Case 1:21-cv-00358 Document 1 Filed 01/14/21 Page 1 of 29
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`Evan J. Smith
`BRODSKY & SMITH, LLC
`240 Mineola Boulevard
`First Floor
`Mineola, NY 11501
`Telephone:
`516.741.4977
`Facsimile:
`516.741.0626
`esmith@brodskysmith.com
`
`Attorneys for Plaintiff
`
`
`
`
`UNITED STATES DISTRICT COURT
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`SOUTHERN DISTRICT OF NEW YORK
`
`ARASH NIKOUGHADEM, on behalf of
`himself and those similarly situated,
`
` Plaintiff,
`
` v.
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`ZAGG INC, CHERYL A. LARABEE, CHRIS
`AHERN, DAN MAURER, SCOTT STUBBS,
`MICHAEL BIRCH, RON GARRIQUES, and
`EDWARD TERINO,
`
`
`
`Defendants.
`
`
`Case No.:
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`CLASS ACTION
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`CLASS ACTION COMPLAINT FOR:
`(1) Violation of § 14 (a) of the Securities
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`Exchange Act of 1934
`(2) Violation of § 20(a) of the Securities
`
`Exchange Act of 1934
`(3) Breach of Fiduciary Duties
`(4) Aiding and Abetting Breach of
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`Fiduciary
`Duties
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`DEMAND FOR JURY TRIAL
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`
`
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`Plaintiff, Arash Nikoughadem (“Plaintiff”), by his attorneys, on behalf of himself and those
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`similarly situated, files this action against the defendants, and alleges upon information and belief,
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`except for those allegations that pertain to him, which are alleged upon personal knowledge, as
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`follows:
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`

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`Case 1:21-cv-00358 Document 1 Filed 01/14/21 Page 2 of 29
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`SUMMARY OF THE ACTION
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`1.
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`Plaintiff brings this stockholder class action on behalf of himself and all other
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`public stockholders of ZAGG Inc (“ZAGG” or the “Company”), against ZAGG and the
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`Company’s Board of Directors (the “Board” or the “Individual Defendants,” and collectively with
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`ZAGG, the “Defendants”) for violations of Sections 14(a) and 20(a) of the Securities and
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`Exchange Act of 1934 (the “Exchange Act”), breaches of fiduciary duty as a result of Defendants’
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`efforts to sell the Company to Zephyr Parent, Inc. (“Parent”), and Zephyr Merger Sub, Inc.
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`(“Merger Sub,” and collectively with Parent, “Evercel”) as a result of an unfair process for an
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`unfair price, and to enjoin an upcoming stockholder vote on a proposed all cash transaction valued
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`at approximately $132.8 million (the “Proposed Transaction”).
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`2.
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`The terms of the Proposed Transaction were memorialized in a December 11, 2020,
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`filing with the Securities and Exchange Commission (“SEC”) on Form 8-K, attaching the
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`definitive Agreement and Plan of Merger (the “Merger Agreement”). Under the terms of the
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`Merger Agreement, Evercel will acquire all of the outstanding shares of ZAGG’s common stock
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`at a price up to $4.45 per share in cash. ZAGG stockholders will receive $4.20 per share in cash
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`upon closing and a Contingent Value Right (“CVR”) of up to $0.25 per share, to be paid if the
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`Company’s Paycheck Protection Program Loan (the “PPP Loan”) is forgiven and any audit related
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`thereto is satisfactorily completed. As a result, ZAGG will become an indirect wholly-owned
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`subsidiary of Parent, a subsidiary of the Evercel.
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`3.
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`Thereafter, on January 7, 2020, ZAGG filed a Preliminary Proxy Statement on
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`Form PREM14A (the “Preliminary Proxy”) with the SEC in support of the Proposed Transaction.
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`4.
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`The Proposed Transaction is unfair and undervalued for a number of reasons.
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`Significantly, the Preliminary Proxy describes an insufficient process in which the Board
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`acquiesced to two activist stockholder groups who forced through a sale of the Company despite
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`the fact that the Board had previously concluded that continuing as a standalone entity was in the
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`Company’s best interest. The two activist stockholders are (i) a consortium consisting of AREX
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`Capital Master Fund, LP, AREX Capital GP, LLC, AREX Capital Management, LP,
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`AREX Capital Management GP, LLC, and Mr. Andrew Rechtschaffen (the “AREX Parties”), and
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`Roumell Asset Management, LLC and James C. Roumell (the “Roumell Parties”).
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`5.
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`In approving the Proposed Transaction, the Individual Defendants have breached
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`their fiduciary duties of loyalty, good faith, due care and disclosure by, inter alia, (i) agreeing to
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`sell ZAGG without first taking steps to ensure that Plaintiff and Class members (defined below)
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`would obtain adequate, fair and maximum consideration under the circumstances; and (ii)
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`engineering the Proposed Transaction to benefit themselves and/or the Evercel without regard for
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`ZAGG’s public stockholders. Accordingly, this action seeks to enjoin the Proposed Transaction
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`and compel the Individual Defendants to properly exercise their fiduciary duties to ZAGG
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`stockholders.
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`6.
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`Next, it appears as though the Board has entered into the Proposed Transaction to
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`procure for itself and senior management of the Company significant and immediate benefits with
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`no thought to the Company’s public stockholders. For instance, pursuant to the terms of the
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`Merger Agreement, upon the consummation of the Proposed Transaction, Company Board
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`Members and executive officers will be able to exchange all Company equity awards for the
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`merger consideration.
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`7.
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`In violation of the Exchange Act and in further violation of their fiduciary duties,
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`Defendants caused to be filed the materially deficient Preliminary Proxy on January 7, 2021 with
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`the SEC in an effort to solicit stockholders to vote their ZAGG shares in favor of the Proposed
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`Transaction. The Preliminary Proxy is materially deficient, deprives ZAGG’s stockholders of the
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`information they need to make an intelligent, informed and rational decision of whether to vote
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`their shares in favor of the Proposed Transaction, and is thus in breach of the Defendants fiduciary
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`duties. As detailed below, the Preliminary Proxy omits and/or misrepresents material information
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`concerning, among other things: (a) the sales process and in particular certain conflicts of interest
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`for management; (b) the financial projections for ZAGG, provided by ZAGG to the Company’s
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`financial advisor BofA Securities, Inc. (“BofA”); and (c) the data and inputs underlying the
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`financial valuation analyses, if any, that purport to support the fairness opinions created by BofA
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`and provides to the Company and the Board.
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`8.
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`Absent judicial intervention, the Proposed Transaction will be consummated,
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`resulting in irreparable injury to Plaintiff and the Class. This action seeks to enjoin the Proposed
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`Transaction or, in the event the Proposed Transaction is consummated, to recover damages
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`resulting from the breaches of fiduciary duties by Defendants.
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`PARTIES
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`9.
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`Plaintiff is a citizen of California and, at all times relevant hereto, has been an
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`ZAGG stockholder.
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`10.
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`Defendant ZAGG designs, manufactures, and distributes mobile tech accessories
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`for smartphones, tablets, smartwatches, and other mobile technology in the United States, Europe,
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`and internationally. ZAGG is organized under the laws of Delaware and has its principal place of
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`business at 910 West Legacy Center Way, Suite 500, Midvale, Utah 84047. Shares of ZAGG
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`common stock are traded on the Nasdaq under the symbol “ZAGG.”
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`11.
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`Defendant Cheryl A. Larabee ("Larabee") has been a Director of the Company at
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`all relevant times. In addition, Larabee serves as the Chairperson of the Company Board.
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`12.
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`Defendant Chris Ahern (“Ahern") has been a director of the Company at all
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`relevant times. In addition, Ahern serves as the Chief Executive Officer (“CEO”) of the Company.
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`13.
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`Defendant Dan Maurer ("Maurer") has been a director of the Company at all
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`relevant times.
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`14.
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`Defendant Scott Stubbs ("Stubbs") has been a director of the Company at all
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`relevant times.
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`15.
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`Defendant Michael Birch (“Birch”) has been a director of the Company at all
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`relevant times.
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`16.
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`Defendant Ron Garriques (“Garriques”) has been a director of the Company at all
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`relevant times. Garriques was one of two directors who was placed onto the Company Board in
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`April of 2020 as a result of the negotiations between the Company and two activist stockholders,
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`the AREX Parties and the Roumell Parties.
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`17.
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`Defendant Edward Terino (“Terino”) has been a director of the Company at all
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`relevant times. Terino was one of two directors who was placed onto the Company Board in April
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`of 2020 as a result of the negotiations between the Company and two activist stockholders, the
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`AREX Parties and the Roumell Parties.
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`18.
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`Defendants identified in ¶¶ 11 - 17 are collectively referred to as the “Individual
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`Defendants.”
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`19.
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`Non-Defendant Evercel is a holding company that acquires and manages high
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`potential businesses which have been limited by their capital structure. Evercel was founded in
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`1998 and is headquartered in New York, NY.
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`JURISDICTION AND VENUE
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`20.
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`This Court has subject matter jurisdiction pursuant to Section 27 of the Exchange
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`Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331 (federal question jurisdiction) as Plaintiff alleges
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`violations of Sections 14(a) and Section 20(a) of the Exchange Act. This action is not a collusive
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`one to confer jurisdiction on a court of the United States, which it would not otherwise have. The
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`Court has supplemental jurisdiction over any claims arising under state law pursuant to 28 U.S.C.
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`§ 1367.
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`21.
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`Personal jurisdiction exists over each defendant either because the defendants
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`conduct business in or maintain operations in this District, or is an individual who is either present
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`in this District for jurisdictional purposes or has sufficient minimum contacts with this District as
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`to render the exercise of jurisdiction over defendant by this Court permissible under traditional
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`notions of fair play and substantial justice.
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`22.
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`Venue is proper in this District pursuant to 28 U.S.C. § 1391, because each of the
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`Individual Defendants, as Company officers or directors, has extensive contacts within this District
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`and ZAGG stock is traded on the NASDAQ which is located in this District.
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`CLASS ACTION ALLEGATIONS
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`23.
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`Plaintiff brings this action pursuant to Federal Rule of Civil Procedure 23,
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`individually and on behalf of the stockholders of ZAGG common stock who are being and will be
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`harmed by Defendants’ actions described herein (the “Class”). The Class specifically excludes
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`Defendants herein, and any person, firm, trust, corporation or other entity related to, or affiliated
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`with, any of the Defendants.
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`24.
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`This action is properly maintainable as a class action because:
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`a.
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`The Class is so numerous that joinder of all members is impracticable. As
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`of November 9, 2020, there were 29,848,506 shares of ZAGG common stock
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`issued and outstanding, likely owned by hundreds if not thousands of non-affiliated
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`ZAGG public stockholders;
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`b.
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`There are questions of law and fact which are common to the Class,
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`including inter alia, the following:
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`i.
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`ii.
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`Whether Defendants have violated the federal securities laws;
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`Whether Defendants made material misrepresentations and/or
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`omitted material facts in the Preliminary Proxy;
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`Case 1:21-cv-00358 Document 1 Filed 01/14/21 Page 7 of 29
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`iii.
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`iv.
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`Whether Defendants have breached their fiduciary duties; and
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`Whether Plaintiff and the other members of the Class have and will
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`continue to suffer irreparable injury if the Proposed Transaction is
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`consummated.
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`c.
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`Plaintiff is an adequate representative of the Class, has retained competent
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`counsel experienced in litigation of this nature and will fairly and adequately
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`protect the interests of the Class;
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`d.
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`Plaintiff’s claims are typical of the claims of the other members of the Class
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`and Plaintiff does not have any interests adverse to the Class;
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`e.
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`The prosecution of separate actions by individual members of the Class
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`would create a risk of inconsistent or varying adjudications with respect to
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`individual members of the Class which would establish incompatible standards of
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`conduct for the party opposing the Class;
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`f.
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`Plaintiff anticipates that there will be no difficulty in the management of
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`this litigation and, thus, a class action is superior to other available methods for the
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`fair and efficient adjudication of this controversy; and
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`g.
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`Defendants have acted on grounds generally applicable to the Class with
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`respect to the matters complained of herein, thereby making appropriate the relief
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`sought herein with respect to the Class as a whole.
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`THE INDIVIDUAL DEFENDANTS’ FIDUCAIRY DUTIES
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`25.
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`By reason of the Individual Defendants’ positions with the Company as officers
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`and/or directors, said individuals are in a fiduciary relationship with ZAGG and owe the Company
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`the duties of due care, loyalty, and good faith.
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`26.
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`By reason of the Individual Defendants’ positions with the Company as officers
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`and/or directors, said individuals are in a fiduciary relationship with ZAGG and owe the Company
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`the duties of due care, loyalty, and good faith.
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`27.
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`Each of the Individual Defendants are required to act with due care, loyalty, good
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`faith and in the best interests of the Company. To diligently comply with these duties, directors
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`of a corporation must:
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`a.
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`act with the requisite diligence and due care that is reasonable under
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`the circumstances;
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`b.
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`c.
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`act in the best interest of the company;
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`use reasonable means to obtain material information relating to a
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`given action or decision;
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`d.
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`refrain from acts involving conflicts of interest between the
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`fulfillment of their roles in the company and the fulfillment of any other
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`roles or their personal affairs;
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`e.
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`avoid competing against the company or exploiting any business
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`opportunities of the company for their own benefit, or the benefit of others;
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`and
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`f.
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`disclose to the Company all information and documents relating to
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`the company’s affairs that they received by virtue of their positions in the
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`company
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`28.
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`In accordance with their duties of loyalty and good faith, the Individual
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`Defendants, as directors and/or officers of ZAGG, are obligated to refrain from:
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`Case 1:21-cv-00358 Document 1 Filed 01/14/21 Page 9 of 29
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`a.
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`participating in any transaction where the directors’ or officers’ loyalties are
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`divided;
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`b.
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`participating in any transaction where the directors or officers are entitled
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`to receive personal financial benefit not equally shared by the Company or its public
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`stockholders; and/or
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`unjustly enriching themselves at the expense or to the detriment of the Company or
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`its stockholders
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`29.
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`Plaintiff alleges herein that the Individual Defendants, separately and together, in
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`connection with the Proposed Transaction, violated, and are violating, the fiduciary duties they
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`owe to ZAGG, Plaintiff and the other public stockholders of ZAGG, including their duties of
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`loyalty, good faith, and due care
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`30.
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`As a result of the Individual Defendants’ divided loyalties, Plaintiff and Class
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`members will not receive adequate, fair or maximum value for their ZAGG common stock in the
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`Proposed Transaction.
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`Company Background
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`SUBSTANTIVE ALLEGATIONS
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`31.
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`ZAGG, together with its subsidiaries, designs, manufactures, and distributes mobile
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`tech accessories for smartphones, tablets, smartwatches, and other mobile technology in the United
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`States, Europe, and internationally.
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`32.
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`The Company offers screen protection products; protective cases to protect device-
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`specific mobile devices and tablets; power management products for tablets, smartphones,
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`smartwatches, cameras, and other electronic mobile devices; power stations, wireless chargers, car
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`and wall chargers, portable power products, power wallets, etc.; earbuds, headphones, and
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`speakers; and device-specific keyboards and device-agnostic keyboards under the ZAGG,
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`InvisibleShield, mophie, IFROGZ, BRAVEN, Gear4, and HALO brands. It sells its products
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`through indirect channels, including big box retailers, wireless retailers, domestic and international
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`distributors, independent Apple retailers, university bookstores, and small independently owned
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`consumer electronics stores, as well as directly to retailers or through distributors; and directly to
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`consumers on its Website at ZAGG.com. The company also sells its products to franchisees that
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`operate cellphone repair locations, kiosks, and ZAGG-branded stores in shopping malls and retail
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`centers.
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`33.
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`The Company’s most recent financial performance press release before the
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`announcement of the Proposed Transaction indicated sustained and solid financial performance.
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`For example, in a November 9, 2020 press release announcing its 2020 Third Quarter Financial
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`Results, the Company reported Net Sales of $115.5 million, Gross Profit Margin of 33%, Net
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`Income of $6.2 million, and Adjusted EBITDA of $14.7 million.
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`34.
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`Speaking on these positive results, Defendant Ahern stated, “‘Our business
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`improved meaningfully compared with the second quarter as our wholesale channel moved toward
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`more normalized operations and demand for our portfolio of innovative mobile lifestyle products
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`continued to increase… We have taken important steps to emerge from the pandemic a stronger
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`company starting with discontinuing certain low margin products and categories, and simplifying
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`other core lines of business. We have also made progress sharpening our top-line focus and
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`advancing our digital wellness strategies. I am confident in the long-term course we have set for
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`ZAGG and believe we are on track to generate enhanced profitability and increased value for our
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`shareholders.’”
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`35.
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`Ahern continued in the Investor Conference Call regarding the Company’s future
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`outlook, “‘I am confident in the long-term quarter we've set for the company, our efforts around
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`antimicrobial, UV sanitization and blue light protection are driven by our belief that consumers
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`will increasingly look for solutions that will enhance their digital wellness. We also believe another
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`consumer priority will be increased productivity and comfort from home. We will continue our
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`focus on enhancing technology in our lives to accomplish these growing needs... I am confident
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`that we have taken the right steps to emerge from the pandemic as a stronger company.’”
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`36.
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`In addition to the positive financial results, in the past 52 weeks, the stock has traded
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`as high as $9.01 per share, a value that is approximately 102.47% greater than the highest possible
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`consideration of $4.45 per share offered in the Proposed Transaction.
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`37.
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`Despite this upward trajectory and financial promise, the Individual Defendants
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`have caused ZAGG to enter into the Proposed Transaction for insufficient consideration.
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`The Flawed Sales Process
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`38.
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`As detailed in the Preliminary Proxy, the process deployed by the Individual
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`Defendants was flawed and inadequate, was conducted out of the self-interest of the Individual
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`Defendants, and was designed with only one concern in mind – to effectuate a sale of the Company
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`to Evercel.
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`39.
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`First, it is clear from the Preliminary Proxy that the Board determined, after a sales
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`process lasting approximately a year, that it was in ZAGG’s best interest to continue on a
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`standalone basis. This determination however was apparently not palatable to both the AREX
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`Parties and Roumell Parties who both independently delivered letters to the Board disagreeing
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`with the decision. The Board thereafter acquiesced to these demands, and entered agreements with
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`Case 1:21-cv-00358 Document 1 Filed 01/14/21 Page 12 of 29
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`the activist stockholders, which resulted in the appointment of two additional directors and the
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`immediate resumption of the sales process that resulted in the Proposed Transaction.
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`40.
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`Next, while the Preliminary Proxy indicates a so-called “Strategic Committee” was
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`created to run the sales process, it does not indicate what powers this committee had in relation to
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`the sales process, or if its approval was necessary for the Company’s entry into any particular
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`strategic alternative.
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`41. Moreover, the composition of the Strategic Committee is suspect given that two of
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`its members were Defendants Garriques and Terino, the two Directors who were added as a result
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`of the agreement resolving the activist stockholder insurrections against the Board resulting in the
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`continuation of the sales process.
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`42.
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`In addition, the Preliminary Proxy is silent as to the nature of the various
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`confidentiality agreements entered into between the Company and potentially interested third
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`parties throughout the sales process, including Evercel, whether these agreements differ from each
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`other, and if so in what way.
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`43. Moreover, the Preliminary Proxy fails to indicate the specific conditions under
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`which any standstill provision contained in any entered confidentiality agreement entered into
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`between the Company and potentially interested third parties throughout the sales process,
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`including Evercel, would fall away
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`44.
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`It is not surprising, given this background to the overall sales process, that it was
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`conducted in a completely inappropriate and misleading manner.
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`The Proposed Transaction
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`45.
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`On December 11, 2020, ZAGG issued a press release announcing the Proposed
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`Transaction. The press release stated, in relevant part:
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`Case 1:21-cv-00358 Document 1 Filed 01/14/21 Page 13 of 29
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`SALT LAKE CITY, December 11, 2020 (GLOBE NEWSWIRE) – ZAGG Inc
`(Nasdaq: ZAGG) (“we,” “us,” “our,” “ZAGG,” or the “Company”), a leading
`global mobile lifestyle company, and a buyer group (the “Buyer Group”) led by
`Evercel, Inc. (“Evercel”), today announced that they have entered into a definitive
`agreement pursuant to which the Buyer Group will acquire all of the issued and
`outstanding common stock of the Company for up to $4.45 per share in cash.
`Stockholders will receive $4.20 per share in cash upon closing and will be entitled
`to receive an additional contingent amount of up to $0.25 per share, to be paid if
`the Company’s Paycheck Protection Program Loan (the “PPP Loan”) is forgiven
`and any audit related thereto is satisfactorily completed. The transaction is expected
`to close in the first quarter of 2021. The terms of the agreement, which has been
`unanimously approved by the Company’s Board of Directors, will be submitted for
`approval of the Company’s stockholders.
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`Chris Ahern, Chief Executive Officer, commented, “We are pleased with the value
`this transaction delivers to our stockholders and believe this is a positive
`development for all of our stakeholders. We look forward to continuing to serve
`our customers through exceptional products and continued industry-leading
`innovation.
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`We are optimistic about our continued growth and the support that will be provided
`by Evercel.”
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`“We admire the ZAGG business and its portfolio of leading mobile lifestyle
`brands,” said Daniel Allen, CEO of Evercel. “We are excited to begin a long and
`successful partnership with the ZAGG team.”
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`Terms of the Agreement
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`Under the terms of the agreement, the Company will file a proxy statement, which
`shall include the recommendation of the Company’s Board of Directors that the
`Company’s stockholders approve the agreement and authorize the transactions
`contemplated thereby. Closing of the transaction is conditioned upon stockholder
`approval, clearance under the Hart-Scott-Rodino (“HSR”) Antitrust Improvements
`and other customary closing requirements.
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`Upon consummation of the merger, $4.20 per share will be immediately paid out
`to ZAGG stockholders. If the Company’s loan forgiveness application is granted,
`other U.S. Small Business Administration conditions are met, and any related audit
`is satisfactorily completed, former stockholders will receive an additional payment
`of up to $0.25 per share based on the amount of the PPP Loan that is forgiven.
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`Case 1:21-cv-00358 Document 1 Filed 01/14/21 Page 14 of 29
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`The Inadequate Merger Consideration
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`46.
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`Significantly, the Company’s financial prospects and opportunities for future
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`growth establish the inadequacy of the merger consideration.
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`47.
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`First, the compensation afforded under the Proposed Transaction to Company
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`stockholders significantly undervalues the Company. The proposed valuation does not adequately
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`reflect the intrinsic value of the Company. Moreover, the valuation does not adequately take into
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`consideration how the Company is performing, considering key financial improvements.
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`48.
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`For example, the 52-week high for the stock was $9.01 per share just prior to the
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`Covid-19 pandemic. When the COVID-19 global pandemic affected the market, the stock went
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`down to $2.10 per share. Since March, however, the stock price has worked its way up to over
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`$4.49 per share, and due to the consistent upward progression, there is no indication that the stock
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`will not climb back to its pre-COVID success.
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`49.
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`On January 16, 2020, ZAGG announced a partnership with TESSCO Technologies,
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`which factored into ZAGG’s success before COVID-19 pandemic, “[ZAGG] today announced an
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`exclusive partnership with TESSCO Technologies, a value-added distributor and solutions
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`provider for the wireless industry, to distribute InvisibleShield On Demand™ (ISOD) to more than
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`20,000 brick-and mortar retail stores throughout the U.S. The revolutionary service—which is
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`currently available in more than 6,000 global locations—enables retailers to cut and apply screen
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`protection film for virtually any mobile device in minutes. This means retailers can have
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`InvisibleShield available on the same day of any new device launch and will never again disappoint
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`a customer because a pre-cut screen protector is unavailable. By allowing retailers to cut new
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`screen protectors on demand, the cloud based ISOD solution helps retailers to optimize inventory
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`levels and reduces packaging waste by approximately 96 percent.”
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`Case 1:21-cv-00358 Document 1 Filed 01/14/21 Page 15 of 29
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`50.
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`In the Investor Deck Presentation on September 5, 2020, the Company detailed its
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`status in the U.S., representing a 43% market share of U.S. screen protection with Invisible Shield,
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`30% market share in U.S. wireless charging pads with Mophie, and 28% market share with U.S.
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`external power sources with Mophie and Halo. The presentation revealed that the Company
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`continues to diversify into new high growth categories, from cases to screen protection, to audio
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`and keyboards. In addition, the Presentation noted Invisible Shield “kill human coronavirus and
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`99.99% of the most common surface bacteria,” which will factor into the future success of the
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`Company’s products.
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`51.
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` Clearly, while the deal will be beneficial to Evercel it comes at great expense to
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`Plaintiff and other public stockholders of the Company.
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`52. Moreover, post-closure, ZAGG stockholders will be frozen out of any future benefit
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`from their investment in ZAGG’s bright future.
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`53.
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`It is clear from these statements and the facts set forth herein that this deal is
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`designed to maximize benefits for Evercel at the expense of ZAGG public stockholders.
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`Preclusive Deal Mechanisms
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`54.
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`The Merger Agreement contains certain provisions that unduly benefit the Evercel
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`by making an alternative transaction either prohibitively expensive or otherwise impossible.
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`Notably, in the event of termination, the merger agreement requires ZAGG to pay up to $3 million
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`to the Evercel and/or its affiliates, if the Merger Agreement is terminated under certain
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`circumstances. Moreover, under one circumstance, ZAGG must pay this termination fee even if
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`it consummates any competing Acquisition Proposal (as defined in the Merger Agreement) within
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`12 months following the termination of the Merger Agreement. The termination fee will make the
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`Company that much more expensive to acquire for potential purchasers. The termination fee in
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`Case 1:21-cv-00358 Document 1 Filed 01/14/21 Page 16 of 29
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`combination with other preclusive deal protection devices will all but ensure that no competing
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`offer will be forthcoming.
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`55.
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`The Merger Agreement also contains a “Solicitation of Transactions” provision that
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`restricts ZAGG from considering alternative acquisition proposals by, inter alia, constraining
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`ZAGG’s ability to solicit or communicate with potential acquirers or consider their proposals.
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`Specifically, the provision prohibits the Company from directly or indirectly soliciting, initiating,
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`proposing or inducing any alternative proposal, but permits the Board to consider an unsolicited
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`bona fide “Acquisition Proposal” if it constitutes or is reasonably calculated to lead to a “Superior
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`Proposal” as defined in the Merger Agreement.
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`56. Moreover, the Merger Agreement further reduces the possibility of a topping offer
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`from an unsolicited purchaser. Here, the Individual Defendants agreed to provide to the Evercel
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`and/or its affiliates information in order to match any other offer, thus providing the Evercel access
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`to the unsolicited bidder’s financial information and giving Evercel the ability to top the superior
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`offer. Thus, a rival bidder is not likely to emerge with the cards stacked so much in favor of the
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`Evercel.
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`57.
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`These provisions, individually and collectively, materially and improperly impede
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`the Board’s ability to fulfill its fiduciary duties with respect to fully and fairly investigating and
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`pursuing other reasonable and more valuable proposals and alternatives in the best interests of the
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`Company and its public stockholders.
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`58.
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`Accordingly, the Company’s true value is compromised by the consideration
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`offered in the Proposed Transaction.
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`Case 1:21-cv-00358 Document 1 Filed 01/14/21 Page 17 of 29
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`Potential Conflicts of Interest
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`59.
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`The breakdown of the benefits of the deal indicate that ZAGG insiders are the
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`primary beneficiaries of the Proposed Transaction, not the Company’s public stockholders. The
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`Board and the Company’s executive officers are conflicted because they will have secured unique
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`benefits for themselves from the Proposed Transaction not available to Plaintiff and the public
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`stockholders of ZAGG.
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`60.
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`Certain insiders stand to receive significant financial benefits as a result of the
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`Proposed Transaction. Notably, Company insiders, including the Individual Defendants, currently
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`own large, illiquid portions of Company stock that will be exchanged for large cash pay days upon
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`the consummation of the Proposed Transaction. Significantly, the Preliminary Proxy does not
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`provide a breakdown of these benefits.
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`61.
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`Furthermore, upon the consummation of the Proposed Transaction, each
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`outstanding Company option or equity award, will be canceled and converted into the right to
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`receive certain consideration according to the merger agreement. Despite this the Preliminary
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`Proxy does not provide a breakdown of these benefits.
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`62. Moreover, certain employment agreements with certain ZAGG executives, entitle
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`such executives to severance packages should their employment be terminated under certain
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`circumstances. These ‘golden parachute’ packages are significant, and will grant each director or
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`officer entitled to them millions of dollars, compensation not shared by ZAGG common
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`stockholders. Notably the Preliminary Proxy does not provide a full breakdown of these benefits.
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`63.
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`Thus, while the Proposed Transaction is not in the best interests of ZAGG
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`stockholders, it will produce lucrative benefits for the Company’s officers and directors.
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`17
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`Case 1:21-cv-00358 Document 1 Filed 01/14/21 Page 18 of 29
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`The Materially Misleading and/or Incomplete Preliminary Proxy
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`64.
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`On January 7, 2021, the Defendants caused to be filed with the SEC a materially
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`misleading and incomplete Preliminary Proxy that, in violation their fiduciary dutie