EXHIBIT 10.1 

 

SECOND AMENDMENT TO CREDIT AGREEMENT

AND WAIVER OF DEFAULT

 

 

THIS SECOND AMENDMENT TO CREDIT AGREEMENT AND WAIVER OF DEFAULT (this
"Amendment") is entered into as of November 3, 2014, by and between ZAGG, INC, a
Nevada corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank").

 

RECITALS

 

WHEREAS, Borrower is currently indebted to Bank (the "Loan") pursuant to the
terms and conditions of that certain Credit Agreement between Borrower and Bank
dated as of December 7, 2012 , as amended from time to time ("Credit
Agreement").

 

WHEREAS, ZAGG INTELLECTUAL PROPERTY HOLDING CO., INC., a Nevada corporation
("Zagg IP"), ZAGG RETAIL, INC., a Nevada corporation ("Retail"), IFROGZ INC., a
Utah corporation ("iFrogz"), and ZAGG LLC, a Nevada limited liability company
("ZAGG LLC" and, together with Zagg IP, Retail, iFrogz , and ZAGG LLC,
individually and collectively, as the context requires, the "Guarantor"), each
executed a Continuing Guaranty dated as of December 7, 2012 in favor of Bank,
each as amended from time to time (collectively, the "Guaranties").

 

WHEREAS, the Loan is secured by that certain (i) Security Agreement dated as of
December 7, 2012 by and between Borrower and Bank; (ii) that certain General
Pledge Agreement dated as of December 7, 2012 by and between Borrower and Bank;
(iii)     Third Party Security Agreement dated as of December 7, 2012 by and
between iFrogz and Bank; (iv) Third Party Security Agreement dated as of
December 7, 2012 by and between Zagg IP and Bank; (v) Third Party Security
Agreement dated as of December 7, 2012 by and between Retail and Bank; (vi)
Third Party Security Agreement dated as of December 7, 2012 by and between ZAGG
LLC and Bank; and (vii) Third Party General Pledge Agreement dated as of
December 7, 2012 by and between iFrogz and Bank , each as amended from time to
time (collectively , the "Security Agreements ").

 

WHEREAS, Borrower is in default of certain provisions of the Credit Agreement.

 

WHEREAS, Bank and Borrower have agreed to certain changes in the terms and
conditions set forth in the Credit Agreement and have agreed to amend the Credit
Agreement to reflect said changes.

 

NOW, THEREFORE, for valuable consideration , the receipt and suffic iency of
which are hereby acknowledged, the parties hereto agree that the Credit
Agreement sha ll be amended as fo llows:

 

1.                  Line of Credit Reduction. Section 1.1(a) is hereby amended
by deleting "Sixty Million Dollars ($60,000,000)" as the maximum principal
amount available under the Line of Credit, and by substituting for said amount
"Twenty-Five Million Dollars ($25,000,000)," with such change to be effective
upon the execution and delivery to Bank of a Second Modification to Promissory
Note dated as of the date hereof and all other contracts , instruments and
documents required by Bank to evidence such change.

 

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2.                    Financial Covenants . Section 4.9 Financial Condition is
hereby deleted in its entirety, and the following substituted therefore:

 

"SECTION 4.9. FINANCIAL CONDITION. Maintain

Borrower's financial condition as follows using GAAP consistently applied and
used consistently with prior practices (except to the extent modified by the
definitions herein) , with compliance determined commencing with Borrower's
financial statements for the period ending December 31, 2013.

 

(a)                Total Liabilities divided by Tangible Net Worth ("Leverage
Ratio") not greater than 1.25 to 1.00 at each calendar quarter end, with "Total
Liabilities" defined as the aggregate of current liabilities and non-current
liabilities, and with "Tangible Net Worth" defined as the aggregate of total
stockholders' equity less any intangible assets (including goodwill) and less
any loans or advances to, or investments in, any related entities or
individuals, including the note receivable from Lorence A. Harmer (the "Harmer
Note").

 

(b)                Adjusted EBITDA as of each quarter end, determined on a
rolling 4-quarter basis, of not less than the following :

 

Quarter Ending Minimum Adjusted EBITDA     December 31, 2014 $15,000,000    
March 31, 2015 $17 ,500,000     June 30, 2015 $20,000,000     September 30, 2015
and thereafter $30,000,000

 

with "Adjusted EBITDA" defined as net profit after tax plus tax expenses (net of
deferred tax expense), interest expense (net of capitalized interest expense),
depreciation expense, amortization expense, non-cash stock-based compensation ,
Harmer-Related Expenses, non-cash losses on the equity investment in HzO, and
other expenses as Bank may approve in writing in the future in its sole
discretion, and with "Harmer-Related Expenses" defined as non-cash impairment
charges on the Harmer Note not to exceed One Million Two Hundred Thousand
Dollars ($1,200,000) in the aggregate.

 

(c)                Asset Test Ratio not less than 2.00 to 1.00 as of each
calendar quarter end. For purposes of this covenant, the following terms have
the following meanings:

 

(i)                  "Asset Test Ratio" means the balance sheet line item for
net accounts receivable balance, plus total inventory not to exceed Twelve
Million Five Hundred Thousand Dollars ($12,500,000) , all divided by Funded
Debt.

 

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(ii)                 "Funded Debt" means the sum of all obligations for borrowed
money (including subordinated debt) , the current portion of long term debt, all
other noncurrent long term debt , and all Line of Credit balances per the
quarterly financial statement plus all capital lease obligations .

 

(d)                 Borrower shall not incur two (2) consecutive quarterly
losses ."

 

(e)                 From January 1, 2014, Borrower shall not repurchase treasury
stock in an aggregate amount greater than Fifteen Million Dollars ($15,000,000)
in any consecutive twelve

(12) month period.

 

3.                   Waiver of Default. Borrower has notified Bank that Borrower
has failed to meet the Adjusted EBITDA requirement of Section 4 .9(b) of the
Credit Agreement for the fiscal quarter ending September 30, 2014. Subject to
the terms and conditions set forth herein, Bank has decided to waive its default
rights with respect to this breach. This waiver applies only to the specific
instance described above. It is not a waiver of any subsequent breach of the
same provision of the Credit Agreement, nor is it a waiver of any breach of any
other provision of the Credit Agreement.

 

4.                   . Conditions Precedent. This Amendment shall not become
effective until the following conditions have been completed and proof of their
completion has been provided to Bank:

 

(a)                At or prior to the execution and delivery of this Amendment,
Borrower and Guarantor, as applicable, shall have executed and delivered, or
caused to be executed and delivered, to Bank, each in form and substance
satisfactory to Bank, such other documents, instruments, resolutions,
subordinations, and other agreements as Bank may require in its sole discretion,
including, without limitation, a Second Modification to Promissory Note.

 

5.                   Fees and Expenses. In consideration of the changes set
forth herein and as a condition to the effectiveness hereof, immediately upon
signing this Amendment Borrower shall pay to Bank (a) all reasonable legal fees
and expenses incurred by Bank in connection herewith or with the Loan and the
Loan Documents accrued and unpaid as of the date hereof; and (b) all other
reasonable costs and expenses incurred by Bank in connection with this
Amendment.

 

6.                   Effect on Credit Agreement. Except as specifically provided
herein, all terms and conditions of the Credit Agreement remain in full force
and effect, without waiver or modification . All terms defined in the Credit
Agreement shall have the same meaning when used in this Amendment . This
Amendment and the Credit Agreement shall be read together, as one document

.

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7.                   Representations and Warranties. Borrower hereby remakes all
representations and warranties contained in the Credit Agreement and reaffirms
all covenants set forth therein . Borrower further certifies that as of the date
of this Amendment, and after giving effect to the waiver contained in Paragraph
3 above, there exists no Event of Default as defined in the Credit Agreement ,
nor any condition, act or event which with the giving of notice or the passage
of time or both would constitute any such Event of Default.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
as of the day and year first written above.

 

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GUARANTORS’ CONSENT AND REAFFIRMATION

 

Each of the undersigned guarantors of all indebtedness of ZAGG, INC, a Nevada
corporation, to WELLS FARGO BANK, NATIONAL ASSOCIATION hereby: (i) consents to
the foregoing Amendment; (ii) reaffirms its obligations under its respective
Continuing Guaranty; (iii) reaffirms its waivers of each and every one of the
defenses to such obligations as set forth in its respective Continuing Guaranty;
and (iv) reaffirms that its obligations under its respective Continuing Guaranty
are separate and distinct from the obligations of any other party under said
Amendment and the other Loan Documents described herein.

 

 

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