COMMITMENTS AND CONTINGENCIES

Operating leases

The Company leases office and warehouse space, office equipment, and a retail store location under operating leases that expire through 2025. Future minimum rental payments required under the operating leases at December 31, 2017 are as follows:



2018	$	2,107
2019	1,594
2020	1,539
2021	1,465
2022	1,495
Thereafter	1,111
Total	$	9,311

For the years ended December 31, 2017, 2016 and 2015, rent expense was $2,847, $3,190, and $1,642, respectively. Rent expense is recognized on a basis which approximates straight line over the lease term. Rent expense is recorded as a component of selling, general and administrative expense on the consolidated statement of operations.

Commercial Litigation

Daniel Huang, individually and as shareholder representative v. ZAGG Inc, Court of Chancery of the State of Delaware, C.A. No. 12842 (the “Huang Delaware Lawsuit”). On October 21, 2016, Daniel Huang, as the representative of the former mophie inc. shareholders, under the Merger Agreement as disclosed in Note 5, filed the Huang Delaware Lawsuit alleging that the Company breached the Merger Agreement by failing to pay certain contingent payments (the “Contingent Payments”) related to tax refunds and customs duty recoveries and seeking damages in an amount no less than $11,420. On December 16, 2016, the Company filed an Answer and Counterclaims in the lawsuit. In its Answer, the Company acknowledged its obligation under the Merger Agreement to make the Contingent Payments under certain circumstances, but averred that this obligation was subject to a right to withhold the tax refunds and customs duty recoveries received to date and, subject to the Court’s ruling on the Company’s Counterclaims, subsequently set-off its damages against the Contingent Payments. In its Answer, the Company denied that any payments were due at that time or that it was in breach of any provision of the Merger Agreement. Regarding the Counterclaims, after the closing of the merger, ZAGG discovered breaches of certain representations, warranties and covenants made by Huang and mophie that have resulted in damages exceeding $22,000.

On October 31, 2017, the Company and Daniel Huang as the representative of the former mophie inc. shareholders, entered into a settlement agreement (“Delaware Settlement Agreement”). The Delaware Settlement Agreement provides for a mutual general release of all claims asserted in the Huang Delaware Lawsuit, dismissal of the Huang Delaware Lawsuit with prejudice and that (1) the Company received the $2,000 in cash held in escrow in connection with the Merger Agreement, (2) the former mophie shareholders received $8,000 of the Contingent Payments in full settlement (“Settlement Amount”) of all claims asserted against the Company in the Huang Delaware Lawsuit, and (3) the Company retained the remaining Contingent Payments in full settlement of all claims asserted in the Counterclaim in the Huang Delaware Lawsuit, totaling $6,967. The difference between the Contingent Payments recorded in purchase accounting and the Settlement Amount was recorded as a gain on the disputed mophie purchase price:



Contingent payments recorded in purchase accounting	$	12,139
Cash collected from duty recoveries	2,828
Total contingent payments in accrued liabilities	14,967
Settlement amount	8,000
Gain on disputed mophie purchase price	$	6,967

ZAGG Inc et al. v. Daniel Huang et al., Orange County Superior Court, State of California, Civil No. 30-2016-00892767-CU-BC-CJC (the “Huang California Lawsuit”). On December 15, 2016, ZAGG and mophie filed a complaint against Daniel Huang and Immotor, LLC (“Immotor”). The complaint alleged that Huang and the company he founded, Immotor, misappropriated confidential information belonging to mophie while Huang was serving as an officer and director of mophie.

On October 31, 2017, the Company, mophie, Immotor and Daniel Huang entered into a settlement agreement (“California Settlement Agreement”). The California Settlement Agreement provides for a mutual general release of all claims asserted in the Huang California Lawsuit and of other claims asserted by Huang against the Company and mophie and that Huang would receive a non-exclusive license for certain power management technology for use solely in connection with two-wheeled vehicles.

The Company continues to retain rights under a representations and warranties insurance policy obtained at the time of the acquisition of mophie to seek reimbursement for payments of third party claims or to recover losses relating to breaches of mophie’s representations and warranties, except in respect of the claims released in connection the dismissal of the Huang Delaware Lawsuit and the Huang California Lawsuit. The Huang California Lawsuit was dismissed with prejudice.

Eric Stotz and Alan Charles v. mophie inc., U.S. District Court, Central District of California, Civil Action No. 2:16-cv-08898-GW-FFM. On January 13, 2017, Eric Stotz and Alan Charles, individually and on behalf of a purported class, filed a first amended class action complaint alleging that they purchased certain external battery packs and that the battery packs did not extend the life of the phones’ internal batteries as advertised and adversely affected the phones’ internal battery life. Plaintiffs allege violations of California’s unfair competition law, California’s Consumer Legal Remedies Act, New York’s unlawful deceptive acts and practices statute, and New York’s false advertising law. The case was settled by the Company in January 2018. The court ordered a dismissal with prejudice of all individual and putative class claims on January 23, 2018. The settlement amount is not considered material to the Company’s financial position, results of operations, or liquidity.

SEC Investigation

In the fourth quarter of 2012, the Company received requests to provide documentation and information to the staff of the SEC in connection with an investigation being conducted by the SEC's Salt Lake City office. The Company believes the investigation includes a review of the facts and circumstances surrounding former Chief Executive Officer Robert Pedersen's pledge and subsequent sale of Company shares and the fact that such pledges and sales were not disclosed in the Company's 2011 10-K filed on March 15, 2012, or 2012 Proxy filed on April 27, 2012. The Company responded to these requests and is cooperating with the staff although there has been no resolution to date.

Other Litigation

The Company is not a party to any other material litigation or claims at this time. While the Company currently believes that the amount of any ultimate probable loss for known matters would not be material to the Company’s financial condition, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the ultimate potential loss could have a material adverse effect on the Company’s financial condition or results of operations in a particular period.

The Company establishes reserves when a particular contingency is probable and estimable. The Company has not accrued for any loss as of December 31, 2017, in the consolidated financial statements as the Company does not consider a loss to be probable or estimable. The Company faces contingencies that are reasonably possible to occur; however, the reasonably possible exposure to losses cannot currently be estimated.