EXHIBIT 10.1
SECOND AMENDMENTTOCREDIT AGREEMENT
ANDWAIVEROF DEFAULT
THISSECONDAMENDMENTTOCREDIT AGREEMENTANDWAIVEROFDEFAULT(this "Amendment") isenteredintoasofNovember3,2014,byandbetweenZAGG,INC,aNevadacorporation("Borrower"),andWELLS FARGOBANK,NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS,Borroweriscurrentlyindebtedto Bank(the"Loan")pursuanttothe termsand conditionsofthat certainCredit Agreement betweenBorrower and BankdatedasofDecember 7,2012,as amended from timetotime("CreditAgreement").
WHEREAS,ZAGGINTELLECTUALPROPERTYHOLDING CO., INC.,aNevadacorporation ("ZaggIP"),ZAGG RETAIL,INC., aNevada corporation ("Retail"),IFROGZ INC.,aUtah corporation ("iFrogz"),and ZAGGLLC,aNevada limited liability company("ZAGG LLC" and,together withZaggIP,Retail,iFrogz,and ZAGG LLC,individuallyandcollectively,asthe contextrequires,the"Guarantor"),each executed aContinuingGuarantydatedasof December7,2012in favor ofBank, each as amendedfrom timetotime (collectively, the"Guaranties").
WHEREAS, theLoanissecuredby thatcertain (i)SecurityAgreement datedasof December7,2012 byandbetweenBorrower and Bank;(ii)thatcertainGeneral PledgeAgreement datedasof December7, 2012byandbetweenBorrower and Bank;(iii) Third PartySecurityAgreement datedasof December7, 2012byandbetween iFrogzand Bank;(iv)Third PartySecurity Agreement datedasof December7, 2012byandbetweenZaggIPand Bank;(v)Third Party SecurityAgreement datedasof December7, 2012by and betweenRetail and Bank;(vi)Third PartySecurity Agreement datedasof December7,2012 byandbetweenZAGGLLCand Bank;and(vii)ThirdParty GeneralPledgeAgreement datedasof December7,2012 byandbetween iFrogzand Bank,each asamendedfromtime to time (collectively,the"Security Agreements").
WHEREAS,Borroweris indefaultof certainprovisionsof theCredit Agreement.
WHEREAS,Bankand Borrowerhaveagreedto certainchangesinthetermsand conditionsset forthintheCreditAgreementandhaveagreedtoamend theCredit Agreementto reflectsaidchanges.
NOW,THEREFORE,forvaluable consideration,the receipt andsufficiencyof whichare herebyacknowledged,the partiesheretoagreethatthe Credit Agreementshallbe amended asfollows:
1. LineofCreditReduction.Section1.1(a) isherebyamendedbydeleting "SixtyMillionDollars($60,000,000)"asthe maximum principalamount availableunder the Line of Credit,andby substitutingforsaidamount"Twenty-FiveMillion Dollars ($25,000,000)," with such change to beeffectiveupon theexecutionand delivery to Bank ofaSecondModification toPromissoryNote datedasof the datehereof and all other contracts,instrumentsanddocuments required byBanktoevidence suchchange.
2. FinancialCovenants.Section 4.9FinancialConditionisherebydeletedin itsentirety,andthefollowingsubstitutedtherefore:
"SECTION 4.9. FINANCIAL CONDITION.Maintain
Borrower's financialconditionasfollowsusingGAAPconsistentlyapplied andused consistentlywithpriorpractices(excepttotheextentmodified bythedefinitions herein),withcompliancedeterminedcommencing withBorrower's financialstatementsforthe periodendingDecember 31, 2013.
(a) TotalLiabilities dividedbyTangibleNetWorth ("LeverageRatio")notgreater than1.25to1.00at eachcalendar quarterend,with"TotalLiabilities" definedastheaggregateofcurrentliabilitiesandnon-current liabilities,andwith "TangibleNet Worth"definedasthe aggregateof totalstockholders' equitylessanyintangibleassets(including goodwill)andlessanyloans oradvancesto, orinvestments in,anyrelated entitiesor individuals, includingthenote receivablefrom LorenceA.Harmer(the "Harmer Note").
(b) AdjustedEBITDAasofeachquarterend,determined onarolling4-quarterbasis,ofnot lessthanthe following:
| QuarterEnding | MinimumAdjustedEBITDA |
|---|
| | |
| December31,2014 | $15,000,000 |
| | |
| March31,2015 | $17,500,000 |
| | |
| June30,2015 | $20,000,000 |
| | |
| September30,2015andthereafter | $30,000,000 |
with "AdjustedEBITDA"defined asnet profitaftertaxplustax expenses(netofdeferredtaxexpense),interest expense(netof capitalized interest expense), depreciationexpense,amortizationexpense,non-cash stock-based compensation,Harmer-RelatedExpenses,non-cash losses on the equity investmentinHzO,and other expensesasBankmayapprovein writing in the futurein its sole discretion, andwith"Harmer-Related Expenses"definedas non-cashimpairment charges on the Harmer Note not toexceed OneMillionTwoHundredThousand Dollars ($1,200,000) in the aggregate.
(c) AssetTestRationotlessthan2.00 to1.00 asof eachcalendarquarterend.Forpurposes of this covenant, the following terms have thefollowing meanings:
(i) "AssetTestRatio"meansthe balancesheetlineitemfor netaccountsreceivablebalance,plustotal inventory nottoexceed Twelve MillionFiveHundred Thousand Dollars ($12,500,000),alldivided byFunded Debt.
(ii) "FundedDebt"meansthesumofall obligationsforborrowedmoney (includingsubordinateddebt),thecurrent portionoflongtermdebt,allother noncurrent longterm debt,andallLineof Creditbalances per thequarterlyfinancial statementplusallcapital lease obligations.
(d) Borrowershallnot incurtwo (2)consecutive quarterlylosses."
(e) FromJanuary 1,2014, Borrowershall not repurchasetreasurystockinanaggregateamountgreater thanFifteenMillionDollars($15,000,000)inanyconsecutivetwelve
(12) monthperiod.
3. Waiverof Default.BorrowerhasnotifiedBankthat Borrowerhas failedto meettheAdjustedEBITDArequirementofSection4.9(b) ofthe CreditAgreement forthe fiscal quarterendingSeptember 30,2014.Subject tothetermsandconditionssetforth herein,Bankhas decided to waive its default rights with respect to this breach.Thiswaiver applies only to thespecificinstance described above. Itis notawaiver ofanysubsequent breach ofthesame provision of the CreditAgreement, noris it awaiver of any breach ofanyother provision ofthe CreditAgreement.
4. .ConditionsPrecedent.ThisAmendmentshallnotbecomeeffectiveuntilthefollowingconditionshavebeencompletedand proofof their completionhas been provided toBank:
(a) Atorpriortotheexecutionanddelivery ofthisAmendment,Borrower andGuarantor, asapplicable,shallhave executed and delivered, or caused to beexecutedanddelivered, toBank,eachinform and substance satisfactorytoBank, suchother documents, instruments,resolutions,subordinations,and other agreements asBankmay require in its sole discretion, including, withoutlimitation,aSecond Modification to Promissory Note.
5. FeesandExpenses.In considerationofthechangessetforthhereinand asaconditiontotheeffectivenesshereof,immediately uponsigning this Amendment Borrower shall paytoBank(a)all reasonablelegalfees and expenses incurred by Bank in connectionherewithor withthe Loan and the LoanDocuments accruedandunpaid as ofthe datehereof;and (b) allother reasonable costs andexpensesincurred by Bank in connection with this Amendment.
6. EffectonCreditAgreement.Except asspecificallyprovidedherein,all termsandconditionsoftheCreditAgreement remain in full force andeffect, without waiverormodification.All terms defined in the Credit Agreement shall have the same meaning whenusedin thisAmendment.This Amendment and the Credit Agreement shall be read together,as onedocument
.
7. Representations andWarranties.Borrowerherebyremakes allrepresentationsandwarranties containedintheCreditAgreementand reaffirmsallcovenantssetforththerein.Borrowerfurther certifiesthatasof thedate ofthisAmendment,and aftergivingeffectto the waiver contained inParagraph 3above,thereexistsnoEventofDefault asdefined inthe CreditAgreement,norany condition,actoreventwhich with the givingof notice or the passage of time or both wouldconstituteany such Eventof Default.
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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.
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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