DEBT AND LETTERS OF CREDIT

On March 3, 2016, the Company entered into a Credit and Security Agreement (“Credit and Security Agreement”) with KeyBank, as the administrative agent, KeyBanc Capital Markets Inc., JP Morgan Chase Bank, N.A. and ZB, N.A., dba Zions First National Bank.

The Credit and Security Agreement provides an $85,000 revolving credit commitment (“Line of Credit”). Borrowings and repayments under the Line of Credit may occur from time to time in the Company’s ordinary course of business through the maturity date of March 2, 2021, at which time any amounts outstanding are to be paid in full (60-month term). All borrowings under the Line of Credit are subject to a borrowing base limit, which is calculated from outstanding accounts receivable and inventory, and reported to the administrative agent at least monthly. Interest on the Line of Credit will accrue at the base rate plus 0.5% or LIBOR plus 1.5%. The Line of Credit is subject to an unused line fee calculated as 0.2% multiplied by the average unused amount of the Line of Credit.

The Credit and Security Agreement also provides a $25,000 term loan commitment (“Term Loan”). Principal and interest payments on the Term Loan are to be made in consecutive monthly installments of $521 commencing on April 1, 2016 and continuing until the Term Loan is paid in full on March 2, 2020 (48-month term). Interest on the Term Loan will accrue at the base rate plus 1.0% or at a rate of LIBOR plus 2.0%.

The Credit and Security Agreement also provides for letters of credit with a fronting fee of 0.125% (paid per annum) for all issued and outstanding letters of credit.

The Credit and Security Agreement provides for a lockbox and cash collateral account that will be maintained with KeyBank. Line of Credit funds are swept into the Company's operating account when funds are needed based on draws on the operating account. The Credit and Security Agreement is collateralized by substantially all of the assets of the Company. The Credit and Security Agreement establishes two debt covenants that are measured on a quarterly basis:


•	Maximum Leverage Ratio: Defined as the ratio of total funded indebtedness to Consolidated EBITDA (as defined in the Credit and Security Agreement), which cannot be more than 3.50 on a trailing four quarter basis.


•	Minimum Fixed Charge Coverage Ratio: Defined as the ratio of Consolidated EBITDA (as defined in the Credit and Security Agreement) minus taxes, capital distributions and unfunded capital expenditures divided by the sum of interest payments, principal payments, and capital lease payments; the minimum allowed under the Credit and Security Agreement is 1.10 on a trailing four quarter basis.

In connection with the establishment of the Credit and Security Agreement, the Company incurred and capitalized $1,144 of direct costs; $884 of the costs are related to the line of credit and as such are reflected as a component of other assets, and $260 was reflected as an offset to long-term debt in the consolidated balance sheet. For the years ended December 31, 2017 and 2016, the Company amortized $263 and $202 of these loan costs respectively, which are included as a component of interest expense in the consolidated statements of operations.

On July 17, 2017, ZAGG Inc, KeyBank National Association , Zions First National Bank, and JPMorgan Chase Bank, N.A. (collectively, the “Lenders”), and KeyBank, as the administrative agent for the Lenders, entered into a Third Amendment Agreement (“Amendment”), which amended the original Credit and Security Agreement as follows:


•	Increased the Maximum Revolving Amount, as defined in the Credit Agreement, from $85,000 to:


◦	$135,000 from July 17, 2017 to December 31, 2017;


◦	$110,000 from January 1, 2018 to May 31, 2018; and


◦	$100,000 from June 1, 2018, forward.


•	Expanded Permitted Foreign Subsidiary Loans, Guaranties and Investments, as defined in the Credit Agreement, to include:


◦	A $2,000 loan dated April 5, 2017, from the Company to ZAGG International Distribution Limited; and


◦	Any other loan or investment by the company or any domestic subsidiary of the Company in or to, or guaranty of indebtedness of, any foreign subsidiary of the Company for the period July 17, 2017, to March 31, 2018, in an aggregate amount not to exceed $8,000.


•	Increased the Letter of Credit Commitment, as defined in the Credit Agreement, from $7,500 to an aggregate amount of $40,000.


•	Increased the Borrowing Base, as defined the Credit Agreement, on a seasonal basis between August 1, 2017, and September 30, 2017, by $15,000, which seasonal increase to the Borrowing Base was subsequently extended by the Lenders to October 31, 2017.

In connection with the Amendment, the Company also entered into replacement revolving credit notes with each of the Lenders. As consideration for entering into the Amendment, the Company agreed to pay the administrative agent and Lenders total amendment and arrangement fees of $145, pursuant to the terms of an administrative agent fee letter and a closing fee letter entered into with KeyBank. The changes to the Credit and Security Agreement described above were made to support core-business opportunities.

Effective September 4, 2017, the Company directed KeyBank to establish an irrevocable standby letter of credit (“Letter of Credit”) to support purchases of inventory from a key supplier. The Credit Agreement requires that the face value of the Letter of Credit reduce the Borrowing Base under the existing Line of Credit.

From September 4, 2017, through September 17, 2017, the face value amount of the Letter of Credit was $10,000. From September 18, 2017, through February 28, 2018 (the end of the contractual period), the face value was increased to $25,000. The Company agreed to pay interest at an annual rate of 1.625% calculated on the face value amount and paid quarterly, which interest is classified in interest expense on the consolidated statement of operations. Fees incurred associated with setting up the Letter of Credit for the year ended December 31, 2017 is $157. Interest incurred for the available balance on the Letter of Credit for the year ended December 31, 2017 was $147. No draws on the Letter of Credit occurred as of December 31, 2017.

For the years ended December 31, 2017 and 2016, $129 and $65, respectively, in unused line fees had been incurred and was included as a component of interest expense in the consolidated statement of operations.

At December 31, 2017, the outstanding balance on the Line of Credit was $23,475. The interest rate on the Line of Credit was 3.00% for $20,000 of the balance, and 5.00% for $3,475 of the balance. At December 31, 2016, the outstanding balance on the Line of Credit was $31,307, and the interest rate on the entire balance on the Line of Credit was 2.21%.

At December 31, 2017, the weighted average interest rate on all outstanding borrowings under the Line of Credit was 3.30%. At December 31, 2016, the weighted average interest rate on all outstanding borrowings under the Line of Credit was 2.21%.

At December 31, 2017, the interest rate on the Term Loan was 3.38%, and the effective rate was 3.01%. At December 31, 2016, the interest rate on the Term Loan was 2.50% and effective rate was 3.16%.

The Credit and Security Agreement includes a clause requiring a mandatory prepayment of a portion of the Term Loan calculated as 25% of Excess Cash Flows (as defined in the Credit and Security Agreement) for the year ended December 31, 2017. Management performed the calculation as of December 31, 2017 and determined that a prepayment of $12,404 will be required under the terms of the Credit and Security Agreement, which will be due by April 15, 2018. The amount of the mandatory prepayment along with other scheduled monthly payments are included in the current portion of long-term debt, net of deferred loan costs on the consolidated balance sheet. For the year ended December 31, 2016, the excess cash flow prepayment of $4,299 which was due on June 30, 2017 was permanently waived by a consent letter from the Lenders on June 23, 2017.

Contractual future payments under the Credit and Security Agreement are as follows:



	Line of Credit		Term Loan		Total
2018	$	—	$	14,063	$	14,063
2019	—		—		—
2020	23,475		—		23,475
Total	$	23,475	$	14,063	$	37,538