pocket expenses for its services, and we will indemnify Okapi for certain losses arising out of its proxy solicitation services. Copies of proxy solicitation materials will also be furnished to banks, brokerage houses, fiduciaries, and custodians holding shares of ZAGG common stock in their names that are beneficially owned by others to forward to those beneficial owners. We may reimburse persons representing beneficial owners of ZAGG common stock for their costs of forwarding proxy solicitation materials to the beneficial owners. In addition to the solicitation of proxies by mail, proxies may be solicited by our directors, officers, and employees, or representatives of Okapi, by telephone, email, text message, fax, or other means of communication and we may pay persons holding shares for others their expenses for sending proxy materials to their principals. No additional compensation will be paid to our directors, officers, or employees for their services in connection with the solicitation of proxies.
Anticipated Date of Completion of the Merger
Assuming timely satisfaction of necessary closing conditions, including the approval of the Merger Proposal by our stockholders, we anticipate that the Merger will be consummated in the first quarter of 2021.
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Other Matters
At this time, we know of no other matters to be submitted at the special meeting.
Important Notice Regarding the Availability of Proxy Materials for the Special Meeting
The proxy statement is available through the Investor Relations section of our website, www.zagg.com, and the “SEC Filings” section therein. Our website address is provided as an inactive textual reference only.
Householding of Special Meeting Materials
The SEC permits companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy materials with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report on Form 10-K or Notice of Internet Availability of Proxy Materials, as applicable, addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies. Stockholders who hold their shares through a nominee, such as a broker, bank, broker-dealer, or similar organization may receive notice from that nominee regarding the householding of proxy materials. A single proxy statement for the special meeting will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from an affected stockholder. Once a stockholder has received notice that a nominee will be householding, householding will continue until the stockholder is notified otherwise or until the stockholder has revoked consent by notifying the nominee. If you hold your shares in “street name” and would prefer to receive separate copies of a proxy statement and annual report on Form 10-K or Notice of Internet Availability of Proxy Materials for other stockholders in your household, either now or in the future, please contact your nominee. If you are record holder of your shares and would prefer to receive separate copies of a proxy statement and annual report on Form 10-K or Notice of Internet Availability of Proxy Materials for other stockholders in your household, either now or in the future, please contact:
 
ZAGG Inc
 
Attention: Abby Barraclough, Corporate Secretary
 
910 West Legacy Center Way, Suite 500
 
Midvale, Utah 84047
 
Email: abby.barraclough@zagg.com
 
Phone: 801-506-7005
Stockholders who currently receive multiple copies of the proxy statement and annual report on Form 10-K or Notice of Internet Availability of Proxy Materials, as applicable, at their addresses and would like to request “householding” of their communications should contact their broker or ZAGG, as applicable.
Rights of Stockholders Who Assert Appraisal Rights
If the Merger is approved and becomes effective, holders of shares of ZAGG common stock who have not voted in favor of the Merger, have properly demanded appraisal rights for such shares in accordance with Section 262 of the DGCL, and have complied in all respects with Section 262 of the DGCL with respect to such shares (“Dissenting Shares”) will be entitled to statutory appraisal rights pursuant to Section 262 of the DGCL. This means that such stockholders are entitled to seek appraisal of their Dissenting Shares and to receive payment in cash for the “fair value” of such Dissenting Shares, exclusive of any element of value arising from the accomplishment or expectation of the Merger, as determined by the Delaware Court of Chancery, together with interest, if any, to be paid upon the amount determined to be the fair value. The ultimate amount holders receive in an appraisal proceeding may be less than, equal to, or more than the amount such holders would have received under the Merger Agreement. For a description of the rights of holders of Dissenting Shares and of the procedures to be followed in order to assert such rights and obtain payment of the fair value of such Dissenting Shares, see Section 262 of the DGCL, which is attached as Appendix C to this proxy statement, as well as the information set forth below.
IN ORDER TO PROPERLY EXERCISE YOUR APPRAISAL RIGHTS IN CONNECTION WITH THE MERGER, YOU MUST DELIVER A WRITTEN DEMAND FOR APPRAISAL IN ACCORDANCE WITH THE REQUIREMENTS OF SECTION 262 OF THE DGCL TO ZAGG BEFORE THE VOTE IS TAKEN ON THE MERGER PROPOSAL AT THE SPECIAL MEETING, AND MUST NOT VOTE, ONLINE DURING THE SPECIAL MEETING OR BY PROXY, IN FAVOR OF THE MERGER PROPOSAL, AND CONTINUE TO HOLD
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YOUR SHARES OF ZAGG COMMON STOCK OF RECORD FROM THE DATE OF MAKING THE DEMAND FOR APPRAISAL THROUGH THE EFFECTIVE TIME OF THE MERGER AND MUST COMPLY WITH THE OTHER REQUIREMENTS OF SECTION 262 OF THE DGCL. MERELY VOTING AGAINST THE MERGER PROPOSAL WILL NOT PRESERVE YOUR RIGHT TO APPRAISAL UNDER SECTION 262 OF THE DGCL. BECAUSE A PROXY THAT IS SIGNED AND SUBMITTED BUT DOES NOT OTHERWISE CONTAIN VOTING INSTRUCTIONS WILL, UNLESS REVOKED, BE VOTED IN FAVOR OF THE ADOPTION OF THE MERGER AGREEMENT, IF YOU SUBMIT A PROXY AND WISH TO EXERCISE YOUR APPRAISAL RIGHTS, YOU MUST INCLUDE VOTING INSTRUCTIONS TO VOTE YOUR SHARES OF ZAGG COMMON STOCK AGAINST, OR ABSTAIN WITH RESPECT TO, THE ADOPTION OF THE MERGER AGREEMENT. NEITHER VOTING AGAINST THE ADOPTION OF THE MERGER AGREEMENT, NOR ABSTAINING FROM VOTING OR FAILING TO VOTE ON THE MERGER PROPOSAL, WILL IN AND OF ITSELF CONSTITUTE A WRITTEN DEMAND FOR APPRAISAL SATISFYING THE REQUIREMENTS OF SECTION 262 OF THE DGCL. THE WRITTEN DEMAND FOR APPRAISAL MUST BE IN ADDITION TO AND SEPARATE FROM ANY PROXY OR VOTE ON THE ADOPTION OF THE MERGER AGREEMENT. IF YOU HOLD YOUR SHARES OF ZAGG COMMON STOCK THROUGH A BANK, BROKERAGE FIRM, OR NOMINEE AND YOU WISH TO EXERCISE APPRAISAL RIGHTS, YOU SHOULD CONSULT WITH YOUR BANK, BROKERAGE FIRM OR NOMINEE TO DETERMINE THE APPROPRIATE PROCEDURES FOR THE MAKING OF A DEMAND FOR APPRAISAL BY SUCH BANK, BROKERAGE FIRM, OR NOMINEE. IN VIEW OF THE COMPLEXITY OF THE DGCL, STOCKHOLDERS WHO MAY WISH TO PURSUE APPRAISAL RIGHTS SHOULD PROMPTLY CONSULT THEIR LEGAL AND FINANCIAL ADVISORS.
Questions and Additional Information
If you have more questions about the Merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please contact our proxy solicitor:
Okapi Partners LLC
1212 Avenue of the Americas, 24th Floor
New York, New York 10036
+ 1 (212) 297-0720 (Main)
+ 1 (855) 208-8901 (Toll-Free)
Email: info@okapipartners.com
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This proxy statement, and the documents to which we refer you in this proxy statement, as well as information included in oral statements or other written statements made or to be made by us or on our behalf, may include “forward-looking” statements within the meaning of the U.S. securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, that do not directly or exclusively relate to historical facts, including, without limitation, statements relating to the completion of the Merger and the timing thereof and the Company Projections (as defined below). Forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as “believes,” “plans,” “anticipates,” “projects,” “estimates,” “expects,” “intends,” “strategy,” “future,” “opportunity,” “may,” “will,” “should,” “could,” “potential,” or other similar expressions, or the negative of these terms or comparable terminology. These statements are based on current beliefs and assumptions that are subject to risks and uncertainties. Actual results could differ materially from those contained in any forward-looking statement as a result of various factors, including, without limitation:
ZAGG may be unable to obtain stockholder approval as required for the Merger;
The Merger Agreement may be terminated in connection with the receipt of a superior proposal, requiring us to pay a termination fee and reimburse certain of Parent’s transaction expenses;
The conditions to the closing of the Merger may not be satisfied or waived and required regulatory approvals may not be obtained;
The PPP Loan may not be forgiven, the related audit might not be satisfactorily completed (or might not be completed prior to the expiration of the PPP Loan Forgiveness Rights) and the expenses that may be deducted from the Additional Merger Consideration could be substantial;
The Merger may involve unexpected costs, liabilities, or delays, including the payment of a termination fee to Parent by ZAGG;
The business of ZAGG may suffer as a result of uncertainty surrounding the Merger;
The effect of the announcement or pendency of the Merger on our business relationships, including with customers and suppliers;
The outcome of any legal proceedings related to the Merger;
ZAGG may be adversely affected by other economic, business, legislative, regulatory, and/or competitive factors;
The occurrence of any event, change, or other circumstance that could give rise to the termination of the Merger Agreement;
The attention of ZAGG’s management and employees may be diverted from ongoing business concerns as a result of the Merger;
Limitations placed on ZAGG’s ability to operate its business under the Merger Agreement;
Risks that the Merger disrupts current plans and operations and the potential difficulties in employee retention as a result of the Merger;
The fact that under the terms of the Merger Agreement, ZAGG is restricted from soliciting other acquisition proposals;
The failure by Parent or Merger Sub to obtain the necessary debt and equity financing arrangements set forth in the commitment letters received in connection with the Merger; and
Other risks to consummation of the Merger, including the risk that the Merger will not be completed within the expected time period or at all.
The foregoing review of important factors that could cause actual results to differ from expectations should not be construed as exhaustive and should be read in conjunction with the information contained or incorporated by reference herein, including, but not limited to, (i) the information contained under this heading and (ii) information contained under “Risk Factors” on page 26 of this proxy statement. A further description of risks and uncertainties relating to ZAGG can be found in our consolidated financial statements and notes thereto included in our filings with
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the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2019, the definitive proxy statement for our 2020 Annual Meeting of Stockholders and our recent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. See “Where You Can Find More Information” on page 99 of this proxy statement. No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements.
Except as required by applicable law, we do not intend, and assume no obligation, to update any forward-looking statements. ZAGG stockholders are advised, however, to consult any future disclosures we make on related subjects as may be detailed in our other filings made from time to time with the SEC.
All information contained in this proxy statement exclusively concerning Parent, Merger Sub, and their affiliates has been supplied by Parent and Merger Sub and has not been independently verified by us.
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RISK FACTORS
Set forth below are various risks relating to the proposed Merger (the “Merger Risk Factors”). The following is not intended to be an exhaustive list of the risks relating to the Merger and should be read in conjunction with the other information in this proxy statement. In addition, you should refer to the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and the Quarterly Reports filed with the SEC thereafter. Stockholders should carefully consider such risk factors, together with all of the other information included in this proxy statement before they decide whether to vote or instruct their vote to be cast to approve the proposals described in this proxy statement. The occurrence of one or more of the events or circumstances described in these Merger Risk Factors, alone or in combination with other events or circumstances, may adversely affect the ability to complete the Merger, and may have an adverse effect on, among other things, the business, cash flows, financial condition and results of operations of ZAGG.
Risks Related to the Merger
ZAGG may be unable to obtain stockholder approval as required for the Merger.
The affirmative vote of the holders of a majority of the shares of ZAGG common stock outstanding as of the Record Date and entitled to vote on the matter is required to approve the Merger Proposal. If the requisite stockholder approval is not obtained, the Merger Agreement may be terminated by Parent.
The Merger Agreement may be terminated under various circumstances, including in connection with receipt of a superior proposal, and ZAGG may incur fees and expenses in connection with such termination.
The Merger Agreement may be terminated under various circumstances, including in connection with receipt of a superior proposal. If ZAGG enters into an alternative acquisition agreement with respect to, or has consummated, an acquisition proposal within 12 months of such termination, ZAGG may be required to pay Parent a termination fee of $3,000,000 and to reimburse Parent for any and all out-of-pocket expenses incurred by Parent or any of its affiliates in connection with the transactions contemplated by the Merger Agreement or the financing, up to a maximum of $2,000,000.
The conditions to the closing of the Merger may not be satisfied or waived and required regulatory approvals may not be obtained.
ZAGG and Parent have agreed to cooperate and use commercially reasonable efforts to comply with all regulatory notification requirements and obtain all regulatory approvals required to consummate and make effective the Merger and the other transactions contemplated by the Merger Agreement. These approvals include the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). These regulatory clearances and approvals may not be timely obtained, or obtained at all, and the granting of these regulatory clearances and approvals may involve the imposition of additional conditions on the completion of the Merger, including the requirement to divest assets, or require changes to the terms of the Merger Agreement.
The respective obligations of each party to effect the Merger and the other transactions contemplated by the Merger Agreement are subject to the satisfaction at or prior to the effective time of the Merger of certain conditions, including the expiration or termination of any applicable waiting periods, together with any extensions thereof, under the HSR Act and any other competition laws. If these conditions are not satisfied or waived, the Merger may not be completed.
See “The Merger—Regulatory Approvals Required for the Merger” on page 71 of this proxy statement.
The PPP Loan may not be forgiven, the related audit might not be satisfactorily completed and the expenses that may be deducted from the Additional Merger Consideration could be substantial.
The Merger Consideration consists of the Closing Date Consideration and one right (the “PPP Loan Forgiveness Right”) to receive an additional amount, net of certain fees and expenses, contingent upon the satisfaction of certain conditions related to the PPP Loan, without interest and less any applicable withholding taxes, for each share of ZAGG common stock that you own. The Additional Merger Consideration is contingent on a number of factors and could be zero.
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Payment of the PPP Loan Forgiveness Rights is subject to the receipt by ZAGG on or prior to December 31, 2022 of written confirmation from the U.S. Small Business Administration that the U.S. Small Business Administration’s audit of the PPP Loan has been satisfactorily completed. The U.S. Small Business Administration has issued guidance stating that all loans in excess of $2 million will be audited and the PPP Loan was for an amount of $9.4 million. The audit may not be complete prior to the expiration of the PPP Loan Forgiveness Rights or the results of the audit may be unfavorable to ZAGG.
Payment of the PPP Loan Forgiveness Rights is also subject to the receipt by ZAGG on or prior to December 31, 2022 of written confirmation from the U.S. Small Business Administration and KeyBank, N.A. of forgiveness of a portion of the amounts outstanding under the PPP Loan. If these conditions are not satisfied on or prior to December 31, 2022, the PPP Loan Forgiveness Rights will expire. On January 20, 2021, we applied for forgiveness of the entire $9.4 million, which if forgiven could result in additional consideration of up to $0.30 per share, but we make no assurance as to what the actual amount might be or if or when it might be paid.
The Additional Merger Consideration payable to holders of PPP Loan Forgiveness Rights is net of (i) the reasonable out-of-pocket costs and expenses incurred by ZAGG and its affiliates following the effective date of the Merger in applying for forgiveness of the PPP Loan, (ii) the reasonable out-of-pocket costs and expenses incurred by ZAGG and its affiliates in connection with any audit of the PPP Loan, and (iii) the fees and expenses of the Rights Agent. These costs, fees and expenses may be substantial, and may significantly decrease the amounts paid, if any, to holders of PPP Loan Forgiveness Rights.
See “The Merger—PPP Loan Forgiveness Rights Agreement” on page 60 of this proxy statement.
The Merger may involve unexpected costs, liabilities, or delays, including the payment of a termination fee to Parent by ZAGG.
ZAGG expects to incur significant costs associated with the Merger, even if the Merger is not completed. These expenses will reduce the amount of cash available to be used for other corporate purposes by ZAGG. The Merger Agreement may generally be terminated by either ZAGG or Parent if the Merger is not consummated prior to May 7, 2021.
The respective obligations of each party to effect the Merger and the other transactions contemplated by the Merger Agreement are subject to the satisfaction at or prior to the effective time of the Merger of certain conditions, including (i) the Merger Proposal being approved at the special meeting, (ii) the absence of any governmental order preventing or prohibiting consummation of the Merger or any other transactions contemplated in the Merger Agreement or the PPP Loan Forgiveness Rights Agreement, and (iii) the expiration or termination of any applicable waiting periods, together with any extensions thereof, under the HSR Act and any other competition laws. If these conditions are not satisfied or waived, the Merger may not be completed.
In certain circumstances, ZAGG will be required to pay Parent a termination fee of $3,000,000 and to reimburse Parent for any and all out-of-pocket expenses incurred by Parent or any of its affiliates in connection with the transactions contemplated by the Merger Agreement or the financing, up to a maximum of $2,000,000. See “The Merger Agreement—Termination Fees” on page 91 of this proxy statement.
ZAGG will be subject to business uncertainties and contractual restrictions while the business combination is pending.
Uncertainty about the effect of the Merger on employees and third parties (including customers and suppliers) may have an adverse effect on ZAGG. These uncertainties may impair ZAGG’s ability to retain and motivate key personnel and could cause third parties that deal with ZAGG to defer entering into contracts or making other decisions or seek to change existing business relationships. If key employees depart because of uncertainty about their future roles and the potential complexities of the Merger, our business could be harmed. Additionally, the attention of ZAGG’s management and employees may be diverted from ongoing business concerns as a result of the Merger.
Parent may not obtain the necessary debt and equity financing arrangements set forth in the commitment letters received in connection with the Merger.
The Evercel Group has committed to contribute, or cause to be contributed, $70 million to an indirect parent of Parent. Lynx has committed to provide an amount in cash of $75 million, consisting of a $40 million term loan facility
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for Holdings and a $35 million term loan facility for ZAGG. The ABL Lender (as defined below) has committed to provide and underwrite an $85 million senior secured revolving credit facility for ZAGG.
The obligations of the ABL Lender and Lynx to provide the debt commitments are subject to a number of conditions, including the receipt of executed loan documentation, accuracy of certain specified representations and warranties, contributions of the equity by the Evercel Group, and other customary closing conditions. If these conditions are not waived or satisfied, the ABL Lender and Lynx will not be obligated to satisfy their commitments and there is no assurance that replacement financing will be obtained.
Additionally, while the Evercel Group, Lynx and the ABL Lender have executed commitment letters regarding their financing commitments, they may not satisfy their financing commitments in a timely manner, or at all, and there is no assurance that replacement financing will be obtained.
See “The Merger—Financing of the Merger” on page 61 of this proxy statement.
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THE MERGER
This discussion of the Merger is qualified in its entirety by reference to the Merger Agreement, which is attached as Appendix A to, and incorporated by reference into, this proxy statement. You should read the Merger Agreement carefully and in its entirety as it is the legal document that governs the Merger.
Parties Involved in the Merger
ZAGG Inc
ZAGG is a global leader in accessories and technologies that empower mobile lifestyles. ZAGG has an award-winning product portfolio that includes screen protection, mobile keyboards, power management solutions, social tech, and personal audio sold under the ZAGG®, mophie®, InvisibleShield®, IFROGZ®, Gear4®, and HALO® brands. ZAGG has operations in the United States, Ireland, and China. ZAGG products are available worldwide, and can be found at leading retailers including Best Buy, Verizon, AT&T, T-Mobile, Walmart, Target, and Amazon.com.
ZAGG common stock is listed on Nasdaq under the symbol “ZAGG”.
Our principal executive offices are located at 910 West Legacy Center Way, Suite 500, Midvale, Utah, 84047, and our telephone number is (801) 263-0699. For more information about ZAGG, please visit our website, www.zagg.com. Our website address is provided as an inactive textual reference only. The information contained on our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC. See “Where You Can Find More Information” on page 99 of this proxy statement.
Zephyr Parent, Inc.
Parent is a Delaware corporation that was formed solely for the purpose of entering into the Merger Agreement and, subject to the terms and conditions thereof, completing the transactions contemplated by the Merger Agreement and the related financing transactions.
Parent’s principal executive offices are located at 382 NE 191st Street, Suite 90959, Miami, Florida 33179-3899 and its telephone number is (646) 666-3400.
Parent is indirectly controlled by Evercel, Inc., a Delaware corporation (“Evercel”), and its co-investors (collectively, the “Evercel Group”). Evercel is a company that acquires and manages high growth potential businesses which have been limited by their capital structure. Evercel’s principal executive offices are located at 382 NE 191st Street, Suite 90959, Miami, Florida 33179-3899 and its telephone number is (646) 666-3400. Further information is available at www.evercel.com. Evercel’s website address is provided as an inactive textual reference only. The information contained on Evercel’s website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC.
At the effective time of the Merger, ZAGG, as the Surviving Corporation, will be indirectly owned by the Evercel Group.
Zephyr Merger Sub, Inc.
Merger Sub is a Delaware corporation that was formed by Parent solely for the purpose of entering into the Merger Agreement and completing the transactions contemplated thereby and the related financing transactions. Upon consummation of the Merger, Merger Sub will cease to exist, and ZAGG will survive the Merger as a wholly owned subsidiary of Parent.
Merger Sub’s principal executive offices are located at 382 NE 191st Street, Suite 90959, Miami, Florida 33179-3899 and its telephone number is (646) 666-3400.
Certain Effects of the Merger on ZAGG
Upon the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger, Merger Sub will merge with and into ZAGG, with ZAGG continuing as the Surviving Corporation and as a wholly owned subsidiary of Parent. ZAGG common stock will be de-listed from Nasdaq and be de-registered under the Exchange Act as soon as reasonably practicable following the effective time of the Merger and, at such time, we will
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cease to be a publicly traded company and will no longer be obligated to file periodic reports with the SEC. If the Merger is completed, you will not own any shares of the capital stock of the Surviving Corporation, and instead will only be entitled to receive the Merger Consideration described in “—Merger Consideration” on page 30 of this proxy statement or, with respect to Dissenting Shares, will only be entitled to receive the “fair value” of your Dissenting Shares as determined by the Delaware Court of Chancery pursuant to an appraisal proceeding as contemplated by Delaware law.
The effective time of the Merger will occur upon the filing of the certificate of merger with the Secretary of State of the State of Delaware (or at such later time as we and Parent may agree and specify in the certificate of merger).
Effect on ZAGG if the Merger is Not Completed
If the Merger Proposal is not approved by the stockholders of ZAGG or if the Merger is not completed for any other reason, you will not receive any payment for your shares of ZAGG common stock. Instead, we will remain as a public company, ZAGG common stock will continue to be listed and traded on Nasdaq and registered under the Exchange Act and we will be required to continue to file periodic reports with the SEC.
Furthermore, depending on the circumstances that would have caused the Merger not to be completed, it is possible that the price of ZAGG common stock will decline significantly. If that were to occur, it is uncertain when, if ever, the price of ZAGG common stock would return to the price at which it trades as of the date of this proxy statement.
Accordingly, if the Merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of ZAGG common stock. If the Merger is not consummated, the Board will continue to evaluate and review our business operations, properties, dividend policy, and capitalization, among other things, make such changes as are deemed appropriate, and continue to seek to enhance stockholder value. If the Merger Proposal is not approved by the stockholders of ZAGG or if the Merger is not completed for any other reason, there can be no assurance that any other transaction acceptable to the Board will be offered or that our business, prospects, or results of operation will not be adversely impacted.
In addition, under specified circumstances, we may be required to pay Parent a termination fee, or may be entitled to receive a reverse termination fee from Parent, upon the termination of the Merger Agreement, as described under “The Merger Agreement—Termination Fees” on page 91 of this proxy statement.
Merger Consideration
At the effective time of the Merger, each outstanding share of ZAGG common stock (other than (i) shares held by ZAGG as treasury stock or held by Parent or Merger Sub or any wholly owned subsidiary of ZAGG, Parent or Merger Sub and (ii) Dissenting Shares) will be converted automatically into the right to receive the Merger Consideration. All shares of ZAGG common stock converted into the right to receive the Merger Consideration will automatically be cancelled and cease to exist at the effective time of the Merger, and each certificate formerly representing such shares will thereafter represent only the right to receive the Merger Consideration.
The Merger Consideration consists of $4.20 in cash (the “Closing Date Consideration”) and one right (the “PPP Loan Forgiveness Right,” and collectively with the Closing Date Consideration, the “Merger Consideration”) to receive an additional amount, net of certain fees and expenses, contingent upon the satisfaction of certain conditions related to the PPP Loan, without interest and less any applicable withholding taxes, for each share of ZAGG common stock that you own.
Within eight (8) business days after ZAGG receives (i) written confirmation from the U.S. Small Business Administration that its audit of the PPP Loan has been satisfactorily completed and (ii) written confirmation from the U.S. Small Business Administration and KeyBank, N.A. of forgiveness of a portion of the amounts outstanding under the PPP Loan, the Rights Agent will pay to each holder an amount equal to (i) the Additional Merger Consideration divided by (ii) the total number of PPP Loan Forgiveness Rights outstanding at the time of such payment, multiplied by (iii) the number of PPP Loan Forgiveness Rights held by such holder.
The “Additional Merger Consideration” represents an aggregate amount equal to (i) the amount of the PPP Loan that is being (or has been) forgiven, minus (ii) the sum of (x) the reasonable out-of-pocket costs and expenses incurred
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by ZAGG and its affiliates following the effective date of the Merger in applying for forgiveness of the PPP Loan, plus (y) the reasonable out-of-pocket costs and expenses incurred by ZAGG and its affiliates in connection with any audit of the PPP Loan, plus (z) the fees and expenses of the Rights Agent. See “The Merger—PPP Loan Forgiveness Rights Agreement” on page 60 of this proxy statement.
After the completion of the Merger, under the terms of the Merger Agreement, you will have the right to receive the Merger Consideration, but you will no longer have any rights as a ZAGG stockholder (except that stockholders who hold Dissenting Shares will have the right to receive a payment for the “fair value” of their Dissenting Shares as determined by the Delaware Court of Chancery pursuant to an appraisal proceeding as contemplated by Delaware law, as described in “The MergerAppraisal Rights” on page 62 of this proxy statement) and Appendix C to this proxy statement.
Background of the Merger
The Board and the Company’s management regularly review and evaluate the Company’s business, financial, and operating performance, competitive landscape, and strategy with the goal of enhancing stockholder value. These reviews often consider potential value-enhancing transactions, such as acquisitions, divestitures, strategic relationships, and other strategic options. Our Board is open-minded, deliberate and focused on taking all appropriate actions that advance our goal of delivering value to our stockholders.
On April 25, 2019, the Board received a non-binding letter of interest from a financial sponsor (“Sponsor A”) proposing an acquisition of all of the Company’s outstanding common stock at a cash price of $13.00 per share. The closing price of ZAGG common stock on that date was $8.35.
On April 25 and April 26, 2019, the Board held meetings, attended by management, to discuss the state of the business, financial and operating performance, competitive landscape, the trading price of the ZAGG common stock, and the letter from Sponsor A. On April 26, 2019, Latham & Watkins LLP (“Latham & Watkins”), counsel to the Company, attended the meeting to discuss the Board’s fiduciary duties. The Board decided to interview investment banks for advice on strategic alternatives that may be available to the Company. On April 26, 2019, Ms. Cheryl A. Larabee, the chairperson of the Board, acknowledged to Sponsor A receipt of the letter.
On May 1, 2019, the Board held a telephonic interview with representatives of an investment bank regarding the bank’s potential engagement as a financial advisor to the Board. The representatives of the investment bank reported that there was, at the time, a market perception that the value of the Company was not optimized as a public company and, as a result, certain third parties might be interested in acquiring the Company. The Board and the representatives of the investment bank discussed market trends, valuation considerations, as well as benefits and drawbacks of undertaking a potential strategic alternative review process. Upon conclusion of the discussion, the Board directed management to (i) engage in a discussion with the Company’s largest stockholder to give the stockholder an opportunity to express its thoughts on the current state of the business and (ii) identify additional investment banks to make preliminary presentations to the Board concerning valuation of and strategic alternatives for the Company.
On May 7, 2019, the Company issued its first quarter earnings release, which included a projected 2019 adjusted earnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”) range of $82 million to $86 million.
On May 8, 2019, the Board held a special telephonic meeting to interview representatives of BofA Securities, Inc. (“BofA Securities”) and one other investment bank to act as financial advisor to the Company. The Board separately discussed with each candidate the current state of the market, perception of the Company’s value, and potential strategic alternatives. Following the discussion, the Board reviewed and discussed the qualifications of the candidates, including their expertise and credentials.
On May 20, 2019, the Company entered into confidentiality and indemnification agreements with BofA Securities. On May 21, 2019, BofA Securities disclosed to the Board its pre-existing client relationship with Sponsor A. On May 21, 2019, the Board held a telephonic meeting, attended by management and representatives from BofA Securities and Latham & Watkins, to discuss preliminary financial analyses of the Company, third parties that might be interested in a strategic transaction with the Company, and the process of maximizing stockholder value. On May 21, 2019, the Board received an email communication from an investor (“Sponsor B”) regarding a potential unsolicited bid.
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On May 24, 2019, the Board held a telephonic meeting, with management and representatives from BofA Securities, to discuss the price of the ZAGG common stock, range of illustrative potential premiums in connection with a potential strategic transaction, advantages and disadvantages associated with alternative strategic transactions, third parties that might be interested in pursuing a transaction, authorizing BofA Securities to contact third parties to assess the level of interest in a potential strategic transaction, and general timing considerations.
On May 29, 2019, the CEO received a message from a significant stockholder of the Company encouraging the Company to pursue strategic alternatives.
On June 13, 2019, the Company entered into an engagement letter with BofA Securities, as its financial advisor, to assist the Company in a potential strategic transaction.
On June 19, 2019, the Company entered into a non-disclosure agreement with Sponsor A.
In June 2019, the Company made a presentation to investors that referenced the high-end of 2019 Adjusted EBITDA guidance, provided on May 7, 2019, of $86 million.
On July 2, 2019, a strategic party (“Strategic A”), a private portfolio company of a financial sponsor, sent a letter expressing its interest in acquiring the Company at an implied valuation of $8.50-$9.00 per share in a stock or hybrid stock and cash transaction.
On July 16, 2019, a financial sponsor (“Sponsor C”) sent a letter to the Company regarding a potential acquisition of the Company at a cash price of $8.75 per share.
On July 17, 2019, the Board held a special telephonic meeting with management and representatives of BofA Securities and Latham & Watkins. During the meeting, the Board discussed the letters from Strategic A and Sponsor C. BofA Securities noted that Sponsor A declined to submit an offer. After evaluation of the proposals and upon discussion with BofA Securities and Latham & Watkins, the Board made a preliminary decision to not pursue a transaction with Strategic A or Sponsor C on the terms proposed and determined to continue exploring strategic alternatives. The Board instructed the representatives of BofA Securities to communicate the decision to Strategic A and continue discussions as necessary.
On July 17, 2019, the chairperson of the Board sent a letter to Sponsor C informing them of the foregoing and notifying them that if they wanted to continue discussions, they should enter into a non-disclosure agreement with a standstill provision.
On August 2, 2019, Sponsor C sent a letter encouraging the Board to reconsider its offer.
On August 5, 2019, the Board held a telephonic meeting with management and representatives of BofA Securities and Latham & Watkins. During the meeting, BofA Securities discussed Sponsor C’s offer with the Board. Representatives of BofA Securities and Latham & Watkins also discussed with the Board potential strategic alternatives involving the Company and Sponsor B, as well as potential responses to Sponsor C.
On August 6, 2019, the Board publicly announced that it was considering strategic alternatives.
On August 6, 2019, the Company also issued its second quarter earnings release and revised the projected 2019 Adjusted EBITDA down to a range of $52 million to $62 million. The Company also noted in its second quarter earnings release that its year to date decrease in net sales was partially attributable to a pull forward of shipments into the fourth quarter of 2018 ahead of a then-expected tariff increase.
On August 9, 2019, the Board held a telephonic meeting attended by management and representatives of BofA Securities and Latham & Watkins. During the meeting, representatives of BofA Securities presented a list of inbound calls they received since the announcement by the Company that the Board was considering strategic alternatives.
Between August 14, 2019 and March 11, 2020, at the direction of the Board, BofA Securities contacted sixty-four third parties that were identified as parties that could be interested in pursuing a strategic transaction involving the Company, including Sponsor A, Sponsor C, Sponsor D, Strategic B, Strategic C, and Strategic D. Thirty-six of the contacted parties entered into non-disclosure agreements with the Company (which contained standstill provisions) and received confidential information in connection with a potential strategic transaction.
On August 27, 2019, the Company entered into a non-disclosure agreement with a strategic party (“Strategic B”). On August 30, 2019, the Company entered into a non-disclosure agreement with another strategic party (“Strategic C”).
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On August 28, 2019, the Board received a letter from Strategic A expressing continued interest in acquiring the Company and emphasizing Strategic A’s strong stockholder support for the transaction and potential synergies from the proposed transaction. Over the next several days, management and representatives of BofA Securities and Latham & Watkins reviewed the letter with members of the Board, and noted that the offer lacked financing. On September 10, 2019, Ms. Larabee informed Strategic A that the Company was not interested in engaging in discussions unless Strategic A could demonstrate that it had adequate cash on hand or available sources of debt or equity financing to support a significant acquisition.
In August 2019, the Company informed the parties conducting due diligence that it had reduced its projected 2019 Adjusted EBITDA to $57 million.
On September 13, 2019, the Company entered into a non-disclosure agreement with a strategic party (“Strategic D”). On September 17, 2019, the Company entered into a non-disclosure agreement with a financial sponsor (“Sponsor D”). On September 19, 2019, the Company entered into a non-disclosure agreement with Sponsor C.
On October 2 and October 3, 2019, the closing price of ZAGG common stock was $5.80 and $5.99, respectively, and the Company received the following non-binding indications of interest:
Sponsor A proposed to acquire the Company for a purchase price ranging from $8.50 to $9.50 per share of ZAGG common stock;
Sponsor C proposed to acquire the Company for a purchase price of $7.75 per share of ZAGG common stock;
Sponsor D proposed to acquire the Company for a purchase price of $8.50 per share of ZAGG common stock;
Strategic B proposed to acquire the Company for a purchase price ranging from $7.25 to $7.75 per share of ZAGG common stock;
Strategic C proposed to acquire the Company for a purchase price ranging from $8.50 to $9.50 per share of ZAGG common stock; and
Strategic D proposed to acquire the Company for a purchase price ranging from $9 to $11 per share of ZAGG common stock.
On October 8, 2019, the Board held a telephonic meeting with management and representatives of BofA Securities and Latham & Watkins. During the meeting, BofA Securities presented preliminary valuation indications received from potential bidders in the non-binding indications of interest, including the ranges thereof and premium to the then-current ZAGG common stock trading price. BofA Securities also provided an overview of the status of the bid process, including continuing discussions with potential bidders that did not submit a non-binding indication of interest.
On October 8, 2019, Sponsor C and Strategic B informed BofA Securities that they would not increase their bids in order to continue in the process.
On October 23, 2019, management held a meeting with Sponsor A.
On October 25, 2019, the nominating, governance, and sustainability committee (the “Nominating Committee”) of the Board held a meeting with management and Latham & Watkins to discuss, among other things, the Schedule 13D filed by AREX Capital Master Fund, LP, AREX Capital GP, LLC, AREX Capital Management, LP, AREX Capital Management GP, LLC, and Mr. Andrew Rechtschaffen (together, the “AREX Parties”) and a corresponding letter delivered to the Board. The Schedule 13D and the letter stated that the AREX Parties believed there was little to no benefit to the Company in remaining public and that the best outcome for the Company’s stockholders is the sale of the Company.
On October 29, 2019, management held a meeting with Sponsor D.
On November 1, 2019, management held a meeting with Strategic D.
On November 6, 2019, the Company released third quarter earnings and reiterated projected 2019 Adjusted EBITDA of $52 million to $62 million.
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On November 7, 2019, management held a meeting with Strategic C.
On November 21, 2019, management held an in-person due diligence session with Sponsor A to discuss a potential strategic transaction.
On December 9, 2019, Latham & Watkins delivered a draft of a proposed merger agreement in the data room for potential bidders.
On December 10, 11, 12, 13, and 20, 2019, management held due diligence calls with Strategic C.
On December 16, 2019, management held a due diligence call with Sponsor A to discuss financing issues.
On December 18, 2019, Strategic D informed BofA Securities that it was no longer interested in pursuing a strategic transaction with the Company.
On December 19 and 20, management held due diligence calls with Sponsor C.
In early January 2020, Strategic C informed BofA Securities that it was no longer interested in pursuing a strategic transaction with the Company.
On January 3, 2020, Sponsor D informed BofA Securities that it was no longer interested in pursuing a strategic transaction with the Company.
On January 15, 2020, the compensation committee (“Compensation Committee”) of the Board held a meeting to approve management salaries and incentive targets, as well as long-term incentive plan total grants and vesting conditions. The Compensation Committee also approved performance-based awards and discussed a proposed severance plan for management. Since the full Board was in attendance at the meeting, Mr. Chris M. Ahern, the Company’s Chief Executive Officer, updated them on the strategic alternative review process.
On January 20, 2020, management held a due diligence call with Sponsor A.
On January 28, 2020, Sponsor A submitted an offer to acquire the Company for a cash purchase price of $4.75 per share of ZAGG common stock, pending additional due diligence prior to close. Alternatively, Sponsor A proposed a $75 million strategic investment in the Company.
On January 30, 2020, the Board held a meeting with management and representatives of BofA Securities and Latham & Watkins. BofA Securities discussed the status of the strategic alternative review process, including the impact of lower management projections.
On February 5, 2020, the Board received a letter from the AREX Parties reiterating their position that a sale of the Company was the best outcome for all stockholders on a risk-adjusted basis. They noted that management’s projections had proven optimistic on the August 6, 2019 and November 6, 2019 earnings calls.
On February 14, 2020, the Board held a meeting with management and representatives of BofA Securities, Latham & Watkins, and ICR, a public relations firm, to discuss the AREX letter and the timeline for the upcoming fourth quarter earnings call and the Company’s annual meeting. The Board also discussed communication strategy and business strategy after the earnings release.
On February 26, 2020, the Board held a meeting with management and representatives of BofA Securities and Latham & Watkins to further discuss the communications with the AREX Parties.
On February 27 and February 28, 2020, the Board held meetings to discuss updates to the strategic alternative review process.
On March 9, 2020, the audit committee of the Board and the Board held meetings to discuss year-end earnings as well as the strategic alternative review process. After discussion, the Board approved a proposed press release announcing the suspension of the strategic alternative review process.
On March 11, 2020, the Company issued its year-end earnings release, reflecting annual 2019 Adjusted EBITDA of $44.7 million and establishing 2020 Adjusted EBITDA guidance of $48.0 million.
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On March 11, 2020, the Company also issued a press release announcing that it had concluded its strategic alternative review process. After extensive work and discussions, none of the remaining bidders submitted a final offer at a price that was not significantly below current trading levels. As a result, the Board determined that stockholder value would be better enhanced on a standalone basis than by pursuing a transaction on the terms and pricing proposed.
On March 12, 2020, the closing price of ZAGG common stock dropped to $2.43 per share, compared to $5.33 per share on the previous day.
On March 16, 2020, the Company filed a Current Report on Form 8-K announcing that it concluded the strategic alternative review process and confirming that the Board, in the exercise of its fiduciary duties and under appropriate circumstances, will consider requests for waivers of the standstill and related provisions contained in the confidentiality agreements the Company entered into with parties in the process.
On March 17, 2020, Roumell Asset Management, LLC (“Roumell”) delivered a letter to the Board, noting that it held 4.5% of the Company’s outstanding shares, expressing its disagreement with the Board’s decision to terminate the strategic alternative review process and calling for a reduction of management compensation and a change to all stock compensation for non-employee Board members. Roumell and James C. Roumell (the “Roumell Parties”) also amended their Schedule 13D and attached a copy of the letter to the Board.
On March 20, 2020, the Board held a telephonic meeting with management and representatives of Latham & Watkins to discuss the letter from the Roumell Parties.
On March 27, 2020, the Board held a telephonic meeting with management and representatives of ICR and Georgeson, a proxy solicitation and consulting firm, to discuss the letter from the Roumell Parties. On the same day, Ms. Larabee and management held a telephonic meeting with representatives of the Roumell Parties during which the Roumell Parties reiterated their disagreement with the Board’s decision to terminate the strategic alternative review process and expressed their view that the Board would benefit by adding new independent directors.
On April 1, 2020, the Board held a telephonic meeting with management and representatives of Latham & Watkins to discuss potential responses to communications made to the Board and management by the Roumell Parties. The Board instructed Ms. Larabee to send, and Ms. Larabee sent, a letter to the Roumell Parties welcoming their views on the Company and the identification of any individuals that the Roumell Parties would want the Nominating Committee to consider as part of its regular review of the composition of the Board. The Board also instructed management to continue in a constructive dialogue with representatives of Roumell.
On April 2, 2020, the Board received a letter from the AREX Parties requesting the Board to extend the deadline for director nominations for the Company’s 2020 Annual Meeting of Stockholders (the “2020 annual meeting”).
On April 3, 2020, the Roumell Parties amended their Schedule 13D indicating that they now held 4.0% of the Company’s outstanding shares and proposing three individuals for consideration by the Nominating Committee as potential members of the Board. The Roumell Parties also sent the Board certain biographical information regarding the individuals. Later that day the Company issued a press release acknowledging the filing of the amendment to the Schedule 13D.
On April 6, 2020, Ms. Larabee sent a letter on behalf of the Board informing the Roumell Parties that the Nominating Committee would consider the individuals proposed by the Roumell Parties as provided in the charter of the Nominating Committee. Ms. Larabee also sent a letter to the AREX Parties informing them that the Company was not in a position to extend the deadline for director nominations for the Company’s 2020 annual meeting as the Company was focused on preparing for the meeting and considering individuals recommended by other stockholders.
On April 7, 2020, the Board held a telephonic meeting with management and representatives of Latham & Watkins to discuss the developments and conversations with the AREX Parties and the Roumell Parties, including with respect to the director candidates proposed by Roumell. The Board determined that the Nominating Committee should interview two of the three candidates proposed by the Roumell Parties and that Ms. Larabee, management, and the Company’s advisors should engage with the AREX Parties and the Roumell Parties to discuss the composition of the Board and the director candidates under consideration by the Nominating Committee for election at the Company’s 2020 annual meeting.
During the remainder of the week, Ms. Larabee, management, and the Company’s advisors had a number of telephonic meetings separately with each of the AREX Parties and their representatives and the Roumell Parties and
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their representatives, including with respect to the possible entry into the Cooperation Agreements described below. During these meetings, representatives of the AREX Parties suggested that the Nominating Committee consider an additional individual as a nominee for election at the Company’s 2020 annual meeting. Members of the Nominating Committee also interviewed two of the candidates proposed by the Roumell Parties and the candidate suggested by the AREX Parties.
On April 13, 14, and 15, 2020, the Board and its committees held telephonic meetings with management and representatives of Latham & Watkins to consider and approve the terms of cooperation agreements with the Roumell Parties and the AREX Parties (the “Cooperation Agreements”). On April 15, 2020, the Company entered into the Cooperation Agreements, pursuant to which the Company agreed to increase the size of the Board to seven directors, to appoint Ronald Garriques, who was recommended by the AREX Parties, and Edward Terino, who was recommended by the Roumell Parties, as independent directors to the Board, and to appoint one or both of them to each Board committee. Pursuant to the Cooperation Agreements, the Roumell Parties and the AREX Parties agreed to vote in favor of the Company’s director nominees at the Company’s 2020 Annual Meeting and to customary standstill provisions.
On April 15, 2020, the Board adopted the ZAGG Inc Executive Severance Plan, pursuant to which certain executive officers would receive severance benefits in the event of a qualifying termination of employment, including a cash payment and certain COBRA benefits.
On April 15, 2020, pursuant to the Cooperation Agreements, Mr. Terino and Mr. Garriques were appointed to the Board.
On April 16, 2020, the Company withdrew its first quarter and full-year 2020 outlook, provided on March 11, 2020, due to the ongoing disruption and uncertainty related to the global COVID-19 pandemic.
On April 17, 2020, the Roumell Parties and the AREX Parties amended their respective Schedule 13Ds disclosing the entry into their respective Cooperation Agreements with the Company.
On May 1, 2020, the Board formed a strategic committee (the “Strategic Committee”) consisting of Mr. Michael Birch (chairperson), Mr. Ron Garriques, Mr. Edward Terino and Mr. Daniel Maurer. The Strategic Committee held weekly working meetings with representatives of BofA Securities on June 10, June 17, June 24, June 30, July 1, July 8, July 15, July 22 and July 29, 2019.
Between May 2020 and July 2020, at the direction of the Board, BofA Securities contacted twelve (12) parties that were identified as parties that could be interested in pursuing a strategic transaction involving the Company, including a party who had not participated in the prior strategic alternative review process (“Sponsor E”). Nine of the contacted parties entered into non-disclosure agreements and standstills with the Company, including Sponsor E on May 22, 2020, and received confidential information in connection with a potential strategic transaction.
On June 1, 2020, Strategic A sent a letter to the Company expressing its continued interest in a combination with the Company.
On June 10, 2020, the Company entered into a non-disclosure agreement with Strategic A.
On June 11, 2020, the Company held its 2020 annual meeting. Seven (7) directors, including Mr. Terino and Mr. Garriques, were elected to serve on the Board until the 2021 Annual Meeting of Stockholders.
On June 22, 2020, the Company received a non-binding indication of interest from Strategic A, proposing a reverse triangular merger between the Company and Strategic A, with one-third of the consideration being paid in cash and the balance of the consideration being paid in stock in a new combined public company, and maintaining a public listing for the combined entity. Strategic A’s analysis showed a potential value of $4.60 per share consisting of $1.50 per share in cash and the remainder in stock of the new public company.
On July 2, 2020, BofA Securities distributed bid instruction letters to Strategic A, Strategic B, Strategic C, Sponsor A, Sponsor C, Sponsor E, and another financial sponsor.
On July 5, 2020, Sponsor E and an affiliate of Evercel delivered an “indication of interest” to BofA Securities proposing an acquisition of all of the Company’s outstanding common stock for a cash price of $4.35 per share and proposing terms of exclusivity to complete due diligence. This indication of interest was accompanied by a support letter from Evercel, a support letter from KeyBank National Association and KeyBanc Capital Markets Inc. and a support letter from a third potential provider of capital.
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On July 9, 2020, Sponsor A informed BofA Securities that it was no longer interested in pursuing a strategic transaction with the Company.
On July 16, 2020, the Company entered into an amendment to the engagement letter with BofA Securities to extend the term and expand the scope of the transactions considered thereby to include a reverse merger transaction.
On July 16, 2020, Strategic C submitted an indication of interest in acquiring the Company for $4.00 to $4.50 per share.
On July 16, 2020, the Strategic Committee held a special telephonic meeting with representatives of BofA Securities to discuss the strategic alternative review process. BofA Securities summarized the discussions with various parties and the indications of interest. The Strategic Committee discussed the offers and instructed BofA Securities to continue discussions with Strategic A, Sponsor E, and Strategic C, as well as to continue to explore interest with other parties.
On July 17, 2020, Strategic C informed BofA Securities, after being requested to increase its bid, that it was no longer interested in pursuing a strategic transaction with the Company.
On July 20, 2020, Sponsor E and an affiliate of Evercel sent a letter to the Board stating that they would increase their offer to $4.65 per share, reflecting an equity value of $138 million on their assumption that approximately 29.8 million shares of ZAGG common stock were outstanding. They noted concerns with the Company’s business, including inability to predict short-term results, existential threat of the screen protector business, limited options to expand into comparable adjacent categories, and unrelenting competitive pressure on the core business.
On July 23 and July 28, 2020, representatives of the Company and Strategic A had discussions regarding a potential transaction and diligence processes.
On July 28, 2020, management held a due diligence call with Sponsor E and an affiliate of Evercel.
On July 28, 2020, BofA Securities disclosed to the Board their material relationships with the Company, Strategic A, Strategic C, and Sponsor E. They noted that they had received no revenues from the Company and Sponsor E since July 1, 2018.
On July 30, 2020, the Strategic Committee held a meeting and discussed the indications of interest. The Strategic Committee also discussed the potential impact that certain tariff exemptions may have on the process.
On July 30, 2020, Sponsor E and an affiliate of Evercel sent a letter to BofA Securities stating that they were willing to increase their offer to $4.80 per share (again assuming approximately 29.8 million shares of ZAGG common stock were outstanding). They noted that the offer was subject to due diligence and was calculated based on the number of shares outstanding. They also attached a letter, dated July 31, 2020, from a financial sponsor (“Sponsor F”) working with Sponsor E and Evercel, stating that they were slated to play a key role in the investor group being led by Sponsor E and Evercel and that Sponsor F believed the investor group was offering an extremely fair price for the shares.
On July 31, 2020, the Strategic Committee sent a letter to an affiliate of Evercel indicting that the Strategic Committee would not respond to the July 30, 2020 letter until August 10, 2020.
On July 31, 2020, the chief executive officer of Strategic A made a presentation to the Board regarding the terms of their offer. The Board discussed the proposed transaction with BofA Securities, including whether such a transaction would reduce the Company’s challenges related to earnings volatility and forecasting.
On August 3, 2020, the Company received a communication from Sponsor E and an affiliate of Evercel, in which they reiterated their interest in pursuing a strategic transaction and offering to engage in further discussions with the Board.
On August 5, 2020, the Strategic Committee of the Board held a telephonic meeting with BofA Securities, in which BofA Securities updated the committee on their discussions with Sponsor E and Evercel and with Strategic A.
On August 7, 2020, representatives of Sponsor E and an affiliate of Evercel held a videoconference with the Strategic Committee of the Board to discuss its proposal.
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On August 12, 2020, the Board held a telephonic meeting with management and representatives of BofA Securities and Latham & Watkins to discuss the terms of the offers from Strategic A and from Sponsor E, Sponsor F, and Evercel. The Board decided to continue discussions with both bidders.
On August 13, 2020, Sponsor E and an affiliate of Evercel sent a letter to the Chair of the Strategic Committee increasing their offer to $5.00 per share, reflecting on a Company equity value of $149 million, but they also noted again that their proposal assumed approximately 29.8 million shares of ZAGG common stock were outstanding and that the per share price would be reduced if any material payments were required to settle or terminate outstanding Company RSUs at the closing of the proposed transaction. This letter also set forth a proposal for a period of exclusive negotiations and proposing that the Company agree to reimburse up to $1,000,000 of the expenses of Sponsor E and an affiliate of Evercel in connection with the proposed transaction depending on the date of termination of exclusivity, in the event the proposed transaction was not consummated.
On August 14, 2020, the Board held a telephonic meeting with management and representatives of BofA Securities and Latham & Watkins to discuss the state of the market, potential opportunities for the Company to enter into a strategic transaction, as well as the two proposals under consideration. BofA Securities noted the August 13, 2020 letter from Sponsor E and an affiliate of Evercel represented a per share price of $4.72 when accounting for the payments necessary to settle all Company RSUs at the closing of the transaction. BofA Securities representatives discussed with the Board their preliminary financial analyses of the Company, and noted that they had recently reached out to parties who had previously shown an interest in the Company, but none had indicated a willingness to proceed. BofA Securities representatives then provided an update to the Board on negotiations with Strategic A and discussed with the Board pursuing an exclusive negotiation process with Sponsor E and Evercel. After discussion, the Board decided to explore such an exclusive negotiation process.
On August 17, 2020, the Company signed a revised version of the August 13, 2020 letter from Sponsor E and an affiliate of Evercel which provided for a 30-day exclusivity period, subject to an automatic 15-day extension upon confirmation of the proposed purchase price and an additional 15-day extension upon delivery of proposed drafts of transaction documents, as well as the Company’s obligation to reimburse expenses of Sponsor E and an affiliate of Evercel up to $1,000,000, depending on the date of termination of exclusivity, in the event the proposed transaction is not consummated.
On August 19 and August 26, 2020, the Strategic Committee held calls with representatives of BofA Securities to discuss the status of the process.
On September 2, September 9, and September 16, 2020, the Strategic Committee held meetings to discuss updates on the negotiation with Sponsor E and Evercel. Management informed the Strategic Committee that they were working closely with Sponsor E and Evercel on financial and legal diligence.
On September 16, 2020, the Board received a letter from Sponsor E and an affiliate of Evercel, confirming the extension of exclusivity for an additional 15 days pursuant to the terms of the exclusivity agreement. They stated that they continued to diligence balance sheet items, potential incremental value drivers and the Company’s ability to obtain forgiveness of the PPP Loan. They indicated that they expected the equity to be provided by Evercel and Sponsor F, and that they continued to negotiate terms with lenders.
On September 23 and September 29, 2020, the Strategic Committee held meetings with management and representatives of BofA Securities and Latham & Watkins to discuss updates on the negotiation with Sponsor E and Evercel. During the meetings, BofA Securities provided an update regarding a potential price reduction that Sponsor E and Evercel were considering based on the results of the ongoing diligence. The committee also discussed the focus of Sponsor E and Evercel on the PPP Loan.
On September 30, 2020, Sponsor E and an affiliate of Evercel sent a letter to the Board requesting extension of the exclusivity period to complete the diligence process. On October 1, 2020, the Board agreed to extend the exclusivity period until October 16, 2020.
On October 7 and October 14, 2020, the Strategic Committee held meetings to discuss updates on the negotiation with Sponsor E and Evercel. The Strategic Committee discussed the recent guidelines issued by the U.S. Small Business Administration regarding treatment of Paycheck Protection Program loans issued under the CARES Act in change of control transactions and the potential impact on valuation.
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On October 13, 2020, counsel to Evercel sent to Latham & Watkins a markup of the bid draft merger agreement, originally prepared by the Company and Latham & Watkins in December 2019 as part of the prior strategic processes, and such markup included changes to representations and warranties, termination provisions, and termination fee provisions.
On October 18, 2020, an affiliate of Evercel sent a letter proposing a reduction in the equity value of the Company to $142.9 million, resulting in a per share price of $4.52 (assuming all of the outstanding Company RSUs were to be paid out at Closing) and proposed escrowing $7.7 million of the price as a potential source of repayment of the PPP Loan in the event the PPP Loan is not forgiven. The letter described diligence findings (including the SEC’s investigation of certain matters) and inadequate support for potential incremental value drivers as the reasons for the reduction in purchase price. Concurrently with this letter, Evercel delivered to the Company: (i) a letter from Evercel and Sponsor F confirming that, subject to certain conditions and assumptions, they would be able and willing to provide the required equity financing for the proposed transaction; (ii) a letter from a financial advisor to Evercel indicating that it was highly confident that Evercel would be able to obtain the debt financing required for the proposed transaction; and (iii) term sheets from two lenders describing the principal terms of credit facilities that were being discussed with such lenders for the transaction.
On October 19, 2020, the Board held a meeting with management and representatives of BofA Securities and Latham & Watkins to discuss the letter from an affiliate of Evercel. The Board was also informed that Sponsor E was not itself providing capital for the proposed transaction. The Board also discussed extending the exclusivity period until November 9, 2020.
On October 21, 2020, the Strategic Committee held a meeting to discuss updates on the negotiation with Evercel and Sponsor F. Following the meeting, the Board sent a letter to an affiliate of Evercel agreeing to extend the diligence review period and exclusivity until November 9, 2020. Over the following three weeks, the Evercel Group continued to conduct due diligence on the Company.
On October 26, 2020, Latham & Watkins sent to counsel to Evercel a revised draft of the proposed merger agreement, which included changes to the covenants in connection with COVID-19, termination provisions, employee benefits covenants, and termination fee provisions, and also sent a proposed draft of the Voting and Support Agreement.
On October 27, 2020, counsel to Evercel sent a proposed draft of the PPP Loan Forgiveness Rights Agreement to Latham & Watkins.
On October 28, 2020, the Strategic Committee held meetings with management and representatives of BofA Securities and Latham & Watkins to discuss updates on negotiations with Evercel and Sponsor F.
On October 29, 2020, Latham & Watkins sent to counsel to Evercel a revised draft of the proposed PPP Loan Forgiveness Rights Agreement, which included changes to the transfer and payment provisions.
On October 30, 2020, the Board held a regularly scheduled meeting at which representatives of BofA Securities and Latham & Watkins updated the Board on the status of the discussions with Evercel and Sponsor F.
On November 2, 2020, counsel to Evercel sent a draft of the merger agreement to Latham and Watkins and representatives of Latham & Watkins and counsel to Evercel held a call to discuss the merger agreement, including termination provisions, PPP Loan forgiveness, and related matters.
On November 4, 2020, an affiliate of Evercel informed BofA Securities that the senior lender for the proposed transaction had reduced the amount of its proposed commitment by one-third, that the junior lender reduced its proposed commitment by $10 million, and that Sponsor F would no longer be an equity investor with Evercel.
On November 4, 2020, the Board held a meeting with management and representatives of BofA Securities and Latham & Watkins to discuss the status of negotiations with Evercel in light of the shortfall in funding to complete the proposed transaction. The Board authorized Mr. Garriques to introduce one or more potential financing sources to Evercel. On November 4, 2020, Mr. Garriques introduced a representative of Lynx Holdings V, LLC (“Lynx”) to the Evercel Group. Over the next several weeks, Mr. Garriques responded to questions from representatives of Lynx and the Evercel Group but did not participate in the negotiations between Lynx and the Evercel Group. Mr. Garriques did not and will not receive any consideration for the introduction or otherwise in connection with the transaction. Mr. Garriques is a director, executive or investor in unrelated companies in which a representative of Lynx is also a director or investor.
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At the November 4, 2020 meeting, management presented updated projections to the Board. See “—‍Certain Financial Projections” beginning on page 53 of this proxy statement.
On November 4, 2020, counsel to the potential lenders for the transaction sent to Latham & Watkins a revised draft of the proposed merger agreement, which included financing-related changes to the representations and warranties, covenants, and termination provisions.
On November 5, 2020, Latham & Watkins sent to counsel to Evercel a revised draft of the proposed merger agreement, which included changes to the representations and warranties, covenants, fiduciary out, and termination and termination fee provisions.
On November 6, 2020, the Board held a meeting with management and representatives of BofA Securities and Latham & Watkins to discuss the status of negotiations with the Evercel Group. BofA Securities informed the Board that Evercel and Lynx expressed interest in participating in a proposed transaction with the Company.
On November 9, 2020, the Board held a meeting with management and representatives of BofA Securities and Latham & Watkins to discuss the status of the negotiations with Evercel.
On November 9, 2020, the Company entered into a non-disclosure agreement with Evercel.
On November 11, 2020, the Strategic Committee held a meeting with management and representatives of BofA Securities and Latham & Watkins to discuss updates regarding negotiations with Evercel.
On November 15, 2020, representatives of Evercel, BofA Securities, Latham & Watkins, and counsel to Evercel had a call to discuss the status of Evercel’s discussions with Lynx and the possibility that Lynx may be interested in purchasing assets of the Company after the closing.
On November 18, 2020, the Strategic Committee held a meeting with management and representatives of BofA Securities and Latham & Watkins to discuss updates regarding negotiations with Evercel, including the involvement of Lynx. At the meeting, representatives of BofA Securities presented a preliminary financial analysis of the Company.
On November 18, 2020, BofA Securities disclosed to the Board their material relationships with the Company Evercel, an affiliate of Evercel, and an affiliate of Lynx. They noted that they had received no revenues from the Company, Evercel or such affiliate of Evercel and less than $5 million of annual revenues from such affiliate of Lynx since November 1, 2018.
On November 24, 2020, counsel to Evercel sent to Latham & Watkins a revised draft of the proposed merger agreement and PPP Loan Forgiveness Rights Agreement, which included changes to the termination provisions.
On November 25, 2020, an affiliate of Evercel sent a letter to the Board with a revised proposal which reflected a $2.3 million reduction from the $142.9 million equity value proposed in the October 18, 2020 letter due to potential income tax consequences related to the PPP Loan. On the same day, the Board held a meeting with management and representatives of BofA Securities and Latham & Watkins to discuss updates regarding negotiations with Evercel and the terms of the offer. BofA Securities noted that they confirmed the revised offer was for $4.45 per share (assuming all of the outstanding Company RSUs were to be paid out at Closing and assuming a value of $0.25 per PPP Loan Forgiveness Right), if the conditions for payment of the full amount related to the PPP Loan were satisfied. Mr. Daniel R. Maurer, Chairman of the Compensation Committee, discussed with Mr. Ahern a potential retention award. Later that day, the Board, excluding Mr. Ahern, met with representatives of BofA Securities and Latham & Watkins to further discuss the proposed transaction. The Board authorized BofA Securities to continue negotiations with Evercel.
On November 29, 2020, Latham & Watkins sent to counsel to Evercel a revised draft of the proposed merger agreement reflecting changes to the reverse break fee, the fiduciary out provision, and the employee benefits provision, and sent a revised draft of the PPP Loan Forgiveness Rights Agreement reflecting an extension of the end date.
On December 2, 2020, the Board held a meeting with management and representatives of BofA Securities and Latham & Watkins to discuss the status of negotiations with Evercel, including the outstanding issues relating to the fiduciary out, the reverse break fee, and potential retention payments. The Board also discussed the status of the debt and equity commitments for the transaction.
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On December 2, 2020, representatives of Evercel, BofA Securities, Latham & Watkins, and counsel to Evercel had a call to discuss outstanding provisions on the proposed merger agreement, including the fiduciary out, the reverse break fee, and potential retention payments. Evercel also proposed a fee payable by the Company if its stockholders do not approve the Merger in the absence of the announcement of a proposal from another bidder.
On December 4, 2020, the Board held a meeting with representatives of Latham & Watkins to discuss potential retention payments and the status of negotiations with Evercel, including the outstanding issues relating to the break fee and reverse break fee. The Board also discussed the status of the debt and equity commitments for the transaction.
On December 7, 2020, counsel to Evercel sent to Latham & Watkins a revised draft of the proposed merger agreement, which included changes to representations and warranties and covenants to accommodate a proposed modification to the executive severance plan, proposed an outside date, and proposed revised amounts for the break fee and reverse break fee. Counsel to Evercel also sent a revised draft of the PPP Loan Forgiveness Rights Agreement, which included minor modifications.
On December 7, 2020, Latham & Watkins sent to counsel to Evercel a revised draft of the proposed merger agreement, which included changes to the covenants regarding conduct of business by the Company pending the closing of the Merger, minor modifications to the representations of the Company that serve as closing conditions, and an extension of the proposed outside date, as well as a revised draft of the PPP Loan Forgiveness Rights Agreement, which included an extension of the time period for which the Rights Agent would retain unclaimed amounts to be paid to holders of PPP Loan Forgiveness Rights and a representation that the Company will use commercially reasonable efforts to obtain forgiveness of the PPP Loan following the closing of the Merger.
On December 7 and December 8, 2020, Evercel sent drafts of the equity commitment letter from Evercel and a co-investor and debt commitment letters from Lynx and KeyBank National Association and Keybanc Capital Markets Inc. (collectively, the “ABL Lender”) to BofA Securities.
On December 9, 2020, counsel to Evercel sent a draft of the limited guaranty by Evercel to Latham & Watkins.
Between December 8 and December 10, 2020, Latham & Watkins and counsel to Evercel exchanged drafts of the equity commitment letter, the debt commitment letters and the limited guaranty.
On December 9, 2020, counsel to Evercel sent comments to the proposed draft of the merger agreement to Latham & Watkins, which included changes to the covenants regarding conduct of business by the Company pending the closing of the Merger and the addition of a covenant that the Company take certain actions with respect to the PPP Loan, and shortened the period between the signing of the merger agreement and the proposed outside date.
On December 10, 2020, counsel to Evercel sent comments to the proposed draft of the Voting and Support Agreement to Latham & Watkins to clarify that the obligation to support the transactions followed to a transferee. Latham & Watkins sent to counsel to Evercel a revised draft of the Voting and Support Agreement that incorporated their comments.
On December 10, 2020, Latham & Watkins sent to counsel to Evercel revised drafts of the proposed merger agreement, which included changes to the provision regarding the proposed outside date.
On December 10, 2020, the Board held a meeting with management and representatives of BofA Securities and Latham & Watkins to consider the merger agreement and related transactions. A representative of Latham & Watkins made a presentation to the Board covering several topics related to the proposed merger, including (i) the Board’s fiduciary duties to stockholders, (ii) a summary of the key terms of the proposed merger agreement, including the mechanics related to the Company’s PPP Loan forgiveness application, (iii) the funding structure proposed by the Evercel Group, including the breakdown of equity and debt financing commitments, and (iv) a discussion of the risk of litigation related to the merger and related transactions. BofA Securities reviewed with the Board its financial analysis of the Merger Consideration, and, at the request of the Board, BofA Securities rendered its oral opinion, which was subsequently confirmed by delivery of a written opinion dated December 10, 2020, to the effect that, as of the date of the opinion and based on and subject to various assumptions and limitations described in the written opinion, the Merger Consideration to be received in the Merger by holders of shares of the Company’s common stock, was fair, from a financial point of view, to such holders. For more information about BofA Securities’ opinion, see “—Opinion of BofA Securities, Inc.”.
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The Board adjourned and a Compensation Committee meeting was held, where proposals to (i) clarify an ambiguity in the executive severance plan relating to a change of control provision, (ii) update the Company’s guidelines regarding severance payments to non-executive employees, and (iii) approve retention payments to be made subject to the successful consummation of the Merger were approved.
The Board reconvened and considered various reasons to approve the Merger Agreement (see “—‍Recommendation of Our Board of Directors and Reasons for the Merger” beginning on page 43 ), and certain countervailing factors. After discussions with the Company’s management and financial and legal advisors, in light of the reasons considered, and notwithstanding the countervailing factors, the Board, acting by the unanimous vote of the directors present and voting at the meeting:
determined that the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of the Company and its stockholders;
approved, adopted, and declared advisable the merger agreement and the transactions contemplated thereby, including the Merger;
directed that the Merger Agreement be submitted to the stockholders of the Company for adoption at the special meeting; and
recommended that the Company’s stockholders adopt the Merger Agreement.
Later on December 10, 2020, the parties executed and delivered the Merger Agreement and related transaction documents.
On December 11, 2020, prior to the open of trading in the Company’s stock, the Company and Evercel issued press releases announcing the execution of the Merger Agreement.
Also on December 11, 2020, the Company filed a Current Report on Form 8-K disclosing, among other things, its entry into the Merger Agreement and the Voting and Support Agreement.
On December 24, 2020, the Company received a non-binding letter of interest from a financial sponsor (“Sponsor G”), proposing to acquire 100% of the equity securities of the Company for $4.75 to $5.00 per share in cash. The proposal was subject to diligence and the need to obtain debt financing.
On December 26, 2020, the Board held a meeting with management and representatives of BofA Securities and Latham & Watkins to consider the offer from Sponsor G. The Board determined that it needed additional information from Sponsor G in order to determine whether Sponsor G’s offer could reasonably be expected to lead to a “Superior Proposal” as defined in the Merger Agreement.
On December 27, 2020, Sponsor G delivered to the Company a revised letter of interest with a proposed offer of $4.90 per share in cash and an acknowledgement that it would pay the reverse break fee under the Merger Agreement if it was able to enter into a transaction with the Company.
Also on December 27, 2020, the Board held a meeting with management and representatives of BofA Securities and Latham & Watkins to consider the revised offer from Sponsor G. The Board noted that the offer was subject to diligence and obtaining debt financing, and that further information was required regarding the equity funds. The Board then determined that the revised offer could reasonably be expected to lead to a “Superior Proposal” as defined in the Merger Agreement and would enter into a non-disclosure agreement with Sponsor G so it could conduct diligence and seek debt financing and the Company could seek further information from Sponsor G regarding its equity funds.
On December 28, 2020, the Board held a meeting with management and representatives of BofA Securities and Latham & Watkins to further discuss the revised offer from Sponsor G, including the timeline for its diligence and debt financing.
On December 28, 2020, the Company entered into a non-disclosure agreement with Sponsor G and opened the data room to Sponsor G for it to begin diligence.
On January 4, 2021, the Board held a meeting with management and representatives of BofA Securities and Latham & Watkins to discuss the offer from Sponsor G, including its diligence, equity funds, and debt financing.
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On January 5, 2021, the financial advisor to Sponsor G informed BofA Securities that Sponsor G was ceasing its efforts to pursue a strategic transaction with the Company.
On January 7, 2021, the Company filed the preliminary proxy statement for the special meeting with the SEC.
On January 20, 2021, the Company applied for forgiveness of the entire $9.4 million of the PPP Loan. Although this amount is higher than the original expectation to apply for forgiveness of $7.7 million at the time of the Merger Agreement, based on different assumptions and interpretations of the SBA regulations, we make no assurance as to what the actual amount might be or if or when it might be paid.
On January 21, 2021, the Company filed the definitive proxy statement for the special meeting with the SEC.
Recommendation of Our Board of Directors and Reasons for the Merger
Recommendation of Our Board of Directors
The Board, after consulting with its financial advisors and outside legal counsel and carefully reviewing and considering various factors described in “—Reasons for the Merger,” beginning on page 43, unanimously (i) determined that the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of ZAGG and its stockholders, (ii) approved, adopted, and declared advisable the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger, (iii) directed that the Merger Agreement be submitted to the stockholders of ZAGG for adoption at the special meeting, and (iv) recommended that ZAGG’s stockholders adopt the Merger Agreement.
The Board recommends that you vote: (i) “FOR” the Merger Proposal; (ii) “FOR” the Adjournment Proposal; and (iii) “FOR” the Compensation Proposal.
Reasons for the Merger
At a meeting of our Board on December 10, 2020, our Board unanimously (i) determined that the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of ZAGG and its stockholders, (ii) approved, adopted, and declared advisable the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger, (iii) directed that the Merger Agreement be submitted to the stockholders of ZAGG for adoption at the special meeting, and (iv) recommended that ZAGG’s stockholders adopt the Merger Agreement.
In reaching its decision to approve the Merger Agreement and the Merger, and to recommend that the Merger Agreement be adopted by ZAGG’s stockholders, the Board evaluated the Merger Agreement and the Merger with ZAGG’s executive management and ZAGG’s legal and financial advisors and carefully considered a number of factors, including the following material factors (which are not intended to be exhaustive or listed in any relative order of importance):
the fact that the estimated Merger Consideration of up to $4.45 per share, assuming a value of $0.25 per PPP Loan Forgiveness Right, which is the amount estimated at the time of the Merger Agreement, represents a premium of approximately 10.1% over the closing price of ZAGG common stock on December 9, 2020 ($4.04), the last trading day before the Merger Agreement was approved by the Board, and a premium of 22.6% and 33.2% over the 30-day average and 60-day average, respectively, on the same date;
the Board’s belief that the value offered to stockholders pursuant to the Merger is more favorable to ZAGG stockholders than the potential value from other alternatives reasonably available to ZAGG, including remaining an independent public company, after reviewing ZAGG’s business, financial condition, results of operations, market trends, competitive landscape, and execution risks, and discussions with ZAGG’s management and advisors and considering:
the outlook for the retailers and distributors through which ZAGG sells its products and the cyclical nature of consumer retail;
the continued consumer acceptance of ZAGG’s products;
the historical, current, and prospective financial condition, results of operations, and business of ZAGG and the execution risks and uncertainties associated with achieving ZAGG’s stand-alone plan;
the increasingly competitive nature of ZAGG’s industry, including the presence of aggressive new entrants and aggressive competition from current industry participants, including smartphone manufacturers and current customers;
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the reliance of the Company on smartphone manufacturers to continually and materially improve technology within smartphones each year to drive consumers to upgrade their existing smartphones;
the constant difficulty in product development to ensure ZAGG’s products are compatible with new and continually evolving original equipment manufacturers’ (“OEM”) smartphone technology;
the competition from OEMs in accessory categories, including wireless charging and cases;
the saturation of the smartphone market within the United States and Western Europe, combined with longer smartphone upgrade cycles for consumers, and the related impacts on sales and profitability;
the continued impacts of the trade war between the U.S. and China, including significant increases in tariffs on goods imported from China and related impact on ZAGG’s profitability;
the potential for additional internal ZAGG restructuring activities within the next 12 months to support high-margin brands and product categories while reducing or exiting low or negative-margin brand and product categories;
the significant costs ZAGG may continue to incur related to the SEC investigation regarding certain sales transactions from late 2018, the inventory write-down disclosed in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the SEC on May 28, 2020, and related accounting practices and guidance; and
the anticipated future trading prices of ZAGG’s common stock on a stand-alone basis, based on management estimates and adjusted for different scenarios, and the risks and uncertainties of continuing on a stand-alone basis as an independent public company.
the fact that $4.20 per share of the Merger Consideration will be paid in cash, and provides certainty, immediate value, and liquidity to ZAGG’s stockholders, enabling them to realize value for their interest in ZAGG while eliminating business and execution risk inherent in ZAGG’s business, including risks and uncertainties associated with achievement of the stand-alone plan;
the fact that ZAGG’s stockholders will be entitled to receive an additional contingent amount, to be paid if the PPP Loan is forgiven and any audit related thereto is satisfactorily completed;
the outreach to, and extensive discussions with, potentially interested parties regarding strategic alternatives for the Company undertaken since 2019;
our ability to respond to and negotiate an alternative acquisition proposal from a third party if such proposal is determined to constitute a superior proposal or could reasonably be expected to result in a superior proposal;
the Board’s ability to change its recommendation in accordance with the customary fiduciary out provisions;
our ability to terminate the Merger Agreement to accept a superior proposal with the payment of a customary termination fee and capped expense reimbursement obligation, which total termination fee and capped expense reimbursement amount the Board believes to be reasonable under the circumstances given the size of the transaction and taking into account the range of such termination fees in similar transactions and believes not to preclude or substantially impede a possible competing proposal;
the belief of the Board, based upon arm’s-length negotiations (as further described in the section titled “—Background of the Merger” on page 31 of this proxy statement), that the price to be paid by Parent was the highest price per share that Parent was willing to pay for ZAGG;
the fact that the Merger Agreement was the product of arm’s-length negotiations and contained terms and conditions that were, in the Board’s view, advisable and favorable to ZAGG and its stockholders, as well as the Board’s belief, based on these negotiations, that these were the most favorable terms available to ZAGG and its stockholders on which Parent was willing to transact;
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the Board’s belief that Parent has access to the resources needed to complete the Merger, based on, among other factors, that Parent has obtained committed debt financing for the transaction from reputable financial institutions and committed equity financing from the Evercel Group, and that Parent has agreed to use reasonable best efforts to consummate the debt financing and the equity financing in accordance with their respective terms;
the financial presentation by BofA Securities and the oral opinion of BofA Securities rendered to the Board, subsequently confirmed by delivery of a written opinion dated December 10, 2020, to the effect that, as of the date of the opinion and based on and subject to various assumptions and limitations described in the written opinion, the Merger Consideration to be received in the Merger by holders of shares of ZAGG common stock, was fair, from a financial point of view, to such holders, as more fully described in “—Opinion of BofA Securities, Inc.” beginning on page 47 of this proxy statement;
the likelihood that the Merger will be consummated, based upon, among other things, the likelihood of receiving the necessary approval of ZAGG’s stockholders to complete the Merger, the limited number of conditions to the Merger, the absence of a financing condition, the likelihood of obtaining required regulatory approvals and the remedies available under the Merger Agreement to ZAGG in the event of any breaches by Parent, including the provision for payment of a reverse termination fee by Parent to ZAGG under certain circumstances; and
the other terms and conditions of the Merger Agreement and other transaction agreements, including the following related factors:
the customary nature of the representations, warranties, and covenants of ZAGG in the Merger Agreement;
the ability of the Board, subject to certain limitations, to respond to a bona fide written acquisition proposal received from a third party prior to obtaining the stockholder approval if the Board determines in good faith, after consultation with its financial advisors and outside legal counsel, that the acquisition proposal constitutes or could reasonably be expected to lead to a superior proposal;
the ability of the Board, subject to certain limitations, to withdraw or modify its recommendation that stockholders vote in favor of adoption of the Merger Agreement in connection with the receipt of a superior proposal or the occurrence of an intervening event, and to terminate the Merger Agreement to accept a superior proposal and enter into a definitive agreement with respect to such superior proposal, subject to payment to Parent of a termination fee and capped expense reimbursement obligation;
the conclusion of the Board that the termination fee and capped expense reimbursement obligations and the circumstances in which such termination fee and capped expense reimbursement obligation may be payable are reasonable in light of the benefit of the Merger and would not be a significant impediment to third parties interested in making an acquisition proposal;
the fact that Parent agreed to take all steps necessary to obtain certain regulatory approvals;
the absence of a financing condition to Parent’s obligation to consummate the Merger;
the fact that Parent has received the equity commitment letters from the Evercel Group, which will provide sufficient funds for Parent, together with the proceeds of the debt financing, to consummate the Merger;
the fact that, pursuant to the Merger Agreement and subject to certain limitations, ZAGG is entitled to specific performance and other equitable remedies to prevent breaches of the Merger Agreement and, under specified circumstances, may enforce Parent’s obligation to cause the equity financing to be timely completed;
the fact that the Merger Agreement provides that, if the Merger is not consummated under certain specified circumstances, Parent will pay ZAGG a reverse termination fee of $5,000,000, without ZAGG having to establish any damages, and that the aggregate amount of such payment obligation is guaranteed by Evercel;
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the fact that the “Outside Date”, defined as May 7, 2021, under the Merger Agreement allows for sufficient time to complete the Merger; and
the availability of statutory appraisal rights to ZAGG stockholders who do not vote in favor of the adoption of the Merger Agreement and otherwise comply with all required procedures under the DGCL.
The Board also considered a variety of risks and other potentially negative factors with respect to the Merger Agreement and the Merger, including the following (which are not listed in any relative order of importance):
the restrictions in the Merger Agreement on our actively soliciting competing bids to acquire ZAGG;
the restrictions in the Merger Agreement on ZAGG’s ability to terminate the Merger Agreement in connection with the receipt of a superior proposal, including the fact that the Board must (i) provide three business days’ written notice to Parent of its intention to effect a change of Board recommendation or terminate the Merger Agreement in order to provide Parent with an opportunity to match a superior proposal (and a further twenty-four hours’ written notice with respect to any subsequent material revisions to any such superior proposal) and (ii) negotiate in good faith with Parent during such period, and the discouraging effect such restrictions may have on other potential bidders;
the fact that, under certain circumstances in connection with the termination of the Merger Agreement (including if the Board changes its recommendation in light of a superior proposal or intervening event or if ZAGG terminates the Merger Agreement to accept a superior proposal), we will be required to pay Parent a termination fee of $3,000,000 and reimburse Parent for its out-of-pocket expenses incurred in connection with the Merger, up to a maximum of $2,000,000;
the fact that ZAGG stockholders will not participate in any potential future earnings or growth of ZAGG and will not benefit from any appreciation in its value as a private company;
the risk that the conditions to the consummation of the Merger may not be satisfied and, as a result, the possibility that the Merger may not be completed in a timely manner or at all, even if the Merger Agreement is adopted by ZAGG’s stockholders;
the risk that some or all of the PPP Loan may not be forgiven and, as a result, some or all of the contingent consideration payable under the PPP Loan Forgiveness Rights Agreement may not be paid to ZAGG’s stockholders;
the risk that the PPP Loan audit may not be satisfactorily completed (or may not be completed prior to the expiration of the PPP Loan Forgiveness Rights) and the expenses that may be deducted from the Additional Merger Consideration may be substantial;
the risk that some or all of the conditions in the debt commitment letters for the debt financing obtained by Parent may not be satisfied and, as a result, the possibility that Parent may not be able to obtain alternative debt financing in a timely manner;
the fact that a significant portion of the debt financing being arranged by Parent is proposed to be in the form of an asset-based loan and that, therefore, a drop in ZAGG’s asset base may mean that less debt funds are available to Parent;
the potential negative effects if the Merger is not consummated, including:
the trading price of ZAGG common stock could be adversely affected;
we will have incurred significant transaction and opportunity costs attempting to complete the Merger;
we could lose business partners and employees, including key executives, sales, and other personnel;
our business may be subject to significant disruption and decline;
the market’s perceptions of our prospects could be adversely affected;
our directors, officers, and other employees will have expended considerable time and efforts to consummate the Merger;
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the fact that, notwithstanding our specific performance remedy under the Merger Agreement, our remedy in the event of a breach of the Merger Agreement by Parent or Merger Sub is limited to receipt of the reverse termination fee under certain circumstances, and that under certain circumstances we may not be entitled to the reverse termination fee at all;
the fact that any gain realized by ZAGG stockholders as a result of the Merger will generally be taxable for U.S. federal income tax purposes to those stockholders that are U.S. persons subject to taxation in the United States;
the restrictions in the Merger Agreement on the conduct of our business prior to the consummation of the Merger, which may delay or prevent us from undertaking business or other opportunities that may arise prior to the consummation of the Merger;
the potential distraction to our business from potential stockholder suits in connection with the Merger; and
the fact that our executive officers and directors may have interests in the Merger that may be different from, or in addition to, those of ZAGG stockholders. See “Interests of the Directors and Officers of ZAGG in the Merger” on page 56 of this proxy statement.
After taking into account the factors set forth above, as well as others, the Board concluded that the potential benefits of the Merger to ZAGG’s stockholders outweighed the potentially negative factors associated with the Merger. Accordingly, the Board unanimously determined that the Merger Agreement and the Merger are advisable, fair to, and in the best interests of ZAGG and its stockholders and recommends that the stockholders of ZAGG approve and adopt the Merger Agreement.
The foregoing discussion summarizes the material factors considered by the Board, but is not intended to be exhaustive. In light of the variety of factors considered in connection with its evaluation of the Merger, the Board did not find it practicable to, and did not quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. Moreover, each member of the Board applied his or her own business judgment to the process and may have given different weight to different factors. The Board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination and recommendation. The Board based its recommendation on the totality of the information presented, including its discussions with, and questioning of, ZAGG’s executive management and its financial advisors and outside legal counsel. This explanation of the reasoning of the Board and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in “Cautionary Statement Concerning Forward-Looking Statements” on page 24 of this proxy statement.
Opinion of BofA Securities, Inc.
ZAGG retained BofA Securities to act as a financial advisor to ZAGG in connection with the Merger. BofA Securities is an internationally recognized investment banking firm which is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. ZAGG selected BofA Securities to act as a financial advisor to ZAGG in connection with the Merger on the basis of BofA Securities’ experience in transactions similar to the Merger, its reputation in the investment community and its familiarity with ZAGG and its business.
On December 10, 2020, at a meeting of the Board held to evaluate the Merger, representatives of BofA Securities delivered to the Board the oral opinion of BofA Securities, which was confirmed by delivery of a written opinion dated December 10, 2020, to the effect that, as of the date of the opinion and based on and subject to various assumptions and limitations described in the written opinion, the Merger Consideration to be received in the Merger by holders of shares of ZAGG common stock, was fair, from a financial point of view, to such holders.
The full text of BofA Securities’ written opinion to the Board, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Appendix D to this proxy statement and is incorporated by reference herein in its entirety. The following summary of BofA Securities’ opinion is qualified in its entirety by reference to the full text of the written opinion. BofA Securities delivered its opinion to the Board for the benefit and use of the Board (in its capacity as such) in connection with and for purposes of its evaluation of the Merger Consideration from a financial point of view. BofA Securities’ opinion does not address any other aspect or implication of the Merger
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and no opinion or view was expressed as to the relative merits of the Merger in comparison to other strategies or transactions that might be available to ZAGG or in which ZAGG might engage or as to the underlying business decision of ZAGG to proceed with or effect the Merger. BofA Securities’ opinion does not constitute a recommendation to how any stockholder should vote or act in connection with the Merger or any related matter.
In connection with rendering its opinion, BofA Securities has, among other things:
reviewed certain publicly available business and financial information relating to ZAGG;
reviewed certain internal financial and operating information with respect to the business, operations and prospects of ZAGG furnished to or discussed with BofA Securities by the management of ZAGG, including certain financial forecasts relating to ZAGG prepared by the management of ZAGG (the Company Projections, as defined and summarized below under “—Certain Financial Projections”);
discussed the past and current business, operations, financial condition and prospects of ZAGG with members of senior management of ZAGG;
discussed with the management of ZAGG its assessments as to the likelihood of, amount of, and timing upon which the Additional Merger Consideration may become payable;
reviewed the trading history for the shares of ZAGG common stock and a comparison of that trading history with the trading histories of other companies BofA Securities deemed relevant;
compared certain financial and stock market information of ZAGG with similar information of other companies BofA Securities deemed relevant;
compared certain financial terms of the Merger to financial terms, to the extent publicly available, of other transactions BofA Securities deemed relevant;
considered the fact that ZAGG publicly announced that it would explore its strategic alternatives and the results of BofA Securities’ efforts on behalf of ZAGG to solicit, at the direction of ZAGG, indications of interest and definitive proposals from third parties with respect to a possible acquisition of ZAGG;
reviewed the Merger Agreement; and
performed such other analyses and studies and considered such other information and factors as BofA Securities deemed appropriate.
In arriving at its opinion, BofA Securities assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with it and relied upon the assurances of the management of ZAGG that it was not aware of any facts or circumstances that would make such information or data inaccurate or misleading in any material respect. With respect to the Company Projections, BofA Securities was advised by ZAGG, and assumed that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of ZAGG as to the future financial performance of ZAGG. BofA Securities relied, at the direction of ZAGG, on the assessments of the management of ZAGG as to the likelihood of, amount of, and timing upon which the Additional Merger Consideration may become payable and assumed that the Additional Merger Consideration will be paid to the holders of shares of ZAGG common stock in the amounts and at the time as projected. BofA Securities did not make and was not provided with any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of ZAGG or any other entity, nor did it make any physical inspection of the properties or assets of ZAGG or any other entity. BofA Securities also did not evaluate the solvency or fair value of ZAGG or any other entity under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. BofA Securities assumed, at the direction of ZAGG, that the Merger would be consummated in accordance with its terms and in compliance with all applicable laws, relevant documents and other requirements, without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the Merger, no delay, limitation, restriction or condition, including any divestiture requirements or amendments or modifications, would be imposed that would have an adverse effect on the Merger or the contemplated benefits thereof.
BofA Securities expressed no view or opinion as to any terms or other aspects or implications of the Merger (other than the Merger Consideration to the extent expressly specified in its opinion), including, without limitation,
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the form or structure of the Merger, or any terms, aspects or implications of any other agreement, arrangement or understanding entered into in connection with or related to the Merger or otherwise. BofA Securities’ opinion was limited to the fairness, from a financial point of view, of the Merger Consideration to be received by holders of shares of ZAGG common stock and no opinion or view was expressed with respect to any consideration received in connection with the Merger by the holders of any other class of securities, creditors or other constituencies of any party. In addition, no opinion or view was expressed with respect to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation or other consideration to any of the officers, directors or employees of any party to the Merger or any related entities, or class of such persons, relative to the Merger Consideration or otherwise. Furthermore, no opinion or view was expressed as to the relative merits of the Merger in comparison to other strategies or transactions that might be available to ZAGG or in which ZAGG might engage or as to the underlying business decision of ZAGG to proceed with or effect the Merger. In addition, BofA Securities expressed no view or opinion with respect to, and it relied, with the consent of ZAGG, upon the assessments of ZAGG and its representatives regarding, legal, regulatory, accounting, tax and similar matters relating to ZAGG or any other entity and the Merger (including the contemplated benefits thereof) as to which it understood that ZAGG obtained such advice as it deemed necessary from qualified professionals. BofA Securities further expressed no opinion or recommendation as to how any stockholder should vote or act in connection with the Merger or any related matter.
BofA Securities’ opinion was necessarily based on financial, economic, monetary, market, tax and other conditions and circumstances as in effect on, and the information made available to BofA Securities as of, the date of its opinion. While the credit, financial and stock markets have been experiencing unusual volatility, BofA Securities expressed no opinion or view as to any potential effects of such volatility on ZAGG or the Merger. It should be understood that subsequent developments may affect BofA Securities’ opinion, and BofA Securities does not have any obligation to update, revise or reaffirm its opinion. The issuance of BofA Securities’ opinion was approved by a fairness opinion review committee of BofA Securities. Except as described in this summary, ZAGG imposed no other instructions or limitations on the investigations made or procedures followed by BofA Securities in rendering its opinion.
The discussion set forth below in the section entitled “Summary of Material Company Financial Analyses” represents a brief summary of the material financial analyses presented by BofA Securities to the Board in connection with its opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by BofA Securities, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by BofA Securities. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by BofA Securities.
Summary of Material Company Financial Analyses
Selected Publicly Traded Companies Analysis
BofA Securities reviewed publicly available financial and stock market information of the following seven selected publicly traded companies in the consumer electronics and accessories industries, selected by BofA Securities based on its professional judgment and experience:
Arlo Technologies, Inc.
Foster Electric Company
GoPro, Inc.
JVCKenwood Corporation
Spigen Inc.
Turtle Beach Corporation
Universal Electronics Inc.
BofA Securities reviewed, among other things, the enterprise values for each of the selected companies and for ZAGG, calculated by multiplying the closing share price of each applicable company as of December 9, 2020 by the
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number of fully-diluted shares outstanding of the applicable company (determined on a treasury stock method basis based on information in its public filings), and adding to (or subtracting from, as applicable) the result the amount of the applicable company’s net debt (or net cash) (defined as debt, preferred equity and non-controlling interest (as applicable) less cash, cash equivalents and marketable securities (as applicable)), as a multiple of Wall Street analyst consensus estimates of calendar year 2020 and 2021 earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the applicable company (referred to in this section as “2020E EV / EBITDA” and “2021E EV / EBITDA”). Financial data of the selected companies were derived from their public filings and publicly available Wall Street research analysts’ estimates published by FactSet as of December 9, 2020. Financial data of ZAGG were derived from the Company Projections and equity information provided by the management of ZAGG. The overall low to high 2020E EV / EBITDA multiples observed for the selected companies were 2.5x to 8.3x (with a mean of 4.6x and median of 3.1x). The overall low to high 2021E EV / EBITDA multiples observed for the selected companies were 2.2x to 9.7x (with a mean of 5.5x and median of 5.5x). BofA Securities noted that the 2020E EV / EBITDA multiple observed for ZAGG was 3.8x and that the 2021E EV / EBITDA multiple observed for ZAGG was 4.1x, in each case, based on the Company Projections.
 
Multiple of EBITDA
Selected Companies
2020E
2021E
Arlo Technologies, Inc.
NM
NM
Foster Electric Company
2.9x
2.5x
GoPro, Inc.
NM
9.7x
JVCKenwood Corporation
2.5x
2.2x
Spigen Inc.
3.1x
3.8x
Turtle Beach Corporation
6.2x
7.4x
Universal Electronics Inc.
8.3x
7.2x
Based on BofA Securities’ review of the enterprise values to EBITDA multiples for the selected companies and ZAGG and on its professional judgment and experience, BofA Securities applied a 2020E EV / EBITDA multiple reference range of 2.30x to 3.90x to ZAGG management’s estimates of calendar year 2020 EBITDA, adjusted by the management of ZAGG for certain one-time items (“Adjusted EBITDA”), as reflected in the Company Projections, and a 2021E EV / EBITDA multiple reference range of 3.70x to 7.30x to ZAGG management’s estimates of calendar year 2021 Adjusted EBITDA as reflected in the Company Projections to calculate ranges of implied enterprise values for ZAGG. BofA Securities then calculated implied equity value reference ranges per share of ZAGG common stock (rounded to the nearest $0.05) by subtracting from the resulting ranges of implied enterprise values it calculated an estimate of the net debt of ZAGG as of December 31, 2020 (calculated as debt, less cash, less the amount of the PPP Loan that management of ZAGG expected to be forgiven, discounted to present value, as of December 31, 2020, using a one-year Treasury Bill rate of 0.1%), as provided by the management of ZAGG, and dividing the result by a number of fully diluted-shares of ZAGG common stock outstanding (calculated on a treasury stock method basis, based on information provided by the management of ZAGG). This analysis indicated the following approximate implied equity value reference ranges per share of ZAGG common stock, as compared to the Merger Consideration:
Implied Equity Value
Reference Range Per Share
of ZAGG Common Stock
 
2020E Adjusted
EBITDA
2021E Adjusted
EBITDA
Merger Consideration
$1.60 - $4.15
$3.40 - $8.75
$4.45
No selected publicly traded company used in this analysis is identical or directly comparable to ZAGG. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies to which ZAGG was compared.
Selected Precedent Transactions Analysis
BofA Securities reviewed, to the extent publicly available, financial information relating to the following twenty-three selected transactions involving acquisitions of publicly traded consumer electronics and accessories companies since 2011, selected by BofA Securities based on its professional judgment and experience.
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Date
Acquiror
Target
Enterprise Value
to LTM
EBITDA
5/21/20
Global Acoustic Partners
TEAC Corporation
4/21/20
Protempo US Ltd
Outdoor Tech
11/1/19
Google LLC
FitBit, Inc.
NM
7/16/19
Focusrite plc
Pro Audio GmbH
10.4x
1/3/19
ZAGG Inc
Halo2Cloud, LLC
11/30/18
ZAGG Inc
Gear4 HK Limited
7/31/18
ZAGG Inc
BRAVEN Audio
7/30/18
Logitech International S.A.
Blue Microphones
7/26/17
EagleTree Capital
Corsair Gaming, Inc.
12.1x
7/11/17
Logitech International S.A.
ASTRO Gaming
2/28/17
Control4 Corporation
Triad Speakers, Inc.
11/14/16
Samsung Electronics Co., Ltd.
Harman International Industries, Inc.
10.0x
8/24/16
Mill Road Capital
Skullcandy, Inc.
11.8x
4/12/16
Logitech International S.A.
JayBird
2/2/16
ZAGG Inc
mophie inc
10/22/14
GoerTek Inc.
Dynaudio A/S
9/15/14
AwoX S.A.
Cabasse SAS
8/28/14
Monomoy Capital Partners
Cobra Electronics Corp.
NM
6/17/14
Harman International Industries, Inc.
Yurbuds
5/28/14
Apple Inc.
Beats Electronics LLC
2/17/12
Trilantic Capital Partners
Nixon
9.2x
6/21/11
ZAGG Inc
iFrogz Inc.
1/6/11
Audiovox Corp.
Klipsch Group, Inc.
For each of these transactions, BofA Securities reviewed the enterprise values implied for each target company based on the consideration payable in the selected transaction, as multiples of estimates of the target company’s last twelve months EBITDA (“LTM EBITDA”), as of the announcement of the relevant transaction and based on publicly available information at that time. The overall low to high enterprise value to LTM EBITDA multiples of the target companies in the selected transactions were 9.2x to 12.1x (with a mean of 10.7x and median of 10.4x).
Based on BofA Securities’ review of the enterprise values to LTM EBITDA multiples for the selected transactions and on its professional judgment and experience, BofA Securities applied an enterprise value to LTM EBITDA multiple reference range of 9.40x to 11.40x to ZAGG management’s estimates of Adjusted EBITDA for the twelve-month period ended September 30, 2020, as reflected in the Company Projections, to calculate a range of implied enterprise values for ZAGG. BofA Securities then calculated an implied equity value reference range per share of ZAGG common stock (rounded to the nearest $0.05) by subtracting from this range of implied enterprise values an estimate of the net debt of ZAGG as of December 31, 2020 (calculated as debt, less cash, less the amount of the PPP Loan that management of ZAGG expected to be forgiven, discounted to present value, as of December 31, 2020, using a one-year Treasury Bill rate of 0.1%), as provided by the management of ZAGG, and dividing the result a number of fully-diluted shares of ZAGG common stock outstanding (calculated on a treasury stock method basis, based on information provided by the management of ZAGG). This analysis indicated the following approximate implied equity value reference ranges per share of ZAGG common stock, as compared to the Merger Consideration:
Implied Equity Value Reference
Range Per Share of ZAGG
Common Stock
Merger Consideration
$9.15 – $11.55
$4.45
No selected precedent transaction used in this analysis or the applicable business or target company is identical or directly comparable to the Company or the Merger. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics, market conditions and other factors that could affect the acquisition or other values of the companies or transactions to which the Company and the Merger were compared.
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Discounted Cash Flow Analysis
BofA Securities performed a discounted cash flow analysis of ZAGG to calculate a range of implied present values per share of ZAGG common stock utilizing estimates of the standalone, unlevered, after-tax free cash flows ZAGG was expected to generate over the period from January 1, 2021 through December 31, 2024 based on the Company Projections. BofA Securities calculated terminal values for ZAGG by applying a range of assumed perpetuity growth rates of negative 1.0% to 1.0% based on BofA Securities’ professional judgment and experience, to the terminal year cash flows. The cash flows and the terminal values were then discounted to present value as of December 31, 2020, utilizing the 3/4-year discounting convention, and using discount rates ranging from 10.00% to 12.50%, which were based on an estimate of ZAGG’s weighted average cost of capital, derived using the capital asset pricing model. BofA Securities then calculated implied equity value reference ranges per share of ZAGG common stock (rounded to the nearest $0.05) by deducting from this range of present values ZAGG’s projected net debt as of December 31, 2020 (calculated as debt, less cash, less the amount of the PPP Loan that management of ZAGG expected to be forgiven, discounted to present value, as of December 31, 2020, using a one-year Treasury Bill rate of 0.1%), as provided by ZAGG management and dividing the result a number of fully-diluted shares of ZAGG common stock outstanding (calculated on a treasury stock method basis, based on information provided by the management of ZAGG). This analysis indicated the following approximate implied equity value reference range per share of ZAGG common stock (rounded to the nearest $0.05), as compared to the Merger Consideration:
Implied Equity Value Reference
Range Per share of ZAGG
Common Stock
Merger Consideration
$3.10 – $5.30
$4.45
Other Factors
BofA Securities also noted certain additional factors that were not considered part of BofA Securities’ financial analyses with respect to its opinion but were referenced for informational purposes, including, among other things the following:
52-Week Trading Range. BofA Securities reviewed the trading range of the shares of ZAGG common stock for the 52-week period ended December 9, 2020, which was $2.10 to $8.58.
26-Week Trading Range. BofA Securities reviewed the trading range of the shares of ZAGG common stock for the 26-week period ended December 9, 2020, which was $2.71 to $4.12.
Wall Street Analysts Price Targets. BofA Securities reviewed certain publicly available equity research analyst price targets for the shares of ZAGG common stock available as of December 9, 2020, and noted that the range of such price targets (discounted by one year at ZAGG’s mid-point cost of equity of 13.4%) was $7.05 to $8.80.
Miscellaneous
As noted above, the discussion set forth above in the section entitled “—Summary of Material Company Financial Analyses” represents a brief summary of the material financial analyses presented by BofA Securities to the Board in connection with its opinion and is not a comprehensive description of all analyses undertaken or factors considered by BofA Securities in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to partial analysis or summary description. BofA Securities believes that its analyses summarized above must be considered as a whole. BofA Securities further believes that selecting portions of its analyses and the factors considered or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying BofA Securities’ analyses and opinion. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis referred to in the summary.
In performing its analyses, BofA Securities considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of ZAGG. The estimates of the future performance of ZAGG in or underlying BofA Securities analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by
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BofA Securities’ analyses. These analyses were prepared solely as part of BofA Securities’ analysis of the fairness, from a financial point of view, to the holders of shares of ZAGG common stock of the Merger Consideration to be received by such holders in the Merger and were provided to the Board in connection with the delivery of BofA Securities’ opinion. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or acquired or the prices at which any securities have traded or may trade at any time in the future. Accordingly, the estimates used in, and the ranges of valuations resulting from, any particular analysis described above are inherently subject to substantial uncertainty and should not be taken to be BofA Securities’ view of the actual values of ZAGG or its shares of common stock.
The type and amount of consideration payable in the Merger was determined through negotiations between ZAGG and Parent, rather than by any financial advisor, and was approved by the Board. The decision to enter into the Merger Agreement was solely that of the Board. As described above, BofA Securities’ opinion and analyses were only one of many factors considered by the Board in its evaluation of the Merger and should not be viewed as determinative of the views of the Board, management or any other party with respect to the Merger or the Merger Consideration.
ZAGG has agreed to pay BofA Securities for its services in connection with the Merger an aggregate fee of approximately $3,750,008, $1,000,000 of which was payable upon delivery of its opinion and the remainder of which is contingent upon consummation of the Merger. ZAGG also has agreed to reimburse BofA Securities for certain expenses incurred in connection with BofA Securities’ engagement and to indemnify BofA Securities, any of its affiliates, its and their respective directors, officers, employees and agents and each other person controlling BofA Securities or any of its affiliates against certain liabilities, including liabilities under the federal securities laws, arising out of BofA Securities’ engagement.
BofA Securities and its affiliates comprise a full service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and financial advisory services and other commercial services and products to a wide range of companies, governments and individuals. In the ordinary course of their businesses, BofA Securities and its affiliates may invest on a principal basis or on behalf of customers or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions in the equity, debt or other securities or financial instruments (including derivatives, bank loans or other obligations) of ZAGG and certain of its affiliates and Parent and certain of its affiliates and certain portfolio companies of its affiliates.
BofA Securities and its affiliates may in the future provide investment banking, commercial banking and other financial services to ZAGG and may receive compensation for the rendering of these services.
In addition, BofA Securities and its affiliates may in the future provide investment banking, commercial banking and other financial services to Parent and may receive compensation for the rendering of these services.
Certain Financial Projections
In connection with ZAGG’s evaluation of a possible transaction, ZAGG management prepared certain non-public, unaudited, stand-alone financial projections (the “Company Projections”). The Company Projections were reviewed by the Board at its meeting held on November 4, 2020, in connection with the Board’s review of the proposed transaction with the Evercel Group, and the Board authorized BofA Securities to use the Company Projections for purposes of performing the financial analyses summarized under “—Opinion of BofA Securities, Inc.” beginning on page 47 of this proxy statement. The Company Projections also were provided to the Evercel Group in connection with its due diligence review of ZAGG and the proposed transaction. The Company Projections reflect the following key considerations and assumptions as to the future financial performance of ZAGG:
Continued pressure on retail openings and in-store shopping experience from COVID-19 into 2021 and 2022;
Continued pressure from COVID-19 on the overall economy, impacting discretionary spend on handset and related accessories into 2021 and beyond;
5G roll-out of iPhones providing overall benefit to handset sales, though much less impactful than originally thought beyond 2020;
Limited growth from acquired brands (HALO and Gear4) in 2021 and beyond;
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An OEM’s 2020 entrance into wireless charging category with a new product line, including related OEM-required certification negatively impacting wireless charging and case sales, and overall margins, in late 2021 and beyond;
Despite the extension of tariffs exemptions in the second half of 2020, such exemptions expired on December 31, 2020 and ZAGG’s ability to effectively and profitably move manufacturing out of China may be less successful than originally believed over the long term;
Improvement in freight rates starting in 2021 compared to 2020;
Competition and retail margin pressure on core categories continuing to erode market share and overall product margins beyond 2021, including the need for additional discounting below historical margins to move through excess inventory;
Potential wind-down of audio category and reduced focus on keyboards/power stations leading to lower sales, but likely improved margin mix;
Reinstating cash bonuses in 2021 for the full year, ending hiring freeze and filling organizational gaps caused by COVID-19 mitigation cost reductions, commencing traveling, and reinstating some marketing spend (i.e., overall increase in cash operating expense); and
Cash operating expense growing each year, though overall operating expense margins improving.
The Company Projections are included in the table below. The inclusion of this information should not be regarded as an indication that ZAGG, its financial advisors, or any of their respective representatives or any other recipient of this information considered, or now considers, the Company Projections to be necessarily predictive of future results. Management advised the Board that the Company Projections represent ZAGG’s management’s best estimates of the future financial performance of ZAGG and its business as currently configured as a stand-alone, publicly listed company.
The following table summarizes the Company Projections as described above.
Company Projections
(Dollars in millions, except per share data)
(Shares in thousands)
2020
2021
2022
2023
2024
Net Sales
$464.3
$485.2
$504.6
$517.2
$530.1
Gross Margin
$108.2
$162.2
$162.5
$165.5
$169.1
% of Sales
23.3%
33.4%
32.2%
32.0%
31.9%
Operating Expenses
$153.1
$139.0
$140.8
$141.7
$142.1
% of Sales
33.0%
28.7%
27.9%
27.4%
26.8%
Operating Income
$(44.9)
$23.2
$21.7
$23.8
$27.0
% of Sales
-9.7%
4.8%
4.3%
4.6%
5.4%
Other Income / (Expense)
$(3.2)
$(3.3)
$(2.8)
$(2.0)
$(2.0)
Pretax Income
$(48.1)
$19.9
$18.9
$21.8
$25.0
Income Tax
$(11.0)
$4.6
$4.3
$5.0
$5.8
Tax Rate
22.8%
23.0%
23.0%
23.0%
23.0%
Net Income
$(37.1)
$15.3
$14.6
$16.8
$19.3
Diluted Shares Outstanding
30,130
30,130
30,130
30,130
30,130
Diluted Earnings Per Share
$(1.24)
$0.51
$0.48
$0.56
$0.64
Adjusted EBITDA(1)
$50.4
$47.0
$43.7
$44.9
$46.8
Adjusted EBITDA%(2)
10.8%
9.7%
8.7%
8.7%
8.8%
One-Time Benefits/Expenses
 
 
 
 
 
P&L Impact of Duty Refunds(3)
$(1.7)
$(5.5)
$
$
$
P&L Impact of Duty Exemptions(4)
$(5.5)
$
$
$
$
SEC Investigation Expenses(5)
$0.7
$
$
$
$
Adjusted EBITDA Excluding
One-Time Benefits/Expenses
$43.9
$41.5
$43.7
$44.9
$46.8
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(Dollars in millions, except per share data)
(Shares in thousands)
2020
2021
2022
2023
2024
Adjusted EBITDA Excluding
One-Time Benefits/Expenses%(6)
9.4%
8.6%
8.7%
8.7%
8.8%
Stock-Based Compensation
 
$(5)
$(6)
$(6)
$(6)
Income Tax
 
$(5)
$(5)
$(5)
$(6)
Change in Net Working Capital
 
$(9)
$(6)
$(5)
$(6)
Capital Expenditures
 
$(8)
$(8)
$(9)
$(9)
Unlevered Free Cash Flow(7)
 
$20
$19
$20
$20
(1)
ZAGG defines Adjusted EBITDA as earnings before stock-based compensation expense, depreciation and amortization, other expense, net, transaction costs, BRAVEN employee retention bonus, former CFO retention bonus, inventory step-up amount in connection with the acquisition of HALO, severance expense, March 2020 inventory write-down, impairment of goodwill, loss on disposal of intangible assets and equipment (loss of discontinued brands, product lines, and related product tooling), adjustments to fair value of acquisition contingent consideration, and income tax provision (benefit).
(2)
Represents Adjusted EBITDA as a percentage of Net Sales.
(3)
Represents the net projected income statement benefit from an exemption received from the U.S. Trade Representative that provides ZAGG the ability to claim and receive refunds of certain duties paid from 2018 through 2020.
(4)
Represents the projected income statement benefit of an exemption received from the U.S. Trade Representative on duties for certain ZAGG products imported from China from August through December 2020. This exemption expires on December 31, 2020.
(5)
Represents a preliminary projection of 2020 expenses associated with the SEC Investigation.
(6)
Represents Adjusted EBITDA Excluding One-Time Benefits/Expenses as a percentage of Net Sales.
(7)
Represents Adjusted EBITDA less stock-based compensation, income taxes, change in net working capital and capital expenditures.
ZAGG’s ability to achieve the results set forth in the Company Projections are expressly dependent upon certain assumptions, including historical trajectory of each of ZAGG’s businesses, broad secular trends in the technology sector, market specific trends in each of the end markets in which ZAGG operates, and detailed input from various managers of each of ZAGG’s businesses. The Company Projections were not prepared with a view to public disclosure and are included herein only because such information was made available as described above. The Company Projections were not prepared with a view to comply with United States generally accepted accounting principles (“GAAP”), the published guidelines of the SEC regarding projections and forward-looking statements or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Furthermore, KPMG LLP, our independent registered public accountant, has not examined, reviewed, compiled, or otherwise applied procedures to the Company Projections and, accordingly, assumes no responsibility for them and expresses no opinion on them. The Company Projections included herein have been prepared by, and are the responsibility of, ZAGG’s management.
Although a summary of the Company Projections is presented with numerical specificity, the Company Projections reflect numerous variables, assumptions, and estimates as to future events made by our management that our management believed were reasonable at the time the Company Projections were prepared, taking into account the relevant information available to management at the time the Company Projections were prepared. However, this information is not fact and should not be relied upon as being necessarily indicative of actual future results. Important factors that may cause actual results to deviate from the Company Projections include general economic conditions, results, or financial condition, industry performance, accuracy of certain accounting assumptions, changes in actual or projected cash flows, competitive pressures, accuracy of certain industry forecasts prepared by third parties, pricing pressures from our customers adversely affecting our profitability, any disruption in our information technology systems adversely impacting our business and operations, strengthening of the U.S. dollar and other foreign currency exchange rate fluctuations impacting our results, our contingent liabilities and tax matters causing us to incur losses or costs, any inability to protect our intellectual property rights adversely affecting our business or our competitive position, costs or adverse effects on our business, reputation, or results from governmental regulations, failure to hire and retain employees, results, or financial condition, and changes in tax laws. In addition, the Company Projections do not take into account any circumstances or events occurring after the date that they were prepared and do not give effect to the Merger. As a result, there can be no assurance that the Company Projections will be realized, and actual results may be materially better or worse than those contained in the Company Projections. Since the Company Projections cover multiple years, that information by its nature becomes less predictive with each successive year. The inclusion of this information should not be regarded as an indication that the Board, ZAGG, our financial advisors, Parent, Parent’s representatives and affiliates (including each member of
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the Evercel Group), or any other recipient of this information considered, or now considers, the Company Projections to be material information of ZAGG or that actual future results will necessarily reflect the Company Projections, and the Company Projections should not be relied upon as such. The summary of the Company Projections is not included herein to induce any stockholder to vote in favor of the Merger Proposal or any of the other proposals to be voted on at the special meeting or to influence any stockholder to make any investment decision with respect to the Merger, including whether or not to seek appraisal rights with respect to shares of ZAGG common stock.
The Company Projections should be evaluated, if at all, in conjunction with the historical financial statements, risk factors, and other information regarding ZAGG contained in our public filings with the SEC. See “Where You Can Find More Information” on page 99 of this proxy statement.
The Company Projections are forward-looking statements. For information on factors that may cause ZAGG’s future results to materially vary, see “Cautionary Statement Concerning Forward-Looking Statements” on page 24 of this proxy statement.
Except to the extent required by applicable federal securities laws, we do not intend, and expressly disclaim any responsibility, to update or otherwise revise the Company Projections to reflect circumstances existing after the date when ZAGG prepared the Company Projections or to reflect the occurrence of future events or changes in general economic or industry conditions, even if the assumptions underlying the Company Projections are shown to be in error. By including in this proxy statement a summary of certain financial projections, neither ZAGG nor any of its representatives or advisors, nor Parent, Parent’s representatives and affiliates (including each member of the Evercel Group), makes any representation to any person regarding the ultimate performance of ZAGG compared to the information contained in such financial projections and should not be read to do so.
In light of the foregoing factors and the uncertainties inherent in the Company Projections, stockholders are cautioned not to unduly rely on the Company Projections included herein.
Certain of the measures included in the Company Projections may be considered non GAAP financial measures. Non GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in accordance with GAAP and non GAAP financial measures as used by ZAGG may not be comparable to similarly titled amounts used by other companies.
Interests of the Directors and Executive Officers of ZAGG in the Merger
When considering the recommendation of the Board that you vote “FOR” the Merger Proposal, you should be aware that certain of our directors and executive officers may have interests in the Merger that may be different from, or in addition to, your interests as a stockholder generally. The Board was aware of these interests in, among other matters, approving the Merger Agreement and the Merger and in recommending that the Merger Agreement be adopted by the stockholders of ZAGG. See “—Background of the Merger” and “—Recommendation of Our Board of Directors and Reasons for the Merger” beginning on pages 31 and 43 of this proxy statement, respectively. You should take these interests into account in deciding whether to vote “FOR” the approval of the Merger Agreement.
These interests are described in more detail below, and certain of them, including the compensation that may become payable in connection with the Merger to Mr. Ahern, Mr. Taylor Smith, Mr. Jim Kearns, Mr. Bradley Holiday, and Mr. Brian Stech, who constitute our named executive officers for the purposes of this section, are subject to a non-binding, advisory vote of the stockholders of ZAGG and are quantified in the narrative below and in “Proposal 3: Advisory Vote on Merger-Related Named Executive Officer Compensation” on page 96 of this proxy statement. The dates used below to quantify these interests have been selected for illustrative purposes only and do not necessarily reflect the dates on which certain events will occur.
Treatment of Equity and Equity-Based Awards
Under the Merger Agreement, Company RSUs, the only equity-based awards held by ZAGG’s directors and executive officers under the ZAGG Inc Amended and Restated 2013 Equity Incentive Award Plan (the “Incentive Award Plan”), will be treated as follows:
Restricted Stock Units
At the effective time of the Merger, each outstanding Company RSU award will, automatically without any required action on the part of ZAGG, the Parent, or the holder thereof, be cancelled and terminated and converted into the right to receive (i) the Closing Date Consideration, multiplied by the aggregate number of shares of ZAGG
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common stock underlying such Company RSU award immediately prior to the effective time of the Merger and (ii) an aggregate number of PPP Loan Forgiveness Rights equal to the aggregate number of shares of ZAGG common stock underlying such Company RSU award immediately prior to the effective time of the Merger.
The following table sets forth (i) the aggregate number of shares of our Common Stock owned by our executive officers and non-employee directors as of the Record Date, (ii) the number of outstanding Company RSUs that were awarded to and held by our executive officers and non-employee directors as of the Record Date under our Incentive Award Plan and (iii) the value of these shares and Company RSUs in the Merger. The shares of ZAGG common stock held by our directors and executive officers will be treated in the same manner as outstanding shares of ZAGG common stock held by other ZAGG stockholders entitled to receive the Merger Consideration. The amounts in the table were calculated using information regarding outstanding Company RSUs held by each executive officer and non-employee director as of the Record Date and a per-share price for ZAGG common stock of $4.45, which represents (i) $4.20 (i.e., the Closing Date Consideration) plus (ii) an amount per share of $0.25 per PPP Loan Forgiveness Right, which is the amount estimated at the time of the Merger Agreement. The latter amount is solely for illustrative purposes and we make no assurance as to what the actual amount might be or if or when it might be paid.
Name
Company
RSUs (#)
Company
RSUs ($)
ZAGG
Common
Stock (#)
ZAGG
Common
Stock ($)
Total
Value ($)
Executive Officers
 
 
 
 
 
Chris Ahern
239,692
$1,066,629
119,871
$533,426
$1,600,055
Taylor Smith
57,004
$253,668
52,777
$234,858
$488,526
Jim Kearns
57,431
$255,568
16,430
$73,114
$328,682
 
 
 
 
 
 
Non-Employee Directors
 
 
 
 
 
Cheryl A. Larabee
$
160,146
$712,650
$712,650
Daniel R. Maurer
$
130,715
$581,682
$581,682
Michael T. Birch
$
33,455
$148,875
$148,875
Scott Stubbs
$
57,364
$255,270
$255,270
Ronald G. Garriques
$
27,046
$120,355
$120,355
Edward Terino
27,046
$120,355
30,000
$133,500
$253,855
Executive Severance Plan
The ZAGG Inc Executive Severance Plan (the “Severance Plan”) provides for the payment of certain severance and other benefits to our current executive officers, in the event of a qualifying termination of employment with us (and supersedes and replaces any similar benefits provided under any prior employment or other agreement between us and our current executive officers).
Under the Severance Plan, in the event of a termination of a covered executive’s employment by us without “Cause” or by the executive for “Good Reason” (each as defined in the Severance Plan) the executive will be eligible to receive the following payments and benefits:
a cash payment equal to the sum of (i) 100% of the executive’s then-current annual base salary, payable in substantially equal installments over a period of one (1) year in accordance with the Company’s normal payroll practice plus (ii) a pro-rata portion of the executive’s cash performance bonus, if any, for the year in which the termination occurs, based on actual performance during the year in which the termination occurs; and
Company-paid COBRA premium payments for the executive and the executive’s covered dependents for up to 12 months.
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However, if either such termination occurs within the period beginning on the date of a “Change in Control”, and ending on the one-year anniversary of such Change in Control, the executive will be eligible to receive:
a cash payment equal to the sum of (i) 100% (200% with respect to Mr. Ahern) of the executive’s then-current annual base salary, plus (ii) 100% (200% with respect to Mr. Ahern) of the executive’s target cash performance bonus for the year in which the termination occurs, to be paid in substantially equal installments over a period of one (1) year (two (2) years with respect to Mr. Ahern) in accordance with the Company’s normal payroll practice;
Company-paid COBRA premium payments for the executive and the executive’s covered dependents for up to 12 months (18 months for Mr. Ahern);
with respect to Mr. Ahern only, a single lump-sum payment in an amount equal to six months of his monthly COBRA premium payment; and
full vesting acceleration of all outstanding ZAGG equity awards, with performance stock unit awards paid at target performance values.
Each executive’s right to receive the severance payments and benefits described above is subject to such executive’s delivery and, as applicable, non-revocation of a general release of claims in favor of ZAGG, and such executive’s continued compliance with any applicable restrictive covenants.
In addition, in the event that any payment under the Severance Plan, together with any other amounts paid to an executive by ZAGG, would subject an executive to an excise tax under Section 4999 of the Internal Revenue Code, such payments will be reduced to the extent that such reduction would produce a better net after-tax result for such executive.
Retention Awards
Mr. Ahern and Mr. Smith will receive retention awards of up to $2,000,000 and $100,000, respectively, subject to the terms of the Merger Agreement and the consummation of the Merger.
Continuing Employees
The Merger Agreement provides that from the effective time of the Merger and thereafter, Parent and its affiliates shall recognize the employment or service of each employee of ZAGG or any of its subsidiaries who, as of the closing of the Merger, continues to be employed by ZAGG or any of its subsidiaries (a “Continuing Employee”) for all purposes, including for purposes of determining, as applicable, eligibility for participation, vesting, and entitlement of the Continuing Employee under all employee benefit plans maintained by the surviving corporation, Parent, or any of their respective affiliates, including vacation plans or arrangements, 401(k) or other retirement plans and any severance or welfare plans, except to the extent such recognition would result in a duplication of benefits.
Named Executive Officer Golden Parachute Compensation
The following table provides information about certain compensation for each of the Company’s named executive officers, for the fiscal year ended December 31, 2019 and identified in the Company’s Definitive Proxy Statement on Schedule 14A for its 2020 Annual Meeting of Stockholders, that is based on or otherwise relates to the Merger. The amounts in the table were calculated using information regarding outstanding Company RSUs held by each named executive officer as of the Record Date, which is the latest practicable date prior to the filing of this proxy statement, and a per-share price for ZAGG common stock of $4.45, which represents (i) $4.20 (i.e., the Closing Date Consideration) plus (ii) an amount per share of $0.25 per PPP Loan Forgiveness Right, which is the amount estimated at the time of the Merger Agreement. The latter amount is solely for illustrative purposes and we make no assurance as to what the actual amount might be or if or when it might be paid. The compensation summarized in the table and footnotes below is subject to a non-binding, advisory vote of the stockholders of ZAGG, as described in “Proposal 3: Advisory Vote on Merger-Related Named Executive Officer Compensation” on page 96 of this proxy statement.
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The amounts in the following table are estimates based on multiple assumptions that may not actually occur, including assumptions described in this proxy statement, and do not include amounts that were vested as of the Record Date. In addition, certain amounts will vary depending on the actual date of closing of the Merger, which is presently expected to be in the first quarter of 2021. As a result, the actual amounts, if any, to be received by a named executive officer may differ in material respects from the amounts set forth below.
Golden Parachute Compensation
Name
Cash(1)
Equity(2)
Perquisites/
Benefits(3)
Total
Chris Ahern
$4,400,000
$1,066,629
$41,604
$5,508,233
Taylor Smith
$570,400
$253,668
$20,068
$844,136
Jim Kearns
$616,000
$255,568
$6,458
$878,026
Bradley Holiday(4)
Brian Stech(5)
(1)
The amounts in this column represent (i) aggregate cash severance payments that each named executive officer (other than Messrs. Holiday and Stech) would be entitled to receive under the Severance Plan if his employment were terminated by ZAGG without Cause or by the named executive officer for Good Reason on the Record Date and (ii) the retention awards that would be payable to Messrs. Ahern and Smith in connection with the consummation of the Merger. See “The Merger—Interests of the Directors and Executive Officers of ZAGG in the Merger—Executive Severance Plan” and “The Merger—Interests of the Directors and Executive Officers of ZAGG in the Merger—Retention Awards” on pages 57 and 58 of this proxy statement for a description of each named executive officer’s severance rights and retention awards, if applicable.
The following table quantifies each separate form of compensation included in the aggregate total reported in this column. The amounts in the columns entitled “Cash Salary Severance” and “Incentive Compensation Severance” are considered payable pursuant to a “double-trigger” arrangement. However, the amounts listed in the column entitled “Cash Salary Severance” for Mr. Smith and Mr. Kearns are payable upon a qualifying termination of employment regardless of whether a change in control occurs. The retention awards payable to Messrs. Ahern and Smith are payable pursuant to a “single-trigger” arrangement.
Name
Cash Salary
Severance ($)
Incentive
Compensation
Severance ($)
Retention
Award ($)
Total
Chris Ahern
$1,200,000
$1,200,000
$2,000,000
$4,400,000
Taylor Smith
$336,000
$134,400
$100,000
$570,400
Jim Kearns
$440,000
$176,600
$616,600
(2)
The amounts in this column represent the aggregate Merger Consideration that each named executive officer (other than Messrs. Holiday and Stech) would receive with respect to unvested Company RSUs in connection with the Merger, calculated by multiplying the total number of such Company RSUs by the sum of (i) the Closing Date Consideration and (ii) an amount per share for illustrative purposes of $0.25 per PPP Loan Forgiveness Right, which is the amount estimated at the time of the Merger Agreement. The following table sets forth the number of unvested Company RSUs held by each named executive officer (other than Messrs. Holiday and Stech) on the Record Date.
Name
Company RSUs
Chris Ahern
239,692
Taylor Smith
57,004
Jim Kearns
57,431
(3)
The amounts in the table include the estimated value of the Company-paid COBRA insurance coverage for Messrs. Ahern, Smith, and Kearns and their eligible dependents for 12 months (18 months for Mr. Ahern), following the qualifying termination of employment, as well as an additional lump sum payment to Mr. Ahern equal to 6 months of COBRA premium payments.
(4)
Effective March 31, 2019, Mr. Holiday resigned as CFO of ZAGG. Mr. Holiday will not receive any additional compensation in connection with the Merger.
(5)
Effective July 17, 2019, Mr. Stech resigned as President of ZAGG. Mr. Stech will not receive any additional compensation in connection with the Merger.
Narrative Disclosure to Named Executive Officer Golden Parachute Compensation Table
For additional information relating to our named executive officers’ cash severance payments, retention awards and the treatment of equity-based awards held by our named executive officers, see “The Merger—Interests of the Directors and Executive Officers of ZAGG in the Merger” on page 56 of this proxy statement.
Insurance and Indemnification of Directors and Executive Officers
Under the Merger Agreement, from and after the effective time of the Merger, Parent, and the Surviving Corporation, jointly and severally, will indemnify and hold harmless each person who is now, or has been or becomes at any time prior to the effective time of the Merger, an officer, director, or employee of ZAGG or any of its
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subsidiaries, solely when acting in such official capacity for ZAGG or any of its subsidiaries or in an official capacity for another entity at the request of or on behalf of ZAGG or any of its subsidiaries (together with such person’s heirs, executors, or administrators, collectively, the “Indemnified Parties”), against any losses, claims, damages, liabilities, costs, certain expenses, judgments, fines, penalties and amounts paid in settlement, including all interest, assessments, and other charges paid, arising out of matters existing or occurring at or prior to the effective time of the Merger (including in connection with the Merger Agreement or the transactions contemplated thereby).
Under the Merger Agreement, Parent and Merger Sub agree that all rights to indemnification, advancement of expenses, and exculpation from liabilities for acts or omissions occurring at, or prior to, the effective time of the Merger existing as of the date of the Merger Agreement in favor of the indemnitees as provided in ZAGG’s certificate of incorporation and bylaws and indemnification agreements of ZAGG, or any of its subsidiaries will be assumed by the Surviving Corporation and Parent in the Merger, without further action, at the effective time of the Merger and will survive the Merger and continue in full force and effect in accordance with their terms. For a period of six years from the effective time of the Merger, the Surviving Corporation and its subsidiaries will maintain in effect the indemnification, advancement of expenses, exculpation, and limitations on liability of directors and officers provisions as provided in the applicable party’s certificate of incorporation and bylaws or similar organizational documents in effect as the effective date of the Merger, and will not amend, repeal, or otherwise modify any such provisions in any manner that would adversely affect the rights thereunder of any individuals who immediately before the effective time of the Merger were current or former directors, officers, or employees of ZAGG or its subsidiaries; provided, however, that all rights to exculpation, indemnification, and advancement of expenses in respect of any proceeding pending or asserted or any claim made within such period shall continue until the final disposition of such proceeding.
The Merger Agreement provides that Parent shall purchase and pay for a “tail” insurance policy to become effective at the effective time of the Merger with a claims period of at least six years from and after the effective time of the Merger, with benefits and levels of coverage no less favorable as ZAGG’s existing policies with respect to matters existing or occurring at or prior to the effective time of the Merger.
In the event that either Parent or the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving corporation, partnership, or entity of such consolidation or Merger or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each case, proper provisions will be made so that the successor or assign expressly assumes the insurance and indemnification obligations described above.
PPP Loan Forgiveness Rights Agreement
In connection with the closing of the Merger, ZAGG will enter into the PPP Loan Forgiveness Rights Agreement. The PPP Loan Forgiveness Rights Agreement generally restricts the transfer of PPP Loan Forgiveness Rights and provides that if certain conditions are not satisfied as of December 31, 2022, the PPP Loan Forgiveness Rights will expire.
Payment of the PPP Loan Forgiveness Rights is subject to the receipt by ZAGG on or prior to December 31, 2022 of (i) written confirmation from the U.S. Small Business Administration that the U.S. Small Business Administration’s audit of the PPP Loan has been satisfactorily completed and (ii) written confirmation from the U.S. Small Business Administration and KeyBank, N.A. of forgiveness of a portion of the amounts outstanding under the PPP Loan.
No later than three business days after the satisfaction of the conditions set forth in the immediately preceding paragraph, ZAGG will deliver to the Rights Agent the Additional Merger Consideration. No later than five business days after receipt of the Additional Merger Consideration from ZAGG, the Rights Agent will pay to each holder, an amount equal to (i) the Additional Merger Consideration divided by (ii) the total number of PPP Loan Forgiveness Rights outstanding at the time of such payment, multiplied by (iii) the number of PPP Loan Forgiveness Rights held by such holder.
The Additional Merger Consideration is contingent on a number of factors and could be zero. We expect the PPP Loan will be audited based on guidance issued by the U.S. Small Business Administration, and the audit may not be complete prior to the expiration of the PPP Loan Forgiveness Rights or the results of the audit may be unfavorable for ZAGG. On January 20, 2021, we applied for forgiveness of the entire $9.4 million, which if forgiven could result in additional consideration of up to $0.30 per share, but we make no assurance as to what the actual amount might be or if or when it might be paid.
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With the consent of holders holding a majority of the outstanding PPP Loan Forgiveness Rights, the PPP Loan Forgiveness Rights Agreement may be amended to add, eliminate, or change any provisions, even if such addition, elimination, or change is in any way adverse to the interests of the holders.
Voting and Support Agreement
Simultaneously with the execution of the Merger Agreement, certain stockholders of ZAGG, who are directors and officers of ZAGG beneficially owning approximately 2.0% of the outstanding shares of ZAGG, entered into a Voting and Support Agreement (the “Voting and Support Agreement”) with Parent and ZAGG under which such persons agreed, among other things, to vote in favor of the Merger Agreement and the transactions contemplated thereby, in favor of any proposal to adjourn the special meeting to solicit additional proxies in favor of the Merger Agreement and the transactions contemplated thereby and against certain competing transactions as described under “The Merger Agreement—Non-Solicitation of Acquisition Proposals; Change of Recommendation” beginning on page 81 of this proxy statement. Each stockholder party to the Voting and Support Agreement will be subject to certain other restrictions, including transfer restrictions on their shares, and has waived appraisal rights and agreed not to commence, join in, facilitate, assist or encourage any claim, derivative or otherwise, related to the Merger Agreement or the transactions contemplated thereby, other than claims related to the enforcement of rights provided in the Merger Agreement or the Voting and Support Agreement.
The Voting and Support Agreement terminates upon the earliest to occur of (i) the conclusion of the special meeting and the shares of stockholders party to the Voting and Support Agreement having been voted as specified herein, (ii) the termination of the Voting and Support Agreement by mutual written consent of the parties thereto, (iii) the termination of the Merger Agreement prior to the effective time of the Merger, (iv) a change of recommendation to the extent permitted by the Merger Agreement, (v) ZAGG’s entry into an alternative acquisition agreement, (vi) the effective time of the Merger, and (vii) certain amendments to the Merger Agreement without the prior written consent of the stockholders.
This summary does not purport to be complete and is qualified in its entirety by reference to the Voting and Support Agreement, which is attached as Appendix B to this proxy statement.
Financing of the Merger
The Evercel Group has committed to contribute, or cause to be contributed, $70 million to an indirect parent of Parent (“Holdings”) immediately prior to the time that Parent is obligated to consummate the Merger pursuant to the Merger Agreement (the “Equity Commitments”), subject to the terms of an equity commitment letter dated December 10, 2020 (the “Equity Commitment Letter”). The Evercel Group may assign any portion of its Equity Commitment, but will not be released from its obligations under the Equity Commitment Letter in the event of any failure by such assignee to fund the assigned portion of the Equity Commitment.
Lynx (directly or through one or more of its affiliates or related funds) has committed to provide an amount in cash of $75 million, consisting of a $40 million term loan facility for Holdings (the “Holdings Debt Commitment”) and a $35 million term loan facility for ZAGG, subject to the terms of debt commitment letters dated December 10, 2020 (collectively, the “Lynx Debt Commitments”).
Pursuant to the Equity Commitment Letter, Evercel has committed to cause Holdings to contribute the Equity Commitments and Holdings Debt Commitment to Parent to enable Parent to timely make the payments required of it under the Merger Agreement.
The ABL Lender has committed to provide and underwrite an $85 million senior secured revolving credit facility for ZAGG (the “Facility” and, collectively with the Lynx Debt Commitments, the “Debt Commitments”), subject to the terms of a commitment letter dated December 10, 2020. The ABL Lender may arrange a syndicate of lenders to provide commitments for the Facility, but their commitment to provide the entire amount of the Facility is not conditioned upon such syndication. It is anticipated that $67 million will be available for borrowing under the Facility at the time the Merger is consummated.
The obligations of the ABL Lender and Lynx to provide the Debt Commitments are subject to a number of conditions, including the receipt of executed loan documentation, accuracy of certain specified representations and warranties, contributions of the equity contemplated by the Equity Commitment Letter, and other customary closing conditions for financings of this type.
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The proceeds of the debt financing will be used, among other things, (i) to finance, in part, the payment of the amounts payable under the Merger Agreement and the payment of related fees and expenses, (ii) to refinance existing indebtedness of ZAGG, (iii) to finance ongoing working capital, and (iv) for general corporate purposes.
The Merger Agreement does not include a financing-related closing condition.
Limited Guaranty
Pursuant to the limited guaranty delivered by Evercel, dated as of December 10, 2020, Evercel has agreed to guarantee Parent’s obligations under the Merger Agreement to pay any applicable termination fee, and Parent’s expense reimbursement and indemnification obligations under the Merger Agreement.
Appraisal Rights
General
If the Merger is completed, holders of shares of ZAGG common stock who do not vote in favor of the adoption of the Merger Agreement and who properly demand an appraisal of their shares and who otherwise comply with the requirements set forth in Section 262 of the DGCL will be entitled to appraisal rights in connection with the Merger. Strict compliance with the statutory procedures in Section 262 of the DGCL is required. Failure to timely and properly comply with such statutory requirements will result in the loss of your appraisal rights.
This section summarizes certain material provisions of the DGCL pertaining to appraisal rights. The following discussion, however, is not a full summary of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by reference to the full text of Section 262 of the DGCL, which is attached as Appendix C to this proxy statement and incorporated by reference herein. All references within Section 262 of the DGCL to “stockholder” are to the record holder of shares of ZAGG common stock. The following discussion does not constitute any legal or other advice, nor does it constitute a recommendation as to whether or not a ZAGG stockholder should exercise its right to seek appraisal under Section 262 of the DGCL.
Under the DGCL, if you hold one or more shares of ZAGG common stock, do not vote in favor of the adoption of the Merger Agreement, continuously are the record holder of such shares through the effective time of the Merger and otherwise comply with the requirements set forth in Section 262 of the DGCL, you will be entitled to have your shares appraised by the Delaware Court of Chancery and to receive the “fair value” of such shares (as determined by the Delaware Court of Chancery, exclusive of any element of value arising from the accomplishment or expectation of the Merger or related transactions) in cash, together with interest, if any, to be paid upon the amount determined to be the fair value. It is possible that any such “fair value” as determined by the Delaware Court of Chancery may be more or less than, or the same as, the Merger Consideration which ZAGG stockholders will be entitled to receive upon the consummation of the Merger pursuant to the Merger Agreement. These rights are known as appraisal rights.
Under Section 262 of the DGCL, not less than 20 days prior to the special meeting at which the adoption of the Merger Agreement will be submitted to the stockholders, ZAGG must notify each stockholder who was a ZAGG stockholder on the Record Date and who is entitled to exercise appraisal rights that appraisal rights are available and include in the notice a copy of Section 262 of the DGCL. This proxy statement constitutes the required notice, and a copy of Section 262 of the DGCL is attached as Appendix C to this proxy statement.
A HOLDER OF ZAGG COMMON STOCK WHO WISHES TO EXERCISE APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO SHOULD REVIEW THE FOLLOWING DISCUSSIONS AND APPENDIX C CAREFULLY. FAILURE TO COMPLY PRECISELY WITH THE PROCEDURES OF SECTION 262 OF THE DGCL IN A TIMELY AND PROPER MANNER WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS. BECAUSE OF THE COMPLEXITY OF THE PROCEDURES FOR EXERCISING THE RIGHT TO SEEK APPRAISAL UNDER SECTION 262 OF THE DGCL, A HOLDER OF ZAGG COMMON STOCK WHO IS CONSIDERING WHETHER TO EXERCISE ITS APPRAISAL RIGHTS IS ENCOURAGED TO CONSULT WITH ITS OWN LEGAL COUNSEL. ANY SHARES OF ZAGG COMMON STOCK HELD BY A ZAGG STOCKHOLDER WHO FAILS TO PERFECT, SUCCESSFULLY WITHDRAWS, OR OTHERWISE LOSES HIS, HER, OR ITS APPRAISAL RIGHTS WILL BE DEEMED TO HAVE BEEN CONVERTED AS OF THE EFFECTIVE TIME OF THE MERGER INTO THE RIGHT TO RECEIVE THE MERGER CONSIDERATION.
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How to Exercise and Perfect Your Appraisal Rights
If you are a ZAGG stockholder and wish to exercise the right to seek an appraisal of your shares of ZAGG common stock, you must comply with ALL of the following:
you must NOT vote “FOR,” or otherwise consent in writing to, the Merger Proposal. Because a proxy that is signed and submitted but does not otherwise contain voting instructions will, unless revoked, be voted in favor of the Merger Proposal, if you submit a proxy and wish to exercise your appraisal rights, you must include voting instructions to vote your shares “AGAINST,” or as an abstention with respect to, the Merger Proposal;
you must continuously hold your shares of ZAGG common stock from the date of making the demand through the effective time of the Merger. You will lose your appraisal rights if you transfer your shares of ZAGG common stock before the effective time of the Merger;
prior to the taking of the vote on the Merger Proposal at the special meeting, you must deliver a proper written demand for appraisal of your shares; and
you, another stockholder, an appropriate beneficial owner, or the Surviving Corporation must file a petition in the Delaware Court of Chancery requesting a determination of the fair value of your shares of ZAGG common stock within 120 days after the effective time of the Merger. The Surviving Corporation is under no obligation to file any such petition in the Delaware Court of Chancery and has no intention of doing so. Accordingly, it is the obligation of ZAGG stockholders to initiate all necessary action to properly demand their appraisal rights in respect of shares of ZAGG common stock within the time prescribed in Section 262 of the DGCL.
Filing a Written Demand
Neither voting against the Merger Proposal, nor abstaining from voting or failing to vote on the Merger Proposal, will in and of itself constitute a written demand for appraisal satisfying the requirements of Section 262 of the DGCL. Any holder of shares of ZAGG common stock wishing to exercise appraisal rights must deliver to ZAGG, before the taking of the vote on the Merger Proposal at the special meeting, a written demand for the appraisal of the stockholder’s shares. A stockholder’s failure to deliver the written demand prior to the taking of the vote on the Merger Proposal at the special meeting will constitute a waiver of appraisal rights. The written demand for appraisal must be in addition to and separate from any proxy or vote on the Merger Proposal.
A demand for appraisal must be executed by or on behalf of the stockholder of record. Only a holder of record may demand appraisal rights for the shares of ZAGG common stock registered in that holder’s name. Such demand will be sufficient if it reasonably informs ZAGG of the identity of the stockholder and that the stockholder intends to demand appraisal of the “fair value” of his, her, or its shares of ZAGG common stock. Beneficial owners who do not also hold their shares of ZAGG common stock of record may not directly make appraisal demands to ZAGG. The beneficial owner must, in such case, arrange for the holder of record, such as broker, bank, or nominee, to timely submit the required demand in respect of those shares of ZAGG common stock. A holder of record, such as a broker, bank, or nominee, who holds shares of ZAGG common stock as a nominee or intermediary for others, may exercise appraisal rights with respect to the shares of ZAGG common stock held for one or more beneficial owners, while not exercising this right for other beneficial owners. The written demand should state the number of shares of ZAGG common stock as to which appraisal is sought. Where no number of shares of ZAGG common stock is expressly mentioned, the demand will be presumed to cover all shares of ZAGG common stock held in the name of the holder of record.
IF YOU HOLD YOUR SHARES OF ZAGG COMMON STOCK IN BANK OR BROKERAGE ACCOUNTS OR OTHER NOMINEE FORMS, AND YOU WISH TO EXERCISE APPRAISAL RIGHTS, YOU SHOULD CONSULT WITH YOUR BANK, BROKER, OR NOMINEE TO DETERMINE THE APPROPRIATE PROCEDURES FOR THE BANK, BROKERAGE FIRM, OR NOMINEE TO MAKE A DEMAND FOR APPRAISAL OF THOSE SHARES. IF YOU HAVE A BENEFICIAL INTEREST IN SHARES OF ZAGG COMMON STOCK HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A NOMINEE OR INTERMEDIARY, YOU MUST ACT PROMPTLY TO CAUSE THE HOLDER OF RECORD TO FOLLOW PROPERLY AND IN A TIMELY MANNER THE STEPS NECESSARY TO DEMAND YOUR APPRAISAL RIGHTS. IF YOU HOLD YOUR SHARES OF ZAGG COMMON STOCK THROUGH A BANK OR BROKERAGE WHO IN TURN HOLDS THE SHARES THROUGH A CENTRAL SECURITIES DEPOSITORY
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NOMINEE, SUCH AS THE DEPOSITORY TRUST COMPANY, A DEMAND FOR APPRAISAL OF SUCH SHARES MUST BE MADE BY OR ON BEHALF OF THE DEPOSITORY NOMINEE AND MUST IDENTIFY THE DEPOSITORY NOMINEE AS THE HOLDER OF RECORD.
If your shares of ZAGG common stock are owned of record in a fiduciary capacity, such as by a trustee, guardian, or custodian, execution of the demand for appraisal should be made in that capacity, and if your shares are owned of record jointly with one or more other persons, as in a joint tenancy or tenancy in common, the demand for appraisal should be executed by or for you and all other joint owners. An authorized agent, including an agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the holder or holders of record and expressly disclose the fact that, in exercising the demand, such person is acting as agent for the holder or holders of record. Stockholders who hold their shares of ZAGG common stock in brokerage accounts or other nominee forms and who wish to exercise appraisal rights are urged to consult with their brokers or other nominees to determine the appropriate procedures for the making of a demand for appraisal by such a nominee.
If you elect to exercise appraisal rights under Section 262 of the DGCL, you should mail or deliver a written demand to:
 
ZAGG Inc
 
Attention: Abby Barraclough, Corporate Secretary
 
910 West Legacy Center Way, Suite 500
 
Midvale, Utah 84047
 
Email: abby.barraclough@zagg.com
 
Phone: 801-506-7005
At any time within 60 days after the effective time of the Merger, any ZAGG stockholder that made a demand for appraisal but has not commenced an appraisal proceeding or joined in such a proceeding as a named party will have the right to withdraw the demand and to accept the Merger Consideration in accordance with the Merger Agreement for his, her, or its shares of ZAGG common stock by delivering to the Surviving Corporation a written withdrawal of the demand for appraisal, but after such 60 day period a demand for appraisal may be withdrawn only with the written approval of the Surviving Corporation.
Notice by the Surviving Corporation. Within ten days after the effective time of the Merger, ZAGG, as the Surviving Corporation, must notify each holder of ZAGG common stock who has made a written demand for appraisal pursuant to Section 262 of the DGCL and has not voted in favor of the Merger Proposal of the date that the Merger has become effective.
Filing a Petition for Appraisal with the Delaware Court of Chancery. Within 120 days after the effective time of the Merger, but not later, either you, provided you have complied with the requirements of Section 262 of the DGCL and are otherwise entitled to appraisal rights, or the Surviving Corporation may commence an appraisal proceeding by filing a petition in the Delaware Court of Chancery, with a copy served on the Surviving Corporation in the case of a petition filed by you, demanding an appraisal of the value of the shares of ZAGG common stock held by all stockholders who have properly demanded appraisal. None of Parent, Merger Sub, or ZAGG, as the Surviving Corporation is under any obligation to file an appraisal petition or has any intention to do so. If you desire to have your shares of ZAGG common stock appraised, you should initiate any petitions necessary for properly demanding your appraisal rights within the time periods and in the manner prescribed in Section 262 of the DGCL. The failure of a holder of ZAGG common stock to file such a petition within the time periods specified in Section 262 could nullify the stockholder’s previous written demand for appraisal.
Within 120 days after the effective time of the Merger, provided you have complied with the provisions of Section 262 of the DGCL, you will be entitled to receive from the Surviving Corporation, upon written request, a statement setting forth the aggregate number of shares of ZAGG common stock not voted in favor of the Merger Proposal and with respect to which ZAGG has received demands for appraisal, and the aggregate number of holders of those shares. The Surviving Corporation must mail this statement to you within the later of (i) ten days after receipt by the Surviving Corporation of the request therefor or (ii) ten days after expiration of the period for delivery of demands for appraisal. If you are the beneficial owner of shares of ZAGG common stock held in a voting trust or by a nominee on your behalf you may, in your own name, file an appraisal petition or request from the Surviving Corporation the statement described in this paragraph.
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If a petition for appraisal is not timely filed or if you deliver to the Surviving Corporation a written withdrawal of your demand for an appraisal and an acceptance of the Merger, either within 60 days after the effective time of the Merger or thereafter with the written approval of the Surviving Corporation, then the right to appraisal will cease.
If a petition for appraisal is duly filed by you or another holder of record of ZAGG common stock who has properly exercised his, her, or its appraisal rights in accordance with the provisions of Section 262 of the DGCL, and a copy of the petition is delivered to the Surviving Corporation, the Surviving Corporation will be obligated, within 20 days after receiving service of a copy of the petition, to file with the Delaware Court of Chancery a duly verified list containing the names and addresses of all holders who have demanded an appraisal of their shares of ZAGG common stock and with whom agreements as to the value of their shares of ZAGG common stock have not been reached by the Surviving Corporation. After notice of the time and place fixed for the hearing of such petition by registered or certified mail to the Surviving Corporation and to the stockholders shown on the list at the addresses therein stated as required by the court, the Delaware Court of Chancery is empowered to conduct a hearing on the petition to determine which ZAGG stockholders have complied with Section 262 of the DGCL and have become entitled to appraisal rights and may require the ZAGG stockholders demanding appraisal who hold certificated shares of ZAGG common stock to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings, and the Delaware Court of Chancery may dismiss the proceedings as to any ZAGG stockholder who fails to comply with this direction. Such notice shall also be given by one or more publications at least one week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Delaware Court of Chancery deems advisable. The forms of the notices by mail and by publication shall be approved by the Delaware Court of Chancery, and the costs thereof shall be borne by the Surviving Corporation. In addition, the Delaware Court of Chancery will dismiss the proceedings as to all holders of such shares who are otherwise entitled to appraisal rights unless (i) the total number of shares of ZAGG common stock entitled to appraisal exceeds 1% of the outstanding shares of ZAGG common stock, or (ii) the value of the consideration provided in the Merger for such total number of shares of ZAGG common stock exceeds $1.0 million.
The appraisal proceeding will be conducted as to the shares of ZAGG common stock owned by such stockholders, in accordance with the rules of the Delaware Court of Chancery, including any rules specifically governing appraisal proceedings. Through the appraisal proceeding, the Delaware Court of Chancery will determine the fair value of the shares of ZAGG common stock held by all ZAGG stockholders who have properly demanded their appraisal rights, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with interest, if any, to be paid upon the amount determined to be the fair value. Unless the Delaware Court of Chancery, in its discretion determines otherwise for good cause shown, and except as otherwise provided in Section 262 of the DGCL, interest from the effective time of the Merger through the date of payment of the judgment will be compounded quarterly and will accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective time of the Merger and the date of payment of the judgment. Upon application by the Surviving Corporation or by any stockholder entitled to participate in the appraisal proceeding, the Delaware Court of Chancery may, in its discretion, proceed to trial upon the appraisal prior to the final determination of the stockholders entitled to an appraisal. Any stockholder whose name appears on the list filed by the Surviving Corporation and who has submitted such stockholder’s certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal. At any time before the entry of judgment in the proceedings, the Surviving Corporation may pay to each stockholder entitled to appraisal an amount in cash, in which case interest shall accrue thereafter as provided herein only upon the sum of (1) the difference, if any, between the amount so paid and the fair value of the shares as determined by the Delaware Court of Chancery and (2) interest theretofore accrued, unless paid at that time. When the value is determined, the Delaware Court of Chancery will direct the payment of such value, with interest thereon, if any, to the ZAGG stockholders entitled to receive the same, forthwith in the case of uncertificated stockholders or upon surrender by certificated stockholders to the Surviving Corporation of their stock certificates.
In determining the fair value, the Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court has stated that, in making this determination of fair value, the court must
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consider market value, asset value, dividends, earnings prospects, the nature of the enterprise, and any other factors which were known or which could be ascertained as of the date of the Merger which throw any light on future prospects of the merged corporation. Section 262 of the DGCL provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the Merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court construed Section 262 of the DGCL to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the Merger and not the product of speculation, may be considered.” An opinion of an investment banking firm as to the fairness from a financial point of view of the consideration payable in a Merger is not an opinion as to fair value under Section 262 of the DGCL. The fair value of shares of ZAGG common stock as determined under Section 262 of the DGCL could be greater than, the same as, or less than the Merger Consideration. Neither Parent nor ZAGG, as the Surviving Corporation, anticipates offering more than the Merger Consideration to any ZAGG stockholder exercising appraisal rights and reserves the right to assert, in any appraisal proceeding, that, for purposes of Section 262 of the DGCL, the “fair value” of a share of ZAGG common stock is less than the Merger Consideration. No representation is made as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery.
If no party files a petition for appraisal within 120 days after the effective time of the Merger, you will lose the right to an appraisal and will instead receive the Merger Consideration in accordance with the Merger Agreement, without interest thereon, less any withholding taxes.
The Delaware Court of Chancery may determine the costs of the appraisal proceeding (which do not include attorneys’ fees or the fees and expenses of experts) and may tax those costs upon the parties as the Delaware Court of Chancery deems equitable under the circumstances. Upon application of a stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares of ZAGG common stock entitled to appraisal. In the absence of such an order, each party to the appraisal proceeding bears its own expenses.
If you have duly demanded an appraisal in compliance with Section 262 of the DGCL you will not, from and after the effective time of the Merger, be entitled to vote the shares of ZAGG common stock subject to the demand for any purpose or receive any dividends or other distributions on those shares, except dividends or other distributions payable to holders of record of ZAGG common stock as of a record date prior to the effective time of the Merger.
If you have not commenced an appraisal proceeding or joined such a proceeding as a named party you may withdraw a demand for appraisal and accept the Merger Consideration by delivering a written withdrawal of the demand for appraisal and an acceptance of the consideration payable in the Merger to the Surviving Corporation, except that any attempt to withdraw made more than 60 days after the effective time of the Merger will require written approval of the Surviving Corporation, and no appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the Delaware Court of Chancery. Such approval may be conditioned on the terms the Delaware Court of Chancery deems just; provided, however, that this provision will not affect the right of any ZAGG stockholder that has made an appraisal demand but who has not commenced an appraisal proceeding or joined such proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the terms offered in the Merger within 60 days after the effective time of the Merger. If you fail to properly demand or successfully withdraw your demand for appraisal, or otherwise lose your appraisal rights, your shares of ZAGG common stock will be deemed to have been converted as of the effective time of the Merger into the right to receive the Merger Consideration, without interest thereon, less any withholding taxes.
Failure to follow the steps required by Section 262 of the DGCL for properly demanding appraisal rights may result in the loss of your appraisal rights. In that event, you will be entitled to receive the Merger Consideration for your shares of ZAGG common stock in accordance with the Merger Agreement.
THE PROCESS OF DEMANDING AND EXERCISING APPRAISAL RIGHTS REQUIRES STRICT COMPLIANCE WITH THE TECHNICAL PREREQUISITES OF SECTION 262 OF THE DGCL. IF YOU WISH TO EXERCISE YOUR APPRAISAL RIGHTS, YOU SHOULD CONSULT WITH YOUR OWN LEGAL COUNSEL. TO THE EXTENT THERE ARE ANY INCONSISTENCIES BETWEEN THE FOREGOING SUMMARY AND SECTION 262 OF THE DGCL, THE DGCL WILL GOVERN.
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Accounting Treatment
The Merger will be accounted for as a “purchase transaction” for financial accounting purposes.
U.S. Federal Income Tax Consequences of the Merger
The following discussion is a summary of the material U.S. federal income tax consequences of the Merger to U.S. holders and non-U.S. holders (each as defined below) of ZAGG common stock who receive Merger Consideration in exchange for shares of ZAGG common stock pursuant to the Merger. This discussion is for general information purposes only and does not purport to be a complete analysis of all potential tax consequences of the Merger. The tax consequences of the Merger under U.S. federal tax laws other than those pertaining to income tax, such as estate and gift tax laws, and any applicable state, local, and non-U.S. tax laws are not discussed. This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury Regulations promulgated thereunder, judicial decisions and published rulings, and administrative pronouncements of the Internal Revenue Service (the “IRS”), in each case in effect as of the date of this proxy statement. These authorities may change or be subject to differing interpretations, and any such change or differing interpretation may be applied retroactively in a manner that could affect the accuracy of the statements and conclusions set forth in this summary. The U.S. federal income tax laws are complex and subject to varying interpretation. We have not sought, and do not intend to seek, any ruling from the IRS with respect to the statements made and the conclusions reached in the following summary. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the Merger.
This discussion is limited to holders of shares of ZAGG common stock who hold such shares as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences that may be relevant to a holder in light of such holder’s particular circumstances, including the impact of the Medicare contribution tax on net investment income and the alternative minimum tax. In addition, this discussion does not address the U.S. federal income tax consequences to holders subject to special rules under the U.S. federal income tax laws, including, without limitation:
U.S. expatriates and former citizens or long-term residents of the United States;
U.S. holders whose functional currency is not the U.S. dollar;
persons holding shares of ZAGG common stock as part of a hedge, straddle, or other risk reduction strategy or as part of a conversion transaction or other integrated investment;
banks, insurance companies, and other financial institutions;
brokers or dealers in securities;
traders in securities that elect to apply a mark-to-market method of accounting;
“controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax;
“S corporations,” partnerships, or other entities or arrangements classified as partnerships for U.S. federal income tax purposes or other pass-through entities (and investors therein);
real estate investment trusts and regulated investment companies;
tax-exempt organizations or governmental organizations;
persons subject to special tax accounting rules as a result of any item of gross income with respect to shares of ZAGG common stock being taken into account in an applicable financial statement;
persons deemed to sell their shares of ZAGG common stock under the constructive sale provisions of the Code;