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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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(Mark One) |
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☒ |
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2023
OR
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☐ |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from __________ to __________
Commission File Number: 001-38352
ADT Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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47-4116383 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
1501 Yamato Road
Boca Raton, Florida 33431
(561) 988-3600
(Address of principal executive offices, zip code, registrant’s telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: |
Title of each class |
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Trading Symbol |
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Name of each exchange on which registered |
Common Stock, par value $0.01 per share |
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ADT |
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New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 25, 2023, there were 867,076,756 shares outstanding of the registrant’s common stock, $0.01 par value per share, and 54,744,525 shares outstanding of the registrant’s Class B common stock, $0.01 par value per share.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share data)
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September 30, 2023 |
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December 31, 2022 |
Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
238,582 |
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$ |
257,223 |
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Restricted cash and restricted cash equivalents |
117,482 |
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116,357 |
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Accounts receivable, net of allowance for credit losses of $50,281 and $35,482, respectively |
384,393 |
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334,556 |
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Inventories, net |
199,203 |
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225,351 |
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Work-in-progress |
7,299 |
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11,983 |
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Prepaid expenses and other current assets |
238,137 |
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306,603 |
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Current assets held for sale |
450,297 |
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469,923 |
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Total current assets |
1,635,393 |
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1,721,996 |
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Property and equipment, net |
276,179 |
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306,191 |
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Subscriber system assets, net |
2,990,694 |
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2,918,540 |
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Intangible assets, net |
4,823,473 |
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4,926,964 |
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Goodwill |
4,903,899 |
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5,430,427 |
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Deferred subscriber acquisition costs, net |
1,135,018 |
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990,672 |
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Other assets |
771,077 |
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640,932 |
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Noncurrent assets held for sale |
895,379 |
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885,514 |
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Total assets |
$ |
17,431,112 |
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$ |
17,821,236 |
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Liabilities and stockholders' equity |
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Current liabilities: |
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Current maturities of long-term debt |
$ |
835,292 |
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$ |
857,624 |
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Accounts payable |
275,557 |
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417,860 |
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Deferred revenue |
271,900 |
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309,907 |
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Accrued expenses and other current liabilities |
582,272 |
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776,739 |
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Current liabilities held for sale |
314,101 |
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298,973 |
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Total current liabilities |
2,279,122 |
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2,661,103 |
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Long-term debt |
8,832,409 |
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8,946,719 |
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Deferred subscriber acquisition revenue |
1,849,142 |
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1,580,873 |
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Deferred tax liabilities |
908,823 |
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892,994 |
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Other liabilities |
215,991 |
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240,129 |
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Noncurrent liabilities held for sale |
106,960 |
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106,270 |
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Total liabilities |
14,192,447 |
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14,428,088 |
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Commitments and contingencies (See Note 14) |
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Stockholders' equity: |
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Preferred stock—authorized 1,000,000 shares of $0.01 par value; zero issued and outstanding as of September 30, 2023 and December 31, 2022 |
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Common stock—authorized 3,999,000,000 shares of $0.01 par value; issued and outstanding shares of 866,793,978 and 862,098,041 as of September 30, 2023 and December 31, 2022, respectively |
8,668 |
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8,621 |
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Class B common stock—authorized 100,000,000 shares of $0.01 par value; issued and outstanding shares of 54,744,525 as of September 30, 2023 and December 31, 2022 |
547 |
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547 |
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Additional paid-in capital |
7,407,164 |
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7,380,759 |
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Accumulated deficit |
(4,160,955) |
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(3,949,579) |
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Accumulated other comprehensive income (loss) |
(16,759) |
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(47,200) |
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Total stockholders' equity |
3,238,665 |
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3,393,148 |
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Total liabilities and stockholders' equity |
$ |
17,431,112 |
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$ |
17,821,236 |
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See Notes to Condensed Consolidated Financial Statements
ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
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|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Revenue: |
|
|
|
|
|
|
|
Monitoring and related services |
$ |
1,053,456 |
|
|
$ |
1,021,811 |
|
|
$ |
3,125,344 |
|
|
$ |
3,029,309 |
|
Security installation, product, and other |
126,417 |
|
|
88,829 |
|
|
355,082 |
|
|
235,506 |
|
Solar installation, product, and other |
57,611 |
|
|
179,153 |
|
|
279,978 |
|
|
586,189 |
|
Total revenue |
1,237,484 |
|
|
1,289,793 |
|
|
3,760,404 |
|
|
3,851,004 |
|
Cost of revenue (exclusive of depreciation and amortization shown separately below): |
|
|
|
|
|
|
|
Monitoring and related services |
148,533 |
|
|
137,243 |
|
|
452,809 |
|
|
445,720 |
|
Security installation, product, and other |
38,863 |
|
|
27,176 |
|
|
113,921 |
|
|
66,993 |
|
Solar installation, product, and other |
49,424 |
|
|
114,236 |
|
|
212,666 |
|
|
382,545 |
|
Total cost of revenue |
236,820 |
|
|
278,655 |
|
|
779,396 |
|
|
895,258 |
|
Selling, general, and administrative expenses |
395,600 |
|
|
415,373 |
|
|
1,159,088 |
|
|
1,254,401 |
|
Depreciation and intangible asset amortization |
333,088 |
|
|
387,417 |
|
|
1,021,103 |
|
|
1,223,666 |
|
Merger, restructuring, integration, and other |
16,296 |
|
|
4,745 |
|
|
42,339 |
|
|
1,165 |
|
Goodwill impairment |
88,367 |
|
|
200,974 |
|
|
511,176 |
|
|
200,974 |
|
Operating income (loss) |
167,313 |
|
|
2,629 |
|
|
247,302 |
|
|
275,540 |
|
Interest expense, net |
(147,187) |
|
|
(29,832) |
|
|
(402,381) |
|
|
(117,331) |
|
|
|
|
|
|
|
|
|
Other income (expense) |
661 |
|
|
(156,118) |
|
|
(10) |
|
|
(153,165) |
|
Income (loss) from continuing operations before income taxes and equity in net earnings (losses) of equity method investee |
20,787 |
|
|
(183,321) |
|
|
(155,089) |
|
|
5,044 |
|
Income tax benefit (expense) |
(38,764) |
|
|
15,800 |
|
|
12,438 |
|
|
(37,806) |
|
Income (loss) from continuing operations before equity in net earnings (losses) of equity method investee |
(17,977) |
|
|
(167,521) |
|
|
(142,651) |
|
|
(32,762) |
|
Equity in net earnings (losses) of equity method investee |
(2,688) |
|
|
(1,594) |
|
|
(7,103) |
|
|
(2,542) |
|
Income (loss) from continuing operations |
(20,665) |
|
|
(169,115) |
|
|
(149,754) |
|
|
(35,304) |
|
Income (loss) from discontinued operations, net of tax |
(65,572) |
|
|
7,866 |
|
|
36,891 |
|
|
17,217 |
|
Net income (loss) |
$ |
(86,237) |
|
|
$ |
(161,249) |
|
|
$ |
(112,863) |
|
|
$ |
(18,087) |
|
|
|
|
|
|
|
|
|
Common Stock: |
|
|
|
|
|
|
|
Income (loss) from continuing operations per share - basic |
$ |
(0.02) |
|
|
$ |
(0.19) |
|
|
$ |
(0.16) |
|
|
$ |
(0.04) |
|
Income (loss) from continuing operations per share - diluted |
$ |
(0.02) |
|
|
$ |
(0.19) |
|
|
$ |
(0.16) |
|
|
$ |
(0.04) |
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic |
$ |
(0.09) |
|
|
$ |
(0.18) |
|
|
$ |
(0.12) |
|
|
$ |
(0.02) |
|
Net income (loss) per share - diluted |
$ |
(0.09) |
|
|
$ |
(0.18) |
|
|
$ |
(0.12) |
|
|
$ |
(0.02) |
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic |
857,423 |
|
|
850,230 |
|
|
856,446 |
|
|
847,456 |
|
Weighted-average shares outstanding - diluted |
857,423 |
|
|
850,230 |
|
|
856,446 |
|
|
847,456 |
|
|
|
|
|
|
|
|
|
Class B Common Stock: |
|
|
|
|
|
|
|
Income (loss) from continuing operations per share - basic |
$ |
(0.02) |
|
|
$ |
(0.19) |
|
|
$ |
(0.16) |
|
|
$ |
(0.04) |
|
Income (loss) from continuing operations per share - diluted |
$ |
(0.02) |
|
|
$ |
(0.19) |
|
|
$ |
(0.16) |
|
|
$ |
(0.04) |
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic |
$ |
(0.09) |
|
|
$ |
(0.18) |
|
|
$ |
(0.12) |
|
|
$ |
(0.02) |
|
Net income (loss) per share - diluted |
$ |
(0.09) |
|
|
$ |
(0.18) |
|
|
$ |
(0.12) |
|
|
$ |
(0.02) |
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic |
54,745 |
|
|
54,745 |
|
|
54,745 |
|
|
54,745 |
|
Weighted-average shares outstanding - diluted |
54,745 |
|
|
54,745 |
|
|
54,745 |
|
|
54,745 |
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements
ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Net income (loss) |
$ |
(86,237) |
|
|
$ |
(161,249) |
|
|
$ |
(112,863) |
|
|
$ |
(18,087) |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
Cash flow hedges |
22,763 |
|
|
4,088 |
|
|
30,484 |
|
|
21,741 |
|
Other |
(17) |
|
|
(15) |
|
|
(43) |
|
|
(29) |
|
Total other comprehensive income (loss), net of tax |
22,746 |
|
|
4,073 |
|
|
30,441 |
|
|
21,712 |
|
Comprehensive income (loss) |
$ |
(63,491) |
|
|
$ |
(157,176) |
|
|
$ |
(82,422) |
|
|
$ |
3,625 |
|
See Notes to Condensed Consolidated Financial Statements
ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2023 |
|
|
|
Number of Common Shares |
|
Number of Class B Common Shares |
|
Common Stock |
|
Class B Common Stock |
|
Additional Paid-In Capital |
|
Accumulated Deficit |
|
Accumulated Other Comprehensive Income (Loss) |
|
Total Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
866,409 |
|
|
54,745 |
|
|
$ |
8,664 |
|
|
$ |
547 |
|
|
$ |
7,390,269 |
|
|
$ |
(4,041,963) |
|
|
$ |
(39,505) |
|
|
$ |
3,318,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(86,237) |
|
|
— |
|
|
(86,237) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
22,746 |
|
|
22,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(32,321) |
|
|
— |
|
|
(32,321) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
15,580 |
|
|
— |
|
|
— |
|
|
15,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions related to employee share-based compensation plans and other |
385 |
|
|
— |
|
|
4 |
|
|
— |
|
|
1,315 |
|
|
(434) |
|
|
|
|
885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
866,794 |
|
|
54,745 |
|
|
$ |
8,668 |
|
|
$ |
547 |
|
|
$ |
7,407,164 |
|
|
$ |
(4,160,955) |
|
|
$ |
(16,759) |
|
|
$ |
3,238,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2022 |
|
Number of Common Shares |
|
Number of Class B Common Shares |
|
Common Stock |
|
Class B Common Stock |
|
Additional Paid-In Capital |
|
Accumulated Deficit |
|
Accumulated Other Comprehensive Income (Loss) |
|
Total Stockholders' Equity |
Beginning balance |
856,642 |
|
|
54,745 |
|
|
$ |
8,566 |
|
|
$ |
547 |
|
|
$ |
7,295,665 |
|
|
$ |
(3,874,045) |
|
|
$ |
(51,334) |
|
|
$ |
3,379,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(161,249) |
|
|
— |
|
|
(161,249) |
|
Other comprehensive income (loss), net of tax |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
4,073 |
|
|
4,073 |
|
Issuance of common stock, net of expenses |
1,322 |
|
|
— |
|
|
13 |
|
|
— |
|
|
(13) |
|
|
— |
|
|
— |
|
|
— |
|
Dividends |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(32,028) |
|
|
— |
|
|
(32,028) |
|
Share-based compensation expense |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
16,692 |
|
|
— |
|
|
— |
|
|
16,692 |
|
Contingent forward purchase contract |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(41,938) |
|
|
— |
|
|
— |
|
|
(41,938) |
|
Transactions related to employee share-based compensation plans and other |
666 |
|
|
— |
|
|
7 |
|
|
— |
|
|
3,095 |
|
|
(459) |
|
|
— |
|
|
2,643 |
|
Ending balance |
858,630 |
|
|
54,745 |
|
|
$ |
8,586 |
|
|
$ |
547 |
|
|
$ |
7,273,501 |
|
|
$ |
(4,067,781) |
|
|
$ |
(47,261) |
|
|
$ |
3,167,592 |
|
See Notes to Condensed Consolidated Financial Statements
ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2023 |
|
|
|
Number of Common Shares |
|
Number of Class B Common Shares |
|
Common Stock |
|
Class B Common Stock |
|
Additional Paid-In Capital |
|
Accumulated Deficit |
|
Accumulated Other Comprehensive Income (Loss) |
|
Total Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
862,098 |
|
|
54,745 |
|
|
$ |
8,621 |
|
|
$ |
547 |
|
|
$ |
7,380,759 |
|
|
$ |
(3,949,579) |
|
|
$ |
(47,200) |
|
|
$ |
3,393,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(112,863) |
|
|
— |
|
|
(112,863) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
30,441 |
|
|
30,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(96,751) |
|
|
— |
|
|
(96,751) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
43,068 |
|
|
— |
|
|
— |
|
|
43,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions related to employee share-based compensation plans and other
|
4,696 |
|
|
— |
|
|
47 |
|
|
— |
|
|
(16,663) |
|
|
(1,762) |
|
|
|
|
(18,378) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
866,794 |
|
|
54,745 |
|
|
$ |
8,668 |
|
|
$ |
547 |
|
|
$ |
7,407,164 |
|
|
$ |
(4,160,955) |
|
|
$ |
(16,759) |
|
|
$ |
3,238,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2022 |
|
Number of Common Shares |
|
Number of Class B Common Shares |
|
Common Stock |
|
Class B Common Stock |
|
Additional Paid-In Capital |
|
Accumulated Deficit |
|
Accumulated Other Comprehensive Income (Loss) |
|
Total Stockholders' Equity |
Beginning balance |
846,826 |
|
|
54,745 |
|
|
$ |
8,468 |
|
|
$ |
547 |
|
|
$ |
7,261,267 |
|
|
$ |
(3,952,590) |
|
|
$ |
(68,973) |
|
|
$ |
3,248,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(18,087) |
|
|
— |
|
|
(18,087) |
|
Other comprehensive income (loss), net of tax |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
21,712 |
|
|
21,712 |
|
Issuance of common stock, net of expenses |
6,026 |
|
|
— |
|
|
60 |
|
|
— |
|
|
15,308 |
|
|
— |
|
|
— |
|
|
15,368 |
|
Dividends |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(95,730) |
|
|
— |
|
|
(95,730) |
|
Share-based compensation expense |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
49,644 |
|
|
— |
|
|
— |
|
|
49,644 |
|
Contingent forward purchase contract |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(41,938) |
|
|
— |
|
|
— |
|
|
(41,938) |
|
Transactions related to employee share-based compensation plans and other
|
5,778 |
|
|
— |
|
|
58 |
|
|
— |
|
|
(10,780) |
|
|
(1,374) |
|
|
— |
|
|
(12,096) |
|
Ending balance |
858,630 |
|
|
54,745 |
|
|
$ |
8,586 |
|
|
$ |
547 |
|
|
$ |
7,273,501 |
|
|
$ |
(4,067,781) |
|
|
$ |
(47,261) |
|
|
$ |
3,167,592 |
|
See Notes to Condensed Consolidated Financial Statements
ADT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
2023 |
|
2022 |
Cash flows from operating activities: |
|
|
|
Net income (loss) |
$ |
(112,863) |
|
|
$ |
(18,087) |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
Depreciation and intangible asset amortization |
1,058,794 |
|
|
1,281,871 |
|
Amortization of deferred subscriber acquisition costs |
145,688 |
|
|
118,233 |
|
Amortization of deferred subscriber acquisition revenue |
(227,651) |
|
|
(175,680) |
|
Share-based compensation expense |
43,068 |
|
|
49,644 |
|
Deferred income taxes |
6,804 |
|
|
35,811 |
|
Provision for losses on receivables and inventory |
104,469 |
|
|
68,417 |
|
|
|
|
|
Goodwill, intangible, and other asset impairments |
521,663 |
|
|
200,974 |
|
|
|
|
|
Unrealized (gain) loss on interest rate swap contracts |
(38,477) |
|
|
(312,603) |
|
|
|
|
|
Change in fair value of other financial instruments |
— |
|
|
157,550 |
|
Other non-cash items, net |
102,843 |
|
|
104,293 |
|
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures: |
|
|
|
Deferred subscriber acquisition costs |
(295,440) |
|
|
(304,404) |
|
Deferred subscriber acquisition revenue |
221,747 |
|
|
255,760 |
|
|
|
|
|
Other, net |
(284,951) |
|
|
(140,710) |
|
Net cash provided by (used in) operating activities |
1,245,694 |
|
|
1,321,069 |
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
Dealer generated customer accounts and bulk account purchases |
(385,462) |
|
|
(500,487) |
|
Subscriber system asset expenditures |
(480,947) |
|
|
(572,595) |
|
Purchases of property and equipment |
(130,520) |
|
|
(135,677) |
|
Acquisition of businesses, net of cash acquired |
— |
|
|
(13,096) |
|
Proceeds from sale of business, net of cash sold |
— |
|
|
26,729 |
|
Other investing, net |
8,848 |
|
|
(13,664) |
|
Net cash provided by (used in) investing activities |
(988,081) |
|
|
(1,208,790) |
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Proceeds from long-term borrowings |
650,000 |
|
|
480,000 |
|
Proceeds from receivables facility |
212,188 |
|
|
212,166 |
|
Proceeds (payments) from interest rate swaps |
59,184 |
|
|
(26,953) |
|
Repayment of long-term borrowings, including call premiums |
(888,716) |
|
|
(527,595) |
|
Repayment of receivables facility |
(144,620) |
|
|
(81,487) |
|
Dividends on common stock |
(96,400) |
|
|
(95,164) |
|
|
|
|
|
Payments on finance leases |
(32,268) |
|
|
(33,749) |
|
|
|
|
|
|
|
|
|
Other financing, net |
(34,497) |
|
|
(12,990) |
|
Net cash provided by (used in) financing activities |
(275,129) |
|
|
(85,772) |
|
|
|
|
|
Cash and cash equivalents and restricted cash and restricted cash equivalents: |
|
|
|
Net increase (decrease) |
(17,516) |
|
|
26,507 |
|
Beginning balance |
373,580 |
|
|
33,277 |
|
Ending balance |
$ |
356,064 |
|
|
$ |
59,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
ADT Inc., together with its wholly-owned subsidiaries (collectively, “ADT” or the “Company”), provides security, interactive, and smart home solutions to consumer and small business customers, as well as residential solar and energy storage solutions, in the United States (“U.S.”). As discussed below, on October 2, 2023, the Company divested its Commercial Business (as defined below), which provided security and other solutions to commercial customers.
The Company is majority-owned by Prime Security Services TopCo (ML), L.P., which is majority-owned by Prime Security Services TopCo Parent, L.P. (“Ultimate Parent”). Ultimate Parent is majority-owned by Apollo Investment Fund VIII, L.P. and its related funds that are directly or indirectly managed by affiliates of Apollo Global Management, Inc. (together with its subsidiaries and affiliates, “Apollo” or the “Sponsor”).
Basis of Presentation
The condensed consolidated financial statements included herein have been prepared in U.S. dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
The financial statements included herein comprise the consolidated results of ADT Inc. and its wholly-owned subsidiaries. The results of companies acquired are included from the effective dates of acquisition; and all intercompany transactions have been eliminated. The Company uses the equity method of accounting to account for an investment in which it has the ability to exercise significant influence but does not control.
As discussed below under the heading “Commercial Divestiture,” beginning in the third quarter of 2023, the Company presented its Commercial Business as discontinued operations.
Certain prior period amounts have been reclassified to conform with the current period presentation.
The condensed consolidated financial statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for the interim periods presented. The interim results reported herein should not be taken as indicative of results that may be expected for future interim periods or the full year.
The Condensed Consolidated Balance Sheet as of December 31, 2022 included herein was derived from the audited consolidated financial statements as of that date. Certain information and footnote disclosures required in the annual consolidated financial statements have been omitted as appropriate. For a more comprehensive understanding of the Company and its interim results, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Amended 2022 Annual Report (as defined and discussed below).
Restatement
As disclosed in the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on July 10, 2023, in connection with the preparation of the Company’s second quarter 2023 condensed consolidated financial statements, the Company identified errors in the non-cash goodwill impairment losses associated with its Solar reporting unit and related tax impacts recognized during the third quarter of 2022 and the first quarter of 2023 as a result of the Company not applying the simultaneous equation method prescribed by Accounting Standards Update 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). As a result, on July 27, 2023, the Company filed an Amendment No. 1 to its Annual Report on Form 10-K for the year ended December 31, 2022 (the “Amended 2022 Annual Report”), which was originally filed with the SEC on February 28, 2023 (the “Original 2022 Annual Report”). The Company also restated its Quarterly Reports on Form 10-Q for the quarters ended September 30, 2022, and March 31, 2023, by filing amendments to the respective original Quarterly Reports on Form 10-Q with the SEC on July 27, 2023.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Commercial Divestiture
On August 7, 2023, ADT, Iris Buyer LLC, a Delaware limited liability company and affiliate of GTCR LLC (“GTCR”), and, solely for certain purposes set forth in the Commercial Purchase Agreement (as defined below), Fire & Security Holdings, LLC (“F&S Holdings”), a Delaware limited liability company and an indirect, wholly owned subsidiary of ADT, entered into an Equity Purchase Agreement (the “Commercial Purchase Agreement”) pursuant to which GTCR agreed to acquire all of the issued and outstanding equity interests of F&S Holdings, which directly or indirectly held all of the issued and outstanding equity interests in the subsidiaries of ADT that operated ADT’s commercial business (the “Commercial Business”) (the “Commercial Divestiture”).
On October 2, 2023, the Company completed the previously announced Commercial Divestiture for a total purchase price of approximately $1,613 million in cash, subject to customary post-closing adjustments, and received net proceeds of approximately $1,585 million, excluding transaction costs.
Beginning in the third quarter of 2023, the Company presented its Commercial Business as a discontinued operation as the Commercial Divestiture met all of the held for sale criteria for the disposal group and represented a strategic shift that has and will continue to have a major effect on the Company’s operations and financial statements. The change is reflected in all periods presented. Additionally, the cash flows and comprehensive income (loss) of the Commercial Business have not been segregated and are included in the interim Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Comprehensive Income (Loss), respectively, for all periods presented.
Unless otherwise noted, amounts and disclosures throughout these Notes to Condensed Consolidated Financial Statements relate to the Company’s continuing operations.
Refer to Note 5 “Divestitures” for additional information.
Use of Estimates
The preparation of these condensed consolidated financial statements in accordance with GAAP requires the Company to select accounting policies and make estimates that affect amounts reported in the condensed consolidated financial statements and the accompanying notes. The Company’s estimates are based on the relevant information available at the end of each period. Actual results could differ materially from these estimates under different assumptions or market conditions.
The Company considered recent impacts from macroeconomic conditions such as inflationary pressures, rising interest rates, the uncertainty and volatility in the financial markets, and supply chain disruptions, as well as any on-going impacts from the COVID-19 Pandemic (as defined below), in the assessment of its financial position, results of operations, and cash flows, as well as certain accounting estimates, as of and for the periods presented.
COVID-19 Pandemic - During March 2020, the World Health Organization declared the outbreak of a novel coronavirus as a pandemic (the “COVID-19 Pandemic”). As of September 30, 2023, the impact to the Company, as well as its response plan, has not materially changed from that described in the Amended 2022 Annual Report.
Segments
The Company has historically reported results for three operating and reportable segments organized based on customer type: Consumer and Small Business (“CSB”), Commercial, and Solar. As a result of the Commercial Divestiture, results of the Commercial Business are classified as discontinued operations and thus excluded from both continuing operations and segment results for all periods presented. Accordingly, the Company now reports its results in two operating and reportable segments, CSB and Solar, with the change reflected in all periods presented. Prior to the third quarter of 2023, the Commercial Business was reflected in the Commercial reportable segment.
The accounting policies of the Company’s reportable segments are the same as those of the Company. Refer to Note 3 “Segment Information” for additional information.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Vintage Disclosures for Financing Receivables - ASU 2022-02, Financial Instruments — Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, requires reporting entities to disclose current-period gross write-offs by year of origination for financing receivables, among other requirements.
This disclosure-only guidance became effective January 1, 2023. The impact to the Company’s condensed consolidated financial statements was not material.
Supplier Finance Program Obligations - ASU 2022-04, Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, requires that a reporting entity who is a buyer in a supplier finance program disclose qualitative and quantitative information about its supplier finance programs, including a roll-forward of the obligations.
The Company adopted this guidance effective January 1, 2023, except the roll-forward requirement, which becomes effective January 1, 2024 (early adoption is permitted), and should be applied prospectively.
The Company does not currently have any material supplier finance programs.
Recently Issued Accounting Pronouncements
Fair Value of Equity Investments - ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, states an entity should not consider the contractual sale restriction when measuring the equity security’s fair value and introduces new disclosure requirements related to such equity securities.
This guidance becomes effective January 1, 2024, and should be applied prospectively with any adjustments recognized in earnings and disclosed on the date of adoption. Early adoption is permitted. The Company is monitoring any potential impact.
Significant Accounting Policies
Unless otherwise noted, the Company’s accounting policies discussed below, or included within the respective footnotes herein, do not materially differ from those disclosed in the Amended 2022 Annual Report.
Cash and Cash Equivalents and Restricted Cash and Restricted Cash Equivalents
The following table reconciles the amounts below reported in the Condensed Consolidated Balance Sheets to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
September 30, 2023 |
|
December 31, 2022 |
Cash and cash equivalents |
$ |
238,582 |
|
|
$ |
257,223 |
|
Restricted cash and restricted cash equivalents(1) |
117,482 |
|
|
116,357 |
|
|
|
|
|
Ending balance |
$ |
356,064 |
|
|
$ |
373,580 |
|
________________
(1) Primarily includes amounts received from State Farm Fire & Casualty Company (“State Farm”), inclusive of accrued interest, in connection with the State Farm Development Agreement (as defined and discussed in Note 16 “Related Party Transactions”).
Subscriber System Assets, net and Deferred Subscriber Acquisition Costs, net
Subscriber system assets represent capitalized equipment and installation costs incurred in connection with transactions in which the Company retains ownership of the security system, which the Company may retrieve upon termination of the contract with the customer. Deferred subscriber acquisition costs represent selling expenses (primarily commissions) that are incremental to acquiring customers.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Subscriber system assets and any related deferred subscriber acquisition costs are accounted for on a pooled basis based on the month and year of customer acquisition. The Company depreciates and amortizes these pooled costs using an accelerated method over the estimated life of the customer relationship, which is 15 years.
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
September 30, 2023 |
|
December 31, 2022 |
Gross carrying amount |
$ |
6,261,940 |
|
|
$ |
5,981,008 |
|
Accumulated depreciation |
(3,271,246) |
|
|
(3,062,468) |
|
Subscriber system assets, net |
$ |
2,990,694 |
|
|
$ |
2,918,540 |
|
Depreciation of subscriber system assets and amortization of deferred subscriber acquisition costs are reflected in depreciation and intangible asset amortization and selling, general, and administrative expenses (“SG&A”), respectively, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Depreciation of subscriber system assets |
|
$ |
135,414 |
|
|
$ |
134,405 |
|
|
$ |
407,739 |
|
|
$ |
394,280 |
|
Amortization of deferred subscriber acquisition costs |
|
$ |
47,945 |
|
|
$ |
40,036 |
|
|
$ |
138,145 |
|
|
$ |
111,741 |
|
Accrued Expenses and Other Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
September 30, 2023 |
|
December 31, 2022 |
Accrued interest |
$ |
69,757 |
|
|
$ |
156,495 |
|
Payroll-related accruals |
113,484 |
|
|
139,709 |
|
|
|
|
|
Opportunity Fund (see Note 16 “Related Party Transactions”) |
97,367 |
|
|
100,802 |
|
Operating lease liabilities (see Note 15 “Leases”) |
16,006 |
|
|
20,741 |
|
Other accrued liabilities |
285,658 |
|
|
358,992 |
|
Accrued expenses and other current liabilities |
$ |
582,272 |
|
|
$ |
776,739 |
|
Merger, Restructuring, Integration, and Other
Merger, restructuring, integration, and other represents certain direct and incremental costs resulting from acquisitions made by the Company, integration costs as a result of those acquisitions, costs related to the Company’s restructuring efforts, as well as fair value remeasurements and impairment charges on certain strategic investments.
Fair Value of Financial Instruments
The Company’s financial instruments primarily consist of cash and cash equivalents, restricted cash and restricted cash equivalents, accounts receivable, retail installment contract receivables, accounts payable, debt, and derivative financial instruments. Due to their short-term and/or liquid nature, the fair values of cash, restricted cash, accounts receivable, and accounts payable approximate their respective carrying amounts.
Cash Equivalents - Included in cash and cash equivalents and restricted cash and restricted cash equivalents, as applicable from time to time, are investments in money market mutual funds. These investments are generally classified as Level 1 fair value measurements, which represent unadjusted quoted prices in active markets for identical assets or liabilities.
As of September 30, 2023 and December 31, 2022, investments in money market mutual funds were $263 million and $145 million, respectively.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Long-Term Debt Instruments - The fair values of the Company’s long-term debt instruments are determined using broker-quoted market prices, which represent quoted prices for similar assets or liabilities as well as other observable market data, and are classified as Level 2 fair value measurements. The carrying amounts of debt outstanding, if any, under the Company’s first lien revolving credit facility (the “First Lien Revolving Credit Facility”) and its uncommitted receivables securitization financing agreement (the “2020 Receivables Facility”) approximate their fair values as interest rates on these borrowings approximate current market rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2023 |
|
December 31, 2022 |
(in thousands) |
Carrying Amount |
|
Fair Value |
|
Carrying Amount |
|
Fair Value |
Long-term debt instruments subject to fair value disclosures(1) |
$ |
9,579,225 |
|
|
$ |
9,207,198 |
|
|
$ |
9,733,700 |
|
|
$ |
9,312,932 |
|
________________
(1) Excludes finance leases.
Derivative Financial Instruments - Derivative financial instruments are reported at fair value as either assets or liabilities that are primarily calculated using discounted cash flow models utilizing observable inputs, such as quoted forward interest rates, and incorporate credit risk adjustments to reflect the risk of default by the counterparty or the Company. The resulting fair values are classified as Level 2 fair value measurements.
Refer to Note 9 “Derivative Financial Instruments” for the fair values of the Company’s derivative financial instruments.
Retail Installment Contract Receivables - The fair values of the Company’s retail installment contract receivables are determined using a discounted cash flow model and are classified as Level 3 fair value measurements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2023 |
|
December 31, 2022 |
(in thousands) |
Carrying Amount |
|
Fair Value |
|
Carrying Amount |
|
Fair Value |
Retail installment contract receivables, net |
$ |
664,000 |
|
|
$ |
479,686 |
|
|
$ |
531,516 |
|
|
$ |
385,114 |
|
2. REVENUE AND RECEIVABLES
Revenue
Disaggregated Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
CSB: |
|
|
|
|
|
|
|
|
Monitoring and related services |
|
$ |
1,053,456 |
|
|
$ |
1,021,811 |
|
|
$ |
3,125,344 |
|
|
$ |
3,029,309 |
Security installation, product, and other |
|
126,417 |
|
|
88,829 |
|
|
355,082 |
|
|
235,506 |
Total CSB |
|
1,179,873 |
|
|
1,110,640 |
|
|
3,480,426 |
|
|
3,264,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar: |
|
|
|
|
|
|
|
|
Solar installation, product, and other |
|
57,611 |
|
|
179,153 |
|
279,978 |
|
|
586,189 |
Total Solar |
|
57,611 |
|
|
179,153 |
|
279,978 |
|
|
586,189 |
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
1,237,484 |
|
|
$ |
1,289,793 |
|
|
$ |
3,760,404 |
|
|
$ |
3,851,004 |
The Company allocates the transaction price to each performance obligation based on relative standalone selling price, which is determined using observable internal and external pricing, profitability, and operational metrics.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Company-Owned - In transactions in which the Company provides monitoring and related services but retains ownership of the security system (referred to as Company-owned transactions), the Company’s performance obligations primarily include (i) monitoring and related services, which are recognized when these services are provided to the customer, and (ii) a material right associated with the one-time non-refundable fees in connection with the initiation of a monitoring contract which the customer will not be required to pay again upon a renewal of the contract (referred to as deferred subscriber acquisition revenue). Deferred subscriber acquisition revenue is amortized on a pooled basis over the estimated life of the customer relationship using an accelerated method consistent with the treatment of subscriber system assets and deferred subscriber acquisition costs and is reflected in security installation, product, and other revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Amortization of deferred subscriber acquisition revenue |
|
$ |
77,471 |
|
|
$ |
61,530 |
|
|
$ |
220,779 |
|
|
$ |
169,048 |
|
Customer-Owned - In transactions involving security systems sold outright to the customer (referred to as outright sales), the Company’s performance obligations generally include the sale and installation of the system, which is primarily recognized at a point in time based upon the nature of the transaction and contractual terms, and any monitoring and related services, which are recognized when these services are provided to the customer.
Solar - The Company enters into agreements with third-party lenders in order to access loan products for the Company’s Solar customers. Fees incurred under these agreements are recorded as a reduction of solar installation, product, and other revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Third-party lender financing fees |
|
$ |
11,596 |
|
|
$ |
28,933 |
|
|
$ |
40,066 |
|
|
$ |
107,005 |
|
Revenue and cost of revenue from the sale of solar equipment are reflected in the statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Solar installation, product, and other revenue |
|
$ |
24,955 |
|
|
$ |
93,387 |
|
|
$ |
133,466 |
|
|
$ |
339,760 |
|
Solar installation, product, and other cost of revenue |
|
$ |
22,076 |
|
|
$ |
64,283 |
|
|
$ |
102,919 |
|
|
$ |
224,425 |
|
Allowance for Credit Losses
The Company evaluates its allowance for credit losses on accounts receivable in pools based on customer type. For each customer pool, the allowance for credit losses is estimated based on the delinquency status of the underlying receivables and the related historical loss experience, as adjusted for current and expected future conditions, if applicable. The allowance for credit losses is not material for the individual pools of customers.
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
(in thousands) |
2023 |
|
2022 |
Beginning balance |
$ |
35,482 |
|
|
$ |
22,104 |
|
Provision for credit losses |
85,865 |
|
|
64,914 |
|
Write-offs, net of recoveries(1) |
(71,066) |
|
|
(54,978) |
|
Ending balance |
$ |
50,281 |
|
|
$ |
32,040 |
|
________________
(1)Recoveries were not material for the periods presented. As such, the Company presented write-offs, net of recoveries.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Retail Installment Contract Receivables, net
For security system transactions occurring under both Company-owned and customer-owned equipment models, the Company’s retail installment contract option allows qualifying residential customers to pay the fees due at installation over a 24-, 36-, or 60-month interest-free period, and there is no significant financing component.
Upon origination of a retail installment contract, the Company utilizes external credit scores to assess customer credit quality and determine eligibility. Subsequent to origination, the Company monitors the delinquency status of retail installment contract receivables as the key credit quality indicator.
The balance of unbilled retail installment contract receivables comprises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
September 30, 2023 |
|
December 31, 2022 |
Retail installment contract receivables, gross |
|
$ |
665,339 |
|
|
$ |
532,406 |
|
Allowance for credit losses |
|
(1,339) |
|
|
(890) |
|
Retail installment contract receivables, net |
|
$ |
664,000 |
|
|
$ |
531,516 |
|
|
|
|
|
|
Balance Sheet Classification: |
|
|
|
|
Accounts receivable, net |
|
$ |
229,021 |
|
|
$ |
169,242 |
|
Other assets |
|
434,979 |
|
|
362,274 |
|
Retail installment contract receivables, net |
|
$ |
664,000 |
|
|
$ |
531,516 |
|
The allowance for credit losses relates to retail installment contract receivables from outright sales transactions. As of September 30, 2023, the current and delinquent billed retail installment contract receivables were not material.
As of September 30, 2023 and December 31, 2022, retail installment contract receivables, net, used as collateral for borrowings under the 2020 Receivables Facility were $594 million and $506 million, respectively. Refer to Note 8 “Debt” for further discussion regarding the 2020 Receivables Facility.
Contract Assets
Contract assets represent the Company’s right to consideration in exchange for goods or services transferred to the customer. The contract asset is reclassified to accounts receivable when the Company’s right to the consideration becomes unconditional, which generally occurs over the course of a 24-, 36-, or 60-month period as additional services are performed and billed. The financing component of contract assets is not significant.
During the nine months ended September 30, 2023 and 2022, contract assets recognized were not material.
The balance of contract assets for residential transactions comprises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
September 30, 2023 |
|
December 31, 2022 |
Contract assets, gross |
|
$ |
39,785 |
|
|
$ |
52,591 |
|
Allowance for credit losses |
|
(5,113) |
|
|
(5,453) |
|
Contract assets, net |
|
$ |
34,672 |
|
|
$ |
47,138 |
|
|
|
|
|
|
Balance Sheet Classification: |
|
|
|
|
Prepaid expenses and other current assets |
|
$ |
17,039 |
|
|
$ |
32,495 |
|
Other assets |
|
17,633 |
|
|
14,643 |
|
Contract assets, net |
|
$ |
34,672 |
|
|
$ |
47,138 |
|
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. SEGMENT INFORMATION
The Company’s segments are based on the manner in which the Company’s Chief Executive Officer, who is the chief operating decision maker (the “CODM”) evaluates performance and makes decisions about how to allocate resources.
As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies,” effective in the third quarter of 2023, the Company reports results in two operating and reportable segments: CSB and Solar. Prior to the third quarter of 2023, the Commercial Business was reflected in the Commercial reportable segment. Certain allocated shared costs that were previously included in the Commercial reportable segment that do not qualify to be presented within discontinued operations are now reflected in the CSB reportable segment consistent with other unallocated corporate and other costs as discussed below. There have been no other changes to the Company’s segments from that disclosed in the Amended 2022 Annual Report.
The Company organizes its segments based on customer type as follows:
•CSB - Customers in the CSB segment are comprised of owners and renters of residential properties, small business operators, and other individual consumers. The CSB segment includes the sale, installation, servicing, and monitoring of integrated security and automation systems and other related offerings.
•Solar - Customers in the Solar segment are comprised of residential homeowners. The Solar segment includes the sale and installation of solar systems, energy storage solutions, roofing services, and other related offerings.
The CSB and Solar segments include the respective revenue and operating costs related to the activities noted above, other operating costs associated with support functions related to these operations, and certain dedicated corporate costs and other income and expense items. The CSB segment includes general corporate costs and other income and expense items not included in the Solar segment.
The CODM uses Adjusted EBITDA from continuing operations (“Adjusted EBITDA”), which is the Company’s segment profit measure, to evaluate segment performance. Adjusted EBITDA is defined as income or loss from continuing operations adjusted for (i) interest; (ii) taxes; (iii) depreciation and amortization, including depreciation of subscriber system assets and other fixed assets and amortization of dealer and other intangible assets; (iv) amortization of deferred costs and deferred revenue associated with subscriber acquisitions; (v) share-based compensation expense; (vi) merger, restructuring, integration, and other items such as separation costs; (vii) losses on extinguishment of debt; (viii) radio conversion costs, net; (ix) adjustments related to acquisitions, such as contingent consideration and purchase accounting adjustments, or dispositions; (x) impairment charges; and (xi) other income/gain or expense/loss items such as changes in fair value of certain financial instruments or financing and consent fees.
The CODM does not review the Company's assets by segment; therefore, such information is not presented.
Reconciliations
The following table presents total revenue by segment and a reconciliation to consolidated total revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
CSB |
|
$ |
1,179,873 |
|
|
$ |
1,110,640 |
|
|
$ |
3,480,426 |
|
|
$ |
3,264,815 |
|
|
|
|
|
|
|
|
|
|
Solar |
|
57,611 |
|
|
179,153 |
|
|
279,978 |
|
|
586,189 |
|
Total Revenue |
|
$ |
1,237,484 |
|
|
$ |
1,289,793 |
|
|
$ |
3,760,404 |
|
|
$ |
3,851,004 |
|
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents Adjusted EBITDA by segment and a reconciliation to consolidated income (loss) from continuing operations before income taxes and equity in net earnings (losses) of equity method investee:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Adjusted EBITDA by segment: |
|
|
|
|
|
|
|
|
CSB |
|
$ |
623,446 |
|
|
$ |
589,640 |
|
|
$ |
1,854,288 |
|
|
$ |
1,723,785 |
|
|
|
|
|
|
|
|
|
|
Solar |
|
(40,758) |
|
|
(6,476) |
|
|
(88,743) |
|
|
(4,469) |
|
Total |
|
$ |
582,688 |
|
|
$ |
583,164 |
|
|
$ |
1,765,545 |
|
|
$ |
1,719,316 |
|
|
|
|
|
|
|
|
|
|
Reconciliation: |
|
|
|
|
|
|
|
|
Total segment Adjusted EBITDA |
|
$ |
582,688 |
|
|
$ |
583,164 |
|
|
$ |
1,765,545 |
|
|
$ |
1,719,316 |
|
Less: |
|
|
|
|
|
|
|
|
Interest expense, net |
|
147,187 |
|
|
29,832 |
|
|
402,381 |
|
|
117,331 |
|
Depreciation and intangible asset amortization |
|
333,088 |
|
|
387,417 |
|
|
1,021,103 |
|
|
1,223,666 |
|
Amortization of deferred subscriber acquisition costs |
|
47,945 |
|
|
40,036 |
|
|
138,145 |
|
|
111,741 |
|
Amortization of deferred subscriber acquisition revenue |
|
(77,471) |
|
|
(61,530) |
|
|
(220,779) |
|
|
(169,048) |
|
Share-based compensation expense |
|
9,882 |
|
|
13,737 |
|
|
31,369 |
|
|
39,983 |
|
Merger, restructuring, integration, and other(1) |
|
16,296 |
|
|
4,745 |
|
|
42,339 |
|
|
1,165 |
|
Goodwill impairment(2) |
|
88,367 |
|
|
200,974 |
|
|
511,176 |
|
|
200,974 |
|
|
|
|
|
|
|
|
|
|
Change in fair value of financial instruments(3) |
|
— |
|
|
157,550 |
|
|
— |
|
|
157,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash acquisition-related adjustments and other, net(4) |
|
(705) |
|
|
(4,682) |
|
|
2,003 |
|
|
33,452 |
|
Equity in net earnings (losses) of equity method investee |
|
(2,688) |
|
|
(1,594) |
|
|
(7,103) |
|
|
(2,542) |
|
Income (loss) from continuing operations before income taxes and equity in net earnings (losses) of equity method investee |
|
$ |
20,787 |
|
|
$ |
(183,321) |
|
|
$ |
(155,089) |
|
|
$ |
5,044 |
|
________________
(1) During 2023, includes integration and third-party costs related to the strategic optimization of the Solar business operations following the ADT Solar acquisition, as well as restructuring costs.
(2) Represents impairment charges associated with the Company’s Solar reporting unit. Refer to Note 7 “Goodwill and Other Intangible Assets.”
(3) Represents the change in fair value of the Forward Contract associated with the State Farm Transaction.
(4) Nine months ended September 30, 2022 primarily includes customer backlog intangible asset amortization related to the ADT Solar Acquisition of $30 million, which was fully amortized as of March 2022. The remaining balance primarily included ADT Solar purchase accounting adjustments and net radio conversion costs, offset by gain on sale of a business.
4. ACQUISITIONS
There was no acquisition activity during the nine months ended September 30, 2023.
During the nine months ended September 30, 2022, total consideration for continuing and discontinued operations related to acquisitions was approximately $31 million, including approximately $15 million in shares of the Company’s common stock. This resulted in the recognition of approximately $24 million of goodwill.
5. DIVESTITURES
The Company may decide to divest a portion of its business for various reasons, including efforts to focus on its other businesses. The Company presents discontinued operations for components of the business that are either disposed of through sale (or qualify as held for sale), abandonment, or spin-off if these actions also represent a strategic shift that has or will have a major effect on the Company’s financial results.
Commercial Divestiture
As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies,” as a result of the Commercial Divestiture, the disposal group met the established held for sale criteria, and the Company classified the assets and liabilities related to the Commercial Business as held for sale in the Condensed Consolidated Balance Sheets for the periods presented.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Commercial Divestiture supports the Company’s strategic journey and strengthens its financial profile. Furthermore, the Commercial Divestiture represents a strategic shift that has and will continue to have a major effect on the Company’s operations and financial statements, and therefore, the results of operations of the Commercial Business are classified as discontinued operations in the Company’s Condensed Consolidated Statements of Operations for the periods presented.
As the agreed upon sale price was substantially higher than the carrying value of the Commercial Business, the Company did not record any impairment or adjustments when recognizing the disposal group at the lower of its carrying amount or fair value less cost to sell.
As discussed in Note 3 “Segment Information,” the Commercial Business was previously reflected in the Commercial reportable segment.
On October 2, 2023, the Company completed the Commercial Divestiture, and received net proceeds of approximately $1,585 million, subject to certain customary post-closing adjustments as set forth in the Commercial Purchase Agreement. In addition, the Company will recognize a significant gain on sale, which will be recognized in income (loss) from discontinued operations during the fourth quarter of 2023.
The Company used a portion of the net proceeds to redeem approximately $1.3 billion of the Company’s first lien term loan facility due 2026 (the “First Lien Term Loan due 2026”). The Company intends to use the remaining net proceeds and cash on hand to redeem $500 million of the Company’s outstanding 5.250% First-Priority Senior Secured Notes due 2024 (the “First Lien Notes due 2024”) during the Company’s fourth quarter of 2023. Refer to Note 8 “Debt” for further discussion.
Refer to Note 13 “Net Income (Loss) per Share” for basic and diluted earnings per share information for discontinued operations.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following reconciliations represent the major classes of line items of the Commercial Business within the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations and certain information within the Condensed Consolidated Statements of Cash Flows for the periods presented.
Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
September 30, 2023 |
|
December 31, 2022 |
Assets |
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
254,787 |
|
|
$ |
262,757 |
|
Inventories, net |
|
102,927 |
|
|
104,139 |
|
Work-in-progress |
|
48,106 |
|
|
68,782 |
|
Prepaid expenses and other current assets |
|
42,012 |
|
|
34,245 |
|
Total current assets of discontinued operations held for sale |
|
447,832 |
|
|
469,923 |
|
Property and equipment, net |
|
76,843 |
|
|
69,777 |
|
Subscriber system assets, net |
|
138,087 |
|
|
142,763 |
|
Intangible assets, net |
|
151,287 |
|
|
164,783 |
|
Goodwill |
|
336,589 |
|
|
336,589 |
|
Deferred subscriber acquisition costs, net |
|
89,762 |
|
|
88,966 |
|
Other assets |
|
82,196 |
|
|
82,636 |
|
Total assets of discontinued operations held for sale |
|
$ |
1,322,596 |
|
|
$ |
1,355,437 |
|
Liabilities |
|
|
|
|
Current maturities of long-term debt |
|
$ |
18,372 |
|
|
$ |
14,293 |
|
Accounts payable |
|
77,631 |
|
|
68,855 |
|
Deferred revenue |
|
108,123 |
|
|
92,784 |
|
Accrued expenses and other current liabilities |
|
107,535 |
|
|
123,041 |
|
Total current liabilities of discontinued operations held for sale |
|
311,661 |
|
|
298,973 |
|
Long-term debt |
|
11,418 |
|
|
9,952 |
|
Deferred subscriber acquisition revenue |
|
63,075 |
|
|
64,605 |
|
Other liabilities |
|
32,468 |
|
|
31,713 |
|
Total liabilities of discontinued operations held for sale |
|
$ |
418,622 |
|
|
$ |
405,243 |
|
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Statements of Operations Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Revenue |
|
$ |
351,400 |
|
|
$ |
314,298 |
|
|
$ |
1,033,962 |
|
|
$ |
898,864 |
|
Cost of revenue |
|
233,204 |
|
|
215,665 |
|
|
688,305 |
|
|
616,644 |
|
Selling, general, and administrative expenses |
|
72,601 |
|
|
65,054 |
|
|
213,113 |
|
|
195,444 |
|
Depreciation and intangible asset amortization |
|
(3,186) |
|
|
18,915 |
|
|
37,691 |
|
|
58,205 |
|
Other income and expense items |
|
8,814 |
|
|
1,792 |
|
|
19,222 |
|
|
2,506 |
|
Income (loss) from discontinued operations before income taxes |
|
39,967 |
|
|
12,872 |
|
|
75,631 |
|
|
26,065 |
|
Income tax benefit (expense) |
|
(105,539) |
|
|
(5,006) |
|
|
(38,740) |
|
|
(8,848) |
|
Income (loss) from discontinued operations, net of tax |
|
$ |
(65,572) |
|
|
$ |
7,866 |
|
|
$ |
36,891 |
|
|
$ |
17,217 |
|
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
(in thousands) |
|
2023 |
|
2022 |
|
|
|
|
Depreciation and intangible asset amortization |
|
$ |
37,691 |
|
|
$ |
58,205 |
|
|
|
|
|
Share-based compensation expense |
|
$ |
11,699 |
|
|
$ |
9,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriber system asset expenditures |
|
$ |
8,902 |
|
|
$ |
23,725 |
|
|
|
|
|
Purchases of property and equipment |
|
$ |
4,399 |
|
|
$ |
3,378 |
|
|
|
|
|
Transition Services Agreement
In connection with the Commercial Divestiture, the Company entered into a Transition Services Agreement (the “TSA”), pursuant to which the Company and the Commercial Business will provide certain transitional services relating to ongoing support and other administrative functions to each other for a transitional period of up to 24 months after the closing of the Commercial Divestiture. TSA fees charged to the Commercial Business represent charges for internal labor as well as certain third-party costs identified in connection with providing such services. Income from the TSA will be recognized in other income (expense), and expenses incurred by the Company to support the transition will be recorded based on the nature of the expense.
ADT Brand License and Intellectual Property (“IP”) Rights
The Company and GTCR entered into an agreement granting GTCR a license to continue to use the ADT brand and other Company trademarks for a period of twelve months to transition from Company branding (the “Brand License”). The Company has also agreed to a covenant not to assert a claim against GTCR for infringement of Company's patents as of the Commercial Divestiture for products and services that were used in the Commercial Business prior to the Commercial Divestiture, and has provided GTCR with a paid-up, irrevocable, non-assignable (with limited exceptions) license to continue to use certain software and other Company IP in the same manner.
Other Divestitures
During the three months ended September 30, 2023, the Company entered into an Asset Purchase Agreement to sell substantially all of the assets and certain specified liabilities of its Vintage Security business (the “Vintage Security Divestiture”). As a result, the disposal group was classified as held for sale as of September 30, 2023, and the assets and liabilities of the Vintage Security business were reflected as held for sale in the Condensed Consolidated Balance Sheet as of September 30, 2023. The results of operations of the Vintage Security business are reflected in the CSB segment and did not meet the criteria to be presented as a discontinued operation. On October 2, 2023, the Company completed the Vintage Security Divestiture for net proceeds of approximately $36 million, subject to certain customary post-closing adjustments.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the nine months ended September 30, 2022, proceeds related to disposal activities totaled approximately $27 million, resulting in a gain on sale of approximately $10 million recognized in SG&A.
6. EQUITY METHOD INVESTMENTS
Canopy Investment
In April 2022, the Company and Ford Motor Company (“Ford”) formed the entity, SNTNL LLC (“Canopy”). Canopy meets the definition of a variable interest entity (“VIE”) because the Company holds a variable interest through its 40% investment in Canopy’s preferred class of equity (the “Canopy Investment”) and fees received under various commercial agreements between the Company and Canopy. The Company is not the primary beneficiary, and therefore, does not consolidate Canopy’s assets, liabilities, and financial results of operations. As a result, the Company accounts for its investment in Canopy under the equity method of accounting.
The impact to the Company’s condensed consolidated financial statements as a result of the Canopy Investment or the commercial agreements was not material during the periods presented.
As of September 30, 2023 and December 31, 2022, the Canopy Investment’s carrying amount was approximately $5 million and $7 million, respectively, and is presented in other assets. The balance primarily reflects the initial contribution, plus an additional investment of approximately $5 million during the first quarter of 2023, as well as the Company’s proportionate share of Canopy’s cumulative net earnings or losses.
Subsequent event - In October 2023, the Company began discussions with Ford to sell its shares in Canopy, in accordance with the terms of the agreement between the Company and Ford, which includes a put right under which the Company is entitled to recover its full equity investment in Canopy plus a premium. The sale of ADT’s equity investment in Canopy is expected to close by the first quarter of 2024, after which the Company will no longer hold an investment in Canopy.
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Changes in the carrying amounts of goodwill by reportable segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
CSB |
|
|
|
Solar |
|
Total |
Balance as of December 31, 2022 |
$ |
4,919,251 |
|
|
|
|
$ |
511,176 |
|
|
$ |
5,430,427 |
|
Acquisitions(1) |
123 |
|
|
|
|
— |
|
|
123 |
|
Impairment |
— |
|
|
|
|
(511,176) |
|
|
(511,176) |
|
Reclassification to held for sale(2) |
(15,475) |
|
|
|
|
— |
|
|
(15,475) |
|
Balance as of September 30, 2023 |
$ |
4,903,899 |
|
|
|
|
$ |
— |
|
|
$ |
4,903,899 |
|
________________
(1) Includes the impact of measurement period adjustments which were not material during the nine months ended September 30, 2023.
(2) Relates to the presentation of Vintage Security as held for sale as discussed in Note 5 “Divestitures.”
As of September 30, 2023 and December 31, 2022, the Company had accumulated goodwill impairment losses of $712 million and $201 million, respectively, associated with the Company’s Solar reporting unit.
Solar Goodwill Impairment
During the first and second quarters of 2023, the Company performed interim impairment quantitative assessments on the Solar reporting unit as a result of triggering events as of March 31, 2023 and June 30, 2023 and recorded goodwill impairment charges of $242 million and $181 million during the first and second quarters of 2023, respectively. These triggering events resulted from the then-current macroeconomic conditions, including the impact of rising interest rates, as well as ADT Solar’s continued underperformance of operating results in each quarter relative to expectations. As a result and as previously disclosed, the Solar reporting unit was considered at risk for future impairment following the impairments in the first and second quarters of 2023.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In addition, the Company concluded there was a triggering event as of September 30, 2023, related to its Solar reporting unit as a result of continued deterioration of industry conditions and macroeconomic decline, as well as the Company’s recent plan to significantly reduce the footprint of its Solar reporting unit, including certain existing underperforming branches and related headcount reductions. As a result, the Company determined that the remaining balance of goodwill was not recoverable and recorded a goodwill impairment charge of $88 million in the third quarter of 2023. Following the impairments during 2023, the balance of goodwill in the Solar reporting unit was zero. The Company also assessed the recoverability of other long-lived assets related to its Solar business, and impairment charges recorded were not material.
The fair value of the Solar reporting unit is estimated using the income approach, which includes significant assumptions such as forecasted revenue, Adjusted EBITDA margins, and discount rates, as well as other assumptions including operating expenses and cash flows. In developing these assumptions, the Company relies on various factors including operating results, business plans, economic projections, anticipated future cash flows, and other market data. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying judgments and factors may include such items as a prolonged downturn in the business environment, changes in economic conditions that significantly differ from the Company’s assumptions in timing or degree, volatility in equity and debt markets resulting in higher discount rates, and unexpected regulatory changes. There are inherent uncertainties related to these judgments and factors that may ultimately impact the estimated fair value determinations.
Other Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2023 |
|
December 31, 2022 |
(in thousands) |
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
Definite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
Contracts and related customer relationships |
$ |
5,370,644 |
|
|
$ |
(2,812,359) |
|
|
$ |
2,558,285 |
|
|
$ |
6,739,004 |
|
|
$ |
(4,143,469) |
|
|
$ |
2,595,535 |
|
Dealer relationships |
1,518,020 |
|
|
(598,333) |
|
|
919,687 |
|
|
1,518,020 |
|
|
(538,801) |
|
|
979,219 |
|
Other |
209,773 |
|
|
(197,272) |
|
|
12,501 |
|
|
212,773 |
|
|
(193,563) |
|
|
19,210 |
|
Total definite-lived intangible assets |
7,098,437 |
|
|
(3,607,964) |
|
|
3,490,473 |
|
|
8,469,797 |
|
|
(4,875,833) |
|
|
3,593,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
Trade name |
1,333,000 |
|
|
— |
|
|
1,333,000 |
|
|
1,333,000 |
|
|
— |
|
|
1,333,000 |
|
Intangible assets |
$ |
8,431,437 |
|
|
$ |
(3,607,964) |
|
|
$ |
4,823,473 |
|
|
$ |
9,802,797 |
|
|
$ |
(4,875,833) |
|
|
$ |
4,926,964 |
|
The change in the net carrying amount of contracts and related customer relationships during the period was as follows:
|
|
|
|
|
|
(in thousands) |
|
Balance as of December 31, 2022 |
$ |
2,595,535 |
|
|
|
Customer contract additions, net of dealer charge-backs(1) |
363,540 |
|
Amortization |
(400,790) |
|
|
|
Balance as of September 30, 2023 |
$ |
2,558,285 |
|
________________
(1) The weighted-average amortization period for customer contract additions was approximately 15 years.
Payments for customer contract additions under the Company’s authorized dealer program and from other third parties are reflected as dealer generated customer accounts and bulk account purchases on the Condensed Consolidated Statements of Cash Flows.
Additionally, during the first quarter of 2023, the Company retired approximately $1.7 billion of customer relationship intangible assets that became fully amortized. These assets were originally acquired as part of the 2016 acquisition of The ADT Security Corporation (formerly named The ADT Corporation) (“The ADT Corporation”) (the “ADT Acquisition”).
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Definite-Lived Intangible Asset Amortization Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Definite-lived intangible asset amortization expense |
|
$ |
143,243 |
|
|
$ |
209,370 |
|
|
$ |
466,886 |
|
|
$ |
700,489 |
|
8. DEBT
The Company’s debt is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
Issued |
|
Maturity |
|
Interest Rate(1) |
|
Interest Payable |
|
September 30, 2023 |
|
December 31, 2022 |
First Lien Term Loan due 2026 |
|
9/23/2019 |
|
9/23/2026 |
|
Term SOFR +2.75% |
|
Quarterly |
|
$ |
2,709,428 |
|
|
$ |
2,730,269 |
|
Term Loan A Facility |
|
3/14/2023 |
|
3/14/2028 |
|
Term SOFR +2.25% |
|
Quarterly |
|
633,750 |
|
|
— |
|
First Lien Notes due 2024 |
|
4/4/2019 |
|
4/15/2024 |
|
5.250% |
|
2/15 and 8/15 |
|
600,000 |
|
|
750,000 |
|
First Lien Notes due 2026 |
|
4/4/2019 |
|
4/15/2026 |
|
5.750% |
|
3/15 and 9/15 |
|
1,350,000 |
|
|
1,350,000 |
|
First Lien Notes due 2027 |
|
8/20/2020 |
|
8/31/2027 |
|
3.375% |
|
6/15 and 12/15 |
|
1,000,000 |
|
|
1,000,000 |
|
First Lien Notes due 2029 |
|
7/29/2021 |
|
8/1/2029 |
|
4.125% |
|
2/1 and 8/1 |
|
1,000,000 |
|
|
1,000,000 |
|
ADT Notes due 2023 |
|
1/14/2013 |
|
6/15/2023 |
|
4.125% |
|
6/15 and 12/15 |
|
— |
|
|
700,000 |
|
ADT Notes due 2032 |
|
5/2/2016 |
|
7/15/2032 |
|
4.875% |
|
1/15 and 7/15 |
|
728,016 |
|
|
728,016 |
|
ADT Notes due 2042 |
|
7/5/2012 |
|
7/15/2042 |
|
4.875% |
|
1/15 and 7/15 |
|
21,896 |
|
|
21,896 |
|
Second Lien Notes due 2028 |
|
1/28/2020 |
|
1/15/2028 |
|
6.250% |
|
1/15 and 7/15 |
|
1,300,000 |
|
|
1,300,000 |
|
2020 Receivables Facility |
|
3/5/2020 |
|
8/20/2028 |
|
Various |
|
Monthly |
|
423,047 |
|
|
354,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt(2) |
|
839 |
|
|
2,446 |
|
Total debt principal, excluding finance leases |
|
9,766,976 |
|
|
9,937,368 |
|
Plus: Finance lease liabilities(3) |
|
88,476 |
|
|
70,643 |
|
Less: Unamortized debt discount, net |
|
(10,957) |
|
|
(13,415) |
|
Less: Unamortized deferred financing costs |
|
(46,657) |
|
|
(50,896) |
|
Less: Unamortized purchase accounting fair value adjustment and other |
|
(130,137) |
|
|
(139,357) |
|
Total debt |
|
|
|
|
|
|
|
|
|
9,667,701 |
|
|
9,804,343 |
|
Less: Current maturities of long-term debt, net of unamortized debt discount |
|
(835,292) |
|
|
(857,624) |
|
Long-term debt |
|
|
|
|
|
|
|
|
|
$ |
8,832,409 |
|
|
$ |
8,946,719 |
|
_________________
(1) Interest rate as of September 30, 2023. During June 2023, the Secured Overnight Financing Rate (“SOFR”) replaced the forward London Interbank Offered Rate (“LIBOR”) as the applicable benchmark rate for all remaining existing and future issuances of the Company’s debt instruments with a variable rate component. Interest on the 2020 Receivables Facility is primarily based on SOFR +0.95% and Cost of Funds (“COF”) +0.85%.
(2) Other debt primarily consists of vehicle loans at various interest rates and maturities.
(3) Refer to Note 15 “Leases” for additional information regarding the Company’s finance leases.
As of September 30, 2023, the Company was in compliance with all financial covenant and other maintenance tests for all of its debt obligations.
Significant changes in the Company’s debt during the nine months ended September 30, 2023 were as follows:
First Lien Credit Agreement
The Company’s first lien credit agreement, dated as of July 1, 2015 (together with subsequent amendments and restatements, the “First Lien Credit Agreement”), contains the First Lien Term Loan due 2026 and the First Lien Revolving Credit Facility.
During the nine months ended September 30, 2023, there were no borrowings under the First Lien Revolving Credit Facility; and as of September 30, 2023, the Company had $575 million in available borrowing capacity.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the nine months ended September 30, 2022, the Company borrowed $480 million and repaid $505 million under its First Lien Revolving Credit Facility.
Subsequent Event - In October 2023, the Company redeemed approximately $1.3 billion of the First Lien Term Loan due 2026 using net proceeds from the Commercial Divestiture.
Further, the Company refinanced the remaining outstanding balance of the First Lien Term Loan due 2026 with a new $1,375 million 7-year term loan B due 2030 (the “First Lien Term Loan B due 2030”) through an amendment to the existing First Lien Credit Agreement.
The First Lien Term Loan B due 2030 requires scheduled quarterly amortization payments, commencing on March 31, 2024, equal to 0.25% of the original principal amount of the First Lien Term Loan B due 2030, with the remaining balance payable at maturity. The Company may make voluntary prepayments on the First Lien Term Loan B due 2030 at any time prior to maturity at par, subject to a 1.00% prepayment premium in the event of certain specified refinancing events at any time during the first six months after the Closing Date. The First Lien Term Loan B due 2030 bears interest at a rate equal to, at the Company’s option, either (a) a term SOFR rate (“Term SOFR”) with a floor of zero or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50% per annum, (ii) the rate of interest per annum last quoted by The Wall Street Journal as the “Prime Rate” in the United States and (iii) the one-month adjusted term SOFR plus 1.00% per annum (“Base Rate”), in each case, plus an applicable margin of 2.50% per annum for Term SOFR loans and 1.50% per annum for Base Rate loans. The Company has elected the Term SOFR alternative to apply to borrowings of the First Lien Term Loan B due 2030.
Other than as described above, the First Lien Term Loan B due 2030 continues to have the same terms as provided under the existing First Lien Credit Agreement.
Term Loan A Facility
On March 14, 2023, Prime Security Services Holdings, LLC (“Holdings”), a Delaware limited liability company and a wholly owned direct subsidiary of the Company, Prime Security Services Borrower, LLC (“Prime Borrower”), a Delaware limited liability company and a wholly owned direct subsidiary of Holdings, and The ADT Corporation, a Delaware corporation and a wholly owned direct subsidiary of Prime Borrower (together with Prime Borrower, the “Term Loan A Borrowers”), entered into a term loan credit agreement (the “Term Loan A Credit Agreement”) with Barclays Bank PLC, as administrative agent, and the lenders party thereto, pursuant to which such lenders provided the Term Loan A Borrowers with an aggregate principal amount of $600 million of term loans (the “Closing Date Term Loan A Loans”) under a senior secured term loan A facility (the “Term Loan A Facility”).
Also on March 14, 2023, Holdings, the Term Loan A Borrowers, the subsidiary loan parties thereto, Barclays Bank PLC, and the lender party thereto entered into an amendment to the Term Loan A Credit Agreement, pursuant to which the lender party thereto agreed, at the option of the Term Loan A Borrowers and subject to the satisfaction or waiver of customary conditions, to provide the Term Loan A Borrowers with an aggregate principal amount of $50 million of incremental term loans (the “Incremental Term Loan A Loans”) under the Term Loan A Facility on or before the scheduled maturity date of the Company’s 4.125% senior notes due June 15, 2023 (the “ADT Notes due 2023”). On June 15, 2023, the Company borrowed the Incremental Term Loan A Loans and used the proceeds to complete the redemption of approximately $50 million of the ADT Notes due 2023. The Incremental Term Loan A Loans have the same terms as, and constitutes one class with, the Closing Date Term Loan A Loans.
The Term Loan A Facility has a maturity date of March 14, 2028, subject to a springing maturity of 91 days prior to the maturity date of certain long-term indebtedness of Prime Borrower and its subsidiaries if, on such date, the aggregate principal amount of such indebtedness equals or exceeds $100 million.
The Term Loan A Facility requires scheduled amortization payments in annual amounts equal to 5.00% of the original principal amount of the Term Loan A Facility, payable quarterly, with the balance payable at maturity. The Term Loan A Borrowers may make voluntary prepayments under the Term Loan A Facility at any time prior to maturity at par.
Borrowings under the Term Loan A Facility bear interest at a rate equal to, at Prime Borrower’s option, either (a) a term SOFR rate plus an adjustment of 0.10% (“Term SOFR”) or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50% per annum, (ii) the rate of interest per annum last quoted by The Wall Street Journal as the “Prime Rate” in the U.S., and (iii) the one-month adjusted term SOFR plus 1.00% per annum, in each case, plus an applicable margin of 2.50% per annum for SOFR loans and 1.50% per annum for base rate loans, subject to adjustments based on certain specified net first lien leverage ratios.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Prime Borrower has elected the Term SOFR alternative to apply to borrowings under the Term Loan A Facility.
Indebtedness incurred under the Term Loan A Facility is guaranteed, jointly and severally, on a senior secured first-priority basis, by Holdings, on a limited recourse basis, and by substantially all of Prime Borrower’s wholly owned material domestic subsidiaries, and is secured by a pledge of Prime Borrower’s capital stock directly held by Holdings and by first-priority security interests in substantially all of the assets of Prime Borrower and the subsidiary guarantors, in each case subject to certain permitted liens and exceptions. The Term Loan A Facility is subject to customary mandatory prepayment provisions, covenants, and restrictions, including a financial maintenance covenant requiring the Term Loan A Facility Borrowers to comply as of the last day of each fiscal quarter with a specified maximum consolidated net first lien leverage ratio.
Fees associated with the Term Loan A Facility were not material during the periods presented.
ADT Notes due 2023 Redemption
On March 15, 2023, the Company used the proceeds from the Closing Date Term Loan A Loans to redeem approximately $600 million of the ADT Notes due 2023 (the “2023 Notes Partial Redemption”) for a total redemption price of approximately $600 million, excluding any accrued and unpaid interest. Loss on extinguishment of debt was not material.
On June 15, 2023, the Company redeemed the remaining outstanding balance of approximately $100 million of the ADT Notes due 2023 using $50 million of proceeds from the Incremental Term Loan A Loans and cash on hand.
First Lien Notes due 2024 Partial Redemption
On May 2, 2023, the Company redeemed $150 million principal amount of the $750 million outstanding First Lien Notes due 2024 for a redemption price of $150 million, excluding accrued and unpaid interest, using cash on hand. Loss on extinguishment of debt was not material.
Subsequent Event - In October 2023, the Company issued a notice of redemption to redeem approximately $500 million principal amount of the outstanding First Lien Notes due 2024 by the end of 2023 using remaining net proceeds from the Commercial Divestiture and cash on hand.
2020 Receivables Facility
Under the 2020 Receivables Facility, the Company obtains financing by selling or contributing certain retail installment contract receivables to the Company’s wholly-owned consolidated bankruptcy-remote special purpose entity (“SPE”), which then grants a security interest in those retail installment contract receivables as collateral for cash borrowings.
In March 2023, the Company amended the agreement governing the 2020 Receivables Facility, pursuant to which, among other things, the borrowing capacity was increased from $400 million to $500 million and the uncommitted revolving period was extended from May 2023 to March 2024.
As of September 30, 2023, the Company had an uncommitted available borrowing capacity under the 2020 Receivables Facility of approximately $77 million.
The 2020 Receivables Facility did not have a material impact to the Condensed Consolidated Statements of Operations during the periods presented.
Variable Interest Entity
The SPE meets the definition of a VIE for which the Company is the primary beneficiary as it has the power to direct the SPE’s activities and the obligation to absorb losses or the right to receive benefits of the SPE. As such, the Company consolidates the SPE’s assets, liabilities, and financial results of operations.
The SPE’s assets and liabilities primarily consist of a portion of the Company’s unbilled retail installment contract receivables, net, as discussed in Note 2 “Revenue and Receivables,” and borrowings under the 2020 Receivables Facility, as presented above.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Solar Receivables Facility
On August 2, 2023, Compass Solar Group, LLC (“Compass”) and ADT Solar Finance LLC (“ADT Solar Finance”), each an indirect wholly-owned subsidiary of ADT Inc. entered into a Receivables Financing Agreement with Mizuho Bank, Ltd. (the “Solar Receivables Financing Agreement”) to finance receivables generated by the installation of residential solar systems. The Solar Receivables Financing Agreement, among other things, provides for an uncommitted revolving loan facility in the aggregate principal amount of up to $300 million, which loans are secured by substantially all the assets of ADT Solar Finance (the “Solar Receivables Facility”). The Solar Receivables Financing Agreement has an initial revolving period of one year (which may be extended by agreement of the parties) followed by an amortization period of 300 months to maturity where all collections on the receivables during such period will be applied to prepay the loan until reduced to zero, which will occur only if the Solar Receivables Financing Agreement is not mutually extended on a revolving basis. The interest rate under the Solar Receivables Financing Agreement is the sum of (x) term SOFR (plus a credit adjustment spread of 0.1%) plus (y) 1.0% (increased to 3.5% after the termination date) or, with respect to loans funded by a Conduit Lender (as defined in the Solar Receivables Financing Agreement), the sum of (x) the applicable rate set forth in the Receivables Financing Agreement plus (y) 1.0% (increased to 3.5% after the termination date).
In connection with such Solar Receivables Financing Agreement, certain other agreements relating to the transaction were entered into, including ADT Solar Finance’s limited liability company agreement, a Receivables Sale Agreement between Compass and ADT Solar Finance, pursuant to which Compass sells such receivables from time to time to ADT Solar Finance, a Performance Support Agreement entered into by ADT Inc., pursuant to which ADT Inc. guaranteed certain obligations under the Solar Receivables Financing Agreement and related transaction documents and certain account control agreements and security agreements, were also entered into.
As of September 30, 2023, we have not borrowed any amounts under the Solar Receivable Facility.
9. DERIVATIVE FINANCIAL INSTRUMENTS
The Company's derivative financial instruments primarily consist of interest rate swap contracts, which were entered into with the objective of managing exposure to variability in interest rates on the Company's debt. As of July 2023, SOFR is the applicable benchmark for all of the Company's interest rate swap contracts. All interest rate swap contracts are reported in the Condensed Consolidated Balance Sheets at fair value.
For interest rate swap contracts that are:
•Not designated as cash flow hedges: Unrealized gains and losses are recognized in interest expense, net.
•Designated as cash flow hedges: Unrealized gains and losses are recognized as a component of accumulated other comprehensive income (loss) (“AOCI”) and are reclassified into interest expense, net, in the same period in which the related interest on debt affects earnings.
For interest rate swap contracts that have been de-designated as cash flow hedges and for which forecasted cash flows are:
•Probable or reasonably possible of occurring: Unrealized gains and losses previously recognized as a component of AOCI are reclassified into interest expense, net, in the same period in which the related interest on variable-rate debt affects earnings through the original maturity date of the related interest rate swap contracts.
•Probable of not occurring: Unrealized gains and losses previously recognized as a component of AOCI are immediately reclassified into interest expense, net.
The cash flows associated with interest rate swap contracts that included an other-than-insignificant financing element at inception are reflected as cash flows from financing activities.
Interest Rate Swaps:
During the nine months ended September 30, 2023, the Company entered into floating-to-fixed interest rate swaps with an aggregate notional amount of $300 million to partially hedge the Term Loan A Facility.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of September 30, 2023, the Company’s interest rate swaps consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Execution |
|
Maturity |
|
Designation |
|
Notional Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2019 |
|
September 2026 |
|
Not designated |
|
$ |
2,800,000 |
|
|
March 2023 |
|
March 2028 |
|
Not designated |
|
$ |
100,000 |
|
|
April 2023 |
|
March 2028 |
|
Not designated |
|
$ |
200,000 |
|
|
|
|
|
|
|
|
|
|
Classification and Fair Value of Interest Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
September 30, 2023 |
|
December 31, 2022 |
|
|
|
|
|
Prepaid expenses and other current assets |
|
$ |
94,579 |
|
|
$ |
78,110 |
|
Other assets |
|
127,413 |
|
|
105,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of interest rate swaps - net asset (liability) |
|
$ |
221,992 |
|
|
$ |
183,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain (Loss) on Interest Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Gain (loss) included in interest expense, net |
|
$ |
16,380 |
|
|
$ |
108,041 |
|
|
$ |
38,477 |
|
|
$ |
312,603 |
|
Cash Flow Hedges Reclassifications out of AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Interest expense, net |
|
$ |
30,008 |
|
|
$ |
5,389 |
|
|
$ |
40,186 |
|
|
$ |
28,656 |
|
Income tax (benefit) expense |
|
$ |
(7,245) |
|
|
$ |
(1,301) |
|
|
$ |
(9,702) |
|
|
$ |
(6,915) |
|
During the nine months ended September 30, 2023, the Company recorded an additional $25 million to interest expense, net associated with the reclassification from AOCI of historical losses related to certain interest rate swaps for which the Company previously applied hedge accounting but for which the cash flows are probable of not occurring as a result of the partial redemption of the Company’s First Lien Term Loan due 2026 in October 2023, as discussed in Note 8 “Debt”.
As of September 30, 2023 and December 31, 2022, AOCI, net of tax, related to previously designated cash flow hedges was $15 million and $46 million, respectively.
As of September 30, 2023, AOCI associated with previously designated cash flow hedges that is estimated to be reclassified to interest expense, net, within the next twelve months is not material.
10. INCOME TAXES
Unrecognized Tax Benefits
The Company’s unrecognized tax benefits relate to tax years that remain subject to audit by the taxing authorities in the U.S. federal, state and local, and foreign jurisdictions. During the nine months ended September 30, 2023, the Company did not have a material change to its unrecognized tax benefits. Based on the current status of its income tax audits, the Company does not believe a significant portion of its unrecognized tax benefits will be resolved in the next twelve months.
Effective Tax Rate
The effective tax rate can vary from period to period due to permanent tax adjustments, discrete items such as the settlement of income tax audits and changes in tax laws, as well as recurring factors such as changes in the overall state tax rate. The discussion below is based on the continuing operations of the Company.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company’s income tax benefit (expense) for the three months ended September 30, 2023 was $(39) million, resulting in an effective tax rate for the period of 186.5%. The effective tax rate primarily represents the federal statutory rate of 21.0%, a state statutory tax rate, net of federal benefits, of 34.0%, and unfavorable impacts related to the Solar goodwill impairment, non-deductible executive compensation, non-U.S. earnings, and other items, partially offset by favorable impacts from federal tax credits, impacts from dispositions and acquisitions, and losses from equity method investee and other items.
The Company’s income tax benefit (expense) for the three months ended September 30, 2022 was $16 million, resulting in an effective tax rate for the period of 8.6%. The effective tax rate primarily represents the federal statutory rate of 21.0%, a state statutory tax rate, net of federal benefits, of 6.0%, and favorable impacts from research and development (“R&D”) credits and other items, partially offset by an unfavorable impact related to the fair value adjustment of the Forward Contract.
The Company’s income tax benefit (expense) for the nine months ended September 30, 2023 was $12 million, resulting in an effective tax rate for the period of 8.0%. The effective tax rate primarily represents the federal statutory rate of 21.0%, a state statutory tax rate, net of federal benefits, of 21.4%, and unfavorable impacts related to the Solar goodwill impairment, non-deductible executive compensation, and non-U.S. earnings and other items, partially offset by favorable impacts from federal tax credits, losses from equity method investee, impacts from dispositions and acquisitions and other items.
The Company’s income tax benefit (expense) for the nine months ended September 30, 2022 was $(38) million, resulting in an effective tax rate for the period of 749.5%. The effective tax rate primarily represents the federal statutory tax rate of 21.0%, a state statutory tax rate, net of federal benefits, of 5.1%, as well as unfavorable impacts related to the fair value adjustment of the Forward Contract, prior year return adjustments, and other items, partially offset by favorable impacts from R&D credits, changes in the Company’s valuation allowances, legislative changes, and other items.
11. EQUITY
Common Stock and Class B Common Stock
The Company has two classes of common stock, including common stock (“Common Stock”) and Class B common stock (“Class B Common Stock”).
During the nine months ended September 30, 2023, shares issued resulted from the vesting of restricted stock units (“RSUs”) and stock option exercises related to share-based compensation awards.
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data) |
|
Common Stock |
|
Class B Common Stock |
Declaration Date |
|
Record Date |
|
Payment Date |
|
Per Share |
|
Aggregate |
|
Per Share |
|
Aggregate |
Nine Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
2/28/2023 |
|
3/16/2023 |
|
4/4/2023 |
|
$ |
0.035 |
|
|
$ |
30,342 |
|
|
$ |
0.035 |
|
|
$ |
1,916 |
|
5/2/2023 |
|
6/15/2023 |
|
7/6/2023 |
|
0.035 |
|
|
30,256 |
|
|
0.035 |
|
|
1,916 |
|
8/8/2023 |
|
9/15/2023 |
|
10/4/2023 |
|
0.035 |
|
|
30,405 |
|
|
0.035 |
|
|
1,916 |
|
|
|
|
|
Total |
|
$ |
0.105 |
|
|
$ |
91,003 |
|
|
$ |
0.105 |
|
|
$ |
5,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
3/1/2022 |
|
3/17/2022 |
|
4/4/2022 |
|
$ |
0.035 |
|
|
$ |
29,842 |
|
|
$ |
0.035 |
|
|
$ |
1,916 |
|
5/5/2022 |
|
6/16/2022 |
|
7/5/2022 |
|
0.035 |
|
|
30,028 |
|
|
0.035 |
|
|
1,916 |
|
8/4/2022 |
|
9/15/2022 |
|
10/4/2022 |
|
0.035 |
|
|
30,112 |
|
|
0.035 |
|
|
1,916 |
|
|
|
|
|
Total |
|
$ |
0.105 |
|
|
$ |
89,982 |
|
|
$ |
0.105 |
|
|
$ |
5,748 |
|
Subsequent Event - On November 2, 2023, the Company announced a dividend of $0.035 per share to holders of Common Stock and Class B Common Stock of record on December 14, 2023, which will be paid on January 9, 2024.
Accumulated Other Comprehensive Income (Loss)
Refer to Note 9 “Derivative Financial Instruments” for AOCI reclassifications associated with cash flow hedges. There were no other material reclassifications out of AOCI.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. SHARE-BASED COMPENSATION
During the first quarter of 2023, the Company completed its annual long-term incentive plan equity award to employees and granted approximately 6.6 million RSUs under its 2018 Omnibus Incentive Plan, as amended (the “2018 Plan”) with a weighted-average grant date fair value of $7.60 equal to the closing price per share of the Company’s Common Stock on the date of grant. These RSUs are service-based awards with a three-year graded vesting period from the date of grant.
Share-based compensation expense included in discontinued operations was approximately $6 million and $12 million during the three and nine months ended September 30, 2023, respectively, and approximately $3 million and $10 million during the three and nine months ended September 30, 2022, respectively.
13. NET INCOME (LOSS) PER SHARE
The Company applies the two-class method for computing and presenting net income (loss) per share for each class of common stock, which allocates current period net income (loss) to each class of common stock and participating securities based on dividends declared and participation rights in the remaining undistributed earnings or losses.
Basic net income (loss) per share is computed by dividing the net income (loss) allocated to each class of common stock by the related weighted-average number of shares outstanding during the period. Diluted net income (loss) per share gives effect to all securities representing potential common shares that were dilutive and outstanding during the period for each class of common stock and excludes potentially dilutive securities whose effect would have been anti-dilutive.
Common Stock:
Potential shares of Common Stock include (i) incremental shares related to the vesting or exercise of share-based compensation awards, warrants, and other options to purchase additional shares of the Company’s Common Stock calculated using the treasury stock method and (ii) incremental shares of Common Stock issuable upon the conversion of Class B Common Stock. Additionally, the basic and diluted earnings per share computations for Common Stock exclude approximately 9 million unvested shares as their vesting is contingent upon achievement of certain performance requirements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
in thousands, except per share amounts |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Allocation of income (loss) from continuing operations - basic |
|
$ |
(19,424) |
|
|
$ |
(158,877) |
|
|
$ |
(140,750) |
|
|
$ |
(33,141) |
|
Dilutive effect (including conversion of Class B Common Stock) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Allocation of income (loss) from continuing operations - diluted |
|
$ |
(19,424) |
|
|
$ |
(158,877) |
|
|
$ |
(140,750) |
|
|
$ |
(33,141) |
|
|
|
|
|
|
|
|
|
|
Allocation of income (loss) from discontinued operations, net of tax - basic |
|
$ |
(61,637) |
|
|
$ |
7,390 |
|
|
$ |
34,675 |
|
|
$ |
16,172 |
|
Dilutive effect (including conversion of Class B Common Stock) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Allocation of income (loss) from discontinued operations, net of tax - diluted |
|
$ |
(61,637) |
|
|
$ |
7,390 |
|
|
$ |
34,675 |
|
|
$ |
16,172 |
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic |
|
857,423 |
|
|
850,230 |
|
|
856,446 |
|
|
847,456 |
|
Dilutive effect (including conversion of Class B Common Stock)(1) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Weighted-average shares outstanding - diluted |
|
857,423 |
|
|
850,230 |
|
|
856,446 |
|
|
847,456 |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations per share - basic |
|
$ |
(0.02) |
|
|
$ |
(0.19) |
|
|
$ |
(0.16) |
|
|
$ |
(0.04) |
|
Income (loss) from continuing operations per share - diluted |
|
$ |
(0.02) |
|
|
$ |
(0.19) |
|
|
$ |
(0.16) |
|
|
$ |
(0.04) |
|
|
|
|
|
|
|
|
|
|
Income (loss) per share from discontinued operations, net of tax - basic |
|
$ |
(0.07) |
|
|
$ |
0.01 |
|
|
$ |
0.04 |
|
|
$ |
0.02 |
|
Income (loss) per share from discontinued operations, net of tax - diluted |
|
$ |
(0.07) |
|
|
$ |
0.01 |
|
|
$ |
0.04 |
|
|
$ |
0.02 |
|
_________________
(1) During the three and nine months ended September 30, 2023 and September 30, 2022, all potential shares of Common Stock that would be dilutive were excluded from the diluted earnings per share calculations because their effects would have been anti-dilutive.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Class B Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
in thousands, except per share amounts |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Allocation of net income (loss) from continuing operations - basic |
|
$ |
(1,241) |
|
|
$ |
(10,238) |
|
|
$ |
(9,004) |
|
|
$ |
(2,163) |
|
Dilutive effect |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Allocation of net income (loss) from continuing operations - diluted |
|
$ |
(1,241) |
|
|
$ |
(10,238) |
|
|
$ |
(9,004) |
|
|
$ |
(2,163) |
|
|
|
|
|
|
|
|
|
|
Allocation of income (loss) from discontinued operations, net of tax - basic |
|
$ |
(3,935) |
|
|
$ |
476 |
|
|
$ |
2,216 |
|
|
$ |
1,045 |
|
Dilutive effect |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Allocation of income (loss) from discontinued operations, net of tax - diluted |
|
$ |
(3,935) |
|
|
$ |
476 |
|
|
$ |
2,216 |
|
|
$ |
1,045 |
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic |
|
54,745 |
|
|
54,745 |
|
|
54,745 |
|
|
54,745 |
|
Dilutive effect(1) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Weighted-average shares outstanding - diluted |
|
54,745 |
|
|
54,745 |
|
|
54,745 |
|
|
54,745 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations per share - basic |
|
$ |
(0.02) |
|
|
$ |
(0.19) |
|
|
$ |
(0.16) |
|
|
$ |
(0.04) |
|
Net income (loss) from continuing operations per share - diluted |
|
$ |
(0.02) |
|
|
$ |
(0.19) |
|
|
$ |
(0.16) |
|
|
$ |
(0.04) |
|
|
|
|
|
|
|
|
|
|
Income (loss) per share from discontinued operations, net of tax - basic |
|
$ |
(0.07) |
|
|
$ |
0.01 |
|
|
$ |
0.04 |
|
|
$ |
0.02 |
|
Income (loss) per share from discontinued operations, net of tax - diluted |
|
$ |
(0.07) |
|
|
$ |
0.01 |
|
|
$ |
0.04 |
|
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
________________
(1) There were no potential shares of Class B Common Stock during the periods presented.
14. COMMITMENTS AND CONTINGENCIES
Contractual Obligations
There have been no significant changes to the Company’s contractual obligations as compared to December 31, 2022, except as discussed below:
Repurchase of Solar Loans
As of September 30, 2023, the liability related to certain loans provided to customers within the Company’s Solar business that the Company may be required to repurchase from third party lenders was approximately $16 million. This liability is partially offset by a net receivable of $6 million related to the amount the Company ultimately expects to recover from any loans required to be repurchased, either through ongoing loan payments from the customer or proceeds from subsequent resale of the loans.
Google Commercial Agreement
In July 2020, the Company and Google entered into a Master Supply, Distribution, and Marketing Agreement (the “Google Commercial Agreement”), pursuant to which Google has agreed to supply the Company with certain Google devices as well as certain Google video and analytics services (“Google Devices and Services”), for sale to the Company’s customers.
The Google Commercial Agreement also specifies that each party shall contribute $150 million towards joint marketing, customer acquisition, training of the Company’s employees, and product technology updates related to the Google Devices and Services. In August 2022, the Company and Google executed an amendment to the Google Commercial Agreement, pursuant to which Google has agreed to commit an additional $150 million to fund growth, data and insights, product innovation and technology advancements, customer acquisition, and marketing, as mutually agreed by the Company and Google, (together with the initial amounts, the “Google Success Funds”).
During the three and nine months ended September 30, 2023, $27.5 million and $40 million, respectively, of the Google Success Funds were reimbursed to the Company for certain joint marketing expenses incurred by the Company.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Guarantees
In the normal course of business, the Company is liable for contract completion and product performance. The Company’s guarantees primarily relate to standby letters of credit related to its insurance programs and totaled $79 million and $93 million as of September 30, 2023 and December 31, 2022, respectively. The Company does not believe such obligations will materially affect its financial position, results of operations, or cash flows.
Legal Proceedings
The Company is subject to various claims and lawsuits in the ordinary course of business, which include among other things commercial general liability claims, automobile liability claims, contractual disputes, worker’s compensation claims, labor law and employment claims, claims that the Company infringed on the intellectual property of others, and consumer and employment class actions. The Company is also subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings. In connection with such formal and informal inquiries, the Company receives numerous requests, subpoenas, and orders for documents, testimony, and information in connection with various aspects of its activities. There have been no material changes to these matters from those disclosed in the Amended 2022 Annual Report.
The Company records accruals for losses that are probable and reasonably estimable. These accruals are based on a variety of factors such as judgment, probability of loss, opinions of internal and external legal counsel, and actuarially determined estimates of claims incurred but not yet reported based upon historical claims experience. Legal costs in connection with claims and lawsuits in the ordinary course of business are expensed as incurred. Additionally, the Company records insurance recovery receivables from third-party insurers when recovery has been determined to be probable. The Company has not accrued for any losses for which the likelihood of loss cannot be assessed, is less than probable, or the range of possible loss cannot be estimated.
As of September 30, 2023 and December 31, 2022, the Company’s accrual for ongoing claims and lawsuits within the scope of an insurance program totaled $110 million and $90 million, respectively. The Company’s accrual related to ongoing claims and lawsuits not within the scope of an insurance program is not material.
15. LEASES
Company as Lessee
As part of normal operations, the Company leases real estate, vehicles, and equipment.
Right-of-Use Assets and Lease Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
September 30, 2023 |
|
December 31, 2022 |
Presentation and Classification: |
|
|
|
|
Operating |
|
Current |
|
Prepaid expenses and other current assets |
|
$ |
97 |
|
|
$ |
121 |
|
Operating |
|
Non-current |
|
Other assets |
|
86,876 |
|
|
93,057 |
|
Finance |
|
Non-current |
|
Property and equipment, net(1) |
|
82,275 |
|
|
66,704 |
|
Total right-of-use assets |
|
$ |
169,248 |
|
|
$ |
159,882 |
|
|
|
|
|
|
|
|
|
|
Operating |
|
Current |
|
Accrued expenses and other current liabilities |
|
$ |
16,006 |
|
|
$ |
20,741 |
|
Finance |
|
Current |
|
Current maturities of long-term debt |
|
43,414 |
|
|
34,219 |
|
Operating |
|
Non-current |
|
Other liabilities |
|
78,928 |
|
|
85,249 |
|
Finance |
|
Non-current |
|
Long-term debt |
|
45,062 |
|
|
36,424 |
|
Total lease liabilities |
|
$ |
183,410 |
|
|
$ |
176,633 |
|
_________________
(1)Finance right-of-use assets are recorded net of accumulated depreciation, which was approximately $68 million and $61 million as of September 30, 2023 and December 31, 2022, respectively.
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Lease Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Operating lease cost |
|
$ |
8,568 |
|
|
$ |
5,742 |
|
|
$ |
24,414 |
|
|
$ |
25,329 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
|
6,611 |
|
|
5,079 |
|
|
17,422 |
|
|
14,181 |
|
Interest on lease liabilities |
|
1,026 |
|
|
694 |
|
|
2,544 |
|
|
1,935 |
|
Variable lease costs |
|
9,759 |
|
|
15,764 |
|
|
36,002 |
|
|
50,200 |
|
Total lease cost |
|
$ |
25,964 |
|
|
$ |
27,279 |
|
|
$ |
80,382 |
|
|
$ |
91,645 |
|
Right-of-Use Assets Obtained in Exchange for Lease Obligations(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
(in thousands) |
|
2023 |
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
$ |
28,786 |
|
|
$ |
40,400 |
|
Finance leases |
|
$ |
62,203 |
|
|
$ |
37,275 |
|
_________________
(1)Includes both continuing and discontinued operations.
Company as Lessor
The Company is a lessor in certain Company-owned transactions as the Company has identified a lease component associated with the right-of-use of the security system and a non-lease component associated with the monitoring and related services.
For transactions in which (i) the timing and pattern of transfer is the same for the lease and non-lease components and (ii) the lease component would be classified as an operating lease if accounted for separately, the Company applies the practical expedient to aggregate the lease and non-lease components and accounts for the combined transaction based upon its predominant characteristic, which is the non-lease component. The Company accounts for the combined component as a single performance obligation under the applicable revenue guidance and recognizes the underlying assets within subscriber system assets, net.
16. RELATED PARTY TRANSACTIONS
The Company’s related party transactions primarily relate to products and services received from, or monitoring and related services provided to, other entities affiliated with Apollo, and, from time to time, management, consulting, and transaction advisory services provided by Apollo to the Company, as well as transactions between the Company and State Farm. There were no notable related party transactions during the periods presented other than as described below.
Apollo
Upon initial funding of the Term Loan A Facility in March 2023, the Company incurred fees to Apollo of $1 million related to Apollo’s performance of placement agent services related to such debt.
State Farm
On October 13, 2022 (the “Closing”), the Company issued and sold in a private placement to State Farm 133,333,333 shares of the Company’s Common Stock at a per share price of $9.00 for an aggregate purchase price of $1.2 billion (the “State Farm Strategic Investment”) pursuant to a securities purchase agreement dated September 5, 2022. State Farm owns approximately 15% of the Company’s issued and outstanding Common Stock (assuming conversion of Class B Common Stock), and as a result, is a related party.
At the Closing, the Company, ADT LLC (an indirect wholly owned subsidiary of the Company), and State Farm entered into a Development Agreement (the “State Farm Development Agreement”) pursuant to which State Farm committed up to $300 million to fund certain initiatives as agreed to between the Company and State Farm related to the partnership (the “Opportunity Fund”).
ADT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Additionally at the Closing, the Company received $100 million of the Opportunity Fund, which will be restricted until such time as the Company uses the funds in accordance with the State Farm Development Agreement. The Company’s use of the funds is also subject to approval by State Farm.
As of September 30, 2023 and December 31, 2022, the balance in the Opportunity Fund was approximately $97 million and $101 million, respectively, and includes payments of $6 million partially offset by interest earned during 2023.
Sunlight Financial LLC
ADT Solar uses Sunlight Financial LLC (“Sunlight”), an entity affiliated with Apollo, to access certain loan products for ADT Solar customers, as discussed in Note 2 “Revenue and Receivables.”
During the three and nine months ended September 30, 2023, total loans funded by Sunlight were approximately $9 million and $71 million, respectively, and the Company incurred financing fees of approximately $2 million and $11 million, respectively.
During the three and nine months ended September 30, 2022, total loans funded by Sunlight were approximately $116 million and $359 million, respectively, and the Company incurred financing fees of approximately $14 million and $44 million, respectively.
As of September 30, 2023, the Company may be required to repurchase loans previously funded by Sunlight in the amount of approximately $10 million.
Rackspace
During October 2020, the Company entered into a master services agreement with Rackspace US, Inc. (“Rackspace”), an entity affiliated with Apollo, for the provision of cloud storage, equipment, and services to facilitate the implementation of the Company’s cloud migration strategy for certain applications.
The master services agreement included a minimum purchase commitment of $50 million over a seven year term, which the Company has met through spend with Rackspace as well as other parties. During the nine months ended September 30, 2023 and 2022, fees incurred to Rackspace were not material.
Canopy
Canopy is considered a related party under GAAP as the Company accounts for its investment in Canopy under the equity method of accounting. During the first quarter of 2023, the Company made an additional equity investment of approximately $5 million in Canopy.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
INTRODUCTION
To obtain a more comprehensive understanding of our financial condition, changes in financial condition, and results of operations, the following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and the related notes included in our Amended 2022 Annual Report, which was filed with the SEC on July 27, 2023.
The following discussion and analysis contains forward-looking statements about our business, operations, and financial performance based on current plans and estimates that involve risks, uncertainties, and assumptions, which could differ materially from actual results. Factors that could cause such differences are discussed in the sections of this Quarterly Report on Form 10-Q titled “Cautionary Statements Regarding Forward-Looking Statements” and Item 1A “Risk Factors.”
Table of Contents
BUSINESS AND BASIS OF PRESENTATION
Our Business
ADT Inc., together with its wholly-owned subsidiaries (collectively, the “Company,” “we,” “our,” “us,” and “ADT”), provides security, interactive, and smart home solutions to consumer and small business customers, as well as residential solar and energy storage solutions, in the U.S. As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies,” we divested our Commercial Business on October 2, 2023.
As of September 30, 2023, we served approximately 6.4 million security monitoring service subscribers, excluding commercial subscribers that were part of the Commercial Divestiture.
Our mission is to empower people to protect and connect what matters most with safe, smart, and sustainable solutions, delivered through innovative offerings, unrivaled safety, and a premium experience because we believe that everyone deserves to feel safe.
Basis of Presentation
As of the third quarter of 2023, and following the Commercial Divestiture, we report financial and operating information for our two segments: CSB and Solar. All financial information presented in this section has been prepared in U.S. dollars in accordance with GAAP, excluding our non-GAAP measures, and includes the accounts of ADT Inc. and its wholly-owned subsidiaries. All intercompany transactions have been eliminated.
We considered recent impacts from macroeconomic conditions such as inflationary pressures, rising interest rates, the uncertainty and volatility in the financial markets, and supply chain disruptions, as well as any on-going impacts from the COVID-19 Pandemic, in the assessment of our financial position, results of operations, and cash flows, as well as certain accounting estimates, as of and for the periods presented.
Business Updates
Google
During the first quarter of 2023, we introduced our new ADT+ app for our self-setup line of do-it-yourself (“DIY”) smart home security products, including Google Nest offerings. We expect to introduce our ADT+ app for professional installations through a phased rollout in the fourth quarter along with a new interactive platform and hardware lineup.
During the three and nine months ended September 30, 2023, $15 million and $40 million, respectively of the first tranche of the Google Success Funds were approved for reimbursement to the Company for Google’s portion of certain joint marketing expenses incurred by us, and we received cash of $27.5 million and $40 million, respectively.
Refer to Note 14 “Commitments and Contingencies” for further information on the Google Commercial Agreement.
State Farm
In connection with the State Farm Development Agreement, State Farm committed up to $300 million to an Opportunity Fund, of which we received $100 million upon closing of the transaction.
Refer to Note 16 “Related Party Transactions” for further information on the State Farm Strategic Investment.
Commercial Divestiture
As discussed in Note 1 “Description of Business and Summary of Significant Accounting Policies” and Note 5 “Divestitures,” on October 2, 2023, GTCR acquired all of the issued and outstanding equity interests of the entities comprising our Commercial Business for a total purchase price of approximately $1,613 million in cash, subject to certain customary adjustments as set forth in the Commercial Purchase Agreement and received net proceeds of approximately $1,585 million.
The results of the Commercial Business are reported as a discontinued operation for current and historical periods through the date of sale. Additionally, the cash flows and comprehensive income (loss) of the Commercial Business have not been segregated and are included in the interim Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Comprehensive Income (Loss), respectively, for all periods presented.
The Company’s reported operating metrics, gross customer revenue attrition and recurring monthly revenue (as defined and discussed below), have been presented for the current period and recast for prior periods to reflect only the CSB segment.
As discussed in Note 8 “Debt,” in October 2023, we used a portion of the net proceeds from the Commercial Transaction to redeem approximately $1.3 billion of the First Lien Term Loan due 2026. The remaining net proceeds along with cash on hand are expected to be used for debt redemption and repayments of the First Lien Notes due 2024 during the fourth quarter of 2023, which will reduce future cash interest payments accordingly.
Beginning in the fourth quarter of 2023, income expected to be received in connection with the TSA will be recognized in other income (expense). The expenses expected to be incurred by the Company to support the transition will be recorded based on the nature of the expense.
We expect to record a significant gain on the sale, which will be recognized in income (loss) from discontinued operations, net of tax during the fourth quarter of 2023.
Further, we expect to utilize a significant portion of our existing net operating losses (“NOLs”) to offset an expected gain in connection with the sale of the Commercial Business. We believe that we will utilize our remaining NOLs during 2024. Thereafter, without additional NOLs, we expect to begin paying federal cash taxes as such taxes are incurred.
Unless otherwise noted, our results of operations discussed below relate to continuing operations and will be impacted by the Commercial Divestiture.
Solar Restructuring
On November 2, 2023, the Company announced a plan to close a significant number of branches that operate our Solar business along with the associated headcount reductions as a result of continued macroeconomic and industry pressures and the continued underperformance of the Solar business.
In addition, the Company concluded there was a triggering event as of September 30, 2023, related to its Solar reporting unit as a result of continued deterioration of industry conditions and macroeconomic decline, as well as the Company’s recent plan to significantly reduce the footprint of its Solar reporting unit. As a result, the Company determined that the remaining balance of goodwill was not recoverable and recorded a goodwill impairment charge of $88 million in the third quarter of 2023. Following the impairments during 2023, the balance of goodwill in the Solar reporting unit was zero. The Company also assessed the recoverability of other long-lived assets related to its Solar business, and impairment charges recorded were not material. In addition, we expect to incur severance and other costs in connection with these current plans, which we do not expect to be material.
FACTORS AFFECTING OPERATING RESULTS
The factors described herein could have a material adverse effect on our business, financial condition, results of operations, cash flows, and key performance indicators.
Generally, a significant upfront investment is required to acquire new CSB subscribers that in turn provide ongoing and predictable recurring revenue generated from our monitoring services and other subscriber-based offerings. Although the economics of an installation may vary depending on the customer type, acquisition channel, and product offering, we generally achieve revenue break-even in less than two and a half years.
Our CSB results are impacted by the mix of transactions under a Company-owned equipment model versus a customer-owned equipment model (referred to as outright sales), as there are different accounting treatments applicable to each model, as well as the mix, price, and type of offerings sold. As we continue to build our partnership with Google, introduce new or enhance our current offerings, and refine our go-to-market approach, we expect to see a shift toward an increasing proportion of outright sales transactions, which will impact results in future periods when those changes occur. We also expect an increase in the proportion of ADT self set-up customers, which typically have lower monthly recurring fees than our professional installations but will allow us to grow our subscriber base through access to the fast-growing do-it-yourself (“DIY”) market.
Additionally, in our Solar business, we are exploring options for our customers seeking greater flexibility and accessibility in their rooftop solar financing. For example, during the third quarter of 2023, we entered into an agreement with SunPower Financial to offer lease and power purchase agreement (“PPA”) financing options to new Solar customers.
Advances in technology are also helping us to improve our products and services and reduce our costs. For example, our innovative virtual service support program (the “Virtual Assistance Program”), which we launched for our residential customers in July 2021, provides our customers the ability to troubleshoot and resolve certain service issues through a live video stream with our skilled technicians. This provides customers with more options for receiving certain services that best fit their lifestyles while reducing the cost for us to provide these services and lowering our carbon footprint by eliminating thousands of vehicle trips each day.
We may experience an increase in costs associated with factors such as (i) offering a wider variety of products and services; (ii) providing a greater mix of interactive and smart home solutions; (iii) replacing or upgrading certain system components or technology due to technological advancements, cybersecurity upgrades, or otherwise; (iv) supply chain disruptions; (v) inflationary pressures on costs such as materials, labor, and fuel; and (vi) other changes in prices, interest rates, or terms from our suppliers, vendors, or third-party lenders. Changes in interest rates or terms from third-party lenders that provide loan products to our Solar customers are impacted by factors such as the Federal Reserve increasing the risk-free interest rate or other developments in the financial markets, and we expect these third-party costs to continue to increase in future periods. Refer to Note 7 “Goodwill and Other Intangible Assets” and Critical Accounting Estimates below for further discussion.
New customer additions and customer attrition have a direct impact on our financial results, including revenue, operating income, and cash flows. A portion of our recurring customer base can be expected to cancel its service each year as customers may choose to terminate or not to renew their contracts for a variety of reasons, including relocation, cost, loss to competition, or service issues. Relocations are sensitive to changes in the residential housing market, and fewer relocations generally lead to improvements in gross customer revenue attrition, but fewer new customer additions. Additionally, non-payment disconnects generally increase in a weaker macroeconomic environment. During 2022 and through the third quarter of 2023, we experienced fewer relocation disconnects and higher non-pay disconnects largely related to housing market conditions and the weaker macroeconomic environment. We may continue to experience fluctuations in these or other trends in the future as changes in the general macroeconomic environment or housing market develop.
As part of our response to changes or pressures in the macroeconomic environment, we have been evaluating, and continue to evaluate, cost saving opportunities such as reducing headcount or our physical facilities footprint when appropriate, and reducing non-essential spend. While we have experienced some increase in costs as a result of inflation, we have, for the most part, been able to offset the rising costs through price increases to our customers, as well as cost saving opportunities.
KEY PERFORMANCE INDICATORS
We evaluate our results using certain key performance indicators, including operating metrics such as recurring monthly revenue (“RMR”) and gross customer revenue attrition, as well as the non-GAAP measure Adjusted EBITDA. Computations of our key performance indicators may not be comparable to other similarly titled measures reported by other companies.
Certain operating metrics are approximated, as there may be variations to reported results due to certain adjustments we might make in connection with the integration over several periods of acquired companies that calculated these metrics differently or periodic reassessments and refinements in the ordinary course of business, including changes due to system conversions or historical methodology differences in legacy systems.
RMR
RMR is generated by contractual recurring fees for monitoring and other recurring services provided to our CSB customers, including contracts monitored but not owned.
We use RMR to evaluate our overall sales, installation, and retention performance. Additionally, we believe the presentation of RMR is useful to investors because it measures the volume of revenue under contract at a given point in time, which is useful for forecasting future revenue performance as the majority of our revenue comes from recurring sources.
Gross Customer Revenue Attrition
Gross customer revenue attrition for our CSB segment is defined as RMR lost as a result of customer attrition, net of dealer charge-backs and reinstated customers, excluding contracts monitored but not owned and self-setup/DIY customers. Customer sites are considered canceled when all services are terminated. Dealer charge-backs represent customer cancellations charged back to the dealers because the customer canceled service during the charge-back period, which is generally thirteen months.
Gross customer revenue attrition is calculated on a trailing twelve-month basis, the numerator of which is the RMR lost during the period due to attrition, net of dealer charge-backs and reinstated customers, and the denominator of which is total annualized RMR based on an average of RMR under contract at the beginning of each month during the period, in each case, excluding contracts monitored but not owned and self-setup/DIY customers.
We use gross customer revenue attrition to evaluate our CSB retention and customer satisfaction performance, as well as evaluate subscriber trends by vintage year. Additionally, we believe the presentation of gross customer revenue attrition is useful to investors as it provides a means to evaluate drivers of customer attrition and the impact of retention initiatives.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP measure. Our definition of Adjusted EBITDA, a reconciliation of Adjusted EBITDA to income (loss) from continuing operations (the most comparable GAAP measure), and additional information, including a description of the limitations relating to the use of Adjusted EBITDA, are provided under “—Non-GAAP Measures.”
RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in thousands, except as otherwise indicated) |
|
2023 |
|
2022 |
|
$ Change |
|
2023 |
|
2022 |
|
$ Change |
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Monitoring and related services |
|
$ |
1,053,456 |
|
|
$ |
1,021,811 |
|
|
$ |
31,645 |
|
|
$ |
3,125,344 |
|
|
$ |
3,029,309 |
|
|
$ |
96,035 |
|
Security installation, product, and other |
|
126,417 |
|
|
88,829 |
|
|
37,588 |
|
|
355,082 |
|
|
235,506 |
|
|
119,576 |
|
Solar installation, product, and other |
|
57,611 |
|
|
179,153 |
|
|
(121,542) |
|
|
279,978 |
|
|
586,189 |
|
|
(306,211) |
|
Total revenue |
|
1,237,484 |
|
|
1,289,793 |
|
|
(52,309) |
|
|
3,760,404 |
|
|
3,851,004 |
|
|
(90,600) |
|
Cost of revenue (exclusive of depreciation and amortization shown separately below): |
|
|
|
|
|
|
|
|
|
|
|
|
Monitoring and related services |
|
148,533 |
|
|
137,243 |
|
|
11,290 |
|
|
452,809 |
|
|
445,720 |
|
|
7,089 |
|
Security installation, product, and other |
|
38,863 |
|
|
27,176 |
|
|
11,687 |
|
|
113,921 |
|
|
66,993 |
|
|
46,928 |
|
Solar installation, product, and other |
|
49,424 |
|
|
114,236 |
|
|
(64,812) |
|
|
212,666 |
|
|
382,545 |
|
|
(169,879) |
|
Total cost of revenue |
|
236,820 |
|
|
278,655 |
|
|
(41,835) |
|
|
779,396 |
|
|
895,258 |
|
|
(115,862) |
|
Selling, general, and administrative expenses |
|
395,600 |
|
|
415,373 |
|
|
(19,773) |
|
|
1,159,088 |
|
|
1,254,401 |
|
|
(95,313) |
|
Depreciation and intangible asset amortization |
|
333,088 |
|
|
387,417 |
|
|
(54,329) |
|
|
1,021,103 |
|
|
1,223,666 |
|
|
(202,563) |
|
Merger, restructuring, integration, and other |
|
16,296 |
|
|
4,745 |
|
|
11,551 |
|
|
42,339 |
|
|
1,165 |
|
|
41,174 |
|
Goodwill impairment |
|
88,367 |
|
|
200,974 |
|
|
(112,607) |
|
|
511,176 |
|
|
200,974 |
|
|
310,202 |
|
Operating income (loss) |
|
167,313 |
|
|
2,629 |
|
|
164,684 |
|
|
247,302 |
|
|
275,540 |
|
|
(28,238) |
|
Interest expense, net |
|
(147,187) |
|
|
(29,832) |
|
|
(117,355) |
|
|
(402,381) |
|
|
(117,331) |
|
|
(285,050) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
661 |
|
|
(156,118) |
|
|
156,779 |
|
|
(10) |
|
|
(153,165) |
|
|
153,155 |
|
Income (loss) from continuing operations before income taxes and equity in net earnings (losses) of equity method investee |
|
20,787 |
|
|
(183,321) |
|
|
204,108 |
|
|
(155,089) |
|
|
5,044 |
|
|
(160,133) |
|
Income tax benefit (expense) |
|
(38,764) |
|
|
15,800 |
|
|
(54,564) |
|
|
12,438 |
|
|
(37,806) |
|
|
50,244 |
|
Income (loss) from continuing operations before equity in net earnings (losses) of equity method investee |
|
(17,977) |
|
|
(167,521) |
|
|
149,544 |
|
|
(142,651) |
|
|
(32,762) |
|
|
(109,889) |
|
Equity in net earnings (losses) of equity method investee |
|
(2,688) |
|
|
(1,594) |
|
|
(1,094) |
|
|
(7,103) |
|
|
(2,542) |
|
|
(4,561) |
|
Income (loss) from continuing operations |
|
(20,665) |
|
|
(169,115) |
|
|
148,450 |
|
|
(149,754) |
|
|
(35,304) |
|
|
(114,450) |
|
Income (loss) from discontinued operations, net of tax |
|
(65,572) |
|
|
7,866 |
|
|
(73,438) |
|
|
36,891 |
|
|
17,217 |
|
|
19,674 |
|
Net income (loss) |
|
$ |
(86,237) |
|
|
$ |
(161,249) |
|
|
$ |
75,012 |
|
|
$ |
(112,863) |
|
|
$ |
(18,087) |
|
|
$ |
(94,776) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Performance Indicators:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
RMR |
|
$ |
350,392 |
|
|
$ |
339,648 |
|
|
$ |
10,744 |
|
|
$ |
350,392 |
|
|
$ |
339,648 |
|
|
$ |
10,744 |
|
Gross customer revenue attrition (percent) |
|
12.9% |
|
12.9% |
|
N/A* |
|
12.9% |
|
12.9% |
|
N/A* |
Adjusted EBITDA(2) |
|
$ |
582,688 |
|
|
$ |
583,164 |
|
|
$ |
(476) |
|
|
$ |
1,765,545 |
|
|
$ |
1,719,316 |
|
|
$ |
46,229 |
|
_______________________
(1)Refer to the “—Key Performance Indicators” section for the definitions of these key performance indicators.
(2)Adjusted EBITDA is a non-GAAP measure. Refer to the “—Non-GAAP Measures” section for the definition of this term and a reconciliation to the most comparable GAAP measure.
*N/A — Not applicable.
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in thousands) |
|
2023 |
|
2022 |
|
$ Change |
|
2023 |
|
2022 |
|
$ Change |
CSB: |
|
|
|
|
|
|
|
|
|
|
|
|
Monitoring and related services |
|
$ |
1,053,456 |
|
|
$ |
1,021,811 |
|
|
$ |
31,645 |
|
|
$ |
3,125,344 |
|
|
$ |
3,029,309 |
|
|
$ |
96,035 |
|
Security installation, product, and other |
|
126,417 |
|
|
88,829 |
|
|
37,588 |
|
|
355,082 |
|
|
235,506 |
|
|
119,576 |
|
Total CSB |
|
1,179,873 |
|
|
1,110,640 |
|
|
69,233 |
|
|
3,480,426 |
|
|
3,264,815 |
|
|
215,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar: |
|
|
|
|
|
|
|
|
|
|
|
|
Solar installation, product, and other |
|
57,611 |
|
|
179,153 |
|
|
(121,542) |
|
|
279,978 |
|
|
586,189 |
|
|
(306,211) |
|
Total Solar |
|
57,611 |
|
|
179,153 |
|
|
(121,542) |
|
|
279,978 |
|
|
586,189 |
|
|
(306,211) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
1,237,484 |
|
|
$ |
1,289,793 |
|
|
$ |
(52,309) |
|
|
$ |
3,760,404 |
|
|
$ |
3,851,004 |
|
|
$ |
(90,600) |
|
CSB:
During the three months ended September 30, 2023, the increases in revenue, as compared to the prior period, included:
•Monitoring and related services revenue (“M&S Revenue”): higher recurring revenue of $32 million primarily driven by an increase in average prices.
•Security installation, product, and other: (i) an increase in installation revenue of $22 million primarily driven by a higher volume of outright sales transactions and higher installation revenue per unit, as well as (ii) an increase in the amortization of deferred subscriber acquisition revenue of $16 million as a result of a higher population of existing customers under a Company-owned model.
During the nine months ended September 30, 2023, the increases in revenue, as compared to the prior period, included:
•M&S Revenue: higher recurring revenue of $96 million primarily driven by an increase in average prices.
•Security installation, product, and other: (i) an increase in installation revenue of $68 million primarily driven by a higher volume of outright sales transactions and higher installation revenue per unit, as well as (ii) an increase in the amortization of deferred subscriber acquisition revenue of $52 million as a result of a higher population of existing customers under a Company-owned model.
Solar:
During the three and nine months ended September 30, 2023, the decrease in revenue, as compared to the prior period, was primarily due to fewer sales and installations as a result of prior cost reduction efforts, delays in certain operational initiatives, and impacts from macroeconomic conditions, including higher interest rates.
In addition, the decrease in revenue for the nine months ended September 30, 2023 as compared to the prior period was impacted by the amortization of purchase accounting adjustments of $30 million related to a customer backlog intangible asset, which was recorded as a reduction to revenue during the first quarter of 2022.
In addition, future revenue in the segment may be impacted by the restructuring discussed above.
RMR and Gross Customer Revenue Attrition:
As of September 30, 2023, our ending RMR balance was $350 million, up $11 million or 3% compared to the prior period, primarily driven by an increase in average prices on new and existing subscribers.
Gross customer revenue attrition was 12.9% as of September 30, 2023, flat compared to September 30, 2022, reflecting a decrease in relocations, offset primarily by higher non-payment disconnects.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in thousands) |
|
2023 |
|
2022 |
|
$ Change |
|
2023 |
|
2022 |
|
$ Change |
CSB: |
|
|
|
|
|
|
|
|
|
|
|
|
Monitoring and related services |
|
$ |
148,533 |
|
|
$ |
137,243 |
|
|
$ |
11,290 |
|
|
$ |
452,809 |
|
|
$ |
445,720 |
|
|
$ |
7,089 |
|
Security installation, product, and other |
|
38,863 |
|
|
27,176 |
|
|
11,687 |
|
|
113,921 |
|
|
66,993 |
|
|
46,928 |
|
Total CSB |
|
187,396 |
|
|
164,419 |
|
|
22,977 |
|
|
566,730 |
|
|
512,713 |
|
|
54,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar: |
|
|
|
|
|
|
|
|
|
|
|
|
Solar installation, product, and other |
|
49,424 |
|
|
114,236 |
|
|
(64,812) |
|
|
212,666 |
|
|
382,545 |
|
|
(169,879) |
|
Total Solar |
|
49,424 |
|
|
114,236 |
|
|
(64,812) |
|
|
212,666 |
|
|
382,545 |
|
|
(169,879) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
$ |
236,820 |
|
|
$ |
278,655 |
|
|
$ |
(41,835) |
|
|
$ |
779,396 |
|
|
$ |
895,258 |
|
|
$ |
(115,862) |
|
CSB:
During the three and nine months ended September 30, 2023, cost of revenue, as compared to the prior period, included an increase in installation costs due to a higher volume of outright sales transactions.
Solar:
During the three and nine months ended September 30, 2023, the decrease in cost of revenue, as compared to the prior period, was primarily due to fewer sales and installations as discussed above.
Selling, General, and Administrative Expenses
During the three months ended September 30, 2023, the decrease in SG&A, as compared to the prior period, was primarily driven by:
•a decrease of $22 million in Solar, primarily due to recent cost reduction initiatives, and
•a decrease of $13 million in general and administrative expenses in CSB, partially offset by
•an increase of $14 million in the allowance for credit losses primarily related to residential customers.
During the nine months ended September 30, 2023, the decrease in SG&A, as compared to the prior period, was primarily driven by:
•a decrease of $86 million in Solar, primarily due to recent cost reduction initiatives,
•a decrease of $28 million in advertising costs, primarily due to utilization of a portion of the Google Success Funds, and
•a decrease of $26 million in general and administrative expenses in CSB primarily related to a legal settlement, partially offset by
•a decrease of $26 million in radio conversion costs due to the wind down of the replacement program,
•an increase of $38 million in selling costs primarily related to the amortization of deferred subscriber acquisition costs and commissions, and
•an increase of $32 million in the allowance for credit losses primarily related to residential customers.
Depreciation and Intangible Asset Amortization
During the three and nine months ended September 30, 2023, the decrease in depreciation and intangible asset amortization, as compared to the prior period, was primarily driven by a decrease in the amortization of customer relationship intangible assets of $65 million and $245 million, respectively, primarily related to certain assets acquired as part of the ADT Acquisition.
During the first quarter of 2023, the remaining customer relationship intangible assets acquired as part of the ADT Acquisition became fully amortized.
Merger, restructuring, integration, and other
During the three months ended September 30, 2023, the increase in merger, restructuring, integration, and other, as compared to the prior period, was driven by an increase in restructuring costs of approximately $7 million primarily related to severance benefits and third-party costs of approximately $4 million primarily related to the strategic optimization of our Solar business operations following the acquisition of ADT Solar.
During the nine months ended September 30, 2023, the increase in merger, restructuring, integration, and other, as compared to the prior period, was driven by increases in restructuring costs of approximately $19 million primarily related to severance benefits and third-party costs of approximately $18 million primarily related to the strategic optimization of our Solar business operations following the acquisition of ADT Solar.
Goodwill Impairment
During the three and nine months ended September 30, 2023, we recorded goodwill impairment charges associated with our Solar reporting unit of $88 million and $511 million, respectively, compared to $201 million during the three and nine months ended September 30, 2022. Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies,” Note 7 “Goodwill and Other Intangible Assets,” and the section “—Critical Accounting Estimates” below for further discussion.
Interest Expense, net
During the three and nine months ended September 30, 2023, the increase in interest expense, net, as compared to the prior year period, was primarily driven by a decrease in unrealized gains of $92 million and $274 million, respectively on our interest rate swaps not designated as cash flow hedges. Additionally, during the three months ended September 30, 2023, we recorded $25 million of expense associated with the reclassification from AOCI of historical losses related to certain interest rate swaps as those cash flows are probable of not occurring as a result of the partial redemption of our First Lien Term Loan due 2026 in October 2023.
In addition, the increase in interest expense, net, included higher interest expense primarily related to our First Lien Term Loan due 2026 offset by interest rate swap settlements.
Other income (expense)
During the three and nine months ended September 30, 2022, other income (expense) primarily included the change in fair value of a contingent forward purchase contract related to the tender offer in connection with the State Farm Transaction of approximately $158 million.
Income Tax Benefit (Expense)
During the three and nine months ended September 30, 2023, income tax benefit (expense) impacted our annual effective tax rate primarily as a result of the Solar goodwill impairment charges.
Refer to Note 10 “Income Taxes” for details on our effective tax rate.
Deferred Tax Assets
We have a significant amount of deferred tax assets, against which we take valuation allowances that relate to the uncertainty of our ability to utilize these deferred tax assets in future periods. We review periodically those matters that can influence our decision as to whether or not a valuation allowance is appropriate. Among those matters considered are pending and enacted legislation. We will consider each quarter whether any developments to such legislation, together with the other factors we consider, require a valuation allowance.
We believe that our deferred tax assets for disallowed interest under Internal Revenue Code (“IRC”) Section 163(j) will continue to grow from their current level. There is currently significant uncertainty in the matters we consider when determining whether it is appropriate to take additional valuation allowances. While we have not reported any material changes to our valuation allowances since our Amended 2022 Annual Report, we may determine to do so in subsequent periods. Any material change to our valuation allowance would materially and adversely affect our operating results and may result in a net loss position for any given period.
NON-GAAP MEASURES
To provide investors with additional information in connection with our results as determined in accordance with GAAP, we disclose Adjusted EBITDA as a non-GAAP measure. This measure is not a financial measure calculated in accordance with GAAP, and it should not be considered as a substitute for net income, operating income, or any other measure calculated in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies.
Beginning in the third quarter of 2023, the Company presented its Commercial Business as a discontinued operation. Prior periods have been recast to reflect the presentation of Adjusted EBITDA from continuing operations to conform with the current period presentation. In addition, certain costs previously reflected in the Commercial segment that do not qualify to be presented as discontinued operations are now reflected in the CSB segment.
Adjusted EBITDA
We believe Adjusted EBITDA is useful to investors to measure the operational strength and performance of our business. We believe the presentation of Adjusted EBITDA is useful as it provides investors additional information about our operating profitability adjusted for certain non-cash items, non-routine items we do not expect to continue at the same level in the future, as well as other items not core to our operations. Further, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance, making budgeting decisions, and comparing our performance against other peer companies using similar measures.
We define Adjusted EBITDA as income or loss from continuing operations adjusted for (i) interest; (ii) taxes; (iii) depreciation and amortization, including depreciation of subscriber system assets and other fixed assets and amortization of dealer and other intangible assets; (iv) amortization of deferred costs and deferred revenue associated with subscriber acquisitions; (v) share-based compensation expense; (vi) merger, restructuring, integration, and other items such as separation costs; (vii) losses on extinguishment of debt; (viii) radio conversion costs, net; (ix) adjustments related to acquisitions, such as contingent consideration and purchase accounting adjustments, or dispositions; (x) impairment charges; and (xi) other income/gain or expense/loss items such as changes in fair value of certain financial instruments or financing and consent fees.
There are material limitations to using Adjusted EBITDA. Adjusted EBITDA does not take into account certain significant items, including depreciation and amortization, interest, taxes, and other adjustments which directly affect our net income (loss). These limitations are best addressed by considering the economic effects of the excluded items independently and by considering Adjusted EBITDA in conjunction with net income or loss as calculated in accordance with GAAP.
The table below reconciles Adjusted EBITDA to income (loss) from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
(in thousands) |
2023 |
|
2022 |
|
$ Change |
|
|
2023 |
|
2022 |
|
$ Change |
Income (loss) from continuing operations |
$ |
(20,665) |
|
|
$ |
(169,115) |
|
|
$ |
148,450 |
|
|
|
$ |
(149,754) |
|
|
$ |
(35,304) |
|
|
$ |
(114,450) |
|
Interest expense, net |
147,187 |
|
|
29,832 |
|
|
117,355 |
|
|
|
402,381 |
|
|
117,331 |
|
|
285,050 |
|
Income tax expense (benefit) |
38,764 |
|
|
(15,800) |
|
|
54,564 |
|
|
|
(12,438) |
|
|
37,806 |
|
|
(50,244) |
|
Depreciation and intangible asset amortization |
333,088 |
|
|
387,417 |
|
|
(54,329) |
|
|
|
1,021,103 |
|
|
1,223,666 |
|
|
(202,563) |
|
Amortization of deferred subscriber acquisition costs |
47,945 |
|
|
40,036 |
|
|
7,909 |
|
|
|
138,145 |
|
|
111,741 |
|
|
26,404 |
|
Amortization of deferred subscriber acquisition revenue |
(77,471) |
|
|
(61,530) |
|
|
(15,941) |
|
|
|
(220,779) |
|
|
(169,048) |
|
|
(51,731) |
|
Share-based compensation expense |
9,882 |
|
|
13,737 |
|
|
(3,855) |
|
|
|
31,369 |
|
|
39,983 |
|
|
(8,614) |
|
Merger, restructuring, integration, and other(1) |
16,296 |
|
|
4,745 |
|
|
11,551 |
|
|
|
42,339 |
|
|
1,165 |
|
|
41,174 |
|
Goodwill impairment(2) |
88,367 |
|
|
200,974 |
|
|
(112,607) |
|
|
|
511,176 |
|
|
200,974 |
|
|
310,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of financial instruments(3) |
— |
|
|
157,550 |
|
|
(157,550) |
|
|
|
— |
|
|
157,550 |
|
|
(157,550) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash acquisition-related adjustments and other, net(4) |
(705) |
|
|
(4,682) |
|
|
3,977 |
|
|
|
2,003 |
|
|
33,452 |
|
|
(31,449) |
|
Adjusted EBITDA (from continuing operations) |
$ |
582,688 |
|
|
$ |
583,164 |
|
|
$ |
(476) |
|
|
|
$ |
1,765,545 |
|
|
$ |
1,719,316 |
|
|
$ |
46,229 |
|
________________
(1) During 2023, includes integration and third-party costs related to the strategic optimization of the Solar business operations following the ADT Solar acquisition, as well as restructuring costs.
(2) Represents impairment charges associated with our Solar reporting unit. Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” and Note 7 “Goodwill and Other Intangible Assets.”
(3) Represents the change in fair value of a contingent forward purchase contract associated with the State Farm Transaction.
(4) Nine months ended September 30, 2022 primarily includes customer backlog intangible asset amortization related to the ADT Solar Acquisition of $30 million, which was fully amortized as of March 2022. The remaining balance primarily included ADT Solar purchase accounting adjustments and net radio conversion costs, offset by gain on sale of a business.
Adjusted EBITDA in total and by segment are set forth below. As noted above, Adjusted EBITDA is our segment profit measure pursuant to GAAP and is therefore not a non-GAAP financial measure with respect to our segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in thousands) |
2023 |
|
2022 |
|
$ Change |
|
2023 |
|
2022 |
|
$ Change |
CSB |
$ |
623,446 |
|
|
$ |
589,640 |
|
|
$ |
33,806 |
|
|
$ |
1,854,288 |
|
|
$ |
1,723,785 |
|
|
$ |
130,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar |
(40,758) |
|
|
(6,476) |
|
|
(34,282) |
|
|
(88,743) |
|
|
(4,469) |
|
|
(84,274) |
|
Adjusted EBITDA (from continuing operations) |
$ |
582,688 |
|
|
$ |
583,164 |
|
|
$ |
(476) |
|
|
$ |
1,765,545 |
|
|
$ |
1,719,316 |
|
|
$ |
46,229 |
|
The factors listed below exclude amounts that are outside of our definition of Adjusted EBITDA. Refer to the discussions above under “—Results of Operations” for further details.
CSB:
During the three months ended September 30, 2023, the increases, as compared to the prior periods, were primarily due to:
•higher M&S Revenue, net of the associated costs, of $26 million,
•lower general and administrative expenses of $13 million,
•and higher installation revenue, net of the associated costs and commissions, of $7 million,
•partially offset by higher provision for credit losses of $14 million.
During the nine months ended September 30, 2023, the increases, as compared to the prior periods, were primarily due to:
•higher M&S Revenue, net of the associated costs, of $106 million,
•lower advertising costs of $28 million,
•lower general and administrative expenses of $26 million,
•and higher installation revenue, net of the associated costs and commissions, of $11 million,
•partially offset by higher provision for credit losses of $32 million.
Solar:
During the three and nine months ended September 30, 2023, respectively, the decreases, as compared to the prior periods, were primarily due to:
•lower installation revenue, net of the associated costs and commissions, of $50 million and $154 million, partially offset by
•lower general and administrative expenses, of $26 million and $72 million.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and capital resources primarily consisted of the following:
|
|
|
|
|
|
(in thousands) |
September 30, 2023 |
Cash and cash equivalents |
$ |
238,582 |
|
Restricted cash and restricted cash equivalents |
$ |
117,482 |
|
Availability under First Lien Revolving Credit Facility |
$ |
575,000 |
|
|
|
Uncommitted available borrowing capacity under 2020 Receivables Facility |
$ |
76,953 |
|
Uncommitted available borrowing capacity under Solar Receivables Facility |
$ |
300,000 |
|
Carrying amount of total debt outstanding |
$ |
9,667,701 |
|
Liquidity
We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our credit facilities, and the issuance of equity and/or debt securities as appropriate given market conditions. Our future cash needs are expected to include cash for operating activities including working capital, principal and interest payments on our debt, capital expenditures, potential dividend payments to our stockholders, and from time to time, strategic investments or other initiatives that we may undertake.
We are a highly leveraged company with significant debt service requirements and have both fixed-rate and variable-rate debt. All of our remaining variable rate debt instruments previously based on LIBOR are now based on SOFR, and we do not anticipate any material impacts from the SOFR transition. We may periodically seek to repay, redeem, repurchase, or refinance our indebtedness, or seek to retire or purchase our outstanding securities through cash purchases in the open market, privately negotiated transactions, a 10b5-1 repurchase plan, or otherwise, and any such transactions may involve material amounts. Cash outflows for interest payments are not consistent between quarters, with larger outflows occurring in the first and third quarters, and may vary as a result of our variable rate debt.
As of September 30, 2023, our next debt maturity will occur in April 2024 with respect to the remaining outstanding balance of $600 million of our First Lien Notes due 2024. We issued a notice to redeem approximately $500 million of the First Lien Notes due 2024 by the end of 2023 using the remaining net proceeds from the Commercial Divestiture and cash on hand, with the rest to be redeemed in 2024 prior to maturity.
We are closely monitoring the impact of recent developments in the financial markets and banking industry, inflationary pressures, and changes in interest rates on our cash position. However, we believe our cash position, available borrowing capacity under our credit agreements, and cash provided by operating activities are, and will continue to be, adequate to meet our operational and business needs in the next twelve months, as well as our long-term liquidity needs.
Material Cash Requirements
There have been no significant changes to our material cash requirements, commitments and contingencies, or off-balance sheet arrangements from those disclosed in our Amended 2022 Annual Report.
Repurchase of Solar Loans
As of September 30, 2023, the liability related to certain loans provided to customers within our Solar business that we may be required to repurchase from third party lenders was approximately $16 million. This liability is partially offset by a net receivable of $6 million related to the amount we ultimately expect to recover from any loans required to be repurchased, either through ongoing loan payments from the customer or proceeds from subsequent resale of the loans.
Long-Term Debt
Significant changes and activity related to our long-term debt since our Amended 2022 Annual Report are discussed below. Refer to Note 8 “Debt” for further discussion on our debt agreements and activity.
First Lien Term Loan due 2026
In October 2023, the Company redeemed approximately $1.3 billion of the First Lien Term Loan due 2026 using net proceeds from the Commercial Divestiture.
Further, during October 2023, we refinanced the remaining outstanding balance of the First Lien Term Loan due 2026 with a new $1,375 million 7-year term loan B due 2030 (the “First Lien Term Loan B due 2030”) through an amendment to the existing First Lien Credit Agreement.
Term Loan A Facility
In March 2023, we borrowed an aggregate principal amount of $600 million of term loans under the Term Loan A Facility, and in June 2023, we borrowed an additional aggregate principal amount of $50 million of Incremental Term Loan A Loans.
ADT Notes due 2023 Redemption
In March 2023, we used the proceeds from the Term Loan A Facility to redeem approximately $600 million of the ADT Notes due 2023 for a total redemption price of approximately $600 million, excluding accrued and unpaid interest. On June 15, 2023, we redeemed the remaining outstanding balance of approximately $100 million of the ADT Notes due 2023 using $50 million of proceeds from the Incremental Term Loan A Loans and cash on hand.
First Lien Notes due 2024 Partial Redemption
On May 2, 2023, we redeemed $150 million principal amount of the $750 million outstanding First Lien Notes due 2024 for a redemption price of $150 million, excluding accrued and unpaid interest, using cash on hand.
During 2023, we issued a notice to redeem $500 million principal amount of the outstanding First Lien Notes due 2024 by the end of 2023 using remaining net proceeds from the Commercial Divestiture and cash on hand.
2020 Receivables Facility
In March 2023, we amended the agreement governing the 2020 Receivables Facility, pursuant to which, among other things, the borrowing capacity was increased from $400 million to $500 million and the uncommitted revolving period was extended from May 2023 to March 2024.
During the nine months ended September 30, 2023, we received proceeds of $212 million and repaid $145 million, and as of September 30, 2023, the outstanding balance was $423 million.
Solar Receivables Facility
On August 2, 2023, we entered into the Solar Receivables Facility Financing Agreement to finance receivables generated by the installation of residential solar systems, which, among other things, provides for an uncommitted revolving loan facility in the aggregate principal amount of up to $300 million. As of September 30, 2023, we have not borrowed any amounts under the Solar Receivable Facility.
Debt Covenants
As of September 30, 2023, we were in compliance with all financial covenant and other maintenance tests for all our debt obligations. We do not believe there is a material risk of future noncompliance with our financial covenant and other maintenance tests.
Dividends
During the nine months ended September 30, 2023 and 2022, we declared aggregate dividends of $91 million ($0.035 per share) and $90 million ($0.035 per share) on our Common Stock, respectively, and $6 million ($0.035 per share) on our Class B Common Stock during each period.
On November 2, 2023, we announced a dividend of $0.035 per share to holders of Common Stock and Class B Common Stock of record on December 14, 2023, which will be paid on January 9, 2024.
Cash Flow Analysis
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|
|
Nine Months Ended September 30, |
(in thousands) |
2023 |
|
2022 |
|
$ Change |
Net cash provided by (used in): |
|
|
|
|
|
Operating activities |
$ |
1,245,694 |
|
|
$ |
1,321,069 |
|
|
$ |
(75,375) |
|
Investing activities |
$ |
(988,081) |
|
|
$ |
(1,208,790) |
|
|
$ |
220,709 |
|
Financing activities |
$ |
(275,129) |
|
|
$ |
(85,772) |
|
|
$ |
(189,357) |
|
The discussion below includes cash flows from both continuing operations and discontinued operations consistent with the presentation on the Statements of Cash Flows.
Cash Flows from Operating Activities
The decrease in net cash provided by operating activities, as compared to the prior period, was primarily due to:
•an increase in cash interest of $124 million primarily related to our First Lien Term Loan due 2026, and
•an increase in payroll tax payments of $26 million primarily related to deferrals of such payments in 2020 under the CARES Act.
During 2023, we also received approximately $19 million related to a legal settlement and approximately $40 million of the Google Success Funds.
The remainder of the activity related to changes in assets and liabilities due to the volume and timing of other operating cash receipts and payments with respect to when the transactions are reflected in earnings. Refer to the discussions above under “—Results of Operations” for further details.
Cash Flows from Investing Activities
The decrease in net cash used in investing activities, as compared to the prior period, was primarily due to:
•a decrease in cash paid for dealer generated customer account and bulk account purchases of $115 million primarily related to fewer bulk purchases and lower volume,
•a decrease in subscriber system assets expenditures of $92 million due to fewer adds,
•a decrease in net cash paid of $23 million primarily related to other investments, and
•a decrease in cash paid for the acquisition of businesses, net of cash acquired, of $13 million as a result of activity during the prior year, partially offset by
•a decrease in proceeds from the sale of a business of $27 million due to activity during the prior year.
Cash Flows from Financing Activities
The change in cash flows from financing activities, as compared to the prior period, was primarily due to:
•an increase in net repayments of long-term borrowings of approximately $191 million primarily as a result of the ADT Notes due 2023 Redemption and ADT Notes due 2024 Partial Redemption in 2023, partially offset by borrowings under the Term Loan A Facility in 2023, and
•an increase in net repayments under the 2020 Receivables Facility of $63 million, partially offset by
•proceeds from interest rate swap contracts that included an other-than-insignificant financing element at inception of $59 million during 2023 compared to payments of $27 million during 2022.
CRITICAL ACCOUNTING ESTIMATES
We disclosed our critical accounting estimates in our Amended 2022 Annual Report, which include estimates prepared in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations.
Critical accounting estimates are based on, among other things, estimates, assumptions, and judgments made by management that include inherent risks and uncertainties. Our estimates are based on relevant information available at the end of each period. Actual results could differ materially from these estimates under different assumptions or market conditions.
There were no material changes in our critical accounting estimates since our Amended 2022 Annual Report, except as discussed below:
Goodwill Impairment
We perform our annual goodwill impairment test on October 1 of each year or more often if events occur or circumstances change which indicate it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. Under a quantitative approach, we estimate the fair value of a reporting unit and compare it to the reporting unit’s carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
During the first and second quarters of 2023, we performed interim impairment quantitative assessments on the Solar reporting unit as a result of triggering events as of March 31, 2023 and June 30, 2023 and recorded goodwill impairment charges of $242 million and $181 million during the first and second quarters of 2023, respectively. These triggering events resulted from the then-current macroeconomic conditions, including the impact of rising interest rates, as well as ADT Solar’s continued underperformance of operating results in each quarter relative to expectations. As a result, the Solar reporting unit was considered at risk for future impairment following the impairments in the first and second quarters of 2023.
In addition, we concluded there was a triggering event as of September 30, 2023, related to the Solar reporting unit as a result of continued deterioration of industry conditions and macroeconomic decline, as well as the Company’s recent plan to significantly reduce the footprint of its Solar reporting unit, including certain existing underperforming branches and related headcount reductions. As a result, we determined that the remaining balance of goodwill was not recoverable and recorded a goodwill impairment charge of $88 million in the third quarter of 2023. Following the impairments during 2023, the balance of goodwill in the Solar reporting unit was zero. The Company also assessed the recoverability of other long-lived assets related to its Solar business, and impairment charges recorded were not material.
The fair value of the Solar reporting unit is estimated using the income approach, which includes significant assumptions such as forecasted revenue, Adjusted EBITDA margins, and discount rates, as well as other assumptions including operating expenses and cash flows. In developing these assumptions, the Company relies on various factors including operating results, business plans, economic projections, anticipated future cash flows, and other market data. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying judgments and factors may include such items as a prolonged downturn in the business environment, changes in economic conditions that significantly differ from the Company’s assumptions in timing or degree, volatility in equity and debt markets resulting in higher discount rates, and unexpected regulatory changes. There are inherent uncertainties related to these judgments and factors that may ultimately impact the estimated fair value determinations.
Refer to Note 7 “Goodwill and Other Intangible Assets” to the condensed consolidated financial statements for further discussion.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain information and disclosures that are forward-looking and therefore subject to risks and uncertainties, including those described below. All statements, other than statements of historical fact, included in this document are, or could be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and the applicable rules and regulations of the SEC and are made in reliance on the safe harbor protections provided thereunder. These forward-looking statements relate to, among other things, planned ADT Solar restructuring activities; the Commercial Transaction between ADT and GTCR, the expected timetable for realizing expected benefits and synergies of the Commercial Transaction; the strategic investment by and long term partnership with State Farm; anticipated financial performance, including the Company’s ability to achieve its stated guidance metrics and its progress toward its medium-term targets; management’s plans and objectives for future operations; the successful development, commercialization, and timing of new or joint products; the expected timing of product commercialization with State Farm or any changes thereto, including the ADT home security program for State Farm; our acquisition of ADT Solar and its anticipated impact on our business and financial condition including the subsequent announcement of planned ADT Solar restructuring activities; business prospects; outcomes of regulatory proceedings; market conditions; our ability to successfully respond to the challenges posed by the COVID-19 Pandemic; our strategic partnership and ongoing relationship with Google; the expected timing of product commercialization with Google or any changes thereto; the successful internal development, commercialization, and timing of our next generation platform and innovative offerings; the successful conversion of customers who continue to utilize outdated technology; the current and future market size for existing, new, or joint products; any stated or implied outcomes with regards to the foregoing; and other matters. Forward-looking statements are contained principally in the sections of this report titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Without limiting the generality of the preceding sentences, any time the Company uses the words “expects,” “intends,” “will,” “anticipates,” “believes,” “confident,” “continue,” “propose,” “seeks,” “could,” “may,” “should,” “estimates,” “forecasts,” “might,” “goals,” “objectives,” “targets,” “planned,” “projects,” and, in each case, their negative or other various or comparable terminology, and similar expressions, we intend to clearly express that the information deals with possible future events and is forward-looking in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. These forward-looking statements are based on management’s current beliefs and assumptions and on information currently available to management. We caution that these statements are subject to risks and uncertainties, many of which are outside of our control, and could cause future events or results to be materially different from those stated or implied in this document, including among others, factors relating to:
•any difficulties with respect to planned ADT Solar restructuring activities, including expenses associated with the separation of certain Solar branches and personnel;
•the effect of the Commercial Transaction and of the announcement of the planned ADT Solar restructuring activities on our ability to retain and hire key personnel and to maintain relationships with customers, suppliers and other business partners;
•risks related to the Commercial Transaction and planned ADT Solar restructuring activities and the possible diversion of management’s attention from ADT’s core CSB business operations;
•uncertainties as to our ability and the amount of time necessary to realize the expected benefits of the Commercial Transaction and planned ADT Solar restructuring activities;
•the achievement of potential benefits of the equity investment by and long-term partnership with State Farm, including as a result of restrictions on or required prior regulatory approval of, various actions by regulated insurers;
•our ability to effectively implement our strategic partnership with, commercialize products with, or utilize the incremental funding committed by State Farm or Google;
•our ability to keep pace with rapid technological changes, including the development of our next-generation platform, and industry changes;
•our ability to effectively implement our strategic partnership with or utilize any of the amounts invested in us by Google;
•continued risks and uncertainties related to the Company’s ability to successfully integrate and operate the ADT Solar business, including the planned ADT Solar restructuring activities;
•risks related to the various financing arrangements, including third party owned arrangements, that the Company facilitates for some ADT Solar customers;
•our ability to continuously and successfully commercialize innovative offerings;
•our ability to successfully implement an Environmental, Social, and Governance program across the Company;
•the impact of supply chain disruptions;
•our ability to maintain and grow our existing customer base;
•our ability to sell our products and services or launch new products and services in highly competitive markets, including the home security and automation market and the solar market, and to achieve market acceptance with acceptable margins;
•our ability to successfully upgrade obsolete equipment installed at our customers’ premises in an efficient and cost-effective manner;
•changes in law, economic and financial conditions, including tax law changes, changes to privacy requirements, changes to telemarketing, email marketing and similar consumer protection laws, interest volatility, and trade tariffs and restrictions applicable to the products we sell;
•any material changes to the valuation allowances we take with respect to our deferred tax assets;
•the impact of potential information technology, cybersecurity, or data security breaches;
•our dependence on third-party providers, suppliers, and dealers to enable us to produce and distribute our products and services in a cost-effective manner that protects our brand;
•our ability to successfully implement an equipment ownership model that best satisfies the needs of our customers and to successfully implement and maintain our receivables securitization financing agreement or similar arrangements;
•our ability to successfully pursue alternate business opportunities and strategies;
•our ability to integrate various companies we have acquired in an efficient and cost-effective manner;
•the amount and timing of our cash flows and earnings, which may be impacted by customer, competitive, supplier and other dynamics and conditions;
•our ability to maintain or improve margins through business efficiencies;
•risks related to the restatement of our consolidated financial statements included in our Amended 2022 Annual Report and in our Reports on Form 10-Q/A for the quarters ended September 30, 2022, and March 31, 2023, each as filed with the SEC on July 27, 2023;
•any litigation or investigation related to such restatements; and
•the Company’s ability to maintain effective ICFR and disclosure controls and procedures (“DCPs”), including its ability to remediate any existing material weakness in its ICFR and the timing of any such remediation, as well as the ability to reestablish effective DCPs at a reasonable assurance level.
Forward-looking statements and information involve risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements, including without limitation, the risks and uncertainties disclosed or referenced under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A in our Amended 2022 Annual Report. Therefore, caution should be taken not to place undue reliance on any such forward-looking statements. Much of the information in this report that looks toward future performance is based on various factors and important assumptions about future events that may or may not actually occur. As a result, our operations and financial results in the future could differ materially and substantially from those we have discussed in the forward-looking statements included in this Quarterly Report on Form 10-Q. Any forward-looking statement made in this Quarterly Report on Form 10-Q speaks only as of the date on which it is made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise unless required by law.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our operations expose us to a variety of market risks, including the effects of changes in interest rates as we have both fixed-rate and variable-rate debt. We monitor and manage these financial exposures as an integral part of our overall risk management program. Our policies allow for the use of specified financial instruments for hedging purposes only. Use of derivatives for speculation purposes is prohibited.
There were no material changes in our interest rate risk exposure to that disclosed in our Amended 2022 Annual Report, except as discussed below.
During the nine months ended September 30, 2023, we borrowed $650 million under our variable-rate Term Loan A Facility, and we used the proceeds to redeem approximately $650 million of our fixed-rate ADT Notes due 2023. Additionally, during March 2023 and April 2023, we entered into floating-to-fixed interest rate swaps with an aggregate notional amount of $300 million to partially hedge the Term Loan A Facility.
As of September 30, 2023, we had $3.1 billion notional amount of interest rate swaps used to manage interest rate exposure on our variable-rate debt, including our First Lien Term Loan due 2026, First Lien Term Loan A Facility, and 2020 Receivables Facility. In October 2023, we repaid approximately $1.3 billion of our variable-rate First Lien Term Loan due 2026 and refinanced the remaining outstanding balance with a new First Lien Term Loan due 2030. As a result, we will monitor and manage these financial exposures as an integral part of our overall risk management program.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q.
As a result of the material weakness in ICFR as previously disclosed in the Company’s Amended 2022 Annual Report, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2023, our disclosure controls and procedures were not effective at a reasonable assurance level in ensuring information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Remediation Plan
Upon identification of the material weakness, management developed and implemented a remediation plan, which includes updating our procedures regarding the recognition of the tax impacts related to goodwill impairments to specifically review the considerations of all tax impacts caused by the recognition of such goodwill impairments in accordance with relevant accounting guidance.
Our management believes the measures described above and others that have been implemented will remediate the material weakness that we have identified. However, the material weakness will not be considered remediated until there has been appropriate time for us to conclude through testing that the controls are operating effectively.
As management continues to evaluate and improve the Company’s ICFR, we may decide to take additional measures to address control deficiencies or determine to modify certain of the remediation measures identified.
Changes in Internal Control over Financial Reporting
Other than the remediation steps discussed above, during the three months ended September 30, 2023, there were no changes in our ICFR identified in our management’s evaluation pursuant to Rules 13a-15(d) and 15d-15(d) of the Exchange Act that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 14 “Commitments and Contingencies” to the condensed consolidated financial statements under the heading “Legal Proceedings” included in this Quarterly Report on Form 10-Q for legal proceedings and related matters.
ITEM 1A. RISK FACTORS.
Our significant business risks are described in Part I, Item 1A “Risk Factors” in our Amended 2022 Annual Report and in our other filings with the SEC. The risk factors described in our filings with the SEC and other information may not describe every risk facing the Company. There have been no material changes in our risk factors from those disclosed in our Amended 2022 Annual Report, except as discussed below:
Risks Related to the Commercial Divestiture
We may not achieve some or all of the strategic and financial benefits that we expect to achieve from the Divestiture which could have a material adverse effect on our financial condition and results of operations.
Although we believe the Commercial Divestiture will place us in a better position to prioritize investments in CSB and make strategic decisions with respect to Solar that we intend to drive profitable, capital-efficient revenue growth for the long-term, there can be no assurance that we will achieve such benefits. We are using the net after-tax cash proceeds of approximately $1.5 billion for significant debt reduction and have already used $1.3 billion of the net proceeds for debt reduction. There may, however, be a delay in our ability to use the remaining proceeds to repay a portion of our indebtedness which could have a material adverse effect on our financial condition and may adversely affect our credit ratings and cost of capital, as well as our ability to execute on our strategic priorities, objectives, goals, and medium-term target framework. Moreover, we may not be able to achieve the other anticipated benefits of the Commercial Divestiture, which could have a material adverse impact on our business, financial condition, results of operations, and cash flows. The anticipated benefits are based on a number of assumptions, some of which may prove incorrect, and could be affected by factors beyond our control, including, without limitation, general economic conditions, increased operating costs, regulatory developments and other risks described in these risk factors and within Item IA of Part I of our Amended 2022 Annual Report.
The Commercial Divestiture increases the risk of damage to our brand and reputation which may materially adversely affect our financial condition and results of operations.
In connection with the Commercial Divestiture, we have agreed to provide transitional services to GTCR for a period of up to 24 months and to license our ADT Commercial brand for 12 months. These arrangements allow for the use of our trademarks, certain intellectual property and limited use of the ADT Commercial brand, which may cause us to incur unanticipated costs and liabilities and which could have a material adverse effect on our business, financial condition and results of operations. Additionally, GTCR’s ability to use the ADT Commercial brand may increase the risk of damage to the brand for our remaining businesses, which could negatively impact our reputation, results of operations and financial condition.
ADT will be a less diversified business following the Commercial Divestiture, which may adversely affect ADT’s results of operations and financial condition.
Prior to the Commercial Divestiture, ADT had three business segments, CSB, Commercial, and Solar. The Commercial Divestiture resulted in ADT being a smaller, less diversified company more focused on consumers, potentially making ADT more vulnerable to changing market, regulatory, and economic conditions following the Commercial Divestiture, particularly those affecting consumers and small businesses. Additionally, ADT has announced it is taking a series of steps to rationalize its Solar business, including exiting underperforming branches and streamlining the cost structure. A smaller Solar business increases ADT’s dependence on CSB, and any trends or uncertainties affecting the CSB segment will more directly affect ADT’s results of operations and financial condition in the future. Macroeconomic headwinds or changes in consumer preferences could have a greater impact on our business following the Commercial Divestiture which could have a material adverse effect on our business, results of operations, and financial condition.
Risks Related to the Rationalization of the ADT Solar Business
ADT announced plans to rationalize the ADT Solar business, which includes exiting underperforming branches and streamlining ADT Solar’s cost structure, which are subject to uncertainties and risks that may materially adversely affect our financial condition and results of operations.
On November 2, 2023, we announced a series of steps to rationalize the ADT Solar business, significantly reducing the number of ADT Solar branches in light of continued operational challenges and underperformance of operating results relative to expectations. In connection with the ADT Solar rationalization, we anticipate incurring severance and other costs, which are not expected to be material.
The ADT Solar rationalization activity may result in business disruptions and may not produce the full efficiency and cost reduction benefits anticipated. Furthermore, the benefits may be realized later than expected and the cost of implementing these measures may be greater than anticipated. If these measures are not successful, we may need to undertake additional cost reduction efforts with respect to ADT Solar, including, among other things, a further reduction of branches or ceasing operations, which could result in future charges. Moreover, the ADT Solar rationalization plan may cause business disruptions with customers, which could make our brand less attractive to consumers, and ADT Solar may not be more efficient or effective than prior to the implementation of the rationalization plan. The ADT Solar rationalization activities, including the related charges and the impact of the related workforce reduction, which may include potential legal claims by impacted employees, could have a material adverse effect on our business, operating results and financial condition. The ADT Solar rationalization activities may also involve continued financial involvement in the discontinued branches, such as by causing us to continue to incur expenses to maintain services for completed installations and to complete those installations which have not yet been completed, or through continuing guarantees, indemnities or other financial obligations, such as a requirement by lenders that we repay outstanding loan amounts for jobs that have not achieved permission to operate in a timely manner, both within and outside of the markets impacted. The incurrence of any such cost or action could have a material adverse effect on our business, financial condition, results of operations and cash flows.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES.
Recent Sales of Unregistered Equity Securities
There were no sales of unregistered equity securities during the nine months ended September 30, 2023.
Use of Proceeds from Registered Equity Securities
We did not receive any proceeds from sales of registered equity securities during the nine months ended September 30, 2023.
Issuer Purchases of Equity Securities
There were no repurchases of any shares of our common stock during the three months ended September 30, 2023.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
ITEM 5. OTHER INFORMATION.
During the quarter ended September 30, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6. EXHIBITS.
The exhibits listed on the accompanying Index to Exhibits are filed/furnished or incorporated by reference as part of this Quarterly Report on Form 10-Q.
INDEX TO EXHIBITS
The information required by this Item is set forth on the exhibit index below.
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Exhibit Number |
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Incorporated by Reference |
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Exhibit Description |
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Form |
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Exhibit |
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Filing Date |
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8-K |
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2.1 |
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8/8/2023 |
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8-K |
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3.1 |
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9/17/2020 |
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8-K |
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3.1 |
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9/18/2023 |
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Incremental Assumption and Amendment Agreement No.13, dated as of October 13,2023, by and among Prime Security Services Holdings, LLC, Prime Security Services Borrower, LLC, The ADT Security Corporation, the subsidiary loan parties party thereto, the lenders party thereto and Barclays Bank PLC, as administrative agent. |
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8-K |
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10.1 |
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10/13/2023 |
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101 |
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XBRL Instant Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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104 |
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Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document |
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_________________________
* Filed herewith.
** Furnished herewith.
^ Schedules and exhibits to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. ADT hereby undertakes to furnish copies of any of the omitted schedules and exhibits upon request by the SEC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ADT Inc. |
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Date: |
November 2, 2023 |
By: |
/s/ Kenneth J. Porpora |
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Name: |
Kenneth J. Porpora |
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Title: |
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
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EX-10.2
2
mizuho_adtxreceivablesfi.htm
EX-10.2
mizuho_adtxreceivablesfi
EXECUTION VERSION 751499193.15 22727329 RECEIVABLES FINANCING AGREEMENT Dated as of August 2, 2023 by and among ADT SOLAR FINANCE LLC, as Borrower, THE PERSONS FROM TIME TO TIME PARTY HERETO, as Lenders and as Group Agents, MIZUHO BANK, LTD., as Administrative Agent, Arranger, Collateral Agent and Structuring Agent and COMPASS SOLAR GROUP, LLC, in its individual capacity and as initial Servicer TABLE OF CONTENTS Page 751499193.15 22727329 -i- ARTICLE I DEFINITIONS .......................................................................................................... 1 SECTION 1.01. Certain Defined Terms ............................................................................ 1 SECTION 1.02. Other Interpretative Matters .................................................................. 45 ARTICLE II TERMS OF THE LOANS ..................................................................................... 45 SECTION 2.01. Loan Facility ......................................................................................... 45 SECTION 2.02. Making Loans ....................................................................................... 46 SECTION 2.03. Interest and Fees.................................................................................... 48 SECTION 2.04. Term SOFR Conforming Changes ........................................................ 48 SECTION 2.05. Extension of the Scheduled Termination Date ..................................... 49 SECTION 2.06. Benchmark Replacement. ..................................................................... 49 SECTION 2.07. Inability to Determine Rates. ................................................................ 51 ARTICLE III SETTLEMENT PROCEDURES AND PAYMENT PROVISIONS ................... 52 SECTION 3.01. Settlement Procedures ........................................................................... 52 SECTION 3.02. Deemed Collections; Repayment of Principal, Etc. .............................. 56 SECTION 3.03. Payment Provisions. .............................................................................. 59 SECTION 3.04. Account Control .................................................................................... 61 ARTICLE IV YIELD PROTECTION; TAXES.......................................................................... 62 SECTION 4.01. Yield Protection. ................................................................................... 62 SECTION 4.02. Funding Losses ..................................................................................... 64 SECTION 4.03. Taxes. .................................................................................................... 65 SECTION 4.04. Mitigation; Replacement of Lenders. ................................................... 69 ARTICLE V CONDITIONS TO EFFECTIVENESS AND CREDIT EXTENSIONS; SECURITY INTEREST ................................................................................ 70 SECTION 5.01. Conditions Precedent to Effectiveness .................................................. 70 SECTION 5.02. Conditions Precedent to All Credit Extensions..................................... 70 SECTION 5.03. Conditions Precedent to Initial Credit Extension .................................. 71 SECTION 5.04. Security Interest .................................................................................... 71 ARTICLE VI REPRESENTATIONS AND WARRANTIES .................................................... 73 SECTION 6.01. Representations and Warranties of the Borrower ................................. 73 SECTION 6.02. Representations and Warranties of Compass ........................................ 80 ARTICLE VII COVENANTS ..................................................................................................... 85 SECTION 7.01. Affirmative Covenants of the Borrower ............................................... 85 SECTION 7.02. Reporting Requirements of the Borrower ............................................. 89 SECTION 7.03. Negative Covenants of the Borrower .................................................... 90 SECTION 7.04. Affirmative Covenants of Compass ...................................................... 93 SECTION 7.05. Reporting Requirements of Compass ................................................... 96 SECTION 7.06. Negative Covenants of Compass .......................................................... 99 SECTION 7.07. Nature of Obligations .......................................................................... 100 SECTION 7.08. Corporate Separateness; Related Matters and Covenants ................... 101 SECTION 7.09. Supporting Letters of Credit ............................................................... 104 ARTICLE VIII ADMINISTRATION AND COLLECTION OF RECEIVABLES ................. 104 SECTION 8.01. Designation of the Servicer ................................................................. 104 SECTION 8.02. Duties of the Servicer .......................................................................... 105 SECTION 8.03. Rights of the Collateral Agent ............................................................ 108 TABLE OF CONTENTS (continued) Page 751499193.15 22727329 -ii- SECTION 8.04. Responsibilities of the Servicer........................................................... 109 SECTION 8.05. Further Action Evidencing Transfers and Security Interest ................ 110 SECTION 8.06. Application of Collections .................................................................. 110 ARTICLE IX EVENTS OF TERMINATION .......................................................................... 110 SECTION 9.01. Event of Terminations ......................................................................... 110 SECTION 9.02. Remedies ............................................................................................. 113 ARTICLE X AGENTS .............................................................................................................. 114 SECTION 10.01. Limited Liability of Lenders, Group Agents, Collateral Agent, and the Administrative Agent .................................................... 114 SECTION 10.02. Authorization and Action of each Group Agent ............................... 114 SECTION 10.03. Authorization and Action of the Administrative Agent and Collateral Agent ......................................................................... 115 SECTION 10.04. Delegation of Duties of each Group Agent ....................................... 115 SECTION 10.05. Delegation of Duties of the Administrative Agent and the Collateral Agent ......................................................................... 115 SECTION 10.06. Successor Administrative Agent and Collateral Agent; Termination ................................................................................ 115 SECTION 10.07. Indemnification ................................................................................. 116 SECTION 10.08. Reliance, etc ...................................................................................... 116 SECTION 10.09. Lenders and Affiliates ....................................................................... 117 SECTION 10.10. Sharing of Recoveries ....................................................................... 117 SECTION 10.11. Non-Reliance .................................................................................... 117 SECTION 10.12. Erroneous Payment. .......................................................................... 118 SECTION 10.13. Disclaimer and Exculpation With Respect to any Rate .................... 119 ARTICLE XI INDEMNIFICATION ........................................................................................ 120 SECTION 11.01. Indemnities by the Borrower............................................................. 120 SECTION 11.02. Indemnities by Compass and the Servicer ........................................ 123 ARTICLE XII MISCELLANEOUS .......................................................................................... 124 SECTION 12.01. Amendments Etc ............................................................................... 124 SECTION 12.02. Notices, Etc ....................................................................................... 124 SECTION 12.03. Successors and Assigns; Participations; Assignments. ..................... 125 SECTION 12.04. No Waiver; Remedies; Set-Off ......................................................... 126 SECTION 12.05. Binding Effect; Survival. .................................................................. 127 SECTION 12.06. Costs and Expenses ........................................................................... 128 SECTION 12.07. No Proceedings; Limited Recourse................................................... 129 SECTION 12.08. Confidentiality. ................................................................................. 130 SECTION 12.09. Captions and Cross References ......................................................... 134 SECTION 12.10. Integration ......................................................................................... 134 SECTION 12.11. Governing Law ................................................................................. 134 SECTION 12.12. Waiver of Jury Trial .......................................................................... 135 SECTION 12.13. Consent to Jurisdiction; Waiver of Immunities ................................ 135 SECTION 12.14. Execution in Counterparts ................................................................. 135 SECTION 12.15. Pledge to a Federal Reserve Bank ..................................................... 136 TABLE OF CONTENTS (continued) Page 751499193.15 22727329 -iii- SECTION 12.16. Severability ....................................................................................... 136 SECTION 12.17. Acknowledgement and Consent to Bail-In of Affected Financial Institutions.................................................................................. 136 SECTION 12.18. PATRIOT Act Notice ....................................................................... 137 SECTION 12.19. EU Securitisation Regulation ............................................................ 137
TABLE OF CONTENTS (continued) Page 751499193.15 22727329 -iv- EXHIBITS EXHIBIT A – Form of Loan Request EXHIBIT B – Form of Assignment and Acceptance Agreement EXHIBIT C – Credit and Collection Policy EXHIBIT D – Form of Information Package EXHIBIT E – Form of Compliance Certificate EXHIBIT F-1 – Closing Memorandum for Closing Date EXHIBIT F-2 – Closing Memorandum for Initial Borrowing Date EXHIBIT G – Form of Approved Forms EXHIBIT H – Form of Paydown Notice EXHIBIT I – Hedging Strategy EXHIBIT J – Form of Approved Installation Contract SCHEDULES SCHEDULE I – Loan Limits and CP Rates SCHEDULE II – Lock-Boxes, Collection Accounts and Account Banks SCHEDULE III – Notice Addresses SCHEDULE IV – UCC Information SCHEDULE V – Advance Rate Matrix 751499193.15 22727329 This RECEIVABLES FINANCING AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time, this “Agreement”) is entered into as of August 2, 2023 by and among the following parties: (i) ADT SOLAR FINANCE LLC, a Delaware limited liability company, as Borrower (together with its successors and assigns, the “Borrower”); and (ii) the Persons from time to time party hereto as Lenders and as Group Agents; and (iii) MIZUHO BANK, LTD. (“Mizuho”), as Administrative Agent, Arranger, Collateral Agent, and Structuring Agent; and (iv) COMPASS SOLAR GROUP, LLC, a Delaware limited liability company (“Compass”), in its individual capacity and as initial Servicer (in such capacity, together with its successors and assigns in such capacity, the “Servicer”). PRELIMINARY STATEMENTS WHEREAS, the Borrower desires to acquire certain Receivables and Related Assets and all Collections related thereto from Compass, as Originator, pursuant to that certain Receivables Sale and Contribution Agreement, dated on or about the Closing Date (the “Sale Agreement”), between the Borrower and the Originator; WHEREAS, the Borrower desires that the Lenders make loans, on an uncommitted basis prior to the Termination Date, to the Borrower on the terms and subject to the conditions set forth in this Agreement in order for the Borrower to acquire Receivables and Related Assets and all Collections related thereto from the Originator pursuant to the Sale Agreement; and WHEREAS, each Lender is willing to make such loans, on an uncommitted basis prior to the Termination Date, to the Borrower on the terms and subject to the conditions set forth in this Agreement, which Loans shall be secured by all Receivables and Related Assets and all Collections related thereto acquired by the Borrower pursuant to the Sale Agreement, as well as other assets of the Borrower, whether now existing or hereafter acquired. NOW THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): “Acceleration Date” means the date specified in Section 9.02 following the occurrence of an Event of Termination. 751499193.15 22727329 2 “Account Bank” means any of the banks or other financial institutions holding one or more Collection Accounts, the Reserve Account or the Payment Account. “Adjusted Principal Balance” means, as of any date for any Receivable, the amount equal to (i) the Principal Balance of such Receivable, minus (ii) the YSOC Amount for such Receivable. “Administrative Agent” means Mizuho, in its capacity as contractual representative for the Credit Parties, and any successor thereto in such capacity appointed pursuant to Article X. “Administrative Agent’s Account” means the special account of the Administrative Agent (Account No. H79-740-005344, ABA No. 026 004 307) maintained at Mizuho or such other account as the Administrative Agent shall designate to the Borrower and Compass. “ADT Credit Agreement” means, collectively, (a) the Eleventh Amended and Restated First Lien Credit Agreement, as last amended and restated as of July 2, 2021, among Prime Security Services Holdings, LLC, Prime Security Services Borrower, LLC, The ADT Security Corporation, Barclays Bank PLC, as administrative agent and the other parties thereto and (b) the Term Loan Credit Agreement, dated as of March 14, 2023, among Prime Security Services Holdings, LLC, Prime Security Services Borrower, LLC, The ADT Security Corporation, Barclays Bank PLC, as administrative agent and the other parties thereto. “ADT Collateral Agreements” means, each of (i) the Collateral Agreement (First Lien), dated as of July 1, 2015, among Prime Security Services Borrower, LLC, each Subsidiary Loan Party thereto, and Barclays Bank PLC (as successor in interest to Credit Suisse AG, Cayman Islands Branch, as collateral agent), and (ii) the Collateral Agreement (Second Lien), dated as of January 28, 2020, among Prime Security Services Borrower, LLC, Prime Finance Inc., each Subsidiary Guarantor party thereto, and Wells Fargo Bank, National Association, as collateral agent. “ADT Entity” means ADT, the Servicer (if the Servicer is an Affiliate of the Parent), the Borrower, each Approved Installer (if such Approved Installer is an Affiliate of the Parent) and the Parent. “ADT Indentures” means, each of (i) the indentures dated as of April 4, 2019, among Prime Security Services Borrower, LLC, as issuer, Prime Finance Inc., as Co-Issuer, the guarantors party thereto from time to time, and Wells Fargo Bank, National Association, as trustee, (ii) indenture dated as of July 5, 2012, between the ADT Corporation, as issuer, and Wells Fargo Bank, National Association, as trustee, (iii) indenture dated as of May 2, 2016, between Prime Security One MS, Inc., as issuer, and Wells Fargo Bank, National Association, as trustee, (iv) the indenture dated as of January 28, 2020, among Prime Security Services Borrower, LLC, as issuer, Prime Finance Inc., as issuer, the subsidiary guarantors party thereto from time to time, and Wells Fargo Bank, National Association, as trustee and collateral agent and (v) the indenture, dated as of August 20, 2020, among, inter alia, Prime Security Services Borrower, LLC, as issuer, Prime Finance Inc., as co- issuer, and Wells Fargo Bank, National Association, as trustee. “ADT Intercreditor Agreement” means the First Lien/First Lien Intercreditor Agreement, dated as of May 2, 2016, among Barclays Bank PLC and Wells Fargo Bank, National Association. 751499193.15 22727329 3 “ADT Barclays Lien Release Acknowledgement” means that certain Lien Release Request and Acknowledgement to be entered into prior to the initial Borrowing Date between Prime Securities Borrower, LLC, as pledger, and Barclays Bank PLC, as collateral agent. “ADT Wells Fargo Lien Release Acknowledgement” means that certain Lien Release Request and Acknowledgement to be entered into prior to the initial Borrowing Date between Prime Securities Borrower, LLC, as pledger, and Wells Fargo Bank, National Association, as collateral agent. “ADT Obligations” means any obligation owed by any ADT Entity (other than the Borrower) to the Collateral Agent, the Administrative Agent, any Group Agent, any Lender, any Indemnified Party, any other Affected Person, arising out of or in connection with this Agreement and each other Transaction Document, whether now or hereafter existing, due or to become due, direct or indirect or absolute or contingent, including, all Indemnified Amounts payable pursuant to Section 11.02 and without duplication, all Erroneous Payment Subrogation Rights arising pursuant to Section 10.12. “ADT Solar” means ADT Solar LLC, a Louisiana limited liability company. “Advance Rate” means, in respect of any Receivable, the applicable “Advance Rate” set forth in the Advance Rate Matrix corresponding to such Receivable based upon the FICO Score of the related Obligor and the Original Term of such Receivable; provided that, to the extent the Third Milestone Ratio exceeds 20.0%, the Advance Rate for any Eligible Receivable, or group of Eligible Receivables, that causes such excess shall be reduced by 5.0%; provided further that for any Receivable that has not achieved the Third Milestone and for which more than 180 days has elapsed since such Receivable achieved the First Milestone, the Advance Rate for such Receivable shall be reduced by 10.0%. “Advance Rate Matrix” means the Advance Rate Matrix attached as Schedule V to this Agreement, as may be amended from time to time with the consent of all Group Agents. “Adverse Claim” means any claim of ownership or any Lien other than any Permitted Adverse Claims. “Affected Financial Institution” means (a) any EEA Financial Institution or (b) any UK Financial Institution. “Affected Person” means each Credit Party, each Program Support Provider, the parent or holding company that Controls any Credit Party or Program Support Provider, and any of their respective Affiliates that are party to, or entitled to any payment under, the Transaction Documents. “Affiliate” means, with respect to a specified Person, another Person that directly or indirectly Controls, is Controlled by or is under common Control with the Person specified. “Agent” means the Administrative Agent or the Collateral Agent.
751499193.15 22727329 4 “Aggregate Interest” means, at any time of determination, the aggregate accrued and unpaid Interest on the Loans of all Lenders at such time. “Aggregate Principal” means, at any time of determination, the aggregate outstanding Principal of all Lenders at such time. “Agreement” has the meaning set forth in the preamble to this Agreement. “Allocated Share” is defined in Section 2.01. “Applicable Law” means, with respect to any Person, any statutes, laws, treaties, rules, regulations, orders, decrees, writs, judgments, injunctions or determinations of any arbitrator or court or other Governmental Authority, in each case binding upon such Person or any of its property or to which such Person or any of its property is subject. “Approved Forms” means (a) the form Contract documentation used by Compass substantially in the form attached as Exhibit G hereto, and as amended from time to time by Compass in accordance with this Agreement and (b) any other form of loan agreement or other financing agreement or promissory note that is approved by the Administrative Agent in writing after the Closing Date (such approval not to be unreasonably withheld, conditioned, or delayed). “Approved Installation Agreement” means (a) the form home improvement contract used by ADT Solar substantially in the form attached as Exhibit J hereto, and as amended from time to time by ADT Solar in accordance with this Agreement and (b) any other form home improvement contract that is approved by the Administrative Agent in writing after the Closing Date (such approval not to be unreasonably withheld, conditioned, or delayed). “Approved Installer” means (a) ADT Solar or (b) any installer of Solar Energy Systems that is approved for installation with the prior written consent of the Collateral Agent, the Administrative Agent and the Required Lenders (such consents not to be unreasonably withheld, conditioned, or delayed). “Approved State” means any state (including any territory or the District of Columbia) in which the Originator (1) has obtained all required licenses to operate or (2) is exempt from state licensing requirements. “Arranger” means Mizuho, in its capacity as Arranger for the transactions contemplated by this Agreement and the other Transaction Documents. “Assignment and Acceptance Agreement” means an assignment and acceptance agreement entered into by a Lender, an Eligible Assignee, such Lender’s Group Agent and the Administrative Agent, and, if required, the Borrower, pursuant to which such Eligible Assignee may become a party to this Agreement, in substantially the form of Exhibit B hereto. “Available Tenor” means, as of any date of determination and with respect to the then- current Benchmark, as applicable, any tenor for such Benchmark or payment period for interest calculated with reference to such Benchmark, as applicable, that is or may be used for determining the length of an Interest Period pursuant to this Agreement as of such date and not including, for 751499193.15 22727329 5 the avoidance of doubt, any tenor for such Benchmark that is then-removed from the definition of “Interest Period” pursuant to clause (e) of Section 2.06. “Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an Affected Financial Institution. “Bail-In Legislation” means, (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule, and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their Affiliates (other than through liquidation, administration or other insolvency proceedings). “Bank Rate” means, for any day falling in a particular Interest Period with respect to any Rate Tranche and any Group, an interest rate per annum equal to the applicable Benchmark for such day. “Bankruptcy Code” means the United States Bankruptcy Reform Act of 1978 (11 U.S.C. § 101, et seq.), as amended from time to time. “Base Rate” means, with respect to any Lender, as of any date of determination, a fluctuating rate of interest per annum equal to the highest of: (a) the applicable Prime Rate for such date; (b) the Federal Funds Rate for such date, plus 0.50%; and (c) Term SOFR for such date, plus 1.00%. “Base Rate Loan” means a Loan that bears interest based on the Base Rate. “Benchmark” means, initially, the sum of (a) the Term SOFR Reference Rate plus (b) 0.10% per annum; provided that if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred with respect to the Term SOFR Reference Rate or the then- current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to Section 2.06(a). “Benchmark Loan” means a Loan that bears interest based on the Benchmark. “Benchmark Replacement” means, with respect to any Benchmark Transition Event, the first alternative set forth in the order below that can be determined by the Administrative Agent for the applicable Benchmark Replacement Date: (a) Daily Simple SOFR; and 751499193.15 22727329 6 (b) the sum of: (i) the alternate benchmark rate that has been selected by the Administrative Agent and the Borrower giving due consideration to (A) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (B) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement to the then-current Benchmark for Dollar- denominated syndicated credit facilities and (ii) the related Benchmark Replacement Adjustment. If the Benchmark Replacement as determined pursuant to clause (a) or (b) above would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Transaction Documents. “Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement, the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by the Administrative Agent and the Borrower giving due consideration to (a) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body or (b) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for Dollar-denominated syndicated credit facilities at such time. “Benchmark Replacement Date” means a date and time determined by the Administrative Agent, which date shall be no later than the earliest to occur of the following events with respect to the then-current Benchmark: (a) in the case of clause (a) or (b) of the definition of “Benchmark Transition Event,” the later of (i) the date of the public statement or publication of information referenced therein and (ii) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof); or (b) in the case of clause (c) of the definition of “Benchmark Transition Event,” the first date on which such Benchmark (or the published component used in the calculation thereof) has been determined and announced by the regulatory supervisor for the administrator of such Benchmark (or such component thereof) to be non-representative; provided that such non-representativeness will be determined by reference to the most recent statement or publication referenced in such clause (c) and even if any Available Tenor of such Benchmark (or such component thereof) continues to be provided on such date. For the avoidance of doubt, the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (a) or (b) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof). 751499193.15 22727329 7 “Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the then-current Benchmark: (a) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); (b) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or (c) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are no longer representative. For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof). “Benchmark Unavailability Period” means the period (if any) (x) beginning at the time that a Benchmark Replacement Date has occurred if, at such time, no Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Transaction Document in accordance with Section 2.06 and (y) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Transaction Document in accordance with Section 2.06. “Billing Address” means, with respect to any Obligor, the billing address of such Obligor. “Borrower” has the meaning set forth in the preamble to this Agreement. “Borrower Creditor” is defined in Section 12.07.
751499193.15 22727329 8 “Borrower Obligations” means all present and future indebtedness, reimbursement obligations and other liabilities and obligations (howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or due or to become due) of the Borrower to any Credit Party, any Indemnified Party and/or any Affected Person, arising under this Agreement or any other Transaction Document or the transactions contemplated hereby or thereby, and shall include, without limitation and without duplication, all Principal and Interest on the Loans, all Fees, all Erroneous Payment Subrogation Rights and all other amounts due or to become due under the Transaction Documents (whether in respect of fees, costs, expenses, indemnifications or otherwise), including, without limitation, interest, fees and other obligations that accrue after the commencement of any Insolvency Proceeding with respect to the Borrower (in each case whether or not allowed as a claim in such proceeding). “Borrowing Base” means, at any time, the amount equal to the product of (i) (a) the aggregate Adjusted Principal Balance of all Eligible Receivables in the Receivables Pool as of such date, minus (b) the Excess Concentration Amount; and (ii) the Weighted Average Advance Rate. “Borrowing Date” is defined in Section 2.02(a). “Business Day” means a day other than Saturday or Sunday or on which commercial banks in New York City, New York are authorized or required by applicable law to be closed for business. “Cash Equivalents” means (a) cash, (b) direct general obligations of the United States of America or obligations the prompt payment of the principal of and interest on which is unconditionally guaranteed by the United States of America, (c) U.S. dollar-denominated commercial paper notes which are rated at least “A-1+” by S&P and at least “P-1” by Moody’s, or (d) time deposits at, or certificates of deposit and bankers acceptances issued by, commercial banks located in the United States (including domestic branches or agencies of foreign banks) having short-term deposit ratings of “A-1” by S&P and “P-1” by Moody’s, provided that each such investment specified in clauses (b), (c) and (d) is payable in Dollars, has a maturity of the lesser of (i) ninety-one (91) days, and (ii) the days remaining until the next Settlement Date, and is payable in the United States of America, or (e) U.S. Dollar-denominated money market funds of United States issuers that have ratings of at least “AAAm” by S&P and at least “Aaa” by Moody’s (or equivalent long-term ratings) and permit daily liquidation of investments. Ratings by S&P which include an “r” designation are not eligible to be Cash Equivalents unless approved by S&P or otherwise meet the rating conditions of S&P. “Change in Law” means the occurrence, after the Closing Date, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the compliance by any Affected Person with any written request, rule, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the Closing Date; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International 751499193.15 22727329 9 Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to the agreements reached by the Basel Committee on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” (as amended, supplemented or otherwise modified or replaced from time to time), shall in each case, to the extent requiring any change to the compliance policies and practices (including relating to capital, liquidity or leverage requirements) of any Affected Person after the date hereof, be deemed to be a “Change in Law,” regardless of the date enacted, adopted or issued, but only to the extent such Affected Person is imposing applicable increased costs or applicable costs in connection with capital adequacy requirements similar to those described in Section 4.01 on other borrowers of syndicated loans in the United States. “Change of Control” means the occurrence of any of the following: (a) all of the outstanding Voting Securities of the Borrower shall cease to be owned by Compass; (b) all of the outstanding Voting Securities of ADT Solar shall cease to be owned by Compass; (c) all of the outstanding Voting Securities of Compass shall cease to be owned by The ADT Security Corporation; (d) all of the outstanding Voting Securities of The ADT Security Corporation shall cease to be owned by Prime Security Services Borrower, LLC; (e) all of the outstanding Voting Securities of Prime Security Services Borrower, LLC shall cease to be owned by Prime Security Services Holdings, LLC; or (f) all of the outstanding Voting Securities of Prime Security Services Holdings, LLC shall cease to be owned by the Parent. “Closing Date” means August 2, 2023. “Code” means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. “Collateral” has the meaning set forth in Section 5.04(a). “Collateral Agent” means Mizuho, in its capacity as contractual representative for the Credit Parties, and any successor thereto in such capacity appointed pursuant to Article X. “Collateral Control Agreement” means any electronic collateral control agreement to be entered into prior to the initial Borrowing Date under which such an eVault Provider agrees to provide the eVault used to hold the Required Loan Documents. 751499193.15 22727329 10 “Collateral Trustee” means, with respect to any Conduit Lender, a collateral trustee for the benefit of the holders of the Commercial Paper Notes of such Conduit Lender appointed pursuant to such entity’s program documents. “Collection Account” means each collection account of the Borrower maintained with an Eligible Bank into which Collections are to be remitted. “Collection Agent” means any collection agent sub-servicer, special servicer or similar agent which is not an Affiliate of Compass appointed by the Servicer to assist it with its collection duties hereunder. “Collection Agent Fees” all fees and expenses of any Collection Agent retained by the Servicer to collect any Receivable which are netted against the amount of, or otherwise reduce the amount of the Collections paid by, the Obligor of such Receivable. “Collections” means with respect to any Receivable and the Related Assets, (a) all cash collections and other cash proceeds of such Receivable or Related Assets, including recoveries with respect to such Receivable or Related Assets, from or on behalf of the related Obligor in payment of any amounts owed in respect of such Receivable or Related Assets, or applied to such other charges in respect of such Receivable or Related Assets, or applied to such amounts owed by such Obligor, (b) Deemed Collections, (c) amounts treated as Collections in accordance with Section 8.03(d), (d) all amounts paid to or for the account of the Borrower under any Hedge Agreement, (e) amounts, if any, transferred from the Reserve Account to the Payment Account in excess of the Reserve Account Required Amount (which amount shall be calculated as of the end of the Settlement Period relating to a Settlement Date) and (e) all other amounts required to be remitted to the Payment Account pursuant to any Transaction Document. For the avoidance of doubt the term “Collections” in respect of a Receivable and the Related Assets shall include all amounts allocated to such Receivable in accordance with the related Contract. “Commercial Paper Notes” means short-term promissory notes issued or to be issued by a Conduit Lender to fund its investments in accounts receivable or other financial assets. “Compass” has the meaning set forth in the preamble to this Agreement. “Conduit Lender” means each commercial paper conduit that is or becomes a party to this Agreement in the capacity of a “Conduit Lender.” “Conforming Changes” means, with respect to either the use or administration of Term SOFR or the use, administration, adoption or implementation of any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Bank Rate,” the definition of “Business Day,” the definition of “U.S. Government Securities Business Day, the definition of “Interest Period” or any similar or analogous definition (or the addition of a concept of “interest period”), timing and frequency of determining rates and making payments of interest (including Interest for Rate Tranches), timing of loan requests or prepayment, conversion or continuation notices, the applicability and length of lookback periods, the applicability of Section 4.02, breakage provisions and Liquidation Fee, the formula for calculating any successor rates identified pursuant to the definition of “Benchmark Replacement”, the formula, methodology or convention for applying a successor floor to the successor Benchmark Replacement and other 751499193.15 22727329 11 technical, administrative or operational matters) that the Administrative Agent decides in its reasonable discretion, after consultation with the Borrower, may be appropriate to reflect the adoption and implementation of any such rate or to permit the use and administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides in its reasonable discretion that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines in its reasonable discretion that no market practice for the administration of any such rate exists, in such other manner of administration as the Administrative Agent decides, after consultation with the Borrower, is reasonably necessary in connection with the administration of this Agreement and the other Transaction Documents). “Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes. “Constituent Documents” means, with respect to any Person, the organization documents of such Person, including (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement or limited liability company agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity. “Contract” means, with respect to any Receivable, any loan agreement, retail installment agreement, contract or other document (including any purchase order or invoice) between Compass and an Obligor, pursuant to which such Receivable arises or governing or evidencing such Receivable. “Control” means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto. “Control Agreement” means an agreement with respect to any Collection Account, the Payment Account, the Reserve Account or any other account of the Borrower, in form and substance reasonably satisfactory to the Administrative Agent and the Collateral Agent, pursuant to which the Collateral Agent has “control” over such account within the meaning of Article 8 of the UCC (in the case of a securities account) and/or Article 9 of the UCC (in the case of a deposit account), and the related Account Bank has agreed to comply with the instructions of the Collateral Agent without further consent of the Borrower, Compass or any other Person. “CP Rate” means, for any period and with respect to any Rate Tranche funded by Commercial Paper Notes of any Conduit Lender, the per annum rate specified as such for such Conduit Lender in Schedule I hereto.
751499193.15 22727329 12 “Credit and Collection Policy” means the Servicer’s credit and collection policies, practices and procedures, relating to the Contracts and the Receivables, a copy of which is attached as Exhibit C hereto, as they may modified from time to time after the Closing Date in compliance with this Agreement. “Credit Extension” means the making of any Loan. “Credit Party” means each Lender, the Administrative Agent, the Collateral Agent and each Group Agent. “Credit Protection Laws” means all applicable federal, state and local laws in respect of the business of extending credit to borrowers, including without limitation, the Truth in Lending Act (and Regulation Z promulgated thereunder), Equal Credit Opportunity Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, Gramm-Leach-Bliley Financial Privacy Act, Real Estate Settlement Procedures Act, Home Mortgage Disclosure Act, Fair Housing Act, anti- discrimination and fair lending laws, laws relating to servicing procedures or maximum charges and rates of interest, privacy laws and other similar laws, each to the extent applicable, and all applicable rules and regulations in respect of any of the foregoing. “Cumulative Net Loss Ratio” means, with respect to any Settlement Period, a ratio (expressed as a percentage) calculated as (i) the sum of the aggregate Principal Balance of all Receivables that became Defaulted Receivables from the Closing Date through the Cut-off Date for such Settlement Period, less any recoveries on such Defaulted Receivables during such period, divided by (ii) the aggregate Principal Balance of all Pool Receivables that constitute Eligible Receivables as of the Cut-off Date for such Settlement Period. “Cut-off Date” means (i) with respect to the initial Settlement Period beginning on the Closing Date, the last day of the calendar month immediately preceding the Closing Date, and (ii) otherwise the last day of each Settlement Period. “Daily Simple SOFR” means, for any day (a “SOFR Rate Day”), a rate per annum equal to the greater of (a) SOFR for the day (such day, a “SOFR Determination Day”) that is five (5) U.S. Government Securities Business Days prior to (i) if such SOFR Rate Day is a U.S. Government Securities Business Day, such SOFR Rate Day or (ii) if such SOFR Rate Day is not a U.S. Government Securities Business Day, the U.S. Government Securities Business Day immediately preceding such SOFR Rate Day, in each case, as such SOFR is published by the SOFR Administrator on the SOFR Administrator’s Website, and (b) the Floor. If by 5:00 p.m. (New York City time) on the second (2nd) U.S. Government Securities Business Day immediately following any SOFR Determination Day, SOFR in respect of such SOFR Determination Day has not been published on the SOFR Administrator’s Website and a Benchmark Replacement Date with respect to the Daily Simple SOFR has not occurred, then SOFR for such SOFR Determination Day will be SOFR as published in respect of the first preceding U.S. Government Securities Business Day for which such SOFR was published on the SOFR Administrator’s Website; provided that any SOFR determined pursuant to this sentence shall be utilized for purposes of calculation of Daily Simple SOFR for no more than three (3) consecutive SOFR Rate Days. Any change in Daily Simple SOFR due to a change in SOFR shall be effective from and including the effective date of such change in SOFR without notice to the Borrower. 751499193.15 22727329 13 “Debt” means, with respect to any Person, (i) all obligations (whether secured or unsecured) of such Person for money borrowed and all other obligations (contingent or otherwise) of such Person with respect to surety bonds, letters of credit and bankers’ acceptances, whether or not matured, (ii) all obligations of such Person evidenced by notes, bonds, debentures, loan agreements, reimbursement agreements, or similar instruments (including senior, mezzanine and junior borrowings), (iii) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (iv) all capital lease obligations of such Person, (v) all obligations in respect of derivative instruments to the extent required to be reflected as a liability on a balance sheet of such Person under GAAP, (vi) liabilities in respect of unfunded vested benefits under plans covered by Title VI of ERISA, (vii) all indebtedness referred to in clause (i), (ii), (iii) or (iv) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness, and (viii) all indebtedness of others referred to in clause (i), (ii), (iii), (iv), (v) or (vi) above Guaranteed by such Person or for which such Person has otherwise assumed responsibility on, before or after the date such indebtedness is incurred. “Deemed Collections” is defined in Section 3.02(a). “Defaulted Receivable” means a Receivable (a) as to which any payment, or part thereof, remains unpaid for 90 days or more from the original due date for such payment (b) any ADT Entity or the Servicer has knowledge or notice that the Obligor thereof is subject to an Event of Bankruptcy and the related bankruptcy case, action, or proceeding has not been dismissed by the applicable court, and such Obligor’s obligations with respect to such Receivable have not been reaffirmed by such Obligor with the approval of the applicable court, (c) which, consistent with the Credit and Collection Policy, is or should have been written off as uncollectible or defaulted, or (d) the related Solar Energy System has been (i) repossessed or detached from the related residence, in whole or in part or (ii) deactivated. “Defaulting Lender” means all of the Lenders of a Group, (a) that have failed, within two (2) Business Days of the date required to be funded or paid hereunder, to fund any portion of Loans hereunder that they have, in accordance with Section 2.02 agreed to fund, unless such failure is cured or the Group Agent for such Group at any time notifies the Administrative Agent in writing that such failure is the result of the good faith determination by such Group that a condition precedent to funding (specifically identified and with supporting facts) has not been satisfied, or (b) (i) if any Lender in such Group has become the subject of an Event of Bankruptcy, or (ii) become the subject of a Bail-in Action. “Deficiency” has the meaning specified in Section 3.04(b). “Delinquency Ratio” means, with respect to any Settlement Period, a ratio (expressed as a percentage) calculated as (i) the sum of the aggregate Principal Balance of all Delinquent Receivables that constitute Pool Receivables as of the Cut-off Date for such Settlement Period, divided by (ii) the aggregate Principal Balance of Pool Receivables that constitute Eligible Receivables as of the Cut-off Date for such Settlement Period. 751499193.15 22727329 14 “Delinquent Receivable” means a Receivable that is not a Defaulted Receivable and as to which any payment, or part thereof, remains unpaid for 60 days or more from the original due date for such payment. “Demand Certifications” is defined in Section 3.03. “Dilution” means, as of any date of determination, with respect to any Pool Receivable, the amount by which the Principal Balance and interest of such Pool Receivable (a) is reduced or canceled as a result of (i) any defective, rejected, or returned merchandise or service related to the Solar Energy System, or any part of the Solar Energy System, any cash discount, or any failure by any ADT Entity to deliver any merchandise or service related to the Solar Energy System, or any part of the Solar Energy System, or otherwise perform under the underlying contract or invoice, including, without limitation, any performance related to any prepaid operations and/or maintenance agreements and payments related to performance guarantees, (ii) any change in or cancellation of any of the terms of such contract or invoice or any other adjustment by Compass (or any subservicer appointed subject to Section 8.01(c)) which reduces the amount payable by the Obligor on the related Receivable, or (iii) any setoff in respect of any claim by the Obligor thereof (whether such claim arises out of the same or a related transaction or an unrelated transaction) or (b) is subject to any specific dispute, offset, counterclaim, or defense whatsoever between the Obligor and the Borrower, Compass, ADT Solar, the Servicer, or any Affiliate thereof, in each case, other than to the extent arising from the bankruptcy or insolvency of the related Obligor, or the financial or credit condition or financial default, of such related Obligor. “Direct Deposit Obligor” means, as of any date of determination and with respect to any Receivable, an Obligor which has pursuant to the Contract authorized Compass to, from time to time, withdraw from the bank account of such Obligor and/or charge from the credit or debit card of such Obligor all amounts necessary to pay the Principal Balance and interest of such Receivable when due and payable, to the extent such authorization has not been revoked or rescinded by such Obligor as of such date of determination. “Discount Rate” means, for any date of determination, the sum of (i) the Weighted Average Hedge Rate, (ii) the Minimum Excess Spread, (iii) the Funded Fee Percentage and (iv) the Servicing Fee Rate. “Dollars”, “$” and “U.S. Dollars” each mean the lawful currency of the United States of America. “Due Date” means each date on which any payment is due on a Contract in accordance with its terms. “EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent. 751499193.15 22727329 15 “EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway. “EEA Resolution Authority” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution. “Eligible Assignee” means (i) the Administrative Agent, any Group Agent, any Lender, or any of their respective Affiliates that are financial institutions or banks, (ii) any Program Support Provider or any Program Administrator, (iii) any commercial paper conduit or similar entity that is managed by the Administrative Agent, any Lender or any Group Agent or any of their respective Affiliates, (iv) any other financial or other institution that is acceptable to the Administrative Agent, and solely with respect to this clause (iv) so long as no Unmatured Event of Termination or Event of Termination has occurred and is continuing, with the consent of the Borrower (such consent not to be unreasonably withheld, conditioned, or delayed), and (v) a collateral agent, trustee, or similar party which holds the assets of a Conduit Lender on behalf of the holders of the Commercial Paper Notes issued by such Conduit Lender. “Eligible Bank” means a financial institution which has a senior short-term unsecured debt rating (or where such financial institution does not have such a rating, the senior short-term unsecured debt rating of the parent of such financial institution) from both Moody’s and S&P of at least P-1 and A-1 respectively or the long-term unsecured debt rating equivalent thereof which, for the avoidance of doubt, is a long-term unsecured debt rating of at least A3, in the case of Moody’s, and at least A-, in the case of S&P. “Eligible Contract” means a Contract governed by the law of the United States of America or of any State thereof: (a) which is documented on an Approved Form; (b) as to which (i) a state-level UCC financing statement has been recorded in favor of Compass and (ii) the related Obligor has authorized the recording of a county-level fixture disclaimer statement, and such county-level fixture disclaimer statement has been recorded; (c) that provides that, except for state and local sales tax purposes, each of the Obligor and Compass agrees to treat the Solar Energy Equipment as personal property and not a fixture (as defined in Section 9-102(a)(41) of the applicable UCC); (d) as to which the Obligor shall not have any statutory right under its Related Documents to cancel such Contract; (e) that has terms for acceleration of payments, repossession and de-activation of the related Solar Energy System in the event of a default by the related Obligor; (f) as to which (i) the related Obligor is required to make all payments without condition and notwithstanding any casualty, loss or other damage to such Solar Energy System and (ii) the related Obligor is responsible for the payment of all expenses in connection with the
751499193.15 22727329 16 maintenance, repair, insurance, taxes and otherwise with respect to the related Solar Energy System; and (g) as to which the related Obligor has entered into an Approved Installation Agreement with an Approved Installer. “Eligible Receivable” means, as of any date of determination, a Receivable: (a) which represents all or part of the sales price and installation cost of the related Solar Energy System, and the related Solar Energy Equipment is subject to a Manufacturer’s Warranty; (b) which constitutes Chattel Paper, an “account” (as defined in Section 9-102(a) of the UCC) or a “payment intangible” (as defined in Section 9-102(a) of the UCC); (c) which is not a Defaulted Receivable; (d) which is denominated and payable only in U.S. Dollars in the United States; (e) which arises under an Eligible Contract that, together with such Receivable and any agreement to which Related Assets are pledged, (i) is in full force and effect and constitutes the legal, valid, and binding obligation of the related Obligor to pay the full Principal Balance and interest of such Receivable, enforceable against such Obligor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, or similar laws relating to and limiting creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or in Law), (ii) as of the date of its Transfer, is not subject to any dispute, offset, netting, litigation, counterclaim, or defense whatsoever (including defenses arising out of violations of usury Laws) (other than potential discharge in a bankruptcy of the related Obligor) or other event or circumstance that would give rise to a Deemed Collection, and (iii) is not subject to any Adverse Claim; (f) which, together with the Related Documents related thereto, (i) was originated by Compass in the ordinary course of its business, (ii) satisfies the requirements of the Credit and Collection Policy, and (iii) has been acquired by the Borrower from Compass pursuant to and in accordance with the terms of the Sale Agreement; (g) which relates to a Solar Energy System with respect to a single site in an Approved State; (h) which is fully disbursed to the related Obligor, except for progress payments to be made to an Approved Installer in accordance with the Credit and Collection Policies (it being understood, that in each such case, the initial disbursement under the related Contract has been made and that no progress payment shall be made prior to the completion of a Milestone); provided that progress payments corresponding to the Milestones may not be made in more than three installments; provided further that not more than 50% may be disbursed as part of the First Milestone; provided further that ADT Solar shall confirm in writing to the Administrative Agent and the Collateral Agent upon the completion of each 751499193.15 22727329 17 Milestone and that the costs related to such Milestone are consistent with ADT Solar’s customary installation practices and procedures; (i) which does not constitute a Delinquent Receivable; (j) the original Principal Balance of which does not exceed (x) if the related Obligor has a FICO Score of over 700, $150,000, and (y) if the related Obligor has a FICO Score of 600 or greater, but less than or equal to 700, $50,000; (k) the original Principal Balance of which does not exceed the actual acquisition cost of the related Solar Energy System and the reasonable cost of the related installation; (l) with respect to which, if the FICO Score of the related Obligor is less than 700, such Obligor has a debt-to-income ratio of less than 55%; (m) at the time of origination, not more than 180 days had elapsed since the related Contract was credit approved by Compass in accordance with the underwriting guidelines; (n) the Principal Balance of which, together with a fixed rate of interest, is payable in full by the related Obligor in 18 initial equal monthly installments and no more than 282 subsequent equal monthly installments under the related Contract, provided that the amount of each of the 18 initial equal monthly installments shall be calculated assuming an up to 30% prepayment of the original Principal Balance of such Receivable occurring in connection with the due date for the 18th monthly installment (it being understood that interest on such Contract shall accrue on the date of the first disbursement, and monthly installment payments by the related Obligor are required to be made beginning three months after the Second Milestone); (o) in respect of which the payment of the Principal Balance and interest thereof by the related Obligor is not contingent upon such Obligor receiving services or minimum performance related to the Solar Energy Equipment; (p) the related Contract in respect of which cannot be cancelled or terminated unless the related Obligor pays the full Principal Balance and interest of such Receivable; (q) the Principal Balance and interest of which is not, as of the date of Transfer, subject to any litigation, or any right of rescission, reduction, cancellation, setoff, offset, special refunds, or credits for any reason, including without limitation as a result of any defective or rejected parts of the Solar Energy Systems, installation thereof or otherwise; (r) [Reserved]; (s) in respect of which the related Obligor has provided a representation in the Required Loan Documents that he or she will maintain a homeowners’ insurance policy or equivalent covering the related Solar Energy System in an amount equal to the full replacement and installation cost of the Solar Energy System or the outstanding balance of such Receivable; 751499193.15 22727329 18 (t) the original Principal Balance of such Receivable is equal to or greater than $5,000; (u) the related Obligor has represented that the residence on which the related Solar Energy System was installed is his or her primary single-family residential home dwelling; (v) the related Solar Energy Equipment securing such Receivable was sold by and has been or will be installed by an Approved Installer in an Approved State; (w) if any Deemed Collection arises in respect of such Receivable, the Originator is not in default of its obligation to pay the full amount of such Deemed Collection in accordance with the Sale Agreement; (x) the sale or contribution of which pursuant to the Sale Agreement and this Agreement does not violate or contravene any Law or the related Contract or the Required Loan Documents; (y) that together with the Contract related thereto, does not contravene any Law applicable thereto (including Credit Protection Laws and Laws relating to usury and privacy) in any respect, with respect to which the origination thereof did not violate any such Law in any such respect and with respect to which no party to the Contract related thereto is in violation of any Law; (z) is secured by a valid first priority perfected security interest and lien in the Solar Energy Equipment securing the Obligor’s obligations under such Receivable; (aa) [Reserved]; (bb) the Related Documents with respect to such Receivable have not been amended, restructured, modified or waived so as to avoid a payment default, except in compliance with Section 8.02(c) hereof; (cc) the Obligor of which, as of the related Transfer Date, is a Direct Deposit Obligor with respect to such Receivable and has been instructed by Compass that to the extent that its payments will not be made through the withdrawal from its bank account and/or the charge of its credit or debit card, such payments shall be made to a Lock-Box relating to a Collection Account that is subject to a Control Agreement; (dd) the Obligor of which is required to make payments no less frequently than monthly under the related Contract; (ee) the Obligor of which is domiciled in, and has a Billing Address in, an Approved State and such Billing Address is the location in which such Obligor’s Solar Energy System was installed, and specified in the Records of the Servicer as such; (ff) the Obligor of which is not, any ADT Entity or an Affiliate of any ADT Entity; 751499193.15 22727329 19 (gg) the Obligor of which is not a Sanctioned Person; (hh) the Obligor of which is a residential customer of Compass in good standing and listed in the Records of Compass as having an “active status” (ii) the Obligor of which has a minimum FICO Score at the time of origination of 600; (jj) the Obligor of which is not subject to cancellation or disconnection in respect of the related Solar Energy Systems in accordance with the Credit and Collection Policy, the terms of the related Contract or otherwise; (kk) the Obligor of which is not an Obligor in respect of a Defaulted Receivable; (ll) the Obligor of which is (i) at least 18 years old, (ii) a citizen, permanent resident or legal resident alien, in each case, of the United States, and (iii) not a governmental entity, business, corporation, institution or other legal entity; (mm) which is non-executory and has been fully earned by performance on the part of Compass; (nn) other than the completion of Milestones, in respect of which no further action is required to be performed by any ADT Entity or any other Person with respect thereto pursuant to the terms of the Contract, any promotional activity, advertising or any other statement or warranty or otherwise, other than payment thereon by the applicable Obligor; (oo) without limiting any of the foregoing, no portion of which (i) is subject to any Lien in favor of any Governmental Authority, or (ii) results in (or, in the case of non- payment of any such governmental fee, surcharge, or tax by any Person, would result in) any Adverse Claim on such Receivable or any proceeds thereof in favor of any Governmental Authority (other than, for the avoidance of doubt, Adverse Claims that may be imposed by any Governmental Authority from time to time on the assets of Compass generally (or any Person treated as the same Person as Compass for tax purposes) in respect of any governmental fees, surcharges or taxes that will be paid or contested in compliance with Section 7.01(o) and Section 7.04(k)); (pp) which as of the related Transfer Date and except in compliance with Section 8.02(c) hereof, has not been compromised or (except for modifications of a ministerial nature to cure ambiguities or to correct, complete or supplement any provision in the related Contract which may be defective or inconsistent with any other provision therein, which modifications do not directly or indirectly cure, waive or forgive any default or delinquency by the related Obligor, could not reasonably be expected to adversely affect the Borrower’s or any Credit Party’s interests in such Receivable and are fully reflected in the express terms of the Contract on or prior to the Transfer Date in connection with the origination of such Receivable), adjusted or otherwise modified (including by the extension of time for payment or the granting of any discounts, allowances, or credit), including as a result of any promotional activity, advertising or other statement or warranty (including on any ADT Entity’s website);
751499193.15 22727329 20 (qq) (i) the Obligor of which has received permission to interconnect and operate by the interconnecting utility indicating that the related Solar Energy System securing such Receivable is ready to generate and transmit energy to such utility, (ii) if no such permission is required, ADT Solar has represented that the related Solar Energy System securing such Receivable is complete and generating electricity, as determined in accordance with the Credit and Collection Policies, or (iii) if neither clause (i) or (ii) is satisfied on such date, not more than 360 days has elapsed since the origination of such Receivable; and (rr) which has payments that do not and will not subject the Borrower to withholding Tax or other similar Tax unless the related Obligor is required to make “gross- up” payments that ensure that the net amount actually received by the Borrower will equal the full amount that the Borrower would have received had no such taxes been imposed. “Eligible Supporting Letter of Credit” means an unconditional and irrevocable standby or commercial letter of credit, in form and substance acceptable to the Administrative Agent (in its reasonable discretion) when contributed to the Borrower, which is issued or confirmed by an Eligible Supporting Letter of Credit Provider, and which letter of credit as of any date of determination (i) has a remaining term not less than the lesser of (x) 12 months as of such date of determination and (y) the period from such date of determination to the six (6) month anniversary of the Scheduled Termination Date, (ii) names the Administrative Agent as the sole beneficiary thereof, (iii) is payable in Dollars, (iv) is in full force and effect and is the legal, valid and binding obligation of the related Supporting Letter of Credit Provider which continues to be an Eligible Supporting Letter of Credit Provider, (v) allows the Administrative Agent to draw thereunder when permitted under Section 7.09 of this Agreement, (vi) unless otherwise agreed in writing by the Administrative Agent, by its terms requires proceeds of all drawings thereunder to be sent by the issuer thereof (or, if applicable, the confirming bank) directly to the Administrative Agent’s Account and (vii) has been contributed by Prime Security Services Borrower, LLC or The ADT Security Corporation to the Borrower. “Eligible Supporting Letter of Credit Provider” means a bank so designated in writing by the Administrative Agent to the Servicer (in the reasonable discretion of the Administrative Agent); provided that if (i) at any time, and for so long as, the long-term unsecured and uncredit- enhanced senior debt obligation of such bank is withdrawn or falls below a rating of (a) “A” by S&P, or (b) “A2” by Moody’s or (ii) such bank fails to pay a draw by the Administrative Agent on a Supporting Letter of Credit (to the extent the Administrative Agent is permitted to draw thereunder pursuant to Section 7.09 of this Agreement), then in either case, each letter of credit issued or confirmed by such bank shall cease to be an Eligible Supporting Letter of Credit and such bank shall cease to be an Eligible Supporting Letter of Credit Provider; provided, further, that no bank shall constitute an “Eligible Supporting Letter of Credit Provider” if at any time it is any of the following: (a) a Sanctioned Person or (b) an Affiliate of Compass. “Enhancement Agreement” means any agreement between a Conduit Lender and any other Person(s), entered into to provide (directly or indirectly) credit enhancement to such Conduit Lender’s commercial paper facility. 751499193.15 22727329 21 “Enhancement Provider” means any Person providing credit support to a Conduit Lender under an Enhancement Agreement, including pursuant to an unfunded commitment, or any similar entity with respect to any permitted assignee of such Conduit Lender. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. “ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with any ADT Entity, is treated as a single employer under Section 414(b) or 414(c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414(m) or 414(o) of the Code. “ERISA Event” means (a) any “reportable event”, as defined in Section 4043(c) of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30- day notice period referred to in Section 4043(a) is waived), (b) any failure by any Plan to satisfy the minimum funding standards (within the meaning of Sections 412 or 430 of the Code or Section 302 of ERISA) applicable to such Plan, whether or not waived, (c) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan, (d) the incurrence by any ADT Entity, or any ERISA Affiliate thereof of any liability under Title IV of ERISA with respect to the termination of any Plan, (e) the receipt by any ADT Entity, or any ERISA Affiliate thereof from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan under Section 4042 of ERISA, (f) the incurrence by any ADT Entity, or any ERISA Affiliate thereof of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan, or (g) the receipt by any ADT Entity, or any ERISA Affiliate thereof of any notice, or the receipt by any Multiemployer Plan from Compass, the Servicer, the Parent, the Originator, or any ERISA Affiliate thereof of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent within the meaning of Section 4245 of ERISA, or in endangered or critical status (within the meaning of Section 432 of the Code or Section 305 or Title IV of ERISA). “Erroneous Payment” has the meaning assigned to it in Section 10.12(a). “Erroneous Payment Subrogation Rights” has the meaning assigned to it in Section 10.12(c). “EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time. “EU Securitisation Regulation” means Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardized securitisation and amending certain other European Union directives and regulations (as amended by Regulation (EU) 2021/557) and, except as otherwise stated, means such Regulation as further amended from time to time. “EU Securitisation Regulation Rules” means the EU Securitisation Regulation, together with all relevant implementing regulations in relation thereto, all regulatory and/or implementing 751499193.15 22727329 22 technical standards in relation thereto or applicable in relation thereto pursuant to any transitional arrangements made pursuant to the EU Securitisation Regulation and, in each case, any relevant official binding guidance and directions published in relation thereto by the European Banking Authority, the European Securities and Markets Authority or the European Insurance and Occupational Pensions Authority (or in each case, any predecessor, successor or replacement organization thereto) or by the European Commission (all, except as otherwise stated, as amended from time to time). “eVault” means an electronic vault maintained with the eVault Provider in the name of the Borrower. “eVault Provider” means (a) eOriginal, Inc., a Delaware corporation, as the provider of the eVault used to hold the Required Loan Documents pursuant to the Collateral Control Agreement and (b) any other Person unrelated to the Servicer that provides an eVault used to hold the Required Loan Documents and in a manner that meets the requirements necessary to establish control under the UCC and becomes a party to a Collateral Control Agreement. “Event of Bankruptcy” shall be deemed to have occurred with respect to a Person if either: (a) (i) a case or other proceeding shall be commenced, without the application or consent of such Person, in any court, seeking the liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of such Person, the appointment of a trustee, receiver, custodian, liquidator, assignee, sequestrator (or other similar official) for such Person or all or substantially all of its assets, or any similar action with respect to such Person under any Law relating to bankruptcy, insolvency, reorganization, winding up, or composition or adjustment of debts, and such case or proceeding shall continue unstayed or undismissed for a period of sixty (60) consecutive days (or, for purposes of Section 9.01(c), if such case or proceeding is in respect of the Borrower, zero (0) days); or (ii) an order for relief in respect of such Person shall be entered in an involuntary case under federal bankruptcy laws or other similar Laws now or hereafter in effect; or (b) such Person (i) shall commence a voluntary case or other proceeding under any applicable bankruptcy, insolvency, reorganization, debt arrangement, dissolution, or other similar Law now or hereafter in effect, (ii) shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) for, such Person or for any substantial part of its property, or (iii) shall make any general assignment for the benefit of creditors, or shall fail to, or admit in writing its inability to, pay its debts generally as they become due, or, if a corporation or similar entity, its board of directors (or any board or Person holding similar rights to control the activities of such Person) shall vote to implement any of the foregoing. “Event of Termination” has the meaning set forth in Section 9.01. For the avoidance of doubt, an Event of Termination shall occur only after applicable cure periods, if any, specified in Section 9.01 have expired, and any Event of Termination that occurs shall be deemed to be continuing at all times thereafter unless and until waived in accordance with Section 12.01. 751499193.15 22727329 23 “Excess 240 Month Original Term Concentration Amount” means, as of any date of determination, the amount, if any, by which (a) the aggregate Principal Balance of all Eligible Receivables in the Receivable Pool which relate to Receivables having an Original Term in excess of 240 months, as of such date of determination, exceeds (b) 60.00% of the Excess Concentration Test Amount. “Excess 650 FICO Score Concentration Amount” means, as of any date of determination, the amount, if any, by which (a) the aggregate Principal Balance of all Eligible Receivables in the Receivable Pool which relate to Obligors having a FICO Score at the time of origination of less than 650, exceeds (b) 5.00% of the Excess Concentration Test Amount. “Excess 680 FICO Score Concentration Amount” means, as of any date of determination, the amount, if any, by which (a) the aggregate Principal Balance of all Eligible Receivables in the Receivable Pool which relate to Obligors having a FICO Score at the time of origination of less than 680, exceeds (b) 15.00% of the Excess Concentration Test Amount. “Excess 750 FICO Score Concentration Amount” means, as of any date of determination, the amount, if any, by which (a) the aggregate Principal Balance of all Eligible Receivables in the Receivable Pool which relate to Obligors having a FICO Score at the time of origination of less than 750, exceeds (b) 60.00% of the Excess Concentration Test Amount. “Excess Concentration Amount” means, as of any date of determination, the sum, as calculated without duplication for any Eligible Receivable that falls into more than one of the following, of (a) the Excess Largest State Obligor Concentration Amount, (b) the Excess Single State Obligor Concentration Amount, (c) the Excess Principal Balance Over $60,000 Concentration Amount, (d) the Excess Principal Balance Over $100,000 Concentration Amount, (e) the Excess 240 Month Original Term Concentration Amount, (f) the Excess 650 FICO Score Concentration Amount, (g) the Excess 680 FICO Score Concentration Amount, (h) the Excess 750 FICO Score Concentration Amount, (i) the Excess Weighted Average FICO Score Concentration Amount, (j) the Excess Weighted Average Principal Balance Concentration Amount, (k) the Excess Third Milestone Concentration Amount, (l) the Excess Third Milestone (180) Concentration Amount, (m) the Excess Second Largest State Obligor Concentration Amount and (n) the Excess Third Largest State Obligor Concentration Amount. In order to avoid duplication in calculating the Excess Concentration Amount, each component of the Excess Concentration Amount shall be determined in the order set forth above, and the aggregate Principal Balance of any Eligible Receivables that are included in the Excess Concentration Amount in any prior step shall be deemed not to constitute Eligible Receivables in the numerator of any otherwise applicable subsequent step. “Excess Concentration Test Amount” means, as of any date of determination, the greater of (i) 50% of the Facility Limit as of such date and (ii) the aggregate Principal Balance of all Eligible Receivables in the Receivables Pool as of such date. “Excess Largest State Obligor Concentration Amount” means as of any date of determination, the amount, if any, by which (a) the aggregate Principal Balance of all Eligible Receivables in the Receivable Pool which relate to Obligors with Billing Addresses in the Largest
751499193.15 22727329 24 State, as of such date of determination, exceeds (b) 35.00% of the Excess Concentration Test Amount. “Excess Principal Balance Over $60,000 Concentration Amount” means, as of any date of determination, the amount, if any, by which (a) the aggregate Principal Balance of all Eligible Receivables in the Receivable Pool which relate to Obligors with a Principal Balance over $60,000, as of such date of determination, exceeds (b) 50.00% of the Excess Concentration Test Amount. “Excess Principal Balance Over $100,000 Concentration Amount” means, as of any date of determination, the amount, if any, by which (a) the aggregate Principal Balance of all Eligible Receivables in the Receivable Pool which relate to Obligors with a Principal Balance over $100,000, as of such date of determination, exceeds (b) 10.00% of the Excess Concentration Test Amount. “Excess Second Largest State Obligor Concentration Amount” means as of any date of determination, the amount, if any, by which (a) the aggregate Principal Balance of all Eligible Receivables in the Receivable Pool which relate to Obligors with Billing Addresses in the second Largest State, as of such date of determination, exceeds (b) 25.00% of the Excess Concentration Test Amount. “Excess Single State Obligor Concentration Amount” means, as of any date of determination, the amount, if any, by which (a) the aggregate Principal Balance of all Eligible Receivables in the Receivable Pool which relate to an Obligor with a Billing Address in any single State (or commonwealth) in the United States, as of such date of determination, other than the Obligors in the Largest State, exceeds (b) 15.00% of the Excess Concentration Test Amount. “Excess Third Largest State Obligor Concentration Amount” means as of any date of determination, the amount, if any, by which (a) the aggregate Principal Balance of all Eligible Receivables in the Receivable Pool which relate to Obligors with Billing Addresses in the third Largest State, as of such date of determination, exceeds (b) 25.00% of the Excess Concentration Test Amount. “Excess Third Milestone Concentration Amount” means as of any date of determination, the amount, if any, by which (a) the aggregate Principal Balance of all Eligible Receivables in the Receivable Pool as to which the related Solar Energy System has not yet achieved the Third Milestone, as of such date of determination, exceeds (b) 50.00% of the Excess Concentration Test Amount. “Excess Third Milestone (180) Concentration Amount” means as of any date of determination, the amount, if any, by which (a) the aggregate Principal Balance of all Eligible Receivables in the Receivable Pool as to which the related Solar Energy System has not yet achieved the Third Milestone and for which more than 180 days has elapsed since achieving the Second Milestone, as of such date of determination, exceeds (b) 5.00% of the Excess Concentration Test Amount. “Excess Weighted Average FICO Score Concentration Amount” means, as of any date of determination, to the extent the addition of a Receivable in the Receivables Pool causes the 751499193.15 22727329 25 Weighted Average FICO Score at time of origination for all Obligors of Eligible Receivables to be less than 740, the portion of the aggregate Principal Balance of all Eligible Receivables in the Receivable Pool attributable to all such Receivables causing such Weighted Average FICO Score to be below 740. “Excess Weighted Average Principal Balance Concentration Amount” means, as of any date of determination, to the extent the addition of a Receivable in the Receivables Pool causes the average Principal Balance Eligible Receivables to exceed $60,000, the portion of the aggregate Principal Balance of all Eligible Receivables in the Receivable Pool attributable to all such Receivables causing such average Principal Balance to exceed $60,000. “Excluded Taxes” means (i) any Taxes based upon, or measured by, any Affected Person’s net income, net receipts, net profits, net worth or capital (including franchise or similar Taxes imposed in lieu of such Taxes), including any such Taxes imposed by a taxing authority (a) in a jurisdiction (or political subdivision thereof) in which such Affected Person has its principal office, or under the laws of which such Affected Person is organized or incorporated, (b) in a jurisdiction (or political subdivision thereof) in which such Affected Person maintains the applicable lending office (or branch), (ii) any franchise Taxes, branch Taxes or branch profits Taxes or any similar Taxes imposed by any jurisdiction (or political subdivision thereof) described in clause (i), (iii) with regard to any Lender, any withholding Tax to the extent it is (a) imposed on amounts payable to such Lender because such Lender designates a new lending office, except to the extent that such Lender was entitled, at the time of designation of a new lending office, to receive amounts in respect of such Taxes from any of the Borrower, Compass or the Servicer, as applicable, pursuant to Section 4.03, (b) attributable to such Affected Person’s failure to comply with Section 4.03(v), or (c) imposed on amounts payable to such Lender with respect to an applicable interest in Pool Receivables or Related Assets pursuant to a law in effect on the date on which such Lender acquires such interest (other than pursuant to an assignment request by the Borrower under Section 4.04(b)), except to the extent that, in the case of an assignment to such Lender, such Lender’s assignor was entitled, immediately before the time of such assignment, to receive amounts in respect of such Taxes from the Borrower, Compass or the Servicer, as applicable, pursuant to Section 4.03, and (iv) any FATCA Withholding Tax. For the avoidance of doubt, Excluded Taxes shall include any backup withholding in respect of income or branch profits under Section 3406 of the Code or any similar provision of state, local or foreign law. “Exiting Lender” is defined in Section 2.05. “Extension Request” is defined in Section 2.05. “Facility Limit” means, at any time of determination, the aggregate Lender Loan Limits of all Lenders, which as of the Closing Date is equal to $300,000,000.00. “FATCA” means Sections 1471 through 1474 of the Code and the current or future U.S. Treasury Regulations issued thereunder, as the same may be amended, modified, or supplemented from time to time (so long as any future, amended, modified, supplemented, or successor version is substantively comparable and not materially more onerous to comply with), corresponding provisions of successor Law, official interpretations thereof, and any agreements entered into pursuant to Section 1471(b) of the Code and any published intergovernmental agreements entered 751499193.15 22727329 26 into in connection with the implementation of such Sections of the Code and any fiscal or regulatory legislation, rules, or practices adopted pursuant to any such intergovernmental agreement. “FATCA Withholding Tax” means any withholding Tax imposed under FATCA. “Federal Funds Rate” means, for any period, a fluctuating interest rate per annum, determined by the Administrative Agent, equal (for each day during such period) to: (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. “Federal Reserve Board” means the Board of Governors of the Federal Reserve System, or any entity succeeding to any of its principal functions. “Fee Letters” means any fee letter among any of the Borrower or Compass, on the one hand, and the Administrative Agent, the Collateral Agent, or the Group Agents, on the other hand, setting out the fees and expenses payable in connection with this Agreement or other Transaction Documents. “Fees” means all fees payable by the Borrower pursuant to any Fee Letter, including the Funded Fee. “FICO Score” means, with respect to the Obligor of a Receivable, the statistical credit score of such Obligor based on methodology developed by Fair Isaac Corporation and used by the Originator or its agents to determine credit risk when underwriting such Contract. For purposes of clarification, the “FICO Score” of any Obligor shall mean the FICO Score as in effect on the date that such Obligor under such Receivable was underwritten in accordance with the Credit and Collection Policies. “Final Payout Date” means the date on or after the Termination Date when (i) the Aggregate Principal and Aggregate Interest have been paid in full, (ii) all non-contingent Borrower Obligations then owed by the Borrower shall have been paid in full, (iii) all other non-contingent amounts then owing to the Credit Parties and any other Indemnified Party or Affected Person hereunder and under the other Transaction Documents have been paid in full, and (iv) all accrued Servicing Fees (other than those payable to Compass or an Affiliate of Compass) have been paid in full. “Floor” means the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of this Agreement, the modification, amendment or renewal of this Agreement or otherwise) with respect to the Benchmark. For the avoidance of doubt, the Floor as of the Closing Date is zero (0.00%) per annum. 751499193.15 22727329 27 “Funded Fee” is defined in the related Fee Letter. “Funded Fee Percentage” is defined in the related Fee Letter. “GAAP” means generally accepted accounting principles in the United States of America, consistently applied; provided, however, that if any Person hereafter changes its accounting standards in accordance with applicable laws and regulations, including those of the SEC, to adopt International Financial Reporting Standards, GAAP with respect to such Person will mean such International Financial Reporting Standards after the effective date of such adoption. “Governmental Authority” means the government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank). “Group” means, (i) for any Conduit Lender, such Conduit Lender, together with such Conduit Lender’s Related Lenders and related Group Agent, (ii) for Mizuho, Mizuho as a Lender and as a Group Agent, (iii) for any other Lender that does not have a Related Conduit Lender, such Lender, together with such Lender’s related Group Agent and each other Lender for which such Group Agent acts as a Group Agent hereunder. “Group Agent” means each Person acting as agent on behalf of a Group and designated as the Group Agent for such Group on the signature pages to this Agreement or any other Person who becomes a party to this Agreement as a Group Agent for any Group pursuant to an Assignment and Acceptance Agreement or otherwise in accordance with this Agreement. “Group Agent’s Account” means, with respect to any Group, the account(s) from time to time designated in writing by the applicable Group Agent to the Administrative Agent, the Borrower and the Servicer for purposes of receiving payments to or for the account of the members of such Group hereunder. “Group Loan Limit” means, with respect to any Group, at any time of determination, the aggregate Lender Loan Limits of all Lenders within such Group. “Guarantee” by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise), or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business or customary and reasonable indemnity obligations incurred in the ordinary course of business. The term “Guarantee” used as a verb has a corresponding meaning.
751499193.15 22727329 28 “Hedge Agreements” means the interest rate protection agreements entered into by the Borrower in accordance with Exhibit I. “Hedge Counterparty” means, with respect to any Hedge Agreement, the counterparty to such Hedge Agreement. “Hedge Fixed Rate” means, with respect to any Hedge Agreement or Hedge Transaction, (a) if the applicable Hedge Agreement is an interest rate swap, the fixed rate payable under such swap, and (b) if the applicable Hedge Agreement is an interest rate cap, the threshold rate above which payments are made by the Hedge Counterparty thereunder. “Hedge Notional Amount” means the aggregate notional amount in effect on any day under all Hedge Transactions entered into pursuant to Exhibit I. “Hedge Termination Payment” means, with respect to a particular Hedge Agreement, the payment due by the Borrower to the Hedge Counterparty, including any interest that may accrue thereon, calculated in accordance with the provisions in the Hedge Agreement for determining an “early termination amount” upon the occurrence of an “early termination date” under such Hedge Agreement. “Hedge Transaction” means each interest rate swap transaction or interest rate cap transaction between the Borrower and a Hedge Counterparty which is entered into pursuant to Exhibit I and is governed by a Hedge Agreement. “Indemnified Amounts” has the meaning set forth in Section 11.01. “Indemnified Party” has the meaning set forth in Section 11.01. “Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made or deemed made by or on account of any obligation of the Borrower (or the Servicer on behalf of the Borrower) under any Transaction Document, and (b) Other Taxes. “Independent Manager” means a natural person who (I) is not at the time of initial appointment, or at any time while serving as Independent Manager of the Borrower, and has not been at any time during the preceding five (5) years: (a) a member, partner, equityholder, manager, director, officer or employee of Compass or the Parent, or any of their respective Affiliates (other than as special member, independent director, independent manager, or similar capacity, of the Borrower or any Affiliate of the Borrower that is a securitization vehicle or is similarly structured to be a special purpose bankruptcy remote entity); (b) a creditor, supplier, service provider (including a provider of professional services) or any other Person who derives any material portion of its revenues from its activities with the Borrower, the Parent, or Compass or any of their respective Affiliates (other than as a provider of corporate services in the ordinary course of business or as special member, independent director, independent manager, or similar capacity, of the Borrower or any Affiliate of the Borrower that is a securitization vehicle or is similarly structured to be a special purpose bankruptcy remote entity); or (c) a member of the immediate family of any such disqualified Person described in clauses (a) or (b) above and (II) (1) has prior experience as a special member, independent director, independent manager or similar capacity for an entity that is a securitization vehicle or is similarly structured to be a special purpose 751499193.15 22727329 29 bankruptcy remote entity whose Constituent Documents required the unanimous consent of all independent managers before such entity could consent to the institution of bankruptcy or insolvency proceedings against it or could file a petition seeking relief under any applicable federal or state law relating to bankruptcy, and (2) has at least three years of employment experience with one or more entities that provide, in the ordinary course of their respective businesses, advisory, management, or placement services to issuers of securitization or structured finance instruments, agreements, or securities, including, without limitation, Citadel SPV (USA) LLC, Corporation Service Company, CT Corporation, Lord Securities Corporation, Wilmington Trust, National Association or Wilmington Trust SP Services, Inc. “Information” is defined in Section 12.06. “Information Package” is defined in Section 3.01. “Insolvency Proceeding” means (a) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, (b) any general assignment for the benefit of creditors of a Person, composition, marshaling of assets for creditors of a Person, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors, in each of cases (a) and (b) undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. “Interest” means, for any day with respect to any Rate Tranche: {(LTP x IR)/360} + LF where: IR = the Interest Rate for such Rate Tranche on such day; LTP = Lenders’ Tranche Principal in such Rate Tranche on such day; and LF = the Liquidation Fee, if any, for such day. “Interest Period” means for any Rate Tranche, the period from and including the Closing Date to and excluding the first Settlement Date occurring hereunder, and thereafter, each period from and including each Settlement Date and to but excluding the immediately following Settlement Date. “Interest Rate” means for any Rate Tranche on any day: (a) in the case of a Rate Tranche funded by a Conduit Lender through the issuance of Commercial Paper Notes, the applicable CP Rate; (b) in the case of a Rate Tranche not funded by Commercial Paper Notes, the applicable Bank Rate for such Rate Tranche (or, in accordance with Section 2.06(f) or Section 2.07, the applicable Base Rate); 751499193.15 22727329 30 provided, that on any day when any Event of Termination shall have occurred that remains continuing the applicable Interest Rate for each Rate Tranche means a rate per annum equal to the higher of (A) the applicable Base Rate, plus 2.00% per annum and (B) the rate per annum otherwise applicable to such Rate Tranche during the current Interest Period or Settlement Period, as applicable plus 2.00% per annum. “Investment Company Act” means the Investment Company Act of 1940, as amended or otherwise modified from time to time. “IRS” means the United States Internal Revenue Service. “Largest State” means, as of any date of determination, the state (or commonwealth) in the United States, in respect of which the largest amount of aggregate Principal Balance of Eligible Receivables in the Receivable Pool in respect of Obligors with Billing Addresses in such state (or commonwealth) relate. “Law” means any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree, judgment, award, or similar item of or by a Governmental Authority or any interpretation, implementation or application thereof. “Lender Loan Limit” means, with respect to any Lender, the maximum aggregate amount which such Person may lend or pay hereunder on account of all Loans, on a combined basis, as set forth on Schedule I or in the other agreement pursuant to which it became a Lender, as such amount may be modified in connection with any subsequent assignment pursuant to Section 12.03. “Lenders” means Mizuho and each other Person that is or becomes a party to this Agreement in the capacity of a “Lender”. Each Conduit Lender shall constitute a Lender for all purposes of this Agreement. “Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), preference, priority, or other security agreement or preferential arrangement of any kind or nature whatsoever, including any conditional sale or other title retention agreement and any financing lease having substantially the same economic effect as any of the foregoing. “Liquidation Fee” means, as of any date of determination (other than a Settlement Date) on which a Lender’s Tranche Principal is reduced pursuant to Section 3.02(b), for each Rate Tranche (or portion thereof) so reduced, the amount, if any (without duplication of any amounts payable pursuant to Section 4.02), by which: (a) the additional Interest (without duplication and without regard to the Liquidation Fee component thereof) which would have accrued on the portion of such Lender’s Tranche Principal so reduced, if such reductions had not been made until the next Settlement Date, exceeds (b) the greater of (x) the actual income, if any, received by the affected Lender for the corresponding period from investing the proceeds of such reductions of such Lender’s Tranche Principal and (y) zero. 751499193.15 22727329 31 “Liquidity Agreement” means any agreement entered into, directly or indirectly, in connection with or related to, this Agreement pursuant to which a Liquidity Provider agrees to make loans or advances to, or purchase assets from, a Conduit Lender (directly or indirectly) in order to provide liquidity or other enhancement for such Conduit Lender’s Commercial Paper Notes or other senior indebtedness. “Liquidity Provider” means any lender, credit enhancer, or liquidity provider that is at any time party to a Liquidity Agreement or any successor or assign of such lender, credit enhancer, or liquidity provider or any similar entity with respect to any permitted assignee of a Conduit Lender. “Loan” means any loan made by a Lender pursuant to Section 2.02. “Loan Request” means a letter in substantially the form of Exhibit A hereto executed and delivered by the Borrower to the Administrative Agent and the Group Agents pursuant to Section 2.02(a). “Lock-Box” means a post office box maintained by a Lock-box Bank relating to a Collection Account. “Lock-Box Bank” means any of the banks party to a Lock-box agreement. “Losses” means the aggregate Principal Balance (net of recoveries) of any Pool Receivables that have been, or should have been, written-off as uncollectible by the Servicer in accordance with the Credit and Collection Policies. “Manufacturer’s Warranty” means the warranty given by a manufacturer of any part or component of the Solar Energy System. “Material Adverse Effect” means with respect to any event or circumstance, a material adverse effect on: (a) (i) if a particular Person is specified, the ability of such Person to perform its obligations under this Agreement or any other Transaction Document, or (ii) if a particular Person is not specified, the ability of any ADT Entity or the Servicer to perform its respective obligations under this Agreement or any other Transaction Document; (b) (i) the validity or enforceability of any Transaction Document, or (ii) the value, validity, enforceability, or collectability of all or any portion of Pool Receivables or the Related Assets with respect thereto; (c) the assets, operations, business or financial condition of any ADT Entity; or (d) the status, existence, perfection, priority, enforceability, or other rights and remedies of any Lender, the Collateral Agent or the Administrative Agent associated with its respective interest in the Pool Receivables or the Related Assets; provided, that no Material Adverse Effect shall be deemed to have occurred if any event or circumstance, individually or in the aggregate, has a material adverse effect as set forth above on
751499193.15 22727329 32 only an insignificant portion of the Pool Receivables and the Related Assets, and after the occurrence of such event or circumstance, the Aggregate Principal does not exceed the Borrowing Base. “Material Subsidiary” means, in respect of any Person, any Subsidiary of such Person that satisfies (or would have satisfied) the definition of “Material Subsidiary” in the ADT Credit Agreement as such definition is in effect on the Closing Date. “Maturity Date” means the earlier of (a) the Acceleration Date, and (b) the date which is 300 months after the Scheduled Termination Date. “Milestone” means, with respect to any Solar Energy System, (i) the equipment order and project plan for such Solar Energy System is approved by the related Obligor and an Approved Installer (the “First Milestone”), (ii) the complete installation of the Solar Energy System by an Approved Installer as certified by such Approved Installer through an installation completion certificate which shall include evidence that such Solar Energy System has been tested and shown capable of operating in a reliable and continuous manner for its intended purpose (the “Second Milestone”) and (iii) the receipt of a completed inspection certificate issued by the applicable Governmental Authority and receipt of a formal permission to operate letter (or its functional equivalent) (the “PTO”) issued by the relevant utility entity with respect to such Solar Energy System (the “Third Milestone”). “Minimum Excess Spread” means 0.50%. “Mizuho” has the meaning set forth in the preamble to this Agreement. “Monthly Collections” means, with respect to each Settlement Date, the aggregate amount of Collections deposited to the Payment Account during the immediately preceding Settlement Period, plus any Deemed Collections with respect to such Settlement Period deposited to the Payment Account three (3) Business Days prior to such Settlement Date as required pursuant to Section 3.02. “Moody’s” means Moody’s Investors Service, Inc. and any successor thereto that is a nationally recognized statistical rating organization. “Multiemployer Plan” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA to which any ADT Entity or any ERISA Affiliates contributes, is obligated to contribute or has any liability. “Non-Consenting Lender” is defined in Section 4.04(b). “Non-Public Obligor Data” means all Obligor Information that may constitute nonpublic and/or personal information protected under the Privacy Requirements. “Obligations” means Borrower Obligations and ADT Obligations. “Obligor” means a Person obligated to make payments under a Contract with respect to a Receivable, including any guarantor thereof. 751499193.15 22727329 33 “Obligor Information” means any personally identifiable information or records in any form (oral, written, graphic, electronic, machine-readable, or otherwise) relating to an Obligor, including but not limited to: an Obligor’s name, address, telephone number, account number, or transactional account history, account status; the fact that the Obligor has a relationship with Compass or any of its Affiliates; and any other personally identifiable information, in each case, other than any such information provided in a manner that does not personally identify such Obligor and in compliance with applicable Privacy Requirements. “Original Term” means, with respect to any Receivable, the total number of months over which monthly installment payments are due under the related Contract. “Originator” means Compass in its capacity as Originator under the Sale Agreement. “Other Connection Taxes” means, with respect to an Affected Person, Taxes imposed as a result of a present or former connection between the Affected Person and the jurisdiction imposing such Tax (other than connections arising from the Affected Person having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Transaction Document, or sold or assigned an interest in any Loan or Transaction Document). “Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing and other similar Taxes payable or determined to be payable in connection with the execution, delivery, filing, recording, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, this Agreement or the other Transaction Documents, or with respect to the Pool Receivables, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than pursuant to an assignment request by the Borrower under Section 4.04(b)). “Parent” means ADT Inc., a Delaware corporation. “Participant” has the meaning set forth in Section 12.03(b). “Participant Register” has the meaning set forth in Section 12.03(b). “Paydown Notice” means a notice in substantially the form of Exhibit H hereto executed and delivered by the Borrower to the Agents pursuant to Section 3.02(b). “Payment Account” means the segregated account of the Borrower described as such on Schedule II and any successor account maintained with an Eligible Bank in accordance with Section 3.04. “Payment Recipient” has the meaning assigned to it in Section 10.12(a). “PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. “Performance Guarantee Claim Ratio” means, with respect to any Settlement Period, a ratio (expressed as a percentage) calculated as (i) the sum of the aggregate Principal Balance of all 751499193.15 22727329 34 Pool Receivables that constitute Eligible Receivables that are subject to payments, or rights to payments, related to performance guarantees entered into with the related Obligors as of the Cut- off Date for such Settlement Period, divided by (ii) the aggregate Principal Balance of all Pool Receivables that constitute Eligible Receivables as of the Cut-off Date for such Settlement Period. “Performance Support Agreement” means the Performance Support Agreement, dated on or about the Closing Date, among the Parent, the Administrative Agent and the Collateral Agent, in form and substance acceptable to the Collateral Agent, the Administrative Agent and the Required Lenders. “Periodic Term SOFR Determination Day” has the meaning specified in the definition of “Term SOFR”. “Permitted Adverse Claims” means any Lien (a) created under the Transaction Documents in favor of the Lenders, the Collateral Agent, the Administrative Agent, the Affected Persons, and the Group Agents, (b) created under the Sale Agreement in favor of the Borrower, (c) with respect to the Related Assets, imposed by law, such as materialmen’s, warehousemen’s, mechanics’, carriers’, workmen’s and repairmen’s Liens or (d) as to which no enforcement collection, execution, levy, or foreclosure proceeding shall have been commenced or threatened and that solely secure the payment of taxes, assessments and/or governmental charges or levies, if and to the extent the same are either (x) not yet due and payable, or (y) being contested in good faith and as to which adequate reserves have been provided in accordance with GAAP, but, in any case, only to the extent that such Lien securing payment of such taxes or assessments or other governmental charges constitutes an inchoate tax lien. “Permitted Lien Filings” has the meaning set forth in Section 6.01(j). “Person” means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof. “Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which any ADT Entity or any ERISA Affiliate thereof is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA. “Pool Deficiency Amount” means as of any time of determination, an amount equal to the sum, without duplication, of (i) the amount, if any, necessary to reduce the Aggregate Principal at such time to an amount equal to the Borrowing Base at such time, plus (ii) the amount, if any, which is necessary to reduce the aggregate Principal of all Exiting Lenders to zero, plus (iii) the amount, if any, necessary to reduce the Aggregate Principal to an amount equal to the Facility Limit, plus (iv) the amount, if any, necessary to reduce each Group’s aggregate Principal to an amount equal to the related Group Loan Limit. “Pool Receivable” means a Receivable in the Receivable Pool. 751499193.15 22727329 35 “Prime Rate” means a rate per annum equal to the rate of interest quoted in the print edition of The Wall Street Journal, Money Rates Section as the USA “Prime Rate”, as published for such day (or, if such day is not a Business Day, for the preceding Business Day), or, if such rate is not so published for any day which is a Business Day, the rate announced by the Administrative Agent from time to time as its prime rate of interest at its principal office in New York, New York, such rate to change as and when such designated rate changes. “Principal” means, with respect to any Lender, the aggregate principal amount of all Loans made to the Borrower by such Lender pursuant to Article II, as reduced from time to time by Collections distributed and applied on account of such Principal pursuant to Section 3.01; provided, that if such Principal shall have been reduced by any distribution and thereafter all or a portion of such distribution is rescinded or must otherwise be returned for any reason, such Principal shall be increased by the amount of such rescinded or returned distribution as though it had not been made. “Principal Balance” means, with respect to a Receivable, as of any date of determination, the outstanding principal amount thereof, excluding any capitalized interest. “Privacy Requirements” means (i) Title V of the Gramm-Leach-Bliley Act, 15 U.S.C. § 6801 et seq.; (ii) federal regulations implementing such act and codified at 12 C.F.R. Part 1016 and 16 C.F.R. Part 313; (iii) Interagency Guidelines Establishing Standards For Safeguarding Obligor Information and codified at 12 C.F.R. Parts 30, 208, 211, 225, 263, 308, 364, 568, and 570, and 16 C.F.R. Part 314; (iv) the Health Insurance Portability and Accountability Act of 1996, 29 U.S.C. § 1181 et seq.; (v) the California Consumer Privacy Act of 2018, CAL. CIV. CODE § 1798.100 et seq. and implementing regulations and (vi) other applicable federal, state and local laws, rules, regulations, and orders relating to the privacy and security of Obligor Information including, but not limited to, information security requirements promulgated by the Massachusetts Office of Consumer Affairs and Business Regulation and codified at 201 C.M.R. Part 17.00. “Program Administration Agreement” means that certain administration agreement between a Conduit Lender and Program Administrator governing certain aspects of the administration of such Conduit Lender’s commercial paper facility or any other agreement having similar purposes, as in effect from time to time. “Program Administrator” means, with respect to any Conduit Lender, the administrator designated for such Conduit Lender under its Program Administration Agreement. “Program Information” is defined in Section 12.08. “Program Support Provider” means, with respect to a Conduit Lender, any Enhancement Provider, any Liquidity Provider and any bank, insurance company or other funding institution providing liquidity, credit enhancement or back-up purchase support or facilities to such Conduit Lender. “Ratable Share” means, for any Group, (x) at any time prior to the Termination Date, a percentage equal to (a) the Group Loan Limit of such Group divided by (b) the Facility Limit and (y) at any time from and after the Termination Date, zero.
751499193.15 22727329 36 “Rate Tranche” means, at any time, a portion of a Lender’s Principal selected by the applicable Group Agent pursuant to Section 2.03 and designated as a Rate Tranche solely for purposes of computing Interest. “Receivable” means any right to payment from a Person, whether constituting an account, chattel paper, instrument, or a general intangible (as such terms are defined under the UCC), arising from the financing of the sale and installation costs of a Solar Energy System by Compass pursuant to a Contract and including any payment obligations of such Person with respect thereto; provided, however that no right to payment or other indebtedness owing by a Sanctioned Person shall (i) constitute a Receivable, (ii) be deemed to have been sold or contributed to the Borrower by Compass pursuant to the Sale Agreement, or (iii) pledged hereunder by the Borrower. “Receivable Pool” means at any time all of the outstanding Receivables that have been sold, assigned, contributed or otherwise transferred to the Borrower from time to time pursuant to the Sale Agreement (including all “Transferred Receivables” as defined in the Sale Agreement). “Records” means all Contracts, Required Loan Documents and other documents, instruments, books, records, purchase orders, agreements, reports, and other information (including computer programs, tapes, disks, other information storage media, data processing software, and related property and rights) prepared or maintained by Compass, the Servicer, or the Borrower, respectively, with respect to the Pool Receivables, the Related Assets and the Obligors of such Pool Receivables. For the avoidance of doubt, “Records” shall include any Chattel Paper (tangible or electronic) evidencing any Pool Receivables. “Register” has the meaning set forth in Section 12.03(e). “Related Assets” means (a) with respect to any Pool Receivable, (w) the Required Loan Documents and all other agreements or documents evidencing, securing, guarantying, governing or giving rise to such Receivable, including, without limitation, any third party guarantees, any other credit enhancement rights, the home improvement or installation contract for the Solar Energy System that is the subject of such Pool Receivable along with any installation completion certificate, final permit(s) and evidence of PTO and any agreement between Compass and an Approved Installer related to the Approved Installer’s performance under any prepaid operations and/or maintenance agreements and payments related to performance guarantees entered into with an Obligor (collectively, the “Related Documents”), (x) all security interests, hypothecations, reservations of ownership, liens, or other Adverse Claims, and property subject thereto from time to time purporting to secure payment of such Pool Receivable, including pursuant to the Contract pursuant to which such Pool Receivable was originated, together with all financing statements, registrations, hypothecations, charges, or other similar filings or instruments against an Obligor and all security agreements describing any collateral securing such Pool Receivable, if any, (y) all interest in any Solar Energy Equipment relating to any Contract giving rise to such Pool Receivable in respect of which such Solar Energy Equipment is sold or purported to be sold and installed by an Approved Installer, including without limitation, the right to repossess such Solar Energy Equipment, and (z) all guarantees, insurance policies, and other agreements or arrangements of whatsoever character from time to time supporting of such Pool Receivable whether pursuant to the Contract pursuant to which such Pool Receivable was originated, including any obligation of any party under the Transaction Documents to promptly deposit amounts received in respect of 751499193.15 22727329 37 Collections to an account, (b) all Collections in respect of, and other proceeds of, such Pool Receivable in respect of the period from and after the Cut-off Date immediately preceding the Transfer Date relating to such Pool Receivables, (c) all rights and remedies (but none of the obligations) of the Borrower under the Sale Agreement and the other Transaction Documents and any other rights or assets pledged, sold, or otherwise transferred to the Borrower thereunder, and (d) all the products and proceeds of any of the foregoing; provided, that the term “Related Assets” when used to refer to the Related Assets sold, assigned, contributed or transferred to the Borrower under the Sale Agreement shall refer to such term as defined in the Sale Agreement; provided, however, that all parties acknowledge and agree that such Related Assets (if provided other than to the Servicer, any sub-servicer or the eVault Provider) will exclude the related Obligor Information (it being understood that this restriction shall not prevent the collateral due diligence process described in Section 7.05(f). “Related Conduit Lender” means, with respect to any Lender, each Conduit Lender which is, or pursuant to any Assignment and Acceptance Agreement or otherwise pursuant to this Agreement becomes, included as a Conduit Lender in such Lender’s Group, as designated on its signature page hereto or in such Assignment and Acceptance Agreement or other agreement executed by such Lender, as the case may be. “Related Lender” means with respect to any Conduit Lender, each Lender listed as a Related Lender for each Conduit Lender as set forth on the signature pages of this Agreement or in any Assignment and Acceptance Agreement. “Relevant Governmental Body” means the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York, or any successor thereto. “Remaining Term” means, as of any date of determination, with respect to any Receivable, the number of remaining unpaid monthly installment payments due under the related Contract for the payment of the Principal Balance and interest following such date of determination. “Reporting Date” is defined in Section 3.01. “Required Lenders” means, at any time, Lenders whose aggregate Principal at such time aggregate to more than 50.00% of the Lenders’ Aggregate Principal at such time; provided, however, that if at such time any Lender is a Defaulting Lender, the Principal of such Defaulting Lender shall be disregarded for purposes of determining the Required Lenders unless such Defaulting Lender is the sole Lender or all Lenders are Defaulting Lenders. “Required Loan Documents” means, for each Receivable, the following documents or instruments: (a) the single authoritative copy of the electronic record that evidences the Contract governing such Receivable; 751499193.15 22727329 38 (b) regulatory disclosure statements applicable to such Receivable, including “truth in lending”, “Gramm-Leach-Bliley” and “ECOA and FCRA” disclosures; (c) authorization for payment by ACH (if applicable); and (d) UCC financing statements and fixture disclaimer filings covering the Solar Energy Equipment that is the subject of such Receivable (provided that prior to receipt of proof of filing, proof of submission of such statements for recording shall be sufficient); provided, however, that all parties acknowledge and agree that (i) copies of such Required Loan Documents (if provided other than to the Servicer, any sub-servicer or the eVault Provider) will exclude the related Obligor name, address, social security number and other personally identifiable information and will instead be referenced by a loan number so as to comply with regulations regarding protection of personally identifiable information (it being understood that this restriction shall not prevent the collateral due diligence process described in Section 7.05(f) or a Servicer transfer following an Event of Termination) and (ii) only the item described in clause (a) of this definition of “Required Loan Documents” will be delivered to the eVault and only such item shall constitute “Required Loan Documents” for purposes of delivery to the eVault. The items described in clauses (b) and (c) of the definition of “Required Loan Documents” will be retained by the Servicer on its systems and records for the benefit of the Borrower and the Secured Parties. “Reserve Account” means the segregated account of the Borrower described as such on Schedule II and any successor account maintained with an Eligible Bank in accordance with Section 3.04. “Reserve Account Available Amount” means, at any time, the amount on deposit in the Reserve Account. “Reserve Account Required Amount” means, as of any date of determination, an amount equal to (1) the product of (a) the outstanding principal balance of all Loans as of such date times (b) 1.00% minus (2) the Supporting LC Amount; provided, however, that if there are no Obligations outstanding hereunder, the Reserve Account Required Amount shall equal zero. “Reserve Account Withdrawal Amount” has the meaning specified in Section 3.04(b). “Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority. “Response Date” is defined in Section 2.05. “Responsible Officer” means in respect of an ADT Entity or the Servicer any executive officer, assistant treasurer, treasurer, or controller of such ADT Entity, and any other officer of such ADT Entity or the Servicer, as the case may be, responsible for the administration of this Agreement. “Retained Interest” has the meaning set forth in Section 12.19. 751499193.15 22727329 39 “S&P” means S&P Global Ratings and any successor thereto that is a nationally recognized statistical rating organization. “Sale Agreement” is defined in the Preliminary Statements. “Sanctioned Country” means, at any time, a country or territory which is the subject or target of any Sanctions, including, without limitation, as of the date hereof, Cuba, Crimea (Ukraine), the so-called Donetsk People’s Republic, the so-called Luhansk People’s Republic, the Kherson Region of Ukraine, the Zaporizhzhia Region of Ukraine, Iran, Sudan, Syria, and North Korea. “Sanctioned Person” means, at any time, (a) any Person currently the subject or the target of any Sanctions, including any Person listed in any Sanctions-related list of designated Persons maintained by OFAC (or any successor thereto) or the U.S. Department of State, available at: http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx, or as otherwise published from time to time; (b) that is fifty-percent or more owned, directly or indirectly, in the aggregate by one or more Persons described in clause (a) above; (c) that is operating, organized or resident in a Sanctioned Country; (d) with whom engaging in trade, business, or other activities is otherwise prohibited or restricted by Sanctions; or (e) (i) an agency of the government of a Sanctioned Country, (ii) an organization controlled by a Sanctioned Country, or (iii) a person resident in a Sanctioned Country, to the extent subject to a sanctions program administered by OFAC. “Sanctions” is defined in Section 6.01(y)(ii). “Sanctions Laws” is defined in Section 6.01(y)(ii). “Scheduled Payment” means, with respect to a Receivable for each Due Date, a scheduled payment of principal and/or interest due on such Due Date. “SEC” means the U.S. Securities and Exchange Commission. “Second Largest State” means, as of any date of determination, the state (or commonwealth) in the United States, in respect of which the second largest amount of aggregate Principal Balance of Eligible Receivables in the Receivable Pool in respect of Obligors with Billing Addresses in such state (or commonwealth) relate. “Securities Exchange Act” means the United States Securities Exchange Act of 1934, as amended. “Secured Parties” means each Credit Party, each Indemnified Party and each Affected Person. “Senior Hedge Termination Payment” means any Hedge Termination Payment owed by the Borrower to the Hedge Counterparty under a Hedge Agreement that is not a Subordinated Hedge Termination Payment. “Servicer” has the meaning set forth in the preamble to this Agreement.
751499193.15 22727329 40 “Servicing Fee” means in respect of the Receivable Pool, for any day, an amount equal to the product of (i) the Servicing Fee Rate, times the aggregate Principal Balance of all Pool Receivables at the end of such day, and (ii) 1/360. “Servicing Fee Rate” means 0.35%. “Set-off Party” is defined in Section 12.04. “Settlement Date” means (a) the twentieth (20th) day of each calendar month (or, if such day is not a Business Day, the immediately succeeding Business Day), and (b) on and after the Acceleration Date, each additional day selected from time to time by the Administrative Agent (it being understood that the Administrative Agent may select such Settlement Date to occur daily); provided, that the first Settlement Date shall be September 20, 2023; provided, further, that the last Settlement Date shall be the Final Payout Date. “Settlement Period” means each calendar month; provided, that the last Settlement Period shall end on the Final Payout Date. “SOFR” means a rate equal to the secured overnight financing rate as administered by the SOFR Administrator. “SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate). “SOFR Administrator’s Website” means the website of the Federal Reserve Bank of New York, currently at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR Administrator from time to time. “SOFR Rate Day” has the meaning specified in the definition of “Daily Simple SOFR”. “Solar Energy Equipment” means (i) residential solar power generation and/or storage systems, including, without limitation, solar panels or modules, inverter(s), electricity storage, charging, and/or energy efficient monitoring equipment (including batteries and automobile charging equipment) and/or (ii) an electricity storage unit on a standalone basis. “Solar Energy System” means (i) the Solar Energy Equipment (including any prepaid operations and/or maintenance agreements offered by an Approved Installer) and any related landscaping, roofing or re-roofing, wiring, electrical system upgrades and/or any other related equipment or services installed at a premises and, if applicable, (ii) any other additional equipment, services or other home improvements installed at a premises. “Solvent” means, as to any Person, such Person is not “insolvent” within the meaning of Section 101(32) of the Bankruptcy Code or Section 271 of the Debtor and Creditor Law of the State of New York. “Structuring Agent” means Mizuho, in its capacity as structuring agent for the transactions contemplated by this Agreement and the other Transaction Documents. 751499193.15 22727329 41 “Subordinated Hedge Termination Payment” means any Hedge Termination Payment owed by the Borrower to the Hedge Counterparty under a Hedge Agreement where the Hedge Counterparty is the “defaulting party” or sole “affected party” (other than with respect to “illegality” or a “tax event”), as each such term is defined in such Hedge Agreement. “Subsidiary” means, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock of each class or other interests having ordinary voting power (other than stock or other interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such entity are at the time owned, or management of which is otherwise controlled: (a) by such Person, (b) by one or more Subsidiaries of such Person or (c) by such Person and one or more Subsidiaries of such Person. “Successor Notice” is defined in Section 8.01. “Supporting LC Amount” means, at any time of determination and subject to Section 7.09, the aggregate amount available to be drawn by the Administrative Agent under Supporting Letters of Credit that are, at such time, Eligible Supporting Letters of Credit. “Supporting LC Draw Proceeds” means the proceeds received in immediately available funds by the Administrative Agent from drawings made under any Supporting Letters of Credit or any other letters of credit that name the Administrative Agent as the beneficiary thereof. “Supporting Letter of Credit” is defined in Section 7.09. “Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto. “Term SOFR” means, (a) for any calculation with respect to a Benchmark Loan, the Term SOFR Reference Rate for a tenor comparable to the applicable Interest Period on the day (such day, the “Periodic Term SOFR Determination Day”) that is two (2) U.S. Government Securities Business Days prior to the first day of such Interest Period, as such rate is published by the Term SOFR Administrator; provided, however, that if as of 5:00 p.m. (New York City time) on any Periodic Term SOFR Determination Day the Term SOFR Reference Rate for the applicable tenor has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Reference Rate has not occurred, then Term SOFR will be the Term SOFR Reference Rate for such tenor as published by the Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate for such tenor was published by the Term SOFR Administrator so long as such first preceding U.S. Government Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such Periodic Term SOFR Determination Day, and (b) for any calculation with respect to an Base Rate Loan on any day, the Term SOFR Reference Rate for a tenor of one month on the day (such day, the “Term SOFR Determination Day”) that is two (2) U.S. Government Securities Business Days prior to such day, as such rate is 751499193.15 22727329 42 published by the Term SOFR Administrator; provided, however, that if as of 5:00 p.m. (New York City time) on any Term SOFR Determination Day the Term SOFR Reference Rate for the applicable tenor has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Reference Rate has not occurred, then Term SOFR will be the Term SOFR Reference Rate for such tenor as published by the Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate for such tenor was published by the Term SOFR Administrator so long as such first preceding U.S. Government Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such Term SOFR Determination Day; provided, further, that if Term SOFR determined as provided above (including pursuant to the proviso under clause (a) or clause (b) above) shall ever be less than the Floor, then Term SOFR shall be deemed to be the Floor. “Term SOFR Administrator” means CME Group Benchmark Administration Limited (CBA) (or a successor administrator of the Term SOFR Reference Rate selected by the Administrative Agent in its reasonable discretion). “Term SOFR Determination Day” has the meaning specified in the definition of “Term SOFR”. “Term SOFR Reference Rate” means the forward-looking term rate based on SOFR. “Termination Date” means the earlier to occur of (a) August 2, 2024 (the “Scheduled Termination Date”), and (b) the occurrence of an Event of Termination. “Third Largest State” means, as of any date of determination, the state (or commonwealth) in the United States, in respect of which the third largest amount of aggregate Principal Balance of Eligible Receivables in the Receivable Pool in respect of Obligors with Billing Addresses in such state (or commonwealth) relate. “Third Milestone Ratio” means, with respect to any Settlement Period, a ratio (expressed as a percentage) calculated as (i) the sum of the aggregate Principal Balance of all Eligible Receivables that have not achieved the Third Milestone and for which more than 90 days have elapsed since the earliest of (x) completion of the First Milestone and (y) the Transfer Date as of the Cut-off Date for such Settlement Period, divided by (ii) the aggregate Principal Balance of all Pool Receivables that constitute Eligible Receivables as of the Cut-off Date for such Settlement Period. “Tranche Principal” means in relation to any Rate Tranche and any Lender, the amount of such Lender’s Principal allocated by the related Group Agent to such Rate Tranche pursuant to Article II; provided, that at all times the aggregate amounts allocated to all Rate Tranches of all Lenders shall equal the Aggregate Principal; provided, further, that at all times the aggregate amounts allocated to all Rate Tranches in respect of any Lender shall equal the aggregate Principal of such Lender. “Transaction Documents” means (i) this Agreement, the Sale Agreement, each Hedge Agreement, the Fee Letters, each Control Agreement, the limited liability company agreement of 751499193.15 22727329 43 the Borrower, the Performance Support Agreement, the Collateral Control Agreement, all amendments, waivers and other modification to any of the above-referenced agreements executed and delivered by any ADT Entity, and (ii) each other agreement designated as a “Transaction Document” by the Administrative Agent, the Borrower and Compass. “Transfer” means a sale or contribution of Receivables and Related Assets by the Originator to the Borrower under the Sale Agreement. “Transfer Date” means the date on which a Transfer occurs under the Sale Agreement. “True Sale” means, with respect to any Receivable, the sale, contribution or transfer of an ownership interest in such Receivable (not the granting of a security interest therein), within the meaning of all applicable Law, including the Bankruptcy Code, which sale or transfer was not made with the intent to hinder, delay or defraud any present or future creditors and is not voidable or subject to avoidance under the Bankruptcy Code. “UCC” means the Uniform Commercial Code as from time to time in effect in the applicable jurisdiction. “UK Financial Institution” means any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended form time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain Affiliates of such credit institutions or investment firms. “UK Resolution Authority” means the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution. “Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment. “Unmatured Event of Termination” means an event that but for notice or lapse of time or both would constitute an Event of Termination. “USA PATRIOT Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L. No. 107 56 (signed into law October 26, 2001)). “U.S. Government Securities Business Day” means any day except for (a) a Saturday, (b) a Sunday or (c) a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities. “Voting Securities” of any Person means the stock or other ownership or equity interests, of whatever class or classes, the holders of which ordinarily have the power to vote for the election of the members of the board of directors, managers, trustees, or other voting members of the
751499193.15 22727329 44 governing body of such Person (other than stock or other ownership or equity interests having such power only by reason of the happening of a contingency). “Weighted Average Advance Rate” means, as of any date of determination, the percentage obtained by (i) multiplying the Advance Rate applicable to each Eligible Receivable in the Receivable Pool with a fraction, (x) the numerator of which is the Adjusted Principal Balance of such Eligible Receivable, and (y) the denominator of which is the aggregate Adjusted Principal Balance of all Eligible Receivables in the Receivable Pool, and (ii) summing all of the products calculated pursuant to clause (i). “Weighted Average FICO Score” means, as of any date of determination with respect to all Eligible Receivables, the ratio (expressed as a number) obtained by summing the products obtained by multiplying: The FICO Score of the related Obligor as reported at the time such Receivable was originated X The Adjusted Principal Balance of such Receivable and dividing such sum by the aggregate Adjusted Principal Balance of all Eligible Receivables as of such date of determination. “Weighted Average Hedge Rate” means, as of any date of determination, the weighted average (weighted based on Hedge Notional Amounts) of the Hedge Fixed Rates for all Hedge Agreements then in effect in accordance with Exhibit I. “Withdrawal Date” has the meaning set forth in Section 3.01(g). “Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. “Write-Down and Conversion Powers” means, (a) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule, and (b) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that Person or any other Person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers. “YSOC Amount” means, for each Eligible Receivable, as of any date of determination, the excess, if any, of (A) the present value of all future Scheduled Payments (as of the last day of the related Settlement Period, if any) on such Eligible Receivable at their stated interest rate currently in effect over (B) the present value of all future Scheduled Payments (as of the last day of the related Settlement Period, if any) on such Eligible Receivable discounted at the applicable 751499193.15 22727329 45 Discount Rate. For purposes of this definition, each future Scheduled Payment on each Eligible Receivable shall be assumed to be made in full when due during the remaining scheduled term of the Eligible Receivable without regard to any prepayments before the Cut-off Date and without any delays, defaults or prepayments, each discounted at the applicable Discount Rate calculated using the Funded Fee Percentage associated with the relevant due date of such Scheduled Payment. SECTION 1.02. Other Interpretative Matters. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York and not specifically defined herein, are used herein as defined in such Article 9. Unless otherwise expressly indicated, all references herein to “Article,” “Section,” “Schedule” or “Exhibit” shall mean articles and sections of, and schedules and exhibits to, this Agreement. For purposes of this Agreement, unless the context otherwise requires: (a) references to any amount as on deposit or outstanding on any particular date means such amount at the close of business on such day; (b) the words “hereof,” “herein” and “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement (and the words “thereof,” “therein” and “thereunder” have a corresponding meaning when used with other agreements or documents); (c) references to any Article, Section, Schedule or Exhibit are references to Articles, Sections, Schedules and Exhibits in or to such agreement (or the certificate or other document in which the reference is made), and references to any paragraph, subsection, clause or other subdivision within any Section or definition refer to such paragraph, subsection, clause or other subdivision of such Section or definition; (d) the term “including” means “including without limitation”; (e) references to any Applicable Law where a particular date or timeframe is relevant refer to that Applicable Law as amended or otherwise modified and as in effect on such date or within such timeframe and, if applicable, includes any successor Applicable Law; (f) references to any agreement where a particular date or timeframe is relevant refer to that agreement as amended or otherwise modified and as in effect on such date or within such timeframe; otherwise references to any agreement refer to that agreement as from time to time amended, restated, extended, or supplemented or as the terms of such agreement are waived or modified in accordance with its terms; (g) references to any Person include that Person’s permitted successors and assigns; (h) headings and captions are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof; (i) unless otherwise provided, in the calculation of time from a specified date to a later specified date, the term “from” means “from and including”, and the terms “to” and “until” each means “to but excluding”; (j) terms in one gender include the parallel terms in the neuter and opposite gender; (k) references to any amount as on deposit or outstanding on any particular date means such amount at the close of business on such day and (l) the term “or” is not exclusive. ARTICLE II TERMS OF THE LOANS SECTION 2.01. Loan Facility. Upon a request by the Borrower pursuant to Section 2.02, and on the terms and subject to the conditions hereinafter set forth, the Lenders may, in their respective sole discretion, make Loans to the Borrower from time to time on a revolving basis, during the period from the Closing Date to the Termination Date. Under no circumstances shall any Lender be obligated to make any such Loan to the extent that, after giving effect to such Loan 751499193.15 22727329 46 and all other Loans being made on the proposed Borrowing Date and the application of Collections and Supporting LC Draw Proceeds pursuant to Section 3.01(d), (e) and (f) on such date: (i) the Aggregate Principal would exceed the Facility Limit; (ii) the sum of (A) the Principal of such Lender, plus (B) the aggregate outstanding Principal of the other Lenders in its Group, would exceed the Group Loan Limit of such Lender’s Group; (iii) the aggregate outstanding Principal of such Lender would exceed its Lender Loan Limit; or (iv) the Aggregate Principal would exceed the Borrowing Base. The Borrower may use the proceeds of the Loans to (x) pay the purchase price of Receivables and Related Assets under the Sale Agreement, (y) pay its other expenses and liabilities under the Transaction Documents or (z) make distributions in respect of its equity to the extent permitted under this Agreement. SECTION 2.02. Making Loans. (a) Each Loan hereunder shall be made on at least three (3) Business Days’ prior written request from the Borrower to the Administrative Agent and each Group Agent in the form of a Loan Request attached hereto as Exhibit A. Each such request for a Loan shall be made no later than 11:00 a.m. (New York City time) on a Business Day (it being understood that any such request made after such time shall be deemed to have been made on the following Business Day) and shall specify (i) the amount of the Loan(s) requested (which shall not be less than $1,000,000 and shall be an integral multiple of $100,000), (ii) the account to which the proceeds of such Loans shall be distributed, (iii) the date such requested Loan is to be made (which shall be a Business Day) (a “Borrowing Date”), (iv) a detailed list of the Receivables, if any, proposed to be sold to the Borrower on such proposed Borrowing Date, including in respect of each Receivable the name and Billing Address of the related Obligor (or the identification number or code of such Obligor, provided that it includes the State (or commonwealth) in the United States in respect of such Billing Address), the account number or Contract identification number, the Original Term and the Remaining Term, the FICO Score of the related Obligor, the original and current outstanding Principal Balance, the applicable interest rate and basis, the monthly payment amount, the aggregate Adjusted Principal Balance of all such Receivables, and such additional detail that the Administrative Agent may from time to time reasonably request, of each Receivable in each case as of the immediately preceding Cut-off Date, and (vi) an Information Package in respect of the Settlement Period immediately preceding such proposed Borrowing Date specified in such Loan Request and as of the most recent Cut-off Date and which shall also contain the pro forma information regarding any such proposed Loans required by Section 3.01(c). (b) Not later than 1:00 pm (New York City time) on the same Business Day of its receipt of a Loan Request together with the related Information Package pursuant to the foregoing clause (a) (it being understood that if any such Loan Request or Information Package is received by the Administrative Agent after 11:00 a.m. (New York City time) such Loan Request and Information Package shall be deemed to have been received on the following Business Day), 751499193.15 22727329 47 the Administrative Agent shall deliver a copy of such Loan Request and Information Package to each Group Agent along with the allocation of the requested Loans among the Groups (which shall be ratable based on the Group Loan Limits). Each Group Agent shall notify the Administrative Agent no later than 4:00 p.m. (New York City time) on the second (2nd) Business Day preceding such proposed Borrowing Date whether the Lenders in its Group approve or reject the making of the requested Loans; provided, that to the extent that any Group Agent does not notify the Administrative Agent that such Lenders approve such requested Loans on or before 4:00 p.m. (New York City time) on such day, it shall be deemed to have rejected the requested Loans, unless on such day and prior to any proposed reallocation by the Administrative Agent of such Group’s deemed rejected portion of the Ratable Share of the Loans in respect of such requested borrowing, such non-responding Group Agent approves in writing such proposed borrowing in the full amount of such requested Loans. In the event that some but not all of the Groups agree to fund their Ratable Share of the requested Loans, the Borrower may request the Administrative Agent to re- allocate the rejected portion of the requested Loans, and seek approval among the Groups that approved the original requested borrowing, based on the Ratable Share of the Group Loan Limits of such Groups; provided, that there shall be no obligation of any Lender in any Group to fund any such incremental Loans. Upon final allocation, which shall in no event result in the Principal of any Group to exceed its Group Loan Limit, the Administrative Agent shall advise each Group Agent of the amount of the requested Loans to be funded by each Lender in its Group and the allocated share of each Lender of such borrowing (the “Allocated Share”), and each such approving Lender shall make available to the Borrower its Allocated Share of the applicable Loans on the proposed Borrowing Date in accordance with clause (c) below. For the avoidance of doubt, no Lender shall have any obligation to approve any Loan Request. (c) Other than Withdrawals made pursuant to Section 3.01(g), on each Borrowing Date for any Loans which have been requested and approved in accordance with clause (a) and (b) above, the applicable Lenders shall, upon satisfaction of the applicable conditions set forth herein (including in Article V) and upon the completion of the application of Collections and Supporting LC Draw Proceeds in accordance with Section 3.01(d), (e) and (f) and Section 7.09, as applicable, with respect to such Borrowing Date, make available to the Administrative Agent in immediately available funds their Allocated Share of the Loans with respect to such borrowing, which shall equal the lesser of: (i) the amount requested by the Borrower under clause (a) above, and (ii) the amount which, after giving effect to such Loans and the application of all Collections and Supporting LC Draw Proceeds in accordance with Section 3.01(d), (e) and (f) and Section 7.09, as applicable, in each case, on such Borrowing Date, is the largest amount that will not cause (a) the Aggregate Principal to exceed the Facility Limit or (b) the Aggregate Principal to exceed the Borrowing Base. The Administrative Agent shall make all such funds so received available to the Borrower in like funds, by wire transfer of such funds in accordance with the instructions provided in the applicable Loan Request. (d) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed Borrowing Date that such Lender will not make available to the Administrative Agent such Lender’s Allocated Share of such borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02(c) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its Allocated Share of the applicable borrowing available to the Administrative Agent, then the applicable Lender and the
751499193.15 22727329 48 Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, and (ii) in the case of a payment to be made by the Borrower, the interest rate applicable to the Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its Allocated Share of the applicable borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Loan included in such borrowing. (e) No Lender shall be responsible for the failure of any other Lender to make funds available to the Borrower in connection with any Loan hereunder. (f) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender, with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. SECTION 2.03. Interest and Fees. (a) On each Settlement Date, the Borrower shall, in accordance with the terms and priorities for payment set forth in Section 3.01, pay to each applicable Group Agent, each applicable Lender, the Administrative Agent and/or the Structuring Agent certain fees (collectively, the “Fees”) in the amounts set forth in the fee letter agreements from time to time entered into, among the Borrower, the members of the applicable Group (or their Group Agent on their behalf) and/or the Administrative Agent or the Structuring Agent (each such fee letter agreement, as amended, restated, supplemented or otherwise modified from time to time, collectively being referred to herein as the “Fee Letter”). (b) Each Rate Tranche of the Principal of each Lender shall accrue interest on each day when such Principal remains outstanding at the then applicable Interest Rate for such Lender and Rate Tranche. The Borrower shall pay all Interest and Fees accrued during each Settlement Period on the immediately following Settlement Date in accordance with the terms and priorities for payment set forth in Section 3.01. SECTION 2.04. Term SOFR Conforming Changes. In connection with the use or administration of Term SOFR or the use, administration, adoption or implementation of a Benchmark Replacement, the Administrative Agent will have the right, in consultation with the 751499193.15 22727329 49 Borrower, to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Transaction Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Transaction Document. The Administrative Agent will promptly notify the Borrower and the Group Agents of the effectiveness of any Conforming Changes in connection with the use or administration of Term SOFR. SECTION 2.05. Extension of the Scheduled Termination Date. Provided that no Unmatured Event of Termination or Event of Termination has occurred and is continuing, no earlier than three (3) months prior to (but no later than forty-five (45) days prior to) the then current Scheduled Termination Date, the Borrower (or the Servicer on the Borrower’s behalf) may request an extension of the then current Scheduled Termination Date by submitting a request for an extension (each, an “Extension Request”) to the Collateral Agent and the Administrative Agent, which the Administrative Agent shall, upon receipt, forward to each Group Agent. Such Extension Request must specify (i) the date (which must be at least thirty (30) days after the applicable Extension Request is delivered to the Collateral Agent and the Administrative Agent) as of which each Lender is requested to respond to such Extension Request by (each, a “Response Date”). Promptly upon receipt of an Extension Request, each Group Agent (on behalf of its Lenders) shall notify the Servicer (on behalf of the Borrower) as to whether each Lender in its Group approves such Extension Request (it being understood that each Lender in a Group may accept or decline such Extension Request in its sole discretion). The failure of any Lender to affirmatively notify the Servicer (on behalf of the Borrower) of such Lender’s election regarding such Extension Request by the applicable Response Date shall be deemed to be a refusal by such Lender to grant the requested extension. In the event that the Administrative Agent and the Lenders with Lender Loan Limits which aggregate to an amount at least equal to 75% of the then current Lenders’ Lender Loan Limit shall approve of such request (such date, the “Approval Date”), then the current Scheduled Termination Date shall be extended to the date which is 364 days after such Approval Date and each such Lender and the other parties hereto that approved such Extension Request shall enter into such documents as the Administrative Agent and such Lenders may deem necessary or appropriate to reflect such extension. In the event that the Lenders relating to a Group decline an Extension Request (each such declining Lender, an “Exiting Lender”), the Group Agent for such Exiting Lenders shall so notify the Servicer (on behalf of the Borrower), the Collateral Agent, the Administrative Agent, and each of the other parties hereto of such Exiting Lender’s determination. If the Lenders of a Group become Exiting Lenders, such Groups’ Group Loan Limit shall automatically be reduced to zero on the then-current Termination Date, without giving effect to any other Lenders of any other Group’s agreement to extend the Termination Date, if any. This Section 2.05 shall not be deemed to limit or restrict the ability of the parties hereto to extend the Termination Date pursuant to an amendment in accordance with Section 12.01. SECTION 2.06. Benchmark Replacement. (a) Benchmark Replacement. Notwithstanding anything to the contrary herein or in any other Transaction Document, if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred prior any setting of the then-current Benchmark, then (x) if a Benchmark Replacement is determined in accordance with clause (a) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Transaction 751499193.15 22727329 50 Document in respect of such Benchmark setting and subsequent Benchmark settings without any amendment to, or further action or consent of any other party to, this Agreement or any other Transaction Document and (y) if a Benchmark Replacement is determined in accordance with clause (b) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Transaction Document in respect of any Benchmark setting at or after 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any other Transaction Document so long as the Administrative Agent has not received, by such time, written notice of objection to such Benchmark Replacement from Lenders comprising the Required Lenders. If the Benchmark Replacement is Daily Simple SOFR, all interest payments will be payable on a monthly basis. (b) Conforming Changes. In connection with the use, administration, adoption or implementation of a Benchmark Replacement, the Administrative Agent will have the right, in consultation with the Borrower, to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Transaction Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Transaction Document. (c) Notices; Standards for Decisions and Determinations. The Administrative Agent will promptly notify the Borrower and each Group Agent of (i) the implementation of any Benchmark Replacement, and (ii) the effectiveness of any Conforming Changes in connection with the use, administration, adoption or implementation of a Benchmark Replacement. The Administrative Agent will notify the Borrower of (x) the removal or reinstatement of any tenor of a Benchmark pursuant to clause (d) below and (y) the commencement of any Benchmark Unavailability Period. Any determination, decision or election that may be made by the Administrative Agent, any Lender or any Group Agent pursuant to this Section, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any other Transaction Document, except, in each case, as expressly required pursuant to this Section. (d) Unavailability of Tenor of Benchmark. Notwithstanding anything to the contrary herein or in any other Transaction Document, at any time (including in connection with the implementation of a Benchmark Replacement), (i) if the then-current Benchmark is a term rate (including the Term SOFR Reference Rate) and either (A) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion or (B) the regulatory supervisor for the administrator of such Benchmark has provided a public statement or publication of information announcing that any tenor for such Benchmark is not or will not be representative, then the Administrative Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for any Benchmark settings at or after such time to remove such unavailable or non-representative tenor and (ii) if a tenor that was removed pursuant to clause (i) above either (A) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (B) is not, or is no longer, subject to an announcement that it is not 751499193.15 22727329 51 or will not be representative for a Benchmark (including a Benchmark Replacement), then the Administrative Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for all Benchmark settings at or after such time to reinstate such previously removed tenor. (e) Benchmark Unavailability Period. During any Benchmark Unavailability Period or at any time that a tenor for the then-current Benchmark is not an Available Tenor, the component of the Base Rate based upon the then-current Benchmark or such tenor for such Benchmark, as applicable, will not be used in any determination of the Base Rate. (f) Illegality. If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable lending office to make, maintain or fund Benchmark Loans, or to determine or charge interest based upon the Term SOFR Reference Rate or Term SOFR, then, upon notice thereof by such Lender to the Borrower (through the Administrative Agent) (an “Illegality Notice”), (a) any obligation of the Lenders to make Benchmark Loans, and any right of the Borrower to continue Benchmark Loans shall be suspended, and (b) the interest rate on which Base Rate Loans shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to clause (c) of the definition of “Base Rate”, in each case until each affected Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of an Illegality Notice, the Borrower shall, if necessary to avoid such illegality, upon demand from any Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Benchmark Loans to Base Rate Loans (the interest rate on which Base Rate Loans shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to clause (c) of the definition of “Base Rate”), on the last day of the Interest Period therefor, if all affected Lenders may lawfully continue to maintain such Benchmark Loans to such day, or immediately, if any Lender may not lawfully continue to maintain such Benchmark Loans to such day, in each case until the Administrative Agent is advised in writing by each affected Lender that it is no longer illegal for such Lender to determine or charge interest rates based upon the Benchmark. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted, together with any additional amounts required pursuant to Section 4.02. SECTION 2.07.Inability to Determine Rates. Subject to Section 2.06, the Administrative Agent shall promptly notify the Borrower and each Lender if, on or prior to the first day of any Interest Period for any Benchmark Loan: (a) the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that “Term SOFR” cannot be determined pursuant to the definition thereof, or (b) the Required Lenders determine that for any reason in connection with any request for a Benchmark Loan or a conversion thereto or a continuation thereof that the Benchmark for any requested Interest Period with respect to a proposed Benchmark Loan does not adequately and fairly reflect the cost to such Lenders of making and maintaining such Loan, and the Required Lenders have provided notice of such determination to the Administrative Agent.
751499193.15 22727329 52 Upon notice thereof by the Administrative Agent to the Borrower, any obligation of the Lenders to make Benchmark Loans, and any right of the Borrower to continue Benchmark Loans or to convert Base Rate Loans to Benchmark Loans, shall be suspended (to the extent of the affected Benchmark Loans or affected Interest Periods) until the Administrative Agent (with respect to clause (b), at the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, (i) the Borrower may revoke any pending request for a borrowing of, conversion to or continuation of Benchmark Loans (to the extent of the affected Benchmark Loans or affected Interest Periods) or, failing that, the Borrower will be deemed to have converted any such request into a request for a Loan of or conversion to Base Rate Loans in the amount specified therein and (ii) any outstanding affected Benchmark Loans will be deemed to have been converted into Base Rate Loans at the end of the applicable Interest Period. Upon any such conversion, the Borrower shall also pay accrued interest on the amount so converted, together with any additional amounts required pursuant to Section 4.02. Subject to Section 2.06, if the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that “Term SOFR” cannot be determined pursuant to the definition thereof on any given day, the interest rate on Base Rate Loans shall be determined by the Administrative Agent without reference to clause (c) of the definition of “Base Rate” until the Administrative Agent revokes such determination. ARTICLE III SETTLEMENT PROCEDURES AND PAYMENT PROVISIONS SECTION 3.01. Settlement Procedures. The parties hereto will take the following actions with respect to each Settlement Date: (a) By no later than the fifth (5th) Business Day prior to each Settlement Date and on the Closing Date (each a “Reporting Date” for and related to the Settlement Period ending immediately prior to such date and, to the extent required in clause (b) below, the Interest Period ending immediately prior to such Settlement Date), the Servicer shall deliver to the Collateral Agent and the Administrative Agent, which the Administrative Agent shall, upon receipt, forward to each Group Agent, an e-mail attaching an Excel file and a file in .pdf or similar format signed by a Responsible Officer of the Servicer containing the information described in Exhibit D, including the information calculated by the Servicer pursuant to this Section 3.01 (each, an “Information Package”) for and related to the Settlement Period ending immediately prior to such Reporting Date; provided, that the loan level data tape set forth in Exhibit D shall only be required to be provided in connection with the Settlement Dates occurring in March, June, September and December, and upon request thereof by Mizuho, within ten (10) Business Days of such request; provided further, that during the continuance of an Unmatured Event of Termination or Event of Termination, the Administrative Agent may (or at the request of the Required Lenders shall) request, in its reasonable discretion, the Servicer to, and the Servicer agrees to, deliver any information related to the Pool Receivables and Related Assets, or the transactions contemplated hereby as the Administrative Agent or the Required Lenders shall request (including a calculation of the Reserve Account Required Amount, the YSOC Amount, the Borrowing Base and each component or subcomponent thereof (including as determined on dates other than as set forth therein), the daily Collections, etc.) on each Business Day. 751499193.15 22727329 53 (b) On or before the fifth (5th) day of each calendar month, the applicable Group Agent for each Conduit Lender shall notify the Administrative Agent and the Servicer of the CP Rate for each Rate Tranche funded by Commercial Paper Notes of such Conduit Lender for the most recently ended Settlement Period and the amount of Interest accrued in respect of each such Rate Tranche of such Conduit Lender for each day during such most recently ended Settlement Period. On or before the second (2nd) Business Day prior to each Reporting Date, each Group Agent shall notify the Administrative Agent and the Servicer of (i) the amount of Interest accrued in respect of each related Rate Tranche funded by the Lenders in each Group for each day during the most recently ended Settlement Period, and (ii) all Fees accrued each day during the most recently ended Settlement Period, and (iii) all other amounts payable or to be paid by the Borrower under this Agreement and the other Transaction Documents on the immediately succeeding Settlement Date (other than amounts described in clause (c) below) to such Group Agent or any Lender in, or Affected Person related to, any Group. Such Interest, Fees and other amounts accrued in respect of such immediately preceding Settlement Period or Interest Period, as applicable, shall be due and payable by the Borrower on the next succeeding Settlement Date. (c) On each Reporting Date, the Servicer shall include in the Information Package, calculations of, as of the most recent Cut-off Date for the related Settlement Period, the following: (i) without taking into account any Receivables included in any Transfers following such Cut-off Date, (A) the Principal Balance and accrued interest of each of the Pool Receivables, the Aggregate Principal, the aggregate Principal of each Group, the Reserve Account Required Amount, the YSOC Amount, the Borrowing Base and each component of each of the foregoing, (B) the amount of the reduction or increase (if any) in each of the Reserve Account Required Amount, the YSOC Amount, the Borrowing Base, the Supporting LC Amount, the Aggregate Principal and the aggregate Principal of each Group since the Cut-off Date immediately preceding the Cut-off Date for the most recently ended Settlement Period, and each component of each of the foregoing (including a breakdown of Collections and Deemed Collections and any related Dilutions or other reductions, if any, during such Settlement Period), (C) the excess (if any) of the Aggregate Principal over the Borrowing Base, (D) the excess (if any) of the Aggregate Principal over the Facility Limit, (E) the excess (if any) of the aggregate Principal of each Group over the Group Loan Limit of each such Group, (F) the aggregate Principal of any Exiting Lenders, (G) the Pool Deficiency Amount (if any), (H) the total Deemed Collections for such Settlement Period, (I) the amount of all other Obligations payable on the next Settlement Date, (J) the Excess Concentration Amount and each component thereof, (K) the amount of Monthly Collections broken down on principal and interest collections, respectively, (L) the amount of Supporting LC Draw Proceeds received during such Settlement Period, and (M) ) each of the Delinquency Ratio, the Cumulative Net Loss Ratio, the Third Milestone Ratio and the Performance Guarantee Claim Ratio, and each component of each of the foregoing; (ii) the information specified in clause (i) above as determined (including on a pro forma basis, as applicable) based on Principal Balances as of the Cut- off Date, after giving effect to all Transfers effected since the most recent Cut-off Date, including any such Transfers to be effected on or prior to the next Settlement Date; 751499193.15 22727329 54 (iii) the computation of the Collections and Supporting LC Draw Proceeds available for allocation pursuant to each sub-sections (i) through (x) of Section 3.01(d) on the next Settlement Date; and (iv) the computation of the Loans, if any, to be funded by the Lenders on the next Settlement Date. (d) The Servicer shall, on each Settlement Date, to the extent funds are available in the Payment Account, transfer to the Administrative Agent the Monthly Collections for the Administrative Agent to distribute for the following purposes and in the following order of priority as identified in the related Information Package: (i) first, to the Servicer, all accrued then due and unpaid Servicing Fee; (ii) second, to the Collateral Agent and the Administrative Agent in respect of all costs, expenses, Fees and Indemnified Amounts then due and payable to the Collateral Agent and the Administrative Agent (solely in their capacities as such) under this Agreement and the other Transaction Documents; provided, that the expenses and Indemnified Amounts payable under this clause (ii) on any Settlement Date shall not in the aggregate exceed $500,000; (iii) third, on a pro rata and pari passu basis, (A) to each Group Agent ratably (based on the aggregate accrued and unpaid Interest and Fees due and payable to them and the members of their respective Groups) Interest accrued and unpaid on all Rate Tranches relating to the Receivable Pool for the Lenders in its Group howsoever funded or maintained during or prior to the most recently ended Settlement Period and to the accrued and unpaid Fees for its Group then due and payable, and (B) to each Hedge Counterparty, any net amounts (other than Hedge Termination Payments) required to be paid to such Hedge Counterparty on or prior to such Settlement Date under the applicable Hedge Agreements; (iv) fourth, on a pro rata and pari passu basis, (I) to the Group Agents to the reduction of the Aggregate Principal (A) if clause (C) below does not apply, to reduce, to the extent necessary, the Pool Deficiency Amount to zero in the priority set forth in Section 3.01(e), ratably (based upon the respective amounts of reduction of Principal owed to each Group in respect of each application to the Lenders in each such Group Agent’s Group), determined without taking into account any Receivables to be acquired by the Borrower on such Settlement Date funded by Loans made on such Settlement Date, (B) if clause (C) below does not apply, in the amount required (without duplication of any amounts otherwise paid under this Section 3.01(d)) pursuant to an optional prepayment in accordance with Section 3.02(b), ratably (based upon their respective aggregate Principal) or (C) during the continuance of an Event of Termination or an Unmatured Event of Termination or following the Termination Date, the Administrative Agent shall apply Monthly Collections ratably (based upon their respective aggregate Principal of Loans) to reduce the aggregate Principal of the Loans to zero; provided, that for the avoidance of doubt, any amounts paid to any Group Agent pursuant to this 751499193.15 22727329 55 clause (iv) shall be applied in reduction of the Principal of the relevant Lenders in such Group Agent’s Group, and (II) to each Hedge Counterparty, any Senior Hedge Termination Payments required to be paid to such Hedge Counterparty on or prior to such Settlement Date under the applicable Hedge Agreements; (v) fifth, to the Group Agents and the Lenders ratably (based on the aggregate accrued and unpaid Borrower Obligations owing) in respect of all costs, expenses and Indemnified Amounts due and payable to the Group Agents and the Lenders (solely in their capacities as such) under this Agreement and the other Transaction Documents; (vi) sixth, ratably (based upon the amounts due and payable), to the Collateral Agent and the Administrative Agent in respect of expenses and Indemnified Amounts due and payable to the Collateral Agent and the Administrative Agent, to the extent such amounts were not paid pursuant to clause (ii) above, (vii) seventh, to each Group Agent ratably (based on the aggregate accrued and unpaid Borrower Obligations owing to their respective Groups) all accrued and unpaid other Borrower Obligations due and payable to any Affected Persons in such Group Agent’s Group; (viii) eighth, on a pari passu basis (I) to the account bank(s) maintaining any Collection Account or Payment Account, any fees, returned item amounts or other amounts due and owing to such account bank(s) in respect of such accounts or the related Control Agreements that remain unpaid and (II) to the eVault Provider, any accrued and unpaid fees with respect to the account that is subject to the Collateral Control Agreement; (ix) ninth, for deposit into the Reserve Account, an amount equal to the amount required to be deposited therein, if any, such that the amounts on deposit therein is equal to the Reserve Account Required Amount (it being understood that the amount of cash required to be deposited into the Reserve Account shall be reduced on a dollar-for dollar basis for each dollar represented by the Supporting LC Amount); (x) tenth, to each Hedge Counterparty, any Subordinated Hedge Termination Payments required to be paid to such Hedge Counterparty on or prior to such Settlement Date under the applicable Hedge Agreements; and (xi) eleventh, to the Borrower, for its own account, any remaining amounts. (e) The Administrative Agent shall apply Monthly Collections in the Payment Account which are available to reduce the Pool Deficiency Amount in accordance with clause (iv)(I)(A) of Section 3.01(d) to the applicable Group Agents, pari passu based upon respective amounts owed to each Lender in the related Groups for each such specified application in the following order: (i) first, to apply such Monthly Collections to reduce the Aggregate Principal of
751499193.15 22727329 56 Loans to an amount equal to the Borrowing Base at such time, (ii) second, to reduce the Aggregate Principal to an amount equal to the Facility Limit, (iii) third, to reduce each Group’s aggregate Principal to an amount equal to the related Group Loan Limit, and (iv) fourth, to reduce the aggregate Principal of all Exiting Lenders to zero. (f) The Administrative Agent may, pursuant to Section 7.09, draw on one or more Supporting Letters of Credit and apply the resulting Supporting LC Draw Proceeds on each Settlement Date for deposit into the Reserve Account (it being understood that the amount of cash required to be deposited into the Reserve Account shall be reduced on a dollar-for dollar basis for each dollar represented by the Supporting LC Amount). (g) Prior to the Termination Date, available funds may be withdrawn from the Collection Accounts at the request of the Borrower to the Administrative Agent, the Collateral Agent and the Lenders on any Business Day other than on a Settlement Date (each such date, a “Withdrawal Date”) solely to pay the purchase price by the Borrower for additional Eligible Receivables from the Originator under (and in accordance with) the Sale Agreement; provided, that the withdrawal and transfer of such funds shall be subject to the satisfaction of the following conditions precedent as of the Withdrawal Date: (i) after giving effect to such withdrawal, funds shall remain in the Collection Accounts sufficient, in the reasonable determination of the Borrower, to pay in full all amounts due and owing on the immediately following Settlement Date under Section 3.02(d)(iii); (ii) no Event of Termination shall have occurred and be continuing; and (iii) the Administrative Agent and the Collateral Agent shall have received a pro forma calculation demonstrating that, immediately after giving effect to such withdrawal and the acquisition of any Receivables with the funds withdrawn, no Pool Deficiency Amount would exist. SECTION 3.02. Deemed Collections; Repayment of Principal, Etc. (a) Deemed Collections. If on any day: (i) the Principal Balance or any accrued interest of any Pool Receivable is reduced, cancelled, subject to set-off, offset, netting, special refund or credit as a result of Dilution or for any other reason (other than solely as a result of such Pool Receivable becoming a Defaulted Receivable in accordance with the Credit and Collection Policy as a result of the bankruptcy or insolvency of the related Obligor or a payment default of the related Obligor); (ii) the actual Principal Balance or stated interest rate of any Pool Receivable as of the relevant determination date in any Information Package is less than the amount included to represent such amount as of such date in calculating the Borrowing Base for purposes of such Information Package; 751499193.15 22727329 57 (iii) any Pool Receivable (or the terms of any related Contract governing such Pool Receivable) is extended, amended, waived, or otherwise modified or adjusted without the prior written consent of the Administrative Agent, except for extensions (which are separately addressed in clause (iv) below) or as expressly permitted under Section 8.02(c); (iv) the due date for payment of any Pool Receivable, or interest thereon, is extended to a date that is more than thirty (30) days after such Pool Receivable’s original due date; (v) any of the representations or warranties of the Borrower set forth in clauses (j) or (n) or (bb) of Section 6.01 or the Servicer set forth in Section 6.02(t) were untrue when made with respect to any Pool Receivable; (vi) any Collection Agent Fee is paid, including by setoff, offset or reduction of any Collections; or (vii) the Third Milestone related to any Solar Energy System has not been achieved by the 360-day anniversary of the initial disbursement under the related Contract; then, on such day, the Borrower shall be deemed to have received a Collection of such Pool Receivable and, in respect of such Collections deemed received during any Settlement Period, and subject to the proviso below, the Borrower shall cause to be deposited to the Payment Account, by the date which is no later than three (3) Business Days (x) in respect of clause (ii) or (v) above, after the Borrower, Compass or the Servicer has knowledge thereof or has received notice thereof, and (y) in respect of any other clause above, prior to the Settlement Date immediately succeeding such Settlement Period or after the occurrence of an Event of Termination that remains continuing, within one (1) Business Day from the event giving rise to such Deemed Collection) for application by the Servicer pursuant to Section 3.01(d) as provided in this Agreement an amount equal to: (1) in the case of clause (i) above, the amount of such reduction, set-off, offset, netting, special refund, credit or cancellation; in the case of clause (ii) above, the difference between the actual Principal Balance and the amount included to represent such amount, or impact of the difference between the actual stated interest rate and the stated interest rate used, in respect of such Pool Receivable in calculating the Borrowing Base in such Information Package; or, in the case of clause (iv) above, in the amount that such extension affects the Principal Balance, or interest payable, of the related Transferred Receivable in the sole determination of the Administrative Agent, as applicable, by notice to the Originator, Buyer and the Servicer; provided, that the aggregate amount of Deemed Collections paid by the Originator pursuant to this clause 1 in respect of any Transferred Receivable shall not exceed its Principal Balance and accrued interest; 751499193.15 22727329 58 (2) in the case of clause (iii) or (v) above, the amount of the entire Principal Balance and accrued interest of the relevant Pool Receivable or Pool Receivables (as determined immediately prior to the applicable event) with respect to which such extension, amendment, waiver, or modification occurs or such representations or warranties were or are untrue; (3) in the case of clause (vi) above, the amount by which such Collection Agent Fee exceeds the lesser of (i) the ordinary course and customary collection fees and expenses payable to Collection Agents by the Servicer and consistent with its past practices as reasonably demonstrated by the Servicer to the Administrative Agent, and (ii) an amount equal to 20% of the Principal Balance of the applicable Pool Receivable as determined immediately prior to the payment of such Collection Agent Fee; or (4) in the case of clause (vii) above, the amount of the entire Principal Balance and accrued interest of the relevant Pool Receivable or Pool Receivables (as determined immediately prior to the applicable event) related to such Solar Energy System; provided, that so long as no Event of Termination or Unmatured Event of Termination shall have occurred and be continuing, in the event the Borrower has paid Deemed Collections in respect of a Pool Receivable at least equal to the amount of the full Principal Balance thereof and any accrued interest thereon to the Payment Account (and the Servicer shall have provided notice thereof to the Collateral Agent), in accordance with and pursuant to this Section 3.02, such Pool Receivable and the Related Assets thereof shall be deemed repurchased by the Borrower and shall be automatically released from the security interest of the Collateral Agent upon such payment in full of such Deemed Collections to the Payment Account; provided, further, that for the avoidance of doubt, no ADT Entity shall initiate any amendments to any Pool Receivable or otherwise take any action that would result in a Deemed Collection for the purpose of repurchasing any Pool Receivable, and any such action shall constitute an Event of Termination under Section 9.01(q). Collections deemed received by the Borrower under this Section 3.02(a) are herein referred to as “Deemed Collections”. To the extent no Pool Deficiency Amount would result therefrom, the Borrower may, at its option, net the amount of Deemed Collections required to be deposited in the Payment Account prior to any Settlement Date, from the amount of Collections scheduled to be payable to the Borrower on such next Settlement Date pursuant to Section 3.01(d)(xi). If on any day the Originator is required to make a cash payment of Deemed Collections to the Borrower under the Sale Agreement, the Borrower shall deposit (or cause the Originator to deposit) the amount of such Deemed Collections, subject to any permitted netting, to the Payment Account for application as Collections in accordance with Section 3.01(d). The Borrower shall promptly enforce the Originator’s obligations to pay Deemed Collections in accordance with the terms of the Sale Agreement. (b) Optional Repayment of Principal. The Borrower may at any time and from time to time elect to reduce (in whole or in part) the Aggregate Principal by giving or causing the 751499193.15 22727329 59 Servicer to give the Collateral Agent and the Administrative Agent at least five (5) U.S. Government Securities Business Days’ prior written notice (which shall be in substantially the form of Exhibit H hereto) of such elected reduction, which notice shall include (i) the proposed date of such reduction, which if not a Settlement Date, shall require the payment, without duplication, of Liquidation Fee and any applicable amounts payable pursuant to Section 4.02, and (ii) the amount of any such proposed reduction (which amount shall be not less than $5,000,000 and shall be an integral multiple of $100,000 thereafter). Any such requested reduction in the Aggregate Principal shall be applied to reduce the Principal of each Lender to the extent Monthly Collections are then available therefor in excess of the sum (without duplication) of the related Liquidation Fee, any applicable amounts payable pursuant to Section 4.02 and the amounts scheduled to be payable on the next succeeding Settlement Date in accordance with Section 3.01(d)(i) through (iii). (c) Mandatory Repayment of Principal at Maturity Date. The Borrower shall repay the Aggregate Principal in full on the Maturity Date. SECTION 3.03. Payment Provisions. (a) Payments. All amounts to be paid to, or deposited by the Borrower, the Servicer, Compass or any other ADT Entity with, the Collateral Agent, the Administrative Agent, any Group Agent, any Lender, any Indemnified Party or any other Person hereunder shall, except as otherwise expressly provided herein, be paid or deposited in accordance with the terms hereof no later than 11:00 a.m. (New York City time) on the day when due in U.S. Dollars in same day funds to the Administrative Agent’s Account. The Administrative Agent will promptly distribute, in accordance with the applicable directions received by the Administrative Agent pursuant to this Article III, to each applicable Group Agent, Lender or other Person its applicable share of such payment in like funds as received by wire transfer to such recipient’s applicable office as designated in writing by such recipient to the Administrative Agent from time to time. Each Group Agent, upon its receipt in the applicable Group Agent’s Account of any such payments or distributions, shall distribute such amounts to the applicable Lenders, Affected Persons and the Indemnified Parties within its Group ratably; provided that if such Group Agent shall have received insufficient funds to pay all of the above amounts in full on any such date, such Group Agent shall pay such amounts to the applicable Lenders, Affected Persons and the Indemnified Parties within its Group in accordance with the priority of payments set forth above, and with respect to any such category above for which there are insufficient funds to pay all amounts owing on such date, ratably (based on the amounts in such categories owing to each such Person in such Group) among all such Persons in such Group entitled to payment thereof. Amounts remitted to the Administrative Agent’s Account in respect of ADT Obligations shall be distributed on each Settlement Date for the payment of ADT Obligations due and payable on or prior to such Settlement Date (i) to the Administrative Agent and the Collateral Agent for ADT Obligations then due and payable to it in accordance with the terms of this Agreement, and (ii) to the applicable Group Agent for ADT Obligations then due and payable to it, its related Lenders, its related Affected Persons and its related Indemnified Parties. For purposes of making the applications set forth in the immediately preceding sentence, subject to Section 3.01(d), the Administrative Agent shall rely upon the certifications (the “Demand Certifications”) of each of
751499193.15 22727329 60 the Collateral Agent (if other than the Administrative Agent) and each of the Group Agents (if other than the Administrative Agent) as to the ADT Obligations then due and payable to it (or in respect of a Group Agent owing to it and its related Lenders, Affected Persons and Indemnified Parties). Each of the Collateral Agent (if other than the Administrative Agent) and each Group Agent shall provide the Administrative Agent with a Demand Certification upon making any demand or claim for payment of any ADT Obligations, which Demand Certification shall specify the date upon which such ADT Obligations are due and payable and the ADT Obligation giving rise to such payment. If amounts remitted in respect of ADT Obligations which are on deposit in the Administrative Agent’s Account on any Settlement Date are insufficient to pay in full all ADT Obligations which are then due and payable on such Settlement Date, the Administrative Agent shall distribute such funds on a pro rata basis to the relevant parties based upon the ADT Obligations then due and payable to such parties based upon the amount of the ADT Obligations then due and payable to it (in respect of each of its capacities hereunder) and the Demand Certifications which the Administrative Agent has received. The Administrative Agent shall have no liability for making payments in accordance with this Section 3.03(a) based upon the Demand Certifications. (b) Late Payments. Each ADT Entity shall pay to the Administrative Agent, for the benefit of the applicable Affected Person, interest on all amounts not paid or deposited by such party on the date when due hereunder at an annual rate equal to 2.00% above the Base Rate, payable on demand, provided, that such interest rate shall not at any time exceed the maximum rate permitted by applicable Law. (c) Method of Computation. All computations of interest, Interest, Liquidation Fee, YSOC Amount, Reserve Account Required Amount, any Fees payable under Section 2.03, and any other fees payable by the Borrower to the Collateral Agent, any Lender, any Group Agent, the Administrative Agent, or any other Affected Person in connection with Loans hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) elapsed (except that calculations with respect to the Prime Rate shall be on the basis of a year of 365 or 366 days, as the case may be). (d) Payment of Currency and Setoff. All payments by any ADT Entity or the Servicer to any Affected Person or any other Person in connection with the Transaction Documents shall be made in U.S. Dollars and without set-off or counterclaim, except, for the avoidance of doubt, any netting expressly permitted herein. Any ADT Entity’s obligations hereunder shall not be satisfied by any tender or recovery of another currency except to the extent such tender or recovery results in receipt of the full amount of U.S. Dollars. (e) If and to the extent the Administrative Agent, any Credit Party, any Affected Person or any Indemnified Party shall be required for any reason to return to the Borrower or any underlying Obligor (including to any trustee, receiver, custodian or similar official thereof as a result of any Insolvency Proceeding with respect to the Borrower or such Obligor) any amount received on its behalf hereunder, such amount shall be deemed not to have been so received but rather to have been retained by the Borrower and, accordingly, the Administrative Agent, such Credit Party, such Affected Person or such Indemnified Party, as the case may be, shall have a claim (which claim may be contingent or subject to defenses) against the Borrower for such amount. 751499193.15 22727329 61 SECTION 3.04. Account Control. (a) The Servicer acknowledges, represents and agrees that it has caused the Borrower to establish the Payment Account, the Reserve Account and each of the Collection Accounts and further acknowledges, represents and agrees that each such Collection Account, the Reserve Account and Payment Account is a deposit account maintained at an Eligible Bank. Neither the Borrower nor the Servicer shall instruct or permit any disbursements to be made from the Payment Account other than to the Administrative Agent or with the consent of the Administrative Agent. Without limiting the Servicer’s obligation pursuant to clauses (c) or (d) of Section 7.06, if, at any time any Collection Account, the Reserve Account or the Payment Account ceases to be with an Eligible Bank, the Servicer, and the Borrower shall, as promptly as practicable and in any event within thirty (30) days after the Servicer or the Borrower has knowledge thereof, (i) establish or cause to be established a new Collection Account, Reserve Account and Payment Account with a depository institution that is an Eligible Bank, (ii) transfer any amounts held in such Collection Account, Reserve Account and Payment Account to such new Collection Account, Reserve Account or Payment Account, as applicable, and (iii) cause a Control Agreement to be in full force and effect in respect of such Eligible Bank. Neither the Servicer nor the Borrower shall terminate any Collection Account, Reserve Account or the Payment Account except as contemplated by this Section 3.04, Section 7.03(d) or Section 7.06(c). Without the prior written consent of the Collateral Agent, neither the Servicer nor the Borrower shall cause or instruct any account bank maintaining any Collection Account, Reserve Account or Payment Account to incur fees, costs and expenses other than the ordinary course fees, costs and expenses (including relating to returned items) relating to maintaining such Collection Account, Reserve Account or Payment Account. (b) The Borrower shall maintain at all times when there are Obligations outstanding hereunder an amount in the Reserve Account equal to the Reserve Account Required Amount (it being understood that the amount of cash required to be deposited into the Reserve Account shall be reduced on a dollar-for dollar basis for each dollar represented by the Supporting LC Amount). To the extent that the aggregate amount of funds on deposit in the Reserve Account at any time exceeds the Reserve Account Required Amount, the Servicer (in the Information Package) may specify any such excess to be (i) transferred into the Payment Account or (ii) remitted directly to the Borrower (or at its direction) on the next succeeding Settlement Date. In addition, following the occurrence and during the continuance of an Event of Termination, funds in the Reserve Account may be withdrawn by the Eligible Bank at the direction of the Administrative Agent and deposited into the Payment Account. In the event that there are not sufficient Collections or other available funds on any Settlement Date to pay the amounts required to be paid pursuant to Section 3.01(d)(i) through Section 3.01(d)(iv) on such date and after giving effect to any payments made pursuant to Section 3.01(d) (the amount of such insufficiency, a “Deficiency”), the Servicer (in the Information Package) shall direct the Eligible Bank to withdraw from the Reserve Account the lesser of (A) the amount of such insufficiency, and (B) the Reserve Account Available Amount (such amount (the “Reserve Account Withdrawal Amount”)) and to deposit the Reserve Account Withdrawal Amount into the Payment Account to satisfy such Deficiency. For the avoidance of doubt, the Borrower shall be permitted to deposit any Supporting LC Amount into the Reserve Account in order to increase the Reserve Account Available Amount and/or to satisfy the Reserve Account Required Amount. 751499193.15 22727329 62 ARTICLE IV YIELD PROTECTION; TAXES SECTION 4.01. Yield Protection. (a) If any Change in Law: (i) shall subject an Affected Person to any duty, cost or other charge (other than Taxes, which shall be governed by Section 4.03) with respect to any Loan owned, maintained or funded by it (or its participation in any of the forgoing), or any obligations or right to make Loans or to provide funding or maintenance therefor (or its participation in any of the foregoing); (ii) shall impose, modify, or deem applicable any reserve, special deposit, or similar requirement against assets of any Affected Person, deposits, or obligations with or for the account of any Affected Person or with or for the account of any Affiliate (or entity deemed by the Federal Reserve Board or other Governmental Authority to be an affiliate) of any Affected Person, or credit extended by any Affected Person; (iii) shall impose any other condition affecting any Loan owned, maintained, or funded in whole or in part by any Affected Person, or its obligations or rights, if any, to make (or participate in) Loans or to provide (or participate in) funding therefor or the maintenance thereof; (iv) shall change the rate for, or changes the manner in which the Federal Deposit Insurance Corporation (or a successor thereto) or similar Person assesses, deposit insurance premiums, or similar charges which an Affected Person is obligated to pay; or (v) shall (i) change the amount of capital maintained or required or requested or directed to be maintained by any Affected Person or (ii) subject any Affected Person to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (iii) through (iv) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its Loans, the Receivable Pool or Related Assets, commitments, or other obligations, or its deposits, reserves, other liabilities, or capital attributable thereto; and the result of any of the foregoing is or would be, in each case, as determined by the applicable Group Agent or the applicable Affected Person: (A) to increase the cost to (or impose a cost on) (1) an Affected Person funding or making or maintaining any Loans, any corresponding purchases, or loans or other extensions of credit under any Liquidity Agreement, any Enhancement Agreement, or any commitment (hereunder or under any Liquidity Agreement or any Enhancement Agreement) of such Affected Person with respect to any of the foregoing, or (2) the Collateral 751499193.15 22727329 63 Agent, any Group Agent, or the Administrative Agent for continuing its relationship with any Lender in such capacities hereunder; (B) to reduce the amount of any sum received or receivable by an Affected Person under this Agreement, or any corresponding amount received or receivable under any Liquidity Agreement or any Enhancement Agreement (or its participation in any such Liquidity Agreement or Enhancement Agreement) with respect thereto; or (C) to reduce the rate of return on the capital of such Affected Person as a consequence of its obligations hereunder, any corresponding obligations under any Liquidity Agreement or under any Enhancement Agreement (or its participation in any such Liquidity Agreement or Enhancement Agreement), including its funding or maintenance of any portion of any Principal, or arising in connection herewith (or therewith) to a level below that which such Affected Person could otherwise have achieved hereunder or thereunder, then, the Borrower shall pay to the Payment Account by the date that is no later than three (3) Business Days prior to the Settlement Date following the Settlement Period in which it receives notice of the related claim from such Affected Person (or by the Administrative Agent or a Group Agent on its behalf) for payment to such Affected Person on such Settlement Date in accordance with Section 4.01(c). (b) Each Affected Person (or the Administrative Agent or a Group Agent on its behalf), shall use commercially reasonable efforts to promptly notify the Servicer (on behalf of the Borrower) and the Administrative Agent of any event of which it has actual knowledge which will entitle such Affected Person to compensation pursuant to this Section 4.01; provided, that the Borrower shall not be required to compensate an Affected Person pursuant to this Section 4.01 for any increased costs or reductions incurred more than 180 days prior to the date that such Affected Person notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Affected Person’s intention to claim compensation therefor; provided, further, that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180 day period referred to above shall be extended to include the period of retroactive effect thereof. (c) In determining any amount provided for or referred to in this Section 4.01, an Affected Person may use any reasonable averaging and attribution methods that it, in its sole discretion, shall deem applicable. Any Affected Person (or the Administrative Agent or a Group Agent on its behalf) when making a claim under this Section 4.01 shall submit to the Servicer (on behalf of the Borrower) and the Administrative Agent a written statement of such increased cost or reduced return, which statement, in the absence of manifest error, shall be conclusive and binding; provided, that any such statement claiming amounts described in clause (x) or (y) of the definition of “Change in Law” shall, in addition, state the basis upon which such amount has been calculated and certify that such Affected Person’s demand for payment of such costs hereunder, and such method of allocation is not inconsistent with its treatment of other borrowers under similar warehouse securitization facilities which, as a credit matter, are similarly situated to the Borrower and which are subject to similar provisions.
751499193.15 22727329 64 (d) Except as set forth in Section 4.01(b), no failure or delay on the part of any Affected Person (or the Administrative Agent or any Group Agent) to demand compensation pursuant to this Section 4.01 shall not constitute a waiver of such Affected Person’s (or the Administrative Agent’s or any Group Agent’s on its behalf) right to demand such compensation or otherwise adversely affect the rights of any Affected Person to such compensation. (e) The Borrower acknowledges that any Affected Person may institute measures in anticipation of a Change in Law (including, without limitation, the imposition of internal charges on such Affected Person’s interests or obligations under this Agreement), and may commence allocating charges to or seeking compensation from the Borrower under this Section 4.01 in connection with such measures, in advance of the effective date of such Change in Law, and the Borrower agrees to pay such charges or compensation to such Affected Person, to the extent such charges or compensation would otherwise be payable by the Borrower under this Section 4.01 after such effective date of such Change in Law, following demand therefor without regard to whether such effective date has occurred but only to the extent of, and on or after such Affected Person’s measures must be implemented prior to such effective date at the demand of the applicable prudential regulator. The Borrower further acknowledges that any charge or compensation demanded hereunder may take the form of a monthly charge to be assessed by such Affected Person. SECTION 4.02. Funding Losses. If any Affected Person incurs any cost, loss, or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Affected Person), at any time, as a result of (a) any optional or required settlement or repayment with respect to any Lender’s Tranche Principal of any Rate Tranche, howsoever funded, being made on any day other than a Settlement Date, (b) any Loan not being borrowed by the Borrower in accordance with its request therefor under Article II, (c) the failure to exercise or complete (in accordance with Section 3.02(b)) any reduction in the Aggregate Principal elected to be made under Section 3.02(b), (d) any reduction in the Aggregate Principal elected under Section 3.02(b) exceeding the total amount of Rate Tranches, howsoever funded, with respect to which the last day of the related Interest Period is the date of such reduction, or (e) the failure to reduce the Aggregate Principal, then, upon written notice from such Affected Person (or the Administrative Agent or a Group Agent on its behalf) to the Servicer (on behalf of the Borrower), the Borrower shall pay the amount of such cost, loss or expense (without duplication of any applicable Liquidation Fee paid by the Borrower pursuant to Section 3.02(b)) to the Payment Account by the date which is no later than three (3) Business Days prior to the Settlement Date immediately succeeding the Settlement Period in which such written notice is delivered by such Affected Person. Such written notice shall, in the absence of manifest error, be conclusive and binding upon the Borrower and the Servicer. If an Affected Person incurs any cost, loss, or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Affected Person), at any time, and is not entitled to reimbursement for such loss or expense in the manner set forth above, such Affected Person shall individually bear such loss or expense without recourse to, or payment from, any other Affected Person. 751499193.15 22727329 65 SECTION 4.03. Taxes. (i) Except to the extent required by Applicable Law, any and all payments and deposits required to be made hereunder, under any other Transaction Document or under any instrument delivered hereunder or thereunder to any Affected Person or otherwise hereunder or thereunder by or on account of any obligation of the Borrower or the Servicer shall be made free and clear of, and without withholding or deduction for, any Taxes. If the Borrower or the Servicer shall be required by Applicable Law (as determined in the good faith discretion of an applicable withholding agent) to make any such withholding or deduction, (A) if such Tax is an Indemnified Tax, the Borrower (or the Servicer, on its behalf) shall make an additional payment to such Affected Person, in an amount sufficient so that, after making all required withholdings or deductions (including withholdings or deductions applicable to additional sums payable under this Section 4.03), such Affected Person receives an amount equal to the sum it would have received had no such withholdings or deductions been made, (B) the Borrower (or the Servicer, on its behalf) shall make such deductions, and (C) the Borrower (or the Servicer, on its behalf) shall pay the full amount deducted to the relevant taxation authority or other Governmental Authority in accordance with Applicable Law. (ii) The Borrower will indemnify each Affected Person for the full amount of Indemnified Taxes (including any Indemnified Taxes imposed by any jurisdiction on amounts payable under this Section) payable or paid by such Affected Person, as the case may be, and any reasonable expenses payable by such Affected Person arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. Notwithstanding anything to the contrary in this Agreement, no Affected Person shall recover, whether through a payment of additional amounts pursuant to Section 4.03(i) or a payment pursuant to the indemnification obligations of this Section 4.03(ii), more than once for any Tax imposed. Any indemnification under this Section 4.03(ii) shall be paid by the Borrower to the Payment Account by the date which is no later than three (3) Business Days prior to the Settlement Date immediately succeeding the Settlement Period in which written demand therefor is made by any Affected Person, together with a statement of reasons for such demand and the calculations of such amount. Such calculations, if made in good faith, absent manifest error, shall be final and conclusive on all parties. (iii) Within five (5) days after the date of any payment of Taxes withheld by the Borrower or the Servicer, as applicable, in respect of any payment to any Affected Person, the Borrower or the Servicer, as applicable, will furnish to the Administrative Agent, the original or a certified copy of a receipt evidencing payment thereof (or other evidence reasonably satisfactory to the Administrative Agent). (iv) Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this Section shall survive the resignation or replacement of, or any assignment by, any Affected Person, and the payment in full of Obligations hereunder. 751499193.15 22727329 66 (v) (A) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Transaction Document shall deliver to the Servicer (on behalf of the Borrower) and the Administrative Agent, at the time or times reasonably requested by the Borrower, the Servicer or the Administrative Agent and at the time or times prescribed by applicable Law, such properly completed and executed documentation reasonably requested by the Borrower, the Servicer or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower, the Servicer or the Administrative Agent, shall deliver such other documentation prescribed by applicable Law or reasonably requested by the Borrower, the Servicer or the Administrative Agent as will enable the Borrower, the Servicer or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding the foregoing, submission of such documentation (other than any documentation required by clauses (B)(1), (B)(2) and (B)(4) below) shall not be required if in the Lender’s reasonable judgment such completion, execution, or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender. (B) Without limiting the generality of the foregoing, (1) Each Lender that is not a “United States person,” within the meaning of Section 7701(a)(30) of the Code, shall, on or before the date it becomes a party to this Agreement, deliver to the Servicer (on behalf of the Borrower) and the Administrative Agent such certificates, documents, or other evidence, as required by the Code or Treasury Regulations issued pursuant thereto, including Internal Revenue Service Form W-8BEN, Form W-8BEN-E, Form W-8ECI, Form W8-IMY (or any successor form), with appropriate attachments, or any other applicable certificate or statement of exemption, properly completed and duly executed by such Lender establishing that any payment made or deemed made to such Lender is (i) not subject to United States Federal withholding Tax under the Code because such payments are effectively connected with the conduct by such Lender of a trade or business in the United States, (ii) exempt or entitled to a reduction from United States Federal withholding tax under a provision of an applicable Tax treaty, (iii) eligible for the benefits of the exemption for portfolio interest under Section 881(c) of the Code, in which case such Lender shall also deliver a certificate to the effect that such Lender is not (A) a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower, within the meaning of Section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code, or (iv) made to a person who is not the beneficial owner of the payments. In addition, each such Lender shall, if legally able to do so, thereafter deliver such certificates, documents or other evidence from time to time establishing that payments received hereunder are not subject to, or subject to a reduced rate of, such withholding upon receipt of a written request therefor from the Borrower or the Administrative Agent. 751499193.15 22727329 67 (2) Each Lender that is a “United States person” within the meaning of Section 7701(a)(30) of the Code shall, on or before the date it becomes a party to this Agreement, deliver to the Servicer (on behalf of the Borrower) and the Administrative Agent such certificates, documents, or other evidence, as required by the Code or Treasury Regulations issued pursuant thereto, including Internal Revenue Service Form W-9 (or any successor form) or any other applicable certificate or statement of exemption properly completed and duly executed by such Lender establishing that payment made to such Lender is not subject to United States Federal backup withholding Tax under the Code. In addition, each such Lender shall, if legally able to do so, thereafter deliver such certificates, documents, or other evidence from time to time establishing that payments received hereunder are not subject to such withholding upon receipt of a written request therefor from the Borrower or the Administrative Agent. (3) Each Lender that is entitled to any exemption or reduction of non-U.S. withholding tax with respect to any payment under this Agreement shall, on or before the date it becomes a party to this Agreement, deliver to the Servicer (on behalf of the Borrower) and the Administrative Agent such certificates, documents, or other evidence as may reasonably be requested by the Servicer (on behalf of the Borrower) or the Administrative Agent, establishing that such payment is not subject to, or is subject to a reduced rate of, withholding. In addition, each such Lender shall, if legally able to do so, thereafter deliver such certificates, documents, or other evidence from time to time establishing that payments received hereunder are not subject to such withholding, or are subject to a reduced rate of withholding, upon receipt of a written request therefor from the Servicer (on behalf of the Borrower) or the Administrative Agent. (4) If a payment made to a Lender under any Transaction Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower (or the Servicer on behalf of the Borrower) and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower (or the Servicer on behalf of Borrower) or the Administrative Agent such documentation prescribed by applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower (or the Servicer on behalf of Borrower) or the Administrative Agent as may be necessary for the Borrower (or the Servicer on behalf of the Borrower) and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment.
751499193.15 22727329 68 (vi) For purposes of this Section 4.03, “Applicable Law” includes FATCA. (vii) Each Lender (or in respect of a Conduit Lender, the Group Agent on behalf of such Conduit Lender) shall severally indemnify the Administrative Agent, within five (5) days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that the Borrower or Compass has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower or Compass to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 12.03(b) relating to the maintenance of a Participant Register, and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Transaction Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant taxing authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Transaction Document or otherwise payable by the Administrative Agent to such Lender from any other source against any amount due to the Administrative Agent under this paragraph (vii). (viii) Any Affected Person claiming compensation under Section 4.01(a) or any Indemnified Taxes or additional amounts payable pursuant to this Section 4.03 shall use reasonable efforts (consistent with its internal policies and legal and regulatory restrictions) to, at the expense of the Servicer, change the jurisdiction of its applicable lending office if the change would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue and would not, in the sole determination of such Affected Person, be otherwise disadvantageous to such Affected Person. (ix) If any party receives a refund in respect of any Taxes as to which it has been indemnified pursuant to this Section, it shall promptly repay such refund to the indemnifying party under this Section with respect to such refund), net of all out-of-pocket expenses (including Taxes imposed with respect to such refund) of such indemnified party and without interest (other than interest paid by the relevant taxing authority with respect to such refund); provided, however, that the indemnifying party upon the request of such indemnified party, agrees to return such refund (plus penalties, interest, or other charges) to such indemnified party in the event such indemnified party is required to repay such refund. Notwithstanding anything to the contrary in this paragraph (ix), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (ix) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. Nothing in this Section shall obligate any Affected Person to apply for any such refund. 751499193.15 22727329 69 (x) The Servicer (on behalf of the Borrower) shall pay, or at the option of the Administrative Agent timely reimburse it for the payment of, Other Taxes. (xi) Nothing contained in this Section shall require any Affected Person to make available any of its Tax returns (or any other information relating to its Taxes which it deems to be confidential). (xii) If the Borrower determines that a reasonable basis exists for contesting an Indemnified Tax or Other Tax for which the Borrower has paid additional amounts or indemnification payments, the related Affected Person shall use reasonable efforts to cooperate with the Borrower as the Borrower may reasonably request in challenging such Tax. The Borrower shall indemnify and hold each Affected Person harmless against any out-of-pocket expenses incurred by such person in connection with any request made by the Borrower pursuant to this Section 4.03(xii). Nothing in this Section 4.03(xii) shall obligate any Affected Person to take any action that such Affected Person, in its sole discretion, determines could result in a material detriment to such Affected Person. For purposes of this Section 4.03, the term “Affected Person” shall include any assignee pursuant to Section 12.03(c) or 12.03(d). SECTION 4.04. Mitigation; Replacement of Lenders. (a) If any Affected Person requests compensation under Section 4.01, or if the Borrower is required to pay any additional amount to any Affected Person or any Governmental Authority for the account of any Affected Person pursuant to Section 4.03, then such Affected Person and its related Group Agent shall use reasonable efforts to designate a different office, branch or Affiliate for funding or booking its Principal hereunder or to assign its rights and obligations hereunder to another of its offices, branches or Affiliates, if, in the reasonable judgment of such Affected Person or such Group Agent, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 4.01 or Section 4.03, in the future, and (ii) would not subject such Affected Person or its related Group Agent to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Affected Person or its related Group Agent. Compass hereby agrees to pay all reasonable costs and expenses incurred by such Affected Person and its related Group Agent in connection with any such designation or assignment. (b) If (i) any Lender (or Affiliate of such Lender) requests compensation under Section 4.01, (ii) if the Borrower is required to pay any additional amount to any Affected Person or any Governmental Authority for the account of any Affected Person pursuant to Section 4.03, (iii) any Lender has become an Exiting Lender or a Defaulting Lender, or (iv) any Lender (such Lender, a “Non-Consenting Lender”) has failed to consent to any matter that requires the consent of all Lenders and all affected Lenders and with respect to which the Required Lenders shall have granted their consent, then, in each case, so long as no Event of Termination or Unmatured Event of Termination has occurred and remains continuing, the Borrower may, at Compass’s sole expense (including payment of any applicable processing and recordation fees), upon notice to the Collateral Agent, the related Group Agent and the Administrative Agent, require all Lenders in the Group relating to such Lender to assign, without recourse (and in accordance with and subject to 751499193.15 22727329 70 the restrictions contained in this Agreement; provided, that if the Lender being removed has failed to comply with all applicable requirements and restrictions on its part within one Business Day of the Borrower’s request, such compliance shall not be required), all of their respective interests, rights (other than their existing rights to payments pursuant to Section 4.01, Section 4.02 or Section 4.03), and obligations under this Agreement and the other Transaction Documents to a willing assignee that is an Eligible Assignee and that assumes such interests, rights, and obligations; provided, that (A) each member of such assigning Group shall have received payment of an amount equal to all outstanding Principal and Interest in respect thereof, accrued fees and all other amounts payable to it hereunder, either from the assignee or the Borrower, (B) any such assigning Lender shall remain a beneficiary of any of this Agreement’s terms that expressly survive termination of this Agreement, with respect to the period during which it was a Lender, and (C) if the Person then serving as the Collateral Agent and/or the Administrative Agent is a member of the Group being removed pursuant to this Section, such Person shall cease to be the Administrative Agent and/or Collateral Agent, as applicable, upon the foregoing assignment and such assignment shall not be effective until a successor Collateral Agent and/or Administrative Agent, as the case may be, has been appointed by the Required Lenders and has accepted such appointment and assumed all of the obligations of such Person. Each applicable Lender and each of the Agents shall reasonably cooperate with the Borrower in connection with effectuating the assignments contemplated by this Section 4.04(b). ARTICLE V CONDITIONS TO EFFECTIVENESS AND CREDIT EXTENSIONS; SECURITY INTEREST SECTION 5.01. Conditions Precedent to Effectiveness . This Agreement shall become effective as of the Closing Date when (a) the Administrative Agent, the Collateral Agent and each Group Agent shall have received (unless otherwise waived) each of the documents, agreements (in fully executed form), opinions of counsel, lien search results, UCC filings, certificates and other deliverables listed on the closing memorandum attached as Exhibit F-1 hereto, in each case, in form and substance reasonably satisfactory to the Administrative Agent, the Collateral Agent and each Group Agent and (b) all fees and expenses due and payable by the Borrower on the Closing Date to the Credit Parties have been paid in full in accordance with the terms of the Transaction Documents. SECTION 5.02. Conditions Precedent to All Credit Extensions. Each Credit Extension hereunder on or after the Closing Date shall be subject to the conditions precedent that: (a) the Borrower shall have delivered to the Administrative Agent, the Collateral Agent and each Group Agent a Loan Request for such Loan in accordance with Section 2.02(a); (b) the Servicer shall have delivered to the Administrative Agent, the Collateral Agent and each Group Agent a pro forma Information Package, reflecting the Aggregate Principal, the Reserve Account Required Amount, the YSOC Amount and the Borrowing Base, each as calculated after giving effect to the proposed Credit Extension and the application of Collections on the upcoming Settlement Date; 751499193.15 22727329 71 (c) on the date of such Credit Extension the following statements shall be true and correct (and upon the occurrence of such Credit Extension, the Borrower and Compass shall be deemed to have represented and warranted that such statements are then true and correct): (i) each of the representations and warranties contained in this Agreement and in each other Transaction Document are true and correct on and as of such date as though made on and as of such date unless such representations and warranties by their terms refer to an earlier date, in which case they shall be true and correct on and as of such earlier date; (ii) no event has occurred or would result from such Credit Extension that constitutes an Event of Termination or an Unmatured Event of Termination that remains continuing; and (iii) no Pool Deficiency Amount (calculated without giving effect to clause (ii) of the definition thereof) exists or would exist after giving effect to such Credit Extension and the application of Collections in accordance with Section 3.01(d); (d) the amount of money equal to any shortfall in the Reserve Account Required Amount on such date shall be deposited into the Reserve Account on such date from the proceeds of such Credit Extension such that the amount on deposit in the Reserve Account shall be at least equal to the Reserve Account Required Amount; (e) the Termination Date shall not have occurred; (f) the Required Loan Documents for such Eligible Receivables shall have been transferred to the eVault; and (g) the applicable Group Agent has approved of the related Loan Request in accordance with Section 2.02. SECTION 5.03. Conditions Precedent to Initial Credit Extension. The initial Credit Extension hereunder on or after the Closing Date shall be subject to the conditions precedent that, (a) the Administrative Agent, the Collateral Agent and each Group Agent shall have received (unless otherwise waived in writing) each of the documents, agreements (in fully executed form), opinions of counsel, certificates and other deliverables listed on the closing memorandum attached as Exhibit F-2 hereto, in each case, in form and substance reasonably satisfactory to the Administrative Agent, the Collateral Agent and each Group Agent and (b) all fees and expenses due and payable by the Borrower on the initial Borrowing Date to the Credit Parties have been paid in full in accordance with the terms of the Transaction Documents. SECTION 5.04. Security Interest. (a) As security for the performance by the Borrower of all the terms, covenants and agreements on the part of the Borrower to be performed under this Agreement or any other Transaction Document, including the punctual payment when due of the Aggregate Principal and all Interest in respect of the Loans and all other Borrower Obligations, the Borrower hereby grants, to the Collateral Agent for its benefit and the ratable benefit of the Secured Parties of, and hereby
751499193.15 22727329 72 grants to the Collateral Agent for its benefit and the ratable benefit of the Secured Parties, a continuing security interest in all of the Borrower’s right, title and interest in, to and under all of the following, whether now or hereafter owned, existing or arising (collectively, the “Collateral”): all of the Borrower’s right, title, and interest now or hereafter existing in, to and under the following of the Borrower’s assets, whether now owned or existing or hereafter acquired, and wherever located (whether or not in the possession or control of the Borrower), and all proceeds of the foregoing: (I) all Receivables comprising the Receivable Pool; (II) the Related Assets in respect of the Receivable Pool; (III) the Collections in respect of the Receivable Pool; (IV) all Transaction Documents; (V) all Contracts related to the Receivable Pool; (VI) the Sale Agreement and each Hedge Agreement and, in each case, all rights and remedies of the Borrower thereunder; (VII) all other assets in the Receivable Pool and Related Assets; (VIII) each Collection Account, the Reserve Account and the Payment Account; (IX) all accounts, chattel paper, commercial tort claims, deposit accounts, documents, fixtures, general intangibles (including payment intangibles), goods (including equipment and inventory), instruments, investment property, letter-of-credit rights, letters of credit, money, as-extracted collateral, oil, gas and other minerals before extraction, software, supporting obligations, insurance policies and things in action; (X) all rights, interests, remedies, and privileges of the Borrower relating to any of the foregoing including the right to sue for past, present, or future infringement of any or all of the foregoing; and (XI) to the extent not otherwise included, all products and Proceeds (the terms in clauses (I) through (XI) not otherwise defined in this Agreement, as defined in the UCC) of the foregoing clauses (I) through (X) and all accessions to, substitutions and replacements for, and rents, profits, and products of the of the foregoing (including insurance proceeds), and all distributions (whether in money, securities, or other property) and collections from or with respect to any of the foregoing. (b) The Collateral Agent (for the benefit of the Secured Parties) shall have, with respect to all the Collateral, and in addition to all the other rights and remedies available to the Administrative Agent (for the benefit of the Secured Parties), all the rights and remedies of a secured party under any applicable UCC. The Borrower hereby authorizes the Collateral Agent (for the benefit of the Secured Parties) to file financing statements in each jurisdiction the Collateral Agent deems necessary and appropriate to perfect its security interest in the Collateral, describing the collateral covered thereby as “all of the debtor’s personal property or assets” or words to that effect, notwithstanding that such wording may be broader in scope than the collateral described in this Agreement. (c) To the fullest extent it may lawfully so agree, the Borrower and the Servicer agree that it will not at any time insist upon, claim, plead, or take any benefit or advantage of any appraisal, valuation, stay, extension, moratorium, redemption, or similar Law now or hereafter in force in order to prevent, delay, or hinder the enforcement hereof or the absolute sale of any part of the Collateral; the Borrower and the Servicer, each for itself and all who claim through it, so far as it or they now or hereafter lawfully may do so, hereby waive the benefit of all such Laws and all right to have the Collateral marshaled upon any foreclosure hereof, and agrees that any court having jurisdiction to foreclose this Agreement may order the sale of the Collateral in its entirety. Without limiting the generality of the foregoing, the Borrower and the Servicer hereby waive and release any and all right to require the Collateral Agent or the Administrative Agent to collect any of such obligations from any specific item or items of the Collateral or from any other party liable as guarantor or in any other manner in respect of any of such obligations or from any collateral for any of such obligations. 751499193.15 22727329 73 (d) The Borrower agrees that, to the extent that any Related Documents are held by or on behalf of the Borrower other than in the eVault that is the subject of the Collateral Control Agreement, the Borrower shall hold, or cause the Servicer to hold, such Related Documents in trust for the Collateral Agent on behalf of the Secured Parties, and upon request of the Collateral Agent following the occurrence and during the continuance of an Event of Termination or as otherwise provided herein, promptly deliver the same to the Collateral Agent or its designee. Notwithstanding the foregoing, on or before the date that any Eligible Receivable is included in the Borrowing Base, the Required Loan Documents of such Eligible Receivable shall have been delivered to the eVault. ARTICLE VI REPRESENTATIONS AND WARRANTIES SECTION 6.01. Representations and Warranties of the Borrower. The Borrower represents and warrants as of the Closing Date, as of each day on which a Credit Extension shall have occurred and as of each Settlement Date and, in respect of clauses (k) and (n) below, as of the date of each Information Package, as follows: (a) Organization and Good Standing. It has been duly organized in, and is validly existing and in good standing under the Laws of its jurisdiction of organization, with organizational power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted. (b) Due Qualification. It has obtained all necessary licenses, approvals, and qualifications, if any, in connection with its execution and delivery of the Transaction Documents to which it is a party and the performance by it of its obligations contemplated in the Transaction Documents. (c) Power and Authority; Due Authorization. It (i) has all necessary power and authority to (A) execute and deliver this Agreement and the other Transaction Documents to which it is a party in any capacity and (B) perform its obligations under the Transaction Documents applicable to it and (ii) has duly authorized by all necessary limited liability company action the execution, delivery, and performance of this Agreement and the other Transaction Documents to which it is a party. (d) Valid Sale; Binding Obligations. This Agreement constitutes a security agreement granting a security interest in the Pool Receivables and Related Assets to the Collateral Agent (on behalf of the Secured Parties); and this Agreement and each other Transaction Document to which it is a party when duly executed and delivered by it will constitute its legal, valid, and binding obligation enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. (e) No Violation. The execution and delivery of each of the Transaction Documents to which it is a party, the consummation of the transactions contemplated by this 751499193.15 22727329 74 Agreement and the other Transaction Documents and the performance by it of the terms hereof and thereof will not (i) violate or result in a default under, (A) its Constituent Documents, (B) any indenture, agreement, or instrument binding on it or any of its assets or properties, or (C) the ADT Credit Agreement, any ADT Indenture or any ADT Collateral Agreement, (ii) result in the creation or imposition of any Adverse Claim upon any of its assets or properties pursuant to the terms of any such indenture, agreement, or instrument to which it is a party or by which it or any of its properties is bound, other than any Adverse Claim created in connection with this Agreement and the other Transaction Documents, or (iii) violate any Law applicable to it or any of its assets or properties. (f) No Proceedings. There are no actions, suits, or proceedings by or before any arbitrator or Governmental Authority pending against or, to its knowledge, threatened against or affecting it, the Receivable Pool or Related Assets or any of its other assets or properties (i) asserting the invalidity of this Agreement or any other Transaction Document, (ii) seeking to prevent the sale and assignment of all or any portion of the Receivable Pool or Related Assets under the Sale Agreement, the grant of a security interest in all or any portion of the Collateral hereunder, or the consummation of any of the transactions contemplated by, or the purposes of, this Agreement or of any of the other Transaction Documents, (iii) seeking any determination or ruling that could materially and adversely affect the performance by any ADT Entity of its obligations under any Transaction Document or (iv) could otherwise reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (g) Bulk Sales Act. No transaction contemplated hereby requires compliance by the Borrower with any bulk sales act or similar Law. (h) Governmental Approvals. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required for its due execution, delivery, and performance of this Agreement or any other Transaction Document or the transactions contemplated thereby, except for the filing of the UCC financing statements referred to in Exhibit F-1. (i) Use of Proceeds. The Borrower will use the proceeds of each Loan made hereunder solely (i) to fund or pay the purchase price of Receivables and Related Assets acquired by the Borrower in accordance with the terms and conditions set forth herein or (ii) as otherwise permitted under this Agreement. The use of all funds obtained by it under this Agreement will not conflict with or contravene any of Regulations T, U, and X promulgated by the Board of Governors of the Federal Reserve System. (j) Quality of Title. It has acquired from Compass, for fair consideration and reasonably equivalent value, all of the right, title, and interest in each Pool Receivable and the Related Assets in respect thereof and such acquisition constitutes a True Sale. The Borrower has received all consents and approvals required by the terms of the Related Documents in respect of the Pool Receivables to the transfer thereof to the Borrower and to the pledge hereunder to the Administrative Agent of its interest and rights in such Pool Receivables. Each Contract and Pool Receivable and the Related Assets related thereto, are owned by it free and clear of any Adverse Claim; and upon any Transfer the Collateral Agent (for the benefit of the Secured Parties) shall have acquired and shall at all times thereafter continuously have the benefit of a first priority 751499193.15 22727329 75 perfected security interest in each Pool Receivable, together with the Related Assets, free and clear of any Adverse Claim; and no valid effective financing statement or other instrument similar in effect covering any Pool Receivable, any interest therein or the Related Assets is on file in any recording office except for the following (“Permitted Lien Filings”): (i) such a financing statement or other instrument filed (x) in favor of Compass or the Borrower in accordance with any Transaction Document (and assigned to the Collateral Agent) or (y) in favor of the Collateral Agent for the benefit of the Secured Parties in accordance with this Agreement or any Transaction Document, (ii) with respect to each Pool Receivable, (x) such state-level UCC financing statement that has been recorded in favor of Compass and (y) such county-level fixture disclaimer statement that has been recorded; (iii) such a financing statement or other instrument that meets the following conditions: (x) it names Barclays Bank PLC (or the applicable successor agent thereunder) as secured party, (y) from and after the initial Borrowing Date, it relates to liens that are subject to the ADT Barclays Lien Release Acknowledgement and (z) it does not have the effect of perfecting any security interest in any Pool Receivable, Related Asset or interest therein, (iv) financing statement number 2022 0190447 filed on January 7, 2022 with the Secretary of State of Delaware naming ADT as debtor and Wells Fargo Bank, National Association (or the applicable successor agent thereunder) as secured party, provided that (x) from and after the initial Borrowing Date, it relates to liens that are subject to the ADT Wells Fargo Lien Release Acknowledgement and (y) it does not have the effect of perfecting any security interest in any Pool Receivable, Related Asset or interest therein, and (v) such a financing statement or other instrument naming Compass as debtor that meets the following conditions: (x) it is filed after all filings referred to in the foregoing clause (i), and (y) except as permitted under clause (i) above, it does not have the effect of perfecting any security interest in any Pool Receivable, Related Asset or interest therein. Without limiting the foregoing, no Chattel Paper evidencing Pool Receivables (x) is in the possession of (or, in the case of electronic Chattel Paper, under the control of) any Person other than the eVault Provider or the Servicer (for the benefit of the Collateral Agent and the Borrower), the Collateral Agent or the Collateral Agent’s designee, or (y) has any marks or notations indicating that it has been pledged, assigned, or otherwise conveyed to any Person other than the Borrower, the eVault Provider or the Collateral Agent. (k) Accurate Reports. None of the reports, financial statements, certificates, or other written information (other than forward-looking statements, projections, and statements of a general industry nature, as to which it represents only that it acted in good faith and utilized assumptions reasonable at the time made and due care in the preparation of such statement or projection) furnished or to be furnished by or on behalf of it or any other ADT Entity (including, without limitation, by electronic delivery) to the Administrative Agent, any Lender, or any Group Agent in connection with this Agreement or any other Transaction Document or any amendment hereto or delivered hereunder or thereunder (as modified or supplemented by other information so
751499193.15 22727329 76 furnished) including without limitation, each Loan Request, each Information Package and the reports and information provided pursuant to Section 7.05(f) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not materially misleading. (l) UCC Details. It is a “registered organization” (as defined in Section 9- 102(a) of the UCC) that is formed or organized solely under the laws of the State of Delaware and is “located” in Delaware for purposes of Section 9-307 of the UCC and the offices where it keeps all its physical Records (to the extent not electronically available) and tangible chattel paper or other physical collateral, if any, are located at the addresses specified in Schedule IV (or at such other locations, notified to the Collateral Agent and the Administrative Agent in accordance with Section 7.01(f)), in jurisdictions where all action required by Section 8.05 has been taken and completed. It has never had any, trade names, fictitious names, assumed names, or “doing business as” names and is “located” in Delaware for purposes of Section 9-307 of the UCC. It is organized only in a single jurisdiction. (m) Accounts. The Lock-Boxes and names and addresses of all of the Account Banks, together with the account numbers of the related Collection Accounts at such Account Banks, are specified in Schedule II (or have been notified to and approved by the Collateral Agent and the Administrative Agent in accordance with Section 7.03(d)). The Collection Accounts, the Reserve Account and the Payment Account, the account numbers for each such account and the Account Banks maintaining each such account are specified in Schedule II except for such changes as are expressly permitted by Section 3.04, Section 7.03(d) or Section 7.06(c). (n) Eligible Receivables. Each Pool Receivable listed as an Eligible Receivable in any Loan Request or Information Package or included as an Eligible Receivable in the calculation of Borrowing Base on any date is an Eligible Receivable as of the effective date of the information reported in such Loan Request or Information Package or as of the date of such calculation, as the case may be, or has been cured through a repurchase or Deemed Collection payment in accordance with the Sale Agreement. No selection process was utilized for choosing such Eligible Receivables, from among all Eligible Receivables, that could reasonably be expected to be adverse or disadvantageous to the interests of the Lenders, and the Borrower does not otherwise have any reason to expect that the performance of the Eligible Receivables owned by it would be worse than any Eligible Receivables that are not being offered for sale to it under the Sale Agreement, and each such Receivable adheres to the Credit and Collection Policy. As of each Transfer Date, it has no knowledge of any fact (including any defaults by the Obligor thereunder) that would cause it to expect any payment on any Eligible Receivable transferred on such Transfer Date not to be paid in full when due. As of each Transfer Date, the related Required Loan Documents have been delivered to the eVault for holding in accordance with the Collateral Control Agreement. (o) Adverse Change. Since the Closing Date, (i) there has been no material adverse change in the value, validity, collectability, or enforceability of all or a material portion of the Pool Receivables, and (ii) there has been no Material Adverse Effect with respect to the Borrower. 751499193.15 22727329 77 (p) Credit and Collection Policy. It has engaged the Servicer to service the Pool Receivables in accordance with the Credit and Collection Policy and all applicable Law. It has complied in all material respects with all applicable Law (including, without limitation, all applicable Credit Protection Laws) and with the Credit and Collection Policy. (q) Financial Information. All of its and its Affiliates’ financial statements delivered to the Administrative Agent in accordance with this Agreement present fairly, in all material respects, the actual financial position and results of operations of it and its Affiliates, as the case may be, as of the date and for the period presented or provided, in each case in accordance with GAAP. (r) Investment Company Act; Covered Fund. It is not required to register as an “Investment Company” under (and as defined in) the Investment Company Act. It is not a “covered fund” as defined in Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In determining that the Borrower is not such a “covered fund,” the Borrower relies on, and is entitled to rely on, the exemption from the definition of “investment company” set forth in Section 3(c)(5) of the Investment Company Act (although other exclusions or exemptions may also be available to the Borrower). (s) No Other Obligations. It does not have outstanding any security of any kind except membership interests issued to Compass in connection with its organization and has not incurred, assumed, guaranteed or otherwise become directly or indirectly liable for, or in respect of, any Debt, and no Person has any commitment or other arrangement to extend credit to the Borrower, in each case, other than as will occur in accordance with the Transaction Documents. (t) Representations and Warranties in Other Transactions Documents. It hereby makes for the benefit of the Collateral Agent, the Administrative Agent, each Group Agent and each Lender all of the representations and warranties that the Borrower makes, in any capacity, under the Sale Agreement, as if such representations and warranties (together with the related and ancillary provisions) were set forth in full herein. (u) Ordinary Course of Business. Each remittance of Collections and Supporting LC Draw Proceeds by or on behalf of the Borrower to the Lenders (or to the Collateral Agent, the Administrative Agent or any Group Agent on their behalf) under this Agreement will have been (i) in payment of a debt incurred by the Borrower in the ordinary course of business or financial affairs of the Borrower, and (ii) made in the ordinary course of business or financial affairs of the Borrower. (v) Tax Matters. It has filed all federal income tax returns and all other material tax returns that are required to be filed by it and has paid all taxes due pursuant to such returns or pursuant to any assessment received by it, except for any such taxes or assessments, if any, that are being appropriately contested in good faith by appropriate proceedings and with respect to which adequate reserves in conformity with GAAP have been provided. No tax lien has been filed, and, to the knowledge of the Borrower, no claim is being asserted, with respect to any such tax or assessment, except where such tax or lien is being contested as set forth above. It has paid all sales taxes required to be paid by it in connection with the Solar Energy Equipment and installation related to each Pool Receivable in compliance with Section 7.01(p), and has promptly 751499193.15 22727329 78 notified the Administrative Agent of (i) any failure to pay any required sales taxes with respect to any Receivable and whether or not such sales taxes are being contested as set forth above, and (ii) any asserted tax lien relating to any such sales taxes and whether or not such lien is being contested as set forth above. (w) Tax Status. It has not made, at any time, any entity classification election under Treas. Reg. Sec. 301.7701-3 nor is it otherwise treated as an association or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. It is treated as disregarded as separate from its owner for U.S. federal income tax purposes with such owner being a United States person within the meaning of section 7701(a)(30) of the Code. It is not subject to any Tax in any jurisdiction outside the United States. It has not taken any action that could subject it nor is it otherwise subject to any material amount of Tax imposed by a state or local taxing authority. (x) No Event of Termination, Etc. No event has occurred and is continuing, or would result from any Loan that constitutes or would constitute an Unmatured Event of Termination or Event of Termination. (y) Anti-Corruption Laws, Anti-Terrorism Laws, and Sanctions. (i) Each ADT Entity and their respective Subsidiaries is in compliance in all material respects with the material provisions of the USA PATRIOT Act, and, on or prior to the Closing Date, the Borrower has provided or caused to be provided to the Administrative Agent all information related to the ADT Entities (including names, addresses and tax identification numbers (if applicable)) reasonably requested in writing by the Administrative Agent not less than 10 Business Days prior to the Closing Date and mutually agreed to be required under “know your customer” and anti-money laundering rules and regulations, including the USA PATRIOT Act, to be obtained by the Administrative Agent or any Lender. (ii) None of the ADT Entities, any of their respective Subsidiaries, nor, to the knowledge of the Borrower, any director, officer, agent, employee or Affiliate of any ADT Entity is currently the target of any sanctions administered by the United States, including the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”) and the U.S. State Department, the United Nations Security Council, His Majesty’s Treasury, the European Union or relevant member states of the European Union (collectively, the “Sanctions”) and each ADT Entity and, to the knowledge of the Borrower, their respective directors, officers, employees and agents are in compliance with sanctions laws and regulations administered by the United States, including OFAC and the U.S. State Department, the United Nations Security Council, His Majesty’s Treasury, the European Union or relevant member states of the European Union (collectively, the “Sanctions Laws”) in all material respects. The Borrower will not directly or indirectly use the proceeds of any Loans or otherwise make available such proceeds to any person, for the purpose of financing the activities of any person that is currently the target of any Sanctions or for the purpose of funding, financing or facilitating any activities, business or transaction with or in any country that is the target of the Sanctions, to the extent such activities, businesses or transaction would be prohibited by the Sanctions Laws, or in any 751499193.15 22727329 79 manner that would result in the violation of any Sanctions Laws applicable to any party hereto. (iii) Each ADT Entity, each of their respective Subsidiaries, and to the knowledge of the Borrower, their directors, officers, agents or employees, are in compliance with the U.S. Foreign Corrupt Practices Act of 1977 or similar law of a jurisdiction in which the ADT Entities conduct their business and to which they are lawfully subject (“Anti-Corruption Laws”), in each case, in all material respects. No part of the proceeds of any Loans made hereunder will be used to make any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (z) The Borrower does not hold (nor will it hold throughout the term of this Agreement) “plan assets” within the meaning of the Department of Labor regulations located at 29 C.F.R. Section 2510.3-101, as modified by Section 3(42) of ERISA and the Borrower is not subject to any state law or regulations applicable to governmental plans that are similar to Section 406 of ERISA or Section 4975 of the Code. (aa) Accounting Treatment. The Borrower and Compass expect that the Receivables, Related Assets, and Collections relating to the Receivable Pool will be included on the consolidated balance sheet of the Parent and Compass for purposes of GAAP to the extent they are outstanding as of the end of any reporting period. (bb) Advertisements, Promotions. No Pool Receivable is subject to any advertisement, promotion or other arrangement offered by any ADT Entity, subject to which such Pool Receivable or the Contract related to such Pool Receivable can be cancelled or terminated, in any manner which would excuse the related Obligor of its obligation to pay all or any part of the Principal Balance thereof or interest thereon. (cc) Pool Deficiency Amount. Immediately after giving effect to any Loan on a Borrowing Date and the application of the Collections and Supporting LC Draw Proceeds in accordance with Section 3.01(d), (e) and (f) on such Borrowing Date, no Pool Deficiency Amount (calculated without giving effect to clause (ii) of the definition thereof) will exist. (dd) Control. A Control Agreement is in full force and effect in respect of each Collection Account, the Reserve Account and the Payment Account. (ee) Solvency. The Borrower is not the subject to any Insolvency Proceeding or Event of Bankruptcy. After giving effect to the transactions contemplated under this Agreement and each Transaction Document to which the Borrower is a party the Borrower shall be Solvent. (ff) Eligible Supporting Letter of Credit. Each Supporting Letter of Credit listed as an Eligible Supporting Letter of Credit in any Loan Request or Information Package, or included as an Eligible Supporting Letter of Credit in the calculation of the Supporting LC Amount on any date, is an Eligible Supporting Letter of Credit as of the effective date of the information reported in such Loan Request or Information Package or as of the date of such calculation, as the case may be.
751499193.15 22727329 80 SECTION 6.02. Representations and Warranties of Compass. Compass represents and warrants as of the Closing Date, as of each day on which a Credit Extension shall have occurred and as of each Settlement Date and, in respect of clauses (j) and (l) below, as of the date of each Information Package, as follows: (a) Organization and Good Standing. It has been duly organized and is validly existing as a limited liability company in good standing under the Laws of its jurisdiction of organization, with power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted. (b) Due Qualification. It is duly qualified to do business as a foreign limited liability company in good standing, and has obtained all necessary qualifications, licenses, and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business (including the servicing of the Pool Receivables) requires such qualifications, licenses, or approvals, except where the failure to do so could not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. (c) Power and Authority; Due Authorization. It (i) has all necessary power and authority to (A) execute and deliver this Agreement and the other Transaction Documents to which it is a party in any capacity, and (B) carry out the terms of and perform its obligations under the Transaction Documents applicable to it, and (ii) has duly authorized by all necessary limited liability company action the execution, delivery, and performance of this Agreement and the other Transaction Documents to which it is a party. (d) Binding Obligations. This Agreement constitutes, and each other Transaction Document to be signed by it when duly executed and delivered by it will constitute, the legal, valid, and binding obligation of it, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. (e) No Violation. The execution and delivery of each of the Transaction Documents to which it is a party and the consummation of the transactions contemplated by this Agreement and the other Transaction Documents and the performance by it of the terms hereof and thereof will not (i) violate or result in a default under, (A) its Constituent Documents, (B) any indenture, agreement or instrument binding on it or its assets or properties or (C) the ADT Credit Agreement, any ADT Indenture or any ADT Collateral Agreement, (ii) result in the creation or imposition of any Adverse Claim upon any of its assets or properties pursuant to the terms of any such indenture, agreement, or instrument, except as contemplated by the Sale Agreement, or (iii) violate any Law applicable to it or any of its assets or properties, except in the case of this clause (iii) to the extent that any such violations individually or in the aggregate could not reasonably be expected to result in a Material Adverse Effect. (f) No Proceedings. There are no actions, suits, or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Servicer, threatened against or affecting the Servicer or any of its assets or properties (i) asserting the invalidity of this Agreement or any other Transaction Document, (ii) seeking to prevent the sale 751499193.15 22727329 81 and assignment of all or any portion of the Receivable Pool or Related Assets under the Sale Agreement, the grant of a security interest in all or any portion of the Collateral hereunder, or the consummation of any of the transactions contemplated by, or the purposes of, this Agreement or of any of the other Transaction Documents, (iii) seeking any determination or ruling that could materially and adversely affect the performance by any ADT Entity of its obligations under any Transaction Document or (iv) could otherwise reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (g) Governmental Approvals. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required for its due execution, delivery, and performance of this Agreement or any other Transaction Document or the transactions contemplated thereby, except for (x) the filing of the UCC financing statements referred to in Article V, and (y) such authorizations, approvals, actions, notices or filings as have been obtained or made or for which the failure to obtain or make the same, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (h) Quality of Title. The Borrower has acquired from Compass, for fair consideration and reasonably equivalent value, all of the right, title, and interest in each Pool Receivable and the Related Assets in respect thereof and such acquisition constitutes a True Sale. The Borrower has received all consents and approvals required by the terms of the Related Documents in respect of the Pool Receivables to the transfer thereof to the Borrower and to the pledge hereunder to the Administrative Agent of its interest and rights in such Pool Receivables. Immediately prior to each sale or contribution of a Receivable under the Sale Agreement, Compass owned each Contract and Pool Receivable and the Related Assets related thereto free and clear of any Adverse Claim; and upon any Transfer under the Sale Agreement, the Collateral Agent (for the benefit of the Secured Parties) has acquired and at all times thereafter continuously has the benefit of a first priority perfected security interest in each Pool Receivable, together with the Related Assets, free and clear of any Adverse Claim; and no valid effective financing statement or other instrument similar in effect covering any Pool Receivable, any interest therein or the Related Assets is on file in any recording office except Permitted Lien Filings. Without limiting the foregoing, no Chattel Paper evidencing Pool Receivables (x) is in the possession of (or, in the case of electronic Chattel Paper, under the control of) any Person other than the Servicer (for the benefit of the Collateral Agent and the Borrower), the Collateral Agent or the Collateral Agent’s designee, or (y) has any marks or notations indicating that it has been pledged, assigned, or otherwise conveyed to any Person other than the Borrower or the Collateral Agent. (i) Financial Condition. All financial statements of the ADT Entities and their respective Subsidiaries (including the notes thereto) delivered to the Collateral Agent, the Administrative Agent, and each Group Agent pursuant to Section 7.05(a), present fairly, in all material respects, the actual financial position and results of operations and cash flows of such entities as of the dates and for the periods presented or provided other than in the case of annual financial statements, in each case in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of all interim balance sheets of the Parent and Compass. (j) Accurate Reports. None of the reports, financial statements, certificates, or other written information (other than forward-looking statements, projections, and statements of a general industry nature, as to which it represents only that it acted in good faith and utilized 751499193.15 22727329 82 assumptions reasonable at the time made and due care in the preparation of such statement or projection) furnished or to be furnished by or on behalf of it or any other ADT Entity (including each Loan Request and each Information Package furnished by the Servicer and each report furnished pursuant to Section 7.05(f)) (including, without limitation, by electronic delivery) to the Collateral Agent, the Administrative Agent, any Lender, or any Group Agent in connection with this Agreement or any other Transaction Document or any amendment hereto or delivered hereunder or thereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not materially misleading. (k) Accounts. The Lock-Boxes, names and addresses of all of the Account Banks, together with the account numbers of the Collection Accounts at such Account Banks, are specified in Schedule II (or have been notified to and approved by the Collateral Agent and the Administrative Agent in accordance with Section 7.03(d)). The Collection Accounts, the Reserve Account and the Payment Account, the account numbers for each such account and the Account Bank maintaining each such account are specified in Schedule II, except for such changes as are expressly permitted by Section 3.04, Section 7.03(d) or Section 7.06(c). (l) Eligible Receivables. Each Pool Receivable listed as an Eligible Receivable in any Loan Request or Information Package or included as an Eligible Receivable in the calculation of Borrowing Base on any date is an Eligible Receivable as of the effective date of the information reported in such Loan Request or Information Package or as of the date of such calculation, as the case may be, or has been cured through a repurchase in accordance with the Sale Agreement. In selecting the Eligible Receivables to be sold or contributed to the Borrower pursuant to the Sale Agreement (i) it did not utilize any selection process for choosing such Eligible Receivables, from among all Eligible Receivables, that could reasonably be expected to be adverse or disadvantageous to the interests of the Lenders, and Compass does not otherwise have any reason to expect that the performance of the Eligible Receivables sold under the Sale Agreement would be worse than any Eligible Receivables that it is not offering for sale under the Sale Agreement, and (ii) each such Receivable adheres to the Credit and Collection Policy. As of each Transfer Date, it has no knowledge of any fact (including any defaults by the Obligor thereunder) that would cause it to expect any payment on any Eligible Receivable transferred on such Transfer Date not to be paid in full when due. (m) Adverse Change. Since the Closing Date, (i) there has been no material adverse change in the value, validity, collectability, or enforceability of all or a material portion of the Pool Receivables, and (ii) there has been no Material Adverse Effect with respect to Compass or the Parent. (n) Credit and Collection Policy; Law. It has complied with the Credit and Collection Policy and such policies have not changed in any respect since the Closing Date, except as permitted under Sections 7.03(c) and 7.05(g). It has complied with all applicable Law (including, without limitation, all applicable Credit Protection Laws), except where the failure to so comply, individually or in the aggregate could not reasonably be expected to result in a Material Adverse Effect. 751499193.15 22727329 83 (o) Investment Company Act. It is not required to register as an “Investment Company” under (and as defined in) the Investment Company Act. (p) ERISA. No ERISA Event has occurred or is reasonably expected to occur, except as could not reasonably be expected to have a Material Adverse Effect. (q) Tax Returns and Payments. It has filed all federal income tax returns and all other tax returns that are required to be filed by it and has paid all taxes due pursuant to such returns or pursuant to any assessment received by it, except for any such taxes or assessments, if any, that are being appropriately contested in good faith by appropriate proceedings and with respect to which adequate reserves in conformity with GAAP have been provided. No tax lien has been filed, and, to the knowledge of the Servicer, no claim is being asserted, with respect to any such tax or assessment, except where such tax or lien is being contested as set forth above. It has paid all sales taxes required to be paid by it in connection with the Solar Energy Equipment and installation related to each Pool Receivable in compliance with Section 7.04(k), and has promptly notified the Administrative Agent of (i) any failure to pay any required sales taxes with respect to any Receivable and whether or not such sales taxes are being contested as set forth above, and (ii) any asserted tax lien relating to any such sales taxes and whether or not such lien is being contested as set forth above. (r) No Event of Termination, Etc. No event has occurred and is continuing, or would result from any Loan, that constitutes or would constitute an Unmatured Event of Termination or Event of Termination. (s) Anti-Corruption Laws, Anti-Terrorism Laws, and Sanctions. (i) Each ADT Entity is in compliance in all material respects with the material provisions of the USA PATRIOT Act, and, on or prior to the Closing Date, the Servicer has provided or caused to be provided to the Administrative Agent all information related to the ADT Entities (including names, addresses and tax identification numbers (if applicable)) reasonably requested in writing by the Administrative Agent not less than 10 Business Days prior to the Closing Date and mutually agreed to be required under “know your customer” and anti-money laundering rules and regulations, including the USA PATRIOT Act, to be obtained by the Administrative Agent or any Lender. (ii) None of the ADT Entities, or an of their respective Subsidiaries, nor, to the knowledge of the Servicer, any director, officer, agent, employee or Affiliate of any ADT Entity is currently the target of any Sanctions and each ADT Entity and, to the knowledge of the Servicer, their respective directors, officers, employees and agents are in compliance with Sanctions Laws in all material respects. The Servicer will not directly or indirectly cause the proceeds of any Loans to be used or otherwise make available such proceeds to any person, for the purpose of financing the activities of any person that is currently the target of any Sanctions or for the purpose of funding, financing or facilitating any activities, business or transaction with or in any country that is the target of the Sanctions, to the extent such activities, businesses or transaction would be prohibited by the Sanctions Laws, or in any manner that would result in the violation of any Sanctions Laws applicable to any party hereto.
751499193.15 22727329 84 (iii) Each ADT Entity, each of their respective Subsidiaries, and to the knowledge of the Servicer, their directors, officers, agents or employees, are in compliance with Anti-Corruption Laws in all material respects. No part of the proceeds of any Loans made hereunder will be used to make any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (t) Advertisements, Promotions. Other than a performance guarantee, no Pool Receivable is subject to any advertisement, promotion or other arrangement offered by any ADT Entity, subject to which such Pool Receivable or the Contract related to such Pool Receivable can be cancelled or terminated, in any manner which would excuse the related Obligor of its obligation to pay all or any part of the Principal Balance thereof or interest thereon. (u) Pool Deficiency Amount. Immediately after giving effect to any Loan on a Borrowing Date and the application of Collections and Supporting LC Draw Proceeds in accordance with Section 3.01(d), (e) and (f) on such Borrowing Date, no Pool Deficiency Amount (calculated without giving effect to clause (ii) of the definition thereof) will exist. (v) Control. A Control Agreement is in full force and effect in respect of each Collection Account, a Control Agreement is in full force and effect in respect of the Reserve Account and a Control Agreement is in full force and effect in respect of the Payment Account. (w) Permitted Securitization Financing. The transactions contemplated by this Agreement, including the transfer and pledge of Receivables in connection with the financing contemplated hereby, constitute a Permitted Securitization (as defined in the ADT Credit Agreement) and the entry by any ADT Entity into any Transaction Document and their respective performance thereunder is permitted by the ADT Credit Agreement, each ADT Indenture and each ADT Collateral Agreement, and will not conflict with or violate the terms of the ADT Credit Agreement, any ADT Indenture or any ADT Collateral Agreement. The Pool Receivables, the Related Assets, related Collections and other Collateral are free and clear of any Adverse Claim. (x) Solvency. Compass is not the subject to any Insolvency Proceeding or Event of Bankruptcy. After giving effect to the transactions contemplated under this Agreement and each Transaction Document to which Compass is a party Compass shall be Solvent. (y) No Fraud. To Compass’s knowledge, each Receivables was originated without any fraud or material misrepresentation on the part of the Obligor or any other party. (z) Eligible Supporting Letter of Credit. Each Supporting Letter of Credit listed as an Eligible Supporting Letter of Credit in any Loan Request or Information Package, or included as an Eligible Supporting Letter of Credit in the calculation of the Supporting LC Amount on any date, is an Eligible Supporting Letter of Credit as of the effective date of the information reported in such Loan Request or Information Package or as of the date of such calculation, as the case may be. 751499193.15 22727329 85 ARTICLE VII COVENANTS SECTION 7.01. Affirmative Covenants of the Borrower. At all times from the Closing Date until the Final Payout Date, the Borrower shall: (a) Compliance with Laws, Etc. Comply with all applicable Laws, in respect of the conduct of its business, the Pool Receivables, and each of the related Contracts, except where the failure to so comply, individually or in the aggregate could not reasonably be expected to adversely affect any Pool Receivable, or otherwise give rise to a Material Adverse Effect. (b) Preservation of Existence. Preserve and maintain its existence, rights, franchises, and privileges in the jurisdiction of its organization, and qualify and remain qualified in good standing in each jurisdiction, except where the failure to qualify or preserve or maintain such existence, rights, franchises, or privileges could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (c) Inspections. From time to time, at the expense of Compass upon reasonable prior notice, upon the request by the Administrative Agent or the Required Lenders (or any Group Agent if an Unmatured Event of Termination or Event of Termination has occurred and is continuing) and during regular business hours, permit the Collateral Agent, the Administrative Agent, and the Group Agents, or any of their respective representatives to visit and inspect its properties, to examine and make extracts from its Records, and to discuss its affairs, finances, and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested; provided that, unless an Event of Termination, or an Unmatured Event of Termination has occurred and is continuing at the time of any such inspection, Compass shall only be required to reimburse the reasonable documented out-of-pocket costs and expenses related to one such inspection of the Borrower during any 12-month period, which inspection shall be requested and scheduled by the Administrative Agent; provided, further, that the Collateral Agent, the Administrative Agent and the Group Agents shall use reasonable efforts to coordinate the timing of any inspections made of the Borrower pursuant to this Section 7.01(c) and of Compass pursuant to Section 5.2(a) of the Sale Agreement and Section 7.04(c). (d) Keeping of Records and Books of Account; Delivery. Maintain and implement, or cause to be maintained and implemented, administrative and operating procedures (including an ability to recreate records evidencing the Pool Receivables and the Related Assets in the event of the destruction of the originals thereof, backing up on at least a daily basis on a separate backup computer from which electronic file copies can be readily produced and distributed to third parties being agreed to suffice for this purpose), and keep and maintain, or cause to be kept and maintained, all documents, books, records, and other information necessary or advisable for the collection of the Pool Receivables and Related Assets (including records adequate to permit the daily identification of each new Pool Receivable, all Collections relating to each Pool Receivable and adjustments to each existing Pool Receivable received, made or otherwise processed on that day). 751499193.15 22727329 86 (e) Performance and Compliance with Pool Receivables and Contracts. At Compass’s expense, timely and fully perform and comply with all provisions, covenants and other promises required to be observed by it under the Contracts related to the Pool Receivables, except where the failure to so perform or comply, individually or in the aggregate could not reasonably be expected to adversely affect any Pool Receivable or Related Assets or otherwise result in a Material Adverse Effect. (f) Location of Records. Keep all its physical Records (to the extent not electronically available) and tangible chattel paper or other physical collateral (and any original documents relating thereto), if any, at the address(es) of the Borrower referred to in Section 6.01(l) or, upon thirty (30) days’ prior written notice to the Collateral Agent and the Administrative Agent, at such other locations in jurisdictions where all action required to protect and perfect the Collateral Agent’s first priority perfected security interest in the Receivable Pool and the Related Assets free and clear of any Adverse Claim shall have been taken and completed. (g) Credit and Collection Policy. Cause the Servicer to service the Pool Receivables, Related Assets, and Contracts in respect of the Receivable Pool in accordance with the Credit and Collection Policy and not agree to any changes thereto, except as permitted under Section 7.03(c). (h) Collections. Cause the Servicer to promptly withdraw from the bank accounts and/or charge the credit or debit cards of the Direct Deposit Obligors all amounts necessary to effect the timely payment when due of the Principal Balance and interest of the Pool Receivables relating to such Direct Deposit Obligors and immediately remit such amounts within one (1) Business Day of the date of withdrawal, debit or credit, directly to a Collection Account subject to a Control Agreement, without any commingling of such amounts with any other funds. Instruct, or cause the Servicer to instruct, each Obligor that to the extent any payment in respect of the related Pool Receivable is not to be made through the Servicer’s withdrawal from the bank account of each such Obligor and/or through the charge of the credit or debit card of each such Obligor, all Collections in respect of the Pool Receivables of each such Obligor shall be made to (i) a Collection Account covered by a Control Agreement or (ii) a Lock-Box that remits such amounts directly to a Collection Account covered by a Control Agreement, in each case, without any commingling of such amounts with any other funds. Cause the Servicer to as promptly as practicable and in any event within one (1) Business Day of receipt in any Collection Account of any Collections, remit, or cause to be remitted, such amounts directly to the Payment Account, without any commingling of such amounts with any other funds. (i) Right and Title. Hold all right, title, and interest in each Pool Receivable, except to the extent that any such right, title, or interest has been transferred or granted to the Collateral Agent (on behalf of the Secured Parties). (j) Transaction Documents. Without limiting its covenants or agreements set forth herein or in any other Transaction Document, (i) comply with each and every of its covenants and agreements under the Sale Agreement and its Constituent Documents, and (ii) take all actions reasonably necessary to ensure that each Transaction Document, except as may be terminated with the consent of the Administrative Agent, the Collateral Agent and each Group Agent, or in accordance with its terms, remains enforceable and in effect. 751499193.15 22727329 87 (k) Enforcement of Sale Agreement. On its own behalf and on behalf of Lenders, Group Agents, the Collateral Agent, and the Administrative Agent, (x) promptly enforce all covenants and obligations of Compass contained in the Sale Agreement, and (y) deliver to the Collateral Agent and the Administrative Agent (which will deliver such consents to each Group Agent) all consents, approvals, directions, notices, and waivers and take other actions under the Sale Agreement as may be reasonably directed by the Collateral Agent, the Administrative Agent or the Required Lenders. (l) Filing of Financing Statements. At Compass’s expense, take all actions necessary (including all filings) to vest in, and maintain in the Collateral Agent (on behalf of the Secured Parties) a valid, first priority perfected security interest in the Pool Receivables and Related Assets and the other Collateral free and clear of any Adverse Claims. Without limiting the foregoing, at Compass’s expense, as promptly as practicable (within five (5) Business Days) following such request execute, authorize and deliver all instruments and documents and take all action, necessary or reasonably requested by the Collateral Agent, the Administrative Agent, or any Group Agent (including the filing of financing or continuation statements, amendments thereto, or assignments thereof) to enable the Collateral Agent to exercise and enforce all of its rights hereunder and to vest and maintain vested in the Collateral Agent a valid, first priority perfected security interest in the Pool Receivables, the Related Assets with respect thereto, the Sale Agreement, the Collections with respect thereto and the other Collateral free and clear of any Adverse Claim. The Borrower hereby authorizes the Administrative Agent and the Collateral Agent to file any continuation statements, amendments thereto, and assignments thereof as the Collateral Agent, the Administrative Agent, or any Group Agent may from time to time determine to be necessary or desirable to perfect or maintain the perfection or priority of its security interest in the Pool Receivables, the Collections with respect thereto, the Related Assets with respect thereto, the Sale Agreement, and the other Collateral free and clear of any Adverse Claims. (m) Location. Maintain at all times its jurisdiction of organization and its chief executive office within a jurisdiction in the United States in which Article 9 of the UCC (2001 or later revision) is in effect. (n) Tax Matters. Pay all applicable taxes required to be paid by it when due and payable in connection with the transfer of the Pool Receivables and Related Assets by the Borrower; the Borrower acknowledges that none of the Collateral Agent, the Administrative Agent, any Group Agent, or any Lender shall have any responsibility with respect thereto. Pay and discharge, or cause the payment and discharge of, all federal income taxes (and all other material taxes) when due and payable, except such as may be contested in good faith by appropriate proceeding and for which an adequate reserve has been established and is maintained in accordance with GAAP. (o) Certain Governmental Fees, Surcharges, and Taxes. With respect to any portion of a Receivable attributable to governmental fees, surcharges, or taxes, pay (or cause to be paid) such governmental fees, surcharges, or taxes to the applicable Governmental Authority when due in accordance with applicable Law (except for any such governmental fees, surcharges, or taxes that are being appropriately contested in good faith by appropriate proceedings and with respect to which adequate reserves in conformity with GAAP have been provided), and none of
751499193.15 22727329 88 the Collateral Agent, the Administrative Agent, any Group Agent, or any Lender shall have any obligation to make any such payment or shall have any other responsibility with respect thereto. (p) Anti-Corruption Laws, Anti-Terrorism Laws, and Sanctions. Maintain in effect and enforce policies and procedures reasonably designed to ensure compliance in all material respects, by the Borrower and its directors, officers, employees, and agents with Anti- Corruption Laws and applicable Sanctions Laws in connection with its business operations, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (q) Accounting Treatment. Provide the Collateral Agent and the Administrative Agent with written notice delivered not less than twenty (20) days prior to the last day of each fiscal quarter or fiscal year, if the Receivables relating to the Receivable Pool will not be included on the consolidated balance sheet of Compass for purposes of GAAP as of such date. (r) Payment of Principal and Interest. Duly and punctually pay Principal, Interest, Fees and all other amounts payable by the Borrower hereunder in accordance with the terms of this Agreement. (s) Hedging. At any time the Aggregate Principal is in excess of $10,000,000, the Borrower will, within five Business Days of the Aggregate Principal exceeding $10,000,000, be required to maintain one or several Hedge Agreement or Hedge Transaction, in accordance with Exhibit I, for a Hedge Notional Amount that at all times is at least equal to the Aggregate Principal. (t) Obligor Notification Forms. Permit the Administrative Agent, in its discretion after the occurrence and during the continuance of an Event of Termination, to send notification forms giving each Obligor notice of the Secured Parties’ interest in the Collateral and the obligation to make payments as directed by the Administrative Agent. (u) Shutdown and De-Activation. In accordance with the Credit and Collection Policy, initiate a shutdown or de-activation, or cause the Servicer to initiate a shutdown or de- activate, or initiate repossession, or cause the Servicer to initiate repossession, of any Solar Energy System related to any Defaulted Receivable. (v) Approved Installer Covenants. (i) Cause each Approved Installer to perform under any prepaid operations and/or maintenance agreements and payments related to performance guarantees entered into with an Obligor and (ii) cause the Collateral Agent to be a third party beneficiary to any agreement between Compass and each Approved Installer (other than ADT Solar) related to any performance referred to in clause (i) above. (w) eVault. Deliver to the eVault all Collateral constituting “electronic chattel paper” (as defined in the UCC as in effect from time to time in the jurisdiction that governs the Collateral Control Agreement and eVault). The single authoritative copy of the electronic record that constitutes the loan agreement and any related promissory note, and any other chattel paper that evidences an Eligible Receivable, has been or, subject to the delivery requirements contained herein, will be delivered to the eVault in accordance with the Transaction Documents. The Collateral Control Agreement is effective to establish control over electronic chattel paper within the meaning of Section 9-105 of the UCC (as defined in the UCC as in effect from time to time in 751499193.15 22727329 89 the jurisdiction that governs the Collateral Control Agreement/eVault) and upon delivery of such electronic chattel paper to the eVault for holding in accordance with such Collateral Control Agreement, such security interest shall be a valid and first priority perfected security interest in that portion of the Collateral that constitutes electronic chattel paper. SECTION 7.02. Reporting Requirements of the Borrower. From the date hereof until the Final Payout Date, the Borrower shall furnish to the Collateral Agent and the Administrative Agent (who shall promptly send the same to the Group Agents): (a) Financial Statements. As soon as available and in any event within 75 days after the end of its fiscal year, copies of the unaudited annual income statement and balance sheet of the Borrower, prepared in conformity with GAAP (which may be furnished through the delivery of the consolidated financial statements of Compass, ADT Solar and the Parent pursuant to Section 7.05(a)). (b) Events of Termination, Etc. Notice of the occurrence of any Event of Termination or Unmatured Event of Termination accompanied by a written statement of an appropriate officer of the Borrower (or the Servicer on its behalf) setting forth details of such event and the action that the Borrower proposes to take with respect thereto, such notice to be provided promptly (but not later than two (2) Business Days) after any Responsible Officer of the Borrower or the Servicer obtains actual knowledge thereof. (c) Other Information. Promptly, from time to time, such Records or other information, documents, records, or reports respecting the condition or operations, financial or otherwise, of the Borrower, its performance under the Transaction Document and the Pool Receivables and Related Assets as the Collateral Agent, the Administrative Agent, or any Group Agent may from time to time reasonably request. (d) Notices Under Sale Agreement. A copy of each notice received by the Borrower from Compass pursuant to any provision of the Sale Agreement. (e) ERISA. Written notice of any ERISA Event which together with all other ERISA Events that have occurred within the prior 12 months could reasonably be expected to have a Material Adverse Effect. (f) Annual Lien Opinion. No later than each anniversary of the Closing Date, at the expense of the Borrower, a legal opinion of counsel reasonably satisfactory to the Collateral Agent and in form and substance satisfactory to the Collateral Agent (accompanied by recent lien searches against the Borrower and Compass), addressing the perfection and priority under the UCC of the Transfers to the Borrower and of the security interests granted to the Collateral Agent under the Transaction Documents and the absence of any financing statements or other instruments filed against Compass or the Borrower reflected in such lien searches covering any Pool Receivable, Related Asset or interest therein other than Permitted Lien Filings. (g) Hedging. With respect to any Hedge Transaction or Hedge Agreement, (i) concurrently with the Borrower’s entry into any Hedge Agreement (or any waiver or amendment thereof), notice thereof with a copy of the fully executed Hedge Agreement (or applicable waiver or amendment), (ii) a copy of each notice received by the Borrower from any Hedge Counterparty 751499193.15 22727329 90 pursuant to any provision of any Hedge Agreement, (iii) prompt notice (but in any event, within one (1) Business Day) of any termination of any Hedge Agreement or Hedge Transaction. SECTION 7.03. Negative Covenants of the Borrower. From the date hereof until the Final Payout Date, the Borrower shall not: (a) Sales, Adverse Claims, Etc. Except as otherwise provided herein or in the Sale Agreement, sell, assign (by operation of Law or otherwise), or otherwise dispose of, or create or suffer to exist any Adverse Claim (other than the Borrower’s ownership interest or contingent claim to ownership) upon or with respect to any Pool Receivable, Related Assets or any other Collateral. (b) Extension or Amendment of Receivables. Except as provided in Section 8.02(c), extend, amend or otherwise modify the terms of any Pool Receivable (in each case, including, without limitation, by means of any promotional activity, advertising or other statement or warranty (including on any ADT Entity’s website)), or amend, modify or waive any term or condition of any Contract related thereto or permit the Servicer to do the same. (c) Change in Credit and Collection Policy, Business, or Constituent Documents. (i) Make or consent to any change or amendment to the Credit and Collection Policy or permit the Servicer to make any such change or amendment if such proposed change or amendment could reasonably be expected to adversely affect the value, validity, collectability, or enforceability of any Pool Receivables or the Related Assets or decrease the credit quality of any Pool Receivable or the Related Assets or otherwise give rise to a Material Adverse Effect without (x) the prior written consent of the Collateral Agent, the Administrative Agent, and each Group Agent, or (y) in the case of any such change or amendment required by Law, upon delivery to the Collateral Agent and the Administrative Agent of a certificate of a Responsible Officer of Compass which certifies, that based upon advice of reputable counsel, such change or amendment is required to be made as a result of a change in Law, or (ii) make any change in the character of its business or amend or otherwise modify its Constituent Documents in any respect without the prior written consent of the Collateral Agent, the Administrative Agent and the Required Lenders. The Borrower will not agree to or permit any changes to the Approved Installation Agreements or the Approved Forms without the prior written consent of the Collateral Agent, the Administrative Agent and the Required Lenders (such approval not to be unreasonably withheld, conditioned, or delayed). (d) Change in Accounts. (i) Add any bank, lock-box or lock-box account not listed on Schedule II as an Account Bank, Lock-Box or Collection Account unless the Collateral Agent and the Administrative Agent shall have previously approved, in writing, and received duly executed copies of the proper forms of Control Agreements duly executed by the parties thereto, (ii) terminate any Account Bank, or related Lock-Box, the Collection Account, the Reserve Account or the Payment Account without the prior written consent of the Collateral Agent, the Administrative Agent and, in each case, only if prior to such termination it has instructed all affected Obligors to make payments to another Lock-Box or Collection Account or established a substitute Reserve Account or Payment Account, as the case may be, in each case, satisfying the requirements of this Agreement, and all affected Obligors (other than Obligors in respect of Delinquent Receivables or Defaulted Receivables) have made at least one payment to such other 751499193.15 22727329 91 Lock-Box or Collection Account, and has provided such certifications or undertakings reasonably satisfactory to the Collateral Agent and the Administrative Agent regarding any Obligor payments that may continue to be made to a Lock-Box or Collection Account that is being terminated, or (iii) affirmatively consent to any amendment, supplement, or other modification of any Lock-Box agreement without the prior written consent of the Collateral Agent and the Administrative Agent. (e) Deposits to Accounts. Deposit or otherwise credit, or cause or permit to be so deposited or credited, or direct any Obligor to deposit or remit, any Collections on Pool Receivables to any account not covered by the proper Control Agreement, or permit any amount to be deposited, credited or remitted to any Collection Account, the Reserve Account or the Payment Account other than Collections in respect of Pool Receivables. Permit any Collections in respect of Pool Receivables to be deposited, or credited in any account which is not subject to a Control Agreement which is in full force and effect. (f) Name Change, Mergers, Acquisitions, Sales, etc. (i) Change its name or the location of any office at which its physical Records (to the extent not electronically available) and tangible chattel paper or other physical collateral, if any, are maintained, (ii) be a party to any merger or consolidation, or purchase or otherwise acquire all or substantially all of the assets or any stock of any class of, or any partnership or joint venture interest (or similar ownership interest) in, any other Person; or, sell, transfer, convey, contribute, or lease all or any substantial part of its assets, or sell or assign with or without recourse any Pool Receivables or any interest therein (other than pursuant hereto and to the Sale Agreement) to any Person, (iii) have any subsidiaries, or (iv) terminate the Collateral Control Agreement or the underlying arrangements with the eVault Provider necessary to maintain the eVault in effect with respect to the Eligible Receivables without thirty (30) days’ prior written notice to the Administrative Agent and the Collateral Agent. (g) Debt and Business Activity. Incur, assume, guarantee, or otherwise become directly or indirectly liable for or in respect of any Debt or other obligation, purchase any asset (or make any investment by share purchase loan or otherwise), or engage in any other activity (whether or not pursued for gain or other pecuniary advantage), in any case, other than as will occur in accordance with this Agreement or the other Transaction Documents. (h) Change in Organization, Etc. Change its jurisdiction of organization or its name, identity, or corporate structure or make any other change such that any financing statement filed or other action taken to perfect the Collateral Agent’s interests under this Agreement would become misleading or would otherwise be rendered ineffective, unless the Borrower shall have given the Administrative Agent and the Collateral Agent not less than thirty (30) days’ prior written notice of such change and shall have cured such circumstances. The Borrower shall not amend or otherwise modify or waive its Constituent Documents or any provision thereof without the prior written consent of the Collateral Agent and the Administrative Agent. (i) Actions Impairing Quality of Title. Take any action that could reasonably be expected to cause any Pool Receivable, together with the Related Assets, not to be owned by it free and clear of any Adverse Claim; or take any action that could cause the Collateral Agent not to have a first priority perfected security interest in the Receivable Pool and Related Assets and the other Collateral and all products and proceeds of the foregoing, free and clear of any Adverse Claim, or suffer the existence of any valid effective financing statement or other instrument similar
751499193.15 22727329 92 in effect covering any Pool Receivable, any Related Asset, any Contract, any other Collateral or any proceeds thereof on file in any recording office, except Permitted Lien Filings. (j) Actions by Compass. Notwithstanding anything to the contrary set forth in the Sale Agreement, consent to (i) any change or removal of any notation required to be made by Compass pursuant to Section 3.3 of the Sale Agreement, or (ii) any waiver of or departure from any term set forth in Section 5.4 of the Sale Agreement, in each case, without the prior written consent of the Collateral Agent, the Administrative Agent and each Group Agent. (k) Tax Status. Take (or permit any other Person to take) any action that could (or could reasonably be expected to) cause the Borrower to be treated as other than disregarded as separate from its owner for U.S. federal income tax purposes with such owner being a United States person within the meaning of section 7701(a)(30) of the Code. The Borrower shall not take (or permit any other Person to take) any action that could cause it to be subject to any Tax in any jurisdiction outside the United States. The Borrower shall not take (or permit any other Person to take) any action that could cause it to be subject to any material amount of Tax imposed by a state or local taxing authority (which shall not be deemed to include, for the avoidance of doubt, any annual Taxes, franchise Taxes or similar Taxes). (l) Chattel Paper. Permit any Chattel Paper relating to the Pool Receivable or Related Assets to be in the possession of (or, in the case of electronic Chattel Paper, under the control of) any Person other than the Servicer (for the benefit of the Collateral Agent and the Borrower), the Collateral Agent or the Collateral Agent’s designee. (m) Restricted Payments. If an Event of Termination or Unmatured Event of Termination has occurred and is continuing, (i) purchase or redeem any of its membership interests, (ii) declare or pay any dividend or distribution or set aside any funds for any such purpose, (iii) prepay, purchase or redeem any Debt other than in accordance with or pursuant to any Transaction Document, (iv) lend or advance any funds or (v) repay any loans or advances to, for or from any of its Affiliates. (n) Hedge Agreement. The Borrower shall not terminate, amend or waive any Hedge Agreement without the prior written consent of the Administrative Agent. The Borrower shall not, except with the prior written consent of the Administrative Agent, exercise any rights (including any termination rights) under any Hedge Agreement or any Hedge Transaction that could reasonably be expected to adversely affect the right of the Lenders to receive payments hereunder or under any Hedge Agreement. (o) Changes in Payment Instructions to Obligors. The Borrower shall not make or authorize any change regarding the remittance of payments to be made with respect to the Collateral if other than to a Lock-Box or a Collection Account, unless the Administrative Agent has consented to such change. (p) Collateral Not to be Evidenced by Instruments. The Borrower shall take no action to cause any Receivables that is not, as of the Closing Date or the related Borrowing Date, as the case may be, evidenced by an instrument, to be so evidenced except in connection with the 751499193.15 22727329 93 enforcement or collection of such Receivables or unless such instrument is immediately delivered to the eVault, as collateral security for such Receivables. SECTION 7.04. Affirmative Covenants of Compass. From the date hereof until the Final Payout Date, Compass, individually and when acting as the Servicer, shall: (a) Compliance with Laws, Etc. Comply with all applicable Laws in respect of the conduct of its business, its assets and properties, the Pool Receivables, the related Contracts and the servicing and collection thereof, except where the failure to so comply, individually or in the aggregate could not reasonably be expected to adversely affect any Pool Receivable, or otherwise give rise to a Material Adverse Effect. (b) Preservation of Corporate Existence. Preserve and maintain its corporate existence, rights, franchises, and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing in each jurisdiction except where the failure to preserve or maintain such existence, rights, franchises, or privileges or to be so qualified could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (c) Inspections. From time to time, at its expense, upon reasonable prior notice, upon the reasonable request by the Administrative Agent or the Required Lenders (or any Group Agent if an Unmatured Event of Termination or Event of Termination has occurred and is continuing) and during regular business hours, permit the Administrative Agent, the Collateral Agent, and the Group Agents, or any of their respective representatives to visit and inspect its properties, to examine and make extracts from its Records, and to discuss its affairs, finances, and condition with its officers and independent accountants with respect to the Pool Receivables and the Related Assets and the performance of its obligations (as Servicer or otherwise) under the Transaction Documents as often as reasonably requested; provided that, unless an Event of Termination, or an Unmatured Event of Termination has occurred and is continuing at the time of any such inspection, the Servicer shall only be required to reimburse the reasonable documented out-of-pocket costs and expenses related to one such inspection pursuant to Section 5.2(a) of the Sale Agreement or this Section 7.04(c) during any 12-month period, which inspection shall be requested and scheduled by the Administrative Agent; provided, further, that the Collateral Agent, the Administrative Agent and the Group Agents shall use reasonable efforts to coordinate the timing of any inspections made of Compass pursuant to this Section 7.04(c) and of the Borrower pursuant to Section 7.01(c). (d) Keeping of Records and Books of Account; Delivery; Location of Records. Maintain and implement, or cause to be maintained and implemented, administrative and operating procedures (including an ability to recreate records evidencing the Pool Receivables and the Related Assets in the event of the destruction of the originals thereof, backing up on at least a daily basis on a separate backup computer from which electronic file copies can be readily produced and distributed to third parties being agreed to suffice for this purpose), and keep and maintain, or cause to be kept and maintained, all documents, books, records, and other information necessary or advisable for the collection of all Pool Receivables, and Related Assets (including records adequate to permit the daily identification of each new Pool Receivable, all Collections relating to each Pool Receivable and adjustments to each existing Pool Receivable received, made or otherwise processed on that day). In addition, it shall keep its physical Records (to the extent not 751499193.15 22727329 94 electronically available) and tangible chattel paper or other physical collateral (and any original documents relating thereto), if any, at the address(es) referred to in Annex 2 of the Sale Agreement or at such other address(es) as set forth in the Sale Agreement or, upon thirty (30) days’ prior written notice to the Collateral Agent and the Administrative Agent, at such other locations in jurisdictions where all action required by Section 8.05 hereof shall have been taken and completed. (e) Performance and Compliance with Receivables and Contracts. At its expense, timely and fully perform and comply with all provisions, covenants, and other promises required to be observed by it under the Contracts and the Pool Receivables relating to the Receivable Pool, except where the failure to so perform or comply, individually or in the aggregate, could not reasonably be expected to adversely affect any Pool Receivable or Related Assets or otherwise result in a Material Adverse Effect. (f) Credit and Collection Policy. Comply with the Credit and Collection Policy in regard to each Pool Receivable, the Related Assets, the related Contracts and the servicing and collection thereof. (g) Collections. Promptly withdraw from the bank accounts and/or charge the credit or debit cards of the Direct Deposit Obligors all amounts necessary to effect the timely payment when due of the Principal Balance and interest of the Pool Receivables relating to such Direct Deposit Obligors and immediately remit such amounts, within one (1) Business Day of the date of withdrawal, debit or credit directly to a Collection Account, without any commingling of such amounts with any other funds. Instruct each Obligor that to the extent any payment in respect of the related Pool Receivable is not to be made through the Servicer’s withdrawal from the bank account of each such Obligor and/or through the charge of the credit or debit card of each such Obligor, all Collections in respect of the Pool Receivables of each such Obligor shall be made to (i) a Collection Account covered by a Control Agreement or (ii) a Lock-Box that remits such amounts directly to a Collection Account covered by a Control Agreement, in each case, without any commingling of such amounts with any other funds. As promptly as practicable and in any event within one (1) Business Day of receipt in any Collection Account of any Collections, remit, or cause to be remitted, such amounts directly to the Payment Account, without any commingling of such amounts with any other funds. (h) Filing of Financing Statements. At its expense, take all actions necessary (including all filings) to vest in, and maintain in the Collateral Agent (on behalf of the Secured Parties) a valid, first priority perfected security interest in the Pool Receivables and Related Assets free and clear of any Adverse Claims. Without limiting the foregoing, cause the financing statements described in Exhibit F-1, that have not previously been filed, to be duly filed in the appropriate jurisdictions at its expense, as promptly as practicable (and in any event, within five (5) Business Days) following such request and to execute, authorize, and deliver all instruments and documents and take all action, necessary or reasonably requested by the Collateral Agent, the Administrative Agent, or any Group Agent (including the filing of financing or continuation statements, amendments thereto, or assignments thereof) to enable the Collateral Agent to exercise and enforce all of its rights hereunder and to vest and maintain vested in the Collateral Agent a valid, first priority perfected security interest in the Pool Receivables, the Related Assets with respect thereto, the Sale Agreement, the Collections with respect thereto, and the other Collateral free and clear of any Adverse Claim. The Servicer hereby authorizes the Collateral Agent and the 751499193.15 22727329 95 Administrative Agent to file any continuation statements, amendments thereto, and assignments thereof as the Collateral Agent, the Administrative Agent, or any Group Agent may from time to time determine to be necessary or desirable to perfect or maintain the perfection or priority of its security interest in the Pool Receivables, the Collections with respect thereto, the Related Assets with respect thereto, the Sale Agreement, and the other Collateral free and clear of any Adverse Claims. (i) Transaction Documents. Without limiting its covenants or agreements set forth herein or in any other Transaction Document, (i) comply with each and every of its covenants and agreements under the Sale Agreement and (ii) take all actions reasonably necessary to ensure that each Transaction Document, except as may be terminated with the consent of the Administrative Agent, the Collateral Agent and each Group Agent, or in accordance with its terms, remains enforceable and in effect. (j) Tax Matters. Pay all applicable taxes required to be paid by it when due and payable in connection with the transfer of the Receivables to the Borrower under the Sale Agreement; Compass acknowledges that none of the Collateral Agent, the Administrative Agent, any Group Agent, or any Lender shall have any responsibility with respect thereto. Pay and discharge, or cause the payment and discharge of, all federal income taxes (and all other material taxes) when due and payable, except such as may be contested in good faith by appropriate proceeding and for which an adequate reserve has been established and is maintained in accordance with GAAP. (k) Certain Governmental Fees, Surcharges, and Taxes. With respect to any portion of a Receivable attributable to governmental fees, surcharges, or taxes, pay (or cause to be paid) such governmental fees, surcharges, or taxes to the applicable Governmental Authority when due in accordance with applicable Law (except for any such governmental fees, surcharges, or taxes that are being appropriately contested in good faith by appropriate proceedings and with respect to which adequate reserves in conformity with GAAP have been provided), and none of the Collateral Agent, the Administrative Agent, any Group Agent, or any Lender shall have any obligation to make any such payment or shall have any other responsibility with respect thereto. Pay all sales taxes required to be paid in connection with the Solar Energy Equipment and installation related to each Pool Receivable by the due date thereof (except for any such sales taxes that are being appropriately contested in good faith by appropriate proceedings and with respect to which adequate reserves in conformity with GAAP have been provided). (l) Anti-Corruption Laws, Anti-Terrorism Laws, and Sanctions. Maintain in effect and enforce policies and procedures reasonably designed to ensure compliance in all material respects, by Compass, its Subsidiaries and their respective directors, officers, employees, and agents with Anti-Corruption Laws and applicable Sanctions Laws in connection with Compass’s or its Subsidiaries’ business operations, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (m) [Reserved.] (n) Servicing Programs. If a license or approval is required for the Collateral Agent’s, the Administrative Agent’s, or such successor Servicer’s use of any customized or
751499193.15 22727329 96 proprietary software or other computer program used by Compass in the servicing of the Receivables, then, following delivery of a Successor Notice, at its own expense make commercially reasonable efforts to arrange for the Collateral Agent, the Administrative Agent, or such successor Servicer to receive any such required license or approval. (o) Corporate Separateness; Related Matters and Covenants. Cause the Borrower to fully comply with its covenants in Section 7.08, it being understood that the foregoing shall in no event be deemed to obligate Compass to make any capital or other contributions to the Borrower. Maintain in place all policies and procedures, and take and continue to take all actions, applicable to it described in the assumptions as to the facts set forth in, and forming the basis of, the opinions set forth in the opinion letters delivered by Morgan, Lewis & Bockius LLP to the Collateral Agent, Administrative Agent, Lenders and Group Agent on the Closing Date, except to the extent that any failure to maintain in place such policies and procedures or failure to continue to take all such actions could not materially and adversely affect the conclusions set forth in such opinion letters. (p) Permitted Securitization. Cause the trustee, administrative agent and/or collateral agent, as applicable, in respect of the ADT Indentures, ADT Credit Agreement, ADT Intercreditor Agreement and the ADT Collateral Agreements to promptly take any actions from time to time, as may be reasonably requested by the Collateral Agent, to facilitate or cause the transfer of any Pool Receivables and the Related Assets or proceeds thereof to the extent then in the possession or control of such trustee, administrative agent and/or collateral agent, as applicable, to or at the direction of Compass or the Collateral Agent. (q) Approved Installer Covenants. (i) Cause each Approved Installer to perform under any prepaid operations and/or maintenance agreements and payments related to performance guarantees entered into with an Obligor and (ii) cause the Collateral Agent to be a third party beneficiary to any agreement between Compass and each Approved Installer (other than ADT Solar) related to any performance referred to in clause (i) above. (r) Shutdown and De-Activation. Initiate a shutdown or de-activation, or initiate repossession, of any Solar Energy System related to any Defaulted Receivable. (s) eVault Provider Audit. Upon request of the Administrative Agent or the Collateral Agent, the Servicer shall request a copy of the SSAE 16 audit report of the eVault Provider and, upon receipt from the eVault Provider, provide a copy thereof to the Administrative Agent and the Collateral Agent. SECTION 7.05. Reporting Requirements of Compass. From the date hereof until the Final Payout Date, Compass shall furnish to the Collateral Agent and the Administrative Agent (who shall promptly send the same to the Group Agents): (a) Financial Statements. (i) Within forty-five (45) days after the close of each of the first three fiscal quarters of each fiscal year of Parent, the Parent’s Form 10-Q as filed with the SEC (which shall be deemed delivered upon the filing of such Form 10-Q on the SEC’s website). 751499193.15 22727329 97 (ii) Annual Financial Statements. Within ninety (90) days after the end of each fiscal year of the Parent, the audited consolidated statements of operations, changes in stockholders’ equity and cash flows of Parent (including Compass, ADT Solar, their respective Subsidiaries and all other Subsidiaries of Parent) for such fiscal year, and the related audited consolidated balance sheet Parent (including Compass, ADT Solar, their respective Subsidiaries and all other Subsidiaries of Parent) as of the end of such fiscal year, setting forth in each case in comparative form the corresponding figures for the previous fiscal year, all reported on by PricewaterhouseCoopers LLP or other independent public accountants of recognized national standing (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit that are inconsistent with the standards of the Public Company Accounting Oversight Board), to the effect that such audited consolidated financial statements present fairly in all material respects the financial condition and results of operations of Parent (including Compass, ADT Solar, their respective Subsidiaries and all other Subsidiaries of Parent) on a consolidated basis in accordance with GAAP consistently applied (which shall be deemed delivered upon the filing of the Parent’s Form 10-K on the SEC’s website). (iii) Compliance Certificate. Together with the financial statements required hereunder, a compliance certificate in substantially the form of Exhibit E signed by an authorized officer of Compass, ADT Solar and the Parent, respectively and dated the date of such annual financial statement or such quarterly financial statement, as the case may be. (b) Financial Statements and Other Information. The following: (i) promptly after the same become publicly available, copies of all proxy statements, financial statements and regular or special reports which Compass or the Parent files with the SEC (which shall be deemed delivered upon the filing thereof on the SEC’s website); (ii) promptly following a request therefor, any documentation or other information (including with respect to the Borrower and the Parent) that the Collateral Agent, the Administrative Agent, any Group Agent or any Lender reasonably requests in order to comply with its ongoing obligations under the applicable “know your customer” and anti-money laundering rules and regulations, including the USA PATRIOT Act including the provision of information regarding beneficial ownership required by 31 C.F.R. §1010.230; and (iii) from time to time such further information regarding the business, affairs and financial condition of the Borrower, Compass, ADT Solar, and the Parent and their Affiliates as the Collateral Agent, the Administrative Agent or the Required Lenders shall reasonably request. (c) Written notice of any ERISA Event which together with all other ERISA Events that have occurred within the prior 12 months could reasonably be expected to have a Material Adverse Effect. 751499193.15 22727329 98 (d) Events of Termination, Etc. Notice of the occurrence of any Event of Termination or Unmatured Event of Termination, accompanied by a written statement of an appropriate officer of the Servicer setting forth details of such event and the action that it proposes to take with respect thereto, such notice to be provided promptly (but not later than two (2) Business Days) after a Responsible Officer of the Servicer obtains actual knowledge thereof. (e) Litigation. As soon as possible, and in any event within two (2) Business Days of knowledge of any Responsible Officer thereof, notice of any litigation, investigation, or proceeding initiated against the Borrower or, to the extent it could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, against Compass, the Servicer, and/or the Parent. (f) Agreed Upon Procedures Report. Prior to the Closing Date and not later than three (3) months after the end of each fiscal year of the Servicer (at the sole cost and expense of the Servicer), a copy of an agreed upon procedures report of a consulting firm or accounting firm reasonably acceptable to the Collateral Agent and the Administrative Agent (who shall promptly send the same to the Group Agents), addressed to the Collateral Agent, the Administrative Agent, and each Group Agent and setting forth the results of such firm’s performance of agreed upon procedures with respect to the performance of the Servicer for the prior fiscal year or twelve (12) month period, as reasonably requested by the Collateral Agent, the Administrative Agent or any Group Agent. The scope of the above agreed upon procedures report shall be as reasonably requested by the Collateral Agent, the Administrative Agent and the Required Lenders. For the avoidance of doubt, Protiviti Inc. (or applicable Affiliates) shall be deemed to be a consulting firm for purposes of this subsection; provided, that whether or not such consulting firm is reasonably acceptable shall remain subject to the discretion and determination of the Collateral Agent and the Administrative Agent with respect to any future agreed upon procedures reports to be delivered pursuant to this subsection. (g) Change in Credit and Collection Policy. Prior to the effectiveness of any change in or amendment to the Credit and Collection Policy, a description or, if available, a copy of the Credit and Collection Policy then in effect and a written notice (A) indicating such change or amendment, and (B) if such proposed change or amendment (i) is not required by Applicable Law and (ii) could reasonably be expected to adversely affect the value, validity, collectability, or enforceability of the Pool Receivables or decrease the credit quality of any Pool Receivables or otherwise give rise to a Material Adverse Effect, requesting the Collateral Agent’s, the Administrative Agent’s and each Group Agent’s prior written consent thereto. (h) Change in Approved Forms and Approved Installation Agreements. Prior to the effectiveness of any change in or amendment to the Approved Forms or the Approved Installation Agreements, a description or, if available, a copy of the Approved Forms or Approved Installation Agreements, as applicable, then in effect and a written notice (A) indicating such change or amendment, and (B) to the extent required, requesting the Collateral Agent’s, the Administrative Agent’s and each Group Agent’s prior written consent thereto. (i) Other Information. Promptly, from time to time, such Records or other information, documents, records, or reports regarding the Pool Receivables, Related Assets or other Collateral, the performance of Compass, the Parent and the Borrower under the Transaction 751499193.15 22727329 99 Documents, or otherwise relating to the Transaction Documents and the transactions contemplated thereby, as the Collateral Agent or the Administrative Agent may from time to time reasonably request, subject to compliance with applicable laws. SECTION 7.06. Negative Covenants of Compass. From the date hereof until the Final Payout Date, Compass shall not: (a) Extension or Amendment of Receivables. Except as provided in Section 8.02(c), extend, amend or otherwise modify the terms of any Pool Receivable, or amend, modify or waive any term or condition of any Contract (in each case, including, without limitation, by means of any promotional activity, advertising or other statement or warranty (including on any ADT Entity’s website)) related thereto. (b) Change in Credit and Collection Policy. Make or consent to any change or amendment to the Credit and Collection Policy or to its origination or servicing practices with respect to any Pool Receivables, in each case, if such proposed change or amendment could reasonably be expected to adversely affect the value, validity, collectability, or enforceability of any Pool Receivable or the Related Assets or decrease the credit quality of any Pool Receivables or the Related Assets, or otherwise give rise to a Material Adverse Effect, without (i) the prior written consent of the Collateral Agent, the Administrative Agent and each Group Agent or (ii) in the case of any such change or amendment required by Law, upon delivery to the Collateral Agent and the Administrative Agent of a certificate of a Responsible Officer of Compass which certifies, that based upon advice of reputable counsel, such change or amendment is required to be made as a result of a change in Law. Compass will not agree to or permit any changes to the Approved Installation Agreements or the Approved Forms without the prior written consent of the Collateral Agent, the Administrative Agent and the Required Lenders (such approval not to be unreasonably withheld, conditioned, or delayed). (c) Change in Lock-Box Banks. (i) Add any bank, lock-box or collection account not listed on Schedule II as an Account Bank, Lock-Box or Collection Account unless the Collateral Agent and the Administrative Agent shall have previously approved in writing and received duly executed copies of the proper forms of Control Agreements, duly executed by the parties thereto, (ii) terminate any Account Bank, or related Lock-Box, Collection Account, the Reserve Account or the Payment Account without the prior written consent of the Collateral Agent, the Administrative Agent and, in each case, only if prior to such termination it has instructed all affected Obligors to make payments to another Lock-Box or Collection Account or established a substitute Reserve Account or Payment Account, as the case may be, in each case, satisfying the requirements of this Agreement, and all affected Obligors (other than Obligors in respect of Delinquent Receivables or Defaulted Receivables) have made at least one payment to such other Lock-Box or Collection Account, and has provided such certifications or undertakings reasonably satisfactory to the Collateral Agent and the Administrative Agent regarding any Obligor payments that may continue to be made to a Lock-Box or Collection Account that is being terminated, or (iii) affirmatively consent to any amendment, supplement, or other modification of any Lock-Box agreement without the prior written consent of the Collateral Agent and the Administrative Agent. (d) Deposits to Accounts. Deposit or otherwise credit, or cause or permit to be so deposited or credited, or direct any Obligor to deposit or remit, any Collections on Pool
751499193.15 22727329 100 Receivables to any account not covered by the proper Control Agreement. Permit any Collections in respect of Pool Receivables to be deposited, or credited in any account which is not subject to a Control Agreement which is in full force and effect. (e) Mergers, Acquisitions, Sales, Etc. Consolidate or merge with or into any other Person or sell, lease or transfer all or substantially all of its property and assets, or agree to do any of the foregoing, unless (i) no Event of Termination or Unmatured Event of Termination has occurred and is continuing or would result immediately after giving effect thereto, (ii) if Compass is not the surviving entity or if Compass sells or transfers all or substantially all of its property and assets, the surviving entity or the Person purchasing the assets is an Affiliate of Compass and agrees to be bound by the terms and provisions applicable to Compass hereunder, (iii) no Change of Control shall result, (iv) the Parent has reaffirmed in a writing, in form and substance reasonably satisfactory to the Collateral Agent, the Administrative Agent and the Required Lenders, that its obligations under the Performance Support Agreement shall apply to the surviving entity and are in full force and effect, (v) no Material Adverse Effect could reasonably be expected to result therefrom, and (vi) the Collateral Agent, the Administrative Agent and each Group Agent receive such additional certifications and opinions of counsel as the Collateral Agent, the Administrative Agent or the Required Lenders shall reasonably request. (f) Sales, Adverse Claims, Etc. Except as otherwise provided herein or in the Sale Agreement, (I) sell, assign (by operation of Law or otherwise), or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, (i) any Pool Receivable, (ii) any other Receivable the proceeds or collections of which are commingled with the proceeds of any Pool Receivable (unless subject to an intercreditor arrangement reasonably approved by the Collateral Agent in writing), (iii) any Contract or Related Assets, the related Solar Energy Equipment, or any proceeds, in each case, in respect of any of the foregoing or any interest therein, (iv) any Collection Account, the Reserve Account, the Payment Account or any other account to which any Collections of any Pool Receivable are sent, or (v) any right to receive income or proceeds from or in respect of any of the foregoing or (II) purport to do any of the foregoing. (g) Chattel Paper. Permit any Chattel Paper relating to any Pool Receivable to be in the possession of (or, in the case of electronic Chattel Paper, under the control of) any Person other than the Servicer or the eVault Provider (for the benefit of the Collateral Agent and the Borrower), the Collateral Agent, or the Collateral Agent’s designee. (h) Corporate Separateness; Related Matters and Covenants. Take any action, on its part, to cause the Borrower to violate its covenants in Section 7.08, it being understood that the foregoing shall in no event be deemed to obligate Compass to make any capital or other contributions to the Borrower. SECTION 7.07. Nature of Obligations. Notwithstanding anything to the contrary contained herein or in any other Transaction Document, the Borrower’s obligations hereunder to repay in full the Aggregate Principal and to pay all Interest, Fees and other Borrower Obligations are full recourse general obligations of the Borrower, and all obligations of Compass (as Servicer or otherwise) so specified hereunder shall be full recourse general obligations of Compass. 751499193.15 22727329 101 SECTION 7.08. Corporate Separateness; Related Matters and Covenants. The Borrower covenants and agrees to take such actions as shall be necessary in order that: (a) Special Purpose Entity. The Borrower will be a special purpose limited liability company whose activities are restricted in its Constituent Documents to: (i) negotiating, authorizing, executing, delivering, entering into and performing its obligations under the Transaction Documents to which it is a party and undertaking any other activities related thereto, including (A) purchasing or otherwise acquiring Pool Receivables, Related Assets and other assets from Compass, and owning, holding, transferring, assigning, selling, contributing to capital, pledging and otherwise dealing with such assets, (B) entering into and performing its obligations under agreements for the selling, servicing and financing of the Receivable Pool, (C) opening, maintaining and/or terminating any accounts in connection therewith, (D) borrowing Loans hereunder and making all payments of Principal, Interest, Fees and other amounts owed by it under or in connection with this Agreement and the other Transaction Documents, and (E) making cash payments to Compass as purchase price in accordance with the Sale Agreement or paying dividends and distributions to Compass; and (ii) engaging in any lawful act or activity and exercising any powers not prohibited under the Transaction Documents and permitted to limited liability companies organized under the laws of the State of Delaware that are related or incidental to, and necessary, convenient or advisable for the accomplishment of the above-mentioned purposes. (b) Commingling. Except as otherwise expressly permitted by this Agreement, the Borrower shall not commingle any of its assets or funds with those of any of its Affiliates. (c) Independent Manager. At least one member of the Borrower’s board of directors shall be an Independent Manager and the limited liability company agreement of the Borrower shall provide: (i) for substantially the same definition of “Independent Manager” as used herein, (ii) that prior to the Final Payout Date, no Person shall be authorized or empowered to, and the Borrower shall not, without the prior unanimous written consent of the Borrower’s board of managers and the Independent Manager, file a voluntary bankruptcy petition or file or consent to the filing of any bankruptcy, insolvency or reorganization petition under any applicable federal or state law relating to bankruptcy naming the Borrower as debtor or otherwise institute bankruptcy or insolvency proceedings by or against the Borrower or otherwise seek with respect to such entity relief under any laws relating to the relief from debts or the protection of debtors generally, and (iii) that the provisions required by clauses (i) and (ii) of this sentence cannot be amended prior to the Final Payout Date without the prior written consent of the Administrative Agent and the Collateral Agent, and the prior unanimous written consent of the Borrower’s board of managers and the Independent Manager. (d) Corporate Formalities. The Borrower will strictly observe corporate formalities in its dealings with the Servicer, Compass, and any Affiliates thereof. Except as expressly contemplated by this Agreement, the Borrower shall not maintain joint bank accounts or other depository accounts to which the Servicer, Compass, and any Affiliates (other than the Borrower) thereof has independent access. The Borrower shall maintain its Constituent Documents in conformity with this Agreement. 751499193.15 22727329 102 (e) Conduct of Business. The Borrower shall conduct its affairs strictly in accordance with its organizational documents and observe all necessary, appropriate, and customary company formalities, including, but not limited to, holding all regular and special members’ and board of directors’ (or managers’) meetings appropriate to authorize all corporate action, keeping separate and accurate minutes of its meetings, passing all resolutions or consents necessary to authorize actions taken or to be taken, and maintaining accurate and separate books, records and accounts, including, but not limited to, payroll and intercompany transaction accounts (to the extent applicable). (f) No Other Business or Debt. The Borrower shall not engage in any business or activity except as set forth in the Transaction Documents nor, incur any Debt other than pursuant to this Agreement and the other Transaction Documents and Debt which is incidental thereto, incurred in the ordinary course of business. (g) Books and Records. The Borrower shall maintain (or cause to be maintained) company records, books of account and financial statements separate from those of any of its Affiliates, in a manner such that it will not be difficult or costly to segregate, ascertain, or otherwise identify the assets and liabilities of the Borrower from the assets and liabilities of its Affiliates, including Compass and the Parent. (h) Operating Expenses. Except as expressly contemplated by the Transaction Documents, and except from capital contributions from its members, the Borrower’s operating expenses will not be borne by any of its Affiliates, including Compass and the Parent. (i) Disclosure of Transactions. All financial statements of the Parent, Compass and any other Affiliates of the Borrower that are consolidated to include the Borrower will include notes or other disclosure that will clearly reflect that the assets of the Borrower are owned by the Borrower, and not available to pay creditors of Parent, Compass or the Borrower’s other Affiliates. (j) Arm’s-Length Relationships. The Borrower shall maintain an arm’s-length relationship with the Parent, Compass, and its other Affiliates. Neither the Borrower on the one hand, or Compass, or any of its other Affiliates on the other hand will be or will hold itself out to be liable for the debts of the other. The Borrower, Compass, and its other Affiliates will immediately correct any known misrepresentation with respect to the foregoing, and they will not operate or purport to operate as an integrated single economic unit with respect to each other or in their dealing with any other entity. (k) Allocation of Overhead. To the extent that the Borrower, on the one hand, and Compass or any Affiliate of Compass (other than the Borrower), on the other hand, have offices in the same location, there shall be a fair and appropriate allocation of overhead costs between them, and the Borrower shall bear its fair share of such expenses, which may be paid through the Servicing Fee or otherwise. (l) Identification. The Borrower shall at all times hold itself out to the public under its own name as a legal entity separate and distinct from its equity holders, members, managers, Compass, the Parent or any of its other Affiliates. 751499193.15 22727329 103 (m) Capital. The Borrower shall maintain adequate capital in light of its contemplated business operations. (n) In respect of the Borrower: (i) the Borrower shall not issue any security of any kind except membership interests issued to Compass in accordance with the Borrower’s Constituent Documents, or incur, assume, guarantee, or otherwise become directly or indirectly liable for or in respect of any Debt or other obligation other than (i) in connection with the Transaction Documents, and (ii) ordinary course operating expenses; (ii) the Borrower shall not sell, pledge, or dispose of any of its assets, except as permitted by, or as provided in, the Transaction Documents; (iii) the Borrower shall not purchase any asset (or make any investment, by share purchase, loan, or otherwise) except as permitted by, or as provided in, the Transaction Documents; (iv) the Borrower shall not make any payment, directly or indirectly, to, or for the account or benefit of, any owner of any Voting Securities, security interest, or equity interest in the Borrower or any Affiliate of any such owner (except, in each case, as expressly permitted by the Transaction Documents); (v) the Borrower shall not make, declare, or otherwise commence or become obligated in respect of, any dividend, stock, or other security redemption or purchase, distribution, or other payment to, or for the account or benefit of, any owner of any Voting Securities or other equity interest in the Borrower to any such owner or any Affiliate of any such owner other than from funds received by it for its own account under Section 3.01(d)(xi), from the proceeds of Loans hereunder, or if applicable, from cash capital contributions from its owner for the payment of its expenses or liabilities or otherwise that remain unused, or the issuance of additional equity interests to Compass in connection with contributions of cash or other assets, and so long as, in any of the foregoing cases, the result would not directly or indirectly cause the Borrower to be considered insolvent and would not result in a Pool Deficiency Amount; (vi) The Borrower shall not have any employees or subsidiaries; (vii) The Borrower will provide for not less than ten (10) Business Days’ prior written notice to the Collateral Agent and the Administrative Agent of any removal, replacement, or appointment of any manager that is currently serving or is proposed to be appointed as an Independent Manager of the Borrower, such notice to include the identity of the proposed replacement Independent Manager, together with a certification that such replacement satisfies the requirements for an Independent Manager set forth in this Agreement and the limited liability company agreement of the Borrower; and (viii) The Borrower will maintain in place all policies and procedures, and take and continue to take all actions, applicable to it described in the assumptions as to the facts set forth in, and forming the basis of, the opinions set forth in the opinion letters
751499193.15 22727329 104 delivered by Morgan, Lewis & Bockius LLP to the Collateral Agent, Administrative Agent, Lenders and Group Agent on the Closing Date, except to the extent that any failure to maintain in place such policies and procedures or failure to continue to take all such actions could not materially and adversely affect the conclusions set forth in such opinion letters. SECTION 7.09. Supporting Letters of Credit. The Borrower and the Servicer may from time to time cause to be issued and delivered to the Administrative Agent (and so long as any Supporting Letter of Credit shall be outstanding, shall cause to be maintained) one or more letters of credit that are Eligible Supporting Letters of Credit (a “Supporting Letter of Credit”) issued by Eligible Supporting Letter of Credit Providers. The Administrative Agent may only draw amounts under any Supporting Letter of Credit (or any other letter of credit that names the Administrative Agent as the beneficiary thereof) (a) following the occurrence and during the continuance of an Event of Termination, (b) following the occurrence of the Termination Date, (c) if the related Eligible Supporting Letter of Credit Provider ceases to be an Eligible Supporting Letter of Credit Provider, (d) if such Supporting Letter of Credit is not extended within two (2) months of its scheduled termination date or (e) to satisfy a Deficiency (in the case of a Deficiency, after giving effect to the deposit of any Reserve Account Withdrawal Amount into the Payment Account pursuant to Section 3.04(b) in connection with such Deficiency), and deposit the proceeds thereof into the Reserve Account (it being understood that the amount of cash required to be deposited into the Reserve Account shall be reduced on a dollar-for dollar basis for each dollar represented by the Supporting LC Amount); provided that in no event will the Supporting LC Amount or the aggregate amount drawn under Supporting Letters of Credit by the Administrative Agent exceed an amount equal to the product of (x) 10% and (y) the largest amount of Aggregate Principal outstanding as of any date of determination. ARTICLE VIII ADMINISTRATION AND COLLECTION OF RECEIVABLES SECTION 8.01. Designation of the Servicer. (a) Compass as the Servicer. The servicing, administering, and collection of the Pool Receivables on behalf of the Borrower, the Administrative Agent, Group Agents, the Collateral Agent, and Lenders shall be conducted in accordance with this Agreement by the Person designated as the Servicer hereunder (the “Servicer”) from time to time in accordance with this Section 8.01. Until the Collateral Agent (with the consent, or acting at the direction of, the Required Lenders) delivers to Compass and the Borrower a Successor Notice in accordance with Section 8.01(b), Compass is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms hereof. The Servicer shall receive a daily Servicing Fee in respect of the Receivable Pool, payable monthly in arrears for each Settlement Period on each subsequent Settlement Date, subject to the priorities of payments in Section 3.01(d), for the performance of its duties hereunder. The Borrower, the Administrative Agent, the Collateral Agent, Lenders, and Group Agents hereby acknowledge and agree to this appointment of the Servicer. 751499193.15 22727329 105 (b) Successor Notice. In the event that an Event of Termination has occurred and is continuing, upon the written direction of the Required Lenders or the Administrative Agent, the Collateral Agent shall, by notice to Compass and the Borrower, immediately designate a successor Servicer pursuant to the terms hereof (a “Successor Notice”) which successor shall be selected by the Administrative Agent with the written consent of the Required Lenders (which consent shall not be unreasonably withheld, conditioned or delayed); it being understood and agreed that, in any event, the Administrative Agent, with the written consent of the Required Lenders (which consent shall not be unreasonably withheld, conditioned or delayed), may (but shall not be obligated to) serve as successor Servicer. Upon receipt of a Successor Notice, Compass agrees that it shall terminate its activities as the Servicer hereunder in a manner that the Administrative Agent determines will facilitate the transition of the performance of such activities to the successor Servicer, and such successor Servicer shall assume each and all of Compass’s rights and obligations to service and administer the Pool Receivables, on the terms and subject to the conditions herein set forth, and Compass shall do all things necessary or appropriate to assist such successor Servicer in assuming such obligations. The Collateral Agent shall not give, and the Administrative Agent and the Lenders shall not instruct the Collateral Agent to give, Compass a Successor Notice except after the occurrence of any Event of Termination that remains continuing. (c) Sub-servicers; Subcontracts. The Servicer may not subcontract with any Person or otherwise delegate any of its duties or obligations hereunder except (at its own expense) (i) to Collection Agents to collect amounts owed from the Obligors in respect of Defaulted Receivables, (ii) to third party service providers engaged by the Servicer in the ordinary course of business for certain functions relating to the servicing, administering, and collection of Receivables generally (and not limited to Pool Receivables), or (iii) with the prior written consent of the Collateral Agent, the Administrative Agent and the Required Lenders (such consents not to be unreasonably withheld, conditioned, or delayed); provided, that, notwithstanding any such designation, delegation, or subcontract or any replacement or substitution of Servicer pursuant to clause (a) or (b) above, or the entering into the Concord Subservicing Agreement below, the Servicer shall remain primarily and directly liable for the performance of all the duties and obligations of the Servicer pursuant to the terms hereof. It is acknowledged and agreed that (a) the Collateral Agent, the Administrative Agent and the Required Lenders consent to the Servicer entering into a subservicing agreement with Concord Servicing LLC on or prior to the initial Borrowing Date (the “Concord Subservicing Agreement”), (b) the Concord Subservicing Agreement may not be amended or otherwise modified without the prior written consent of the Collateral Agent, the Administrative Agent and the Required Lenders (such consents not to be unreasonably withheld, conditioned, or delayed) and (c) the Servicer shall be responsible for the fees and expenses of Concord Servicing LLC pursuant to the Concord Subservicing Agreement. SECTION 8.02. Duties of the Servicer. (a) The Servicer shall take or cause to be taken all such actions as may be necessary or advisable to collect, administer, and service each Pool Receivable from time to time with reasonable care and diligence and, in any event, with no less care and diligence than it uses in the collection, administration and servicing of its own assets, and in accordance with (i) applicable Laws, (ii) the Credit and Collection Policy, and (iii) this Agreement. During the continuance of an Event of Termination, the Collateral Agent shall have the sole right to direct the Servicer to commence or settle any legal actions to enforce collection of any Pool Receivables; provided, that the Servicer shall have no obligation to commence any 751499193.15 22727329 106 legal actions or enforce collection of any Pool Receivable in a commercially unreasonable manner, taking into account the costs and recoveries expected in connection with such legal action or enforcement. Without limiting the foregoing, the duties of the Servicer shall include the following: (i) supervising the Collateral, including communicating with Obligors, executing amendments, providing consents and waivers, enforcing and collecting on the Collateral and otherwise managing the Collateral on behalf of the Borrower; (ii) maintaining all necessary servicing records with respect to the Collateral and providing such reports to the Administrative Agent, the Collateral Agent and each Lender in respect of the servicing of the Collateral (including information relating to its performance under this Agreement) as may be required hereunder or as the Administrative Agent, the Collateral Agent or any Lender may reasonably request; (iii) maintaining and implementing administrative and operating procedures (including, an ability to recreate servicing records evidencing the Collateral in the event of the destruction of the originals thereof) and keeping and maintaining all documents, books, records and other information reasonably necessary or advisable for the collection of the Collateral; (iv) promptly delivering to the Administrative Agent, the Collateral Agent or each Lender, from time to time, such information with respect to the Servicer, the Borrower, the Collateral or its servicing records (including information relating to its performance under this Agreement) as the Administrative Agent, the Collateral Agent or each Lender; (v) identifying each Contract in its internal servicing records to reflect the ownership of such Contract by the Borrower; (vi) complying in all material respects with the Credit and Collection Policies in regard to the management of each Contract and providing the prompt written notice to the Administrative Agent of any material change in the Credit and Collection Policies; (vii) complying in all material respects with all Applicable Laws with respect to it, its business and properties and all Contracts and the Related Assets and Collections with respect thereto or any part thereof; (viii) notifying the Administrative Agent, the Collateral Agent and each Lender of any material action, suit, proceeding, dispute, offset, deduction, defense or counterclaim (a) that is or is threatened to be asserted by an Obligor with respect to any Loan (or portion thereof) of which it has actual knowledge or has received notice; or (b) that could reasonably be expected to have a Material Adverse Effect; (ix) maintaining the perfected security interest of the Administrative Agent, for the benefit of the Secured Parties, in the Collateral; (x) making payments pursuant to the terms of the Information Package; (xi) providing advice to the Borrower with respect to the purchase and sale of and payment for the Receivables; (xii) instructing the Obligors on the Receivables to make payments directly into a Lock-Box or into a Collection Account established and maintained with an Eligible Bank; (xiii) initiating a shutdown or de-activation or initiating repossession of any Solar Energy System related to any Defaulted Receivable; (xiv) requiring the applicable Required Loan Documents to be delivered to the eVault; and (xv) complying with such other duties and responsibilities as may be required of the Servicer by this Agreement. Notwithstanding anything to the contrary contained herein, the exercise by the Administrative Agent and the Secured Parties of their rights hereunder shall not release the Servicer (unless replaced by a successor servicer) or the Borrower from any of their duties or responsibilities with respect to the Collateral. The Secured Parties shall not have any obligation or liability with respect to any Collateral, nor shall any of them be obligated to perform any of the obligations of the Servicer hereunder, unless one of them becomes a successor servicer hereunder. (b) Allocation of Collections; Segregation. The Servicer shall apply and remit Collections in accordance with the terms of this Agreement, including without limitation, Section 7.04(g). Any payment by an Obligor in respect of any indebtedness owed by it to the Borrower shall, except as otherwise specified by such Obligor or otherwise required by contract or law, be 751499193.15 22727329 107 applied as a collection of a payment by such Obligor (starting with the oldest such outstanding payment due, provided such obligation is not on non-accrual) to the extent of any amounts then due and payable thereunder before being applied to any other receivable or other obligation of such Obligor. (c) Extension and Modification of Receivables. So long as no Event of Termination or Unmatured Event of Termination is continuing or would result therefrom, the Servicer, may solely, in accordance with the Credit and Collection Policy extend, waive, amend, or otherwise modify the terms of any Pool Receivables as the Servicer may reasonably determine to be appropriate to maximize Collections thereof, in a manner that does not adversely affect any Pool Receivable, including the validity, enforceability or collectability of any Pool Receivable or result in such Pool Receivable not constituting an Eligible Receivable, or otherwise give rise to a Material Adverse Effect; provided, that, (A) after giving effect to such extension, amendment, waiver, or other modification, the Aggregate Principal shall not exceed the Borrowing Base, (B) no such extension, amendment, waiver, or other modification shall make or be deemed to make any such Pool Receivable current or otherwise modify the aging thereof, or limit or reduce the rights of the Borrower or any Secured Party under this Agreement, and (C) following the occurrence of the Termination Date, during the continuation of an Unmatured Event of Termination or Event of Termination, the Servicer may only extend, waive, amend or otherwise modify the terms of the any Pool Receivables with the prior written consent of the Administrative Agent. (d) Documents and Records. The Borrower and Compass shall deliver to the Servicer, and the Servicer shall hold in trust for the Borrower, the Administrative Agent, the Collateral Agent, each Group Agent, and each Lender, all Records (and any original documents relating thereto) (and after the occurrence of an Event of Termination or Unmatured Event of Termination that remains continuing, shall deliver the same to the Collateral Agent or its designees promptly upon the Collateral Agent’s written request). Upon the reasonable written request of the Collateral Agent, the Administrative Agent or any Group Agent, the Servicer shall provide the Collateral Agent, the Administrative Agent and each Group Agent with the location(s) of all physical Records (to the extent not electronically available) and tangible chattel paper or other physical collateral (and any original documents relating thereto), if any. (e) Termination. Compass’s authorization as Servicer under this Agreement shall terminate upon the earlier to occur of (i) the Final Payout Date, and (ii) the effective date of the replacement of the Servicer with a successor servicer in accordance with Section 8.01(b). (f) Power of Attorney. The Borrower hereby grants to the Servicer, an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of the Borrower any and all steps which are necessary or advisable to endorse, negotiate, or otherwise realize on any writing or other right of any kind held or transmitted by the Borrower or transmitted or received by the Borrower in connection with any Pool Receivable or under the related Records. Each of the Borrower and the Servicer hereby grants during the continuance of an Event of Termination to the Administrative Agent and the Collateral Agent, an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of the Borrower and the Servicer any and all steps which are necessary or advisable to endorse, negotiate, or otherwise realize on any writing or other right of any kind held or transmitted by the Borrower or the Servicer or transmitted or received by the Borrower or the Servicer in connection
751499193.15 22727329 108 with any Pool Receivable or under the related Records, including such actions as may be necessary or desirable, in the reasonable determination of the Administrative Agent and the Collateral Agent, as the case may be, to collect any and all amounts or portions thereof due under the Pool Receivables, Related Assets and all other Collateral, including indorsing the name of the Borrower on checks and other instruments representing Collections and enforcing all of the rights and remedies of the Collateral Agent and the Administrative Agent under and in connection with this Agreement and the other Transaction Documents. (g) Resignation of Compass as the Servicer. Compass shall not resign in its capacity as the Servicer hereunder without the prior written consent of the Collateral Agent, the Administrative Agent and each Group Agent, which consent shall be given or withheld in the sole and absolute discretion of the Collateral Agent, the Administrative Agent, and each Group Agent, except following the receipt of a Successor Notice and in accordance with Section 8.01(b). (h) Servicing Expenses. For the avoidance of doubt, in consideration of the Servicing Fee payable hereunder, the Servicer shall pay all of the costs and expenses it incurs in connection with the servicing and administration of the Receivable Pool and Related Assets and the performance of its obligations under the Transaction Documents, including, without limitation, all fees payable to account banks with respect to any Collection Account, the Reserve Account, the Payment Account or related Control Agreements and all costs and expenses of enforcement of the Receivables against the Obligors and all Collection Agent Fees. SECTION 8.03. Rights of the Collateral Agent. In addition to all of its other rights herein including under Articles IX and X, under the other Transaction Documents or at Law or in equity, the Administrative Agent and Collateral Agent shall have the other following rights set forth in this Section 8.03: (a) Notice to Obligors. At any time during the continuance of any Event of Termination upon the written direction of the Required Lenders or the Administrative Agent, (A) the Collateral Agent may notify the Obligors of Pool Receivables, or any of them, of its interests in the Receivable Pool or Related Assets and instruct them to make payments on the Pool Receivables as instructed by, the Collateral Agent, and may debit and/or charge Obligors’ accounts and credit cards directly or through automated clearing house or ACH, and (B) the Servicer shall (on behalf of the Borrower), at the Servicer’s expense, give notice of the Collateral Agent’s interest in the Pool Receivables to each said Obligor and instruct them to make payments on the Pool Receivables as instructed in writing by, the Collateral Agent or the Administrative Agent. (b) Other Rights. At any time during the continuance of any Event of Termination, the Servicer shall, (A) at the Collateral Agent’s request and at the Servicer’s expense, assemble all of the Records and deliver such Records to the Collateral Agent or its designee, and (B) at the request of the Collateral Agent or its designee, exercise or enforce any of their respective rights hereunder, under any other Transaction Document, Pool Receivable, or under any Related Asset (to the extent permitted hereunder or thereunder). Without limiting the generality of the foregoing, at any time, each of the Servicer and the Borrower shall upon the request of the Administrative Agent, the Collateral Agent, any of their respective designee or the Required Lenders and at the Servicer’s expense: 751499193.15 22727329 109 (I) authorize, execute (if required) and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate; and (II) mark its master data processing records evidencing that the Pool Receivables have been sold in accordance with this Agreement. (c) Additional Financing Statements; Performance by the Administrative Agent. The Borrower hereby authorizes the Collateral Agent and the Administrative Agent or their respective designees to file one or more financing or continuation statements, and amendments thereto and assignments thereof, or any similar instruments in any relevant jurisdiction to perfect the Collateral Agent’s security interest in the Collateral, identifying the Borrower as the relevant debtor. If the Borrower or the Servicer fails to perform any of its agreements or obligations under this Agreement or any other Transaction Document, the Collateral Agent, the Administrative Agent, or any of their respective designees may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the expenses of the Collateral Agent or the Administrative Agent or its designee incurred in connection therewith shall be payable by the Borrower as provided in Section 12.06. (d) Investment of Funds on Deposit in the Payment Account and the Reserve Account. The Servicer may cause the Borrower to invest and reinvest, in its own name or in the name of its nominee, amounts on deposit in the Payment Account and the Reserve Account, in Cash Equivalents, having maturities not exceeding the next succeeding Settlement Date. All such Cash Equivalents and interest and income thereon and the net proceeds realized on the sale or redemption thereof shall for all purposes of this Agreement be deemed to be Collections credited to the Payment Account or the Reserve Account, as applicable. The Servicer may cause the Borrower to liquidate Cash Equivalents from time to time to the extent necessary or appropriate, in the sole discretion of the Servicer, to effect the applications of Collections to be made on each Settlement Date pursuant to Section 3.01(d). The Collateral Agent shall have no liability for (i) the investment performance of any amounts invested by the Collateral Agent pursuant to this Section 8.03(d), or (ii) any loss resulting from the sale or liquidation of any such investment prior to its stated maturity date. SECTION 8.04. Responsibilities of the Servicer. Anything herein to the contrary notwithstanding: (a) Contracts. The Servicer shall perform all of its obligations under the Records to the same extent as if the Receivable Pool and Related Assets had not been sold to the Borrower and the exercise by the Collateral Agent or its designee of its rights hereunder shall not relieve the Servicer from such obligations. (b) Limitation of Liability. None of the Collateral Agent, the Administrative Agent, any Lender, or any Group Agent shall have any obligation or liability with respect to any Pool Receivables, Related Assets or Contracts related thereto, nor shall any of them be obligated to perform any of the obligations of the Servicer, Compass, or the Borrower thereunder. 751499193.15 22727329 110 SECTION 8.05. Further Action Evidencing Transfers and Security Interest. Compass agrees that from time to time, at its expense, it shall (or cause the Servicer to) promptly execute and deliver all further instruments and documents, and take all further actions, that the Collateral Agent, the Administrative Agent, any of their respective designees or the Required Lenders may reasonably request or that are necessary in order to perfect, protect or more fully evidence the transactions contemplated by the Transaction Documents. SECTION 8.06. Application of Collections. Unless the Collateral Agent instructs otherwise, any payment by an Obligor in respect of any Pool Receivable shall, except as otherwise specified in writing or otherwise by such Obligor, required by Law or by the underlying Contract, or except to the extent necessary to accomplish a segregation of Collections from proceeds of other Receivables or assets of the Originator in the same or a substantially similar manner as in effect on the Closing Date, be applied using the same systems, practices, and procedures as the Servicer uses for the application of payments on all of the solar loan receivables serviced by it for itself and its Affiliates whether or not such payments are being made with respect to Pool Receivables. ARTICLE IX EVENTS OF TERMINATION SECTION 9.01. Event of Terminations. If any of the following events (each a “Event of Termination”) shall occur: (a) Any of the following events: (i) the Servicer or any ADT Entity shall fail to perform or observe any covenant or agreement as and when required hereunder or under any other Transaction Document (other than any covenant or agreement referred to in clause (a)(ii) below) and such failure remains unremedied for twenty (20) days after the earlier of the date (A) such Person receives notice of such failure from the Collateral Agent, the Administrative Agent or the Required Lenders, or (B) a Responsible Officer obtains knowledge of such failure; (ii) any ADT Entity or the Servicer shall fail to make any payment or deposit or transfer of monies required to be made by it hereunder or under any other Transaction Document (including, without limitation, any ADT Obligation) as and when due and such failure is not remedied within two (2) Business Days; (iii) the Servicer shall fail to deliver any Information Package when due pursuant to Section 3.01(a) and such failure is not remedied within three (3) Business Days; or (b) any representation or warranty made or deemed to be made by any Servicer, ADT Entity (or any of their officers) under or in connection with any Transaction Document or any certificate, Loan Request, Paydown Notice, Information Package, or any other report, financial statement or other written information delivered in connection therewith shall prove to have been false or incorrect in any material respect when made or deemed to be made (without duplication as to any materiality modifiers, qualifications, or limitations applicable thereto) and solely to the extent capable of cure, shall continue unremedied for twenty (20) days after the earlier of the date 751499193.15 22727329 111 (A) such Person receives notice of such breach from the Collateral Agent, the Administrative Agent or the Required Lenders, or (B) a Responsible Officer obtains knowledge of such breach; or (c) an Event of Bankruptcy shall have occurred with respect to any ADT Entity; or (d) a Change of Control shall occur; or (e) the Collateral Agent, for the benefit of the Affected Persons, fails at any time to have a first priority perfected security interest in the Pool Receivables and the Related Assets (or any portion thereof) or any other Collateral and all proceeds of any of the foregoing, in each case, free and clear of any Adverse Claim; or (f) the occurrence of any ERISA Event that, individually or together with all other ERISA Events that have occurred, could reasonably be expected to have a Material Adverse Effect; or (g) any ADT Entity shall be required to register as an “investment company” under (and as defined in) the Investment Company Act; or (h) any material provision of this Agreement or any other Transaction Documents shall cease to be the valid and binding obligation enforceable against any ADT Entity, as applicable, except to the extent terminated in accordance with its terms or with the consent of the Administrative Agent, the Collateral Agent and each Group Agent; or (i) the Borrower shall fail to pay in full all of its Borrower Obligations to the Collateral Agent, the Administrative Agent, or any Lender hereunder by the Maturity Date or any ADT Entity shall fail to pay in full all of its ADT Obligations to the applicable person or the Administrative Agent on their behalf in accordance with the terms of this Agreement by the Maturity Date; or (j) one or more final judgments for the payment of money in an aggregate amount in excess of $84,000,000 in the case of Compass, the Parent or any other Material Subsidiary of the Parent or $1,000,000 in the case of the Borrower and the same shall not be vacated, discharged or stayed or bonded pending appeal for a period of sixty (60) consecutive days, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of Compass, the Parent or any Material Subsidiary of the Parent to enforce any such judgment; or (k) the Borrower, Compass, the Parent or any of their respective Material Subsidiaries shall fail to pay any principal of or premium or interest on any of its Debt which is outstanding in a principal amount of at least, in respect of the Borrower, $1,000,000, or in respect of the Borrower, Compass, the Parent or any of their respective Material Subsidiaries $84,000,000, in the aggregate when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or
751499193.15 22727329 112 instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to repay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (l) the breach of any of the financial covenants set forth in the ADT Credit Agreement, any ADT Indenture or any ADT Collateral Agreements as in effect on the Closing Date or an event of default (or similar event) shall have occurred thereunder, in each case without regard to any waivers of such breaches or defaults; or (m) the average of the Delinquency Ratios for the three preceding Settlement Periods, as determined on any Reporting Date, shall exceed 0.60%; or (n) (i) the Cumulative Net Loss Ratio for the preceding Settlement Period, as determined on any Reporting Date, shall exceed 3.25%, (ii) the average Third Milestone Ratio for the three preceding Settlement Periods, as determined on any Reporting Date, shall exceed 30.00% or (iii) the average Performance Guarantee Claim Ratio for the three preceding Settlement Periods, as determined on any Reporting Date, shall exceed 5.00%; or (o) on any Settlement Date, the Aggregate Principal exceeds the Borrowing Base after giving effect to (x) the application of Monthly Collections in accordance with Section 3.01(d) on such Settlement Date, (y) any Transfer occurring on or prior to such Settlement Date and (z) any Loan being made on such Settlement Date; or (p) the Performance Support Agreement is canceled, rescinded, amended, or modified without the prior written consent of the Collateral Agent, the Administrative Agent and each Group Agent; or (q) the Servicer or any ADT Entity shall take any action that materially and adversely affects the collectability of all or any significant portion of the Pool Receivables or the ability of the Borrower, or Compass (as Servicer or otherwise) or the Parent to perform its respective obligations under this Agreement or any other Transaction Document; or (r) ADT Solar (i) ceases installing Solar Energy Systems, (ii) defaults under any operation and maintenance agreement or (iii) defaults under any one or more performance guarantees in an aggregate amount exceeding $100,000; or (s) (i) any Collection Account, the Reserve Account or the Payment Account shall cease to be subject to a Control Agreement, or any Control Agreement shall cease to be in full force and effect, except (A) if being simultaneously replaced with a proper Control Agreement which is in full force and effect, or (B) with the consent of the Administrative Agent, the Collateral Agent and each Group Agent, (ii) without the prior written consent of the Collateral Agent, cause or permit any amounts on deposit in any Collection Account to be remitted to an account other than the Payment Account, or (iii) in the event any party to a Control Agreement (other than the Collateral Agent) has provided notice of termination of such Control Agreement, by no later than (1) the 15th calendar day following notice of a termination for cause and (2) the 30th calendar day following notice of termination without cause, fail to (A) establish a replacement Collection 751499193.15 22727329 113 Account, Reserve Account or Payment Account, as the case may be, with a new depository institution that is an Eligible Bank, (B) enter into new Control Agreement(s) with respect to such replacement account(s), (C) cause all amounts held in the accounts for which Control Agreements are being terminated to be transferred to such replacement account(s), and (D) take all other actions necessary for such replacement accounts to comply with the requirements and covenants hereunder that are applicable to Collections, any Collection Account, the Reserve Account or the Payment Account, as the case may be, including without limitation, the actions required pursuant to Section 7.01(l) and instructing any applicable Obligors to make payments on the applicable Pool Receivables to new Collection Account(s); (t) the Borrower shall fail to deposit into the Reserve Account on each Settlement Date the amount determined in accordance with Section 3.01(d); or (u) the Borrower holds “plan assets” within the meaning of the Department of Labor regulations located at 29 C.F.R. Section 2510.3-101, as modified by Section 3(42) of ERISA or the Borrower is subject to any state law or regulations applicable to governmental plans that are similar to Section 406 of ERISA or Section 4975 of the Code. An Event of Termination shall be deemed to be continuing until waived in writing by the Administrative Agent, the Collateral Agent and the Required Lenders. SECTION 9.02. Remedies. Upon, or any time after, the occurrence of an Event of Termination (other than an Event of Termination described in Section 9.01(c)) that remains continuing, the Collateral Agent or the Administrative Agent shall, at the request, or may with the consent, of the Required Lenders, by notice to the Borrower and the Servicer (on the Borrower’s behalf) (x) declare the Acceleration Date to have occurred and shall have all of the remedies herein, including without limitation Section 8.01(b) and this Section 9.02, and (y) declare the Aggregate Principal and all other non-contingent Borrower Obligations to be immediately due and payable (in which case the Aggregate Principal and all other non-contingent Borrower Obligations shall be immediately due and payable. In addition, upon the occurrence of an Event of Termination, the Administrative Agent may (i) designate another person to succeed Compass as Servicer, which successor may be the Administrative Agent in accordance with Section 8.01(b), (ii) direct the Obligors in respect of each Pool Receivables to, or direct Compass to instruct such Obligors to, pay all amounts payable under the Contracts related to the Pool Receivables directly to such account as the Administrative Agent shall designate and (iii) request a drawing under any Supporting Letter of Credit (or any other letter of credit that names the Administrative Agent as the beneficiary thereof) and apply the related Supporting LC Draw Proceeds. Upon the occurrence of an Event of Termination described in Section 9.01(c), the Acceleration Date shall occur automatically and the Aggregate Principal and all other non-contingent Borrower Obligations shall be immediately due and payable. Upon, or at any time after, the occurrence of the Acceleration Date, no additional Loans thereafter will be made. Upon the declaration or automatic occurrence of the Acceleration Date pursuant to this Section 9.02, the Collateral Agent, on behalf of the Lenders and the other Affected Persons, shall have, in addition to all other rights and remedies under this Agreement, any other Transaction Document, or under applicable Law, all other rights and remedies provided under the UCC of each applicable jurisdiction and other applicable Laws (including all the rights and remedies of a secured party upon default under the UCC (including the right to sell any or all of the Collateral subject hereto)), all of which rights shall be cumulative. 751499193.15 22727329 114 Subject to Section 10.01, upon, or at any time after, the Acceleration Date, the Administrative Agent and the Collateral Agent shall in respect of the exercise of the rights and remedies under this Section 9.02 act or refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders. ARTICLE X AGENTS SECTION 10.01. Limited Liability of Lenders, Group Agents, Collateral Agent, and the Administrative Agent. The obligations of the Collateral Agent, the Administrative Agent, each Lender and each Group Agent under the Transaction Documents are solely the corporate obligations of such Person. Except with respect to any claim arising out of the willful misconduct or gross negligence of such Person, no claim may be made by the Borrower, the Servicer or Compass, against the Collateral Agent, the Administrative Agent, any Lender, or any Group Agent, or their respective Affiliates, directors, members, managers, officers, employees, attorneys, or agents for any special, indirect, consequential, or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement or any other Transaction Document, or any act, omission, or event occurring in connection therewith; and the Borrower and Compass hereby waives, releases, and agrees not to sue upon any claim for any such damages not expressly permitted by this Section 10.01, whether or not accrued and whether or not known or suspected to exist in its favor. Notwithstanding any provision of this Agreement or any other Transaction Document to the contrary: (i) in no event shall the Collateral Agent, the Administrative Agent, or any Group Agent ever be required to take any action which exposes it to personal liability or which is contrary to the provision of any Transaction Document or applicable Law, and (ii) neither the Collateral Agent, the Administrative Agent, nor any Group Agent shall have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any party hereto or any other Person, and no implied covenants, functions, responsibilities, duties, obligations, or liabilities on the part of the Collateral Agent, the Administrative Agent, or any Group Agent shall be read into this Agreement or the other Transaction Documents or otherwise exist against the Collateral Agent, the Administrative Agent, or any Group Agent. Neither the Administrative Agent nor the Collateral Agent shall be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders. Nothing herein or in any other Transaction Document or related documents shall obligate the Administrative Agent or the Collateral Agent to advance, expend or risk its own funds, or to take any action which in its reasonable judgment may cause it to incur any expense or financial or other liability for which it does not reasonably expect to be indemnified to its satisfaction. Neither the Administrative Agent nor the Collateral Agent shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any of the other Transaction Documents, except for its or their own gross negligence or willful misconduct. In performing its functions and duties hereunder, the Collateral Agent and the Administrative Agent shall act solely as the agent of the Lenders and the Group Agents, as applicable, and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for any ADT Entity or any other Person. SECTION 10.02. Authorization and Action of each Group Agent. By its execution hereof, in the case of each Lender, and by accepting the benefits hereof, each Program Support Provider, 751499193.15 22727329 115 each such party hereby designates and appoints its related Group Agent to take such action as agent on its behalf and to exercise such powers as are delegated to such Group Agent by the terms hereof, together with such powers as are reasonably incidental thereto. Each Group Agent reserves the right, in its sole discretion, to take any actions and exercise any rights or remedies, in each case, authorized or provided for under this Agreement or any other Transaction Document and any related agreements and documents. SECTION 10.03. Authorization and Action of the Administrative Agent and Collateral Agent. By its execution hereof, in the case of each Lender and Group Agent, each such party hereby designates and appoints Mizuho as the Administrative Agent and Mizuho as the Collateral Agent to take such action as agent on its behalf and to exercise such powers as are delegated to such party by the terms hereof, together with such powers as are reasonably incidental thereto. Subject to Section 9.02, the Administrative Agent and the Collateral Agent reserve the right, in its sole discretion, to take any actions and exercise any rights or remedies, in each case, authorized or provided for under this Agreement or any other Transaction Document and any related agreements and documents. If any provision of any Transaction Document permits the Collateral Agent or the Administrative Agent to take any action in its discretion, this paragraph shall not limit such discretionary right. SECTION 10.04. Delegation of Duties of each Group Agent. Each Group Agent may execute any of its duties through agents or attorneys in fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. No Group Agent shall be responsible to any Lender in its Group for the negligence or misconduct of any agents or attorneys in fact selected by it with reasonable care. SECTION 10.05. Delegation of Duties of the Administrative Agent and the Collateral Agent. The Collateral Agent and the Administrative Agent may execute any of its duties through agents or attorneys in fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Neither the Collateral Agent nor the Administrative Agent shall be responsible to any Lender, any Group Agent, or any other Person for the negligence or misconduct of any agents or attorneys in fact selected by it with reasonable care. SECTION 10.06. Successor Administrative Agent and Collateral Agent; Termination. (a) The Administrative Agent may, upon at least thirty (30) days’ notice to the Servicer, the Borrower and each Group Agent, resign as an Administrative Agent. Such resignation shall not become effective until a successor agent (i) is appointed by the Required Lenders and so long as no Event of Termination has occurred and is continuing, and such assignment is not to an Affiliate of Mizuho, is consented to by the Servicer and the Borrower (each such consent not to be unreasonably withheld, conditioned, or delayed), and (ii) has accepted such appointment. Upon such acceptance of its appointment as the Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall succeed to and become vested with all the rights and duties of the Administrative Agent, and such retiring Administrative Agent shall be discharged from its duties and obligations under the Transaction Documents. (b) The Collateral Agent may, upon at least thirty (30) days’ notice to the Servicer (on the Borrower’s behalf), the Administrative Agent, and each Group Agent, resign as Collateral Agent. Such resignation shall not become effective until a successor Collateral Agent
751499193.15 22727329 116 (i) is appointed by the Required Lenders and so long as no Event of Termination has occurred and is continuing, and such assignment is not to an Affiliate of Mizuho or is consented to by the Servicer and the Borrower (each such consent not to be unreasonably withheld, conditioned, or delayed), and (ii) has accepted such appointment. Upon such acceptance of its appointment as the Collateral Agent hereunder by a successor Collateral Agent, such successor Collateral Agent shall succeed to and become vested with all the rights and duties of such retiring Collateral Agent, and such retiring Collateral Agent shall be discharged from its duties and obligations under the Transaction Documents. (c) If the Collateral Agent breaches in any material respect any of its obligations under this Agreement and such breach is not cured (if capable of being cured) within thirty (30) days after the Collateral Agent receives notice of such breach from any Group Agent, the Required Lenders may, upon at least ten (10) Business Days’ notice to the Servicer, the Borrower, the Collateral Agent, the Administrative Agent, and each Group Agent, terminate the Collateral Agent and appoint a successor to the Collateral Agent. Such termination shall not become effective until a successor Collateral Agent (i) is appointed by the Required Lenders and so long as no Event of Termination has occurred and is continuing, consented to by the Servicer and the Borrower (each such consent not to be unreasonably withheld, conditioned, or delayed), and (ii) has accepted such appointment and is made a party to this Agreement and each other Transaction Document to which the Collateral Agent is a party. Upon such acceptance of its appointment as the Collateral Agent hereunder by a successor Collateral Agent, such successor Collateral Agent shall succeed to and become vested with all the rights and duties of such retiring Collateral Agent, and such retiring Collateral Agent shall be discharged from its duties and obligations under the Transaction Documents. (d) The appointment and authorization of the Collateral Agent, and the Administrative Agent under this Agreement shall terminate upon the earlier to occur of (i) the Final Payout Date, and (ii) the effective date of the replacement of such Collateral Agent, Administrative Agent, as applicable, with a successor in accordance with this Section 10.06. SECTION 10.07. Indemnification. Each Lender (or in the case of a Conduit Lender, the related Group Agent) shall indemnify and hold harmless the Collateral Agent and the Administrative Agent and their respective officers, directors, employees, representatives, and agents (to the extent not reimbursed by the Borrower or the Servicer and without limiting the obligation of the Borrower or the Servicer to do so), ratably in accordance with its Lender Loan Limit (or its Loans, if its Lender Loan Limit is zero) from and against any and all liabilities, obligations, losses, damages, penalties, judgments, settlements, costs, expenses, and disbursements of any kind whatsoever (including in connection with any investigative or threatened proceeding, whether or not such Person is designated a party thereto) that may at any time be imposed on, incurred by or asserted against the Collateral Agent or the Administrative Agent for such Person as a result of, or related to, any of the transactions contemplated by the Transaction Documents or the execution, delivery, or performance of the Transaction Documents or any other document furnished in connection therewith. SECTION 10.08. Reliance, etc. Without limiting the generality of Section 10.01, the Collateral Agent, the Administrative Agent, and each Group Agent: (a) may consult with legal counsel, independent certified public accountants and other experts selected by it and shall not be 751499193.15 22727329 117 liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants, or experts; (b) makes no warranty or representation to any Lender or any other holder of any interest in Pool Receivables and shall not be responsible to any Lender or any such other holder for any statements, warranties, or representations made by other Persons in or in connection with any Transaction Document; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants, or conditions of any Transaction Document on the part of the Borrower or to inspect the property (including the books and records) of the Borrower; (d) shall not be responsible to any Lender or any other holder of any interest in Pool Receivables for the due execution, legality, validity, enforceability, genuineness, sufficiency, or value of any Transaction Document; and (e) shall incur no liability under or in respect of this Agreement or any other Transaction Document by acting upon any notice (including notice by telephone), consent, certificate, or other instrument or writing (which may be by facsimile or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 10.09. Lenders and Affiliates. Each of the Lenders, the Group Agents, the Collateral Agent, the Administrative Agent and any of their respective Affiliates may engage in any kind of business with any ADT Entity or any Obligor, any of their respective Affiliates, and any Person who may do business with or own securities of any ADT Entity, any Obligor or any of their respective Affiliates. SECTION 10.10. Sharing of Recoveries. Each Lender agrees that if it receives any recovery, through set-off, judicial action or otherwise (including pursuant to Section 12.04), on any amount payable or recoverable hereunder in a greater proportion than should have been received hereunder or otherwise inconsistent with the provisions hereof, then the recipient of such recovery shall purchase for cash an interest in the Loans owing to the other Lenders (as payment of Principal or otherwise), without representation or warranty except for the representation and warranty that such interest is being sold by each such other Lender free and clear of any Lien created or granted by such other Lender, in the amount necessary to create proportional participation (based on proportional Principal before giving effect to such recovery) by the Lender in such recovery. If all or any portion of such amount is thereafter recovered from the recipient, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. SECTION 10.11. Non-Reliance. Each Lender expressly acknowledges that none of the Collateral Agent, the Administrative Agent, the Group Agents nor any of their respective officers, directors, members, partners, certificateholders, employees, agents, attorneys-in-fact, or Affiliates has made any representations or warranties to it and that no act by the Collateral Agent, the Administrative Agent, or any Group Agent hereafter taken, including any review of the affairs of any ADT Entity, shall be deemed to constitute any representation or warranty by the Collateral Agent, the Administrative Agent, or any Group Agent. Each Lender represents and warrants to the Collateral Agent, the Administrative Agent, and each Group Agent that, independently and without reliance upon the Collateral Agent, the Administrative Agent, any Group Agent, or any other Lender and based on such documents and information as it has deemed appropriate, it has made and will continue to make its own appraisal of and investigation into the business, operations, property, prospects, financial, and other conditions and creditworthiness of any ADT Entity and the Receivables and its own decision to enter into this Agreement and to take, or omit, action under any Transaction Document. Without limiting the foregoing, the Lenders and the Group Agents 751499193.15 22727329 118 acknowledge and agree that (i) the Administrative Agent has made certain of its own analytics, credit evaluations, models and/or projections regarding the performance and expected performance of the Receivable Pool available to certain Lenders and/or Group Agents, (ii) such information was made available to it solely as an accommodation by the Administrative Agent and that it has made its own independent credit analysis and investigation regarding the performance and expected performance of the Receivable Pool, and (iii) the Administrative Agent shall have no responsibility or liability for the accuracy or completeness of any such information. Except for items specifically required to be delivered hereunder, neither the Collateral Agent nor the Administrative Agent shall have any duty or responsibility to provide any Group Agent or Lender with any information concerning any ADT Entity, or any of their Affiliates that comes into its possession or any of its officers, directors, members, partners, certificateholders, employees, agents, attorneys-in-fact, or Affiliates. SECTION 10.12. Erroneous Payment. (a) If the Administrative Agent notifies a Lender (any such Lender, a “Payment Recipient”) that the Administrative Agent has determined in its sole discretion (whether or not after receipt of any notice under immediately succeeding clause (b)) that any funds received by such Payment Recipient from the Administrative Agent or any of its Affiliates were erroneously transmitted to, or otherwise erroneously or mistakenly received by, such Payment Recipient (whether or not known to such Payment Recipient) (any such funds, whether received as a payment, prepayment or repayment of principal, interest, fees, distribution or otherwise, individually and collectively, an “Erroneous Payment”) and demands the return of such Erroneous Payment (or a portion thereof), such Erroneous Payment shall at all times remain the property of the Administrative Agent and shall be segregated by the Payment Recipient and held in trust for the benefit of the Administrative Agent, and such Payment Recipient shall promptly, but in no event later than two Business Days thereafter, return to the Administrative Agent the amount of any such Erroneous Payment (or portion thereof) as to which such a demand was made, in same day funds (in the currency so received), together with interest thereon in respect of each day from and including the date such Erroneous Payment (or portion thereof) was received by such Payment Recipient to the date such amount is repaid to the Administrative Agent in same day funds at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation from time to time in effect. A notice of the Administrative Agent to any Payment Recipient under this clause (a) shall be conclusive, absent manifest error. (b) Without limiting immediately preceding clause (a), each Payment Recipient hereby further agrees that if it receives a payment, prepayment or repayment (whether received as a payment, prepayment or repayment of principal, interest, fees, distribution or otherwise) from the Administrative Agent (or any of its Affiliates) (x) that is in a different amount than, or on a different date from, that specified in a notice of payment, prepayment or repayment sent by the Administrative Agent (or any of its Affiliates) with respect to such payment, prepayment or repayment, (y) that was not preceded or accompanied by a notice of payment, prepayment or repayment sent by the Administrative Agent (or any of its Affiliates), or (z) that such Payment Recipient, otherwise becomes aware was transmitted, or received, in error or by mistake (in whole or in part) in each case: 751499193.15 22727329 119 (i) (A) in the case of immediately preceding clauses (x) or (y), an error shall be presumed to have been made (absent written confirmation from the Administrative Agent to the contrary) or (B) an error has been made (in the case of immediately preceding clause (z)), in each case, with respect to such payment, prepayment or repayment; and (ii) such Payment Recipient shall (and shall cause any other recipient that receives funds on its respective behalf to) promptly (and, in all events, within one Business Day of its knowledge of such error) notify the Administrative Agent of its receipt of such payment, prepayment or repayment, the details thereof (in reasonable detail) and that it is so notifying the Administrative Agent pursuant to this Section 10.12(b). (c) Each Payment Recipient hereby authorizes the Administrative Agent to set off, net and apply any and all amounts at any time owing to such Payment Recipient under any Transaction Document, or otherwise payable or distributable by the Administrative Agent to such Payment Recipient from any source, against any amount due to the Administrative Agent under immediately preceding clause (a) or under the indemnification provisions of this Agreement. In addition, each party hereto agrees that, irrespective of whether the Administrative Agent may be equitably subrogated, the Administrative Agent shall be contractually subrogated to all the rights and interests of the applicable Payment Recipient under the Transaction Documents with respect to each Erroneous Payment (or portion thereof that is not returned to the Administrative Agent as provided herein) (the “Erroneous Payment Subrogation Rights”). (d) The parties hereto agree that an Erroneous Payment shall not pay, prepay, repay, discharge or otherwise satisfy any Obligations owed by the Borrower or any other ADT Entity. (e) To the extent permitted by applicable law, no Payment Recipient shall assert any right or claim to an Erroneous Payment, and hereby waives, and is deemed to waive, any claim, counterclaim, defense or right of set-off or recoupment with respect to any demand, claim or counterclaim by the Administrative Agent for the return of any Erroneous Payment received, including without limitation waiver of any defense based on “discharge for value” or any similar doctrine. (f) Each party’s obligations, agreements and waivers under this Section 10.12 shall survive the resignation or replacement of the Administrative Agent, any transfer of rights or obligations by, or the replacement of, a Lender, the termination of the Lender Loan Limits and/or the repayment, satisfaction or discharge of all Borrower Obligations and ADT Obligations (or any portion thereof) under any Transaction Document. SECTION 10.13. Disclaimer and Exculpation With Respect to any Rate. The Administrative Agent does not warrant or accept any responsibility for, and shall not have any liability with respect to, the administration, submission or any other matter related to Term SOFR or any Benchmark or with respect to any alternative, successor or replacement rate thereof (including any Benchmark Replacement), or any calculation, component definition thereof or rate referenced in the definition thereof, including, without limitation, (i) any such alternative, successor or replacement rate (including any Benchmark Replacement) implemented pursuant to Section 2.06, upon the occurrence of a Benchmark Transition Event, and (ii) the effect,
751499193.15 22727329 120 implementation or composition of any Conforming Changes pursuant to Section 2.06, including without limitation, whether the composition or characteristics of any such alternative, successor or replacement reference rate (including any Benchmark Replacement) will be similar to, or produce the same value or economic equivalence of, Term SOFR or any Benchmark or have the same volume or liquidity as did Term SOFR or any Benchmark prior to its discontinuance or unavailability. In addition, the discontinuation of Term SOFR or any Benchmark and any alternative, successor or replacement reference rate may result in a mismatch between the reference rate referenced in this Agreement and other financial instruments of the parties hereto, including potentially those that are intended as hedges. The Administrative Agent and its Affiliates and/or other related entities may engage in transactions that affect the calculation of Term SOFR, any Benchmark or any alternative, successor or replacement rate (including any Benchmark Replacement) and/or any relevant adjustments thereto, in each case, with all determinations of such Term SOFR, any Benchmark or such alternative, successor or replacement rate by the Administrative Agent to be conclusive, absent manifest error. The Administrative Agent may select information sources or services in its reasonable discretion to ascertain Term SOFR, any Benchmark or any such alternative, successor or replacement rate, in each case pursuant to the terms of this Agreement (as amended, amended and restated, supplemented or otherwise modified from time to time), and shall have no liability to any ADT Entity, any Lender or any other person or entity for damages of any kind, including direct or indirect, special, punitive, incidental or consequential damages, costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any error or calculation of any such rate (or component thereof) provided by any such information source or service. ARTICLE XI INDEMNIFICATION SECTION 11.01. Indemnities by the Borrower. (a) General Indemnity. Without limiting any other rights which any such Person may have hereunder or under applicable Law, the Borrower agrees to indemnify and hold harmless the Collateral Agent, the Administrative Agent, each Lender, each Group Agent, each other Affected Person, each of their respective Affiliates, and all members, managers, directors, shareholders, officers, employees, and attorneys, or agents of any of the foregoing (each an “Indemnified Party”), forthwith on demand, from and against any and all damages, losses, claims, liabilities, and related costs and expenses, including reasonable and documented attorneys’ fees and disbursements (subject to the limitations in respect of attorneys’ fees and disbursements set forth in the proviso to Section 12.06) but excluding Taxes (other than Taxes specifically enumerated below or any Taxes that represent losses, claims, damages, etc. arising from any non- Tax claim) (all of the foregoing being collectively referred to as “Indemnified Amounts”) awarded against or incurred by any of them arising out of, relating to or in connection with this Agreement or the other Transaction Documents, any of the transactions contemplated hereby or thereby, or the ownership, maintenance or funding, directly or indirectly, of the Pool Receivables or Related Assets (or any portion thereof) or otherwise arising out of or relating to or resulting from the actions or inactions of any ADT Entity, the Servicer or any of their respective Affiliates, provided, however, notwithstanding anything to the contrary in this Article XI, excluding Indemnified Amounts solely to the extent resulting from the fraud, bad faith, gross negligence or willful 751499193.15 22727329 121 misconduct on the part of such Indemnified Party as determined by a final non-appealable judgment by a court of competent jurisdiction. Without limiting the generality of the foregoing but subject to the express limitations set forth in this Section 11.01, the Borrower shall indemnify and hold harmless each Indemnified Party for any and all Indemnified Amounts arising out of, relating to, or resulting from: (i) the transfer by the Borrower of any interest in any Pool Receivable or Related Asset; (ii) any representation or warranty made by the Borrower under or in connection with any Transaction Document, any Loan Request, any Information Package, or any other information or report delivered by or on behalf of the Borrower pursuant hereto, which shall have been untrue, false, or incorrect when made or deemed made; (iii) the failure of the Borrower to comply with the terms of any Transaction Document, any applicable Law any Contract, any Pool Receivable, or Related Assets or the nonconformity of any Contract, Pool Receivable, or Related Assets with any such Law; (iv) the failure to vest in favor of the Collateral Agent a first priority perfected security interest in any Pool Receivables and all Related Assets against all Persons including any bankruptcy trustee or similar Person; (v) the failure to file, or any delay in filing of, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or under any other applicable Laws with respect to any Pool Receivable or Related Assets whether at the time of any Loan or at any time thereafter; (vi) any suit or claim related to the Pool Receivables or any Related Asset or any Transaction Document or any Supporting Letter of Credit (including any products liability, environmental liability, personal injury or property damage claim arising out of or in connection with the Solar Energy Systems that are the subject of any Pool Receivable); (vii) failure by the Borrower to comply with the “bulk sales” or analogous Laws of any jurisdiction; (viii) any loss arising, directly or indirectly, as a result of the imposition of sales or similar transfer type taxes or the failure by the Borrower to timely collect and remit to the appropriate authority any such taxes; (ix) any commingling of any Collections of Pool Receivables with any other funds; (x) the failure or delay to provide any Obligor with an invoice or other evidence of indebtedness; 751499193.15 22727329 122 (xi) any failure of the Borrower or Compass to pledge or assign, as applicable, any Pool Receivable or Related Asset contemplated to be so pledged or assigned under the Transaction Documents; or the violation or breach by any ADT Entity of any confidentiality provision, or of any similar covenant of non- disclosure, with respect to any Contract, or any other Indemnified Amount payable hereunder with respect to or resulting from any such violation or breach; (xii) the existence or assertion of any Adverse Claim in favor of any Governmental Authority or any other Person against the Payment Account, the Reserve Account, any Collection Account, Lock-Box, Collections, Receivable, or any related Contract or any portion or proceeds thereof, including, without limitation, as a result of any portion of the Payment Account, the Reserve Account, any such Collection Account, Lock-Box, Collections, Receivable, or any related Contract being attributable to governmental fees, surcharges, or taxes; (xiii) any Pool Receivable failing to constitute an Eligible Receivable; (xiv) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Pool Receivable in, or purporting to be in, the Receivable Pool (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the Solar Energy System related to such Receivable or the furnishing or failure to furnish such Solar Energy System or relating to collection activities with respect to such Pool Receivable; (xv) any investigation, litigation or proceeding related to any Transaction Document or the use of proceeds, of the Loans or the ownership of Pool Receivables or the Related Assets; (xvi) any claim brought by any Person other than an Indemnified Party arising from any activity by the Borrower or any Affiliate of the Borrower in servicing, administering or collecting any Receivable; (xvii) the facts or circumstances giving rise to any Event of Termination or Unmatured Event of Termination; or (xviii) any inability to litigate any claim against any Obligor in respect of any Pool Receivable as a result of such Obligor being immune from civil and commercial law and suit on the grounds of sovereignty or otherwise from any legal action, suit or proceeding. (b) Contribution. If for any reason the indemnification provided above in this Section 11.01 is unavailable to an Indemnified Party or is insufficient to hold an Indemnified Party harmless, then the Borrower shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage, or liability in such proportion as is appropriate to reflect not only the relative benefits received by such Indemnified Party on the one hand and the 751499193.15 22727329 123 Borrower on the other hand but also the relative fault of such Indemnified Party as well as any other relevant equitable consideration. (c) For the avoidance of doubt, there shall be no recourse to the Servicer for the Borrower’s indemnification obligations under this Section 11.01 other than to the extent expressly provided for in this Agreement or in any other Transaction Document. SECTION 11.02. Indemnities by Compass and the Servicer. Without limiting any other rights which any such Person may have hereunder or under applicable Law, each of Compass and the Servicer agree to indemnify and hold harmless each Indemnified Party from any and all Indemnified Amounts incurred by any of them and arising out of, relating to or resulting from: (i) any breach by it (in any capacity) of any of its obligations or duties under this Agreement or any other Transaction Document; (ii) the untruth or inaccuracy of any representation or warranty made by it (in any capacity) hereunder or under any other Transaction Document; (iii) the failure of any information contained in any Loan Request or Information Package to be true and correct, or the failure of any other information provided to any such Indemnified Party by, or on behalf of, the Servicer (in any capacity) to be true and correct; (iv) any negligence or willful misconduct on its part (in any capacity) arising out of, relating to, in connection with, or affecting any transaction contemplated by the Transaction Documents, any Contract, any Pool Receivable or any Related Asset; (v) the failure by it (in any capacity) to comply with any applicable Law, rule, or regulation with respect to any Pool Receivable or the related Contract or its servicing thereof; (vi) any commingling of any funds by it (in any capacity) relating to any Pool Receivables or Related Assets with any of its funds or the funds of any other Person; (vii) the failure or delay to provide any Obligor with an invoice or other evidence of indebtedness; (viii) any failure of the Borrower or it to pledge or assign, as applicable, any Pool Receivable or Related Asset purported to be pledged or assigned as contemplated under the Transaction Documents, or the violation or breach by any ADT Entity of any confidentiality provision, or of any similar covenant of non-disclosure, with respect to any Contract, or any other Indemnified Amount payable hereunder with respect to or resulting from any such violation or breach; (ix) the existence or assertion of any Adverse Claim in favor of any Governmental Authority or any other Person against the Payment Account, Reserve Account, Collection Account, Lock-Box, Collections, Receivable, or any related Contract, or any portion or proceeds thereof, including, without limitation, as a result of any portion of the Payment Account, the Reserve Account, any such Collection Account, Lock-Box, Collections, Receivable, or any related Contract being attributable to governmental fees, surcharges, or taxes; (x) Mizuho’s entry into any Control Agreement, and the arrangements and transactions contemplated thereby; (xi) any third party claim against an Indemnified Party for damages caused by the Servicer’s servicing, administration or collection of Pool Receivables; (xii) any investigation or proceeding against an Indemnified Party based on the Servicer’s servicing, administration or collection of Pool Receivables; (xiii) any obligations of the Borrower under Section 4.03; (xiv) any breach of the representations of Section 6.01(w) or the covenants of Section 7.03(k); and (xv) any Supporting Letter of Credit; provided, however, notwithstanding anything to the contrary in this Article XI, excluding Indemnified Amounts solely to the extent (w) resulting from the fraud, bad faith, gross negligence or willful misconduct on the part of such Indemnified Party as determined by a final non-appealable judgment by a court of competent jurisdiction, (x) resulting from the uncollectability of any such Pool Receivables not arising from any action or breach of any ADT Entity, (y) they constitute recourse with respect to a Pool Receivable by reason of bankruptcy or insolvency, or the financial or credit condition or financial default, of the related Obligor, or (z)
751499193.15 22727329 124 they constitute special, indirect, consequential, or punitive damages (other than special, indirect, consequential or punitive damages payable by an Indemnified Party to a third party). ARTICLE XII MISCELLANEOUS SECTION 12.01. Amendments Etc. No amendment, modification, or waiver of any provision of this Agreement or consent to any departure by the Borrower or Compass therefrom shall in any event be effective unless the same shall be in writing and signed by the Borrower, Compass, the Collateral Agent, the Administrative Agent, and the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver, or modification shall (i) decrease the outstanding amount of, or extend the repayment of or any scheduled payment date for the payment of, any Interest in respect of the Principal or any Fees owed to any Lender, the Collateral Agent, any Group Agent or the Administrative Agent without the prior written consent of such Person; (ii) forgive or waive or otherwise excuse any repayment of the Aggregate Principal without the prior written consent of each Lender and the related Group Agent affected thereby; (iii) increase the Group Loan Limit in respect of any Group without its prior written consent; (iv) amend or modify the provisions of this Section 12.01, or the definition of “Acceleration Date”, “Delinquent Receivable”, “Defaulted Receivable”, “Eligible Receivable”, “Event of Termination”, “Unmatured Event of Termination”, “Required Lenders”, “Borrowing Base”, “YSOC Amount”, “Reserve Account Required Amount”, “Termination Date” (other than pursuant to an extension thereof in accordance with Section 2.05), “Interest Period” or “Settlement Period” (or any of the definitions used in any such preceding definition in a manner that would circumvent the intention of the restrictions set forth in this Section 12.01), in each case, without the prior written consent of each Lender and Group Agent, or (v) release all or any material part of the Pool Receivables or Related Assets from the security interest granted by the Borrower to the Collateral Agent hereunder except as expressly provided for herein or in the Transaction Documents without the prior written consent of each Lender and Group Agent; provided, further, that the consent of Compass and the Borrower shall not be required for the effectiveness of any amendment which modifies on a prospective basis, the representations, warranties, covenants, or responsibilities of the Servicer at any time when the Servicer is not an Affiliate of Compass or the fees and expenses payable to any such Servicer. Notwithstanding anything in any Transaction Document to the contrary, none of the Borrower or Compass shall amend, waive, or otherwise modify any other Transaction Document, or consent to any such amendment or modification, without the prior written consent of the Collateral Agent, the Administrative Agent, and the Required Lenders. SECTION 12.02. Notices, Etc. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including facsimile and email communication) and shall be personally delivered or sent by express mail or nationally recognized overnight courier or by certified mail, first class postage prepaid, or by facsimile or email, to the intended party at the address, facsimile number, or email address of such party set forth in Schedule III or at such other address, facsimile number, or email address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, (a) if personally delivered or sent by express mail or courier or if sent by certified mail, 751499193.15 22727329 125 when received, and (b) if transmitted by facsimile or email, when receipt is confirmed by telephonic or electronic means. SECTION 12.03. Successors and Assigns; Participations; Assignments. (a) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Except as otherwise provided herein, the Borrower and Compass may not assign or transfer any of their rights or delegate any of their duties hereunder or under any Transaction Document without the prior consent of the Collateral Agent, the Administrative Agent and each Group Agent. (b) Participations. Any Lender may sell to one or more Persons (each a “Participant”) participating interests in the interests of such Lender hereunder; provided, however, that no Lender shall grant any participation under which the Participant shall have rights to approve any amendment, waiver or other modification of this Agreement or any other Transaction Document. Such Lender shall remain solely responsible for performing its obligations hereunder, and the Borrower, Compass, the Servicer, the Collateral Agent, each Group Agent, each other Lender and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations hereunder. Each Participant shall be subject to the requirements under Section 4.03(v) as if such Participant were a Lender, it being understood that the documentation required under such section shall be delivered to the participating Lender. A Lender shall not agree with a Participant to restrict such Lender’s right to agree to any amendment hereto, except amendments that require the consent of all Lenders or all Group Agents. Each Lender that sells a participation shall, acting solely for this purpose as a non- fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the Loans (and Interest, fees, and other similar amounts under this Agreement) of each Participant’s interest in the interests of such Lender under the Transaction Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any Pool Receivables or Related Assets or other obligations under any Transaction Document) to any Person except to the extent that such disclosure is necessary to establish that such interest or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, neither the Collateral Agent nor the Administrative Agent (in its capacity as Administrative Agent) shall have any responsibility for maintaining a Participant Register. (c) Assignment by Lenders. Each Lender may freely assign to any Eligible Assignee, without the consent of the Borrower, Compass or the Servicer except as required pursuant to clause (iv) of the definition of Eligible Assignee, all or a portion of its rights and obligations under this Agreement or in any other Transaction Document (including all or a portion of its interest in the Loans and the security interest in the Pool Receivables or Related Assets) in each case, with the prior written consent (such consent not to be unreasonably withheld) of the Collateral Agent, the Administrative Agent, the related Group Agent and with prior written notice to Servicer (on its and the Borrower’s behalf); provided, however, the parties to each such 751499193.15 22727329 126 assignment shall execute and deliver to the Collateral Agent, the Administrative Agent, each Group Agent and the Servicer (on its and the Borrower’s behalf), for its recording in the Register, a duly executed and enforceable Assignment and Acceptance Agreement. From and after the effective date specified in such Assignment and Acceptance Agreement, (x) the assignee thereunder shall be a party to this Agreement and, to the extent that rights and obligations under this Agreement have been assigned to it pursuant to such Assignment and Acceptance Agreement, have the rights of a Lender thereunder and (y) the assigning Lender shall, to the extent that rights and obligations have been assigned by it pursuant to such Assignment and Acceptance Agreement, relinquish such rights and be released from such obligations under this Agreement. In addition, any Lender that constitutes a banking institution may assign all or any portion of its rights (including its interest in the Loans and the security interest in the Pool Receivables or Related Assets) under this Agreement to any Federal Reserve Bank or any central bank having jurisdiction over such Lender without notice to or consent of the Borrower, the Servicer, any other Lender, the Collateral Agent, or the Administrative Agent. (d) Register. (i) The Administrative Agent (acting in this capacity as an agent of the Borrower) shall in respect of the Receivable Pool maintain a register for the recordation of the names and addresses of the Lenders, and the Loans (and Interest, fees, and other similar amounts under this Agreement) pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Servicer, the Administrative Agent, the Collateral Agent, and the Lenders shall be entitled to conclusively rely on the information contained in the Register for all purposes hereunder (including with respect to the identities of the Lenders and the amount of their Principal) and otherwise treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender for all purposes hereunder and under the other Transaction Documents. The Register shall be available for inspection by the Borrower, the Servicer and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (ii) The Administrative Agent shall also maintain in the Register each assignee’s interest or obligations under the Transaction Documents with respect to each assignment pursuant to Section 12.03(c) or 12.03(d) and shall record such assignment upon notice from the applicable Lender. The entries in the Register shall be conclusive absent manifest error. (e) Status of Conduit Lenders. So long as any Conduit Lender holds any Loans, such Conduit Lender shall be a multi-seller asset-backed commercial paper conduit. SECTION 12.04. No Waiver; Remedies; Set-Off. No failure on the part of the Collateral Agent, the Administrative Agent, any Affected Person, any Lender, any Group Agent, or any Indemnified Party to exercise, and no delay in exercising, any right, power, or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power, or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power, or remedy. The rights and remedies herein provided are cumulative and not exclusive of 751499193.15 22727329 127 any rights, or remedies provided by Law. Any waiver of this Agreement shall be effective only in the specific instance and for the specific purpose for which given. Without limiting the foregoing, each Lender, each Group Agent, the Administrative Agent, the Collateral Agent, each Affected Person, and any of their Affiliates (each a “Set-off Party”) are each hereby authorized at any time during the continuance of an Event of Termination, (in addition to any other rights it may have) to setoff, appropriate, and apply (without presentment, demand, protest, or (subject to the last sentence hereof) any other notice, each of which are hereby expressly waived) any deposits and any other indebtedness held or owing by such Set-off Party (including by any branches or agencies of such Set-off Party) to, or for the account of, any ADT Entity against amounts owing by any ADT Entity under this Agreement or the other Transaction Documents (even if contingent or unmatured). For the avoidance of doubt, the applicable Set-off Party shall not set off against any deposits of any other ADT Entity with respect to any obligations of the Borrower or against the Borrower for any obligations of any other ADT Entity. Each Set-off Party (or its related Group Agent, if applicable) shall promptly notify the Administrative Agent, the Collateral Agent, each Group Agent, the Borrower and Compass of its exercise of set-off rights pursuant to this Section 12.04, which notice shall specify (i) the amount of the Obligations setoff, (ii) whether such Obligations constitute Borrower Obligations or ADT Obligations, (iii) if the setoff was against amounts payable to any ADT Entity (other than the Borrower), the type of ADT Obligation to which such setoff relates, and (iv) the effective date of such setoff. The Administrative Agent’s receipt of any such notice from a Set-off Party (or its related Group Agent, if applicable) in respect of the exercise of setoff rights against any ADT Obligation shall be deemed to constitute a Demand Certification made by such Set-off Party in respect of such ADT Obligation for the amount so set off, and the Administrative Agent shall make any appropriate adjustments to the amounts distributable by it pursuant to Section 3.03(a) to reflect such exercise of setoff rights. Following the Collateral Agent’s receipt of any such notice from a Set-off Party (or its related Group Agent, if applicable) in respect of the exercise of setoff rights against any Borrower Obligation, the Collateral Agent shall make appropriate adjustments to the amounts allocated and distributed pursuant to Section 3.01(d) to reflect such setoff of such Borrower Obligation by such Set-off Party; provided that the Collateral Agent shall have no obligation to make any such adjustment in respect of a Settlement Date unless it has received the applicable notice of setoff on or prior to the Reporting Date immediately preceding such Settlement Date. For purposes of the above adjustments by the Collateral Agent, all setoffs effected by a Set-off Party shall be deemed to have been applied to Borrower Obligations in the reverse order of application of the Borrower Obligations as set forth in Section 3.01(d). SECTION 12.05. Binding Effect; Survival. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, Compass, the Servicer, the Collateral Agent, the Administrative Agent, each Lender, and the provisions of Section 4.01 and Article XI shall inure to the benefit of the Affected Persons and Indemnified Parties, respectively, and their respective successors and assigns. (b) Each Program Support Provider and each other Affected Person are express third party beneficiaries hereof. This Agreement shall not confer any rights or remedies upon any
751499193.15 22727329 128 other Person, other than the parties hereto and the third party beneficiaries specified in this Section 12.05(b). (c) This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until the Final Payout Date. The rights and remedies with respect to any breach of any representation and warranty made by the Borrower pursuant to Article VI and the indemnification and payment provisions of Article XI and Sections 3.02, 3.03, 4.01, 4.02, 4.03, 10.07, 12.04, 12.05, 12.06, 12.07, 12.08, 12.11, 12.12, 12.13, and 12.16 shall be continuing and shall survive any termination of this Agreement or any foreclosure under, or modification, release or discharge of, any or all of the Related Documents. SECTION 12.06. Costs and Expenses. The Borrower shall promptly pay, (x) on the Closing Date, with respect to all such costs and expenses incurred on or prior to the Closing Date and for which invoices have been provided reasonably prior to the Closing Date and (y) by remittance to the Payment Account within three (3) Business Days of demand, for subsequent application in accordance with Section 3.01(d), with respect to all other such costs and expenses, all reasonable and documented out-of-pocket costs and expenses incurred by or on behalf of the Collateral Agent, the Administrative Agent, each Lender and each Group Agent in connection with: (a) the negotiation, preparation, execution, and delivery of this Agreement and the other Transaction Documents and Supporting Letters of Credit and any amendment of or consent or waiver under any of the Transaction Documents or Supporting Letters of Credit (whether or not consummated), or the enforcement of, or any actual or claimed breach of, this Agreement or any of the other Transaction Documents or any Supporting Letter of Credit including reasonable and documented accountants’, auditors’, consultants’, and attorneys’ fees and expenses to any of such Persons and the reasonable and documented fees and charges of any nationally recognized statistical rating agency or any independent accountants, auditors, consultants, or other agents incurred in connection with any of the foregoing or in advising such Persons as to their respective rights and remedies under any of the Transaction Documents or Supporting Letter of Credit in connection with any of the foregoing; and (b) subject only to the limitations in Sections 7.01(c) and 7.04(c), the administration (including periodic auditing and inspections as provided for herein) of this Agreement and the other Transaction Documents and the transactions contemplated thereby, including all reasonable and documented expenses and accountants’, consultants’, and attorneys’ fees incurred in connection with the administration and maintenance of this Agreement and the other Transaction Documents and the transactions contemplated thereby; provided, that so long as no Unmatured Event of Termination or Event of Termination has occurred and remains continuing, the Borrower’s obligation to pay the reasonable and documented attorneys’ fees and expenses incurred by the Collateral Agent, the Administrative Agent, the Lenders and the Group Agents shall be limited to paying the reasonable and documented fees and expenses of two (one if the Collateral Agent and the Administrative Agent are Affiliates or the same Person) law firms, each one selected by the Collateral Agent and the Administrative Agent in its sole discretion; provided, however, that such limitation shall not be applicable in respect of 751499193.15 22727329 129 any Person if such limitation on representation would be inappropriate due to an actual or potential conflict of interest between the Collateral Agent, the Administrative Agent, any Group Agent or any Lender, including situations in which there are one or more legal defenses available to one such Person that are different from or additional to those available to any other such Person; provided, further, that, for the avoidance of doubt, no limitation on the reasonable and documented attorneys’ fees and expenses incurred by the Collateral Agent, the Administrative Agent, any Lender, or any Group Agent during the continuance of an Unmatured Event of Termination or Event of Termination shall be applicable even if such event subsequently ceases to be continuing. SECTION 12.07. No Proceedings; Limited Recourse. (a) The Borrower, Compass, the Servicer, the Collateral Agent, the Administrative Agent, each Lender, and each Group Agent, each hereby agrees that it will not institute against any Conduit Lender, or join any other Person in instituting against any Conduit Lender, any proceeding of the type referred to in the definition of Event of Bankruptcy from the Closing Date until one year plus one day following the last day on which all Commercial Paper Notes and other publicly or privately placed indebtedness of such Conduit Lender shall have been indefeasibly paid in full. The foregoing shall not limit any such Person’s right to file any claim in or otherwise take any action with respect to any insolvency proceeding that was instituted by any Person other than such parties. (b) The Servicer, Compass, the Collateral Agent, the Administrative Agent, each Lender, and each Group Agent, each hereby agrees, and each Affected Person, Indemnified Party, Set-off Party and each other Person (other than the Borrower) obtaining any benefits from this Agreement and the Transaction Documents, by its acceptance of such benefits, shall be deemed to have agreed, that it will not institute against the Borrower, or join any other Person in instituting against the Borrower, any proceeding of the type referred to in the definition of Event of Bankruptcy. The foregoing shall not limit the right of any such Person (each, a “Borrower Creditor”) right to file any claim in or otherwise take any action with respect to any insolvency proceeding that was instituted by any Person other than such Borrower Creditor, to the extent such Borrower Creditor has not otherwise caused the institution of such proceeding. All claims against the Borrower of any Borrower Creditor that has instituted or has caused the institution of such a proceeding shall be subordinated to the claims of each Borrower Creditor that has not instituted or caused the institution of such a proceeding, and the foregoing agreement shall constitute a “subordination agreement” within the meaning of Section 510 of the Bankruptcy Code. Notwithstanding anything to the contrary contained herein or in any other Transaction Document, the obligations of the Borrower hereunder and thereunder are solely the obligations of the Borrower, payable solely from the Borrower’s own assets. (c) Notwithstanding anything to the contrary contained herein, the obligations of any Conduit Lender under this Agreement are solely the obligations of such Conduit Lender and shall be payable at such time as funds are received by or are available to such Conduit Lender in excess of funds necessary to pay in full all outstanding Commercial Paper Notes of such Conduit Lender and, if applicable, all obligations and liabilities of such Conduit Lender to any related Commercial Paper Note issuer, and, to the extent funds are not available to pay such obligations, the claims relating thereto shall not constitute a claim against such Conduit Lender but shall continue to accrue. Each party hereto agrees that the payment of any claim (as defined in Section 751499193.15 22727329 130 101 of Title 11, of the Bankruptcy Code) of any such party shall be subordinated to the payment in full of all Commercial Paper Notes; provided, however, that each party hereto agrees that for purposes of this Section 12.07(c), a Conduit Lender does not own a direct interest in the Pool Receivables, the Related Assets, Collections and the proceeds therefrom, but only a right to the amounts set forth as payable to it herein, and accordingly this Section 12.07(c) does not contemplate that amounts payable to the Borrower or Servicers from the proceeds of Pool Receivables and Related Assets, including Collections, all as set forth herein, would be subordinated to the payment of a Conduit Lender’s Commercial Paper Notes. (d) No recourse under any obligation, covenant or agreement of any Conduit Lender contained in this Agreement shall be had against any member, manager, officer, director, employee or agent of such Conduit Lender or any of their Affiliates (solely by virtue of such capacity) by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that this Agreement is solely an obligation of each Conduit Lender individually, and that no personal liability whatever shall attach to or be incurred by any incorporator, stockholder, officer, director, member, employee or agent of any Conduit Lender or any of their Affiliates (solely by virtue of such capacity) or any of them under or by reason of any of the obligations, covenants or agreements of such Conduit Lender contained in this Agreement, or implied therefrom, and that any and all personal liability for breaches by any Conduit Lender of any of such obligations, covenants or agreements, either at common law or at equity, or by statute, rule or regulation, of every such member, manager, officer, director, employee or agent is hereby expressly waived as a condition of and in consideration for the execution of this Agreement; provided that the foregoing shall not relieve any such Person from any liability it might otherwise have as a result of fraudulent actions taken or omissions made by them. (e) Except as expressly provided in any Transaction Document, no recourse shall be had for the payment of any amount owing by the Borrower in respect of this Agreement or the other Transaction Documents or for the payment of any fee hereunder or for any other obligation or claim arising out of or based upon this Agreement against the Servicer, any other ADT Entity or any Affiliate of any of the foregoing (other than the Borrower), or any stockholder, employee, officer, director, incorporator or beneficial owner of any of the foregoing; provided, however, that, the foregoing shall not in any manner affect, limit or waive any of the obligations of the Servicer, any other ADT Entity or any Affiliate of any of the foregoing that such Person may have under any Transaction Document. SECTION 12.08. Confidentiality. (a) Each party hereto acknowledges that the Collateral Agent, the Administrative Agent, each Lender, and each Group Agent regards the terms of the transactions contemplated by this Agreement to be proprietary and confidential, and each such party severally agrees that: (i) it will not disclose without the prior consent of the Collateral Agent, the Administrative Agent (other than to its Collateral Trustee (if any), and its and its Affiliates’ directors, officers, employees, agents, accountants, auditors, and counsel or other advisors (collectively, “representatives”) of such party, each of whom shall be 751499193.15 22727329 131 informed by such party of the confidential nature of the Program Information (as defined below) and of the terms of this Section 12.08), (1) any information regarding the pricing terms in, or copies of, this Agreement, any other Transaction Document or any transaction contemplated hereby or thereby, (2) any information regarding the organization, business, or operations of any Lender generally or the services performed by the Collateral Agent or the Administrative Agent for any Lender, or (3) any information which is furnished by the Collateral Agent or the Administrative Agent to such party and is designated by the Collateral Agent or the Administrative Agent to such party in writing as confidential (the information referred to in clauses (1), (2), and (3) is collectively referred to as the “Program Information”); provided that such party may disclose any such Program Information: (A) to any other party to this Agreement (and any representatives so long as they are informed that such information is confidential and agree to keep such information confidential) for the purposes contemplated hereby, (B) to the extent requested by any regulatory authority or by applicable Laws, (C) as may be required by any Governmental Authority having jurisdiction over such party, (x) in order to comply with any Law applicable to such party or (y) subject to subsection (c), in the event such party is legally compelled (by interrogatories, requests for information or copies, subpoena, civil investigative demand, or similar process) to disclose any such Program Information, (D) to any permitted assignee of such party’s rights and obligations hereunder to the extent they agree to be bound by this Section 12.08, (E) in connection with the exercise of any remedies hereunder or any suit, action, or proceeding relating to this Agreement or the enforcement of rights hereunder, (F) to any nationally recognized statistical rating organization as contemplated by Section 17g-5 of the Securities Exchange Act or in connection with obtaining or monitoring a rating on any Commercial Paper Notes, or (G) in connection with filings (including exhibit filings) required under the Securities Exchange Act, as reasonably determined by the applicable filing party to be necessary or appropriate for the purposes of complying with applicable Law; (ii) it, and any Person to which it discloses such information, will use the Program Information solely for the purposes of evaluating, administering, performing and enforcing the transactions contemplated by this Agreement and making any necessary business judgments with respect thereto; and (iii) it, and any Person to which it discloses such information, will, upon written demand from the Collateral Agent or the Administrative Agent, return (and cause each of its representatives to return) to the Collateral Agent or the Administrative Agent or destroy (whether to return or destroy being in the sole discretion of such party), all documents or other written material received from the Collateral Agent or the Administrative Agent, as the case may be, pursuant to clauses (2) or (3) of subsection (i) above and all copies thereof made by such party which contain all Program Information; provided however that it may retain one copy of such document or material and any Program Information incorporated into any of its credit review documentation, or as it otherwise deem necessary in order to comply with ordinary and customary retention requirements of financial institutions, sound banking practices and audit and examination requirements or as otherwise may be required by applicable Law. Any Person required to maintain the confidentiality of any information as provided in this Section 12.08(a) shall be considered to have complied with its obligation to do so if such Person has exercised
751499193.15 22727329 132 the same degree of care to maintain the confidentiality of such information as such Person would accord to its own confidential information. (b) Availability of Confidential Information. Section 12.08(a) shall be inoperative as to such portions of the Program Information which are or become generally available to the public or such party on a nonconfidential basis from a source other than the Collateral Agent or the Administrative Agent or were known to such party on a nonconfidential basis prior to its disclosure by the Collateral Agent or the Administrative Agent. (c) Legal Compulsion to Disclose. In the event that any party or anyone to whom such party or its representatives transmits the Program Information is requested or becomes legally compelled (by interrogatories, requests for information or documents, subpoena, civil investigative demand, or similar process) to disclose any of the Program Information, to the extent permitted by applicable Law and if practical to do so under the circumstances, such party shall provide the Collateral Agent, the Administrative Agent, each Group Agent, and Compass with prompt written notice so that the Collateral Agent or the Administrative Agent may at the expense of Compass seek a protective order or other appropriate remedy and/or if it so chooses, agree that such party may disclose such Program Information pursuant to such request or legal compulsion. In the event that such protective order or other remedy is not obtained, or the Collateral Agent and the Administrative Agent waive compliance with the provisions of this Section 12.08(c), such party will furnish only that portion of the Program Information which (in such party’s good faith judgment) is legally required to be furnished and will exercise commercially reasonable efforts to obtain reliable assurance that confidential treatment will be accorded the Program Information. (d) Disclosure of Tax Treatment and Structure. Notwithstanding anything herein to the contrary, each party (and each employee, representative, or other agent of each party) hereto may disclose to any and all Persons, without limitation of any kind, any information with respect to the United States federal income “tax treatment” and “tax structure” (in each case, within the meaning of U.S. Treasury Regulation Section 1.6011-4) of the transactions contemplated hereby and all materials of any kind (including opinions or other Tax analyses) that are provided to such parties (or their representatives) relating to such tax treatment and tax structure; provided, that with respect to any document or similar item that in either case contains information concerning the tax treatment or tax structure of the transaction as well as other information, this sentence shall only apply to such portions of the document or similar item that relate to the United States federal income tax treatment or tax structure of the transactions contemplated hereby. (e) Confidentiality of the Collateral Agent, the Administrative Agent, and Lenders. The Collateral Agent, the Administrative Agent, each Lender, each Group Agent, each Affected Person, and their successors and assigns agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (i) to its Collateral Trustee (if any) and its and its Affiliates’ directors, officers, employees, and agents, including accountants, auditors, legal counsel, and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and be instructed and agree or be otherwise bound to keep such Information confidential on terms at least as restrictive as this Section 12.08(e)), (ii) to the extent requested by any regulatory authority or by applicable Laws, (iii) to the extent required by any subpoena or similar legal process, provided, however, to the extent permitted by applicable Law and if practical to do so under the 751499193.15 22727329 133 circumstances, that the Person relying on this clause (iii) shall provide Compass and the Borrower with prompt notice of any such required disclosure so that Compass or the Borrower, as applicable, may seek a protective order or other appropriate remedy, and in the event that such protective order or other remedy is not obtained, such Person will furnish only that portion of the Information which is legally required, (iv) to any other Affected Person (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and be instructed and agree or be otherwise bound to keep such Information confidential on terms at least as restrictive as this Section 12.08(e)), (v) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (vi) to any prospective participant or assignee provided such person agrees to be bound by this Section 12.08(e), (vii) with the consent of the Borrower and Compass, (viii) to the extent such Information becomes publicly available other than as a result of a breach of this Section 12.08(e) or any agreement contemplated by this Section 12.08(e) or (ix) to any nationally recognized statistical rating organization as contemplated by Section 17g-5 of the Securities Exchange Act or in connection with obtaining or monitoring a rating on any Commercial Paper Notes. For the purposes of this Section, “Information” means all information received from Compass or any Affiliate of Compass, including any Obligor Information (and to the extent applicable, any Non-Public Obligor Data, which shall remain subject to the applicable provisions of Section 12.08(f)), other than any such information that is available to such Person on a nonconfidential basis prior to disclosure by Compass or any Affiliate of Compass. (f) Privacy Requirements. Notwithstanding anything to the contrary in this Agreement, Mizuho, as Administrative Agent, the Collateral Agent, Lender and Group Agent agrees that it is, and will remain, in compliance with the Privacy Requirements, will not utilize, and will not permit any affiliate or any representative to utilize, Non-Public Obligor Data for any purpose not in connection with the transactions contemplated under this Agreement or the related Transaction Documents, and will maintain reasonable and adequate safeguards for the protection of all Non-Public Obligor Data, in accordance with its internal privacy Compass and as required by the Privacy Requirements and other applicable Law. Mizuho has provided Compass with a true and correct copy of its information security policies and procedures as in effect on March 12, 2020. None of the Administrative Agent, the Collateral Agent, any Lender or any Group Agent shall provide any Non-Public Obligor Data to any other Lender, Group Agent, successor Collateral Agent or Administrative Agent, or any other prospective participant or assignee thereof, unless Compass shall have provided its consent thereto to the Administrative Agent. For the avoidance of doubt, once Compass provides its consent in respect of a Person, no additional Compass consent shall be required for future disclosure of Non-Public Obligor Data to such Person. Upon receipt of such consent, the Administrative Agent shall forward a copy thereof to the Lenders and the Group Agents. In respect of each such Person, Compass shall provide the consent contemplated above if such Person has agreed to maintain reasonable and adequate safeguards for the protection of all Non-Public Obligor Data in a manner reasonably satisfactory to Compass. Notwithstanding anything to the contrary herein or in any other Transaction Document, (i) subject to clause (iii) below, each ADT Entity shall be entitled to remove any Non-Public Obligor Data from any report, document or information required to be delivered hereunder, including the Information Package, and shall not be liable to any Person by reason thereof, (ii) delivery by the Administrative Agent or the Collateral Agent of any notice or information required to be provided by it under this Agreement or the other Transaction Documents, including the Information Package, shall not be deemed to be a breach of this Section 12.08(f), and (iii) upon request by the Collateral Agent or 751499193.15 22727329 134 the Administrative Agent, each ADT Entity shall separately provide to the Collateral Agent and the Administrative Agent with each report, document and information from which any Non-Public Obligor Data has been removed, without such Non-Public Obligor Data removed; provided, that neither the Collateral Agent nor the Administrative Agent shall provide (and shall not be deemed to be required to provide) such Non-Public Obligor Data to any other Lender, Group Agent, successor Collateral Agent or Administrative Agent, or any other prospective participant or assignee thereof except in accordance with this Section 12.08(f) or with Compass’s consent, and in no event shall Mizuho, as the Collateral Agent or the Administrative Agent, be obligated to provide (or be liable for not providing) any Non-Public Obligor Data to any other Person. Each of the Administrative Agent, Collateral Agent, each Lender and each Group Agent also agree that it will not, and will not permit any affiliate or representative other than the Servicer or its authorized delegees to, contact any Obligor for any purpose; provided, however, that the Administrative Agent or the Collateral Agent (or their respective agents) may contact an Obligor following an Event of Termination, to the extent expressly set forth herein, or if Compass is terminated as the Servicer and a successor servicer is acting as servicer or a collection agent in respect of the applicable Pool Receivables. Except to the extent expressly set forth herein following an Event of Termination, each of the Administrative Agent, Collateral Agent, each Lender and each Group Agent (or their respective agents) shall not take any action to service, collect or administer any Pool Receivable during the period that Compass has the right to act as the Servicer under this Agreement. Compass and the Borrower shall not deliver (or instruct the Administrative Agent or the Collateral Agent to deliver) to any Lender or Group Agent any Non-Public Obligor Data in connection with the transactions contemplated hereby, except with such Lender’s or Group Agent’s prior written consent. SECTION 12.09. Captions and Cross References. The various captions (including the table of contents) in this Agreement are provided solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement. Unless otherwise indicated, references in this Agreement to any Section, Article, Appendix, Schedule, or Exhibit are to such Section or Article of, or Appendix, Schedule, or Exhibit to this Agreement, as the case may be, and references in any Section, subsection, or clause to any subsection, clause, or subclause are to such subsection, clause, or subclause of such Section, subsection, or clause. SECTION 12.10. Integration. This Agreement, together with the other Transaction Documents, contains a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire understanding among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings. SECTION 12.11. Governing Law. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BUT WITHOUT REGARD TO ANY OTHER CONFLICTS OF LAW PROVISIONS THEREOF, EXCEPT TO THE EXTENT THAT THE PERFECTION, THE EFFECT OF PERFECTION OR PRIORITY OF THE INTERESTS OF THE COLLATERAL AGENT, THE ADMINISTRATIVE AGENT, OR ANY LENDER IN THE COLLATERAL IS 751499193.15 22727329 135 GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK). SECTION 12.12. Waiver of Jury Trial. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR UNDER ANY AMENDMENT, INSTRUMENT, OR DOCUMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING OR OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A JURY. SECTION 12.13. Consent to Jurisdiction; Waiver of Immunities. EACH PARTY HERETO HEREBY ACKNOWLEDGES AND AGREES THAT: (a) IT IRREVOCABLY (i) SUBMITS TO THE JURISDICTION, FIRST, OF ANY UNITED STATES FEDERAL COURT, AND SECOND, IF FEDERAL JURISDICTION IS NOT AVAILABLE, OF ANY NEW YORK STATE COURT, IN EITHER CASE SITTING IN NEW YORK CITY, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OTHER TRANSACTION DOCUMENT, (ii) AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED ONLY IN SUCH NEW YORK STATE OR FEDERAL COURT AND NOT IN ANY OTHER COURT, AND (iii) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING. (b) TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM THE JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID TO EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER OR IN CONNECTION WITH THIS AGREEMENT. SECTION 12.14. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Delivery of an executed counterpart hereof by facsimile or other electronic means shall be equally effective as delivery of an originally executed counterpart. Each of the parties hereto agrees that this Agreement and any other documents to be delivered in connection herewith may be electronically signed, provided that no electronic signatures may be affixed through the use of a third-party service provider. The parties agree that any digital or electronic signatures (including pdf, facsimile or electronically imaged signatures) appearing on this Agreement or such other documents are the same as handwritten signatures for the purposes of validity, enforceability and admissibility, and that delivery of any such electronic
751499193.15 22727329 136 signature to, or a signed copy of, this Agreement and such other documents may be made by facsimile, email or other electronic transmission. SECTION 12.15. Pledge to a Federal Reserve Bank. Notwithstanding anything to the contrary set forth herein (including in Section 12.03), (i) each Lender that constitutes a banking institution or any assignee or participant thereof other than a Conduit Lender, or (ii) in the event that any Conduit Lender assigns any of its interest in, to and under the Pool Receivables or Related Assets to any Program Support Provider, any such Person, may at any time pledge, grant a security interest in or otherwise transfer all or any portion of its interest in the Loans and the security interest in the Pool Receivables or Related Assets or under this Agreement to secure the obligations of such Person to a Federal Reserve Bank or otherwise to any other federal Governmental Authority or special purpose entity formed or sponsored by any such federal Governmental Authority or any central bank having jurisdiction over such Person, in each case without notice to or the consent of the Borrower, Compass or the Servicer, but such pledge, grant, or transfer shall not relieve any Person from its obligations hereunder, and each of the other parties hereto shall be entitled to treat such Lender’s Principal and its interest under this Agreement as not having been assigned, pledged or otherwise transferred for all purposes under this Agreement. SECTION 12.16. Severability. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 12.17. Acknowledgement and Consent to Bail-In of Affected Financial Institutions. Notwithstanding anything to the contrary in any Transaction Document or in any other agreement, arrangement, or understanding among any such parties, each party hereto acknowledges that any liability of any Affected Financial Institution arising under any Transaction Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of the applicable Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by: (a) the application of any Write-Down and Conversion Powers by the applicable Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an Affected Financial Institution; and (b) the effects of any Bail-in Action on any such liability, including, if applicable: (i) a reduction in full or in part or cancellation of any such liability; (ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such Affected Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Transaction Document; or 751499193.15 22727329 137 (iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of the applicable Resolution Authority. SECTION 12.18. PATRIOT Act Notice. Each of the Administrative Agent and the Collateral Agent (for itself and not on behalf of any Lender or Group Agent) and each Group Agent and Lender hereby notifies Compass and the Borrower that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies Compass and the Borrower. Such information includes the name and address of Compass and the Borrower and other information that will allow the Administrative Agent, the Collateral Agent, such Group Agent or such Lender to identify Compass and the Borrower in accordance with the USA PATRIOT Act. SECTION 12.19. EU Securitisation Regulation. Compass hereby represents, warrants and agrees, for the benefit of those Credit Parties that are subject to Article 5 of the EU Securitisation Regulation, on the Closing Date until the Final Payout Date that: (a) Compass, based on the reasonable understanding that it is an originator for purposes of the EU Securitisation Regulation, shall retain, on an ongoing basis, a material net economic interest in the Pool Receivables in an amount not less than 5% of the nominal value of the Pool Receivables in the form of a first loss tranche determined in accordance with sub- paragraph (d) of Article 6(3) of the EU Securitisation Regulation (as in effect on the Closing Date), which material net economic interest shall be based on Compass’s direct or indirect ownership of all of the membership interest of the Borrower, which has the right to receive payments under Section 3.01(d)(xi) (the “Retained Interest”); (b) each of Compass and the Borrower shall not, and shall not permit any of its Affiliates to, hedge or otherwise mitigate its credit risk under, or associated with the Retained Interest, or sell, transfer or otherwise surrender all or part of the rights, benefits or obligations arising from, the Retained Interest, except to the extent permitted under the EU Securitisation Regulation Rules (as in effect at the relevant time); (c) Compass shall not change the manner in which it retains or the method of calculating the Retained Interest, except to the extent permitted under the EU Securitisation Regulation Rules (as in effect at the relevant time); (d) Compass shall provide ongoing confirmation as to the continued compliance with the foregoing clauses (a) through (c) above (i) by providing such confirmation to the Servicer on a monthly basis for inclusion in each Information Package, (ii) promptly following the occurrence of any Event of Termination or Unmatured Event of Termination and (iii) from time to time promptly upon written request by the Administrative Agent (on behalf of any Credit Party) or any Group Agent (on behalf of any member of its Group) in connection with any material change in the performance or the risk characteristics of the Pool Receivables or the transaction contemplated by the Transaction Documents or any material breach of the Transaction Documents; (e) Compass shall notify the Administrative Agent and each Group Agent promptly and in any event within five (5) Business Days of: (i) any change in the identity of the 751499193.15 22727329 138 Person or Persons, if any, through which it is retaining and holding such Retained Interest or (ii) any breach of clause (a) through (c) above; (f) Compass was not established for, and does not operate for, the sole purpose of securitizing exposures; (g) the Originator has complied with the Credit and Collection Policy in connection with originating the Pool Receivables; and (h) each of the Pool Receivables arises under and is governed by a Contract containing the terms and conditions required by the forms of Eligible Contract required by this Agreement. [Signature Pages Follow] Receivables Financing Agreement IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. ADT SOLAR FINANCE LLC By: _______________________________________ Name: Deepika Yelamanchi Title: Vice President, Treasurer COMPASS SOLAR GROUP, LLC, in its individual capacity and as the Servicer By: _______________________________________ Name: Deepika Yelamanchi Title: Vice President, Treasurer
Receivables Financing Agreement MIZUHO BANK, LTD., as Administrative Agent By: _______________________________________ Name: Title: MIZUHO BANK, LTD., as Group Agent for the Mizuho Group By: _______________________________________ Name: Title: MIZUHO BANK, LTD., as a Lender By: _______________________________________ Name: Title: Receivables Financing Agreement MIZUHO BANK, LTD., as Structuring Agent By: _______________________________________ Name: Title: MIZUHO BANK, LTD., as Collateral Agent By: _______________________________________ Name: Title:
EX-31.1
3
adtincq3202310-qex31x1.htm
EX-31.1
Document
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, James D. DeVries, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of ADT Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 2, 2023
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/s/ James D. DeVries |
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James D. DeVries |
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President and Chief Executive Officer |
EX-31.2
4
adtincq3202310-qex31x2.htm
EX-31.2
Document
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Kenneth J. Porpora, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of ADT Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 2, 2023
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/s/ Kenneth J. Porpora |
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Kenneth J. Porpora |
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Executive Vice President and Chief Financial Officer |
EX-32.1
5
adtincq3202310-qex32x1.htm
EX-32.1
Document
Exhibit 32.1
ADT INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, James D. DeVries, President and Chief Executive Officer of ADT Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
•the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
•information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the Company.
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/s/ James D. DeVries |
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James D. DeVries |
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President and Chief Executive Officer |
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November 2, 2023 |
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The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 1350 of Title 18 of the United States Code and, accordingly, is not being filed with the U.S. Securities and Exchange Commission as part of the Report and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing).
EX-32.2
6
adtincq3202310-qex32x2.htm
EX-32.2
Document
Exhibit 32.2
ADT INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Kenneth J. Porpora, Executive Vice President and Chief Financial Officer of ADT Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
•the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
•information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the Company.
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/s/ Kenneth J. Porpora |
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Kenneth J. Porpora |
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Executive Vice President and Chief Financial Officer |
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November 2, 2023 |
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The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 1350 of Title 18 of the United States Code and, accordingly, is not being filed with the U.S. Securities and Exchange Commission as part of the Report and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing).