Summary of ZAGG INC - Yahoo! Finance

Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Ar

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement

Credit Agreement Summary & Termination of Prior Financing Agreement

On December 7, 2012, ZAGG Inc (the "Company") and Wells Fargo Bank, National Association ("Wells Fargo" or the "Bank"), entered into a two-year, $84,000,000 credit facility consisting of a $24,000,000 term loan and a $60,000,000 revolving line of credit, which line of credit includes a letter of credit sub-feature that allows the Company to issue standby commercial letters of credit against the line of credit, not to exceed at any time an aggregate of $10,000,000.

Concurrent with the execution of the credit agreement for such credit facility (the "Credit Agreement"), the Company paid and fulfilled in full all obligations previously due and outstanding under the June 21, 2011, financing agreement of between the Company, Cerberus Business Finance, LLC ("Cerberus") and PNC Bank National Association ("PNC") (the "Previous Financing Agreement"). Upon the funding of the Credit Agreement on December 12, 2012, the Company paid to Cerberus and PNC an aggregate amount of $45,970,667.08, which consisted of the following individual items:

· $4,396,277.83 was applied to the entire outstanding balance on the line of credit under the Previous Financing Agreement;

· $41,000,000.00 was applied to the entire outstanding balance on the term loan under the Previous Financing Agreement;

· $100,455.55 was related to accrued and unpaid interest on the line of credit and term loan under the Previous Financing Agreement;

· $430,000.00 was paid to Cerberus and PNC as a prepayment premium pursuant to the terms of the Previous Financing Agreement;

· $33,933.70 was related to accrued and unpaid fees under the Previous Financing Agreement; and

· $10,000.00 was related to a contingency deposit against any other costs or obligations to Cerberus and PNC related to the pay-off of the Previous Financing Agreement.

In addition to paying off the Previous Financing Agreement as shown above, the proceeds from the Term Loan and Line of Credit will be used to provide working capital for the Company and for general corporate needs.

Line of Credit

Pursuant to the Credit Agreement, the Bank agreed to make advances to the Company from time to time up to and including December 1, 2014, in an amount not to exceed at any time the aggregate principal amount of $60,000,000 (the "Line of Credit"), the proceeds of which will be used to pay off the Previous Financing Agreement, provide working capital for the Company, and for general corporate needs. The Company's obligation to repay advances under the Line of Credit is evidenced by a Revolving Line of Credit Note, dated as of December 7, 2012, as amended by an Addendum to Revolving Line of Credit Note dated that same date (as amended, the "Line of Credit Note").

Borrowings and repayments under the Line of Credit may occur from time to time in the Company's ordinary course of business from December 7, 2012, through December 1, 2014. Any outstanding borrowings under the Line of Credit mature and are due on December 1, 2014.

The outstanding principal balance under the Line of Credit bears interest (computed on the basis of a 360-day year, actual days elapsed) at a fluctuating rate per annum determined to be the sum of the (1) LIBOR margin (with the initial LIBOR margin being set at 1.25%) and (2) Daily Three Month LIBOR (as defined below) in effect from time to time. Pursuant to the Line of Credit Note, each change in the rate of interest will become effective on each business day on which a change in Daily Three Month LIBOR is announced by Wells Fargo.

Pursuant to the terms of the Credit Agreement, Wells Fargo will adjust the LIBOR margin used to determine the rate of interest under the Line of Credit on a quarterly basis, commencing with the Company's fiscal quarter ending December 31, 2012. The Applicable Libor Margin is calculated based on the Company's ratio of Total Liabilities to Tangible Net Worth (as these terms are defined in the Credit Agreement) in accordance with the following table:

        Total Liabilities to Tangible Net Worth   Applicable LIBOR Margin

        1.50 or greater                                    1.75%
        1.00 or greater, but less than 1.50                1.25%
        Less than 1.00                                     0.75%

Under the Line of Credit Note, each such adjustment will be effective on the first business day of the Company's fiscal quarter following the quarter during which the Bank receives and reviews the Company's most current fiscal quarter-end financial statements in accordance with the requirements established by the Bank for the preparation and delivery thereof.

Pursuant to the terms of the Credit Agreement, the term "Daily Three Month Libor" means, for any day, the rate of interest equal to LIBOR (as defined below) then in effect for delivery for a three month period. Pursuant to the terms of the Credit Agreement, the term "LIBOR" means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula:

LIBOR = Base LIBOR 100% - LIBOR Reserve Percentage

(i) Under the Line of Credit Note, the term "Base LIBOR" means the rate per annum for United States dollar deposits quoted by the Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by the Bank for the purpose of calculating effective rates of interest for loans making reference thereto, for delivery of funds for three months in an amount equal to the outstanding principal balance of the Line of Credit Note. Pursuant to the Credit Agreement, the Company agreed that the Bank could base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as the Bank, in its discretion, deems appropriate, including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market.

(ii) Under the Line of Credit Note, "LIBOR Reserve Percentage" means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by the Bank for expected changes in such reserve percentage during the term of the Line of Credit Note.

In addition, the Company agreed to pay Wells Fargo a quarterly fee based on the average unused amount of the Line of Credit depending on the Company's Leverage Ratio (which term is defined in the Credit Agreement as Total Liabilities divided by Tangible Net Worth) based on the following table:

                                      Applicable Unused Commitment
               Leverage Ratio                Fee (per annum)

               1.50 or greater                    0.20%
               1.00 or greater, but
               less than 1.50                     0.15%
               Less than 1.00                     0.10%

Interest accrued on the Line of Credit is payable on the first day of each month, commencing on January 1, 2013.

Term Note

Pursuant to the Credit Agreement, the Bank also agreed to provide a term loan to the Company in the principal amount of $24,000,000, the proceeds of which will be used to pay off the Previous Financing Agreement, to provide working capital for the Company, and for general corporate needs. The Company's obligation to repay the Term Loan is evidenced by a Term Note dated December 7, 2012, as amended by an Addendum to Term Note dated that same date (as amended, the "Term Note").

The Term Note requires quarterly payments of $2,000,000 payable on the first day of each quarter commencing on April 1, 2013, and continuing up to and including October 1, 2014. A final installment payment consisting of the remaining unpaid balance is due on December 1, 2014.

A mandatory principal payment of $500,000 is required for each fiscal quarter in which Total Liabilities to Tangible Net Worth (as those terms are defined in the Credit Agreement) exceeds 1.50 to 1.00, commencing with the Company's fiscal quarter ending December 31, 2012.

The outstanding principal balance of the Term Note initially bears interest (computed on the basis of a 360-day year, actual days elapsed) at a fluctuating rate per annum determined to be sum of the (1) LIBOR margin (with the initial LIBOR margin being set at 1.25%) and (2) Daily Three Month LIBOR (as defined above) in effect from time to time. Pursuant to the Term Note, each change in the rate of interest will become effective on each business day on which a change in Daily Three Month LIBOR is announced by Wells Fargo. Commencing December 31, 2012, the outstanding principal balance of the Term Note will bear . . .