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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
__________________________________________________________________________
FORM 10-Q
  _______________________________________________

		
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the quarterly period ended September 30, 2018
or

		
¨	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 333-191132-02
__________________________________________________________  
APX Group Holdings, Inc.
(Exact name of Registrant as specified in its charter)
__________________________________________________________  

			
Delaware	 	46-1304852	
(State or Other Jurisdiction of
Incorporation or Organization)	 	(I.R.S. Employer
Identification No.)	

			
4931 North 300 West
Provo, UT	 	84604	
(Address of Principal Executive Offices)	 	(Zip Code)	
Registrant’s Telephone Number, Including Area Code: (801) 377-9111
__________________________________________________________  
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   ¨     No   ý
(Note: From January 1, 2018, the registrant has been a voluntary filer not subject to the filing requirements of Section 13 or 15(d) of the Exchange Act; as a voluntary filer the registrant filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant would have been required to file such reports) as if it were subject to such filing requirements.)
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   ý     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 an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

							
Large accelerated filer	 	¨	  	Accelerated filer	 	¨	
 	 	 	 	 	 	 	
Non-accelerated filer	 	x   	  	Smaller reporting company	 	¨	
 	 	 	 	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   ý
As of November 1, 2018 , there were 100 shares of the issuer’s common stock, par value $0.01 per share, issued and outstanding.

	

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APX Group Holdings Inc.
FORM 10-Q
TABLE OF CONTENTS

	
			
PART I — Financial Information	6	
Item 1.	Unaudited Condensed Consolidated Financial Statements	6	
 	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017	6	
 	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017	8	
 	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2018 and 2017	9	
 	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017	10	
 	Notes to Unaudited Condensed Consolidated Financial Statements	11	
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53	
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	77	
Item 4.	Controls and Procedures	77	
 	 	
PART II — Other Information	78	
Item 1.	Legal Proceedings	78	
Item 1A.	Risk Factors	78	
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	78	
Item 3.	Defaults Upon Senior Securities	78	
Item 4.	Mine Safety Disclosures	78	
Item 5.	Other Information	78	
Item 6.	Exhibits	79	
SIGNATURES	81	

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BASIS OF PRESENTATION AND GLOSSARY
As used in this Quarterly Report on Form 10-Q, unless otherwise noted or the context otherwise requires:
		
•	references to “Vivint,” “we,” “us,” “our” and “the Company” are to APX Group Holdings, Inc. and its consolidated subsidiaries;	
		
•	references to “Sponsor” are to certain investment funds affiliated with The Blackstone Group L.P.;	
		
•	references to the “Merger” are to the acquisition of APX Group and two of its affiliates, Vivint Solar, Inc. and 2GIG Technologies, Inc., on November 16, 2012, by an investor group comprised of certain investment funds affiliated with our Sponsor, and certain co-investors and management investors; and	
		
•	the terms “subscriber” and “customer” are used interchangeably.	

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements regarding, among other things, our plans, strategies and prospects, both business and financial. These statements are based on the beliefs and assumptions of our management. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning our possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or similar expressions. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about our ability to:
		
•	accelerate adoption of our smart home solution;	
		
•	establish and grow through new customer acquisition channels;	
		
•	increase brand awareness;	
		
•	meet customer expectations and address key friction points for smart home adoption and use;	
		
•	expand our ecosystem with third-party and proprietary devices;	
		
•	reduce customer attrition;	
		
•	lower net customer acquisition costs;	
		
•	improve unit economics and grow subscription revenues per customer over time;	
		
•	increase new customer originations, customer usage, and customer satisfaction;	
		
•	develop, design, and sell our own Smart Home Services that are differentiated from those of our competitors;	
		
•	attract, train and retain an effective sales force and other key personnel;	
		
•	upgrade and maintain our information technology systems;	
		
•	acquire and protect intellectual property;	
		
•	meet future liquidity requirements and comply with restrictive covenants related to our long-term indebtedness;	
		
•	enhance our future operating and financial results;	
		
•	comply with laws and regulations applicable to our business; and	
		
•	successfully defend litigation brought against us.	
Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which speak only as of the date hereof. You should understand that the following important factors could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:

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•	risks of the smart home and security industry, including risks of and publicity surrounding the sales, subscriber origination and retention process;	
		
•	the highly competitive nature of the smart home and security industry and product introductions and promotional activity by our competitors;	
		
•	litigation, complaints or adverse publicity;	
		
•	the impact of changes in consumer spending patterns, consumer preferences, local, regional, and national economic conditions, crime, weather, demographic trends and employee availability;	
		
•	adverse publicity and product liability claims;	
		
•	increases and/or decreases in utility and other energy costs, increased costs related to utility or governmental requirements;	
		
•	cost increases or shortages in smart home and security technology products or components;	
		
•	the introduction of unsuccessful new Smart Home Services;	
		
•	privacy and data protection laws, privacy or data breaches, or the loss of data; and	
		
•	the impact to our business, results of operations, financial condition, regulatory compliance and customer experience of the Vivint Flex Pay plan (as defined in Note 1 - Basis of Presentation in the unaudited condensed consolidated financial statements) and our ability to successfully compete in retail sales channels.	
In addition, the origination and retention of new subscribers will depend on various factors, including, but not limited to, market availability, subscriber interest, the availability of suitable components, the negotiation of acceptable contract terms with subscribers, local permitting, licensing and regulatory compliance, and our ability to manage anticipated expansion and to hire, train and retain personnel, the financial viability of subscribers and general economic conditions.
These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this Quarterly Report are more fully described in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange Commission (the “SEC”) (the “Form 10-K”), as such risk factors may be updated from time to time in our periodic filings with the SEC, and are accessible on the SEC’s website at www.sec.gov . The risks described herein or in the “Risk Factors” section of the 10-K are not exhaustive. Other sections of this Quarterly Report describe additional factors that could adversely affect our business, financial condition or results of operations. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

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WEBSITE AND SOCIAL MEDIA DISCLOSURE
We use our website (www.vivint.com), our company blog (blog.vivint.com), corporate Twitter and Instagram accounts (@VivintHome), and our corporate Facebook account (VivintHome) as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about the Company when you enroll your e-mail address by visiting the “Email Alerts” section of our website at www.investors.vivint.com . The contents of our website and social media channels are not, however, a part of this report.

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PART I. FINANCIAL INFORMATION

	
		
ITEM 1.	UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	

APX Group Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in thousands, except share and per-share amounts)

								
 	September 30, 2018	 	December 31, 2017	
ASSETS		 		
Current Assets:	 	 	 	
Cash and cash equivalents	$	112,966		 	$	3,872		
Accounts and notes receivable, net	51,996		 	40,721		
Inventories	73,086		 	115,222		
Prepaid expenses and other current assets	17,475		 	16,150		
Total current assets	255,523		 	175,965		
 	 	 	 	
Property, plant and equipment, net	75,882		 	78,081		
Capitalized contract costs, net	1,163,480		 	—		
Subscriber acquisition costs, net	—		 	1,308,558		
Deferred financing costs, net	2,318		 	3,099		
Intangible assets, net	278,494		 	377,451		
Goodwill	836,290		 	836,970		
Long-term notes receivables and other assets, net	122,766		 	88,723		
Total assets	$	2,734,753		 	$	2,868,847		
LIABILITIES AND STOCKHOLDERS’ DEFICIT	 	 	 	
Current Liabilities:	 	 	 	
Accounts payable	$	71,364		 	$	107,347		
Accrued payroll and commissions	118,913		 	57,752		
Accrued expenses and other current liabilities	155,818		 	74,321		
Deferred revenue	184,226		 	88,337		
Current portion of capital lease obligations	8,511		 	10,614		
Total current liabilities	538,832		 	338,371		
 	 	 	 	
Notes payable, net	2,979,268		 	2,760,297		
Notes payable, net - related party	58,905		 	—		
Revolving credit facility	—		 	60,000		
Capital lease obligations, net of current portion	7,325		 	11,089		
Deferred revenue, net of current portion	328,168		 	264,555		
Other long-term obligations	95,553		 	79,020		
Deferred income tax liabilities	8,816		 	9,041		
Total liabilities	4,016,867		 	3,522,373		
Commitments and contingencies (See Note 11)		 		
Stockholders’ deficit:	 	 	 	
Common stock, $0.01 par value, 100 shares authorized; 100 shares issued and outstanding	—		 	—		
Additional paid-in capital	736,328		 	732,346		
Accumulated deficit	(1,991,153	)	 	(1,358,571	)	
Accumulated other comprehensive loss	(27,289	)	 	(27,301	)	
Total stockholders’ deficit	(1,282,114	)	 	(653,526	)	
Total liabilities and stockholders’ deficit	$	2,734,753		 	$	2,868,847		

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See accompanying notes to unaudited condensed consolidated financial statements

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APX Group Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (unaudited)
(in thousands)

	
																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	2018	 	2017	
Revenues:	 	 	 	 	 	 	 	
Recurring and other revenue	$	272,335		 	$	219,111		 	$	773,899		 	$	618,752		
Service and other sales revenue	—		 	6,764		 	—		 	18,513		
Activation fees	—		 	2,783		 	—		 	8,872		
Total revenues	272,335		 	228,658		 	773,899		 	646,137		
Costs and expenses:	 	 	 	 	 	 	 	
Operating expenses (exclusive of depreciation and amortization shown separately below)	92,703		 	81,108		 	265,784		 	229,776		
Selling expenses (exclusive of amortization of deferred commissions of $40,030; $21,769; $121,609; and $61,193, respectively, which are included in depreciation and amortization shown separately below)	41,970		 	53,821		 	166,872		 	134,894		
General and administrative expenses	50,542		 	49,416		 	150,715		 	127,179		
Depreciation and amortization	130,636		 	84,460		 	381,767		 	241,425		
Restructuring expenses	542		 	—		 	4,683		 	—		
Total costs and expenses	316,393		 	268,805		 	969,821		 	733,274		
Loss from operations	(44,058	)	 	(40,147	)	 	(195,922	)	 	(87,137	)	
Other expenses (income):	 	 	 	 	 	 	 	
Interest expense	61,881		 	58,005		 	180,998		 	166,644		
Interest income	—		 	—		 	(31	)	 	(104	)	
Other loss (income), net	14,510		 	8,611		 	(25,999	)	 	18,808		
Loss before income taxes	(120,449	)	 	(106,763	)	 	(350,890	)	 	(272,485	)	
Income tax (benefit) expense	(223	)	 	1,157		 	(1,562	)	 	2,308		
Net loss	$	(120,226	)	 	$	(107,920	)	 	$	(349,328	)	 	$	(274,793	)	
See accompanying notes to unaudited condensed consolidated financial statements

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APX Group Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss (unaudited)
(in thousands)

	
																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	2018	 	2017	
Net loss	$	(120,226	)	 	$	(107,920	)	 	$	(349,328	)	 	$	(274,793	)	
Other comprehensive income (loss), net of tax effects:	 	 	 	 		 		
Foreign currency translation adjustment	406		 	1,967		 	(670	)	 	3,543		
Unrealized gain on marketable securities	—		 	(413	)	 	—		 	(671	)	
Total other comprehensive income (loss)	406		 	1,554		 	(670	)	 	2,872		
Comprehensive loss	$	(119,820	)	 	$	(106,366	)	 	$	(349,998	)	 	$	(271,921	)	
See accompanying notes to unaudited condensed consolidated financial statements

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APX Group Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)

	
								
 	Nine Months Ended September 30,	
 	2018	 	2017	
 	 	 	 	
Cash flows from operating activities:	 	 	 	
Net loss	$	(349,328	)	 	$	(274,793	)	
Adjustments to reconcile net loss to net cash used in operating activities:	 	 	 	
Amortization of capitalized contract costs	294,802		 	—		
Amortization of subscriber acquisition costs	—		 	149,933		
Amortization of customer relationships	63,163		 	71,108		
Depreciation and amortization of property, plant and equipment and other intangible assets	23,802		 	20,384		
Amortization of deferred financing costs and bond premiums and discounts	3,944		 	5,201		
Gain on fair value changes of equity securities	(1,385	)	 	—		
(Gain) loss on sale or disposal of assets	(49,942	)	 	338		
Loss on early extinguishment of debt	14,571		 	23,040		
Stock-based compensation	1,651		 	1,287		
Provision for doubtful accounts	14,318		 	14,723		
Deferred income taxes	—		 	(378	)	
Changes in operating assets and liabilities:	 	 	 	
Accounts and notes receivable, net	(26,830	)	 	(35,578	)	
Inventories	42,053		 	(59,500	)	
Prepaid expenses and other current assets	(1,327	)	 	(9,792	)	
Capitalized contract costs, net	(439,711	)	 	—		
Subscriber acquisition costs, net	—		 	(367,300	)	
Long-term notes receivables and other assets, net	(30,231	)	 	(68,117	)	
Accounts payable	(31,781	)	 	42,435		
Accrued payroll and commissions, expenses and other current and long-term liabilities	168,953		 	132,649		
Deferred revenue	173,255		 	205,092		
Net cash used in operating activities	(130,023	)	 	(149,268	)	
Cash flows from investing activities:	 	 	 	
Capital expenditures	(15,355	)	 	(14,842	)	
Proceeds from the sale of intangible assets	53,693		 	—		
Proceeds from the sale of capital assets	185		 	275		
Acquisition of intangible assets	(1,068	)	 	(1,057	)	
Acquisition of other assets	—		 	(156	)	
Net cash provided by (used in) investing activities	37,455		 	(15,780	)	
Cash flows from financing activities:	 	 	 	
Proceeds from notes payable	759,000		 	724,750		
Proceeds from notes payable - related party	51,000		 	—		
Repayment of notes payable	(520,166	)	 	(450,000	)	
Borrowings from revolving credit facility	201,000		 	124,000		
Repayments on revolving credit facility	(261,000	)	 	(124,000	)	
Proceeds from capital contribution	4,700		 	—		
Repayments of capital lease obligations	(9,882	)	 	(7,161	)	
Payments of other long-term obligations	—		 	(2,065	)	
Financing costs	(11,317	)	 	(17,771	)	
Deferred financing costs	(9,302	)	 	(10,730	)	
Return of capital	(2,369	)	 	—		
Net cash provided by financing activities	201,664		 	237,023		
Effect of exchange rate changes on cash	(2	)	 	72		
Net increase in cash and cash equivalents	109,094		 	72,047		
Cash and cash equivalents:	 	 	 	
Beginning of period	3,872		 	43,520		
End of period	$	112,966		 	$	115,567		
Supplemental non-cash investing and financing activities:	 	 	 	
Capital lease additions	$	4,432		 	$	8,285		
Intangible assets acquisitions included within accounts payable	$	424		 	$	923		
Capital expenditures included within accounts payable and accrued expenses and other current liabilities	$	352		 	$	2,502		
Change in fair value of equity securities	$	—		 	$	293		
Financing costs included within accounts payable and accrued expenses and other current liabilities	$	974		 	$	982		
See accompanying notes to unaudited condensed consolidated financial statements

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APX Group Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
1 . Basis of Presentation and Significant Accounting Policies
Unaudited Interim Financial Statements
The accompanying interim unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared by APX Group Holdings, Inc. and subsidiaries (the “Company”) without audit. The accompanying consolidated financial statements include the accounts of APX Group Holdings, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The information as of December 31, 2017 included in the unaudited condensed consolidated balance sheets was derived from the Company’s audited consolidated financial statements. The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q were prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which are considered of a normal recurring nature) considered necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods and dates presented. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 .
These unaudited condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and related notes as set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 , as filed with the Securities and Exchange Commission (“SEC”) on March 6, 2018, which is available on the SEC’s website at www.sec.gov.
Basis of Presentation
The unaudited condensed consolidated financial statements of the Company are presented for APX Group Holdings, Inc. (“Holdings") and its wholly-owned subsidiaries. The Company has prepared the accompanying unaudited condensed consolidated financial statements pursuant to GAAP. Preparing financial statements requires the Company to make estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and accompanying disclosures. Although these estimates are based on the Company’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the Company’s estimates. The results of operations presented herein are not necessarily indicative of the Company’s results for any future period.
Vivint Flex Pay
In January 2017, the Company announced the introduction of the Vivint Flex Pay plan (“Vivint Flex Pay”), which became the Company's primary sales model beginning in March 2017. Under Vivint Flex Pay, customers pay separately for the products (including control panel, security peripheral equipment, smart home equipment, and related installation) (“Products”) and Vivint's smart home and security services (“Services”). The customer has the following three options to pay for the Products: (1) qualified customers in the United States may finance the purchase of Products through a third-party financing provider (“Consumer Financing Program”), (2) customers not eligible for the Consumer Financing Program, but who qualify under the Company's underwriting criteria, may enter into a retail installment contract (“RIC”) directly with Vivint, or (3) customers may purchase the Products at the outset of the service contract by check, automatic clearing house payments (“ACH”), credit or debit card.
Although customers pay separately for Products and Services under the Vivint Flex Pay plan, the Company has determined that the shift in model does not change the Company's conclusion that the sale of Products and Services are one single performance obligation. As a result, all forms of transactions under Vivint Flex Pay create deferred revenue for the gross amount of Products sold. Gross deferred revenues are reduced by imputed interest on the RICs and the present value of expected payments due to the third-party financing provider under the Consumer Financing Program.
Under the Consumer Financing Program, qualified customers are eligible for installment loans provided by a third-party financing provider of up to $4,000 for either 42 or 60 months. The Company pays a monthly fee to the third-party financing provider based on the average daily outstanding balance of the installment loans. Additionally, the Company shares liability for credit losses depending on the credit quality of the customer. Because of the nature of these provisions under the Consumer Financing Program, the Company records a derivative liability at its fair value when the third-party financing

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provider originates installment loans to customers, which reduces the amount of estimated revenue recognized on the provision of the services. The derivative liability is reduced as payments are made from the Company to the third-party financing provider. Subsequent changes to the fair value of the derivative liability are realized through other loss/(income), net in the Condensed Consolidated Statement of Operations. (See Note 8 ).
Retail Installment Contract Receivables
For customers that enter into a RIC under the Vivint Flex Pay plan, the Company records a receivable for the amount financed. The RIC receivables are recorded at their present value, net of the imputed interest. At the time of installation, the Company records a long-term note receivable within long-term notes receivables and other assets, net on the condensed consolidated balance sheets for the present value of the receivables that are expected to be collected beyond 12 months of the reporting date. The unbilled receivable amounts that are expected to be collected within 12 months of the reporting date are included as a short-term notes receivable within accounts and notes receivable, net on the condensed consolidated balance sheets. The billed amounts of notes receivables are included in accounts receivable within accounts and notes receivable, net on the condensed consolidated balance sheets.
The Company imputes the interest on the RIC receivable using a risk adjusted market interest rate and records it as an adjustment to deferred revenue and as an adjustment to the face amount of the related receivable. The imputed interest discount considers a number of factors, including collection experience, aging of the remaining RIC receivable portfolios, credit quality of the subscriber base and other qualitative considerations, including macro-economic factors. The imputed interest income is recognized over the term of the RIC contract as recurring and other revenue on the condensed consolidated statement of operations.
When the Company determines that there are RIC receivables that have become uncollectible, the Company records an adjustment to the imputed interest discount and reduce the related note receivable balance. Account balances are written-off if collection efforts are unsuccessful and future collection is unlikely based on the length of time from the day accounts become past due.
Accounts Receivable
Accounts receivable consists primarily of amounts due from customers for recurring monthly monitoring Services and the billed portion of RIC receivables. The accounts receivable are recorded at invoiced amounts and are non-interest bearing and are included within accounts and notes receivable, net on the condensed consolidated balance sheets. Accounts receivable totaled $22.6 million and $24.3 million at September 30, 2018 and December 31, 2017 , respectively net of the allowance for doubtful accounts of $5.6 million and $5.4 million at September 30, 2018 and December 31, 2017 , respectively. The Company estimates this allowance based on historical collection experience and subscriber attrition rates. When the Company determines that there are accounts receivable that are uncollectible, they are charged off against the allowance for doubtful accounts. As of September 30, 2018 and December 31, 2017 , no accounts receivable were classified as held for sale. The provision for doubtful accounts is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and totaled $5.9 million and $5.0 million for the three months ended September 30, 2018 and 2017 , respectively, and $14.3 million and $14.7 million for the nine months ended September 30, 2018 and 2017 , respectively.
The changes in the Company’s allowance for accounts receivable were as follows for the periods ended (in thousands):

	
								
 	Nine Months Ended September 30, 2018	 	Twelve Months Ended December 31, 2017	
Beginning balance	$	5,356		 	$	4,138		
Provision for doubtful accounts	14,318		 	22,465		
Write-offs and adjustments	(14,026	)	 	(21,247	)	
Balance at end of period	$	5,648		 	$	5,356		
Revenue Recognition
The Company offers its customers smart home services combining Products, including a proprietary control panel, door and window sensors, door locks, security cameras and smoke alarms; installation; and a proprietary back-end cloud platform software and Services. These together create an integrated system that allows the Company’s customers to monitor,

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control and protect their home (“Smart Home Services”). The Company’s customers are buying this integrated system that provides them with these Smart Home Services. The number and type of Products purchased by a customer depends on their desired functionality. Because the Products and Services included in the customer’s contract are integrated and highly interdependent, and because they must work together to deliver the Smart Home Services, the Company has concluded that installed Products, related installation and Services contracted for by the customer are generally not distinct within the context of the contract and, therefore, constitute a single, combined performance obligation. Revenues for this single, combined performance obligation are recognized on a straight-line basis over the customer’s contract term. The Company has determined that certain contracts that do not require a long-term commitment for monitoring services by the customer contain a material right to renew the contract, because the customer does not have to purchase Products upon renewal. Proceeds allocated to the material right are recognized over the period benefit, which is generally three years.
The majority of the Company’s subscription contracts are between three and five years in length and are non-cancelable. These contracts with customers generally convert into month-to-month agreements at the end of the initial term, and some customer contracts are month-to-month from inception. Payment for recurring monitoring and other Smart Home Services is generally due in advance on a monthly basis.
Sales of Products and other one-time fees such as service fees or installation fees are invoiced to the customer at the time of sale. Revenues for wireless internet service provided by Vivint Wireless Inc. (“Wireless Internet” or “Wireless”) and any Products or Services that are considered separate performance obligations are recognized when those Products or Services are delivered. Taxes collected from customers and remitted to governmental authorities are not included in revenue. Payments received or amounts billed in advance of revenue recognition are reported as deferred revenue.
Deferred Revenue
The Company's deferred revenues primarily consist of amounts for sales (including upfront proceeds) of Smart Home Services. Deferred revenues are recognized over the term of the related performance obligation.
Capitalized Contract Costs
Capitalized contract costs represent the costs directly related and incremental to the origination of new contracts, modification of existing contracts or to the fulfillment of the related customer contracts. These include commissions, other compensation and related costs paid directly for the origination and installation of new or upgraded customer contracts, as well as the cost of Products installed in the customer home at the commencement or modification of the contract. These costs are deferred and amortized on a straight-line basis over the expected period of benefit that the Company has determined to be five years . Amortization of capitalized contract costs is included in “Depreciation and Amortization” on the consolidated statements of operations. These deferred costs are periodically reviewed for impairment. Contract costs not directly related and incremental to the origination of new contracts, modification of existing contracts or to the fulfillment of the related customer contracts are expensed as incurred. These costs include those associated with housing, marketing and recruiting, non-direct lead generation costs, certain portions of sales commissions and residuals, overhead and other costs considered not directly and specifically tied to the origination of a particular subscriber.
On the condensed consolidated statement of cash flows, capitalized contract costs are classified as operating activities and reported as “Capitalized contract costs – deferred contract costs” as these assets represent deferred costs associated with customer contracts.
Cash and Cash Equivalents
Cash and cash equivalents consists of highly liquid investments with remaining maturities when purchased of three months or less.
Inventories
Inventories, which are comprised of smart home and security system Products and parts, are stated at the lower of cost or net realizable value with cost determined under the first-in, first-out (FIFO) method. The Company adjusts the inventory balance based on anticipated obsolescence, usage and historical write-offs.
Long-lived Assets and Intangibles

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Property, plant and equipment are stated at cost and depreciated on the straight-line method over the estimated useful lives of the assets or the lease term for assets under capital leases, whichever is shorter. Intangible assets with definite lives are amortized over the remaining estimated economic life of the underlying technology or relationships, which ranges from five to ten years . Definite-lived intangible assets are amortized on the straight-line method over the estimated useful life of the asset or in a pattern in which the economic benefits of the intangible asset are consumed. Amortization expense associated with leased assets is included with depreciation expense. Routine repairs and maintenance are charged to expense as incurred.
The Company reviews long-lived assets, including property, plant and equipment, capitalized contract costs, and definite-lived intangibles for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company considers whether or not indicators of impairment exist on a regular basis and as part of each quarterly and annual financial statement close process. Factors the Company considers in determining whether or not indicators of impairment exist include market factors and patterns of customer attrition. If indicators of impairment are identified, the Company estimates the fair value of the assets. An impairment loss is recognized if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value.
The Company conducts an indefinite-lived intangible impairment analysis annually as of October 1, and as necessary if changes in facts and circumstances indicate that the fair value of the Company’s indefinite-lived intangibles may be less than the carrying amount. When indicators of impairment do not exist and certain accounting criteria are met, the Company is able to evaluate indefinite-lived intangible impairment using a qualitative approach. When necessary, the Company’s quantitative impairment test consists of two steps. The first step requires that the Company compare the estimated fair value of its indefinite-lived intangibles to the carrying value. If the fair value is greater than the carrying value, the intangibles are not considered to be impaired and no further testing is required. If the fair value is less than the carrying value, an impairment loss in an amount equal to the difference is recorded.
During the three and nine months ended September 30, 2018 and 2017 , no impairments to long-lived assets or intangibles were recorded.
The Company’s depreciation and amortization included in the consolidated statements of operations consisted of the following (in thousands):

																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	2018	 	2017	
Amortization of capitalized contract costs	$	101,498		 	$	—		 	$	294,802		 	$	—		
Amortization of subscriber acquisition costs	—		 	53,730		 	—		 	149,933		
Amortization of definite-lived intangibles	22,741		 	25,547		 	68,193		 	76,267		
Depreciation of property, plant and equipment	6,397		 	5,183		 	18,772		 	15,225		
Total depreciation and amortization	$	130,636		 	$	84,460		 	$	381,767		 	$	241,425		
Wireless Spectrum Licenses
The Company had capitalized, as an intangible asset, wireless spectrum licenses that its subsidiary, Vivint Wireless, acquired from a third party. The cost basis of the wireless spectrum asset included the purchase price paid for the licenses at the time of acquisition, plus costs incurred to acquire the licenses. The asset and related liability were recorded at the net present value of future cash outflows using the Company's incremental borrowing rate at the time of acquisition.
 The Company determined that the wireless spectrum licenses met the definition of indefinite-lived intangible assets because the licenses were able to be renewed periodically for a nominal fee, provided that the Company continued to meet the service and geographic coverage provisions. In January 2018, the Company terminated the wireless spectrum licenses for cash consideration. See Note 7 for further discussion.
Long-term Investments
The Company’s long-term investments are comprised of equity securities in both privately held and public companies. As of September 30, 2018 and December 31, 2017 , the Company's equity investments totaled $4.8 million and $3.4 million , respectively.

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Management determines the appropriate fair value measurement of its investments at the time of purchase and reevaluates the fair value measurement at each balance sheet date. Equity securities are classified as either short-term or long-term, based on the nature of each security and its availability for use in current operations. The Company’s equity securities are carried at fair value, with gains and losses reported in other income or loss within the statement of operations.
The Company's equity investments without readily determinable fair values totaled $0.7 million as of September 30, 2018 and December 31, 2017 , respectively. The Company performs impairment analyses of its investments without readily determinable fair values when events occur or circumstances change that would, more likely than not, reduce the fair value of the investment below its carrying value. When indicators of impairment do not exist, the Company evaluates impairment using a qualitative approach. Additionally, increases or decreases in the carrying amount resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer are adjusted through the statement of operations as needed. As of September 30, 2018 and December 31, 2017 , no indicators of impairment or changes in observable prices existed associated with investments without readily determinable fair values.
Deferred Financing Costs
Certain costs incurred in connection with obtaining debt financing are deferred and amortized utilizing the straight-line method, which approximates the effective-interest method, over the life of the related financing. Deferred financing costs associated with obtaining APX Group, Inc.’s (“APX”) revolving credit facility are amortized over the amended maturity dates discussed in Note 3 . Deferred financing costs included in the accompanying unaudited condensed consolidated balance sheets within deferred financing costs, net at September 30, 2018 and December 31, 2017 were $2.3 million and $3.1 million , net of accumulated amortization of $9.4 million and $8.6 million , respectively. Deferred financing costs included in the accompanying unaudited condensed consolidated balance sheets within notes payable, net at September 30, 2018 and December 31, 2017 were $34.6 million and $35.7 million , net of accumulated amortization of $52.4 million and $45.2 million , respectively. Amortization expense on deferred financing costs recognized and included in interest expense in the accompanying unaudited condensed consolidated statements of operations, totaled $2.6 million and $2.8 million for the three months ended September 30, 2018 and 2017 , respectively and $7.9 million and $8.7 million for the nine months ended September 30, 2018 and 2017 , respectively (See Note 3 ).
Residual Income Plans
The Company has a program that allows certain third-party sales channel partners to receive additional compensation based on the performance of the underlying contracts they create (the “Channel Partner Plan”). In addition, during the three months ended June 30, 2018, the Company introduced a new residual sales compensation plan (the “Residual Plan”). Under the Residual Plan, the Company's sales personnel (each, a “Plan Participant”) have the option to convert up to a specified portion of their earnings (as defined in the Residual Plan) into the right to receive monthly residual compensation payable over the life of the subscriber accounts sold by such Plan Participant.
For both the Channel Partner Plan and Residual Plan, the Company calculates the present value of the expected future residual payments and records a liability for this amount in the period the subscriber account is originated. These costs are recorded to capitalized contract costs. The Company monitors actual payments and customer attrition on a periodic basis and, when necessary, makes adjustments to the liability. The amount included in accrued payroll and commissions for these plans was $4.4 million and $3.3 million at September 30, 2018 and December 31, 2017 , respectively, and the amount included in other long-term obligations was $24.9 million and $18.5 million at September 30, 2018 and December 31, 2017 , respectively, representing the present value of the estimated amounts owed to third-party sales channel partners.
Stock-Based Compensation
The Company measures compensation costs based on the grant-date fair value of the award and recognizes that cost over the requisite service period of the awards (See Note 10 ).
Advertising Expense
Advertising costs are expensed as incurred. Advertising costs were $13.1 million and $12.6 million for the three months ended September 30, 2018 and 2017 , respectively and $34.8 million and $33.7 million for the nine months ended September 30, 2018 and 2017 , respectively.
Income Taxes

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The Company accounts for income taxes based on the asset and liability method. Under the asset and liability method, deferred tax assets and deferred tax liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets when it is determined that it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.
The Company recognizes the effect of an uncertain income tax position on the income tax return at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company’s policy for recording interest and penalties is to record such items as a component of the provision for income taxes.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of receivables and cash. At times during the year, the Company maintains cash balances in excess of insured limits. The Company is not dependent on any single customer or geographic location. The loss of a customer would not adversely impact the Company’s operating results or financial position.
Concentrations of Supply Risk
As of September 30, 2018 , approximately 78% of the Company’s installed panels were SkyControl panels and 20% were 2GIG Go!Control panels. During the three months ended March 31, 2018 the Company transitioned to a new panel supplier. The loss of the Company's panel supplier could potentially impact its operating results or financial position.

Fair Value Measurement
Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities subject to on-going fair value measurement are categorized and disclosed into one of three categories depending on observable or unobservable inputs employed in the measurement. These two types of inputs have created the following fair value hierarchy:
Level 1: Quoted prices in active markets that are accessible at the measurement date for assets and liabilities.
Level 2: Observable prices that are based on inputs not quoted in active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available.

This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. The Company recognizes transfers between levels of the hierarchy based on the fair values of the respective financial measurements at the end of the reporting period in which the transfer occurred. There were no transfers between levels of the fair value hierarchy during the nine months ended September 30, 2018 and 2017 .
The carrying amounts of the Company’s accounts receivable, accounts payable and accrued and other liabilities approximate their fair values due to their short maturities.
Goodwill
The Company conducts a goodwill impairment analysis annually in the fourth fiscal quarter, as of October 1, and as necessary if changes in facts and circumstances indicate that the fair value of the Company’s reporting units may be less than their carrying amounts. When indicators of impairment do not exist and certain accounting criteria are met, the Company is able to evaluate goodwill impairment using a qualitative approach. When necessary, the Company’s quantitative goodwill impairment test consists of two steps. The first step requires that the Company compare the estimated fair value of its reporting units to the carrying value of the reporting unit’s net assets, including goodwill. If the fair value of the reporting unit is greater than the carrying value of its net assets, goodwill is not considered to be impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value of its net assets, the Company would be required to complete the second step of the test by analyzing the fair value of its goodwill. If the carrying value of the goodwill exceeds its fair value, an impairment charge is recorded. The Company’s reporting units are determined based on its current reporting structure, which as of December 31, 2017 and September 30, 2018 consisted of two reporting units. As of September 30, 2018 , there were no changes in facts and circumstances since the most recent annual impairment analysis to indicate impairment existed.

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Foreign Currency Translation and Other Comprehensive Income
The functional currency of Vivint Canada, Inc. is the Canadian dollar. Accordingly, Vivint Canada, Inc. assets and liabilities are translated from their respective functional currencies into U.S. dollars at period-end rates and Vivint Canada, Inc. revenue and expenses are translated at the weighted-average exchange rates for the period. Adjustments resulting from this translation process are classified as other comprehensive income (loss) and shown as a separate component of equity.
When intercompany foreign currency transactions between entities included in the consolidated financial statements are of a long term investment nature (i.e., those for which settlement is not planned or anticipated in the foreseeable future) foreign currency translation adjustments resulting from those transactions are included in stockholders’ deficit as accumulated other comprehensive loss or income. When intercompany transactions are deemed to be of a short term nature, translation adjustments are required to be included in the condensed consolidated statement of operations. The Company has determined that settlement of Vivint Canada, Inc. intercompany balances is anticipated and therefore such balances are deemed to be of a short term nature. Translation activity included in the statement of operations in other loss, net related to intercompany balances was as follows: (in thousands)

																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	2018	 	2017	
Translation (gain) loss	$	(1,459	)	 	$	(3,076	)	 	$	2,175		 	$	(5,545	)	
Letters of Credit
As of September 30, 2018 and December 31, 2017 , the Company had $11.3 million and $9.5 million , respectively, of letters of credit issued in the ordinary course of business, all of which are undrawn.
Restructuring and Asset Impairment Charges
Restructuring and asset impairment charges represent expenses incurred in relation to activities to exit or dispose of portions of the Company's business that do not qualify as discontinued operations. Liabilities associated with restructuring are measured at their fair value when the liability is incurred. Expenses for related termination benefits are recognized at the date the Company notifies the employee, unless the employee must provide future service, in which case the benefits are expensed ratably over the future service period. Liabilities related to termination of a contract are measured and recognized at fair value when the contract does not have any future economic benefit to the entity and the fair value of the liability is determined based on the present value of the remaining obligation. The Company expenses all other costs related to an exit or disposal activity as incurred (See Note 14 ).
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, “Financial Instruments—Credit Losses (Topic 326)” which modifies the measurement of expected credit losses of certain financial instruments. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019 and must be applied using a modified-retrospective approach, with early adoption permitted. The Company is evaluating the adoption of ASU 2016-13 and plans to provide additional information about its expected impact at a future date.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 326)” to increase transparency and comparability among organizations as it relates to lease assets and lease liabilities. The update requires that lease assets and lease liabilities be recognized on the balance sheet, and that key information about leasing arrangements be disclosed. Prior to this update, GAAP did not require operating leases to be recognized as lease assets and lease liabilities on the balance sheet. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB issued ASU 2018-11 which provides companies the option to adopt using a modified retrospective approach or a prospective adoption approach.
The Company is continuing its evaluation of the impact of ASU 2016-02 on its accounting policies, processes, and system requirements. The Company’s current operating lease portfolio is primarily comprised of network, real estate, and equipment leases. Upon adoption of this standard, the Company expects the balance sheet to include a right of use asset and liability related to substantially all operating lease arrangements. The Company has assigned internal resources to perform the

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evaluation. Furthermore, the Company has made and will continue to make investments in systems to enable timely and accurate reporting under the new standard.
While the Company continues to assess the potential impacts of ASU 2016-02, including the areas described above, and anticipates this standard could have a material impact on the consolidated financial statements, the Company does not know or cannot reasonably estimate quantitative information related to the impact of the new standard on the financial statements at this time. The Company anticipates adopting this standard on January 1, 2019 using the prospective adoption approach and electing substantially all the practical expedients allowed under the standard.
Recently Adopted Accounting Standards
ASU 2016-01
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall (Subtopic 825-10)" which enhances the reporting model for financial instruments by addressing certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. Key provisions require equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income (loss). In addition, the exit price notion must be used when measuring the fair value of financial instruments for disclosure purposes. ASU 2016-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company adopted ASU 2016-01 on January 1, 2018, with a cumulative-effect adjustment to increase accumulated deficit by $0.7 million for the net unrealized losses within accumulated other comprehensive income related to equity investments. During the three and nine months ended September 30, 2018 , the Company recorded a net gain of $0.6 million and $1.4 million , respectively, to other income associated with the change in fair value of equity investments.
ASU 2014-09
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605).” Under Topic 606, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, Topic 606 requires enhanced disclosures, including disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Topic 606 also includes Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, which requires the deferral of incremental costs of obtaining a contract with a customer. Collectively, the Company refers to Topic 606 and Subtopic 340-40 as the “new standard”.
The Company adopted the new standard as of January 1, 2018, utilizing the modified retrospective method of transition (the cumulative catch-up transition method). Adoption of the new standard resulted in changes to the accounting policies for revenue recognition, deferred revenue, and capitalized contract costs (formerly subscriber acquisition costs). The cumulative effect of applying the new standard to all contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to accumulated deficit as of the adoption date. The comparative information has not been adjusted and continues to be reported under Topic 605. See Note 2 "Revenue and Capitalized Contract Costs" for additional information related to the impact of adopting this standard and a discussion of the Company's updated policies related to revenue recognition and accounting for costs to obtain and fulfill a customer contract.

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2 . Revenue and Capitalized Contract Costs
Customers are typically invoiced for Smart Home Services in advance or at the time the Company delivers the related Smart Home Services. The majority of customers pay at the time of invoice via credit card, debit card or ACH. The Company does not generally record any contract assets. Deferred revenue relates to the advance consideration received from customers, which precedes the Company’s satisfaction of the associated performance obligation. The Company’s deferred revenues primarily result from customer payments received in advance for recurring monthly monitoring and other Smart Home Services, or other one-time fees, because these performance obligations are satisfied over time.     
The Company records deferred revenues when cash payments are received or due in advance of performance of the Company's obligations, including amounts which are refundable. The increase in the deferred revenue balance during the nine months ended September 30, 2018  is primarily driven by cash payments received or due in advance of satisfying the Company's performance obligations, offset by  $132.4 million  of revenues recognized that were included in the deferred revenue balance as of  December 31, 2017 .
Transaction Price Allocated to the Remaining Performance Obligations
As of September 30, 2018 , approximately $2.3 billion of revenue is expected to be recognized from remaining performance obligations for subscription contracts. The Company expects to recognize approximately 62% of the revenue related to these remaining performance obligations over the next 24 months, with the remaining balance recognized over an additional 36 months.
Financial Statement Impact of Adopting Topic 606
The Company adopted Topic 606 using the cumulative catch-up transition method. The cumulative effect of applying the new standard to all contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to accumulated deficit as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to select consolidated balance sheet line items as of January 1, 2018 (in thousands):

												
Condensed Consolidated Balance Sheets (unaudited)	
 	 	 	 	 	 	
 	As Reported	 	Adjustments	 	Adjusted	
 	December 31, 2017	 		 	January 1, 2018	
Assets	 	 	 	 	 	
Capitalized contract costs, net	$	—		 	$	1,020,408		 	$	1,020,408		
Subscriber acquisition costs, net	1,308,558		 	(1,308,558	)	 	—		
Long-term notes receivables and other assets, net	88,723		 	2,713		 	91,436		
 	 	 	 	 	 	
Liabilities and Stockholders' Deficit	 	 	 	 	 	
Accrued expenses and other current liabilities	74,321		 	10,329		 	84,650		
Deferred revenue	88,337		 	39,868		 	128,205		
Deferred revenue, net of current portion	264,555		 	(53,062	)	 	211,493		
Accumulated deficit	(1,358,571	)	 	(282,572	)	 	(1,641,143	)	
The following tables compare the select reported condensed consolidated balance sheets, statements of operations and cash flows line items to the amounts had the previous guidance been in effect (in thousands):

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Condensed Consolidated Balance Sheets (unaudited)

 	September 30, 2018	
 	As Reported	 	Balances Without Adoption of Topic 606	 	Effect of Change
Higher/(Lower)	
Assets	 	 	 	 	 	
Capitalized contract costs, net	$	1,163,480		 	$	—		 	$	1,163,480		
Subscriber acquisition costs, net	—		 	1,540,097		 	(1,540,097	)	
Liabilities and Stockholders' Deficit	 	 	 	 	 	
Accrued expenses and other current liabilities	155,818		 	145,680		 	10,138		
Deferred revenue	184,226		 	126,797		 	57,429		
Deferred revenue, net of current portion	328,168		 	429,248		 	(101,080	)	
Accumulated deficit	(1,991,153	)	 	(1,647,493	)	 	(343,660	)	
Accumulated other comprehensive loss	(27,289	)	 	(27,845	)	 	556		

																								
Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)	
 	 	 	 	 	 	 	 	
 	Three months ended September 30, 2018	 	Nine months ended September 30, 2018	
 	As Reported	 	Balances Without Adoption of Topic 606	 	Effect of Change
Higher/(Lower)	 	As Reported	 	Balances Without Adoption of Topic 606	 	Effect of Change
Higher/(Lower)	
Revenues:	 	 	 	 	 	 	 	 	 	 	 	
Recurring and other revenue	$	272,335		 	$	243,733		 	$	28,602		 	$	773,899		 	$	703,807		 	$	70,092		
Service and other sales revenue	—		 	15,200		 	(15,200	)	 	—		 	31,998		 	(31,998	)	
Activation fees	—		 	2,314		 	(2,314	)	 	—		 	7,455		 	(7,455	)	
Costs and expenses:	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses	92,703		 	103,199		 	(10,496	)	 	265,784		 	286,214		 	(20,430	)	
Depreciation and amortization	130,636		 	94,509		 	36,127		 	381,767		 	272,319		 	109,448		
Loss before income taxes	(120,449	)	 	(105,906	)	 	(14,543	)	 	(350,890	)	 	(292,511	)	 	(58,379	)	
Net loss	(120,226	)	 	(105,683	)	 	(14,543	)	 	(349,328	)	 	(290,949	)	 	(58,379	)	
Other comprehensive loss, net of tax effects:	 	 	 	 	 	 	 	 	 	 	 	
Foreign currency translation adjustment	406		 	(150	)	 	556		 	(670	)	 	(1,226	)	 	556		
Total other comprehensive income (loss)	406		 	(150	)	 	556		 	(670	)	 	(1,226	)	 	556		
Comprehensive loss	(119,820	)	 	(105,833	)	 	(13,987	)	 	(349,998	)	 	(292,175	)	 	(57,823	)	

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Condensed Consolidated Statements of Cashflows (unaudited)

 	Nine Months Ended September 30, 2018	
 	As Reported	 	Balances Without Adoption of Topic 606	 	Effect of Change
Higher/(Lower)	
 	 	 	 	 	 	
Cash flows from operating activities:	 	 	 	 	 	
Net loss	$	(349,328	)	 	$	(290,949	)	 	$	(58,379	)	
Adjustments to reconcile net loss to net cash used in operating activities:	 	 	 	 	 	
Amortization of capitalized contract costs	294,802		 	—		 	294,802		
Amortization of subscriber acquisition costs	—		 	185,354		 	(185,354	)	
Changes in operating assets and liabilities:	 	 	 	 	 	
Capitalized contract costs – deferred contract costs	(439,711	)	 	—		 	(439,711	)	
Subscriber acquisition costs – deferred contract costs	—		 	(419,281	)	 	419,281		
Deferred revenue	173,255		 	203,894		 	(30,639	)	
Net cash used in operating activities	(130,023	)	 	(130,023	)	 	—		
Timing of Revenue Recognition
The Company previously recognized certain service and other sales revenue when the Services were provided or when title to Products sold transferred to the customer. Revenue from the sale of Products that were not part of the service offering (i.e., those Products sold subsequent to the date of the initial installation) were also generally recognized upon delivery of Products. Under the new standard, the Company considers Products, related installation, and its proprietary back-end cloud platform software and services an integrated system that allows the Company’s customers to monitor, control and protect their homes. These Smart Home Services are accounted for as a single performance obligation that is recognized over the customer’s contract term. Accordingly, the Company now defers a larger portion of certain Smart Home Services revenue, as prior to the adoption of Topic 606 certain of this revenue was recognized at the time services were provided or upon delivery.
The Company previously amortized deferred revenues related to sales of Products and activation fees on subscriber contracts over the expected life of the customer, which was 15 years using a 240% declining balance method. Under the new standard , activation fees are included in the transaction price allocated to the single Smart Home Service performance obligation and recognized straight-line over the customer’s contract term, which is generally three to five years .
Capitalized Contract Costs
Capitalized contract costs generally include commissions, other compensation and related costs paid directly for the generation and installation of new or modified customer contracts, as well as the cost of Products installed in the customer home at the commencement or modification of the contract. The Company previously deferred and amortized these costs for new customer contracts in a pattern that reflected the estimated life of subscriber relationships and generally expensed all costs associated with modified customer contracts. Under the new standard, the Company defers and amortizes these costs for new or modified customer contracts on a straight-line basis over the expected period of benefit of five years .

3 . Long-Term Debt
Notes Payable
2019 Notes
On November 16, 2012, APX issued $925.0 million aggregate principal amount of 6.375% senior secured notes due 2019 (the “2019 notes”) with a maturity date of December 1, 2019 which were secured on a first-priority lien basis by substantially all of the tangible and intangible assets whether now owned or hereafter acquired by the Company, subject to permitted liens and exceptions.

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The Company repurchased $205.5 million , $300.0 million and $150.0 million aggregate principal amount of the outstanding 2019 notes in May 2016, February 2017, and August 2017, respectively. In September 2018, the Company redeemed in full the entire remaining $269.5 million outstanding aggregate principal amount of the 2019 notes.
2020 Notes
On November 16, 2012, APX issued $380.0 million aggregate principal amount of 8.75% senior notes due 2020 (the “2020 notes”) with a maturity date of December 1, 2020 which are secured on a first-priority lien basis by substantially all of the tangible and intangible assets whether now owned or hereafter acquired by the Company, subject to permitted liens and exceptions.
During 2013, APX completed two offerings of additional 2020 notes under the indenture dated November 16, 2012. On May 31, 2013, APX issued $200.0 million of 2020 notes at a price of 101.75% and on December 13, 2013, APX issued an additional $250.0 million of 2020 notes at a price of 101.50% .
During 2014, APX issued an additional $100.0 million of 2020 notes at a price of 102.00% .
In September 2018, the Company repurchased $250.7 million outstanding aggregate principal amount of the 2020 notes.
2022 Private Placement Notes
In October 2015, APX issued $300.0 million aggregate principal amount of 8.875% senior secured notes due 2022 (the “2022 private placement notes”), pursuant to a note purchase agreement dated as of October 19, 2015 in a private placement exempt from registration under the Securities Act. The 2022 private placement notes will mature on December 1, 2022, unless on September 1, 2020 (the 91st day prior to the maturity of the 2020 notes) more than an aggregate principal amount of $190.0 million of such 2020 notes remain outstanding or have not been refinanced as permitted under the note purchase agreement for the 2022 private placement notes, in which case the 2022 private placement notes will mature on September 1, 2020. The 2022 private placement notes are secured, on a pari passu basis, by the collateral securing obligations under the 2019 notes, the 2022 private placement notes, the 2022 notes (as defined below), and the 2023 notes (as defined below), and the revolving credit facilities and the Term Loan (as defined below), in each case, subject to certain exceptions and permitted liens.
In May 2016, the Company repurchased $29.5 million outstanding aggregate principal amount of the 2022 private placement notes.
2022 Notes     
In May 2016, APX issued $500.0 million aggregate principal amount of 7.875% senior secured notes due 2022 (the “2022 notes”), pursuant to an indenture dated as of May 26, 2016 among APX, the guarantors party thereto and Wilmington Trust, National Association, as trustee and collateral agent. The 2022 notes will mature on December 1, 2022, or on such earlier date when any outstanding pari passu lien indebtedness matures as a result of the operation of any “Springing Maturity” provision set forth in the agreements governing such pari passu lien indebtedness. The 2022 notes are secured, on a pari passu basis, by the collateral securing obligations under the 2019 notes and 2022 private placement notes, the revolving credit facilities and the Term Loan, in all cases, subject to certain exceptions and permitted liens. APX used a portion of the net proceeds from the issuance of the 2022 notes to repurchase approximately $235 million aggregate principal amount of the outstanding 2019 notes and 2022 private placement notes in privately negotiated transactions and repaid borrowings under the existing revolving credit facility.
In August 2016, APX issued an additional $100.0 million aggregate principal amount of the 2022 notes at a price of 104.00% .
In February 2017, APX issued an additional $300.0 million aggregate principal amount of the 2022 notes at a price of 108.25% (“February 2017 issuance”). A portion of the net proceeds from the offering of these 2022 notes were used to redeem $300.0 million aggregate principal amount of the existing 2019 notes and pay the related accrued interest and redemption premium, and to pay all fees and expenses related thereto and any remaining proceeds will be used for general corporate purposes.
2023 Notes
In August 2017, APX issued $400.0 million aggregate principal amount of the 7.625% senior notes due 2023 (the “2023 notes” and, together with the 2019 notes, the 2020 notes and the 2022 private placement notes, the “Notes”) (“August 2017 issuance”). The proceeds from the outstanding 2023 notes offering were used to redeem $150.0 million aggregate principal amount of the outstanding 2019 notes and pay the related accrued interest and redemption premium, and to pay all fees and expenses related thereto. Any remaining net proceeds have been or will be used for general corporate purposes, which may include the repayment of outstanding borrowings under the revolving credit facility.

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The Notes are fully and unconditionally guaranteed, jointly and severally by APX and each of APX’s existing restricted subsidiaries that guarantee indebtedness under APX’s revolving credit facility or the Company's other indebtedness. Interest accrues at the rate of 8.75%  per annum for the 2020 notes, 8.875% per annum for the 2022 private placement notes, 7.875% per annum for the 2022 notes and 7.625% per annum for the 2023 notes. Interest on the 2020 notes, 2022 private placement notes and 2022 notes is payable semiannually in arrears on each June 1 and December 1. Interest on the 2023 notes is payable semiannually in arrears on each March 1 and September 1. APX may redeem the Notes at the prices and on the terms specified in the applicable indenture, note purchase agreement or credit agreement.
Term Loan
In September 2018, APX entered into a credit agreement (the “September 2018 issuance”) for total term loans of $810.0 million (the “Term Loan”). The Company is required to make quarterly amortization payments under the Term Loan in an amount equal to 0.25% of the aggregate principal amount of Term Loan outstanding on the closing date thereof. The remaining principal amount outstanding under the Term Loan will be due and payable in full on March 31, 2024, or earlier if certain springing maturity conditions apply. The net proceeds from the Term Loan were used in-part to redeem in full the entire $269.5 million outstanding aggregate principal amount of the 2019 Notes and pay the related accrued interest and redemption premium, to repurchase approximately $250.7 million aggregate principal amount of the outstanding 2020 Notes, to repay the outstanding borrowings under the revolving credit facility and to pay fees and expenses related to the Term Loan and the transactions described above.

Borrowings under the Term Loan bear interest at a rate per annum equal to an applicable margin plus, at the Company's option, either (1) the base rate determined by reference to the highest of (a) the federal funds rate plus 0.50% , (b) the prime rate of Bank of America, N.A. and (c) the LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month, plus 1.00% or (2) the LIBOR rate determined by reference to the London interbank offered rate for dollars for the interest period relevant to such borrowing. The applicable margin for base rate-based borrowings is 4.0% per annum and the applicable margin for LIBOR rate-based borrowings is 5.0% per annum. APX may prepay the Term Loan at the prices and on the terms specified in the credit agreement covering the Term Loan.

Debt Modifications and Extinguishments
    
In accordance with ASC 470-50 Debt – Modifications and Extinguishments, the Company performed analyses for the September 2018, August 2017 and February 2017 issuances to determine if the repurchased notes were substantially different than the notes issued to determine the appropriate accounting treatment of associated issuance fees. As a result of these analyses the company recorded the following amounts of other expense and loss on extinguishment and deferred financing costs (in thousands):

	
																												
 	Other expense and loss on extinguishment	 	Deferred financing costs	
 	Original premium extinguished	 	Previously deferred financing costs extinguished	 	New financing costs	 	Total other expense and loss on extinguishment	 	Previously deferred financing costs rolled over	 	New deferred financing costs	 	Total deferred financing costs	
Three and nine months ended September 30, 2018	 	 	 	 	 	 	 	 	 	 	 	 	 	
September 2018 issuance	$	(953	)	 	$	4,207		 	$	11,317		 	$	14,571		 	$	—		 	$	10,275		 	$	10,275		
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Three months ended September 30, 2017	 	 	 	 	 	 	 	 	 	 	 	 	 	
August 2017 issuance	$	—		 	$	1,408		 	$	8,881		 	$	10,289		 	$	473		 	$	4,556		 	$	5,029		
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nine months ended September 30, 2017	 	 	 	 	 	 	 	 	 	 	 	 	 	
August 2017 issuance	$	—		 	$	1,408		 	$	8,881		 	$	10,289		 	$	473		 	$	4,556		 	$	5,029		
February 2017 issuance	—		 	3,259		 	9,491		 	12,750		 	1,476		 	6,077		 	7,553		
Total	$	—		 	$	4,667		 	$	18,372		 	$	23,039		 	$	1,949		 	$	10,633		 	$	12,582		

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Deferred financing costs are amortized to interest expense over the life of the issued debt.    The following table presents deferred financing activity for the nine months ended September 30, 2018 and year ended December 31, 2017 (in thousands):

																								
 	Unamortized Deferred Financing Costs	
 	Balance December 31, 2017	 	Additions	 	Refinances	 	Early Extinguishment	 	Amortized	 	Balance
September 30,
2018	
Revolving Credit Facility	$	3,099		 	$	—		 	$	—		 	$	—		 	$	(781	)	 	$	2,318		
2019 Notes	2,877		 	—		 	—		 	(1,876	)	 	(1,001	)	 	—		
2020 Notes	11,209		 	—		 	—		 	(2,331	)	 	(2,796	)	 	6,082		
2022 Private Placement Notes	752		 	—		 	—		 	—		 	(113	)	 	639		
2022 Notes	16,067		 	—		 	—		 	—		 	(2,451	)	 	13,616		
2023 Notes	4,762		 	—		 	—		 	—		 	(630	)	 	4,132		
Term Loan	—		 	10,275		 	—		 	—		 	(153	)	 	10,122		
Total Deferred Financing Costs	$	38,766		 	$	10,275		 	$	—		 	$	(4,207	)	 	$	(7,925	)	 	$	36,909		

																								
 	Unamortized Deferred Financing Costs	
 	Balance December 31, 2016	 	Additions	 	Refinances	 	Early Extinguishment	 	Amortized	 	Balance December 31, 2017	
Revolving Credit Facility	$	4,420		 	$	399		 	$	—		 	$	—		 	$	(1,720	)	 	$	3,099		
2019 Notes	11,693		 	—		 	(1,949	)	 	(4,667	)	 	(2,200	)	 	2,877		
2020 Notes	15,053		 	—		 	—		 	—		 	(3,844	)	 	11,209		
2022 Private Placement Notes	903		 	—		 	—		 	—		 	(151	)	 	752		
2022 Notes	11,714		 	6,076		 	1,476		 	—		 	(3,199	)	 	16,067		
2023 Notes	—		 	4,569		 	473		 	—		 	(280	)	 	4,762		
Total Deferred Financing Costs	$	43,783		 	$	11,044		 	$	—		 	$	(4,667	)	 	$	(11,394	)	 	$	38,766		

Revolving Credit Facility
On November 16, 2012, APX entered into a $200.0 million senior secured revolving credit facility, with a five year maturity. On March 6, 2015, APX amended and restated the credit agreement governing the revolving credit facility to provide for, among other things, (1) an increase in the aggregate commitments previously available to APX thereunder from $200.0 million to $289.4 million (“Revolving Commitments”) and (2) the extension of the maturity date with respect to certain of the previously available commitments. On August 10, 2017, APX further amended and restated the credit agreement governing the revolving credit facility to provide for, among other things, (1) an increase in the aggregate commitments previously available to the Company from $289.4 million to $324.3 million and (2) the extension of the maturity date with respect to certain of the previously available commitments.
Borrowings under the amended and restated revolving credit facility bear interest at a rate per annum equal to an applicable margin plus, at APX’s option, either (1) the base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50% , (b) the prime rate of Bank of America, N.A. and (c) the LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month, plus 1.00% or (2) the LIBOR rate determined by reference to the London interbank offered rate for dollars for the interest period relevant to such borrowing. The applicable margin for base rate-based borrowings (1)(a) under the Series A Revolving Commitments of approximately $267.0 million and Series D Revolving Commitments of approximately $15.4 million is currently 2.0%  per annum and (b) under the Series B Revolving Commitments of approximately $21.2 million is currently 3.0% and (2)(a) the applicable margin for LIBOR rate-based borrowings (a) under the Series A Revolving Commitments, Series C Revolving Commitments, and Series D Revolving Commitments is currently 3.0%  per annum and (b) under the Series B Revolving Commitments is currently 4.0% . The applicable margin for borrowings under the revolving credit facility is subject to one step-down of 25 basis points based on

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APX meeting a consolidated first lien net leverage ratio test at the end of each fiscal quarter. In November 2017, previous commitments of $20.8 million under the Series C Revolving Commitments had expired. Outstanding borrowings under the amended and restated revolving credit facility are allocated on a pro-rata basis between each Series based on the total Revolving Commitments.
In addition to paying interest on outstanding principal under the revolving credit facility, APX is required to pay a quarterly commitment fee (which will be subject to one interest rate step-down of 12.5 basis points, based on APX meeting a consolidated first lien net leverage ratio test) to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder. APX also pays customary letter of credit and agency fees.
APX is not required to make any scheduled amortization payments under the revolving credit facility. The principal amount outstanding under the revolving credit facility will be due and payable in full on (1) with respect to the non-extended commitments under the Series D, March 31, 2019 and (2) with respect to the extended commitments under the Series A Revolving Credit Facility and Series B Revolving Credit Facility, March 31, 2021 .
As of September 30, 2018 there were no outstanding borrowings under the credit facility. As of December 31, 2017 , there was $60.0 million of outstanding borrowings under the credit facility. As of September 30, 2018 the Company had $292.3 million of availability under our revolving credit facility (after giving effect to $11.3 million of letters of credit outstanding and no borrowings).
The Company’s debt at September 30, 2018 and December 31, 2017 consisted of the following (in thousands):

	
																
 	September 30, 2018	
 	Outstanding
Principal	 	Unamortized
Premium (Discount)	 	Unamortized Deferred Financing Costs (1)	 	Net Carrying
Amount	
8.75% Senior Notes due 2020	679,299		 	2,495		 	(6,082	)	 	675,712		
8.875% Senior Secured Notes Due 2022	270,000		 	(2,234	)	 	(639	)	 	267,127		
7.875% Senior Secured Notes Due 2022	900,000		 	21,304		 	(13,616	)	 	907,688		
7.625% Senior Notes Due 2023	400,000		 	—		 	(4,132	)	 	395,868		
Term Loan	801,900		 	—		 	(10,122	)	 	791,778		
Total Long-Term Debt	$	3,051,199		 	$	21,565		 	$	(34,591	)	 	$	3,038,173		

																
 	December 31, 2017	
 	Outstanding
Principal	 	Unamortized
Premium (Discount)	 	Unamortized Deferred Financing Costs (1)	 	Net Carrying
Amount	
Series D Revolving Credit Facility Due 2019	$	3,000		 	$	—		 	$	—		 	$	3,000		
Series A, B Revolving Credit Facilities Due 2021	57,000		 	—		 	—		 	57,000		
6.375% Senior Secured Notes due 2019	269,465		 	—		 	(2,877	)	 	266,588		
8.75% Senior Notes due 2020	930,000		 	4,465		 	(11,209	)	 	923,256		
8.875% Senior Secured Notes due 2022	270,000		 	(2,559	)	 	(752	)	 	266,689		
7.875% Senior Secured Notes due 2022	900,000		 	24,593		 	(16,067	)	 	908,526		
7.625% Senior Secured Notes Due 2023	400,000		 	—		 	(4,762	)	 	395,238		
Total Long-Term Debt	$	2,829,465		 	$	26,499		 	$	(35,667	)	 	$	2,820,297		

	

		
(1)	Unamortized deferred financing costs related to the revolving credit facilities included in deferred financing costs, net on the condensed consolidated balance sheets at September 30, 2018 and December 31, 2017 was $2.3 million and $3.1 million , respectively.	

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4 . Retail Installment Contract Receivables
Certain subscribers have the option to purchase Products under a RIC, payable over either 42 or 60 months. Short-term RIC receivables are recorded in accounts and notes receivable, net and long-term RIC receivables are recorded in long-term notes receivables and other assets, net in the condensed consolidated unaudited balance sheets.
The following table summarizes the installment receivables (in thousands):

								
 	September 30, 2018	 	December 31, 2017	
RIC receivables, gross	$	181,353		 	$	131,024		
Deferred interest	(41,006	)	 	(36,048	)	
RIC receivables, net of deferred interest	$	140,347		 	$	94,976		
 	 	 	 	
Classified on the condensed consolidated unaudited balance sheets as:	 	 	 	
Accounts and notes receivable, net	$	29,350		 	$	16,469		
Long-term notes receivables and other assets, net	110,997		 	78,507		
RIC receivables, net	$	140,347		 	$	94,976		
Activity in the deferred interest for the RIC receivables was as follows (in thousands):

								
 	Nine months ended September 30, 2018	 	Twelve months ended December 31, 2017	
Deferred interest, beginning of period	$	36,048		 	$	—		
Write-offs, net of recoveries	(19,105	)	 	(6,055	)	
Change in deferred interest on short-term and long-term RIC receivables	24,063		 	42,103		
Deferred interest, end of period	$	41,006		 	$	36,048		
The amount of RIC imputed interest income recognized in recurring and other revenue was $4.1 million and $2.8 million during the three months ended September 30, 2018 and 2017 , respectively, and $10.9 million and $4.0 million during the nine months ended September 30, 2018 and 2017 , respectively.

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5 . Balance Sheet Components
The following table presents material balance sheet component balances (in thousands):

	
								
 	September 30, 2018	 	December 31, 2017	
Prepaid expenses and other current assets	 	 	 	
Prepaid expenses	$	9,021		 	$	8,000		
Deposits	1,976		 	1,596		
Other	6,478		 	6,554		
Total prepaid expenses and other current assets	$	17,475		 	$	16,150		
Capitalized contract costs	 	 	 	
Capitalized contract costs	$	2,310,922		 	$	—		
Accumulated amortization	(1,147,442	)	 	—		
Capitalized contract costs, net	$	1,163,480		 	$	—		
Subscriber acquisition costs	 	 	 	
Subscriber acquisition costs	$	—		 	$	1,837,388		
Accumulated amortization	—		 	(528,830	)	
Subscriber acquisition costs, net	$	—		 	$	1,308,558		
Long-term notes receivables and other assets	 	 	 	
RIC receivables, gross	$	152,003		 	$	114,556		
RIC deferred interest	(41,006	)	 	(36,049	)	
Security deposits	6,652		 	6,427		
Investments	4,800		 	3,429		
Other	317		 	360		
Total long-term notes receivables and other assets, net	$	122,766		 	$	88,723		
Accrued payroll and commissions	 	 	 	
Accrued commissions	$	86,398		 	$	27,485		
Accrued payroll	32,515		 	30,267		
Total accrued payroll and commissions	$	118,913		 	$	57,752		
Accrued expenses and other current liabilities	 	 	 	
Accrued interest payable	$	60,496		 	$	28,737		
Current portion of derivative liability	58,864		 	25,473		
Service warranty accrual	8,938		 	—		
Current portion of notes payable	8,100		 	—		
Accrued taxes	2,854		 	4,585		
Spectrum license obligation	—		 	3,861		
Accrued payroll taxes and withholdings	3,542		 	3,185		
Loss contingencies	3,131		 	2,156		
Blackstone monitoring fee, a related party	4,000		 	933		
Other	5,893		 	5,391		
Total accrued expenses and other current liabilities	$	155,818		 	$	74,321		

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6 . Property Plant and Equipment
Property, plant and equipment consisted of the following (in thousands):

	
										
 	September 30, 2018	 	December 31, 2017	 	Estimated Useful
Lives	
Vehicles	$	45,448		 	$	42,008		 	3 - 5 years	
Computer equipment and software	51,384		 	46,651		 	3 - 5 years	
Leasehold improvements	25,950		 	20,783		 	2 - 15 years	
Office furniture, fixtures and equipment	19,000		 	17,202		 	7 years	
Build-to-suit lease building	8,268		 	8,268		 	10.5 years	
Construction in process	2,671		 	4,299		 	 	
Property, plant and equipment, gross	152,721		 	139,211		 	 	
Accumulated depreciation and amortization	(76,839	)	 	(61,130	)	 	 	
Property, plant and equipment, net	$	75,882		 	$	78,081		 	 	

Property, plant and equipment, net includes approximately $25.5 million and $26.2 million of assets under capital lease obligations at September 30, 2018 and December 31, 2017 , respectively, net of accumulated amortization of $20.8 million and $16.6 million at September 30, 2018 and December 31, 2017 , respectively. Depreciation and amortization expense on all property, plant and equipment was $6.4 million and $5.2 million for the three months ended September 30, 2018 and 2017 , respectively, and $18.8 million and $14.9 million for the nine months ended September 30, 2018 and 2017 , respectively. Amortization expense relates to assets under capital leases and is included in depreciation and amortization expense.

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7 . Goodwill and Intangible Assets
Goodwill
As of September 30, 2018 and December 31, 2017 , the Company had a goodwill balance of $836.3 million and $837.0 million , respectively. The change in the carrying amount of goodwill during the nine months ended September 30, 2018 was the result of foreign currency translation adjustments.
Intangible assets, net
The following table presents intangible asset balances (in thousands):

	
																										
 	September 30, 2018	 	December 31, 2017	 	 	
 	Gross Carrying Amount	 	Accumulated Amortization	 	Net Carrying Amount	 	Gross Carrying Amount	 	Accumulated Amortization	 	Net Carrying Amount	 	Estimated
Useful Lives	
Definite-lived intangible assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Customer contracts	$	968,203		 	$	(699,652	)	 	$	268,551		 	$	970,147		 	$	(637,780	)	 	$	332,367		 	10 years	
2GIG 2.0 technology	17,000		 	(14,788	)	 	2,212		 	17,000		 	(13,274	)	 	3,726		 	8 years	
Other technology	2,917		 	(1,563	)	 	1,354		 	2,917		 	(1,250	)	 	1,667		 	5 - 7 years	
Space Monkey technology	7,100		 	(5,333	)	 	1,767		 	7,100		 	(4,066	)	 	3,034		 	6 years	
Patents	11,720		 	(7,733	)	 	3,987		 	10,616		 	(5,835	)	 	4,781		 	5 years	
Total definite-lived intangible assets:	$	1,006,940		 	$	(729,069	)	 	$	277,871		 	$	1,007,780		 	$	(662,205	)	 	$	345,575		 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Indefinite-lived intangible assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Spectrum licenses	$	—		 	$	—		 	$	—		 	$	31,253		 	$	—		 	$	31,253		 	 	
IP addresses	564		 	—		 	564		 	564		 	—		 	564		 	 	
Domain names	59		 	—		 	59		 	59		 	—		 	59		 	 	
Total Indefinite-lived intangible assets	623		 	—		 	623		 	31,876		 	—		 	31,876		 	 	
Total intangible assets, net	$	1,007,563		 	$	(729,069	)	 	$	278,494		 	$	1,039,656		 	$	(662,205	)	 	$	377,451		 	 	
During the year ended December 31, 2016, Vivint Wireless entered into leasing agreements with Nextlink Wireless, LLC (“Nextlink”) for designated radio frequency spectrum in 40 mid-sized metropolitan markets. The lease term was for seven years, with an option to become the licensor of record with the Federal Communications Commission (“FCC”) with respect to the applicable spectrum licenses at the end of this term for a nominal fee. The Company acquired $31.3 million of spectrum licenses, measured using the present value of the lease payments, and recorded an intangible asset and a corresponding liability within other long-term obligations. While licenses are issued for only a fixed time, such licenses are subject to renewal by the FCC.
On January 10, 2018, Vivint Wireless and Verizon consummated the transactions contemplated by a termination agreement to which the parties agreed, among other things, to terminate the spectrum leases between Vivint Wireless and Nextlink, a subsidiary of Verizon, in exchange for a cash payment by Verizon to Vivint Wireless. The calculation of the gain recorded included cash proceeds of $55.0 million , extinguishment of the spectrum license liability of $27.9 million , offset by the write-off of the spectrum license asset in the amount of $31.3 million and regulatory costs associated with the sale of $1.3 million for a total net gain on sale of $50.4 million which is included in other income, net in the condensed consolidated statement of operations.
Amortization expense related to intangible assets was approximately $22.7 million and $25.5 million for the three months ended September 30, 2018 and 2017 , respectively, and $68.2 million and $76.3 million during the nine months ended September 30, 2018 and 2017 , respectively.

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As of  September 30, 2018 , the remaining weighted-average amortization period for definite-lived intangible assets was  4.1 years . Estimated future amortization expense of intangible assets, excluding approximately $0.2 million in patents currently in process, is as follows as of September 30, 2018 (in thousands):

	

2018 - Remaining Period	$	22,791		
2019	79,218		
2020	67,980		
2021	58,765		
2022	48,844		
Thereafter	69		
Total estimated amortization expense	$	277,667		

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8 . Financial Instruments
Cash, Cash Equivalents and Equity Securities
Cash equivalents and equity securities with readily available determinable fair values (“Corporate Securities”) are classified as level 1 assets, as they have readily available market prices in an active market. As of September 30, 2018 and December 31, 2017 , the Company held an immaterial amount of money market funds. As of September 30, 2018 and December 31, 2017 , the company held $4.1 million and $2.7 million , respectively, of Corporate Securities classified as level 1 investments.
The following tables set forth the Company’s cash and cash equivalents and Corporate Securities’ adjusted cost, gross unrealized gains, gross unrealized losses, gross realized gains, gross realized losses and fair value by significant investment category recorded as cash and cash equivalents or long-term notes receivables and other assets, net as of September 30, 2018 and December 31, 2017 (in thousands):

																								
 	September 30, 2018	
 	Adjusted Cost	 	Unrealized Gains	 	Unrealized Losses	 	Fair Value	 	Cash and Cash Equivalents	 	Long-Term Notes Receivables and Other Assets, net	
Cash	$	7,960		 	$	—		 	$	—		 	$	7,960		 	$	7,960		 	$	—		
 	 	 	 	 	 	 	 	 	 	 	 	
Level 1:	 	 	 	 	 	 	 	 	 	 	 	
Money market funds	105,006		 	—		 	—		 	105,006		 	105,006		 	—		
Corporate securities	2,703		 	1,385		 	—		 	4,088		 	—		 	4,088		
Subtotal	107,709		 	1,385		 	—		 	109,094		 	105,006		 	4,088		
 	 	 	 	 	 	 	 	 	 	 	 	
Total	$	115,669		 	$	1,385		 	$	—		 	$	117,054		 	$	112,966		 	$	4,088		

																								
 	December 31, 2017	
 	Adjusted Cost	 	Unrealized Gains	 	Unrealized Losses	 	Fair Value	 	Cash and Cash Equivalents	 	Long-Term Notes Receivables and Other Assets, net	
Cash	$	3,866		 	$	—		 	$	—		 	$	3,866		 	$	3,866		 	$	—		
 	 	 	 	 	 	 	 	 	 	 	 	
Level 1:	 	 	 	 	 	 	 	 	 	 	 	
Money market funds	6		 	—		 	—		 	6		 	6		 	—		
Corporate securities	4,018		 	—		 	(1,315	)	 	2,703		 	—		 	2,703		
Subtotal	4,024		 	—		 	(1,315	)	 	2,709		 	6		 	2,703		
 	 	 	 	 	 	 	 	 	 	 	 	
Total	$	7,890		 	$	—		 	$	(1,315	)	 	$	6,575		 	$	3,872		 	$	2,703		

The Corporate Securities represents the Company's investment of $3.0 million in publicly traded common stock of a non-affiliated company (“investee”). During the three months ended September 30, 2018 and 2017 , the Company recorded an unrealized gain of $0.6 million and an unrealized loss of $0.5 million , respectively, associated with the change in fair value of the investee's stock. During the nine months ended September 30, 2018 and 2017 , the Company recorded an unrealized gain of $1.4 million and an unrealized loss of $0.3 million , respectively, associated with the change in fair value of the investee's stock. As of September 30, 2018 the Company had no accumulated other comprehensive income associated with unrealized gains and losses for the change in fair value of the investment as a result of the adoption of ASU 2016-01. The balance of accumulated other comprehensive income associated with unrealized gains and losses for the change in fair value totaled net losses of $0.3 million at December 31, 2017 .

The carrying amounts of the Company’s accounts and notes receivable, accounts payable and accrued and other liabilities approximate their fair values.

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Long-Term Debt
Components of long-term debt including the associated interest rates and related fair values are as follows (in thousands, except interest rates):

																				
 	 	September 30, 2018	 	December 31, 2017	 	Stated Interest Rate	
Issuance	 	Face Value	 	Estimated Fair Value	 	Face Value	 	Estimated Fair Value	 		
2019 Notes	 	$	—		 	$	—		 	$	269,465		 	$	273,507		 	6.375	%	
2020 Notes	 	679,299		 	680,114		 	930,000		 	952,134		 	8.75	%	
2022 Private Placement Notes	 	270,000		 	276,692		 	270,000		 	276,486		 	8.875	%	
2022 Notes	 	900,000		 	920,250		 	900,000		 	966,420		 	7.875	%	
2023 Notes	 	400,000		 	370,000		 	400,000		 	425,000		 	7.625	%	
Term Loan	 	801,900		 	801,900		 	—		 	—		 	N/A	
Total	 	$	3,051,199		 	$	3,048,956		 	$	2,769,465		 	$	2,893,547		 	 	
The fair values of the 2019 notes, the 2020 notes, the 2022 private placement notes, the 2022 notes, the 2023 notes are fixed-rate debt and were considered Level 2 measurements as the values were determined using observable market inputs, such as current interest rates, prices observable from less active markets, as well as prices observable from comparable securities. The Term Loan is floating-rate debt and approximates the carrying value as interest accrues at floating rates based on market rates.
Derivative Financial Instruments
Under the Consumer Financing Program, the Company pays a monthly fee to a third-party financing provider based on the average daily outstanding balance of the installment loans and shares the liability for credit losses, depending on the credit quality of the customer. Because of the nature of certain provisions under the Consumer Financing Program, the Company records a derivative liability that is not designated as a hedging instrument and is adjusted to fair value, measured using the present value of the estimated future payments. Changes to the fair value are recorded through other loss (income), net in the Consolidated Statement of Operations. The following represent the contractual obligations with the third-party financing provider under the Consumer Financing Program that are components of the derivative:
• The Company pays a monthly fee based on the average daily outstanding balance of the installment loans
• The Company shares the liability for credit losses depending on the credit quality of the customer
• The Company pays transactional fees associated with customer payment processing
The derivative is classified as a Level 3 instrument. The derivative positions are valued using a discounted cash flow model, with inputs consisting of available market data, such as market yield discount rates, as well as unobservable internally derived assumptions, such as collateral prepayment rates, collateral default rates and loss severity rates. These derivatives are priced quarterly using a credit valuation adjustment methodology. In summary, the fair value represents an estimate of the present value of the cash flows the Company will be obligated to pay to the third-party financing provider for each component of the derivative.
The following table summarizes the fair value and the notional amount of the Company’s outstanding derivative instrument as of  September 30, 2018  and December 31, 2017 (in thousands):

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 	September 30, 2018	 	December 31, 2017	
Consumer Financing Program Contractual Obligations:	 	 	 	
Fair value	$	112,554		 	$	46,496		
Notional amount	355,527		 	163,032		
 	 	 	 	
Classified on the condensed consolidated unaudited balance sheets as:	 	 	 	
Accrued expenses and other current liabilities	58,864		 	25,473		
Other long-term obligations	53,690		 	21,023		
Total Consumer Financing Program Contractual Obligation	$	112,554		 	$	46,496		
Changes in Level 3 Fair Value Measurements
The following table summarizes the change in the fair value of the Level 3 outstanding derivative liability instrument for the nine months ended September 30, 2018  and the twelve months ended December 31, 2017  (in thousands):

								
 	Nine months ended September 30, 2018	 	Twelve months ended December 31, 2017	
Balance, beginning of period	$	46,496		 	$	—		
Additions	78,995		 	44,913		
Settlements	(22,805	)	 	(7,972	)	
Losses included in earnings	9,868		 	9,555		
Balance, end of period	$	112,554		 	$	46,496		

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9 . Income Taxes
In order to determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates. Certain significant or unusual items are separately recognized in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter.
The Company’s effective income tax rate for the nine months ended September 30, 2018 and 2017 was approximately 0.45% and a negative 0.85% , respectively. Income tax expense for the nine months ended September 30, 2018 was affected by year to date loss in Canada and estimated minimum state taxes in the US. Both the 2018 and 2017 effective tax rates differ from the statutory rate primarily due to the combination of not benefiting from expected pre-tax US losses, a result of changes to the valuation allowance, and recognizing current state income tax expense for minimum state taxes.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Reform”) was signed into law.  Among other changes in the Tax Reform, effective January 1, 2018, the U.S. statutory tax rate was lowered from 35% to 21% , the deduction for net business interest is limited to 30% of adjusted taxable income, business deductions are disallowed for entertainment expenses, limitation of net operating losses generated after fiscal 2017 to 80% of taxable income, and certain exceptions for performance-based compensation and commissions were eliminated from the definition of applicable employee remuneration subject to a $1.0 million deduction limit.
In December 2017, the SEC issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which provides guidance on accounting for the tax effects of Tax Reform. SAB 118 provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting relating to Tax Reform under ASC Topic 740. In accordance with SAB 118, to the extent that a company’s accounting for certain income tax effects of Tax Reform is incomplete, but it is able to determine a reasonable estimate, the company should report a provisional estimate in its financial statements. Where a reasonable estimate cannot be determined, a company should continue to apply ASC Topic 740 based on the provisions of the tax laws that were in effect immediately before the enactment of Tax Reform.
The Company has not fully completed its accounting for the income tax effects of Tax Reform but will have an updated analysis at year end.
Items for which a reasonable estimate has been determined include the impact of the change in the corporate tax rate from 35% to 21%, limitation on the current deductibility of net interest expense in excess of 30 percent of adjusted taxable income, changes to the non-deductible executive compensation provisions, and entertainment and other expense deduction limitations.
Other significant provisions that did not have an impact on the interim provision but may impact income taxes at the Company’s year-end or in future years include: a limitation of net operating losses generated after fiscal 2017 to 80% of taxable income, 100% bonus depreciation on certain assets, and the impact of the inclusion of any global intangible low-taxed income, the potential deductions on foreign-derived intangible income and the GILTI inclusion amount, and the base erosion and anti-abuse tax.  
Significant judgment is required in determining the Company’s provision for income taxes, recording valuation allowances against deferred tax assets, and evaluating the Company’s uncertain tax positions. In evaluating the ability to realize its deferred tax assets, in full or in part, the Company considers all available positive and negative evidence, including past operating results, forecasted future earnings, and prudent and feasible tax planning strategies. Due to historical net losses incurred and the uncertainty of realizing the deferred tax assets, for all the periods presented, the Company has maintained a valuation allowance against the domestic deferred tax assets that remain after offset by domestic deferred tax liabilities. The Company has not recorded a valuation allowance against its foreign deferred tax assets due to being in a net deferred tax liability position.

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10 . Stock-Based Compensation and Equity
313 Incentive Units
The Company’s indirect parent, 313 Acquisition LLC (“313”), which is majority owned by Blackstone, has authorized the award of profits interests, representing the right to share a portion of the value appreciation on the initial capital contributions to 313 (“Incentive Units”). As of September 30, 2018 , 85,362,836 Incentive Units had been awarded, and were outstanding, to current and former members of senior management and a board member, of which 42,169,456 were outstanding to the Company’s Chief Executive Officer and President. In June 2018, the Incentive Units and SARs (defined below) vesting terms were modified (“Modification”). Prior to the Modification, the Incentive Units were subject to time-based and performance-based vesting conditions, with (1) one-third subject to ratable time-based vesting over a five year period from the applicable vesting reference date and (2) two-thirds subject to the achievement of certain investment return thresholds by The Blackstone Group, L.P. and its affiliates (“Blackstone”). Pursuant to the Modification the Incentive Units are subject to time-based and performance-based vesting conditions, with (1) one-third subject to ratable time-based vesting over a five year period from the applicable vesting reference date, (2) one-third subject to the achievement of certain investment return thresholds by Blackstone and (3) one-third subject to ratable time-based vesting over a five year period from the applicable vesting reference date or June 2018 for those granted prior to the modification. The Company has not recorded any expense related to the performance-based portion of the awards, as the achievement of the vesting condition is not yet deemed probable. The fair value of stock-based awards is measured at the grant date, or the Modification date, and is recognized as expense over the employee’s requisite service period. The grant date fair value was primarily determined using a Monte Carlo simulation valuation approach with the following assumptions: expected volatility varies from 55% to 125% ; expected exercise term between 3.96 and 6.00 years ; and risk-free rates between 0.62% and 2.61% .

Vivint Stock Appreciation Rights
The Company’s subsidiary, Vivint Group, Inc. (“Vivint Group”), has awarded Stock Appreciation Rights (“SARs”) to various levels of key employees and board members, pursuant to an omnibus incentive plan. The purpose of the SARs is to attract and retain personnel and provide an opportunity to acquire an equity interest of Vivint Group. Prior to the Modification in June 2018, the SARs were subject to time-based and performance-based vesting conditions, with (1) one-third subject to ratable time-based vesting over a five year period from the applicable vesting reference date and (2) two-thirds subject to the achievement of certain investment return thresholds by Blackstone. Pursuant to the Modification the Incentive Units are subject to time-based and performance-based vesting conditions, with (1) one-third subject to ratable time-based vesting over a five year period from the applicable vesting reference date, (2) one-third subject to the achievement of certain investment return thresholds by Blackstone and (3) one-third subject to ratable time-based vesting over a five year period from the applicable vesting reference date or June 2018 for those granted prior to the modification. The Company has not recorded any expense related to the performance-based portion of the awards, as the achievement of the vesting condition is not yet deemed probable. In connection with this plan, 39,151,490 SARs were outstanding as of September 30, 2018 . In addition, 53,621,891 SARs have been set aside for funding incentive compensation pools pursuant to long-term sales and installation employee incentive plans established by the Company.
The fair value of the Vivint Group awards is measured at the grant date, or the Modification date, and is recognized as expense over the employee’s requisite service period. The fair value is determined using a Black-Scholes option valuation model with the following assumptions: expected volatility varies from 55% to 125% , expected dividends of 0% ; expected exercise term between 6.00 and 6.47 years ; and risk-free rates between 0.61% and 2.61% . Due to the lack of historical exercise data, the Company used the simplified method in determining the estimated exercise term, for all Vivint Group awards.
Restricted Stock Units
In June 2018, the Company’s subsidiary, Vivint Group, awarded 360,000 Restricted Stock Units (“RSUs”) to certain board members, pursuant to an omnibus incentive plan. The purpose of the RSUs is to compensate board members for their board service and align their interests of those of the Company's shareholders. The RSUs are subject to a three year time-based ratable vesting period.
Stock-based compensation expense in connection with all stock-based awards is presented as follows (in thousands):

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 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	2018	 	2017	
Operating expenses	$	102		 	$	9		 	$	147		 	$	49		
Selling expenses	235		 	55		 	361		 	165		
General and administrative expenses	770		 	337		 	1,143		 	1,073		
Total stock-based compensation	$	1,107		 	$	401		 	$	1,651		 	$	1,287		

The increase in total stock-based compensation for the three and nine months ended September 30, 2018 was primarily due to the Modification in June 2018.

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11 . Commitments and Contingencies
Indemnification
Subject to certain limitations, the Company is obligated to indemnify its current and former directors, officers and employees with respect to certain litigation matters and investigations that arise in connection with their service to the Company. These obligations arise under the terms of its certificate of incorporation, its bylaws, applicable contracts, and Delaware and California law. The obligation to indemnify generally means that the Company is required to pay or reimburse these individuals’ reasonable legal expenses and possibly damages and other liabilities incurred in connection with these matters.
Legal
The Company is named from time to time as a party to lawsuits arising in the ordinary course of business related to its sales, marketing, and the provision of its services and equipment claims. Actions filed against the Company include commercial, intellectual property, customer, and labor and employment related claims, including complaints of alleged wrongful termination and potential class action lawsuits regarding alleged violations of federal and state wage and hour and other laws. In general, litigation can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings are difficult to predict and the costs incurred in litigation can be substantial. The Company believes the amounts provided in its financial statements are adequate in light of the probable and estimated liabilities. Factors that the Company considers in the determination of the likelihood of a loss and the estimate of the range of that loss in respect of legal matters include the merits of a particular matter, the nature of the matter, the length of time the matter has been pending, the procedural posture of the matter, how the Company intends to defend the matter, the likelihood of settling the matter and the anticipated range of a possible settlement. Because such matters are subject to many uncertainties, the ultimate outcomes are not predictable and there can be no assurances that the actual amounts required to satisfy alleged liabilities from the matters described above will not exceed the amounts reflected in the Company’s financial statements or that the matters will not have a material adverse effect on the Company’s results of operations, financial condition or cash flows.
The Company regularly reviews outstanding legal claims and actions to determine if reserves for expected negative outcomes of such claims and actions are necessary. The Company had reserves for all such matters of approximately $3.1 million and $2.2 million as of September 30, 2018 and December 31, 2017 , respectively. In conjunction with one of the settlements, the Company is obligated to pay certain future royalties, based on sales of future Products.
Operating Leases
The Company leases office and warehouse space, certain equipment, towers, wireless spectrum, software and an aircraft under operating leases with related and unrelated parties expiring in various years through 2028 . The leases require the Company to pay additional rent for increases in operating expenses and real estate taxes and contain renewal options. The Company's operating lease arrangements and related terms consisted of the following (in thousands):

																	
 	Rent Expense	 	
 	For the three months ended,	 	For the nine months ended ,	 	
 	September 30, 2018	 	September 30, 2017	 	September 30, 2018	 	September 30, 2017	Lease Term	
Arrangement	 	 	 	 	 	 	 	 	
Warehouse, office space and other	$	3,731		 	$	3,489		 	$	10,410		 	$	9,374		11 - 15 years	
Wireless towers and spectrum	1,056		 	1,169		 	3,144		 	3,513		1 - 10 years	
Total Rent Expense	$	4,787		 	$	4,658		 	$	13,554		 	$	12,887		 	
Capital Leases
The Company also enters into certain capital leases with expiration dates through May 2022 . On an ongoing basis, the Company enters into vehicle lease agreements under a Fleet Lease Agreement. The lease agreements are typically 36 month leases for each vehicle and the average remaining life for the fleet is 11 months , as of September 30, 2018 . As of September 30, 2018 and December 31, 2017 , the capital lease obligation balance was $15.8 million and $21.7 million , respectively.
Build-to-Suit Lease Arrangements

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In April 2017, construction on the Logan Facility was completed and the Company commenced occupancy. The building asset totaled $7.3 million and $8.0 million , respectively, net of accumulated depreciation of $1.0 million and $0.3 million , respectively, as of September 30, 2018 and December 31, 2017 .

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12 . Related Party Transactions
Transactions with Vivint Solar
The Company and Vivint Solar, Inc. (“Solar”) have entered into agreements under which the Company provided certain ongoing administrative services to Solar through September 2017, and the Sales Dealer Agreement (as defined below). During the three months ended September 30, 2018 and 2017 , the Company charged $6.1 million and $0.7 million , respectively, and $10.8 million and $1.8 million for nine months ended September 30, 2018 and 2017 , respectively, of net expenses to Solar in connection with these agreements. The balance due from Solar in connection with these agreements and other expenses paid on Solar’s behalf was $0.1 million , and $0.2 million at September 30, 2018 and December 31, 2017 , respectively, and is included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets.
In connection with Solar’s initial public offering in 2014, the Company entered into a number of agreements with Solar related to services and other support that it has provided and will provide to Solar including:

•	A Master Intercompany Framework Agreement which establishes a framework for the ongoing relationship between the Company and Solar and contains master terms regarding the protection of each other’s confidential information, and master procedural terms, such as notice procedures, restrictions on assignment, interpretive provisions, governing law and dispute resolution;	
		
•	A Non-Competition Agreement in which the Company and Solar each define their current areas of business and their competitors, and agree not to directly or indirectly engage in the other’s business for three years;	
		
•	A Transition Services Agreement pursuant to which the Company will provide to Solar various enterprise services, including services relating to information technology and infrastructure, human resources and employee benefits, administration services and facilities-related services;	
		
•	A Marketing and Customer Relations Agreement which governs various cross-marketing initiatives between the Company and Solar, in particularly the provision of sales leads from each company to the other; and	
		
•	A Trademark License Agreement pursuant to which the licensor, a special purpose subsidiary majority-owned by the Company and minority-owned by Solar, will grant Solar a royalty-free exclusive license to the trademark “VIVINT SOLAR” in the field of selling renewable energy or energy storage products and services.	
In 2016, the Company and Solar amended the Marketing and Customer Relations Agreement to update certain terms and conditions governing existing cross-marketing initiatives and to implement new cross-marketing initiatives, including a pilot program with the purpose of exploring potential opportunities for each company to offer, sell and integrate the other company’s respective products and services with its standard product offering.
In 2017, the Company and Solar entered into a Sales Dealer Agreement (the “Sales Dealer Agreement”), pursuant to which each party will act as a non-exclusive dealer for the other party to market, promote and sell each other’s products. The agreement has an initial two-year term, which will be automatically renewed for successive one-year terms unless written notice of termination is provided by one of the parties to the other no less than 90 days prior to the end of the then current term. The products, territories and consideration that is payable by each party to the other will be determined in accordance with the agreement. The Sales Dealer Agreement governs and replaces substantially all of the activities that were previously undertaken under the Marketing and Customer Relations Agreement described above, including the pilot program. The Company and Solar also agreed to extend the term of the non-solicitation provisions under the existing Non-Competition Agreement to match the term of the Sales Dealer Agreement.
Other Related-party Transactions
Long-term notes receivables and other assets, includes amounts due for non-interest bearing advances made to employees that are expected to be repaid in excess of one year. Amounts due from employees as of both September 30, 2018 and December 31, 2017 , amounted to approximately $0.3 million . As of September 30, 2018 and December 31, 2017 , this amount was fully reserved.
Prepaid expenses and other current assets at September 30, 2018 and December 31, 2017 included a receivable for $0.3 million and $0.5 million , respectively, from certain members of management in regards to their personal use of the corporate jet.

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The Company incurred additional expenses of $0.3 million and $0.4 million during the three months ended September 30, 2018 and 2017 , respectively, and $1.5 million and $1.2 million during the nine months ended September 30, 2018 and 2017 , respectively, for other related-party transactions including contributions to the charitable organization Vivint Gives Back, legal fees, and other services. Accrued expenses and other current liabilities at September 30, 2018 and December 31, 2017 , included a net payable associated with these related-party transactions of $0.7 million and $1.4 million , respectively.
On November 16, 2012, the Company was acquired by an investor group comprised of certain investment funds affiliated with Blackstone Capital Partners VI L.P., and certain co-investors and management investors through certain mergers and related reorganization transactions (collectively, the “Merger”). In connection with the Merger, the Company engaged Blackstone Management Partners L.L.C. (“BMP”) to provide monitoring, advisory and consulting services on an ongoing basis. In consideration for these services, the Company agreed to pay an annual monitoring fee equal to the greater of (i) a minimum base fee of $2.7 million , subject to adjustments if the Company engages in a business combination or disposition that is deemed significant and (ii) the amount of the monitoring fee paid in respect of the immediately preceding fiscal year, without regard to any post-fiscal year “true-up” adjustments as determined by the agreement. The Company incurred expenses for such services of approximately $1.1 million and $1.2 million during the three months ended September 30, 2018 and 2017 , respectively, and $3.2 million and $3.6 million during the nine months ended September 30, 2018 and 2017 , respectively. Accrued expenses and other current liabilities at September 30, 2018 included a liability for $4.0 million to BMP in regards to the monitoring fee.
Under the support and services agreement, the Company also engaged BMP to arrange for Blackstone’s portfolio operations group to provide support services customarily provided by Blackstone’s portfolio operations group to Blackstone’s private equity portfolio companies of a type and amount determined by such portfolio services group to be warranted and appropriate. BMP will invoice the Company for such services based on the time spent by the relevant personnel providing such services during the applicable period but in no event shall the Company be obligated to pay more than $1.5 million during any calendar year. During the three and nine months ended September 30, 2018 and 2017 the Company incurred no costs associated with such services.

Blackstone Advisory Partners L.P. participated as one of the initial purchasers in the issuance of 2022 notes in February 2017, the 2023 notes in August 2017 and the Term Loan in September 2018 and received approximately $1.5 million of total fees associated with these issuances.
    
In September 2018, GSO Capital Partners, an affiliate of the Sponsor, participated as a lender in the Term Loan. As of September 30, 2018 , GSO Capital Partners holds $59.5 million of outstanding aggregate principal of the Term Loan.

In September 2018, Vivint Smart Home, Inc. contributed $4.7 million to the Company as a capital contribution.     

From time to time, the Company does business with a number of other companies affiliated with Blackstone.

Transactions involving related parties cannot be presumed to be carried out at an arm’s-length basis.

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13 . Employee Benefit Plan
The Company offers eligible employees the opportunity to contribute a percentage of their earned income into company-sponsored 401(k) plans.
Beginning in January 2018, participants in the 401(k) plans are eligible for the Company's matching program. Under this new matching program, the Company matches an employee’s contributions to the 401(k) savings plan dollar-for-dollar up to 1% of such employee’s eligible earnings and $0.50 for every $1.00 for the next 5% of such employee’s eligible earnings. The maximum match available under the 401(k) plan is 3.5% of the employee’s eligible earnings. For employees who have been employed by the Company for less than two years, matching contributions vest on the second anniversary of their date of hire. The Company's matching contributions to employees who have been employed by the Company for two years or more are fully vested.
Matching contributions that were made to the plans during the three and nine months ended September 30, 2018 totaled $1.4 million and $4.4 million , respectively. No matching contributions were made to the plans during the three and nine months ended September 30, 2017 .

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14 . Restructuring and Asset Impairment Charges
In July 2018, the Company announced a number of cost reduction initiatives that are expected to reduce certain of the Company’s General and Administrative, Customer Service, and Sales Support fixed costs. The Company completed the majority of these cost reduction initiatives in the second and third quarters of 2018, with the remainder by the end of 2018. In addition to resulting in meaningful cost reductions, the Company’s initiatives are expected to streamline operations, focus engineering and innovation and provide a better focus on driving customer satisfaction.
As part of these initiatives, the Company and Best Buy agreed in principle to end the co-branded Best Buy Smart Home by Vivint arrangement, which resulted in the elimination of in-store sales positions. In addition, the Company eliminated other general and administrative positions. These actions resulted in one-time cash employee severance and termination benefits expenses of $0.5 million and $4.7 million during the three and nine months ended September 30, 2018 , respectively.
The following table presents accrued restructuring activity for the nine months ended September 30, 2018 and the twelve months ended December 31, 2017 (in thousands):

	
												
 	Contract
termination
costs	 	Employee severance
and termination
benefits	 	Total	
Accrued restructuring balance as of December 31, 2016	$	649		 	$	—		 	$	649		
Cash payments	(91	)	 	—		 	(91	)	
Accrued restructuring balance as of December 31, 2017	558		 	—		 	558		
Restructuring charges	—		 	4,683		 	4,683		
Cash payments	(68	)	 	(3,992	)	 	(4,060	)	
Accrued restructuring balance as of September 30, 2018	$	490		 	$	691		 	$	1,181		
Contract termination costs represent ongoing contractual commitments related to the 2015 restructuring of the Company's Wireless Internet Business. Additional charges may be incurred in the future for facility-related or other restructuring activities as the Company continues to align resources to meet the needs of the business.

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15 . Segment Reporting and Business Concentrations
For the three and nine months ended September 30, 2018 and 2017 , the Company conducted business through one operating segment, Vivint. The Company primarily operated in two geographic regions: United States and Canada. Revenues disaggregated by geographic region were as follows (in thousands):

	
													
 	  	United States	 	Canada	 	Total	
Revenue from external customers	  	 	 	 	 	 	
Three months ended September 30, 2018	  	$	253,635		 	$	18,700		 	$	272,335		
Three months ended September 30, 2017	  	211,077		 	17,581		 	228,658		
Nine months ended September 30, 2018	 	719,690		 	54,209		 	773,899		
Nine months ended September 30, 2017	 	597,842		 	48,295		 	646,137		

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16 . Guarantor and Non-Guarantor Supplemental Financial Information
The Notes were issued by APX and are fully and unconditionally guaranteed, jointly and severally by Holdings and each of APX’s existing and future material wholly-owned U.S. restricted subsidiaries. APX’s existing and future foreign subsidiaries are not expected to guarantee the Notes.
Presented below is the condensed consolidating financial information of APX, subsidiaries of APX that are guarantors (the “Guarantor Subsidiaries”), and APX’s subsidiaries that are not guarantors (the “Non-Guarantor Subsidiaries”) as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017 . The unaudited condensed consolidating financial information reflects the investments of APX in the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries using the equity method of accounting.

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Supplemental Condensed Consolidating Balance Sheet
September 30, 2018
(in thousands)
(unaudited)

	
																								
 	Parent	 	APX
Group, Inc.	 	Guarantor
Subsidiaries	 	Non-Guarantor
Subsidiaries	 	Eliminations	 	Consolidated	
Assets	 	 	 	 	 	 	 	 	 	 	 	
Current assets	$	—		 	$	110,625		 	$	292,080		 	$	89,026		 	$	(236,208	)	 	$	255,523		
Property, plant and equipment, net	—		 	—		 	75,346		 	536		 	—		 	75,882		
Capitalized contract costs, net	—		 	—		 	1,086,964		 	76,516		 	—		 	1,163,480		
Deferred financing costs, net	—		 	2,318		 	—		 	—		 	—		 	2,318		
Investment in subsidiaries	—		 	1,711,422		 	—		 	—		 	(1,711,422	)	 	—		
Intercompany receivable	—		 	—		 	6,303		 	—		 	(6,303	)	 	—		
Intangible assets, net	—		 	—		 	257,383		 	21,111		 	—		 	278,494		
Goodwill	—		 	—		 	809,678		 	26,612		 	—		 	836,290		
Long-term notes receivables and other assets	—		 	106		 	104,566		 	18,200		 	(106	)	 	122,766		
Total Assets	$	—		 	$	1,824,471		 	$	2,632,320		 	$	232,001		 	$	(1,954,039	)	 	$	2,734,753		
Liabilities and Stockholders’ (Deficit) Equity	 	 	 	 	 	 	 	 	 	 	 	
Current liabilities	$	—		 	$	68,412		 	$	530,668		 	$	175,960		 	$	(236,208	)	 	$	538,832		
Intercompany payable	—		 	—		 	—		 	6,303		 	(6,303	)	 	—		
Notes payable and revolving credit facility, net of current portion	—		 	3,038,173		 	—		 	—		 	—		 	3,038,173		
Capital lease obligations, net of current portion	—		 	—		 	7,283		 	42		 	—		 	7,325		
Deferred revenue, net of current portion	—		 	—		 	309,634		 	18,534		 	—		 	328,168		
Other long-term obligations	—		 	—		 	95,553		 	—		 	—		 	95,553		
Accumulated losses of investee, net	1,282,114		 	 	 	 	 	 	 	(1,282,114	)	 	—		
Deferred income tax liability	—		 	—		 	106		 	8,816		 	(106	)	 	8,816		
Total (deficit) equity	(1,282,114	)	 	(1,282,114	)	 	1,689,076		 	22,346		 	(429,308	)	 	(1,282,114	)	
Total liabilities and stockholders’ (deficit) equity	$	—		 	$	1,824,471		 	$	2,632,320		 	$	232,001		 	$	(1,954,039	)	 	$	2,734,753		

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Supplemental Condensed Consolidating Balance Sheet
December 31, 2017
(in thousands)

	
																								
 	Parent	 	APX
Group, Inc.	 	Guarantor
Subsidiaries	 	Non-Guarantor
Subsidiaries	 	Eliminations	 	Consolidated	
Assets	 	 	 	 	 	 	 	 	 	 	 	
Current assets	$	—		 	$	4,150		 	$	284,293		 	$	49,935		 	$	(162,413	)	 	$	175,965		
Property, plant and equipment, net	—		 	—		 	77,345		 	736		 	—		 	78,081		
Subscriber acquisition costs, net	—		 	—		 	1,214,678		 	93,880		 	—		 	1,308,558		
Deferred financing costs, net	—		 	3,099		 	—		 	—		 	—		 	3,099		
Investment in subsidiaries	—		 	2,188,221		 	—		 	—		 	(2,188,221	)	 	—		
Intercompany receivable	—		 	—		 	6,303		 	—		 	(6,303	)	 	—		
Intangible assets, net	—		 	—		 	350,710		 	26,741		 	—		 	377,451		
Goodwill	—		 	—		 	809,678		 	27,292		 	—		 	836,970		
Long-term notes receivables and other assets	—		 	106		 	78,173		 	10,550		 	(106	)	 	88,723		
Total Assets	$	—		 	$	2,195,576		 	$	2,821,180		 	$	209,134		 	$	(2,357,043	)	 	$	2,868,847		
Liabilities and Stockholders’ (Deficit) Equity	 	 	 	 	 	 	 	 	 	 	 	
       Current liabilities	$	—		 	$	28,805		 	$	343,398		 	$	128,581		 	$	(162,413	)	 	$	338,371		
Intercompany payable	—		 	—		 	—		 	6,303		 	(6,303	)	 	—		
Notes payable and revolving credit facility, net of current portion	—		 	2,820,297		 	—		 	—		 	—		 	2,820,297		
Capital lease obligations, net of current portion	—		 	—		 	10,791		 	298		 	—		 	11,089		
Deferred revenue, net of current portion	—		 	—		 	248,643		 	15,912		 	—		 	264,555		
Accumulated Losses of Investee, net	653,526		 			 			 			 	(653,526	)	 	—		
Other long-term obligations	—		 	—		 	79,020		 	—		 	—		 	79,020		
Deferred income tax liability	—		 	—		 	106		 	9,041		 	(106	)	 	9,041		
Total (deficit) equity	(653,526	)	 	(653,526	)	 	2,139,222		 	48,999		 	(1,534,695	)	 	(653,526	)	
Total liabilities and stockholders’ (deficit) equity	$	—		 	$	2,195,576		 	$	2,821,180		 	$	209,134		 	$	(2,357,043	)	 	$	2,868,847		

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Supplemental Condensed Consolidating Statements of Operations and Comprehensive Loss
For the Three Months Ended September 30, 2018
(in thousands)
(unaudited)

	
																								
 	Parent	 	APX
Group, Inc.	 	Guarantor
Subsidiaries	 	Non-Guarantor
Subsidiaries	 	Eliminations	 	Consolidated	
Revenues	$	—		 	$	—		 	$	260,462		 	$	12,512		 	$	(639	)	 	$	272,335		
Costs and expenses	—		 	—		 	303,009		 	14,023		 	(639	)	 	316,393		
Loss from operations	—		 	—		 	(42,547	)	 	(1,511	)	 	—		 	(44,058	)	
Loss from subsidiaries	(120,226	)	 	(44,640	)	 	—		 	—		 	164,866		 	—		
Other expense (income), net	—		 	75,586		 	2,227		 	(1,422	)	 	—		 	76,391		
Loss before income tax expenses	(120,226	)	 	(120,226	)	 	(44,774	)	 	(89	)	 	164,866		 	(120,449	)	
Income tax expense (benefit)	—		 	—		 	55		 	(278	)	 	—		 	(223	)	
Net (loss) income	(120,226	)	 	(120,226	)	 	(44,829	)	 	189		 	164,866		 	(120,226	)	
Other comprehensive loss, net of tax effects:	 	 	 	 	 	 	 	 	 	 	 	
Net (loss) income	(120,226	)	 	(120,226	)	 	(44,829	)	 	189		 	164,866		 	(120,226	)	
Foreign currency translation adjustment	406		 	406		 	—		 	406		 	(812	)	 	406		
Total other comprehensive loss	406			406		 	—		 	406		 	(812	)	 	406		
Comprehensive (loss) income	$	(119,820	)	 	$	(119,820	)	 	$	(44,829	)	 	$	595		 	$	164,054		 	$	(119,820	)	

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Supplemental Condensed Consolidating Statements of Operations and Comprehensive Loss
For the Three Months Ended September 30, 2017
(in thousands)
(unaudited)

	
																								
 	Parent	 	APX
Group, Inc.	 	Guarantor
Subsidiaries	 	Non-Guarantor
Subsidiaries	 	Eliminations	 	Consolidated	
Revenues	$	—		 	$	—		 	$	216,560		 	$	12,770		 	$	(672	)	 	$	228,658		
Costs and expenses	—		 	—		 	257,988		 	11,489		 	(672	)	 	268,805		
(Loss) income from operations	—		 	—		 	(41,428	)	 	1,281		 	—		 	(40,147	)	
Loss from subsidiaries	(107,920	)	 	(40,608	)	 	—		 	—		 	148,528		 	—		
Other expense (income), net	—		 	67,312		 	2,356		 	(3,052	)	 	—		 	66,616		
(Loss) income before income tax expenses	(107,920	)	 	(107,920	)	 	(43,784	)	 	4,333		 	148,528		 	(106,763	)	
Income tax (benefit) expense	—		 	—		 	(34	)	 	1,191		 	—		 	1,157		
Net (loss) income	(107,920	)	 	(107,920	)	 	(43,750	)	 	3,142		 	148,528		 	(107,920	)	
Other comprehensive loss, net of tax effects:		 		 		 		 		 		
Net (loss) income	(107,920	)	 	(107,920	)	 	(43,750	)	 	3,142		 	148,528		 	(107,920	)	
Foreign currency translation adjustment	—		 	1,967		 	—		 	1,967		 	(1,967	)	 	1,967		
Unrealized gain on marketable securities	—		 	(413	)	 	(413	)	 	—		 	413		 	(413	)	
Total other comprehensive income	—		 	1,554		 	(413	)	 	1,967		 	(1,554	)	 	1,554		
Comprehensive (loss) income	$	(107,920	)	 	$	(106,366	)	 	$	(44,163	)	 	$	5,109		 	$	146,974		 	$	(106,366	)	

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Supplemental Condensed Consolidating Statements of Operations and Comprehensive Loss
For the Nine Months Ended September 30, 2018
(in thousands)
(unaudited)

	
																								
 	Parent	 	APX
Group, Inc.	 	Guarantor
Subsidiaries	 	Non-Guarantor
Subsidiaries	 	Eliminations	 	Consolidated	
Revenues	$	—		 	$	—		 	$	738,250		 	$	37,590		 	$	(1,941	)	 	$	773,899		
Costs and expenses	—		 	—		 	930,065		 	41,697		 	(1,941	)	 	969,821		
Loss from operations	—		 	—		 	(191,815	)	 	(4,107	)	 	—		 	(195,922	)	
Loss from subsidiaries	(349,328	)	 	(155,883	)	 	—		 	—		 	505,211		 	—		
Other expense (income), net	—		 	193,445		 	(40,737	)	 	2,260		 	—		 	154,968		
Loss before income tax expenses	(349,328	)	 	(349,328	)	 	(151,078	)	 	(6,367	)	 	505,211		 	(350,890	)	
Income tax expense (benefit)	—		 	—		 	157		 	(1,719	)	 	—		 	(1,562	)	
Net loss	(349,328	)	 	(349,328	)	 	(151,235	)	 	(4,648	)	 	505,211		 	(349,328	)	
Other comprehensive loss, net of tax effects:	 	 	 	 	 	 	 	 	 	 	 	
Net loss	(349,328	)	 	(349,328	)	 	(151,235	)	 	(4,648	)	 	505,211		 	(349,328	)	
Foreign currency translation adjustment	(670	)	 	(670	)	 	—		 	(670	)	 	1,340		 	(670	)	
Total other comprehensive loss	(670	)	 	(670	)	 	—		 	(670	)	 	1,340		 	(670	)	
Comprehensive loss	$	(349,998	)	 	$	(349,998	)	 	$	(151,235	)	 	$	(5,318	)	 	$	506,551		 	$	(349,998	)	

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Supplemental Condensed Consolidating Statements of Operations and Comprehensive Loss
For the Nine Months Ended September 30, 2017
(in thousands)
(unaudited)

	
																								
 	Parent	 	APX
Group, Inc.	 	Guarantor
Subsidiaries	 	Non-Guarantor
Subsidiaries	 	Eliminations	 	Consolidated	
Revenues	$	—		 	$	—		 	$	612,075		 	$	36,085		 	$	(2,023	)	 	$	646,137		
Costs and expenses	—		 	—		 	703,656		 	31,641		 	(2,023	)	 	733,274		
(Loss) income from operations	—		 	—		 	(91,581	)	 	4,444		 	—		 	(87,137	)	
Loss from subsidiaries	(274,793	)	 	(88,104	)	 	—		 	—		 	362,897		 	—		
Other expense (income), net	—		 	186,689		 	4,097		 	(5,438	)	 	—		 	185,348		
(Loss) income before income tax expenses	(274,793	)	 	(274,793	)	 	(95,678	)	 	9,882		 	362,897		 	(272,485	)	
Income tax (benefit) expense	—		 	—		 	(303	)	 	2,611		 	—		 	2,308		
Net (loss) income	(274,793	)	 	(274,793	)	 	(95,375	)	 	7,271		 	362,897		 	(274,793	)	
Other comprehensive loss, net of tax effects:	 	 	 	 	 	 	 	 	 	 	 	
Net (loss) income	(274,793	)	 	(274,793	)	 	(95,375	)	 	7,271		 	362,897		 	(274,793	)	
Foreign currency translation adjustment	—		 	3,543		 	—		 	3,543		 	(3,543	)	 	3,543		
Unrealized gain on marketable securities	—		 	(671	)	 	(671	)	 	—		 	671		 	(671	)	
Total other comprehensive income	—		 	2,872		 	(671	)	 	3,543		 	(2,872	)	 	2,872		
Comprehensive (loss) income	$	(274,793	)	 	$	(271,921	)	 	$	(96,046	)	 	$	10,814		 	$	360,025		 	$	(271,921	)	

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Supplemental Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended September 30, 2018
(in thousands)
(unaudited)

	
																								
 	Parent	 	APX
Group, Inc.	 	Guarantor
Subsidiaries	 	Non-Guarantor
Subsidiaries	 	Eliminations	 	Consolidated	
Cash flows from operating activities:	 	 	 	 	 	 	 	 	 	 	 	
Net cash used in operating activities	$	—		 	$	—		 	$	(130,718	)	 	$	695		 	$	—		 	$	(130,023	)	
Cash flows from investing activities:	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	—		 	—		 	(15,355	)	 	—		 	—		 	(15,355	)	
Proceeds from sale of intangibles	—		 	—		 	53,693		 	—		 	—		 	53,693		
Proceeds from sale of capital assets	—		 	—		 	185		 	—		 	—		 	185		
Investment in subsidiary	(2,331	)	 	(104,906	)	 	—		 	—		 	107,237		 	—		
Acquisition of intangible assets	—		 	—		 	(1,068	)	 	—		 	—		 	(1,068	)	
Net cash (used in) provided by investing activities	(2,331	)	 	(104,906	)	 	37,455		 	—		 	107,237		 	37,455		
Cash flows from financing activities:	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from notes payable	—		 	810,000		 	—		 	—		 	—		 	810,000		
Repayment on notes payable	—		 	(520,166	)	 	—		 	—		 	—		 	(520,166	)	
Borrowings from revolving credit facility	—		 	201,000		 	—		 	—		 	—		 	201,000		
Repayments on revolving credit facility	—		 	(261,000	)	 	—		 	—		 	—		 	(261,000	)	
Proceeds from capital contribution	4,700		 	4,700		 	107,275		 	—		 	(111,975	)	 	4,700		
Repayments of capital lease obligations	—		 	—		 	(9,611	)	 	(271	)	 	—		 	(9,882	)	
Financing costs	—		 	(11,317	)	 	—		 	—		 	—		 	(11,317	)	
Deferred financing costs	—		 	(9,302	)	 	—		 	—		 	—		 	(9,302	)	
Return of capital	(2,369	)	 	(2,369	)	 	(2,369	)	 	—		 	4,738		 	(2,369	)	
Net cash provided by (used in) financing activities	2,331		 	211,546		 	95,295		 	(271	)	 	(107,237	)	 	201,664		
Effect of exchange rate changes on cash	—		 	—		 	—		 	(2	)	 	—		 	(2	)	
Net increase in cash and cash equivalents	—		 	106,640		 	2,032		 	422		 	—		 	109,094		
Cash and cash equivalents:	 	 	 	 	 	 	 	 	 	 	 	
Beginning of period	—		 	3,661		 	(572	)	 	783		 	—		 	3,872		
End of period	$	—		 	$	110,301		 	$	1,460		 	$	1,205		 	$	—		 	$	112,966		

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Supplemental Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended September 30, 2017
(in thousands)
(unaudited)

	
																								
 	Parent	 	APX
Group, Inc.	 	Guarantor
Subsidiaries	 	Non-Guarantor
Subsidiaries	 	Eliminations	 	Consolidated	
Cash flows from operating activities:	 	 	 	 	 	 	 	 	 	 	 	
Net cash (used in) provided by operating activities	$	—		 	$	—		 	$	(154,360	)	 	$	5,092		 	$	—		 	$	(149,268	)	
Cash flows from investing activities:	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	—		 	—		 	(14,842	)	 	—		 	—		 	(14,842	)	
Investment in subsidiary	—		 	(157,400	)	 	—		 	—		 	157,400		 	—		
Acquisition of intangible assets	—		 	—		 	(1,057	)	 	—		 	—		 	(1,057	)	
Proceeds from sale of capital assets	—		 	—		 	275		 	—		 	—		 	275		
Acquisition of other assets	—		 	—		 	(156	)	 	—		 	—		 	(156	)	
Net cash used in investing activities	—		 	(157,400	)	 	(15,780	)	 	—		 	157,400		 	(15,780	)	
Cash flows from financing activities:	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from notes payable	—		 	724,750		 	—		 	—		 	—		 	724,750		
Repayment on notes payable	—		 	(450,000	)	 	—		 	—		 	—		 	(450,000	)	
Borrowings from revolving credit facility	—		 	124,000		 	—		 	—		 	—		 	124,000		
Repayments on revolving credit facility	—		 	(124,000	)	 	—		 	—		 	—		 	(124,000	)	
Intercompany receivable	—		 	—		 	3,621		 	—		 	(3,621	)	 	—		
Intercompany payable	—		 	—		 	—		 	(3,621	)	 	3,621		 	—		
Proceeds from capital contributions	—		 	—		 	157,400		 	—		 	(157,400	)	 	—		
Repayments of capital lease obligations	—		 	—		 	(6,899	)	 	(262	)	 	—		 	(7,161	)	
Payments of other long-term obligations	—		 	—		 	(2,065	)	 	—		 	—		 	(2,065	)	
Financing costs	—		 	(17,771	)	 	—		 	—		 	—		 	(17,771	)	
Deferred financing costs	—		 	(10,730	)	 	—		 	—		 	—		 	(10,730	)	
Net cash provided by (used in) financing activities	—		 	246,249		 	152,057		 	(3,883	)	 	(157,400	)	 	237,023		
Effect of exchange rate changes on cash	—		 	—		 	—		 	72		 	—		 	72		
Net increase (decrease) in cash and cash equivalents	—		 	88,849		 	(18,083	)	 	1,281		 	—		 	72,047		
Cash and cash equivalents:	 	 	 	 	 	 	 	 	 	 	 	
Beginning of period	—		 	24,680		 	18,186		 	654		 	—		 	43,520		
End of period	$	—		 	$	113,529		 	$	103		 	$	1,935		 	$	—		 	$	115,567		

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	
Introduction
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto contained herein and in the Annual Report on Form 10-K for the year ended December 31, 2017 . This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of the Annual Report on Form 10-K for the year ended December 31, 2017 . Actual results may differ materially from those contained in any forward-looking statements. Unless the context otherwise requires, references to “we”, “us”, “our”, and “the Company” are intended to mean the business and operations of APX Group Holdings, Inc. and its consolidated subsidiaries. The unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2018 and 2017 , respectively, present the financial position and results of operations of APX Group Holdings, Inc. and its wholly-owned subsidiaries.
Business Overview
We are a smart home company providing comprehensive, secure, and simple to use smart home solutions for the broad consumer market. Our smart home platform has approximately 1.5 million customers and a nationwide sales and service footprint that covers 98% of U.S. zip codes. Our curated ecosystem of Products includes cameras, sensors, door locks, thermostats, garage door controllers, voice-control speakers, and dedicated touchscreens. Our artificial intelligence platform, Vivint Sky, processes thousands of events per second from those Products to understand the state of the home, and our customers can access their smart homes with a single app, from anywhere in the world. We employ an integrated business model that leverages Vivint technology and people to reduce key consumer friction points that have historically limited smart home adoption and use. Our trained professionals educate consumers on the value and affordability of smart home technology, customize systems for their homes, install systems, and provide ongoing monitoring, customer service and in-home support.
Our go-to-market strategy is focused on three sales channels: direct-to-home, inside sales and retail. Our direct-to-home sales team is comprised of up to 2,700 representatives during our peak selling season, working across select markets throughout North America. Our inside sales channel provides a consultative experience for consumers who contact us directly. Our retail channel seeks to reach customers through various retail locations in the United States. Through these channels, we generate subscription-based, high margin, recurring revenue from customers who sign up for our Smart Home Services. We also generate revenue from the sale of Products.
Key Operating Metrics
In evaluating our results, we review several key operating metrics discussed below. We believe that the presentation of such metrics is useful to our investors and lenders because they are used to measure the value of companies such as ours with recurring revenue streams. In addition, we have updated the definitions of certain operating metrics and introduced certain new operating metrics to reflect the introduction of new financing and payment options under our Vivint Flex Pay program, which became our primary payment model beginning in March 2017. All key operating metric calculations defined below exclude our wireless internet business and sales channel pilot programs.
Total Subscribers
Total subscribers is the aggregate number of active smart home and security subscribers at the end of a given period.
Total Monthly Revenue
Total monthly revenue, or Total MR, is the average monthly total revenue recognized during the period.
Average Monthly Revenue per User
Average monthly revenue per user, or AMRU, is Total MR divided by average monthly Total Subscribers during a given period.
Total Monthly Service Revenue
Total monthly service revenue, or MSR, is the contracted recurring monthly service billings to our smart home and security subscribers, based on the Total Subscribers number as of the end of a given period.
Average Monthly Service Revenue per User

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Average monthly service revenue per user, or AMSRU, is Total MSR divided by Total Subscribers at the end of a given period.
Attrition Rate
Attrition rate is the aggregate number of canceled smart home and security subscribers during the prior 12 month period divided by the monthly weighted average number of Total Subscribers based on the Total Subscribers at the beginning and end of each month of a given period. Subscribers are considered canceled when they terminate in accordance with the terms of their contract, are terminated by us or if payment from such subscribers is deemed uncollectible (when at least four monthly billings become past due). If a sale of a service contract to third parties occurs, or a subscriber relocates but continues their service, we do not consider this as a cancellation. If a subscriber transfers their service contract to a new subscriber, we do not consider this as a cancellation.
Net Service Cost per Subscriber
Net service cost per subscriber is the average monthly service costs incurred during the period (both period and capitalized service costs), including monitoring, customer service, field service and other service support costs, less total non-recurring Smart Home Services billings for the period divided by average monthly Total Subscribers for the same period.
Net Service Margin
Net service margin is the monthly average MSR for the period, less total average net service costs for the period divided by the monthly average MSR for the period.
New Subscribers
New subscribers is the aggregate number of net new smart home and security subscribers originated during a given period. This metric excludes new subscribers acquired by the transfer of a service contract from one subscriber to another.
Net Subscriber Acquisition Costs per New Subscriber
Net subscriber acquisition costs per New Subscriber is the direct and indirect costs to create a new smart home and security subscriber divided by New Subscribers for a given 12 month period. These costs include commissions, Products, installation, marketing, sales support and other allocations (general and administrative and overhead); less upfront payment received from the sale of Products associated with the initial installation, and installation fees. These costs exclude capitalized contract costs and upfront proceeds associated with contract modifications.
Recent Developments
Term Loan
On September 6, 2018, APX (“Borrower”), one of our indirect wholly owned subsidiaries, entered into a Credit Agreement (the “Term Loan Agreement”), among the Borrower, Holdings, the other guarantors party thereto, each lender from time to time party thereto and Bank of America, N.A., as administrative agent. The Term Loan Agreement provides for total term loans of $810.0 million.
The net proceeds from the Term Loans were used to redeem in full the entire $269.5 million outstanding aggregate principal amount of the 2019 Notes and pay the related accrued interest and redemption premium, to repurchase approximately $250.7 million aggregate principal amount of the Borrower’s outstanding 2020 Notes in privately negotiated transactions, to repay the outstanding borrowings under the Borrower’s revolving credit facility and to pay fees and expenses related to the Term Loan Agreement and the transactions described above. The remaining net proceeds will be used for general corporate purposes.
Cost Reduction Initiatives
In July 2018, we announced a number of cost reduction initiatives that are expected to reduce certain of our General and Administrative, Customer Service, and Sales Support fixed costs. We completed the majority of these cost reduction initiatives in the second and third quarters of 2018, with the remainder by the end of 2018. In addition to resulting in meaningful cost reductions, our initiatives are expected to streamline operations, focus engineering and innovation and provide a better focus on driving customer satisfaction.
As part of these initiatives, Vivint and Best Buy agreed in principle to end the co-branded Best Buy Smart Home by Vivint arrangement, which resulted in the elimination of over 400 in-store sales positions in the second quarter of 2018. In addition, we eliminated approximately 140 other positions during the second quarter of 2018. These actions resulted in one-

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time cash employee severance and termination benefits expenses of $0.5 million and $4.7 million during the three and nine months ended September 30, 2018, respectively.
The Company does not expect that any of its cost reduction initiatives will result in additional material charges or expenses in future periods. The majority of the headcount and expense reductions will benefit the third quarter and future periods.
Spectrum Sale
During the year ended December 31, 2016, Vivint Wireless Inc., a wholly owned subsidiary of the Company, entered into leasing agreements with Nextlink Wireless, LLC (“Nextlink”) for designated radio frequency spectrum in 40 mid-sized metropolitan markets. The asset was recorded as an indefinite-lived intangible asset, with a corresponding liability within other long-term obligations.
On January 10, 2018, Vivint Wireless and Verizon consummated the transactions contemplated by a termination agreement to which the parties agreed, among other things, to terminate the spectrum leases between Vivint Wireless and Nextlink, a subsidiary of Verizon, in exchange for a cash payment by Verizon to Vivint Wireless. The calculation of the gain recorded included cash proceeds of $55.0 million , extinguishment of the spectrum license liability of $27.9 million , offset by the expensing of the spectrum license asset in the amount of $31.3 million and regulatory costs associated with the sale of $1.3 million for a total net gain on sale of $50.4 million which is included in other income, net in the condensed consolidated statement of operations.
Adoption of New Accounting Standard
Effective January 1, 2018, we adopted Accounting Standard Update 2014-09, “Revenue from Contracts with Customers (Topic 606)”. Adoption of the new standard resulted in changes to the accounting policies for revenue recognition, deferred revenue, and capitalized contract costs (formerly subscriber acquisition costs) as detailed below in our critical accounting policies and estimates. The cumulative effect of applying the new standard to all contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to accumulated deficit as of the adoption date. The comparative information for prior periods has not been adjusted and continues to be reported under Topic 605. See Note 2 "Revenue and Capitalized Contract Costs" in the accompanying notes to consolidated financial statements for additional information related to the impact of adopting this standard and a discussion of our updated policies related to revenue recognition and accounting for costs to obtain and fulfill a customer contract.
Critical Accounting Policies and Estimates
In preparing our unaudited Condensed Consolidated Financial Statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, loss from operations and net loss, as well as on the value of certain assets and liabilities on our unaudited Condensed Consolidated Balance Sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. At least quarterly, we evaluate our assumptions, judgments and estimates and make changes accordingly. Historically, our assumptions, judgments and estimates relative to our critical accounting estimates have not differed materially from actual results. We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, deferred revenue, capitalized contract costs, retail installment contract receivables, allowance for doubtful accounts, loss contingencies, valuation of intangible assets, fair value and income taxes have the greatest potential impact on our unaudited Condensed Consolidated Financial Statements; therefore, we consider these to be our critical accounting estimates. For information on our significant accounting policies, see Note 1 to our accompanying unaudited Condensed Consolidated Financial Statements.
Revenue Recognition

We offer our customers smart home services combining Products, including a proprietary control panel, door and window sensors, door locks, security cameras and smoke alarms; installation; and a proprietary back-end cloud platform software and Services. These together create an integrated system that allows our customers to monitor, control and protect their home. Our customers are buying this integrated system that provides them with these Smart Home Services. The number and type of Products purchased by a customer depends on their desired functionality. Because the Products and Services included in the customer’s contract are integrated and highly interdependent, and because they must work together to deliver the Smart Home Services, we have concluded that installed Products, related installation and Services contracted for by the customer are generally not distinct within the context of the contract and, therefore, constitute a single, combined performance

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obligation. Revenues for this single, combined performance obligation are recognized on a straight-line basis over the customer’s contract term. We have determined that certain contracts that do not require a long-term commitment for monitoring services by the customer contain a material right to renew the contract, because the customer does not have to purchase Products upon renewal. Proceeds allocated to the material right are recognized over the period benefit, which is generally three years.
The majority of our subscription contracts are between three and five years in length and are non-cancelable. These contracts with customers generally convert into month-to-month agreements at the end of the initial term, and some customer contracts are month-to-month from inception. Payment for recurring monitoring and other Smart Home Services is generally due in advance on a monthly basis.
Sales of Products and other one-time fees such as service fees or installation fees are invoiced to the customer at the time of sale. Revenues for wireless internet service provided by Vivint Wireless Inc. and any Products or Services that are considered separate performance obligations are recognized when those Products or Services are delivered. Taxes collected from customers and remitted to governmental authorities are not included in revenue. Payments received or amounts billed in advance of revenue recognition are reported as deferred revenue.
Prior to the adoption of Topic 606, we recognized certain service and other sales revenue when the Services were provided or when title to Products sold transferred to the customer. Revenue from the sale of Products that were not part of the service offering (i.e., those Products sold subsequent to the date of the initial installation) were also generally recognized upon delivery of Products. Under Topic 606, we consider Products, related installation, and our proprietary back-end cloud platform software and services an integrated system that allows our customers to monitor, control and protect their homes. These Smart Home Services are accounted for as a single performance obligation that is recognized over the customer’s contract term. Accordingly, we now defer a larger portion of certain Smart Home Services revenue, as prior to the adoption of Topic 606 certain of this revenue was recognized at the time services were provided or upon delivery.
Deferred Revenue
Our deferred revenues primarily consist of amounts for sales (including upfront proceeds) of Smart Home Services. Deferred revenues are recognized over the term of the related performance obligation.
Prior to the adoption of Topic 606, we amortized deferred revenues related to sales of Products and activation fees on subscriber contracts over the expected life of the customer, which was 15 years using a 240% declining balance method. Under the new standard , activation fees are included in the transaction price allocated to the single Smart Home Service performance obligation and recognized straight-line over the customer’s contract term, which is generally three to five years .
Capitalized Contract Costs
Capitalized contract costs represent the costs directly related and incremental to the origination of new contracts, modification of existing contracts or to the fulfillment of the related customer contracts. These include commissions, other compensation and related costs paid directly for the origination and installation of new or upgraded customer contracts, as well as the cost of Products installed in the customer home at the commencement or modification of the contract. These costs are deferred and amortized on a straight-line basis over the expected period of benefit that we have determined to be five years . Amortization of capitalized contract costs is included in “Depreciation and Amortization” on the consolidated statements of operations. These deferred costs are periodically reviewed for impairment. Contract costs not directly related and incremental to the origination of new contracts, modification of existing contracts or to the fulfillment of the related customer contracts are expensed as incurred. These costs include those associated with housing, marketing and recruiting, non-direct lead generation costs, certain portions of sales commissions and residuals, overhead and other costs considered not directly and specifically tied to the origination of a particular subscriber.
Prior to the adoption of Topic 606, we deferred and amortized these costs for new customer contracts in a pattern that reflected the estimated life of subscriber relationships and generally expensed all costs associated with modified customer contracts. Under the new standard, we defer and amortize these costs for new or modified customer contracts on a straight-line basis over the expected period of benefit of five years . During the three and nine months ended September 30, 2018 , we capitalized contract costs of $10.5 million and $20.4 million , respectively associated with modifications of customer contracts.

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On the accompanying unaudited condensed consolidated statement of cash flows, capitalized contract costs are classified as operating activities and reported as “Capitalized contract costs – deferred contract costs” as these assets represent deferred costs associated with customer contracts.
Retail Installment Contract Receivables
For customers that enter into a RIC under the Vivint Flex Pay plan, we record a receivable for the amount financed. The RIC receivables are recorded at their present value, net of the imputed interest. At the time of installation, we record a long-term note receivable within long-term notes receivables and other assets, net on the condensed consolidated balance sheets for the present value of the receivables that are expected to be collected beyond 12 months of the reporting date. The unbilled receivable amounts that are expected to be collected within 12 months of the reporting date are included as a short-term notes receivable within accounts and notes receivable, net on the condensed consolidated balance sheets. The billed amounts of notes receivables are included in accounts receivable within accounts and notes receivable, net on the condensed consolidated balance sheets.
We impute the interest on the RIC receivable using a risk adjusted market interest rate and record it as an adjustment to deferred revenue and as an adjustment to the face amount of the related receivable. The imputed interest discount considers a number of factors, including collection experience, aging of the remaining RIC receivable portfolios, credit quality of the subscriber base and other qualitative considerations, including macro-economic factors. The imputed interest income is recognized over the term of the RIC contract as recurring and other revenue on the condensed consolidated statement of operations.
When we determine that there are RIC receivables that have become uncollectible, we record an adjustment to the imputed interest discount and reduce the related note receivable balance. Account balances are written-off if collection efforts are unsuccessful and future collection is unlikely based on the length of time from the day accounts become past due.
Accounts Receivable
Accounts receivable consists primarily of amounts due from customers for recurring monthly monitoring Services and the billed portion of RIC receivables. The accounts receivable are recorded at invoiced amounts and are non-interest bearing and are included within accounts and notes receivable, net on the condensed consolidated balance sheets. Accounts receivable totaled $22.6 million and $24.3 million at September 30, 2018 and December 31, 2017 , respectively net of the allowance for doubtful accounts of $5.6 million and $5.4 million at September 30, 2018 and December 31, 2017 , respectively. We estimate this allowance based on historical collection experience and subscriber attrition rates. When we determine that there are accounts receivable that are uncollectible, they are charged off against the allowance for doubtful accounts. As of September 30, 2018 and December 31, 2017 , no accounts receivable were classified as held for sale. The provision for doubtful accounts is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and totaled $5.9 million and $5.0 million for the three months ended September 30, 2018 and 2017 , respectively, and $14.3 million and $14.7 million for the nine months ended September 30, 2018 and 2017 , respectively.
Loss Contingencies
We record accruals for various contingencies including legal proceedings and other claims that arise in the normal course of business. The accruals are based on judgment, the probability of losses and, where applicable, the consideration of opinions of legal counsel. We record an accrual when a loss is deemed probable to occur and is reasonably estimable. Factors that we consider in the determination of the likelihood of a loss and the estimate of the range of that loss in respect of legal matters include the merits of a particular matter, the nature of the litigation, the length of time the matter has been pending, the procedural posture of the matter, whether we intend to defend the matter, the likelihood of settling for an insignificant amount and the likelihood of the plaintiff accepting an amount in this range. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties.
Goodwill and Intangible Assets
Purchase accounting requires that all assets and liabilities acquired in a transaction be recorded at fair value on the acquisition date, including identifiable intangible assets separate from goodwill. For significant acquisitions, we obtain independent appraisals and valuations of the intangible (and certain tangible) assets acquired and certain assumed obligations as well as equity. Identifiable intangible assets include customer relationships, spectrum licenses and other purchased and internally developed technology, which totaled $278.5 million and $377.5 million as of September 30, 2018 and December 31,

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2017 , respectively. Goodwill represents the excess of cost over the fair value of net assets acquired and was $836.3 million and $837.0 million as of September 30, 2018 and December 31, 2017 , respectively.
The estimated fair values and useful lives of identified intangible assets are based on many factors, including estimates and assumptions of future operating performance and cash flows of the acquired business, estimates of cost avoidance, the nature of the business acquired, the specific characteristics of the identified intangible assets and our historical experience and that of the acquired business. The estimates and assumptions used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including product demand, market conditions, regulations affecting the business model of our operations, technological developments, economic conditions and competition.
We conduct a goodwill impairment analysis annually in the fourth fiscal quarter, as of October 1, and as necessary if changes in facts and circumstances indicate that the fair value of our reporting units may be less than their carrying amounts. When indicators of impairment do not exist and certain accounting criteria are met, we are able to evaluate goodwill impairment using a qualitative approach. When necessary, our quantitative goodwill impairment test consists of two steps. The first step requires that we compare the estimated fair value of our reporting units to the carrying value of the reporting unit’s net assets, including goodwill. If the fair value of the reporting unit is greater than the carrying value of its net assets, goodwill is not considered to be impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value of its net assets, we would be required to complete the second step of the test by analyzing the fair value of its goodwill. If the carrying value of the goodwill exceeds its fair value, an impairment charge is recorded. Our reporting units are determined based on our current reporting structure, which as of December 31, 2017 and September 30, 2018 consisted of two reporting units. As of September 30, 2018 , there were no changes in facts and circumstances since the most recent annual impairment analysis to indicate impairment existed.
Long-lived Assets and Intangibles
Property, plant and equipment are stated at cost and depreciated on the straight-line method over the estimated useful lives of the assets or the lease term for assets under capital leases, whichever is shorter. Intangible assets with definite lives are amortized over the remaining estimated economic life of the underlying technology or relationships, which ranges from five to ten years . Definite-lived intangible assets are amortized on the straight-line method over the estimated useful life of the asset or in a pattern in which the economic benefits of the intangible asset are consumed. Amortization expense associated with leased assets is included with depreciation expense. Routine repairs and maintenance are charged to expense as incurred.
We review long-lived assets, including property, plant and equipment, capitalized contract costs, and definite-lived intangibles for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. We consider whether or not indicators of impairment exist on a regular basis and as part of each quarterly and annual financial statement close process. Factors we consider in determining whether or not indicators of impairment exist include market factors and patterns of customer attrition. If indicators of impairment are identified, we estimate the fair value of the assets. An impairment loss is recognized if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value.
We conduct an indefinite-lived intangible impairment analysis annually as of October 1, and as necessary if changes in facts and circumstances indicate that the fair value of our indefinite-lived intangibles may be less than the carrying amount. When indicators of impairment do not exist and certain accounting criteria are met, we are able to evaluate indefinite-lived intangible impairment using a qualitative approach. When necessary, our quantitative impairment test consists of two steps. The first step requires that we compare the estimated fair value of our indefinite-lived intangibles to the carrying value. If the fair value is greater than the carrying value, the intangibles are not considered to be impaired and no further testing is required. If the fair value is less than the carrying value, an impairment loss in an amount equal to the difference is recorded.
Income Taxes
We account for income taxes based on the asset and liability method. Under the asset and liability method, deferred tax assets and deferred tax liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets when it is determined that it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.
We recognize the effect of an uncertain income tax position on the income tax return at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be

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recognized if it has less than a 50% likelihood of being sustained. Our policy for recording interest and penalties is to record such items as a component of the provision for income taxes.
Recent Accounting Pronouncements
See Note 1 to our accompanying unaudited Condensed Consolidated Financial Statements.
Key Factors Affecting Operating Results
Our business is driven through the generation of new subscribers and servicing and maintaining our existing subscriber base. The generation of new subscribers requires significant upfront investment, which in turn provides predictable, contractual, recurring monthly billings generated from our Smart Home Services. Therefore, we focus our investment decisions on generating new subscribers and servicing our existing subscribers in the most cost-effective manner, while maintaining a high level of customer service to minimize subscriber attrition. Because of the significant upfront investment associated with generating new subscribers, our cash flows and associated margins are directly impacted by the duration of our subscriber relationships. Currently, the upfront proceeds received for the sale of Products to qualified customers in the United States who finance the purchase of Products through a third-party financing provider (the "Consumer Financing Program") , and those that are paid-in-full at the time of the sale of Products, offset a portion of the upfront investment associated with subscriber acquisition costs.
We generally market our Smart Home Services through two sales channels, direct-to-home and inside sales, with a majority of our new subscriber accounts generated through direct-to-home sales, primarily from April through August. Of our total new subscriber additions generated, New Subscribers generated through inside sales was approximately 33% and 35% for the three months ended September 30, 2018 and 2017 , respectively and 36% and 37% for the nine months ended September 30, 2018 and 2017 , respectively. In 2017, we also began selling our Smart Home Services through our retail sales channel.
Our operating results are primarily impacted by the following key factors:
		
•	number of subscriber additions,	
		
•	net subscriber acquisition costs,	
		
•	AMRU,	
		
•	the total price paid by new subscribers for our Products under the Vivint Flex Pay plan,	
		
•	the mix of subscribers purchasing our Products through the Consumer Financing Program versus through RICs,	
		
•	subscriber attrition,	
		
•	the costs to monitor and service our subscribers,	
		
•	the level of general and administrative expenses; and	
		
•	the availability and cost of capital required to generate new subscribers.	
Our ability to increase subscribers depends on a number of factors, both external and internal. External factors include the overall macroeconomic environment, the availability of additional capital, awareness of our brand and competition from other companies in the geographies we serve, particularly in those markets where our direct-to-home sales representatives are present or where we are selling our Smart Home Services in retail locations. Some of our current competitors have longer operating histories, greater name recognition and substantially greater financial and marketing resources than us. In the future, other companies may also choose to begin offering products and services similar to ours. In addition, because such a large percentage of our new subscribers are generated through direct-to-home sales, any actions limiting this sales channel could negatively affect our ability to grow our subscriber base. We are continually evaluating ways to improve the effectiveness of our subscriber acquisition activities in our direct-to-home, inside sales and retail channels. Over time we intend to add other sales models and channels to grow our subscriber base.
Internal factors include our ability to recruit, train and retain personnel, along with the level of investment in sales and marketing efforts. We expect to increase our marketing investment over time. Successfully generating subscriber growth through these marketing investments, particularly in our inside sales and retail channels, will partly depend on our ability to launch cost-effective marketing campaigns that attract potential customers and successfully build awareness of our brand. We

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also believe that maintaining competitive compensation structures and differentiated Products are critical to attracting and retaining high-quality personnel and competing effectively in the markets we serve.
Successfully growing our AMRU depends on our ability to continue expanding our technology platform by offering additional value-added Smart Home Services demanded by the markets we serve. Therefore, we continually evaluate the viability of additional Smart Home Service offerings that could further leverage the investments made to date in our existing technology platform and sales channels. As evidence of this focus on new Smart Home Services, since 2010, we have successfully expanded our offerings from residential security into Smart Home Services, which allows us to charge higher Service fees and generate higher revenue from Product sales to new subscribers for these additional offerings. These Product offerings include a number of proprietary Vivint Products and integrated third-party devices. Due to the high rate of adoption of additional Smart Home Services offerings, our AMRU has increased from $56.14 in 2013 to $62.87 for the nine months ended September 30, 2018 , an increase of 12% .
We focus on managing the costs associated with monitoring and service without jeopardizing our award-winning service quality. We believe our ability to retain subscribers over the long-term starts with our underwriting criteria and is enhanced by maintaining our consistent quality service levels.
Subscriber attrition has a direct impact on our financial results, including revenues, operating income and cash flows. A portion of the subscriber base can be expected to cancel its service every year. Subscribers may choose not to renew or may terminate their contracts for a variety of reasons, including, but not limited to, relocation, cost, switching to a competitor’s service or service issues. We analyze our attrition by tracking the number of subscribers who cancel as a percentage of the monthly average number of subscribers at the end of each twelve month period. We caution investors that not all companies, investors and analysts in our industry define attrition in the same manner.
The table below presents our smart home and security subscriber data for the twelve months ended September 30, 2018 and September 30, 2017 :

	
						
 	Twelve months ended September 30, 2018	 	Twelve months ended September 30, 2017	
Beginning balance of subscribers	1,270,478		 	1,142,571		
New subscribers	337,327		 	260,953		
Attrition	(157,620	)	 	(133,046	)	
Ending balance of subscribers	1,450,185		 	1,270,478		
Monthly average subscribers	1,340,075		 	1,180,116		
Attrition rate	11.8	%	 	11.3	%	
Historically, we have experienced an increased level of subscriber cancellations in the months surrounding the expiration of such subscribers’ initial contract term. Attrition in any twelve month period may be impacted by the number of subscriber contracts reaching the end of their initial term in such period. Attrition in the twelve months ended September 30, 2018 , reflects the effect of the 2013 60-month and 2014 42-month contracts reaching the end of their initial contract term. We believe this trend in cancellations at the end of the initial contract term is comparable to other companies within our industry.

Basis of Presentation
We conduct business through one operating segment, Vivint. We primarily operate in two geographic regions: United States and Canada. See Note 15 in the accompanying unaudited condensed consolidated financial statements for more information about our geographic segments.

Components of Results of Operations
Total Revenues
Recurring and other revenue. Our revenues are generated through the sale and installation of our Smart Home Services contracted for by our customers. Recurring Smart Home Services for our subscriber contracts are billed directly to the subscriber in advance, generally monthly, pursuant to the terms of subscriber contracts and recognized ratably over the service period. Revenues from Products are deferred and recognized on a straight-line basis over the customer contract term, the

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amount of which is dependent on the total sales price of Products sold. Imputed interest associated with RIC receivables is recognized over the initial term of the RIC. The amount of revenue from Services is dependent upon which of our service offerings is included in the subscriber contracts. Our smart home and video offerings generally provide higher service revenue than our base smart home service offering. Historically, we have generally offered contracts to subscribers that range in length from 36 to 60 months that are subject to automatic monthly renewal after the expiration of the initial term. In addition, to a lesser extent, we have contracts that are offered as month-to-month at the time of origination. At the end of each monthly period, the portion of recurring fees related to services not yet provided are deferred and recognized as these services are provided. Prior to the adoption of Topic 606, service and other sales revenue and activation fees were separate components of revenues (as defined below).
Service and other sales revenue . Prior to the adoption of Topic 606, service and other sales revenue was recognized as services were provided or when title to the Products sold transferred to the customer. Contract fulfillment revenue, included in service and other sales, were recognized when payment was received from customers who canceled their contract in-term. Revenue from sales of Products that were not part of the service offering (i.e., those Products sold subsequent to the date of the initial installation) were generally recognized upon delivery of Products. Subsequent to the adoption of Topic 606, these service and other sales revenue are included in, and recognized in the same manner as, recurring and other revenue.
Activation fees. Prior to the adoption of Topic 606, activation fees represented upfront one-time charges billed to subscribers at the time of installation and were deferred. We amortized deferred activation fees over 15 years using a 240% declining balance method, which converted to a straight-line methodology after approximately nine years when the resulting amortization exceeded that from the accelerated method. Beginning in April 2017, we no longer charge activation fees. Prior to this date, activation fees were charged only on initial customer installations. Under Topic 606, activation fees are included in the transaction price in recurring and other revenue and recognized straight-line over the customer’s contract term, which is generally three to five years .
Total Costs and Expenses
Operating expenses. Operating expenses primarily consists of labor associated with monitoring and servicing subscribers and labor and expenses associated with Products used in service repairs. We also incur equipment costs associated with excess and obsolete inventory and rework costs related to Products removed from subscribers' homes. In addition, a portion of general and administrative expenses, comprised of certain human resources, facilities and information technology costs are allocated to operating expenses. This allocation is primarily based on employee headcount and facility square footage occupied. Because our full-time smart home professionals (“SHPs”) perform most subscriber installations related to customer moves, customer upgrades or generated through our inside sales channels, the costs incurred within field service associated with these installations are allocated to capitalized contract costs. We generally expect our operating expenses to increase in absolute dollars as the total number of subscribers we service continues to grow, but to remain relatively constant in the near to intermediate term as a percentage of our revenue.
Selling expenses. Selling expenses are primarily comprised of costs associated with housing for our direct-to-home sales representatives, advertising and lead generation, marketing and recruiting, certain portions of sales commissions (residuals), overhead (including allocation of certain general and administrative expenses) and other costs not directly tied to a specific subscriber origination. These costs are expensed as incurred. We generally expect our selling expenses to increase in absolute dollars as the total number of subscriber originations continues to grow, but to remain relatively constant in the near to intermediate term as a percentage of our revenue.
General and administrative expenses. General and administrative expenses consist largely of finance, legal, research and development (“R&D”), human resources, information technology and executive management expenses, including stock-based compensation expense. Stock-based compensation expense is recorded within various components of our costs and expenses. General and administrative expenses also include the provision for doubtful accounts. We allocate approximately one-third of our gross general and administrative expenses, excluding the provision for doubtful accounts, into operating and selling expenses in order to reflect the overall costs of those components of the business. We generally expect our general and administrative expenses to increase in absolute dollars to support the overall growth in our business, but to decrease in the near to intermediate term as a percentage of our revenue.
Depreciation and amortization. Depreciation and amortization consists of depreciation from property, plant and equipment, amortization of equipment leased under capital leases, capitalized contract costs and intangible assets. We generally expect our depreciation and amortization expenses to increase in absolute dollars as we grow our business and increase the number of new subscribers originated on an annual basis, but to remain relatively constant in the near to intermediate term as a percentage of our revenue.

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Restructuring Expenses. Restructuring expenses are comprised of costs incurred in relation to activities to exit or dispose of portions of our business that do not qualify as discontinued operations. Expenses for related termination benefits are recognized at the date we notify the employee, unless the employee must provide future service, in which case the benefits are expensed ratably over the future service period. Liabilities related to termination of a contract are measured and recognized at fair value when the contract does not have any future economic benefit to the entity and the fair value of the liability is determined based on the present value of the remaining obligation.

Results of operations

	
																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	2018	 	2017	
 	(in thousands)	
Total revenues	$	272,335		 	$	228,658		 	$	773,899		 	$	646,137		
Total costs and expenses	316,393		 	268,805		 	969,821		 	733,274		
Loss from operations	(44,058	)	 	(40,147	)		(195,922	)		(87,137	)	
Other expenses	76,391		 	66,616		 	154,968		 	185,348		
Loss before taxes	(120,449	)	 	(106,763	)		(350,890	)		(272,485	)	
Income tax (benefit) expense	(223	)	 	1,157		 	(1,562	)	 	2,308		
Net loss	$	(120,226	)	 	$	(107,920	)		$	(349,328	)		$	(274,793	)	

Key operating metrics

	
								
 	As of September 30,	
 	2018	 	2017	
Total Subscribers (in thousands)	1,450.2		 	1,270.5		
Total MSR (in thousands)	$	75,482		 	$	71,235		
AMSRU	$	52.05		 	$	56.07		
Net subscriber acquisition costs per new subscriber	$	1,308		 	$	1,560		

	
																								
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	2018	 	2017	
 	As Reported	 	As Adjusted (1)	 	 	 	As Reported	 	As Adjusted (1)	 	 	
Total MR (in thousands)	$	90,778		 	$	87,082		 	$	76,219		 	$	85,989		 	$	82,584		 	$	71,793		
AMRU	$	63.12		 	$	60.55		 	$	60.52		 	$	62.87		 	$	60.38		 	$	59.89		
Net service cost per subscriber	$	16.38		 	N/A	 	$	15.04		 	$	16.70		 	N/A	 	$	15.47		
Net service margin	69	%	 	N/A	 	73	%	 	69	%	 	N/A	 	73	%	
___________________
(1) As adjusted excludes the impact of adopting Topic 606 associated with total revenues recognized. See Note 2 "Revenue and Capitalized Contract Costs" in the accompanying notes to consolidated financial statements for additional information related to the impact of adopting this standard and a discussion of our updated policies related to revenue recognition and accounting for costs to obtain and fulfill a customer contract.
Three Months Ended September 30, 2018 Compared to the Three Months Ended September 30, 2017
Revenues
The following table provides the significant components of our revenue for the three month periods ended September 30, 2018 and September 30, 2017 (in thousands, except for percentages):

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 	Three Months Ended September 30, 2018	 	Three Months Ended September 30, 2017	 	% Change	
 	As Reported	 	Topic 606 Adjustments	 	As Adjusted (1)	 		 	As Reported	 	As Adjusted	
Recurring and other revenue	$	272,335		 	$	(28,602	)	 	$	243,733		 	$	219,111		 	24	%	 	11	 %	
Service and other sales revenue	—		 	15,200		 	15,200		 	6,764		 	NM		 	125	 %	
Activation fees	—		 	2,314		 	2,314		 	2,783		 	NM		 	(17	)%	
Total revenues	$	272,335		 	$	(11,088	)	 	$	261,247		 	$	228,658		 	19	%	 	14	 %	

	

		
(1)	As adjusted excludes the impact of adopting Topic 606. See Note 2 "Revenue and Capitalized Contract Costs" in the accompanying notes to the consolidated financial statements for additional information related to the impact of adopting this standard and a discussion of our updated policies related to revenue recognition and accounting for costs to obtain and fulfill a customer contract.	
Total revenues increased $43.7 million , or 19% for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017 , of which $11.1 million was associated with the adoption of Topic 606 related to the timing of revenue recognition. The impact of Topic 606 primarily related to the acceleration of revenue recognition associated with deferred Products revenue.
Recurring and other revenue for the three months ended September 30, 2018 increased $53.2 million , or 24% , as compared to the three months ended September 30, 2017 , of which $28.6 million related to the adoption of Topic 606 associated with the timing of revenue recognition and classification of revenue components. The as adjusted recurring and other revenue for the three months ended September 30, 2018 totaled $243.7 million , which represented an increase of $24.6 million , or 11% . Approximately $29.5 million of this increase in recurring and other revenue was due to an increase in Total Subscribers of approximately 14% . Recognized deferred Product revenue increased $11.4 million and recognized RIC imputed interest increased $1.3 million , due to the increased subscriber base and increases in sales of Products. When compared to the three months ended September 30, 2017 , currency translation negatively affected total revenues by $0.8 million , as computed on a constant currency basis. The increase in recurring and other revenue was partially offset by $16.0 million from a decrease in the AMSRU of approximately $4.02 attributable to the Company's transition to Vivint Flex Pay in early 2017, as well as a shift in package pricing mix.
Total service and other sales revenue for the three months ended September 30, 2017 totaled $6.8 million . The as adjusted service and other sales revenue for the three months ended September 30, 2018 totaled $15.2 million , which represented an increase of $8.4 million , or 125% as compared to the three months ended September 30, 2017 , primarily due to increased service billings.
Revenues recognized related to activation fees for the three months ended September 30, 2017 totaled $2.8 million . The as adjusted revenues recognized related to activation fees for the three months ended September 30, 2018 totaled $2.3 million , which represented a decrease of $0.5 million , or 17% as compared to the three months ended September 30, 2017 . This change was primarily due to activation fees no longer being billed separately to subscribers at the time of installation under Vivint Flex Pay.
Costs and Expenses
The following table provides the significant components of our costs and expenses for the three month periods ended September 30, 2018 and September 30, 2017 (in thousands, except for percentages):

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 	Three Months Ended September 30, 2018	 	Three Months Ended September 30, 2017	 	% Change	
 	As Reported	 	Topic 606 Adjustments	 	As Adjusted (1)	 		 	As Reported	 	As Adjusted	
Operating expenses	$	92,703		 	$	10,496		 	$	103,199		 	$	81,108		 	14	 %	 	27	 %	
Selling expenses	41,970		 	—		 	41,970		 	53,821		 	(22	)%	 	(22	)%	
General and administrative	50,542		 	—		 	50,542		 	49,416		 	2	 %	 	2	 %	
Depreciation and amortization	130,636		 	(36,127	)	 	94,509		 	84,460		 	55	 %	 	12	 %	
Restructuring expenses	542		 	—		 	542		 	—		 	NM		 	NM		
Total costs and expenses	$	316,393		 	$	(25,631	)	 	$	290,762		 	$	268,805		 	18	 %	 	8	 %	

	

		
(1)	As adjusted excludes the impact of adopting Topic 606. See Note 2 "Revenue and Capitalized Contract Costs" in the accompanying notes to the consolidated financial statements for additional information related to the impact of adopting this standard and a discussion of our updated policies related to revenue recognition and accounting for costs to obtain and fulfill a customer contract.	
Operating expenses for the three months ended September 30, 2018 increased $11.6 million , or 14% , as compared to the three months ended September 30, 2017 , which excluded $10.5 million related to certain contract costs previously expensed, but are now included in capitalized contract costs after the adoption of Topic 606. As adjusted operating expenses for the three months ended September 30, 2018 increased $22.1 million , or 27% as compared to the three months ended September 30, 2017 . This increase was primarily due to increases in personnel and related support costs of $17.8 million , which includes $4.1 million of employee medical benefits, driven by a 14% increase in the Total Subscribers and an increase in non-capitalized installation costs of $5.2 million . These costs were offset by a decrease in third-party contracted services of $2.3 million and a decrease of $1.0 million in costs associated with our retail sales efforts.
Selling expenses, excluding capitalized contract costs (formerly subscriber acquisition costs), decreased by $11.9 million , or 22% , for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017 , primarily due to a decrease of $12.7 million in costs associated with our retail and other sales pilots and a decrease of $3.1 million in non-capitalized marketing costs. These decreases in selling expenses were offset by an increase in housing and information technology costs of $2.2 million and $1.8 million, respectively.
General and administrative expenses increased $1.1 million , or 2% , for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017 , primarily due to an increase in personnel and related costs of $5.2 million , including $1.4 million associated with us offering a 401(k) match beginning in 2018, an increase in information technology costs of $1.4 million and an increase in research and development costs of $1.3 million . These costs were offset by a decrease of $6.9 million in costs associated with our retail and other sales pilots.
Depreciation and amortization for the three months ended September 30, 2018 increased $46.2 million , or 55% , as compared to the three months ended September 30, 2017 , of which $36.1 million was associated with the adoption of Topic 606, relating to the timing of amortization of capitalized contract costs. As adjusted depreciation and amortization for the three months ended September 30, 2018 increased $10.0 million , or 12% as compared to the three months ended September 30, 2017 , primarily due to increased amortization of capitalized contract costs (formerly subscriber acquisition costs) related to new subscribers.
Restructuring expenses for the three months ended September 30, 2018 related to employee severance and termination benefits expenses (See Note 14 to the accompanying unaudited condensed consolidated financial statements).
Other Expenses, net
The following table provides the significant components of our other expenses, net for the three month periods ended September 30, 2018 and September 30, 2017 (in thousands, except for percentages):

	
											
 	Three Months Ended September 30,	 	 	
 	2018	 	2017	 	% Change	
Interest expense	$	61,881		 	$	58,005		 	7	%	
Other loss, net	14,510		 	8,611		 	69	%	
Total other expenses, net	$	76,391		 	$	66,616		 	15	%	

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Interest expense increased $3.9 million , or 7% , for the three months ended September 30, 2018 , as compared with the three months ended September 30, 2017 , due to higher balances on our outstanding notes and revolving credit facility.
Other loss, net, increased 5.9 million , or 69% for the three months ended September 30, 2018 , as compared to the three months ended September 30, 2017 , primarily due to an increase in loss on debt extinguishment of $4.3 million , a decrease in gain on foreign currency exchange of $1.6 million and an increase in loss on derivative of $1.6 million . These increases were partially offset by a gain on sale of assets of $1.2 million during the three months ended September 30, 2018.
Income Taxes
The following table provides the significant components of our income tax benefit for the three month periods ended September 30, 2018 and September 30, 2017 (in thousands, except for percentages):

	
										
 	Three Months Ended September 30,	 	 	
 	2018	 	2017	 	% Change	
Income tax (benefit) expense	$	(223	)	 	$	1,157		 	NM	
Income tax benefit was $0.2 million for the three months ended September 30, 2018 as compared to an income tax expense of $1.2 million for the three months ended September 30, 2017 . The income tax benefit for the three months ended September 30, 2018 resulted primarily from losses in our Canadian subsidiary. The income tax expense for the three months ended September 30, 2017 resulted primarily from income in our Canadian subsidiary.

Nine Months Ended September 30, 2018 Compared to the Nine Months Ended September 30, 2017
Revenues
The following table provides the significant components of our revenue for the nine month periods ended September 30, 2018 and September 30, 2017 (in thousands, except for percentages):

	
																						
 	Nine Months Ended September 30, 2018	 	Nine Months Ended September 30, 2017	 	% Change	
 	As Reported	 	Topic 606 Adjustments	 	As Adjusted (1)	 		 	As Reported	 	As Adjusted	
Recurring and other revenue	$	773,899		 	$	(70,092	)	 	$	703,807		 	$	618,752		 	25	%	 	14	 %	
Service and other sales revenue	—		 	31,998		 	31,998		 	18,513		 	NM		 	73	 %	
Activation fees	—		 	7,455		 	7,455		 	8,872		 	NM		 	(16	)%	
Total revenues	$	773,899		 	$	(30,639	)	 	$	743,260		 	$	646,137		 	20	%	 	15	 %	

	

		
(1)	As adjusted excludes the impact of adopting Topic 606. See Note 2 "Revenue and Capitalized Contract Costs" in the accompanying notes to the consolidated financial statements for additional information related to the impact of adopting this standard and a discussion of our updated policies related to revenue recognition and accounting for costs to obtain and fulfill a customer contract.	

Total revenues increased $127.8 million , or 20% for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 , of which $30.6 million was associated with the adoption of Topic 606 related to the timing of revenue recognition. The impact of Topic 606 primarily related to the acceleration of revenue recognition associated with deferred Products revenue.
Recurring and other revenue for the nine months ended September 30, 2018 increased $155.1 million , or 25% , as compared to the nine months ended September 30, 2017 , of which $70.1 million related to the adoption of Topic 606 associated with the timing of revenue recognition and classification of revenue components. The as adjusted recurring and other revenue for the nine months ended September 30, 2018 totaled $703.8 million , which represented an increase of $85.1 million , or 14% . Approximately $83.6 million of this increase in recurring and other revenue was due to an increase in Total Subscribers of approximately 14% . Recognized deferred Product revenue increased $35.8 million and recognized RIC imputed interest

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increased $6.9 million , due to the increased subscriber base, increases in sales of Products and the company's transition to Vivint Flex Pay in 2017. When compared to the nine months ended September 30, 2017 , currency translation positively affected total revenues by $0.7 million , as computed on a constant currency basis. The increase in recurring and other revenue was partially offset by $40.1 million from a decrease in the AMSRU of approximately $4.02 attributable to the Company's transition to Vivint Flex Pay in early 2017, as well as a shift in package pricing mix.
Total service and other sales revenue for the nine months ended September 30, 2017 totaled $18.5 million . The as adjusted service and other sales revenue for the nine months ended September 30, 2018 totaled $32.0 million , which represented an increase of $13.5 million , or 73% , as compared to the nine months ended September 30, 2017 , primarily due to increased service billings.
Revenues recognized related to activation fees for the nine months ended September 30, 2017 totaled $8.9 million . The as adjusted revenues recognized related to activation fees for the nine months ended September 30, 2018 totaled $7.5 million , which represented a decrease of $1.4 million , or 16% as compared to the nine months ended September 30, 2017 . This change was primarily due to activation fees no longer being billed separately to subscribers at the time of installation under Vivint Flex Pay.

Costs and Expenses
The following table provides the significant components of our costs and expenses for the nine month periods ended September 30, 2018 and September 30, 2017 (in thousands, except for percentages):

	
																						
 	Nine Months Ended September 30, 2018	 	Nine Months Ended September 30, 2017	 	% Change	
 	As Reported	 	Topic 606 Adjustments	 	As Adjusted (1)	 		 	As Reported	 	As Adjusted	
Operating expenses	$	265,784		 	$	20,430		 	$	286,214		 	$	229,776		 	16	%	 	25	%	
Selling expenses	166,872		 	—		 	166,872		 	134,894		 	24	%	 	24	%	
General and administrative	150,715		 	—		 	150,715		 	127,179		 	19	%	 	19	%	
Depreciation and amortization	381,767		 	(109,448	)	 	272,319		 	241,425		 	58	%	 	13	%	
Restructuring expenses	4,683		 	—		 	4,683		 	—		 	NM		 	NM		
Total costs and expenses	$	969,821		 	$	(89,018	)	 	$	880,803		 	$	791,785		 	22	%	 	11	%	

	

		
(1)	As adjusted excludes the impact of adopting Topic 606. See Note 2 "Revenue and Capitalized Contract Costs" in the accompanying notes to the consolidated financial statements for additional information related to the impact of adopting this standard and a discussion of our updated policies related to revenue recognition and accounting for costs to obtain and fulfill a customer contract.	

      Operating expenses for the nine months ended September 30, 2018 increased $36.0 million , or 16% , as compared to the nine months ended September 30, 2017 , which excluded $20.4 million related to certain contract costs previously expensed, but are now included in capitalized contract costs after the adoption of Topic 606. As adjusted operating expenses for the nine months ended September 30, 2018 increased $56.4 million , or 25% as compared to the nine months ended September 30, 2017 . This increase was primarily due to increases in personnel and related support costs of $45.9 million driven by a 14% increase in the Total Subscribers, an increase in non-capitalized installation costs of $4.3 million , an increase of $3.2 million in costs associated with our retail sales efforts and an increase of $2.0 million of payment processing costs primarily attributed to Vivint Flex Pay.
Selling expenses, excluding capitalized contract costs (formerly subscriber acquisition costs), increased by $32.0 million , or 24% , for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 , primarily due to an increase of $14.3 million in personnel and related costs, an increase of $4.8 million in costs associated with our retail sales efforts, an increase in information technology costs of $6.6 million , an increase in housing and related costs of $4.6 million and an increase in marketing costs of $1.8 million primarily associated with lead generation.
General and administrative expenses increased $23.5 million , or 19% , for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 , primarily due to an increase in personnel and related costs of $20.2

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million , including $4.4 million associated with us offering a 401(k) match beginning in 2018, an increase in legal services of $3.3 million , an increase in research and development costs of $3.6 million and an increase in information technology costs of $1.8 million . These costs were offset by a decrease of $7.3 million in costs associated with our retail and other sales pilots.
Depreciation and amortization for the nine months ended September 30, 2018 increased $140.3 million , or 58% , as compared to the nine months ended September 30, 2017 , of which $109.4 million was associated with the adoption of Topic 606, relating to the timing of amortization of capitalized contract costs. As adjusted depreciation and amortization for the nine months ended September 30, 2018 increased $30.9 million , or 13% , as compared to the nine months ended September 30, 2017 primarily due primarily to increased amortization of capitalized contract costs (formerly subscriber acquisition costs) related to new subscribers.
Restructuring expenses for the nine months ended September 30, 2018 related to employee severance and termination benefits expenses (See Note 14 to the accompanying unaudited condensed consolidated financial statements).
Other Expenses, net
The following table provides the significant components of our other expenses, net for the nine month periods ended September 30, 2018 and September 30, 2017 (in thousands, except for percentages):

	
											
 	Nine Months Ended September 30,	 	 	
 	2018	 	2017	 	% Change	
Interest expense	$	180,998		 	$	166,644		 	9	 %	
Interest income	(31	)	 	(104	)	 	NM		
Other (income) loss, net	(25,999	)	 	18,808		 	NM		
Total other expenses, net	$	154,968		 	$	185,348		 	(16	)%	

Interest expense increased $14.4 million , or 9% , for the nine months ended September 30, 2018 , as compared with the nine months ended September 30, 2017 , due to higher balances on our outstanding notes and revolving credit facility.
Other (income) loss, net, represented income of $26.0 million for the nine months ended September 30, 2018 , as compared to a loss of $18.8 million for the nine months ended September 30, 2017 . The other income during the nine months ended September 30, 2018 was primarily due to the $50.4 million gain associated with the sale of our Spectrum intangible assets (see Note 7 to our accompanying unaudited Condensed Consolidated Financial Statements for further information), offset by a loss on debt modification and extinguishment of $14.6 million , a loss on our derivative instrument of $9.9 million  and a foreign currency exchange loss of $2.2 million . The other loss during the nine months ended September 30, 2017 was primarily due to a loss of $23.0 million resulting from our debt modification and extinguishment, offset by a foreign currency exchange gain of $5.5 million .

See Note 3 to our accompanying unaudited Condensed Consolidated Financial Statements for further information on our long-term debt related to other expenses, net.
Income Taxes
The following table provides the significant components of our income tax (benefit) expense for the nine month periods ended September 30, 2018 and September 30, 2017 (in thousands, except for percentages):

	
										
 	Nine Months Ended September 30,	 	 	
 	2018	 	2017	 	% Change	
Income tax (benefit) expense	$	(1,562	)	 	$	2,308		 	NM	
Income tax benefit was $1.6 million for the nine months ended September 30, 2018 , as compared to an income tax expense of $2.3 million for the nine months ended September 30, 2017 . The income tax benefit for the nine months ended September 30, 2018 resulted primarily from losses in our Canadian subsidiary. The income tax expense for the nine months ended September 30, 2017 resulted primarily from income in our Canadian subsidiary.
Liquidity and Capital Resources

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Our primary source of liquidity has historically been cash from operations, proceeds from the issuance of debt securities, borrowing availability under our revolving credit facility and, to a lesser extent, capital contributions. As of September 30, 2018 , we had $113.0 million of cash and cash equivalents and $292.3 million of availability under our revolving credit facility (after giving effect to $11.3 million of letters of credit outstanding and no borrowings).
As market conditions warrant, we and our equity holders, including Blackstone, its affiliates and members of our management, may from time to time, seek to purchase our outstanding debt securities or loans in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing our indebtedness, any purchases made by us may be funded by the use of cash on our balance sheet or the incurrence of new secured or unsecured debt, including additional borrowings under our revolving credit facility. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may be with respect to a substantial amount of a particular class or series of debt, with the attendant reduction in the trading liquidity of such class or series. In addition, any such purchases made at prices below the “adjusted issue price” (as defined for U.S. federal income tax purposes) may result in taxable cancellation of indebtedness income to us, which amounts may be material, and in related adverse tax consequences to us. Depending on conditions in the credit and capital markets and other factors, we will, from time to time, consider various financing transactions, the proceeds of which could be used to refinance our indebtedness or for other purposes.
Cash Flow and Liquidity Analysis
Our cash flows provided by operating activities include recurring monthly billings, cash received from the sale of Products to our subscribers that either pay-in-full at the time of installation or finance their purchase of Products under the Consumer Financing Program and other fees received from the subscribers we service. Cash used in operating activities includes the cash costs to monitor and service our subscribers, a portion of subscriber acquisition costs and general and administrative costs. Historically, we financed subscriber acquisition costs through our operating cash flows, the issuance of debt, and to a lesser extent, through the issuance of equity and sale of contracts to third parties. Currently, the upfront proceeds under the Consumer Financing Program , and those that are paid-in-full at the time of the sale of Products, offset a portion of the upfront investment associated with subscriber acquisition costs.

Sales from our direct-to-home channel are seasonal in nature. We make investments in the recruitment of our direct-to-home sales representatives, inventory and other support costs for the April through August sales period prior to each sales season. We experience increases in capitalized contract costs, as well as costs to support the sales force throughout North America, prior to and during this time period. The incremental inventory purchased to support the direct-to-home sales season is generally consumed prior to the end of the calendar year in which it is purchased.

The following table provides a summary of cash flow data (in thousands, except for percentages):

	
											
 	Nine Months Ended September 30,	 	 	
 	2018	 	2017	 	% Change	
Net cash used in operating activities	$	(130,023	)	 	$	(149,268	)	 	NM		
Net cash provided by (used in) investing activities	37,455		 	(15,780	)	 	NM		
Net cash provided by financing activities	201,664		 	237,023		 	(15	)%	
Cash Flows from Operating Activities
We generally reinvest the cash flows from our recurring monthly billings and cash received from the sale of Products associated with the initial installation into our business, primarily to (1) maintain and grow our subscriber base, (2) expand our infrastructure to support this growth, (3) enhance our existing Smart Home Services offerings, (4) develop new Smart Home Services offerings and (5) expand into new sales channels. These investments are focused on generating new subscribers, increasing the revenue from our existing subscriber base, enhancing the overall quality of service provided to our subscribers, and increasing the productivity and efficiency of our workforce and back-office functions necessary to scale our business.
For the nine months ended September 30, 2018 , net cash used in operating activities was $130.0 million . This cash used was primarily from a net loss of $349.3 million , adjusted for:
		
•	a $49.9 million net gain primarily associated with the sale of our spectrum intangible assets,	
		
•	$387.4 million in non-cash amortization, depreciation, and stock-based compensation	

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•	a provision for doubtful accounts of $14.3 million ,	
		
•	a $14.6 million loss on early extinguishment of debt, and	
		
•	a $1.4 million unrealized gain on equity securities.	
Cash used in operating activities resulting from changes in operating assets and liabilities, including:
		
•	a $439.7 million increase in capitalized contract costs (formerly subscriber acquisition costs),	
		
•	a $31.8 million decrease in accounts payable due primarily to decreased inventory purchases,	
		
•	a $30.2 million increase in other assets primarily due to increase in notes receivables associated with RICs,	
		
•	a $26.8 million increase in accounts receivable driven primarily by the recognition of billed RICs under Vivint Flex Pay and the growth in the number of our Total Subscribers, and	
		
•	a $1.3 million increase in prepaid expenses and other current assets.	
These uses of operating cash were partially offset by the following changes in operating assets and liabilities:
		
•	a $169.0 million increase in accrued expenses and other liabilities due primarily to increases in the derivative liability associated with the Consumer Financing Program introduced in early 2017, and an increase in accrued commissions during the nine months ended September 30, 2018 ,	
		
•	a $173.3 million increase in deferred revenue due to the increased subscriber base and the generation of deferred revenues associated with the sale of Products under the Vivint Flex Pay plan, offset by a reduction in deferred revenue of $30.6 million associated with accelerated revenue recognition from the implementation of Topic 606, and	
		
•	a $42.1 million decrease in inventories partially from decreased Products on hand to support our retail sales channel at the end of 2017.	
For the nine months ended September 30, 2017 , net cash used in operating activities was $149.3 million. This cash used was primarily from a net loss of $274.8 million, adjusted for:
		
•	$247.9 million in non-cash amortization, depreciation, and stock-based compensation,	
		
•	a $23.0 million loss on early extinguishment of debt	
		
•	a provision for doubtful accounts of $14.7 million,	
Cash used in operating activities resulting from changes in operating assets and liabilities, including:
		
•	a $367.3 million increase in subscriber acquisition costs,	
		
•	a $68.1 million increase in other assets primarily due to increase in notes receivables associated with RIC,	
		
•	a $59.5 million increase in inventories partially to support our retail sales channel,	
		
•	a $35.6 million increase in accounts receivable driven primarily by the recognition of billed RICs under Vivint Flex Pay, and	
		
•	a $9.8 million increase in prepaid expenses and other current assets	
These uses of operating cash were partially offset by the following changes in operating assets and liabilities:
		
•	a $205.1 million increase in deferred revenue due to the increased subscriber base and the generation of deferred revenues associated with Product sales under the Vivint Flex Pay plan,	
		
•	a $132.7 million increase in accrued expenses and other liabilities due primarily to increases in accrued interest on our long term debt, the derivative liability associated with the new Consumer Financing Program introduced in early 2017 and an increase in accrued taxes, and	
		
•	a $42.4 million increase in accounts payable due primarily to increases in inventory purchases.	

Net cash interest paid for the nine months ended September 30, 2018 and 2017 related to our indebtedness (excluding capital leases) totaled $145.2 million and $106.5 million , respectively. Our net cash used in operating activities for the nine months ended September 30, 2018 and 2017 , before these interest payments, was $15.1 million and $42.8 million , respectively. Accordingly, our net cash provided by operating activities for each of the nine months ended September 30, 2018 and 2016 was insufficient to cover these interest payments.

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Cash Flows from Investing Activities

Historically, our investing activities have primarily consisted of capital expenditures, business combinations and technology acquisitions. Capital expenditures primarily consist of periodic additions to property, plant and equipment to support the growth in our business.
For the nine months ended September 30, 2018 , net cash provided by investing activities was $37.5 million , consisting of net proceeds of $53.7 million primarily from the sale of our spectrum intangible assets, offset by capital expenditures of $15.4 million and acquisition of intangible assets of $1.1 million .
For the nine months ended September 30, 2017, net cash used in investing activities was $15.8 million, primarily consisting of capital expenditures of $14.8 million and acquisition of intangible assets of $1.1 million.
Cash Flows from Financing Activities
Historically, our cash flows provided by financing activities primarily related to the issuance of debt and, to a lesser extent, from capital contributions from our parent, Vivint Smart Home, Inc. (“Parent”), all to fund the portion of upfront costs associated with generating new subscribers that are not covered through our operating cash flows or through our Vivint Flex Pay program. Uses of cash for financing activities are generally associated with the return of capital to our stockholders, the repayment of debt and the payment of financing costs associated with the issuance of debt.
For the nine months ended September 30, 2018 , net cash provided by financing activities was $201.7 million , consisting primarily of $810.0 million net proceeds from the issuance of the Term Loan in September 2018, $201.0 million in borrowings on our revolving credit facility and a $4.7 million capital contribution. These cash proceeds were offset by $520.2 million of repayments on existing notes, $261.0 million of repayments on our revolving credit facility, $20.6 million in financing costs, $9.9 million of repayments under our capital lease obligations and $2.4 million in returns of capital.
For the nine months ended September 30, 2017, net cash provided by financing activities was $237.0 million, consisting primarily of $724.8 million in borrowings on notes and $124.0 million in borrowings on our revolving credit facility. This was partially offset with $450.0 million of repayments on notes, $124.0 million of repayments on our revolving credit facility, $28.5 million in financing costs, $7.2 million of repayments under our capital lease obligations and $2.1 million of payments of other long-term obligations.

Long-Term Debt
We are a highly leveraged company with significant debt service requirements. As of September 30, 2018 , we had approximately $3.1 billion of total debt outstanding, consisting of $679.3 million of outstanding 2020 notes, $270.0 million of outstanding 2022 private placement notes, $900.0 million of outstanding 2022 notes, $400.0 million of outstanding 2023 notes and $801.9 million of outstanding Term Loan with $292.3 million of availability under the revolving credit facility (after giving effect to $11.3 million of letters of credit outstanding and no borrowings).
2019 Notes
On November 16, 2012, we issued $925.0 million of the 2019 notes. Interest on the 2019 notes is payable semi-annually in arrears on each June 1 and December 1. We repurchased $205.5 million , $300.0 million and $150.0 million aggregate principal amount of the outstanding 2019 notes in May 2016, February 2017, and August 2017, respectively. In September 2018, we redeemed in full the entire remaining $269.5 million outstanding aggregate principal amount of the 2019 notes.
2020 Notes
On November 16, 2012, we issued $380.0 million of the 2020 notes. Interest on the 2020 notes is payable semi-annually in arrears on each June 1 and December 1. During the year ended December 31, 2013, we issued an additional $450.0 million of the 2020 notes and on July 1, 2014, we issued an additional $100.0 million of the 2020 notes, each under the indenture dated as of November 16, 2012. In September 2018, we repurchased $250.7 million outstanding aggregate principal amount of the 2020 notes.
From and after December 1, 2015, we may, at our option, redeem at any time and from time to time some or all of the 2020 notes at 106.563%, declining ratably on each anniversary thereafter to par from and after December 1, 2018, in each case, plus any accrued and unpaid interest to the date of redemption.

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The 2020 notes mature on December 1, 2020.
2022 Private Placement Notes
On October 19, 2015, we issued $300.0 million aggregate principal amount of our 2022 private placement notes. Interest on the 2022 private placement notes will be payable semi-annually in arrears on June 1 and December 1 of each year, commencing on June 1, 2016. In May 2016, we repurchased $30 million in principal amounts of the 2022 private placement notes in conjunction with the issuance of the 2022 notes.
We may, at our option, redeem at any time and from time to time prior to December 1, 2018, some or all of the 2022 private placement notes at 100% of their principal amount thereof plus accrued and unpaid interest to the redemption date plus a “make-whole premium.” From and after December 1, 2018, we may, at our option, redeem at any time and from time to time some or all of the 2022 private placement notes at 104.500%, declining to par from and after December 1, 2019, in each case, plus any accrued and unpaid interest to the date of redemption. In addition, on or prior to December 1, 2018, we may, at our option, redeem up to 35% of the aggregate principal amount of the 2022 private placement notes with the proceeds from certain equity offerings at 108.875%, plus accrued and unpaid interest to the date of redemption. At any time and from time to time prior to December 1, 2018, we may at our option redeem during each 12-month period commencing with the issue date on October 19, 2015 up to 10% of the aggregate principal amount of the 2022 private placement notes at a redemption price equal to 103% of the aggregate principal amount of the 2022 private placement notes redeemed, plus accrued and unpaid interest, to the redemption date.
The 2022 private placement notes mature on December 1, 2022 unless on September 1, 2020 (i.e. the 91st day prior to the maturity of the 2020 notes) more than an aggregate principal amount of $190 million of the 2020 notes remain outstanding or have not been refinanced as permitted under the terms of the 2022 private placement notes, in which case the private placement notes mature on September 1, 2020.
2022 Notes
On May 26, 2016, we issued $500.0 million aggregate principal amount of our 2022 notes. On August 17, 2016 and February 1, 2017 we issued an additional $100 million and $300 million of our 2022 notes, respectively. Interest on the 2022 notes will be payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2016.
We may, at our option, redeem at any time and from time to time prior to December 1, 2018, some or all of the 2022 notes at 100% of their principal amount thereof plus accrued and unpaid interest to the redemption date plus a “make-whole premium.” From and after December 1, 2018, we may, at our option, redeem at any time and from time to time some or all of the 2022 notes at 103.938%, declining to par from and after December 1, 2020, in each case, plus any accrued and unpaid interest to the date of redemption. In addition, on or prior to December 1, 2018, we may, at our option, redeem up to 35% of the aggregate principal amount of the 2022 notes with the proceeds from certain equity offerings at 107.875%, plus accrued and unpaid interest to the date of redemption. At any time and from time to time prior to December 1, 2018, we may at our option redeem during each 12-month period commencing on the issue date of May 26, 2016 up to 10% of the aggregate principal amount of the 2022 notes at a redemption price equal to 103% of the aggregate principal amount of the 2022 notes redeemed, plus accrued and unpaid interest, to the redemption date.
The 2022 notes mature on December 1, 2022, or on such earlier date when any outstanding pari passu lien indebtedness matures as a result of the operation of any “Springing Maturity” provision set forth in the agreements governing such pari passu lien indebtedness.
2023 Notes
On August 10, 2017, we issued $400.0 million aggregate principal amount of our 2023 notes. Interest on the 2023 notes will be payable semi-annually in arrears on September 1 and March 1 of each year, commencing on March 1, 2018.
We may, at our option, redeem at any time and from time to time prior to September 1, 2019, some or all of the 2023 notes at 100% of their principal amount thereof plus accrued and unpaid interest to the redemption date plus a “make-whole premium.” From and after September 1, 2019, we may, at our option, redeem at any time and from time to time some or all of the 2023 notes at 105.719%, declining to par from and after September 1, 2022, in each case, plus any accrued and unpaid interest to the date of redemption. In addition, on or prior to September 1, 2019, we may, at our option, redeem up to 35% of the aggregate principal amount of the 2023 notes with the proceeds from certain equity offerings at 107.625%, plus accrued and unpaid interest to the date of redemption.

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The 2023 notes mature on September 1, 2023.
Term Loan
On September 6, 2018, we entered into a credit agreement providing total term loans of $810.0 million which are guaranteed by certain of our subsidiaries and secured by certain of our assets subject to certain exceptions, in each case, as further described below. We are required to make quarterly amortization payments under the Term Loan in an amount equal to 0.25% of the aggregate principal amount of the Term Loans outstanding on the closing date thereof. The remaining principal amount outstanding under the Term Loan will be due and payable in full on March 31, 2024, or earlier if certain springing maturity conditions apply. The net proceeds from the Term Loan were used to redeem in full the entire $269.5 million outstanding aggregate principal amount of the 2019 Notes and pay the related accrued interest and redemption premium, to repurchase approximately $250.7 million aggregate principal amount of the outstanding 2020 Notes in privately negotiated transactions, to repay the outstanding borrowings under the revolving credit facility and to pay fees and expenses related to the Term Loan and the transactions described above. The remaining net proceeds will be used for general corporate purposes.
Borrowings under the Term Loan bear interest at a rate per annum equal to an applicable margin plus, at the Company's option, either (1) the base rate determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate of Bank of America, N.A. and (c) the LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month, plus 1.00% or (2) the LIBOR rate determined by reference to the London interbank offered rate for dollars for the interest period relevant to such borrowing. The applicable margin for base rate-based borrowings is 4.0% per annum and the applicable margin for LIBOR rate-based borrowings is 5.0% per annum. APX may redeem the Term Loan at the prices and on the terms specified in the credit agreement.
Revolving Credit Facility
On November 16, 2012, we entered into a $200.0 million senior secured revolving credit facility, with a five year maturity. In addition, we may request one or more term loan facilities, increased commitments under the revolving credit facility or new revolving credit commitments, in an aggregate amount not to exceed $225.0 million. Availability of such incremental facilities and/or increased or new commitments will be subject to certain customary conditions.
On June 28, 2013, we amended and restated the credit agreement to provide for a new repriced tranche of revolving credit commitments with a lower interest rate. Nearly all of the existing tranches of revolving credit commitments was terminated and converted into the repriced tranche, with the unterminated portion of the existing tranche continuing to accrue interest at the original higher rate.

On March 6, 2015, we amended and restated the credit agreement to provide for, among other things, (1) an increase in the aggregate commitments previously available to us from $200.0 million to $289.4 million and (2) the extension of the maturity date with respect to certain of the previously available commitments.

On August 10, 2017, we amended and restated the credit agreement to provide for, among other things, (1) an increase in the aggregate commitments previously available to us from $289.4 million to $324.3 million and (2) the extension of the maturity date with respect to certain of the previously available commitments.

As of September 30, 2018 we had $292.3 million of availability under our revolving credit facility (after giving effect to $11.3 million of letters of credit outstanding and no borrowings).
Borrowings under the amended and restated revolving credit facility bear interest at a rate per annum equal to an applicable margin plus, at APX’s option, either (1) the base rate determined by reference to the highest of (a) the Federal Funds rate plus 0.50% , (b) the prime rate of Bank of America, N.A. and (c) the LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month, plus 1.00% or (2) the LIBOR rate determined by reference to the London interbank offered rate for dollars for the interest period relevant to such borrowing. The applicable margin for base rate-based borrowings (1)(a) under the Series A Revolving Commitments of approximately $267.0 million and Series D Revolving Commitments of approximately $15.4 million is currently 2.0%  per annum and (b) under the Series B Revolving Commitments of approximately $21.2 million is currently 3.0% and (2)(a) the applicable margin for LIBOR rate-based borrowings (a) under the Series A Revolving Commitments and Series D Revolving Commitments is currently 3.0%  per annum and (b) under the Series B Revolving Commitments is currently 4.0% . The applicable margin for borrowings under the revolving credit facility is subject to one step-down of 25 basis points based on APX meeting a consolidated first lien net

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leverage ratio test at the end of each fiscal quarter. Outstanding borrowings under the amended and restated revolving credit facility are allocated on a pro-rata basis between each Series based on the total Revolving Commitments.
In addition to paying interest on outstanding principal under the revolving credit facility, APX is required to pay a quarterly commitment fee (which will be subject to one interest rate step-down of 12.5 basis points, based on APX meeting a consolidated first lien net leverage ratio test) to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder. APX also pays a customary letter of credit and agency fees.

APX is not required to make any scheduled amortization payments under the revolving credit facility. The principal amount outstanding under the revolving credit facility will be due and payable in full on (1) with respect to the non-extended commitments under the Series D, March 31, 2019 and (2) with respect to the extended commitments under the Series A Revolving Credit Facility and Series B Revolving Credit Facility, March 31, 2021.
Guarantees and Security (Revolving Credit Facility, Term Loan and Notes)
All of the obligations under the revolving credit facility, Term Loan and the notes are guaranteed by APX Group Holdings, Inc. and each of APX Group, Inc.'s existing and future material wholly-owned U.S. restricted subsidiaries to the extent such entities guarantee indebtedness under the revolving credit facility, Term Loan or our other indebtedness. See Note 16 of our accompanying consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for additional financial information regarding guarantors and non-guarantors.
The obligations under the revolving credit facility, Term Loan, the 2019 notes, the 2022 private placement notes and the 2022 notes are secured by a security interest in (1) substantially all of the present and future tangible and intangible assets of APX Group, Inc., and the guarantors, including without limitation equipment, subscriber contracts and communication paths, intellectual property, fee-owned real property, general intangibles, investment property, material intercompany notes and proceeds of the foregoing, subject to permitted liens and other customary exceptions, (2) substantially all personal property of APX Group, Inc. and the guarantors consisting of accounts receivable arising from the sale of inventory and other goods and services (including related contracts and contract rights, inventory, cash, deposit accounts, other bank accounts and securities accounts), inventory and intangible assets to the extent attached to the foregoing books and records of APX Group, Inc. and the guarantors, and the proceeds thereof, subject to permitted liens and other customary exceptions, in each case held by APX Group, Inc. and the guarantors and (3) a pledge of all of the capital stock of APX Group, Inc., each of its subsidiary guarantors and each restricted subsidiary of APX Group, Inc. and its subsidiary guarantors, in each case other than excluded assets and subject to the limitations and exclusions provided in the applicable collateral documents.

Under the terms of the applicable security documents and intercreditor agreement, the proceeds of any collection or other realization of collateral received in connection with the exercise of remedies will be applied first to repay amounts due under the revolving credit facility, and up to an additional $60.0 million of “superpriority” obligations that APX Group, Inc. may incur in the future, before the holders of the Term Loan or the Notes receive any such proceeds.
Debt Covenants
The credit agreement governing the revolving credit facility, the credit agreement governing the Term Loan and the debt agreements governing the Notes contain a number of covenants that, among other things, restrict, subject to certain exceptions, APX Group, Inc. and its restricted subsidiaries’ ability to:

•	incur or guarantee additional debt or issue disqualified stock or preferred stock;	
		
•	pay dividends and make other distributions on, or redeem or repurchase, capital stock;	
		
•	make certain investments;	
		
•	incur certain liens;	
		
•	enter into transactions with affiliates;	
		
•	merge or consolidate;	
		
•	enter into agreements that restrict the ability of restricted subsidiaries to make dividends or other payments to APX Group, Inc.;	
		
•	designate restricted subsidiaries as unrestricted subsidiaries;	

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•	amend, prepay, redeem or purchase certain subordinated debt; and	
		
•	transfer or sell certain assets.	
The credit agreement governing the revolving credit facility, the credit agreement governing the Term Loan and the debt agreements governing the notes contain change of control provisions and certain customary affirmative covenants and events of default. As of September 30, 2018 , APX Group, Inc. was in compliance with all covenants related to its long-term obligations.
Subject to certain exceptions, the credit agreement governing the revolving credit facility, the credit agreement governing the Term Loan and the debt agreements governing the existing notes permit APX Group, Inc. and its restricted subsidiaries to incur additional indebtedness, including secured indebtedness.
Our future liquidity requirements will be significant, primarily due to debt service requirements. The actual amounts of borrowings under the revolving credit facility will fluctuate from time to time. We believe that our existing cash, together with cash provided by operations and amounts available through the revolving credit facility and incremental facilities will be sufficient to meet our operating needs for the next 12 months, including working capital requirements, capital expenditures, debt service obligations and potential new acquisitions.
Our liquidity and our ability to fund our capital requirements is dependent on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control and many of which are described under “Item 1A—Risk Factors” in this report. If those factors significantly change or other unexpected factors adversely affect us, our business may not generate sufficient cash flow from operations or we may not be able to obtain future financings to meet our liquidity needs. We anticipate that to the extent additional liquidity is necessary to fund our operations, it would be funded through borrowings under the revolving credit facility, incurring other indebtedness, additional equity or other financings or a combination of these potential sources of liquidity. We may not be able to obtain this additional liquidity on terms acceptable to us or at all.
Covenant Compliance
Under the debt agreements governing our existing notes, the credit agreement governing our revolving credit facility and the credit agreement governing the Term Loan our ability to engage in activities such as incurring additional indebtedness, making investments, refinancing certain indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by its ability to satisfy tests based on 12 months ended Adjusted EBITDA. Such tests include an incurrence-based maximum consolidated secured debt ratio and consolidated total debt ratio of 4.00 to 1.0, an incurrence-based minimum fixed charge coverage ratio of 2.00 to 1.0, and, solely in the case of the credit agreement governing the revolving credit facility, a maintenance-based maximum consolidated first lien secured debt ratio of 5.35 to 1.0, each as determined in accordance with the agreements governing our existing notes, the revolving credit facility and the Term Loan, as applicable. Non-compliance with these covenants could restrict our ability to undertake certain activities or result in a default under the agreements governing our existing notes, the revolving credit facility and the Term Loan.
“Adjusted EBITDA” is defined as net income (loss) before interest expense (net of interest income), income and franchise taxes and depreciation and amortization (including amortization of capitalized subscriber acquisition costs), further adjusted to exclude the effects of certain contract sales to third parties, non-capitalized subscriber acquisition costs, stock based compensation and certain unusual, non-cash, non-recurring and other items permitted in certain covenant calculations under the agreements governing our notes, the credit agreement governing our revolving credit facility and the credit agreement governing the Term Loan.
We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about the calculation of, and compliance with, certain financial covenants in the indentures governing the notes, the credit agreement governing the revolving credit facility and the credit agreement governing the Term Loan. We caution investors that amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by other issuers, because not all issuers and analysts calculate Adjusted EBITDA in the same manner.
Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net loss or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating activities as a measure of our liquidity.

The following table sets forth a reconciliation of net loss to Adjusted EBITDA (in thousands):

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 	Three Months Ended
September 30, 2018	 	Nine Months Ended
September 30, 2018	 	Twelve months ended September 30, 2018	
Net loss	$	(120,226	)	 	$	(349,328	)	 	$	(484,734	)	
Interest expense, net	61,881		 	180,967		 	240,069		
Other expense, net	14,510		 	24,390		 	33,568		
Gain on sale of spectrum (1)	—		 	(50,389	)	 	(50,389	)	
Income tax expense (benefit)	(223	)	 	(1,562	)	 	(2,792	)	
Restructuring expenses (2)	542		 	4,683		 	4,683		
Depreciation and amortization (3)	29,136		 	86,965		 	118,575		
Amortization of capitalized contract costs	101,500		 	294,802		 	351,022		
Non-capitalized contract costs (4)	59,554		 	213,483		 	296,411		
Non-cash compensation (5)	871		 	1,286		 	1,543		
Other adjustments (6)	15,004		 	46,831		 	70,026		
Adjustment for a change in accounting principle (Topic 606) (7)	(21,584	)	 	(51,069	)	 	(51,069	)	
Adjusted EBITDA	$	140,965		 	$	401,059		 	$	526,913		
____________________
		
(1)	Gain on sale of spectrum intangible assets during the three months ended March 31, 2018. (See Note 7 to the accompanying unaudited condensed consolidated financial statements).	
		
(2)	Restructuring employee severance and termination benefits expenses. (See Note 14 to the accompanying unaudited condensed consolidated financial statements)	
		
(3)	Excludes loan amortization costs that are included in interest expense.	
		
(4)	Reflects subscriber acquisition costs that are expensed as incurred because they are not directly related to the acquisition of specific subscribers. Certain other industry participants purchase subscribers through subscriber contract purchases, and as a result, may capitalize the full cost to purchase these subscriber contracts, as compared to our organic generation of new subscribers, which requires us to expense a portion of our subscriber acquisition costs under GAAP. (See Note 1 to the accompanying unaudited condensed consolidated financial statements)	
		
(5)	Reflects non-cash compensation costs related to employee and director stock and stock option plans. Excludes non-cash compensation costs included in non-capitalized subscriber acquisition costs.	
(6) Other adjustments represent primarily the following items (in thousands): 

												
 	Three Months Ended
September 30, 2018	 	Nine Months Ended
September 30, 2018	 	Twelve months ended September 30, 2018	
Product development (a)	$	4,400		 	$	15,913		 	$	24,197		
Litigation settlement (b)	—		 	—		 	10,012		
Certain legal and professional fees (c)	1,886		 	7,608		 	10,567		
Hiring, retention and termination payments (d)	4,292		 	7,153		 	7,314		
Projected run-rate restructuring cost savings (e)	—		 	5,756		 	5,756		
Monitoring fee (f)	1,068		 	3,184		 	3,151		
Purchase accounting deferred revenue fair value adjustment (g)	273		 	1,184		 	1,822		
All other adjustments (h)	3,085		 	6,033		 	7,207		
Total other adjustments	$	15,004		 	$	46,831		 	$	70,026		
____________________
		
(a)	Costs related to the development of control panels, including associated software, peripheral devices and Wireless Internet Technology.	
		
(b)	ADT litigation settlement.	
		
(c)	Legal and related professional fees associated with strategic initiatives and financing transactions.	
		
(d)	Expenses associated with retention bonus, relocation and severance payments to management.	
		
(e)	Projected run-rate savings related to June 2018 reduction-in-force.	

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(f)	BMP monitoring fee (See Note 12 to the accompanying unaudited condensed consolidated financial statements).	
		
(g)	Add back revenue reduction directly related to purchase accounting deferred revenue adjustments.	
		
(h)	Other adjustments primarily reflect costs associated with payments to third parties related to various strategic and financing activities, including the monthly financing fee paid under the Consumer Financing Plan, and costs to implement Sarbanes-Oxley Section 404.	

(7)	The adjustments to eliminate the impact of the Company's adoption of Topic 606, are as follows (in thousands):	

	
												
 	Three Months Ended
September 30, 2018	 	Nine Months Ended
September 30, 2018	 	Twelve months ended September 30, 2018	
Net loss	$	14,543		 	$	58,379		 	$	58,379		
Amortization of capitalized contract costs	(101,498	)	 	(294,802	)	 	(294,802	)	
Amortization of subscriber acquisition costs	65,371		 	185,354		 	185,354		
Topic 606 adjustments	$	(21,584	)	 	$	(51,069	)	 	$	(51,069	)	

See Note 2 "Revenue and Capitalized Contract Costs" in the accompanying notes to the consolidated financial statements for additional information related to the impact of adopting this standard and a discussion of our updated policies related to revenue recognition and accounting for costs to obtain and fulfill a customer contract.

Other Factors Affecting Liquidity and Capital Resources
Vehicle Leases. Since 2010, we have leased, and expect to continue leasing, vehicles primarily for use by our SHPs. For the most part, these leases have 36 month durations and we account for them as capital leases. At the end of the lease term for each vehicle we have the option to either (i) purchase it for the estimated end-of-lease fair market value established at the beginning of the lease term; or (ii) return the vehicle to the lessor to be sold by them and in the event the sale price is less than the estimated end-of-lease fair market value we are responsible for such deficiency. As of September 30, 2018 , our total capital lease obligations were $15.8 million , of which $8.5 million is due within the next 12 months.

Aircraft Lease. In December 2012, we entered into an aircraft lease agreement for the use of a corporate aircraft, which is accounted for as an operating lease. Upon execution of the lease, we paid a $5.9 million security deposit which is refundable at the end of the lease term. Beginning January 2013, we are required to make 156 monthly rental payments of approximately $83,000 each. In January 2015, an amendment to the agreement was made which, among other changes, increased the required monthly rental payments to approximately $87,000 each. We also have the option to extend the lease for an additional 36 months upon expiration of the initial term. The lease agreement also provides us the option to purchase the aircraft on certain specified dates for a stated dollar amount, which represents the current estimated fair value as of the purchase date.
Off-Balance Sheet Arrangements
Currently we do not engage in off-balance sheet financing arrangements.
Contractual Obligations
Except as a result of the Term Loan transaction and the related impact to interest expense as described above under “Liquidity and Capital Resources - Long-Term Debt - Term Loan,” which description is incorporated herein by reference, there were no significant changes to our contractual obligations since December 31, 2017.

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ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	
Our operations include activities in the United States and Canada. These operations expose us to a variety of market risks, including the effects of changes in interest rates and foreign currency exchange rates. We monitor and manage these financial exposures as an integral part of our overall risk management program.
Interest Rate Risk
On November 16, 2012, we entered into a revolving credit facility that bears interest at a floating rate and on September 6, 2018 we entered into a term loan facility that bears interest at a floating rate. As a result, we may be exposed to fluctuations in interest rates to the extent of our borrowings under these credit facilities. To help manage borrowing costs, we may from time to time enter into interest rate swap transactions with financial institutions acting as principal counterparties. We consider changes in the 30-day LIBOR rate to be most indicative of our interest rate exposure as it is a function of the base rate for our credit facilities and is reasonably correlated to changes in our earnings rate on our cash investments. Assuming the borrowing of all amounts available under our revolving credit facility, if the 30-day LIBOR rate increases by 1% due to normal market conditions, our interest expense will increase by approximately $11.1 million per annum.
We had no borrowings under the revolving credit facility as of September 30, 2018 .
Foreign Currency Risk

We have exposure to the effects of foreign currency exchange rate fluctuations on the results of our Canadian operations. Our Canadian operations use the Canadian dollar to conduct business but our results are reported in U.S. dollars. We are exposed periodically to the foreign currency rate fluctuations that affect transactions not denominated in the functional currency of our U.S. and Canadian operations. Based on results of our Canadian operations for the nine months ended September 30, 2018 , if foreign currency exchange rates had decreased 10% throughout the period, our revenues would have decreased by approximately $5.4 million , our total assets would have decreased by $23.2 million and our total liabilities would have decreased by $21.0 million . We do not currently use derivative financial instruments to hedge investments in foreign subsidiaries. For the nine months ended September 30, 2018 , before intercompany eliminations, approximately $54.2 million of our revenues, $232.0 million of our total assets and $209.7 million of our total liabilities were denominated in Canadian Dollars.

	
		
ITEM 4.	CONTROLS AND PROCEDURES	
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports 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 our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Internal Control Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2018 , the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2018 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. OTHER INFORMATION

	
		
ITEM 1.	LEGAL PROCEEDINGS	
We are engaged in the defense of certain claims and lawsuits arising out of the ordinary course and conduct of our business and have certain unresolved claims pending, the outcomes of which are not determinable at this time. Our subscriber contracts include exculpatory provisions as described under “—Subscriber Contracts—Other Terms” in our Annual Report on Form 10-K. We also have insurance policies covering certain potential losses where such coverage is available and cost effective. In our opinion, any liability that might be incurred by us upon the resolution of any claims or lawsuits will not, in the aggregate, have a material adverse effect on our financial condition or results of operations. See Note 11 of our unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

	
		
ITEM 1A.	RISK FACTORS	
For a discussion of the Company’s potential risks or uncertainties, please see “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “Annual Report”). There have been no material changes to the risk factors disclosed in the Annual Report.

		
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	

None.

	
		
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	
None.

	
		
ITEM 4.	MINE SAFETY DISCLOSURES	
Not applicable.

	
		
ITEM 5.	OTHER INFORMATION	
None.

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ITEM 6.	EXHIBITS	
Exhibits

	
													
 	 	 	 	Incorporated by Reference	
Exhibit
Number	 	Exhibit Title	 	Form	 	File No.	 	Exhibit
No.	 	Filing Date	 	Provided
Herewith	
10.1	 	Credit Agreement, dated as of September 6, 2018, among APX Group, Inc., APX Group Holdings, Inc., the other guarantors party thereto, each lender from time to time party thereto and Bank of America, N.A., as administrative agent	 	8-K	 	333-191132-02	 	10,100	 	September 6, 2018	 	 	
10.2	 	Security Agreement, dated as of September 6, 2018, among the grantors identified therein and Bank of America, N.A., as administrative agent	 	 	 	 	 	 	 	 	 	X	
10.3	 	Collateral Agent Joinder Agreement No. 1, dated as of September 6, 2018 to the Intercreditor and Collateral Agency Agreement dated as of November 16, 2012, among APX Group, Inc., the grantors party thereto, Bank of America, N.A., as the Credit Agreement Collateral Agent, Wilmington Trust, National Association, as Notes Collateral Agent, and each additional collateral agent from time to time party thereto	 	 	 	 	 	 	 	 	 	X	
10.4	 	Form of Retention Award Agreement	 	 	 	 	 	 	 	 	 	X	
10.5	 	Vivint Group, Inc. Amended and Restated 2013 Omnibus Incentive Plan	 	 	 	 	 	 	 	 	 	X	
10.6	 	Form of Restricted Stock Unit Award Agreement under the Vivint Group, Inc. Amended and Restated 2013 Omnibus Incentive Plan	 	 	 	 	 	 	 	 	 	X	
31.1	 	Certification of the Registrant’s Chief Executive Officer, Todd Pedersen, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934	 	 	 	 	 	 	 	 	 	X	
31.2	 	Certification of the Registrant’s Principal Financial Officer, Mark Davies, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934	 	 	 	 	 	 	 	 	 	X	
32.1	 	Certification of the Registrant’s Chief Executive Officer, Todd Pedersen, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	 	 	 	 	 	 	 	 	 	X	
32.2	 	Certification of the Registrant’s Principal Financial Officer, Mark Davies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	 	 	 	 	 	 	 	 	 	X	
101.INS	 	XBRL Instance Document.	 	 	 	 	 	 	 	 	 	X	
101.SCH	 	XBRL Taxonomy Extension Schema Document.	 	 	 	 	 	 	 	 	 	X	
101.CAL	 	XBRL Taxonomy Extension Calculation Linkbase Document.	 	 	 	 	 	 	 	 	 	X	
101.DEF	 	XBRL Taxonomy Extension Schema Document.	 	 	 	 	 	 	 	 	 	X	
101.LAB	 	XBRL Taxonomy Extension Label Linkbase Document.	 	 	 	 	 	 	 	 	 	X	
101.PRE	 	XBRL Taxonomy Extension Presentation Linkbase Document.	 	 	 	 	 	 	 	 	 	X	
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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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.

	

 	 	 	 	 	APX Group Holdings Inc.	
 	 	 	 	 	
Date:	November 1, 2018	 	 	 	By:	 	/s/    Todd Pedersen        	
 	 	 	 	 	 	 	Todd Pedersen	
 	 	 	 	 	 	 	Chief Executive Officer and Director
(Principal Executive Officer)	
 	 	 	 	 	
Date:	November 1, 2018	 	 	 	By:	 	/s/    Mark Davies        	
 	 	 	 	 	 	 	Mark Davies	
 	 	 	 	 	 	 	Chief Financial Officer
(Principal Financial Officer)	

81

Exhibit 10.2 POSTING VERSION SECURITY AGREEMENT dated as of September 6, 2018 among THE GRANTORS IDENTIFIED HEREIN and BANK of AMERICA, N.A., as Administrative Agent Reference is made to the Intercreditor and Collateral Agency Agreement, dated as of November 16, 2012, among APX Group, Inc., a Delaware corporation, the other grantors party thereto, Bank of America, N.A., in its capacity as collateral agent for the Credit Agreement Secured Par- ties (as defined therein) and Wilmington Trust, National Association, in its capacity as collateral agent for the Senior Secured Notes Secured Parties (as defined therein), and each additional col- lateral agent from time to time party thereto as collateral agent for any First Lien Obligations (as defined therein) of any other Class (as defined therein), and as it may be amended from time to time in accordance with the Credit Agreement (as defined below) (the “Closing Date Intercred- itor Agreement”). Each Secured Party (as defined in the Credit Agreement referred to below) (a) consents to the terms of the Closing Date Intercreditor Agreement, including the priority of payment provisions of such Closing Date Intercreditor Agreement, (b) agrees that it will be bound by and will take no actions contrary to the provisions of the Closing Date Intercreditor Agreement and (c) authorizes and instructs the Administrative Agent to enter into the Closing Date Intercreditor Agreement as “Collateral Agent,” and on behalf of such Secured Party.

 

TABLE OF CONTENTS Page ARTICLE I Definitions SECTION 1.01 Credit Agreement ..............................................................................................1 SECTION 1.02 Other Defined Terms ........................................................................................1 ARTICLE II Pledge of Securities SECTION 2.01 Pledge ...............................................................................................................4 SECTION 2.02 Delivery of the Pledged Equity .........................................................................5 SECTION 2.03 Representations, Warranties and Covenants .....................................................5 SECTION 2.04 Certification of Limited Liability Company and Limited Partnership Interests .....................................................................................7 SECTION 2.05 Registration in Nominee Name; Denominations ..............................................8 SECTION 2.06 Voting Rights; Dividends and Interest .............................................................8 ARTICLE III Security Interests in Personal Property SECTION 3.01 Security Interest ..............................................................................................10 SECTION 3.02 Representations and Warranties .....................................................................12 SECTION 3.03 Covenants .......................................................................................................14 ARTICLE IV Remedies SECTION 4.01 Remedies Upon Default ..................................................................................16 SECTION 4.02 Application of Proceeds ..................................................................................18 SECTION 4.03 Grant of License to Use Intellectual Property ................................................18 ARTICLE V Subordination SECTION 5.01 Subordination ..................................................................................................19 -i-

 

Page ARTICLE VI Miscellaneous SECTION 6.01 Notices ............................................................................................................20 SECTION 6.02 Waivers; Amendment .....................................................................................20 SECTION 6.03 Administrative Agent’s Fees and Expenses; Indemnification ........................21 SECTION 6.04 Successors and Assigns ..................................................................................21 SECTION 6.05 Survival of Agreement ....................................................................................21 SECTION 6.06 Counterparts; Effectiveness; Several Agreement ...........................................21 SECTION 6.07 Severability .....................................................................................................22 SECTION 6.08 Governing Law; Jurisdiction; Venue; Waiver of Jury Trial; Consent to Service of Process ....................................................................22 SECTION 6.09 Headings .........................................................................................................22 SECTION 6.10 Security Interest Absolute ...............................................................................22 SECTION 6.11 Termination or Release ...................................................................................22 SECTION 6.12 Additional Grantors ........................................................................................23 SECTION 6.13 Administrative Agent Appointed Attorney-in-Fact ........................................23 SECTION 6.14 General Authority of the Administrative Agent .............................................24 SECTION 6.15 Reasonable Care .............................................................................................24 SECTION 6.16 Delegation; Limitation ....................................................................................24 SECTION 6.17 Reinstatement .................................................................................................25 SECTION 6.18 Miscellaneous .................................................................................................25 Schedules Schedule I Subsidiary Parties Schedule II Pledged Equity and Pledged Debt Schedule III Commercial Tort Claims Exhibits Exhibit I Form of Security Agreement Supplement Exhibit II Perfection Certificate Exhibit III Form of Patent Security Agreement Exhibit IV Form of Trademark Security Agreement Exhibit V Form of Copyright Security Agreement -ii-

 

SECURITY AGREEMENT dated as of September [ ], 2018, among the Gran- tors (as defined below) and Bank of America, N.A., as Administrative Agent for the Secured Parties (in such capacity, the “Administrative Agent”). Reference is made to the Credit Agreement dated as of September [ ], 2018 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among APX Group Inc., a Delaware corporation, (“Borrower”), APX Group Holdings, Inc., a Delaware corporation, (the “Holdings”), the other Guarantors party thereto from time to time, each lender from time to time party thereto (collectively, the “Lenders” and individually, a “Lender”), and Bank of America, N.A., as Administrative Agent. The Lenders have agreed to extend credit to the Borrower subject to the terms and conditions set forth in the Credit Agree- ment. The obligations of the Lenders to extend such credit are conditioned upon, among other things, the execution and delivery of this Agreement. Holdings and the Subsidiary Parties are affiliates of the Borrower, will derive substantial benefits from the extension of credit to the Bor- rower pursuant to the Credit Agreement, and are willing to execute and deliver this Agreement in order to induce the Lenders to extend such credit. Accordingly, the parties hereto agree as fol- lows: ARTICLE I Definitions SECTION 1.01 Credit Agreement. (a) Capitalized terms used in this Agreement and not otherwise defined herein have the meanings specified in the Credit Agreement. All terms defined in the UCC (as defined herein) and not defined in this Agreement have the meanings specified therein; the term “instru- ment” shall have the meaning specified in Article 9 of the UCC. (b) The rules of construction specified in Article I of the Credit Agreement al- so apply to this Agreement. SECTION 1.02 Other Defined Terms. As used in this Agreement, the follow- ing terms have the meanings specified below: “Account Debtor” means any Person who is or who may become obligated to any Grantor under, with respect to or on account of an Account. “Accounts” has the meaning specified in Article 9 of the UCC. “Administrative Agent” has the meaning assigned to such term in the recitals of the Agreement. “Agreement” means this Security Agreement. “Article 9 Collateral” has the meaning assigned to such term in Section 3.01(a).

 

“Borrower” has the meaning assigned to such term in the recitals of this Agree- ment. “Collateral” means the Article 9 Collateral and the Pledged Collateral. “Copyright License” means any written agreement, now or hereafter in effect, granting any right to any third party under any Copyright now or hereafter owned by any Grantor or that such Grantor otherwise has the right to license, or granting any right to any Grantor under any Copyright now or hereafter owned by any third party, and all rights of such Grantor under any such agreement. “Copyrights” means all of the following now owned or hereafter acquired by any Grantor: (a) all copyright rights in any work subject to the copyright laws of the United States, whether as author, assignee, transferee or otherwise, and (b) all registrations and applications for registration of any such copyright in the United States, including registrations, recordings, sup- plemental registrations and pending applications for registration in the USCO. “Credit Agreement” has the meaning assigned to such term in the preliminary statement of this Agreement. “General Intangibles” has the meaning specified in Article 9 of the UCC. “Grantor” means the Borrower, each Guarantor that is a party hereto, and each Guarantor that becomes a party to this Agreement after the Closing Date. “Intellectual Property” means all intellectual and similar property of every kind and nature now owned or hereafter acquired by any Grantor, including inventions, designs, Pa- tents, Copyrights, Licenses, Trademarks, trade secrets, the intellectual property rights in software and databases and related documentation and all additions and improvements to the foregoing. “Intellectual Property Security Agreements” means the short-form Patent Se- curity Agreement, short-form Trademark Security Agreement, and short-form Copyright Securi- ty Agreement, each substantially in the form attached hereto as Exhibits III, IV and V, respec- tively. “License” means any Patent License, Trademark License, Copyright License or other Intellectual Property license or sublicense agreement to which any Grantor is a party, to- gether with any and all (i) renewals, extensions, supplements and continuations thereof, (ii) in- come, fees, royalties, damages, claims and payments now and hereafter due and/or payable thereunder or with respect thereto including damages and payments for past, present or future infringements or violations thereof, and (iii) rights to sue for past, present and future violations thereof. “Patent License” means any written agreement, now or hereafter in effect, grant- ing to any third party any right to make, use or sell any invention on which a Patent, now or hereafter owned by any Grantor or that any Grantor otherwise has the right to license, is in exist- ence, or granting to any Grantor any right to make, use or sell any invention on which a Patent, -2-

 

now or hereafter owned by any third party, is in existence, and all rights of any Grantor under any such agreement. “Patents” means all of the following now owned or hereafter acquired by any Grantor: (a) all letters Patent of the United States in or to which any Grantor now or hereafter has any right, title or interest therein, all registrations and recordings thereof, and all applications for letters Patent of the United States, including registrations, recordings and pending applications in the USPTO, and (b) all reissues, continuations, divisions, continuations-in-part, renewals, im- provements or extensions thereof, and the inventions disclosed or claimed therein, including the right to make, use and/or sell the inventions disclosed or claimed therein. “Perfection Certificate” means a certificate substantially in the form of Exhib- it II, completed and supplemented with the schedules and attachments contemplated thereby, and duly executed by a Responsible Officer of each of the Grantors. “Pledged Collateral” has the meaning assigned to such term in Section 2.01. “Pledged Debt” has the meaning assigned to such term in Section 2.01. “Pledged Equity” has the meaning assigned to such term in Section 2.01. “Pledged Securities” means the Pledged Equity and Pledged Debt. “Secured Obligations” means the “Obligations” (as defined in the Credit Agree- ment). “Secured Parties” means, collectively, the Administrative Agent, the Lenders, the Hedge Banks and each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 9.05 of the Credit Agreement. “Security Agreement Supplement” means an instrument substantially in the form of Exhibit I hereto. “Subsidiary Parties” means (a) the Restricted Subsidiaries identified on Sched- ule I and (b) each other Restricted Subsidiary that becomes a party to this Agreement as a Sub- sidiary Party after the Closing Date. “Trademark License” means any written agreement, now or hereafter in effect, granting to any third party any right to use any Trademark now or hereafter owned by any Gran- tor or that any Grantor otherwise has the right to license, or granting to any Grantor any right to use any Trademark now or hereafter owned by any third party, and all rights of any Grantor un- der any such agreement. “Trademarks” means all of the following now owned or hereafter acquired by any Grantor: (a) all trademarks, service marks, trade names, corporate names, trade dress, logos, designs, fictitious business names other source or business identifiers, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all registration and recording applications filed in connection therewith, including registrations and registration applications in -3-

 

the USPTO or any similar offices in any State of the United States or any political subdivision thereof, and all extensions or renewals thereof, as well as any unregistered trademarks and ser- vice marks used by a Grantor and (b) all goodwill connected with the use of and symbolized thereby. “UCC” means the Uniform Commercial Code as from time to time in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority. “USCO” means the United States Copyright Office. “USPTO” means the United States Patent and Trademark Office. ARTICLE II Pledge of Securities SECTION 2.01 Pledge. As security for the payment or performance, as the case may be, in full of the Secured Obligations, including the Guarantees, each of the Grantors hereby assigns and pledges to the Administrative Agent, its successors and assigns, for the bene- fit of the Secured Parties, and hereby grants to the Administrative Agent, its successors and as- signs, for the benefit of the Secured Parties, a security interest in all of such Grantors’ right, title and interest in, to and under: (i) all Equity Interests held by it that are listed on Schedule II and any other Equity Interests obtained in the future by such Grantor and the certificates representing all such Equity Interests (the “Pledged Equity”); provided that the Pledged Equity shall not include (A) Excluded Assets or (B) for the avoidance of doubt, Equity Interests in ex- cess of 65% of the issued and outstanding Equity Interests of (1) any Restricted Subsidi- ary that is a wholly owned Material Domestic Subsidiary that is directly owned by the Borrower or by any Subsidiary Guarantor and that (x) is treated as a disregarded entity for federal income tax purposes and (y) substantially all of the assets of which consist of the Equity Interests and/or Indebtedness of one or more CFCs and any other assets inci- dental thereto and (2) any Restricted Subsidiary that is a wholly owned Material Foreign Subsidiary that is directly owned by the Borrower or by any Subsidiary Guarantor; (ii) (A) the debt securities owned by it and listed opposite the name of such Grantor on Schedule II, (B) any debt securities obtained in the future by such Grantor and (C) the promissory notes and any other instruments evidencing such debt securities (the “Pledged Debt”); provided that the Pledged Debt shall not include any Excluded Assets; (iii) all other property that may be delivered to and held by the Administrative Agent pursuant to the terms of this Section 2.01; -4-

 

(iv) subject to Section 2.06, all payments of principal or interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, in exchange for or upon the conversion of, and all other Pro- ceeds received in respect of, the securities referred to in clauses (i) and (ii) above; (v) subject to Section 2.06, all rights and privileges of such Grantor with re- spect to the securities and other property referred to in clauses (i), (ii), (iii) and (iv) above; and (vi) all Proceeds of any of the foregoing (the items referred to in clauses (i) through (vi) above being collectively referred to as the “Pledged Collateral”). TO HAVE AND TO HOLD the Pledged Collateral, together with all right, title, interest, powers, privileges and preferences pertaining or incidental thereto, unto the Administrative Agent, its successors and assigns, for the benefit of the Secured Parties, forever, subject, however, to the terms, covenants and conditions hereinafter set forth. SECTION 2.02 Delivery of the Pledged Equity. (a) Each Grantor agrees promptly (but in any event within 30 days after re- ceipt by such Grantor or such longer period as the Administrative Agent may agree in its reason- able discretion) to deliver or cause to be delivered to the Administrative Agent, for the benefit of the Secured Parties, any and all (i) Pledged Equity to the extent certificated and (ii) to the extent required to be delivered pursuant to paragraph (b) of this Section 2.02, Pledged Debt. (b) Each Grantor will cause any Indebtedness for borrowed money having an aggregate principal amount in excess of $5,000,000 owed to such Grantor by any Person that is evidenced by a duly executed promissory note to be pledged and delivered to the Administrative Agent, for the benefit of the Secured Parties, pursuant to the terms hereof. (c) Upon delivery to the Administrative Agent, any Pledged Securities shall be accompanied by stock or security powers duly executed in blank or other instruments of trans- fer reasonably satisfactory to the Administrative Agent and by such other instruments and docu- ments as the Administrative Agent may reasonably request (other than instruments or documents governed by or requiring actions in any non-U.S. jurisdiction related to Equity Interests of For- eign Subsidiaries). Each delivery of Pledged Securities shall be accompanied by a schedule de- scribing the securities, which schedule shall be deemed to supplement Schedule II and made a part hereof; provided that failure to supplement Schedule II shall not affect the validity of such pledge of such Pledged Equity. Each schedule so delivered shall supplement any prior schedules so delivered. SECTION 2.03 Representations, Warranties and Covenants. Each Grantor rep- resents, warrants and covenants to and with the Administrative Agent, for the benefit of the Se- cured Parties, that: -5-

 

(a) As of the date hereof, Schedule II includes all Equity Interests, debt secu- rities and promissory notes required to be pledged by such Grantor hereunder in order to satisfy the Collateral and Guarantee Requirement; (b) the Pledged Equity issued by the Borrower, each other Borrower, or a wholly-owned Restricted Subsidiary have been duly and validly authorized and issued by the issuers thereof and are fully paid and nonassessable; (c) except for the security interests granted hereunder, such Grantor (i) is, subject to any transfers made in compliance with the Credit Agreement, the direct owner, beneficially and of record, of the Pledged Equity indicated on Schedule II, (ii) holds the same free and clear of all Liens, other than (A) Liens created by the Collateral Docu- ments and any Liens expressly permitted by Section 7.01 of the Credit Agreement that are governed by any Intercreditor Agreement and (B) nonconsensual Liens expressly permitted pursuant to Section 7.01 of the Credit Agreement, and (iii) if requested by the Administrative Agent, will defend its title or interest thereto or therein against any and all Liens (other than the Liens permitted pursuant to this Section 2.03(c)), however arising, of all Persons whomsoever; (d) except for restrictions and limitations (i) that are imposed or permitted by the Loan Documents or securities laws generally, (ii) in the case of Pledged Equity of Persons that are not Subsidiaries, that are transfer restrictions that exist at the time of ac- quisition of Equity Interests in such Persons, and (iii) that are described in the Perfection Certificate, the Pledged Collateral is freely transferable and assignable, and none of the Pledged Collateral is subject to any option, right of first refusal, shareholders agreement, charter or by-law provisions or contractual restriction of any nature that might prohibit, impair, delay or otherwise affect in any manner material and adverse to the Secured Par- ties the pledge of such Pledged Collateral hereunder, the sale or disposition thereof pur- suant hereto or the exercise by the Administrative Agent of rights and remedies hereun- der; (e) the execution and performance by the Grantors of this Agreement are within each Grantor’s corporate or limited liability company powers and have been duly authorized by all necessary corporate or limited liability company action or other organi- zational action; (f) no consent or approval of any Governmental Authority, any securities ex- change or any other Person was or is necessary to the validity of the pledge effected hereby, except for (i) filings and registrations necessary to perfect the Liens on the Col- lateral granted by the Loan Parties in favor of the Administrative Agent (for the benefit of the Secured Parties) and (ii) approvals, consents, exemptions, authorizations, actions, no- tices and filings which have been duly obtained, taken, given or made and are in full force and effect (except to the extent not required to be obtained, taken, given, or made or to be in full force and effect pursuant to the Collateral and Guarantee Requirement); (g) by virtue of the execution and delivery by each Grantor of this Agreement, and delivery of the Pledged Securities to and continued possession by the Administrative -6-

 

Agent or its bailee pursuant to the Closing Date Intercreditor Agreement, the Administra- tive Agent for the benefit of the Secured Parties has a legal, valid and perfected lien upon and security interest in such Pledged Security as security for the payment and perfor- mance of the Secured Obligations to the extent such perfection is governed by the UCC, subject only to nonconsensual Liens permitted by Section 7.01 of the Credit Agreement and any Lien expressly permitted by Section 7.01 of the Credit Agreement that are gov- erned by any Intercreditor Agreement; and (h) the pledge effected hereby is effective to vest in the Administrative Agent, for the benefit of the Secured Parties, the rights of the Administrative Agent in the Pledged Collateral to the extent intended hereby. Subject to the terms of this Agreement, each Grantor hereby agrees that upon the occurrence and during the continuance of an Event of Default, it will comply with instructions of the Administrative Agent with respect to the Equity Interests in such Grantor that constitute Pledged Equity hereunder that are not certificated without further consent by the applicable own- er or holder of such Equity Interests. Notwithstanding anything to the contrary in this Agreement, to the extent any provision of this Agreement or the Credit Agreement excludes any assets from the scope of the Pledged Collateral, or from any requirement to take any action to perfect any security interest in favor of the Administrative Agent for the benefit of the Secured Parties in the Pledged Collateral, the representations, warranties and covenants made by any relevant Grantor in this Agreement with respect to the creation, perfection or priority (as applicable) of the security interest granted in favor of the Administrative Agent for the benefit of the Secured Parties (including, without limitation, this Section 2.03) shall be deemed not to apply to such excluded assets. SECTION 2.04 Certification of Limited Liability Company and Limited Part- nership Interests. No interest in any limited liability company or limited partnership controlled by any Grantor that constitutes Pledged Equity shall be represented by a certificate unless (i) the limited liability company agreement or partnership agreement expressly provides that such inter- ests shall be a “security” within the meaning of Article 8 of the UCC of the applicable jurisdic- tion, and (ii) such certificate shall be delivered to the Administrative Agent in accordance with Section 2.02. Any limited liability company and any limited partnership controlled by any Gran- tor shall either (a) not include in its operative documents any provision that any Equity Interests in such limited liability company or such limited partnership be a “security” as defined under Article 8 of the Uniform Commercial Code or (b) certificate any Equity Interests in any such limited liability company or such limited partnership. To the extent an interest in any limited liability company or limited partnership controlled by any Grantor and pledged under Section 2.01 is certificated or becomes certificated, (i) each such certificate shall be delivered to the Ad- ministrative Agent, pursuant to Section 2.02(a) and (ii) such Grantor shall fulfill all other re- quirements under Section 2.02 applicable in respect thereof. Such Grantor hereby agrees that if any of the Pledged Collateral are at any time not evidenced by certificates of ownership, then each applicable Grantor shall, to the extent permitted by applicable law, if necessary or, upon the request of the Administrative Agent, desirable to perfect a security interest in such Pledged Col- lateral, cause such pledge to be recorded on the equity holder register or the books of the issuer, execute any customary pledge forms or other documents necessary or appropriate to complete -7-

 

the pledge and give the Administrative Agent the right to transfer such Pledged Collateral under the terms hereof. SECTION 2.05 Registration in Nominee Name; Denominations. If an Event of Default shall have occurred and be continuing and the Administrative Agent shall have given the Borrower prior written notice of its intent to exercise such rights, (a) the Administrative Agent, on behalf of the Secured Parties, shall have the right to hold the Pledged Securities in its own name as pledgee, the name of its nominee (as pledgee or as sub-agent) or the name of the appli- cable Grantor, endorsed or assigned in blank or in favor of the Administrative Agent and each Grantor will promptly give to the Administrative Agent copies of any written notices or other written communications received by it with respect to Pledged Equity registered in the name of such Grantor and (b) the Administrative Agent shall have the right to exchange the certificates representing Pledged Equity for certificates of smaller or larger denominations for any purpose consistent with this Agreement, to the extent permitted by the documentation governing such Pledged Securities. SECTION 2.06 Voting Rights; Dividends and Interest. (a) Unless and until an Event of Default shall have occurred and be continu- ing and the Administrative Agent shall have provided prior notice to the Borrower that the rights of the Grantor under this Section 2.06 are being suspended: (i) Each Grantor shall be entitled to exercise any and all voting and/or other consensual rights and powers inuring to an owner of Pledged Securities or any part there- of and each Grantor agrees that it shall exercise such rights for purposes consistent with the terms of this Agreement, the Credit Agreement and the other Loan Documents. (ii) The Administrative Agent shall promptly (after reasonable advance no- tice) execute and deliver to each Grantor, or cause to be executed and delivered to such Grantor, all such proxies, powers of attorney and other instruments as such Grantor may reasonably request for the purpose of enabling such Grantor to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to subparagraph (i) above. (iii) Each Grantor shall be entitled to receive and retain any and all dividends, interest, principal and other distributions paid on or distributed in respect of the Pledged Securities to the extent and only to the extent that such dividends, interest, principal and other distributions are permitted by, and otherwise paid or distributed in accordance with, the terms and conditions of the Credit Agreement, the other Loan Documents and appli- cable Laws; provided that any noncash dividends, interest, principal or other distributions that would constitute Pledged Equity or Pledged Debt, whether resulting from a subdivi- sion, combination or reclassification of the outstanding Equity Interests of the issuer of any Pledged Securities or received in exchange for Pledged Securities or any part thereof, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer may be a party or otherwise, shall be and become part of the Pledged Collateral, and, if received by any Grantor, shall not be commingled by such Grantor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Administrative Agent and the -8-

 

Secured Parties and shall be promptly (and in any event within 10 Business Days or such longer period as the Administrative Agent may agree in its reasonable discretion) deliv- ered to the Administrative Agent in the same form as so received (with any necessary en- dorsement reasonably requested by the Administrative Agent). So long as no Default or Event of Default has occurred and is continuing, the Administrative Agent shall promptly deliver to each Grantor any Pledged Securities in its possession if requested to be deliv- ered to the issuer thereof in connection with any exchange or redemption of such Pledged Securities permitted by the Credit Agreement in accordance with this Section 2.06(a)(iii). (b) Upon the occurrence and during the continuance of an Event of Default, after the Administrative Agent shall have notified the Borrower of the suspension of the Gran- tors’ rights under paragraph (a)(iii) of this Section 2.06, then all rights of any Grantor to divi- dends, interest, principal or other distributions that such Grantor is authorized to receive pursuant to paragraph (a)(iii) of this Section 2.06 shall cease, and all such rights shall thereupon become vested in the Administrative Agent, which shall have the sole and exclusive right and authority to receive and retain such dividends, interest, principal or other distributions subject to the terms of the Closing Date Intercreditor Agreement. All dividends, interest, principal or other distributions received by any Grantor contrary to the provisions of this Section 2.06 shall be held in trust for the benefit of the Administrative Agent, shall be segregated from other property or funds of such Grantor and shall be promptly (and in any event within 10 days or such longer period as the Ad- ministrative Agent may agree in its reasonable discretion) delivered to the Administrative Agent upon demand in the same form as so received (with any necessary endorsement reasonably re- quested by the Administrative Agent). Any and all money and other property paid over to or re- ceived by the Administrative Agent pursuant to the provisions of this paragraph (b) shall be re- tained by the Administrative Agent in an account to be established by the Administrative Agent upon receipt of such money or other property and shall be applied in accordance with the provi- sions of Section 4.02. After all Events of Default have been cured or waived, the Administrative Agent shall promptly repay to each Grantor (without interest) all dividends, interest, principal or other distributions that such Grantor would otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) of this Section 2.06 and that remain in such account. (c) Upon the occurrence and during the continuance of an Event of Default, after the Administrative Agent shall have provided the Borrower with notice of the suspension of its rights under paragraph (a)(i) of this Section 2.06, then all rights of any Grantor to exercise the voting and consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section 2.06, and the obligations of the Administrative Agent under paragraph (a)(ii) of this Section 2.06, shall cease, and all such rights shall thereupon become vested in the Administrative Agent, which shall have the sole and exclusive right and authority to exercise such voting and consensual rights and powers; provided that, unless otherwise directed by the Required Lenders, the Administrative Agent shall have the right from time to time following and during the contin- uance of an Event of Default to permit the Grantors to exercise such rights. After all Events of Default have been cured or waived, each Grantor shall have the exclusive right to exercise the voting and/or consensual rights and powers that the Borrower would otherwise be entitled to ex- ercise pursuant to the terms of paragraph (a)(i) above, and the obligations of the Administrative Agent under paragraph (a)(ii) of this Section 2.06 shall be reinstated. -9-

 

(d) Any notice given by the Administrative Agent to the Borrower under Sec- tion 2.05 or Section 2.06 (i) shall be given in writing, (ii) may be given with respect to one or more Grantors at the same or different times and (iii) may suspend the rights of the Grantors un- der paragraph (a)(i) or paragraph (a)(iii) of this Section 2.06 in part without suspending all such rights (as specified by the Administrative Agent in its sole and absolute discretion) and without waiving or otherwise affecting the Administrative Agent’s rights to give additional notices from time to time suspending other rights so long as an Event of Default has occurred and is continu- ing. ARTICLE III Security Interests in Personal Property SECTION 3.01 Security Interest. (a) As security for the payment or performance, as the case may be, in full of the Secured Obligations, including the Guarantees, each Grantor hereby assigns and pledges to the Administrative Agent, its successors and assigns, for the benefit of the Secured Parties, and hereby grants to the Administrative Agent, its successors and assigns, for the benefit of the Se- cured Parties, a security interest (the “Security Interest”) in, all right, title or interest in or to any and all of the following assets and properties now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the “Article 9 Collateral”): (i) all Accounts; (ii) all Chattel Paper; (iii) all Documents; (iv) all Equipment; (v) all General Intangibles; (vi) all Goods; (vii) all Instruments; (viii) all Inventory; (ix) all Investment Property; (x) all books and records pertaining to the Article 9 Collateral; (xi) all Fixtures; -10-

 

(xii) all Letter-of-Credit Rights, but only to the extent constituting a supporting obligation for other Article 9 Collateral as to which perfection of security interests in such Article 9 Collateral is accomplished by the filing of a UCC financing statement; (xiii) all Intellectual Property; (xiv) all Commercial Tort Claims listed on Schedule III and on any supplement thereto received by the Administrative Agent pursuant to Section 3.03(g); and (xv) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing and all Supporting Obligations, collateral security and guarantees given by any Person with respect to any of the foregoing; provided that, notwithstanding anything to the contrary in this Agreement, this Agreement shall not constitute a grant of a security interest in any Excluded Assets and the term “Article 9 Col- lateral” shall not include any Excluded Assets. (b) Subject to Section 3.01(e), each Grantor hereby irrevocably authorizes the Administrative Agent for the benefit of the Secured Parties at any time and from time to time to file in any relevant jurisdiction any initial financing statements with respect to the Article 9 Col- lateral or any part thereof and amendments thereto that (i) indicate the Article 9 Collateral as “all assets” or “all personal property” of such Grantor or words of similar effect as being of an equal or lesser scope or with greater detail and (ii) contain the information required by Article 9 of the Uniform Commercial Code or the analogous legislation of each applicable jurisdiction for the filing of any financing statement or amendment, including whether such Grantor is an organiza- tion, the type of organization and, if required, any organizational identification number issued to such Grantor. Each Grantor agrees to provide such information to the Administrative Agent promptly upon any reasonable request. (c) The Security Interest is granted as security only and shall not subject the Administrative Agent or any other Secured Party to, or in any way alter or modify, any obliga- tion or liability of any Grantor with respect to or arising out of the Article 9 Collateral. (d) Each Grantor hereby further authorizes the Administrative Agent to file with the USPTO or the USCO (or any successor office) one or more Intellectual Property Securi- ty Agreements substantially in the form of Exhibits III, IV or V, as applicable, and such other documents as may be necessary or advisable for the purpose of perfecting, confirming, continu- ing, enforcing or protecting the Security Interest in United States Intellectual Property of each Grantor in which a security interest has been granted by each Grantor, without the signature of any Grantor, and naming any Grantor or the Grantor as debtors and the Administrative Agent as secured party. No Grantor shall be required to complete any filings governed by non-United States laws or take any other action with respect to the perfection of the Security Interests created hereby in any Intellectual Property subsisting in any non-United States jurisdiction. (e) Notwithstanding anything to the contrary in the Loan Documents, none of the Grantors shall be required, nor is the Administrative Agent authorized, (i) to perfect the Se- curity Interests granted by this Security Agreement (including Security Interests in Investment Property and Fixtures) by any means other than by (A) filings pursuant to the Uniform Commer- -11-

 

cial Code in the office of the secretary of state (or similar central filing office) of the relevant State(s), and filings in the applicable real estate records with respect to any fixtures relating to Mortgaged Properties, (B) filings in United States government offices with respect to Intellectual Property of Grantor as expressly required elsewhere herein, (C) delivery to the Administrative Agent to be held in its possession of all Collateral consisting of Instruments and certificated Pledged Equity as expressly required elsewhere herein or (D) other methods expressly provided herein, (ii) to enter into any deposit account control agreement, securities account control agree- ment or any other control agreement with respect to any deposit account, securities account or any other Collateral that requires perfection by “control” except as otherwise set forth in this Section 3.01(e), (iii) to take any action (other than the actions listed in clauses (i)(A) and (C) above) with respect to any assets located outside of the United States, (iv) to perfect in any assets subject to a certificate of title statute or (v) to deliver any Equity Interests except as expressly provided in Section 2.01. SECTION 3.02 Representations and Warranties. Each Grantor jointly and sev- erally represents and warrants, as to itself and the other Grantors, to the Administrative Agent and the Secured Parties that: (a) Subject to Liens permitted by Section 7.01 of the Credit Agreement, each Grantor has good and valid rights in and title (except as otherwise permitted by the Loan Documents) to the Article 9 Collateral with respect to which it has purported to grant a Security Interest hereunder and has full power and authority to grant to the Administra- tive Agent the Security Interest in such Article 9 Collateral pursuant hereto and to exe- cute, deliver and perform its obligations in accordance with the terms of this Agreement, without the consent or approval of any other Person other than any consent or approval that has been obtained. (b) The Perfection Certificate has been duly prepared, completed and execut- ed and the information set forth therein is correct and complete in all material respects (except the information therein with respect to the exact legal name of each Grantor shall be correct and complete in all respects) as of the Closing Date. Subject to Section 3.01(e), the Uniform Commercial Code financing statements or other appropriate filings, recordings or registrations prepared by the Administrative Agent based upon the infor- mation provided to the Administrative Agent in the Perfection Certificate for filing in the applicable filing office (or specified by notice from the Borrower to the Administrative Agent after the Closing Date in the case of filings, recordings or registrations (other than filings required to be made in the USPTO and the USCO in order to perfect the Security Interest in Article 9 Collateral consisting of United States Patents, Trademarks and Copy- rights), in each case, as required by Section 6.11 of the Credit Agreement), are all the fil- ings, recordings and registrations that are necessary to establish a legal, valid and perfect- ed security interest in favor of the Administrative Agent (for the benefit of the Secured Parties) in respect of all Article 9 Collateral in which the Security Interest may be per- fected by filing, recording or registration in the United States (or any political subdivision thereof) and its territories and possessions pursuant to the Uniform Commercial Code, and no further or subsequent filing, re-filing, recording, rerecording, registration or re-registration is necessary in any such jurisdiction, except as provided under applicable Law with respect to the filing of continuation statements. -12-

 

(c) Each Grantor represents and warrants that short-form Intellectual Property Security Agreements containing a description of all Article 9 Collateral consisting of ma- terial United States registered Patents (and Patents for which United States registration applications are pending), United States registered Trademarks (and Trademarks for which United States registration applications are pending) and United States registered Copyrights, respectively (other than, in each case, any Excluded Assets), have been de- livered to the Administrative Agent for recording by the USPTO and the USCO pursuant to 35 U.S.C. § 261, 15 U.S.C. § 1060 or 17 U.S.C. § 205 and the regulations thereunder, as applicable, (for the benefit of the Secured Parties) in respect of all Article 9 Collateral consisting of registrations and applications for Patents, Trademarks and Copyrights. To the extent a security interest may be perfected by filing, recording or registration in USPTO or USCO under the Federal intellectual property laws, then no further or subse- quent filing, re-filing, recording, rerecording, registration or re-registration is necessary (other than (i) such filings and actions as are necessary to perfect the Security Interest with respect to any Article 9 Collateral consisting of Patents, Trademarks and Copyrights (or registration or application for registration thereof) acquired or developed by any Grantor after the date hereof and (ii) the UCC financing and continuation statements con- templated in Section 3.02(b)). (d) The Security Interest constitutes (i) a legal and valid security interest in all the Article 9 Collateral securing the payment and performance of the Secured Obligations and (ii) subject to the filings described in Section 3.02(b), a perfected security interest in all Article 9 Collateral in which a security interest may be perfected by filing, recording or registering a financing statement or analogous document in the United States (or any political subdivision thereof) and its territories and possessions pursuant to the Uniform Commercial Code. Subject to Section 3.01(e) of this Agreement, the Security Interest is and shall be prior to any other Lien on any of the Article 9 Collateral, other than any Liens expressly permitted pursuant to Section 7.01 of the Credit Agreement. (e) The Article 9 Collateral is owned by the Grantors free and clear of any Lien, except for Liens expressly permitted pursuant to Section 7.01 of the Credit Agree- ment. None of the Grantors has filed or consented to the filing of (i) any financing state- ment or analogous document under the Uniform Commercial Code or any other applica- ble Laws covering any Article 9 Collateral, (ii) any assignment in which any Grantor as- signs any Article 9 Collateral or any security agreement or similar instrument covering any Article 9 Collateral with the USPTO or the USCO or (iii) any assignment in which any Grantor assigns any Article 9 Collateral or any security agreement or similar instru- ment covering any Article 9 Collateral with any foreign governmental, municipal or other office, which financing statement or analogous document, assignment, security agree- ment or similar instrument is still in effect, except, in each case, for Liens expressly per- mitted pursuant to Section 7.01 of the Credit Agreement and assignments permitted by the Credit Agreement. (f) As of the date hereof, no Grantor has any Commercial Tort Claim in ex- cess of $8,000,000 other than the Commercial Tort Claims listed on Schedule III. -13-

 

SECTION 3.03 Covenants. (a) The Borrower agrees to notify the Administrative Agent in writing promptly, but in any event within 60 days (or such longer period as the Administrative Agent may agree in its reasonable discretion), after any change in (i) the legal name of any Grantor, (ii) the identity or type of organization or corporate structure of any Grantor, (iii) the jurisdiction of organization of any Grantor or (iv) the organizational identification number of such Grantor, if any. (b) Subject to Section 3.01(e), each Grantor shall, at its own expense, upon the reasonable request of the Administrative Agent, take any and all commercially reasonable actions necessary to defend title to the Article 9 Collateral against all Persons and to defend the Security Interest of the Administrative Agent in the Article 9 Collateral and the priority thereof against any Lien not expressly permitted pursuant to Section 7.01 of the Credit Agreement; pro- vided that, nothing in this Agreement shall prevent any Grantor from discontinuing the operation or maintenance of any of its assets or properties if such discontinuance is (x) determined by such Grantor to be desirable in the conduct of its business and (y) permitted by the Credit Agreement. (c) Subject to Section 3.01(e), each Grantor agrees, at its own expense, to ex- ecute, acknowledge, deliver and cause to be duly filed all such further instruments and docu- ments and take all such actions as the Administrative Agent may from time to time reasonably request to better assure, preserve, protect and perfect the Security Interest and the rights and remedies created hereby, including the payment of any fees and taxes required in connection with the execution and delivery of this Agreement, the granting of the Security Interest and the filing of any financing statements (including amendments or continuations thereof) or other doc- uments in connection herewith or therewith. If any amount payable under or in connection with any of the Article 9 Collateral that is in excess of $5,000,000 shall be or become evidenced by any promissory note, other instrument or debt security, such note, instrument or debt security shall be promptly (and in any event within 30 days of its acquisition or such longer period as the Administrative Agent may agree in its reasonable discretion) pledged and delivered to the Ad- ministrative Agent, for the benefit of the Secured Parties, duly endorsed in a manner reasonably satisfactory to the Administrative Agent. (d) At its option, the Administrative Agent may discharge past due taxes, as- sessments, charges, fees, Liens, security interests or other encumbrances at any time levied or placed on the Article 9 Collateral and not permitted pursuant to Section 7.01 of the Credit Agreement, and may pay for the maintenance and preservation of the Article 9 Collateral to the extent any Grantor fails to do so as required by the Credit Agreement or any other Loan Docu- ment and within a reasonable period of time after the Administrative Agent has requested that it do so, and each Grantor jointly and severally agrees to reimburse the Administrative Agent with- in 10 Business Days after demand for any payment made or any reasonable expense incurred by the Administrative Agent pursuant to the foregoing authorization; provided, however, the Gran- tors shall not be obligated to reimburse the Administrative Agent with respect to any Intellectual Property that any Grantor has failed to maintain or pursue, or otherwise allowed to lapse, termi- nate, expire or be put into the public domain in accordance with Section 3.03(f)(iv). Nothing in this paragraph shall be interpreted as excusing any Grantor from the performance of, or imposing any obligation on the Administrative Agent or any Secured Party to cure or perform, any cove- -14-

 

nants or other promises of any Grantor with respect to taxes, assessments, charges, fees, Liens, security interests or other encumbrances and maintenance as set forth herein or in the other Loan Documents. (e) Each Grantor (rather than the Administrative Agent or any Secured Party) shall remain liable (as between itself and any relevant counterparty) to observe and perform all the conditions and obligations to be observed and performed by it under each contract, agree- ment or instrument relating to the Article 9 Collateral, all in accordance with the terms and con- ditions thereof. (f) If at any time any Grantor shall take a security interest in any property of an Account Debtor or any other Person the value of which is in excess of $5,000,000 to secure payment and performance of an Account, such Grantor shall promptly assign such security inter- est to the Administrative Agent for the benefit of the Secured Parties provided that, notwith- standing anything to the contrary in this Agreement, this Agreement shall not constitute a grant of a security interest in any Excluded Assets. Such assignment need not be filed of public record unless necessary to continue the perfected status of the security interest against creditors of and transferees from the Account Debtor or other Person granting the security interest. (g) Intellectual Property Covenants. (i) Other than to the extent not prohibited herein or in the Credit Agreement or with respect to registrations and applications no longer used or useful, except to the extent failure to act would not, as deemed by the applicable Grantor in its reasonable business judg- ment, reasonably be expected to have a Material Adverse Effect, with respect to registration or pending application of each item of its Intellectual Property for which such Grantor has standing to do so, each Grantor agrees to take, at its expense, all reasonable steps, including, without limi- tation, in the USPTO, the USCO and any other governmental authority located in the United States, to pursue the registration and maintenance of each Patent, Trademark, or Copyright regis- tration or application now or hereafter included in the Intellectual Property of such Grantor that are not Excluded Assets. (ii) Other than to the extent not prohibited herein or in the Credit Agreement, or with respect to registrations and applications no longer used or useful, or except as would not, as deemed by the applicable Grantor in its reasonable business judgment, reasonably be expected to have a Material Adverse Effect, no Grantor shall do or permit any act or knowingly omit to do any act whereby any of its Intellectual Property, excluding Excluded Assets, may lapse, be ter- minated, or become invalid or unenforceable or placed in the public domain (or in the case of a trade secret, become publicly known). (iii) Other than as excluded or as not prohibited herein or in the Credit Agree- ment, or with respect to Patents, Copyrights or Trademarks which are no longer used or useful in the applicable Grantor’s business operations or except where failure to do so would not, as deemed by the applicable Grantor in its reasonable business judgment, reasonably be expected to have a Material Adverse Effect, each Grantor shall take all reasonable steps to preserve and pro- tect each item of its Intellectual Property, including, without limitation, maintaining the quality of any and all products or services used or provided in connection with any of the Trademarks, -15-

 

consistent with the quality of the products and services as of the date hereof, and taking reasona- ble steps necessary to ensure that all licensed users of any of the Trademarks abide by the appli- cable license’s terms with respect to standards of quality. (iv) Notwithstanding any other provision of this Agreement, nothing in this Agreement or any other Loan Document prevents or shall be deemed to prevent any Grantor from disposing of, discontinuing the use or maintenance of, failing to pursue, or otherwise allow- ing to lapse, terminate or be put into the public domain, any of its Intellectual Property to the ex- tent permitted by the Credit Agreement if such Grantor determines in its reasonable business judgment that such discontinuance is desirable in the conduct of its business. (v) Within the same delivery period as required for the delivery of the annual Compliance Certificate required to be delivered under Section 6.02(a) of the Credit Agreement the Borrower shall provide a list of any additional registrations of Intellectual Property of all Grantors not previously disclosed to the Administrative Agent including such information as is necessary for such Grantor to make appropriate filings in the USPTO and USCO. (h) Commercial Tort Claims. If the Grantors shall at any time hold or acquire a Commercial Tort Claim in an amount reasonably estimated by such Grantor to exceed $5,000,000 for which this clause has not been satisfied and for which a complaint in a court of competent jurisdiction has been filed, such Grantor shall within 45 days (or such longer period as the Administrative Agent may agree in its reasonable discretion) after the end of the fiscal quar- ter in which such complaint was filed notify the Administrative Agent thereof in a writing signed by such Grantor including a summary description of such claim and grant to the Administrative Agent, for the benefit of the Secured Parties, in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement. ARTICLE IV Remedies SECTION 4.01 Remedies Upon Default. Upon the occurrence and during the continuance of an Event of Default, it is agreed that the Administrative Agent shall have the right to exercise any and all rights afforded to a secured party with respect to the Secured Obligations, including the Guarantees, under the Uniform Commercial Code or other applicable Law and also may (i) require each Grantor to, and each Grantor agrees that it will at its expense and upon re- quest of the Administrative Agent, promptly assemble all or part of the Collateral as directed by the Administrative Agent and make it available to the Administrative Agent at a place and time to be designated by the Administrative Agent that is reasonably convenient to both parties; (ii) occupy any premises owned or, to the extent lawful and permitted, leased by any of the Grantors where the Collateral or any part thereof is assembled or located for a reasonable period in order to effectuate its rights and remedies hereunder or under Law, without obligation to such Grantor in respect of such occupation; provided that the Administrative Agent shall provide the applica- ble Grantor with notice thereof prior to such occupancy; (iii) exercise any and all rights and rem- edies of any of the Grantors under or in connection with the Collateral, or otherwise in respect of the Collateral; provided that the Administrative Agent shall provide the applicable Grantor with notice thereof prior to such exercise; and (iv) subject to the mandatory requirements of applica- -16-

 

ble Law and the notice requirements described below, sell or otherwise dispose of all or any part of the Collateral securing the Secured Obligations at a public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery as the Adminis- trative Agent shall deem appropriate. The Administrative Agent shall be authorized at any such sale of securities (if it deems it advisable to do so) to restrict the prospective bidders or purchas- ers to Persons who will represent and agree that they are purchasing the Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consum- mation of any such sale the Administrative Agent shall have the right to assign, transfer and de- liver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any sale of Collateral shall hold the property sold absolutely, free from any claim or right on the part of any Grantor, and each Grantor hereby waives (to the extent permitted by Law) all rights of redemption, stay and appraisal which such Grantor now has or may at any time in the future have under any Law now existing or hereafter enacted. The Administrative Agent shall give the applicable Grantors 10 days’ written no- tice (which each Grantor agrees is reasonable notice within the meaning of Section 9-611 of the UCC or its equivalent in other jurisdictions) of the Administrative Agent’s intention to make any sale of Collateral. Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker’s board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Ad- ministrative Agent may fix and state in the notice (if any) of such sale. At any such sale, the Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate par- cels, as the Administrative Agent may (in its sole and absolute discretion) determine. The Ad- ministrative Agent shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. The Administrative Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by the Administrative Agent until the sale price is paid by the purchaser or purchasers thereof, but the Administrative Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again upon like notice. At any public (or, to the extent permitted by Law, private) sale made pursuant to this Agreement, any Secured Party may bid for or purchase, free (to the extent permitted by Law) from any right of redemption, stay, valuation or appraisal on the part of any Grantor (all said rights being also hereby waived and released to the extent permitted by Law), the Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to such Secured Party from any Grantor as a credit against the purchase price, and such Secured Party may, upon compliance with the terms of sale, hold, retain and dis- pose of such property without further accountability to any Grantor therefor. For purposes here- of, a written agreement to purchase the Collateral or any portion thereof shall be treated as a sale thereof; the Administrative Agent shall be free to carry out such sale pursuant to such agreement and no Grantor shall be entitled to the return of the Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Administrative Agent shall have entered into such -17-

 

an agreement all Events of Default shall have been remedied and the Secured Obligations paid in full. As an alternative to exercising the power of sale herein conferred upon it, the Administra- tive Agent may proceed by a suit or suits at Law or in equity to foreclose this Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. Any sale pursuant to the provisions of this Section 4.01 shall be deemed to conform to the commer- cially reasonable standards as provided in Section 9-610(b) of the UCC or its equivalent in other jurisdictions. Each Grantor irrevocably makes, constitutes and appoints the Administrative Agent (and all officers, employees or agents designated by the Administrative Agent) as such Grantor’s true and lawful agent (and attorney-in-fact) during the continuance of an Event of De- fault (provided that the Administrative Agent shall provide the applicable Grantor with notice thereof prior to, to the extent reasonably practicable, or otherwise promptly after, exercising such rights), for the purpose of (i) making, settling and adjusting claims in respect of Article 9 Collat- eral under policies of insurance, endorsing the name of such Grantor on any check, draft, instru- ment or other item of payment for the proceeds of such policies if insurance, (ii) making all de- terminations and decisions with respect thereto and (iii) obtaining or maintaining the policies of insurance required by Section 6.07 of the Credit Agreement or to pay any premium in whole or in part relating thereto. All sums disbursed by the Administrative Agent in connection with this paragraph, including reasonable attorneys’ fees, court costs, expenses and other charges relating thereto, shall be payable, within 10 days of demand, by the Grantors to the Administrative Agent and shall be additional Secured Obligations secured hereby. SECTION 4.02 Application of Proceeds. The Administrative Agent shall ap- ply the proceeds of any collection or sale of Collateral, including any Collateral consisting of cash in accordance with Section 8.03 of the Credit Agreement. The Administrative Agent shall have absolute discretion as to the time of applica- tion of any such proceeds, moneys or balances in accordance with this Agreement. Upon any sale of Collateral by the Administrative Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Administrative Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Administrative Agent or such officer or be answerable in any way for the misapplication thereof. The Administrative Agent shall have no liability to any of the Secured Parties for actions taken in reliance on information supplied to it as to the amounts of unpaid principal and interest and other amounts outstanding with respect to the Secured Obligations, provided that nothing in this sentence shall prevent any Grantor from contesting any amounts claimed by any Secured Party in any information so supplied. All distributions made by the Administrative Agent pursuant to this Section 4.02 shall be (subject to any decree of any court of competent ju- risdiction) final (absent manifest error). SECTION 4.03 Grant of License to Use Intellectual Property. For the exclu- sive purpose of enabling the Administrative Agent to exercise rights and remedies under this -18-

 

Agreement at such time as the Administrative Agent shall be lawfully entitled to exercise such rights and remedies at any time after and during the continuance of an Event of Default, each Grantor hereby grants to the Administrative Agent a non-exclusive, royalty-free, limited license (until the termination or cure of the Event of Default) for cash, upon credit or for future delivery as the Administrative Agent shall deem appropriate to use, license or sublicense any of the Intel- lectual Property now owned or hereafter acquired by such Grantor, and wherever the same may be located, and including in such license reasonable access to all media in which any of the li- censed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof; provided, however, that all of the foregoing rights of the Admin- istrative Agent to use such licenses, sublicenses and other rights, and (to the extent permitted by the terms of such licenses and sublicenses) all licenses and sublicenses granted thereunder, shall expire immediately upon the termination or cure of all Events of Default and shall be exercised by the Administrative Agent solely during the continuance of an Event of Default and upon 10 Business Days’ prior written notice to the applicable Grantor, and nothing in this Section 4.03 shall require Grantors to grant any license that is prohibited by any rule of law, statute or regula- tion, or is prohibited by, or constitutes a breach or default under or results in the termination of any contract, license, agreement, instrument or other document evidencing, giving rise to or theretofore granted, to the extent permitted by the Credit Agreement, with respect to such proper- ty or otherwise unreasonably prejudices the value thereof to the relevant Grantor; provided, fur- ther, that any such license and any such license granted by the Administrative Agent to a third party shall include reasonable and customary terms and conditions necessary to preserve the ex- istence, validity and value of the affected Intellectual Property, including without limitation, pro- visions requiring the continuing confidential handling of trade secrets, requiring the use of ap- propriate notices and prohibiting the use of false notices, quality control and inurement provi- sions with regard to Trademarks, patent designation provisions with regard to Patents, copyright notices and restrictions on decompilation and reverse engineering of copyrighted software (it be- ing understood and agreed that, without limiting any other rights and remedies of the Adminis- trative Agent under this Agreement, any other Loan Document or applicable Law, nothing in the foregoing license grant shall be construed as granting the Administrative Agent rights in and to such Intellectual Property above and beyond (x) the rights to such Intellectual Property that each Grantor has reserved for itself and (y) in the case of Intellectual Property that is licensed to any such Grantor by a third party, the extent to which such Grantor has the right to grant a sublicense to such Intellectual Property hereunder). For the avoidance of doubt, the use of such license by the Administrative Agent may be exercised, at the option of the Administrative Agent, only dur- ing the continuation of an Event of Default. Upon the occurrence and during the continuance of an Event of Default, the Administrative Agent may also exercise the rights afforded under Sec- tion 4.01 of this Agreement with respect to Intellectual Property contained in the Article 9 Col- lateral. ARTICLE V Subordination SECTION 5.01 Subordination. (a) Notwithstanding any provision of this Agreement to the contrary, all rights of the Grantors to indemnity, contribution or subrogation under applicable law or otherwise shall -19-

 

be fully subordinated to the payment in full in cash of the Secured Obligations. No failure on the part of the Borrower or any Grantor to make the payments required under applicable law or oth- erwise shall in any respect limit the obligations and liabilities of any Grantor with respect to its obligations hereunder, and each Grantor shall remain liable for the full amount of the obligations of such Grantor hereunder. (b) Each Grantor hereby agrees that upon the occurrence and during the con- tinuance of an Event of Default and after notice from the Administrative Agent, all Indebtedness owed to it by any other Grantor shall be fully subordinated to the payment in full in cash of the Secured Obligations. ARTICLE VI Miscellaneous SECTION 6.01 Notices. All communications and notices hereunder shall (ex- cept as otherwise expressly permitted herein) be in writing and given as provided in Section 10.02 of the Credit Agreement. All communications and notices hereunder to the Borrower or any other Grantor shall be given to it in care of the Borrower as provided in Section 10.02 of the Credit Agreement. SECTION 6.02 Waivers; Amendment. (a) No failure or delay by any Secured Party in exercising any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver there- of, nor shall any single or partial exercise of any such right, remedy, power or privilege hereun- der preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges of the Secured Parties herein provided, and provided under each other Loan Document, are cumulative and are not exclusive of any rights, remedies, powers and privileges provided by Law. No waiver of any provision of this Agreement or consent to any departure by any Grantor therefrom shall in any event be effec- tive unless the same shall be permitted by paragraph (b) of this Section 6.02, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan, the issuance of a Letter of Credit or the provision of services under Treasury Services Agreements or Secured Hedge Agreements shall not be construed as a waiver of any Default, regardless of whether any Secured Party may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Ad- ministrative Agent and the Grantor or Grantors with respect to which such waiver, amendment or modification is to apply, subject to any consent required in accordance with Section 10.01 of the Credit Agreement. -20-

 

SECTION 6.03 Administrative Agent’s Fees and Expenses; Indemnification. (a) The parties hereto agree that the Administrative Agent shall be entitled to reimbursement of its reasonable out-of-pocket expenses incurred hereunder and indemnity for its actions in connection herewith as provided in Sections 10.04 and 10.05 of the Credit Agreement. (b) Any such amounts payable as provided hereunder shall be additional Se- cured Obligations secured hereby and by the other Collateral Documents. The provisions of this Section 6.03 shall remain operative and in full force and effect regardless of the termination of this Agreement or any other Loan Document, the consummation of the transactions contemplat- ed hereby, the repayment of any of the Secured Obligations, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Administrative Agent or any other Secured Party. All amounts due under this Section 6.03 shall be payable within 30 days of written demand therefor. SECTION 6.04 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. SECTION 6.05 Survival of Agreement. All covenants, agreements, representa- tions and warranties made by the Grantors hereunder and in the other Loan Documents and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the Secured Parties and shall survive the execution and delivery of the Loan Documents, the making of any Loans and issuance of any Letters of Credit and the provision of services under Treasury Services Agreements or Secured Hedge Agreements, regardless of any investigation made by any Secured Party or on its behalf and notwithstanding that any Secured Party may have had notice or knowledge of any Default at the time any credit is extended under the Credit Agreement, and shall continue in full force and effect as long as this Agreement has not been terminated or released pursuant to Section 6.11 be- low. SECTION 6.06 Counterparts; Effectiveness; Several Agreement. This Agree- ment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery by facsimile or other electronic communication of an executed counterpart of a signature page to this Agreement shall be effective as delivery of an original executed counterpart of this Agreement. This Agreement shall become effective as to any Grantor when a counterpart hereof executed on be- half of such Grantor shall have been delivered to the Administrative Agent and a counterpart hereof shall have been executed on behalf of the Administrative Agent, and thereafter shall be binding upon such Grantor and the Administrative Agent and their respective permitted succes- sors and assigns, and shall inure to the benefit of such Grantor, the Administrative Agent and the other Secured Parties and their respective permitted successors and assigns, except that no Gran- tor shall have the right to assign or transfer its rights or obligations hereunder or any interest herein or in the Collateral (and any such assignment or transfer shall be void) except as expressly contemplated by this Agreement or the Credit Agreement. This Agreement shall be construed as a separate agreement with respect to each Grantor and may be amended, modified, supplement- -21-

 

ed, waived or released with respect to any Grantor without the approval of any other Grantor and without affecting the obligations of any other Grantor hereunder. SECTION 6.07 Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable, the legality, validity and enforceability of the remaining provi- sions of this Agreement shall not be affected or impaired thereby. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any oth- er jurisdiction. SECTION 6.08 Governing Law; Jurisdiction; Venue; Waiver of Jury Trial; Consent to Service of Process. (a) The terms of Sections 10.15 and 10.16 of the Credit Agreement with re- spect to governing law, submission of jurisdiction, venue and waiver of jury trial are incorpo- rated herein by reference, mutatis mutandis, and the parties hereto agree to such terms. (b) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 6.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by Law. SECTION 6.09 Headings. Article and Section headings and the Table of Con- tents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. SECTION 6.10 Security Interest Absolute. To the extent permitted by Law, all rights of the Administrative Agent hereunder, the Security Interest, the grant of a security interest in the Pledged Collateral and all obligations of each Grantor hereunder shall be absolute and un- conditional irrespective of (a) any lack of validity or enforceability of the Credit Agreement, any other Loan Document, any agreement with respect to any of the Secured Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any other Loan Document or any other agreement or instrument, (c) any exchange, release or non- perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Secured Obli- gations or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Grantor in respect of the Secured Obligations or this Agreement. SECTION 6.11 Termination or Release. (a) This Agreement, the Security Interest and all other security interests granted hereby shall terminate with respect to all Secured Obligations and any Liens arising therefrom shall be automatically released upon termination of the Aggregate Commitments and payment in full of all Obligations (other than (i) obligations under Treasury Services Agreements or obligations under Secured Hedge Agreements not yet due and payable and (ii) contingent ob- ligations not yet accrued and payable). -22-

 

(b) A Subsidiary Party shall automatically be released from its obligations hereunder and the Security Interest in the Collateral of such Subsidiary Party shall be automati- cally released upon the consummation of any transaction permitted by the Credit Agreement as a result of which such Subsidiary Party ceases to be a Subsidiary of the Borrower or becomes an Excluded Subsidiary; provided that the Required Lenders shall have consented to such transac- tion (if and to the extent required by the Credit Agreement) and the terms of such consent did not provide otherwise. (c) Upon any sale or transfer by any Grantor of any Collateral that is permit- ted under the Credit Agreement (other than a sale or transfer to another Loan Party), or upon the effectiveness of any written consent to the release of the security interest granted hereby in any Collateral pursuant to Section 10.01 of the Credit Agreement, the security interest in such Collat- eral shall be automatically released. (d) In connection with any termination or release pursuant to paragraph (a), (b) or (c) of this Section 6.11, the Administrative Agent shall execute and deliver to any Grantor, at such Grantor’s expense, all documents that such Grantor shall reasonably request to evidence such termination or release and shall perform such other actions reasonably requested by such Grantor to effect such release, including delivery of certificates, securities and instruments. Any execution and delivery of documents pursuant to this Section 6.11 shall be without recourse to or warranty by the Administrative Agent. SECTION 6.12 Additional Grantors. Pursuant to Section 6.11 of the Credit Agreement, certain additional Restricted Subsidiaries of the Grantors may be required to enter in this Agreement as Grantors. Upon execution and delivery by the Administrative Agent and a Restricted Subsidiary of a Security Agreement Supplement, such Restricted Subsidiary shall be- come a Grantor hereunder with the same force and effect as if originally named as a Grantor herein. The execution and delivery of any such instrument shall not require the consent of any other Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agree- ment. SECTION 6.13 Administrative Agent Appointed Attorney-in-Fact. Each Gran- tor hereby appoints the Administrative Agent the attorney-in-fact of such Grantor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instru- ment that the Administrative Agent may deem necessary or advisable to accomplish the purposes hereof at any time after and during the continuance of an Event of Default, which appointment is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, the Administrative Agent shall have the right, upon the occurrence and during the continuance of an Event of Default and notice by the Administrative Agent to the applicable Grantor of the Admin- istrative Agent’s intent to exercise such rights, with full power of substitution either in the Ad- ministrative Agent’s name or in the name of such Grantor (a) to receive, endorse, assign and/or deliver any and all notes, acceptances, checks, drafts, money orders or other evidences of pay- ment relating to the Collateral or any part thereof; (b) to demand, collect, receive payment of, give receipt for and give discharges and releases of all or any of the Collateral; (c) to sign the name of any Grantor on any invoice or bill of lading relating to any of the Collateral; (d) to send verifications of Accounts Receivable to any Account Debtor; (e) to commence and prosecute any -23-

 

and all suits, actions or proceedings at Law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or any of the Collateral or to enforce any rights in respect of any Collateral; (f) to settle, compromise, compound, adjust or defend any actions, suits or pro- ceedings relating to all or any of the Collateral; (g) to notify, or to require any Grantor to notify, Account Debtors to make payment directly to the Administrative Agent; and (h) to use, sell, as- sign, transfer, pledge, make any agreement with respect to or otherwise deal with all or any of the Collateral, and to do all other acts and things necessary to carry out the purposes of this Agreement, as fully and completely as though the Administrative Agent were the absolute owner of the Collateral for all purposes; provided that nothing herein contained shall be construed as requiring or obligating the Administrative Agent to make any commitment or to make any in- quiry as to the nature or sufficiency of any payment received by the Administrative Agent, or to present or file any claim or notice, or to take any action with respect to the Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby. The Administrative Agent and the other Secured Parties shall be accountable only for amounts actually received as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence, bad faith, or willful mis- conduct or that of any of their Affiliates, directors, officers, employees, counsel, agents or attor- neys-in-fact, in each case, as determined by a final non-appealable judgment of a court of com- petent jurisdiction. SECTION 6.14 General Authority of the Administrative Agent. By acceptance of the benefits of this Agreement and any other Collateral Documents, each Secured Party (whether or not a signatory hereto) shall be deemed irrevocably (a) to consent to the appointment of the Administrative Agent as its agent hereunder and under such other Collateral Documents, (b) to confirm that the Administrative Agent shall have the authority to act as the exclusive agent of such Secured Party for the enforcement of any provisions of this Agreement and such other Collateral Documents against any Grantor, the exercise of remedies hereunder or thereunder and the giving or withholding of any consent or approval hereunder or thereunder relating to any Collateral or any Grantor’s obligations with respect thereto, (c) to agree that it shall not take any action to enforce any provisions of this Agreement or any other Collateral Document against any Grantor, to exercise any remedy hereunder or thereunder or to give any consents or approvals hereunder or thereunder except as expressly provided in this Agreement or any other Collateral Document and (d) to agree to be bound by the terms of this Agreement and any other Collateral Documents. SECTION 6.15 Reasonable Care. The Administrative Agent is required to use reasonable care in the custody and preservation of any of the Collateral in its possession; provid- ed, that the Administrative Agent shall be deemed to have used reasonable care in the custody and preservation of any of the Collateral, if such Collateral is accorded treatment substantially similar to that which the Administrative Agent accords its own property. SECTION 6.16 Delegation; Limitation. The Administrative Agent may exe- cute any of the powers granted under this Agreement and perform any duty hereunder either di- rectly or by or through agents or attorneys-in-fact, and shall not be responsible for the gross neg- ligence or willful misconduct of any agents or attorneys-in-fact selected by it with reasonable care and without gross negligence or willful misconduct. -24-

 

SECTION 6.17 Reinstatement. The obligations of the Grantors under this Se- curity Agreement shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Borrower or other Loan Party in respect of the Secured Obliga- tions is rescinded or must be otherwise restored by any holder of any of the Secured Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise. SECTION 6.18 Miscellaneous. The Administrative Agent shall not be deemed to have actual, constructive, direct or indirect notice or knowledge of the occurrence of any Event of Default unless and until the Administrative Agent shall have received a notice of Event of Default or a notice from the Grantor or the Secured Parties to the Administrative Agent in its capacity as Administrative Agent indicating that an Event of Default has occurred. SECTION 6.19 Intercreditor Agreement. Notwithstanding any other provision contained herein, this Agreement, the Liens created hereby and the rights, remedies, duties and obligations provided for herein are subject in all respects to the provisions of the Closing Date Intercreditor Agreement. In the event of any conflict or inconsistency between the provisions of this Agreement and the Closing Date Intercreditor Agreement, the provisions of the Closing Date Intercreditor Agreement shall control. Notwithstanding anything herein to the contrary, require- ments of this Agreement to deliver or grant control (to the extent that only one person can have control of such Collateral) with respect to Collateral to the Administrative Agent shall be deemed satisfied by delivery of such Collateral or grant of control with respect to Collateral to a Bailee Administrative Agent (as defined in the Closing Date Intercreditor Agreement) as required pur- suant to Section 4.01 of the Closing Date Intercreditor Agreement. [Signature Pages Follow] -25-

 

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. APX HOLDINGS, INC. By: /s/ Dale R. Gerard Name: Dale R. Gerard Title: Senior Vice President of Finance & Treasurer APX GROUP, INC. By: /s/ Dale R. Gerard Name: Dale R. Gerard Title: Senior Vice President of Finance & Treasurer VIVINT, INC. SMART HOME PROS. INC. 313 AVIATION, LLC AP AL LLC VIVINT WIRELESS, INC. FARMINGTON IP LLC IPR LLC SMARTROVE INC. SPACE MONKEY LLC VIVINT FIREWILD, LLC VIVINT PURCHASING, LLC VIVINT GROUP, INC. VIVINT LOUISIANA LLC By: /s/ Dale R. Gerard Name: Dale R. Gerard Title: Senior Vice President of Finance & Treasurer S-1

 

BANK OF AMERICA, N.A., as Administrative Agent By: /s/ Don B. Pinzon Name: Don B. Pinzon Title: Vice President S-2

 

SCHEDULE I Subsidiary Parties 1. Vivint, Inc. 2. Smart Home Pros, Inc. 3. Vivint Purchasing, LLC 4. AP AL LLC 5. 313 Aviation, LLC 6. Vivint Wireless, Inc. 7. Farmington IP LLC 8. IPR LLC 9. Smartrove Inc. 10. Space Monkey, LLC 11. Vivint FireWild, LLC 12. Vivint Group, Inc. 13. Vivint Louisiana LLC 14. APX Group Holdings, Inc.

 

SCHEDULE II Pledged Equity Pledgor Issuer Shares/ Ownership Inter- Certificate est Pledged Number APX Group Holdings, APX Group, Inc. 100 common shares 1 Inc. Vivint Group, Inc. Vivint, Inc. 100 common shares Certificated1 APX Group, Inc. Vivint Wireless, Inc. 9,000 C-1 Vivint, Inc. Smart Home Pros, Inc. 1,000 common shares 2 (100% owner) Vivint, Inc. Vivint Purchasing, LLC 100% owner N/A Vivint, Inc. AP AL LLC 100% owner N/A Vivint Group, Inc. 313 Aviation, LLC 100% owner N/A Vivint Group, Inc. Vivint Wireless, Inc. 850,000 shares Uncertificated IPR LLC Farmington IP LLC 100% owner N/A AP AL LLC IPR LLC 100% owner N/A Ramsesh Kalkunte Smartrove Inc. 428.6 2 Venkat Kalkunte 571.4 1 (1,000 combined shares) Vivint Group, Inc. Space Monkey, LLC 100% owner N/A Vivint Wireless, Inc. Vivint FireWild, LLC 100% owner N/A APX Group, Inc. Vivint Group, Inc. 1,065,857,126 shares 2 Vivint, Inc. Vivint Louisiana LLC 100% owner N/A 1 Certificate to be updated to reflect the current owners as described in Schedule 6.16 of the Credit Agreement.

 

Pledged Debt 1. the Intercompany Note, dated as of November 16, 2012, among APX Group Holdings, Inc., 313 Group, Inc. (which merged with and into APX Group, Inc.), the other guarantors party there- to from time to time, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Lender.

 

SCHEDULE III Commercial Tort Claims None.

 

Exhibit I to the Security Agreement SUPPLEMENT NO. ___ dated as of [●] (the “Supplement”), to the Security Agreement (the “Security Agreement”), dated as of September [ ], 2018, among the Grantors identified therein and Bank of America, N.A., as Administrative Agent. A. Reference is made to that certain Credit Agreement dated as of September [ ], 2018 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Credit Agreement”), among APX Group, Inc., a Delaware corporation, (the “Borrower”), APX Group Holdings, Inc., a Delaware corporation (“Holdings”), the other Guarantors party thereto from time to time, each Lender from time to time party thereto (collectively, the “Lenders” and individually, a “Lender”), Bank of America, N.A., as Administrative Agent, and the other agents named therein. B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement and the Security Agreement. C. The Grantors have entered into the Security Agreement in order to induce the Lenders to make Loans. Section 6.12 of the Security Agreement provides that additional Restricted Subsidiaries of the Borrower may become Grantors under the Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the “New Grantor”) is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Grantor under the Security Agreement in order to induce the Lenders to make additional Loans and as consideration for Loans previously made. Accordingly, the Administrative Agent and the New Grantor agree as follows: SECTION 1. In accordance with Section 6.12 of the Security Agreement, the New Grantor by its signature below becomes a Grantor under the Security Agreement with the same force and effect as if originally named therein as a Grantor and the New Grantor hereby (a) agrees to all the terms and provisions of the Security Agreement applicable to it as a Grantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Grantor thereunder are true and correct on and as of the date hereof. In furtherance of the foregoing, the New Grantor, as security for the payment and performance in full of the Secured Obligations, does hereby create and grant to the Administrative Agent, its successors and assigns, for the benefit of the Secured Parties, their successors and assigns, a security interest in and lien on all of the New Grantor’s right, title and interest in and to the Collateral (as defined in the Security Agreement) of the New Grantor. Each reference to a “Grantor” in the Security Agreement shall be deemed to include the New Grantor. The Security Agreement is hereby incorporated herein by reference. SECTION 2. The New Grantor represents and warrants to the Administrative Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in 2

 

accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws and by general principles of equity. SECTION 3. This Supplement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Administrative Agent shall have received a counterpart of this Supplement that bears the signature of the New Grantor and the Administrative Agent has executed a counterpart hereof. Delivery of an executed signature page to this Supplement by facsimile transmission or other electronic communication shall be as effective as delivery of a manually signed counterpart of this Supplement. SECTION 4. The New Grantor hereby represents and warrants that (a) set forth on Schedule I attached hereto is a true and correct schedule of the information required by Schedules II and III to the Security Agreement applicable to it and (b) set forth under its signature hereto is the true and correct legal name of the New Grantor, its jurisdiction of formation and the location of its chief executive office. SECTION 5. Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect. SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. SECTION 7. If any provision of this Supplement is held to be illegal, invalid or unenforceable, the legality, validity and enforceability of the remaining provisions of this Supplement shall not be affected or impaired thereby. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 8. All communications and notices hereunder shall be in writing and given as provided in Section 6.01 of the Security Agreement. SECTION 9. The New Grantor agrees to reimburse the Administrative Agent for its reasonable out-of-pocket expenses in connection with the execution and delivery of this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Administrative Agent. [Signature pages follow.] 3

 

IN WITNESS WHEREOF, the New Grantor and the Administrative Agent have duly executed this Supplement to the Security Agreement as of the day and year first above written. [NAME OF NEW GRANTOR] By: Name: Title: Legal Name: Jurisdiction of Formation: Location of Chief Executive office: [Signature Page – Security Agreement Supplement]

 

BANK OF AMERICA, N.A., as Administrative Agent By: Name: Title: [Signature Page – Security Agreement Supplement]

 

Schedule I to the Supplement No __ to the Security Agreement PLEDGED EQUITY AND PLEDGED DEBT 1. Pledged Equity: Current Legal Entities Record Owner Certificate No. Shares Owned No. (to the extent certificated) 2. Pledged Debt: [List]

 

Schedule I to the Supplement No __ to the Security Agreement COMMERCIAL TORT CLAIMS [List] 2

 

Exhibit II to the Security Agreement PERFECTION CERTIFICATE [Attached] 3

 

Exhibit III to the Security Agreement FORM OF PATENT SECURITY AGREEMENT (SHORT FORM) PATENT SECURITY AGREEMENT THIS PATENT SECURITY AGREEMENT IS SUBJECT TO THE PROVISIONS OF THE INTERCREDITOR AGREEMENT, DATED AS OF NOVEMBER 16, 2012 (AS AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME), AMONG APX GROUP, INC., THE GRANTORS PARTY THERETO, BANK OF AMERICA, N.A., AS CREDIT AGREEMENT COLLATERAL AGENT (AS DEFINED THEREIN), AND WILMINGTON TRUST, NATIONAL ASSOCIATION, AS NOTES COLLATERAL AGENT (AS DEFINED THEREIN), AND EACH ADDITIONAL COLLATERAL AGENT (AS DEFINED THEREIN) FROM TIME TO TIME PARTY THERETO. Patent Security Agreement, dated as of [ ], by [ ] and [_________] (individually, a “Grantor”, and, collectively, the “Grantors”), in favor of BANK OF AMERICA, N.A., in its capacity as administrative agent pursuant to the Credit Agreement (in such capacity, the “Administrative Agent”). W I T N E S S E T H: WHEREAS, the Grantors are party to a Security Agreement dated as of September [ ], 2018 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Security Agreement”) and related Intellectual Property Security Agreements (as defined therein) in favor of the Administrative Agent pursuant to which the Grantors are required to execute and deliver this Patent Security Agreement; NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent, for the benefit of the Secured Parties, to enter into the Credit Agreement, the Grantors hereby agree with the Administrative Agent as follows: SECTION 1. Defined Terms. Unless otherwise defined herein, terms defined in the Security Agreement and used herein have the meaning given to them in the Security Agreement. SECTION 2. Grant of Security Interest in Patent Collateral. Each Grantor hereby pledges and grants to the Administrative Agent for the benefit of the Secured Parties a lien on and security interest in and to all of its right, title and interest in, to and under all the following Collateral (excluding any Excluded Assets) of such Grantor: (a) Patents of such Grantor listed on Schedule I attached hereto. SECTION 3. The Security Agreement. The security interest granted pursuant to this Patent Security Agreement is granted in conjunction with the security interest granted to the Administrative Agent pursuant to the Security Agreement and Grantors hereby acknowledge and

 

affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Patents made and granted hereby are more fully set forth in the Security Agreement. In the event that any provision of this Patent Security Agreement is deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall control unless the Administrative Agent shall otherwise determine. SECTION 4. Termination. Upon the termination of the Security Agreement in accordance with Section 6.13 thereof, the Administrative Agent shall, at the expense of such Grantor, execute, acknowledge, and deliver to the Grantors an instrument in writing in recordable form releasing the lien on and security interest in the Patents under this Patent Security Agreement. SECTION 5. Counterparts. This Patent Security Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Patent Security Agreement by signing and delivering one or more counterparts. [Signature pages follow.]

 

[GRANTOR] By: Name: Title: [Patent Security Agreement]

 

BANK OF AMERICA, N.A., as Administrative Agent By: Name: Title: [Patent Security Agreement]

 

Schedule I to PATENT SECURITY AGREEMENT PATENT REGISTRATIONS AND PATENT APPLICATIONS Patents: REGISTRATION OWNER NUMBER DESCRIPTION Patent Applications: APPLICATION OWNER NUMBER DESCRIPTION

 

Exhibit IV to the Security Agreement FORM OF TRADEMARK SECURITY AGREEMENT (SHORT FORM) TRADEMARK SECURITY AGREEMENT THIS TRADEMARK SECURITY AGREEMENT IS SUBJECT TO THE PROVISIONS OF THE INTERCREDITOR AGREEMENT, DATED AS OF NOVEMBER 16, 2012 (AS AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME), AMONG APX GROUP, INC., THE GRANTORS PARTY THERETO, BANK OF AMERICA, N.A., AS CREDIT AGREEMENT COLLATERAL AGENT (AS DEFINED THEREIN), AND WILMINGTON TRUST, NATIONAL ASSOCIATION, AS NOTES COLLATERAL AGENT (AS DEFINED THEREIN), AND EACH ADDITIONAL COLLATERAL AGENT (AS DEFINED THEREIN) FROM TIME TO TIME PARTY THERETO. Trademark Security Agreement, dated as of [ ], by [ ] and [_________] (individually, a “Grantor”, and, collectively, the “Grantors”), in favor of BANK OF AMERICA, N.A., in its capacity as administrative agent pursuant to the Credit Agreement (in such capacity, the “Administrative Agent”). W I T N E S S E T H: WHEREAS, the Grantors are party to a Security Agreement dated as of September [ ], 2018 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Security Agreement”) and related Intellectual Property Security Agreements (as defined therein) in favor of the Administrative Agent pursuant to which the Grantors are required to execute and deliver this Trademark Security Agreement; NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent, for the benefit of the Secured Parties, to enter into the Credit Agreement, the Grantors hereby agree with the Administrative Agent as follows: SECTION 1. Defined Terms. Unless otherwise defined herein, terms defined in the Security Agreement and used herein have the meaning given to them in the Security Agreement. SECTION 2. Grant of Security Interest in Trademark Collateral. Each Grantor hereby pledges and grants to the Administrative Agent for the benefit of the Secured Parties a lien on and security interest in and to all of its right, title and interest in, to and under all the following Collateral (excluding any Excluded Assets) of such Grantor: (a) registered Trademarks of such Grantor listed on Schedule I attached hereto. SECTION 3. The Security Agreement. The security interest granted pursuant to this Trademark Security Agreement is granted in conjunction with the security interest granted to the Administrative Agent pursuant to the Security Agreement and Grantors hereby acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security

 

interest in the Trademarks made and granted hereby are more fully set forth in the Security Agreement. In the event that any provision of this Trademark Security Agreement is deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall control unless the Administrative Agent shall otherwise determine. SECTION 4. Termination. Upon the termination of the Security Agreement in accordance with Section 6.13 thereof, the Administrative Agent shall, at the expense of such Grantor, execute, acknowledge, and deliver to the Grantors an instrument in writing in recordable form releasing the lien on and security interest in the Trademarks under this Trademark Security Agreement. SECTION 5. Counterparts. This Trademark Security Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Trademark Security Agreement by signing and delivering one or more counterparts. [Signature pages follow.] 2

 

[GRANTOR] By: Name: Title: [Trademark Security Agreement]

 

BANK OF AMERICA, N.A., as Administrative Agent By: Name: Title: [Trademark Security Agreement]

 

Schedule I Trademark Registrations and Use Applications Registrations: REGISTRATION OWNER NUMBER TRADEMARK Applications: APPLICATION OWNER NUMBER TRADEMARK

 

Exhibit V to the Security Agreement FORM OF COPYRIGHT SECURITY AGREEMENT (SHORT FORM) COPYRIGHT SECURITY AGREEMENT THIS COPYRIGHT SECURITY AGREEMENT IS SUBJECT TO THE PROVISIONS OF THE INTERCREDITOR AGREEMENT, DATED AS OF NOVEMBER 16, 2012 (AS AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME), AMONG APX GROUP, INC., THE GRANTORS PARTY THERETO, BANK OF AMERICA, N.A., AS CREDIT AGREEMENT COLLATERAL AGENT (AS DEFINED THEREIN), AND WILMINGTON TRUST, NATIONAL ASSOCIATION, AS NOTES COLLATERAL AGENT (AS DEFINED THEREIN), AND EACH ADDITIONAL COLLATERAL AGENT (AS DEFINED THEREIN) FROM TIME TO TIME PARTY THERETO. Copyright Security Agreement, dated as of [ ], by [ ] and [_________] (individually, a “Grantor”, and, collectively, the “Grantors”), in favor of BANK OF AMERICA, N.A., in its capacity as administrative agent pursuant to the Credit Agreement (in such capacity, the “Administrative Agent”). W I T N E S S E T H: WHEREAS, the Grantors are party to a Security Agreement dated as of September [ ], 2018 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Security Agreement”) and related Intellectual Property Security Agreements (as defined therein) in favor of the Administrative Agent pursuant to which the Grantors are required to execute and deliver this Copyright Security Agreement; NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent, for the benefit of the Secured Parties, to enter into the Credit Agreement, the Grantors hereby agree with the Administrative Agent as follows: SECTION 1. Defined Terms. Unless otherwise defined herein, terms defined in the Security Agreement and used herein have the meaning given to them in the Security Agreement. SECTION 2. Grant of Security Interest in Copyright Collateral. Each Grantor hereby pledges and grants to the Administrative Agent for the benefit of the Secured Parties a lien on and security interest in and to all of its right, title and interest in, to and under all the following Collateral (excluding any Excluded Assets) of such Grantor: (a) registered Copyrights of such Grantor listed on Schedule I attached hereto. SECTION 3. The Security Agreement. The security interest granted pursuant to this Copyright Security Agreement is granted in conjunction with the security interest granted to the Administrative Agent pursuant to the Security Agreement and Grantors hereby acknowledge and

 

affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Copyrights made and granted hereby are more fully set forth in the Security Agreement. In the event that any provision of this Copyright Security Agreement is deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall control unless the Administrative Agent shall otherwise determine. SECTION 4. Termination. Upon termination of the Security Agreement in accordance with Section 6.13 thereof, the Administrative Agent shall, at the expense of such Grantor, execute, acknowledge, and deliver to the Grantors an instrument in writing in recordable form releasing the lien on and security interest in the Copyrights under this Copyright Security Agreement. SECTION 5. Counterparts. This Copyright Security Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Copyright Security Agreement by signing and delivering one or more counterparts. [Signature pages follow.]

 

[GRANTOR] By: Name: Title: [Copyright Security Agreement]

 

BANK OF AMERICA, N.A., as Administrative Agent By: Name: Title: [Copyright Security Agreement]

 

Schedule I Copyright Registrations REGISTRATION OWNER TITLE NUMBER S-1

 

Exhibit 10.3 Execution Version COLLATERAL AGENT JOINDER AGREEMENT NO. 1, dated as of September 6, 2018 (this “Joinder Agreement”) to the INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT dated as of November 16, 2012 (the “Intercreditor Agreement”), among APX GROUP, INC., a Delaware corporation (the “Borrower”), GRANTORS party thereto, BANK OF AMERICA, N.A., as the Credit Agreement Collateral Agent, WILMINGTON TRUST, NATIONAL ASSOCIATION, as Notes Collateral Agent, and each ADDITIONAL COLLATERAL AGENT from time to time party thereto. A. Capitalized terms used herein but not otherwise defined herein shall have the meanings assigned to such terms in the Intercreditor Agreement. B. The Borrower proposes to issue or incur Additional First Lien Obligations and the Person identified in the signature pages hereto as the “Additional Collateral Agent” (the “Additional Collateral Agent”) will serve as the collateral agent, collateral trustee or a similar representative for the Additional Secured Parties. The Additional First Lien Obligations are be- ing designated as such by the Borrower in accordance with Article VII of the Intercreditor Agreement. C. The Additional Collateral Agent wishes to become a party to the Inter- creditor Agreement and to acquire and undertake, for itself and on behalf of the Additional Se- cured Parties, the rights and obligations of an “Additional Collateral Agent” thereunder. The Additional Collateral Agent is entering into this Joinder Agreement in accordance with the provi- sions of the Intercreditor Agreement in order to become an Additional Collateral Agent thereun- der. Accordingly, the Additional Collateral Agent and the Borrower agree as follows, for the benefit of the Additional Collateral Agent, the Borrower and each other party to the Inter- creditor Agreement: SECTION 1. Accession to the Intercreditor Agreement. The Additional Collat- eral Agent (a) hereby accedes and becomes a party to the Intercreditor Agreement as an Addi- tional Collateral Agent for the Additional Secured Parties from time to time in respect of the Ad- ditional First Lien Obligations, (b) agrees, for itself and on behalf of the Additional Secured Par- ties from time to time in respect of the Additional First Lien Obligations, to all the terms and provisions of the Intercreditor Agreement and (c) shall have all the rights and obligations of an Additional Collateral Agent under the Intercreditor Agreement. SECTION 2. Counterparts. This Joinder Agreement may be executed in multiple counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Joinder Agreement shall become effective when each Collateral Agent shall have received a counterpart of this Joinder Agreement that bears the signa- ture of the Additional Collateral Agent. Delivery of an executed signature page to this Joinder Agreement by facsimile or other electronic transmission shall be effective as delivery of a manu- ally signed counterpart of this Joinder Agreement.

 

SECTION 3. Benefit of Agreement. The agreements set forth herein or un- dertaken pursuant hereto are for the benefit of, and may be enforced by, any party to the Intercreditor Agreement. SECTION 4. Governing Law. THIS JOINDER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 5. Severability. In case any one or more of the provisions contained in this Joinder Agreement should be held invalid, illegal or unenforceable in any respect, none of the parties hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the re- maining provisions contained herein and in the Intercreditor Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 6. Notices. All communications and notices hereunder shall be in writing and given as provided in Section 9.01 of the Intercreditor Agreement. All communica- tions and notices hereunder to the Additional Collateral Agent shall be given to it at the address set forth under its signature hereto, which information supplements Section 9.01 of the Intercred- itor Agreement. SECTION 7. Expense Reimbursement. The Borrower agrees to reimburse each Collateral Agent for its reasonable and invoiced out-of-pocket expenses in connection with this Joinder Agreement, including the reasonable and invoiced fees, other charges and disbursements of counsel for each Collateral Agent.

 

IN WITNESS WHEREOF, the Additional Collateral Agent and the Borrower have duly executed this Joinder Agreement to the Intercreditor Agreement as of the day and year first above written. BANK OF AMERICA N.A., as ADDITIONAL COLLATERAL AGENT for the ADDITIONAL SECURED PARTIES By: /s/ Don B. Pinzon Name: Don B. Pinzon Title: Vice President Address for notices: attention of: Telecopy: APX GROUP, INC. By: /s/ Dale R. Gerard Name: Dale R. Gerard Title: Senior Vice President of Finance & Treasurer

 

Acknowledged by: BANK OF AMERICA, N.A., as Credit Agreement Collateral Agent By: /s/ Don B. Pinzon Name: Don B. Pinzon Title: Vice President WILMINGTON TRUST, NATIONAL ASSOCIATION, as Notes Collateral Agent By: /s/ Sarah Vilhauer Name: Sarah Vilhauer Title: Banking Officer

 

Exhibit 10.4 Form of Retention Award Agreement [Date], 2018 [Employee Name] [Street Address] [City, State and Zip Code] Re: Cash Incentive Award Dear [Employee Name]: APX Group, Inc. (the “Company”) is pleased to offer a cash incentive award to you to remain employed with the Company because we recognize that you are critical to the success of our future business operations and that you have the potential to make a significant impact on our future growth and financial performance. In addition to your salary and other benefits, you will be eligible to receive a retention bonus in the aggregate amount of $[_____], less applicable withholding taxes, payable as follows: (i) $[_____] payable on [August 3], 2018; (ii) $[_____] payable on [August 3], 2019; and (iii) $[_____] payable on [August 3], 2020. Each of the payments described above shall be conditioned on your continued employment with the Company (or one or more of its subsidiaries) through the dates listed above and your performance remaining in good standing, as determined in good faith by the Board of Directors of the Company. In the event your employment is terminated by the Company other than for Cause (as defined below), including due to death or disability, prior to any remaining payment date, you will receive the full remaining amount of the retention bonus, payable within 2-½ months following your termination date subject to your (or your estate’s, as applicable), execution of an effective release of claims in favor of the Company. However, you will not be entitled to receive any remaining amount of the retention bonus if (i) you terminate your employment with the Company for any reason, or (ii) your employment is terminated by the Company for Cause, in either case at any time prior to the applicable eligibility date set forth above. For purposes of this Agreement, “Cause” shall have the meaning ascribed to such term in your employment agreement with the Company or one of its affiliates and if not so defined, or no such agreement exists, shall mean (A) your continued failure substantially to perform your employment duties (other than as a result of total or partial incapacity due to physical or mental illness), (B) dishonesty in the performance of your employment duties, (C) an act or acts on your part constituting what would be classified as (x) a felony under the laws of the United States or any state thereof or (y) a misdemeanor involving moral turpitude under the laws of the United States or any state thereof, (D) your use, possession, sale, or purchase of controlled substance or alcohol during working hours or on the job site or being under the influence of controlled substances or alcohol during working hours or on the job site, (E) your willful malfeasance or willful misconduct in connection with your employment duties or any act or omission which is or could be reasonably expected to be injurious to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates, (F) your fraud or misappropriation, embezzlement or misuse of funds or property belong to the Company or any of its subsidiaries or affiliates or (G) your breach of any provision of any agreement including, but not limited to, any employment agreement or equity award agreement with the Company or any of its subsidiaries

 

or affiliates (whether currently in existence or arising in the future from time to time) containing covenants regarding non-competition, non-solicitation, non-disparagement and/or non-disclosure obligations; provided that none of the foregoing events shall constitute Cause unless you fail to cure such event and remedy any adverse or injurious consequences arising from such events within 10 days after receipt from the Company of written notice of the event which constitutes Cause (except that no cure or remedy period shall be provided if the event or such consequences are not capable of being cured and remedied). You and the Company agree that your employment with the Company is and will continue to be “at-will” and may be terminated at any time with or without Cause or notice by either you or the Company. No provision of this letter shall be construed as conferring upon you a right to continue as an employee of the Company or any of its subsidiaries or affiliates. Notwithstanding anything to the contrary herein, it is the intent of the parties hereto that the payments under this letter agreement comply with or be exempt from Section 409A of the Internal Revenue Code of 1986, as amended, and any successor thereto (the “Code”), and, accordingly, to the maximum extent permitted, this letter agreement shall be interpreted to be in compliance therewith. If any provision of this letter agreement would cause you to incur any additional tax or interest under Section 409A of the Code, the Company shall, in good faith and to the extent able, reform such provision in a manner intended to avoid the incurrence by you of any such additional tax or interest. This letter and all rights pursuant to it shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective personal or legal representatives, executors, administrators, heirs, distributees, devisees, legatees, successors and assigns. This letter shall be governed by and construed in accordance with the internal substantive laws, but not the choice of law rules, of the State of Utah. The content of this letter is personal and confidential between you and the Company. The Company’s expectations are that you will respect the sensitive nature of this correspondence and not disclose it to any other employee or manager of the Company. To indicate your acceptance of the terms of this letter, please sign and date this letter in the space provided below and return it to Starr Fowler - Senior Vice President, Human Resources. A duplicate original is enclosed for your records. This letter, along with your existing employment agreement, if any, and the agreement relating to proprietary rights between you and the Company, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by you and an authorized officer of the Company. Sincerely, Alex Dunn President APX Group, Inc. ACCEPTED AND AGREED TO this ______ day of ___________, 2018 ___________________________________ [Name] cc: Starr Fowler - SVP, Human Resources Page 2 of 2

 

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Exhibit 10.5 VIVINT GROUP, INC. AMENDED AND RESTATED 2013 OMNIBUS INCENTIVE PLAN 1. Purpose. The purpose of the Vivint Group, Inc. Amended and Restated 2013 Omnibus Incentive Plan is to provide a means through which Vivint Group, Inc. (the “Company”) and its Affiliates may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors (and prospective directors, officers, employees, consultants and advisors) of the Company and its Affiliates can acquire and maintain an equity interest in the Company, or be paid incentive compensation, including incentive compensation measured by reference to the value of shares of Common Stock, thereby strengthening their commitment to the welfare of the Company and its Affiliates and aligning their interests with those of the Company’s stockholders. 2. Definitions. The following definitions shall be applicable throughout the Plan. (a) “Absolute Share Limit” has the meaning given such term in Section 5(b). (b) “Affiliate” means (i) any person or entity that directly or indirectly controls, is controlled by or is under common control with the Company and/or (ii) to the extent provided by the Committee, any person or entity in which the Company has a significant interest. The term “control” (including, with correlative meaning, the terms “controlled by” and “under common control with”), as applied to any person or entity, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person or entity, whether through the ownership of voting or other securities, by contract or otherwise. (c) “Award” means, individually or collectively, any Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Other Stock-Based Award and Performance Compensation Award granted under the Plan. (d) “Board” means the Board of Directors of the Company. (e) “Cause” means, in the case of a particular Award, unless the applicable Award agreement states otherwise, shall have the meaning ascribed to such term in the Participant’s then-current Employment Agreement, and if not so defined, or no such Employment Agreement exists, “Cause” shall mean (A) the Participant’s continued failure substantially to perform the Participant’s employment duties (other than as a result of total or partial incapacity due to physical or mental illness), (B) dishonesty in the performance of the Participant’s employment duties, (C) an act or acts on the Participant’s part constituting (x) what would be classified as a felony under the laws of the United States or any state thereof or (y) what would be classified as a misdemeanor involving moral turpitude under the law of the United States or any state thereof, (D) use, possession, sale, or purchase of controlled substances or alcohol during working hours or on the job site or being under the influence of controlled substances or alcohol during working hours or on the job site, (E) the Participant’s willful malfeasance or willful misconduct in connection with the Participant’s employment duties or any act or 001366-0016-13471-Active.16178760.5

 

2 omission which is or could reasonably be expected to be injurious to the financial condition or business reputation of the Company or any of its Subsidiaries or Affiliates, (F) the Participant’s fraud or misappropriation, embezzlement or misuse of funds or property belonging to the Company or an Affiliate or Subsidiary or (G) the occurrence of any Restrictive Covenant Violation; provided, that none of the foregoing events shall constitute Cause unless Participant fails to cure such event and remedy any adverse or injurious consequences arising from such event within 10 days after the receipt of written notice from the Company of the event which constitutes Cause (except that no cure or remedy period shall be provided if the event or such consequences are not capable of being cured and remedied). (f) “Change of Control” shall mean (i) the sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries, as a whole, to any Person or Group other than Parent or (ii) any Person or Group, other than Parent, is or becomes the “beneficial owner” (as such term is defined in Rules 13d-3 and 13d-5 under the Exchange Act (or any successor rule thereto)), directly or indirectly, of 50% or more of the total voting power of the voting equity of the Company, including by way of merger, consolidation or otherwise and Parent ceases to directly or indirectly control the Board. (g) “Code” means the Internal Revenue Code of 1986, as amended, and any successor thereto. Reference in the Plan to any section of the Code shall be deemed to include any regulations or other interpretative guidance under such section, and any amendments or successor provisions to such section, regulations or guidance. (h) “Committee” means (i) prior to a Public Offering, the Compensation Committee of the Parent Board or such other committee of the Parent Board (including, without limitation, the full Parent Board) to which the Parent Board has delegated power to act under or pursuant to the provisions of the Plan, and (ii) following (A) a Public Offering or (B) the date Parent ceases to be the “beneficial owner” (as such term is defined in Rules 13d-3 and 13d-5 under the Exchange Act (or any successor rule thereto)), directly or indirectly, of 80% or more of the total voting power of the voting equity of the Company, the Compensation Committee of the Board or such other committee of the Board (including, without limitation, the full Board) to which the Board has delegated power to act under or pursuant to the provisions of the Plan, or any subcommittee thereof if required with respect to actions taken to comply with Section 162(m) of the Code in respect of Awards, and if no such committee or subcommittee thereof exists, the Board. (i) “Common Stock” means the common stock, par value $0.01 per share, of the Company (and any stock or other securities into which such Common Stock may be converted or into which it may be exchanged). (j) “Company” means Vivint Group, Inc., a Utah corporation, and any successor thereto. (k) “Date of Grant” means the date on which the granting of an Award is authorized, or such other date as may be specified in such authorization. 001366-0016-13471-Active.16178760.5

 

3 (l) “Designated Foreign Subsidiaries” means all Affiliates organized under the laws of any jurisdiction or country other than the United States of America that may be designated by the Board or the Committee from time to time. (m) “Disability” means, unless in the case of a particular Award the applicable Award agreement states otherwise, shall have the meaning ascribed to such term in the Participant’s Employment Agreement, and if not so defined, or if no such Employment Agreement exists, “Disability” shall mean the Participant’s inability, for a period of six (6) consecutive months or for an aggregate of twelve (12) months in any twenty-four (24) consecutive month period, to perform Executive’s employment duties as a result of the Executive becoming physically or mentally incapacitated, as determined in good faith by the Board. Any determination of whether Disability exists shall be made by the Committee in its sole discretion. (n) “Effective Date” means July 1, 2013. (o) “Eligible Director” means a person who is (i) a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act, (ii) an “outside director” within the meaning of Section 162(m) of the Code and (iii) an “independent director” under the rules of any securities exchange or inter-dealer quotation system on which the shares of Common Stock is listed or quoted, or a person meeting any similar requirement under any similar rule or regulation. (p) “Eligible Person” means any (i) individual employed by the Company or an Affiliate; provided, however, that no such employee covered by a collective bargaining agreement shall be an Eligible Person unless and to the extent that such eligibility is set forth in such collective bargaining agreement or in an agreement or instrument relating thereto; (ii) director or officer of the Company or an Affiliate; (iii) consultant or advisor to the Company or an Affiliate who may be offered securities registrable pursuant to a registration statement on Form S-8 under the Securities Act; or (iv) any prospective employees, directors, officers, consultants or advisors who have accepted offers of employment or consultancy from the Company or its Affiliates (and would satisfy the provisions of clauses (i) through (iii) above once he or she begins employment with or providing services to the Company or its Affiliates), who, in the case of each of clauses (i) through (iv) above has entered into an Award agreement or who has received written notification from the Committee or its designee that they have been selected to participate in the Plan. Solely for purposes of this Section 2(p), “Affiliate” shall be limited to (1) a Subsidiary, (2) any Parent Corporation, (3) any corporation, trade or business 50% or more of the combined voting power of such entity’s outstanding securities is directly or indirectly controlled by the Company or any Subsidiary or Parent Corporation, (4) any corporation, trade or business which directly or indirectly controls 50% or more of the combined voting power of the outstanding securities of the Company and (5) any other entity in which the Company or any Subsidiary or Parent Corporation has a material equity interest and which is designated as an “Affiliate” by the Committee. (q) “Employment” means (i) a Participant’s employment if the Participant is an employee of the Company or any of its Affiliates or Subsidiaries (or Parent or one of its Subsidiaries), (ii) a Participant’s services as an advisor, if the Participant is an advisor to the Company or any of its Affiliates or Subsidiaries (or Parent or one of its Subsidiaries), and (iii) a 001366-0016-13471-Active.16178760.5

 

4 Participant’s services as a non-employee director, if the Participant is a non-employee member of the Board or Parent Board. (r) “Employment Agreement” means the employment agreement entered into by and between the Participant and the Company or one of its Affiliates or Subsidiaries, as may be amended, modified or supplemented from time to time. (s) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor thereto. Reference in the Plan to any section of (or rule promulgated under) the Exchange Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance. (t) “Exercise Price” means the exercise price per share of Common Stock for each Option. (u) “Fair Market Value” means, on a given date, (i) if the Common Stock is listed on a national securities exchange, the closing price of the Common Stock reported on the primary exchange on which the Common Stock is listed and traded on such date, or, if there are no such sales on that date, then on the last preceding date on which such sales were reported; (ii) if the Common Stock is not listed on any national securities exchange but is quoted in an inter-dealer quotation system on a last-sale basis, the average between the closing bid price and ask price reported on such date, or, if there is no such sale on that date, then on the last preceding date on which a sale was reported; or (iii) if the Common Stock is not listed on a national securities exchange or quoted in an inter-dealer quotation system on a last-sale basis, the amount determined by the Parent Board (or, after a Public Offering, the Committee) in good faith to be the fair market value of the Common Stock. (v) “Group” means “group” as such term is used for purposes of Section 13(d) or 14(d) of the Exchange Act (or any successor section thereto). (w) “Immediate Family Member” means any person who is a “family member” of the Participant, as such term is used in the instructions to Form S-8 under the Securities Act or any successor form of registration statement promulgated by the Securities and Exchange Commission. (x) “Incentive Stock Option” means an Option which is designated by the Committee as an incentive stock option as described in Section 422 of the Code and otherwise meets the requirements set forth in the Plan. (y) “Indemnifiable Person” shall have the meaning set forth in Section 4(e) of the Plan. (z) “Negative Discretion” shall mean the discretion authorized by the Plan to be applied by the Committee to eliminate or reduce the size of a Performance Compensation Award consistent with Section 162(m) of the Code. 001366-0016-13471-Active.16178760.5

 

5 (aa) “Nonqualified Stock Option” means an Option which is not designated by the Committee as an Incentive Stock Option. (bb) “Non-Employee Director” means a member of the Board who is not an employee of the Company or any Affiliate or Subsidiary. (cc) “Option” means an Award granted under Section 7 of the Plan. (dd) “Option Period” has the meaning given such term in Section 7(c) of the Plan. (ee) “Other Stock-Based Award” means an Award granted under Section 10 of the Plan. (ff) “Parent” means 313 Acquisition LLC, a Delaware limited liability company. (gg) “Parent Board” means the Board of Managers of Parent. (hh) “Parent Corporation” means any parent corporation of the Company within the meaning of Section 424(e) of the Code. (ii) “Participant” means an Eligible Person who has been selected by the Committee to participate in the Plan and to receive an Award pursuant to the Plan. (jj) “Performance Compensation Award” shall mean any Award designated by the Committee as a Performance Compensation Award pursuant to Section 11 of the Plan. (kk) “Performance Criteria” shall mean the criterion or criteria that the Committee shall select for purposes of establishing the Performance Goals for a Performance Period with respect to any Performance Compensation Award under the Plan. (ll) “Performance Formula” shall mean, for a Performance Period, the one or more objective formulae applied against the relevant Performance Goal to determine, with regard to the Performance Compensation Award of a particular Participant, whether all, some portion but less than all, or none of the Performance Compensation Award has been earned for the Performance Period. (mm) “Performance Goals” shall mean, for a Performance Period, the one or more goals established by the Committee for the Performance Period based upon the Performance Criteria. (nn) “Performance Period” shall mean the one or more periods of time of not less than twelve (12) months, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to, and the payment of, a Performance Compensation Award. (oo) “Permitted Transferee” shall have the meaning set forth in Section 14(b) of the Plan. 001366-0016-13471-Active.16178760.5

 

6 (pp) “Person” means any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act. (qq) “Plan” means this Vivint Group, Inc. Amended and Restated 2013 Omnibus Incentive Plan. (rr) “Public Offering” means a sale of shares of Common Stock of the Company, any parent entity owning 100% of the shares of Common Stock of the Company, or any Subsidiary of the Company owning all or substantially all of the assets of the Company and its Subsidiaries to the public in an underwritten offering pursuant to an effective registration statement filed with the SEC pursuant to the Securities Act, provided that a Public Offering shall not include an offering made in connection with a business acquisition or combination or an employee benefit plan. (ss) “Restricted Period” means the period of time determined by the Committee during which an Award is subject to restrictions or, as applicable, the period of time within which performance is measured for purposes of determining whether an Award has been earned. (tt) “Restricted Stock” means Common Stock, subject to certain specified restrictions (including, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 9 of the Plan. (uu) “Restricted Stock Unit” means an unfunded and unsecured promise to deliver shares of Common Stock, cash, other securities or other property, subject to certain restrictions (including, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 9 of the Plan. (vv) “Restrictive Covenant Violation” means the Participant’s breach of any provision of any agreement (including any Award agreement) with Parent, the Company or any of their respective Affiliates or Subsidiaries (whether currently in existence or arising in the future from time to time, and whether entered into pursuant to the Plan or otherwise) containing covenants regarding non-competition, non-solicitation, non-disparagement and/or non-disclosure obligations (collectively, “Restrictive Covenants”). (ww) “SAR Period” has the meaning given such term in Section 8(c) of the Plan. (xx) “Securities Act” means the Securities Act of 1933, as amended, and any successor thereto. Reference in the Plan to any section of (or rule promulgated under) the Securities Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance. (yy) “Service Recipient” means, with respect to a Participant holding a given Award, either the Company or an Affiliate or Subsidiary of the Company by which the original recipient of such Award is, or following a Termination was most recently, principally employed 001366-0016-13471-Active.16178760.5

 

7 or to which such original recipient provides, or following a Termination was most recently providing, services, as applicable. (zz) “Stock Appreciation Right” or “SAR” means an Award granted under Section 8 of the Plan. (aaa) “Stockholders’ Agreement” means any agreement of one or more stockholders of the Company (or the issuer of Alternative Equity) designated as a “Management Stockholders Agreement” by the Committee from time to time, as may be amended or supplemented from time to time in accordance with the terms thereof. (bbb) “Strike Price” means the strike price per share of Common Stock for each SAR. (ccc) “Subsidiary” means, with respect to any specified Person: (i) any corporation, limited liability corporation, association or other business entity of which more than 50% of the total voting power of shares of such entity’s voting securities (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (ii) any partnership (or any comparable foreign entity) (A) the sole general partner (or functional equivalent thereof) or the managing general partner of which is such Person or Subsidiary of such Person or (B) the only general partners (or functional equivalents thereof) of which are that Person or one or more Subsidiaries of that Person (or any combination thereof). (ddd) “Substitute Award” has the meaning given such term in Section 5(e). (eee) “Sub Plans” means, any sub-plan to this Plan that has been adopted by the Board or the Committee for the purpose of permitting the offering of Awards to employees of certain Designated Foreign Subsidiaries or otherwise outside the United States of America, with each such sub-plan designed to comply with local laws applicable to offerings in such foreign jurisdictions. Although any Sub Plan may be designated a separate and independent plan from the Plan in order to comply with applicable local laws, the Absolute Share Limit shall apply in the aggregate to the Plan and any Sub Plan adopted hereunder. (fff) “Termination” means the termination of a Participant’s employment or service, as applicable, with the Service Recipient. 3. Effective Date; Duration. The Plan shall be effective as of the Effective Date. The expiration date of the Plan, on and after which date no Awards may be granted hereunder, shall be the tenth (10th) anniversary of the Effective Date; provided, however, that such expiration shall not affect Awards then outstanding, and the terms and conditions of the Plan shall continue to apply to such Awards. 4. Administration. 001366-0016-13471-Active.16178760.5

 

8 (a) The Committee shall administer the Plan. To the extent required to comply with the provisions of Rule 16b-3 promulgated under the Exchange Act (if the Board is not acting as the Committee under the Plan) or necessary to obtain the exception for performance-based compensation under Section 162(m) of the Code, in each case to the extent applicable to the Company at the time of any action, it is intended that each member of the Committee shall, at the time he or she takes any such action with respect to an Award under the Plan, be an Eligible Director. However, the fact that a Committee member shall fail to qualify as an Eligible Director shall not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan. (b) Subject to the provisions of the Plan and applicable law, the Committee shall have the sole and plenary authority, in addition to other express powers and authorizations conferred on the Committee by the Plan, to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of shares of Common Stock to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, shares of Common Stock, other securities, other Awards or other property, or canceled, forfeited, or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances the delivery of cash, shares of Common Stock, other securities, other Awards or other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the Participant or of the Committee; (vii) interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan and any instrument or agreement relating to, or Award granted under, the Plan; (viii) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Committee shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. (c) Except to the extent prohibited by applicable law or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or traded, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it. The Committee may revoke any such allocation or delegation at any time. Without limiting the generality of the foregoing, the Committee may delegate to one or more officers of the Company or any Affiliate or Subsidiary the authority to act on behalf of the Committee with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Committee herein, and which may be so delegated as a matter of law, except for grants of Awards to persons (i) who are non-employee members of the Board or otherwise are subject to Section 16 of the Exchange Act or (ii) who are, or who are reasonably expected to be, “covered employees” for purposes of Section 162(m) of the Code. (d) Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award or any documents evidencing Awards granted pursuant to the Plan shall be within the sole discretion of 001366-0016-13471-Active.16178760.5

 

9 the Committee, may be made at any time and shall be final, conclusive and binding upon all persons or entities, including, without limitation, the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, and any stockholder of the Company. (e) No member of the Board, the Committee or any employee or agent of the Company (each such person, an “Indemnifiable Person”) shall be liable for any action taken or omitted to be taken or any determination made with respect to the Plan or any Award hereunder (unless constituting fraud or a willful criminal act or omission). Each Indemnifiable Person shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense (including attorneys’ fees) that may be imposed upon or incurred by such Indemnifiable Person in connection with or resulting from any action, suit or proceeding to which such Indemnifiable Person may be a party or in which such Indemnifiable Person may be involved by reason of any action taken or omitted to be taken or determination made under the Plan or any Award agreement and against and from any and all amounts paid by such Indemnifiable Person with the Company’s approval, in settlement thereof, or paid by such Indemnifiable Person in satisfaction of any judgment in any such action, suit or proceeding against such Indemnifiable Person, and the Company shall advance to such Indemnifiable Person any such expenses promptly upon written request (which request shall include an undertaking by the Indemnifiable Person to repay the amount of such advance if it shall ultimately be determined as provided below that the Indemnifiable Person is not entitled to be indemnified); provided that the Company shall have the right, at its own expense, to assume and defend any such action, suit or proceeding and once the Company gives notice of its intent to assume the defense, the Company shall have sole control over such defense with counsel of the Company’s choice. The foregoing right of indemnification shall not be available to an Indemnifiable Person to the extent that a final judgment or other final adjudication (in either case not subject to further appeal) binding upon such Indemnifiable Person determines that the acts or omissions or determinations of such Indemnifiable Person giving rise to the indemnification claim resulted from such Indemnifiable Person’s fraud or willful criminal act or omission or that such right of indemnification is otherwise prohibited by law or by the Company’s Certificate of Incorporation or Bylaws. The foregoing right of indemnification shall not be exclusive of or otherwise supersede any other rights of indemnification to which such Indemnifiable Persons may be entitled under the Company’s Certificate of Incorporation or Bylaws, as a matter of law, individual indemnification agreement or contract or otherwise, or any other power that the Company may have to indemnify such Indemnifiable Persons or hold them harmless. (f) Notwithstanding anything to the contrary contained in the Plan, the Board may, in its sole discretion, at any time and from time to time, grant Awards and administer the Plan with respect to such Awards. Any such actions by the Board shall be subject to the applicable rules of any securities exchange or inter-dealer quotation system on which the shares of Common Stock is listed or quoted. In any such case, the Board shall have all the authority granted to the Committee under the Plan. 5. Grant of Awards; Shares Subject to the Plan; Limitations. (a) The Committee may, from time to time, grant Awards to one or more Eligible Persons. 001366-0016-13471-Active.16178760.5

 

10 (b) Awards granted under the Plan shall be subject to the following limitations: (i) subject to Section 12 of the Plan, no more than 80,640,142 shares of Common Stock (the “Absolute Share Limit”) shall be available for Awards under the Plan; (ii) subject to Section 12 of the Plan, no more than the number of shares of Common Stock equal to the Absolute Share Limit may be delivered in the aggregate pursuant to the exercise of Incentive Stock Options granted under the Plan; and (iii) following a Public Offering, (A) subject to Section 12 of the Plan, grants of Options or SARs under the Plan in respect of no more than 27,431,460 shares of Common Stock may be made to any individual Participant during any single fiscal year of the Company (for this purpose, if a SAR is granted in tandem with an Option (such that the SAR expires with respect to the number of shares of Common Stock for which the Option is exercised), only the shares of Common Stock underlying the Option shall count against this limitation); (B) subject to Section 12 of the Plan, no more than 27,431,460 shares of Common Stock may be delivered in respect of Performance Compensation Awards denominated in shares of Common Stock granted pursuant to Section 11 of the Plan to any individual Participant for a single fiscal year during a Performance Period (or with respect to each single fiscal year in the event a Performance Period extends beyond a single fiscal year), or in the event such share denominated Performance Compensation Award is paid in cash, other securities, other Awards or other property, no more than the Fair Market Value of such shares of Common Stock on the last day of the Performance Period to which such Award relates; (C) the maximum amount that can be paid to any individual Participant for a single fiscal year during a Performance Period (or with respect to each single fiscal year in the event a Performance Period extends beyond a single fiscal year) pursuant to a Performance Compensation Award denominated in cash (described in Section 11(a) of the Plan) shall be $2,000,000; and (D) the maximum number of shares of Common Stock subject to Awards granted during a single fiscal year to any non- employee director, taken together with any cash fees paid to such non-employee director during any single fiscal year, shall not exceed $2,000,000 in total value (calculating the value of any such Awards based on the grant date fair value of such Awards for financial reporting purposes and excluding, for this purpose, the value of any dividend equivalent payments paid pursuant to any Award granted in a previous fiscal year. (c) Other than with respect to Substitute Awards, to the extent that an Award expires or is canceled, forfeited, terminated, or otherwise is settled without a delivery to the Participant of the full number of shares of Common Stock to which the Award related (or a cash amount in respect thereof), the undelivered shares of Common Stock will again be available for grant. Shares of Common Stock withheld in payment of the exercise price or taxes relating to an Award and shares of Common Stock equal to the number of shares of Common Stock surrendered in payment of any Exercise Price or Strike Price shall be deemed to constitute shares of Common Stock not delivered to the Participant and shall be deemed to again be available for Awards under the Plan; provided, however, that such shares of Common Stock shall not become available for issuance hereunder if either (i) the applicable shares of Common Stock are withheld or surrendered following the termination of the Plan or (ii) at the time the applicable shares of Common Stock are withheld or surrendered, it would constitute a material revision of the Plan subject to stockholder approval under any then-applicable rules of the national securities exchange on which the shares of Common Stock are listed. 001366-0016-13471-Active.16178760.5

 

11 (d) Shares of Common Stock delivered by the Company in settlement of Awards may be authorized and unissued shares, shares held in the treasury of the Company, shares purchased on the open market or by private purchase or a combination of the foregoing. (e) Awards may, in the sole discretion of the Committee, be granted under the Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity directly or indirectly acquired by the Company or with which the Company combines (“Substitute Awards”). Substitute Awards shall not be counted against the Absolute Share Limit; provided, that Substitute Awards issued in connection with the assumption of, or in substitution for, outstanding options intended to qualify as “incentive stock options” within the meaning of Section 422 of the Code shall be counted against the aggregate number of shares of Common Stock available for Awards of Incentive Stock Options under the Plan. Subject to applicable stock exchange requirements, available shares of Common Stock under a stockholder approved plan of an entity directly or indirectly acquired by the Company or with which the Company combines (as appropriately adjusted to reflect the acquisition or combination transaction) may be used for Awards under the Plan and shall not reduce the number of shares of Common Stock available for delivery under the Plan. 6. Eligibility. Participation in the Plan shall be limited to Eligible Persons. 7. Options. (a) General. Each Option granted under the Plan shall be evidenced by an Award agreement, in written or electronic form, which agreement need not be the same for each Participant. Each Option so granted shall be subject to the conditions set forth in this Section 7, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award agreement. All Options granted under the Plan shall be Nonqualified Stock Options unless the applicable Award agreement expressly states that the Option is intended to be an Incentive Stock Option. Incentive Stock Options shall be granted only to Eligible Persons who are employees of the Company and its Affiliates, and no Incentive Stock Option shall be granted to any Eligible Person who is ineligible to receive an Incentive Stock Option under the Code. No Option shall be treated as an Incentive Stock Option unless the Plan has been approved by the stockholders of the Company in a manner intended to comply with the stockholder approval requirements of Section 422(b)(1) of the Code, provided that any Option intended to be an Incentive Stock Option shall not fail to be effective solely on account of a failure to obtain such approval, but rather such Option shall be treated as a Nonqualified Stock Option unless and until such approval is obtained. In the case of an Incentive Stock Option, the terms and conditions of such grant shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code. If for any reason an Option intended to be an Incentive Stock Option (or any portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such nonqualification, such Option or portion thereof shall be regarded as a Nonqualified Stock Option appropriately granted under the Plan. (b) Exercise Price. Except as otherwise provided by the Committee in the case of Substitute Awards, the Exercise Price per share of Common Stock for each Option shall not be less than 100% of the Fair Market Value of such share (determined as of the Date of Grant); provided, however, that in the case of an Incentive Stock Option granted to an employee who, at 001366-0016-13471-Active.16178760.5

 

12 the time of the grant of such Option, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Affiliate, the Exercise Price per share shall be no less than 110% of the Fair Market Value per share on the Date of Grant. (c) Vesting and Expiration. (i) Options shall vest and become exercisable in such manner and on such date or dates determined by the Committee and shall expire after such period, not to exceed ten years, as may be determined by the Committee (the “Option Period”); provided, that other than in the case of an Incentive Stock Option , if following a Public Offering the Option Period would expire at a time when trading in the shares of Common Stock is prohibited by the Company’s insider trading policy (or Company-imposed “blackout period”), the Option Period shall be automatically extended until the thirtieth (30th) day following the expiration of such prohibition; provided, however, that in no event shall the Option Period exceed five (5) years from the Date of Grant in the case of an Incentive Stock Option granted to a Participant who on the Date of Grant owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Affiliate. (ii) Unless otherwise provided by the Committee, in the event of (A) a Participant’s Termination by the Company for Cause, all outstanding Options granted to such Participant shall immediately terminate and expire, (B) a Participant’s Termination due to death or Disability, each outstanding unvested Option granted to such Participant shall immediately terminate and expire, and each outstanding vested Option shall remain exercisable for one (1) year thereafter (but in no event beyond the expiration of the Option Period) and (C) a Participant’s Termination for any other reason, each outstanding unvested Option granted to such Participant shall immediately terminate and expire, and each outstanding vested Option shall remain exercisable for sixty (60) days thereafter (but in no event beyond the expiration of the Option Period), or such other period as specified by the Committee in the applicable Award agreement. (d) Method of Exercise and Form of Payment. (i) No shares of Common Stock shall be delivered pursuant to any exercise of an Option until payment in full of the Exercise Price therefor is received by the Company and the Participant has paid to the Company an amount equal to any Federal, state, local and non-U.S. income and employment taxes required to be withheld in accordance with Section 14(d) hereof. Options which have become exercisable may be exercised (in whole or in part) by delivery of written or electronic notice of exercise to the Company (or electronic or telephonic instructions to the extent provided by the Committee) at its principal office of intent to so exercise (an “Exercise Notice”), provided, that an Option may be exercised with respect to whole shares of Common Stock only, and provided, further, that any fractional shares of Common Stock shall be settled in cash. The Exercise Notice shall specify the number of shares of Common Stock for which the Option is being exercised and shall be accompanied by payment in full of the Exercise Price. 001366-0016-13471-Active.16178760.5

 

13 (ii) The payment of the Exercise Price may be made at the election of the Participant (A)in cash or its equivalent (e.g., by check or, if permitted by the Committee, a full-recourse promissory note), or (B)if permitted by the Committee, (1) in shares of Common Stock having a Fair Market Value equal to the aggregate Exercise Price for the shares of Common Stock being purchased and satisfying such other reasonable requirements as may be imposed by the Committee; provided, that such shares of Common Stock have been held by the Participant for any period as established from time to time by the Committee in order to avoid adverse accounting treatment applying generally accepted accounting principles and provided, further, that such shares of Common Stock are not subject to any pledge or other security interest, (2) partly in cash and partly in such shares of Common Stock, (3) if there is a public market for the shares of Common Stock at such time, to the extent permitted by the Committee and subject to such rules as may be established by the Committee, through the delivery of irrevocable instructions to a broker to sell shares of Common Stock obtained upon the exercise of the Option and to deliver promptly to the Company an amount out of the proceeds of such sale equal to the aggregate Exercise Price for such shares of Common Stock being purchased, or (4) using a net settlement mechanism whereby the number of shares of Common Stock delivered upon the exercise of the Option will be reduced by a number of shares of Common Stock that has a Fair Market Value equal to the Exercise Price. A Participant shall not have any rights to dividends or other rights of a stockholder with respect to shares of Common Stock subject to an Option until the Participant has given written notice of exercise of the Option, paid in full for such shares and, if applicable, has satisfied any other conditions imposed by the Committee pursuant to the Plan. (e) Notification upon Disqualifying Disposition of an Incentive Stock Option. Each Participant awarded an Incentive Stock Option under the Plan shall notify the Company in writing immediately after the date he or she makes a disqualifying disposition of any shares of Common Stock acquired pursuant to the exercise of such Incentive Stock Option. A disqualifying disposition is any disposition (including, without limitation, any sale) of such shares of Common Stock before the later of (i) two (2) years after the Date of Grant of the Incentive Stock Option or (ii) one (1) year after the date of exercise of the Incentive Stock Option. The Company may, if determined by the Committee and in accordance with procedures established by the Committee, retain possession, as agent for the applicable Participant, of any shares of Common Stock acquired pursuant to the exercise of an Incentive Stock Option until the end of the period described in the preceding sentence, subject to complying with any instructions from such Participant as to the sale of such shares of Common Stock. (f) Compliance With Laws, etc. Notwithstanding the foregoing, in no event shall a Participant be permitted to exercise an Option in a manner which the Committee determines would violate the Sarbanes-Oxley Act of 2002, or any other applicable law or the applicable rules and regulations of the Securities and Exchange Commission or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or traded. 8. Stock Appreciation Rights. 001366-0016-13471-Active.16178760.5

 

14 (a) General. Each SAR granted under the Plan shall be evidenced by an Award agreement. Each SAR so granted shall be subject to the conditions set forth in this Section 8, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award agreement. Any Option granted under the Plan may include tandem SARs. The Committee also may award SARs to Eligible Persons independent of any Option. (b) Strike Price. Except as otherwise provided by the Committee in the case of Substitute Awards, the Strike Price per share of Common Stock for each SAR shall not be less than 100% of the Fair Market Value of such share (determined as of the Date of Grant). Notwithstanding the foregoing, a SAR granted in tandem with (or in substitution for) an Option previously granted shall have a Strike Price equal to the Exercise Price of the corresponding Option. (c) Vesting and Expiration. (i) A SAR granted in connection with an Option shall become exercisable and shall expire according to the same vesting schedule and expiration provisions as the corresponding Option. A SAR granted independent of an Option shall vest and become exercisable and shall expire in such manner and on such date or dates determined by the Committee and shall expire after such period, not to exceed ten years, as may be determined by the Committee (the “SAR Period”); provided, that following a Public Offering, if the SAR Period would expire at a time when trading in the shares of Common Stock is prohibited by the Company’s insider trading policy (or Company- imposed “blackout period”), the SAR Period shall be automatically extended until the thirtieth (30th) day following the expiration of such prohibition. (ii) Unless otherwise provided by the Committee, in the event of (A) a Participant’s Termination by the Company for Cause, all outstanding SARs granted to such Participant shall immediately terminate and expire, (B) a Participant’s Termination due to death or Disability, each outstanding unvested SAR granted to such Participant shall immediately terminate and expire, and each outstanding vested SAR shall remain exercisable for one (1) year thereafter (but in no event beyond the expiration of the SAR Period) and (C) a Participant’s Termination for any other reason, each outstanding unvested SAR granted to such Participant shall immediately terminate and expire, and each outstanding vested SAR shall remain exercisable for ninety (90) days thereafter (but in no event beyond the expiration of the SAR Period), or such other period as specified by the Committee in the applicable Award agreement. (d) Method of Exercise. SARs that have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Award, specifying the number of SARs to be exercised and the date on which such SARs were awarded. (e) Payment/Settlement. Upon the exercise of a SAR, the Company shall (or shall cause Parent to) pay to the Participant an amount equal to the number of shares of Common Stock subject to the SAR that are being exercised multiplied by the excess, if any, of the Fair Market Value of one (1) share of Common Stock on the exercise date over the Strike Price, less 001366-0016-13471-Active.16178760.5

 

15 an amount equal to any Federal, state, local and non-U.S. income and employment taxes required to be withheld. As determined by the Committee, the Company or Parent shall pay such amount in (w) cash, (x) shares of Common Stock valued at Fair Market Value, (y) shares of Common Stock or units of capital stock of Parent or one of its majority-owned Subsidiaries (“Alternative Equity”) valued at Fair Market Value (measured as though all references to shares of Common Stock in such definition of “Fair Market Value” were replaced with Alternative Equity) or (z) any combination thereof. Any fractional shares of Common Stock or Alternative Equity may be settled in cash, at the Committee’s election. For the avoidance of doubt, it is the expectation of the Committee that all SARs will generally be settled in shares of Common Stock or Alternative Equity issued by Parent or another majority parent entity to the Company. (f) Substitution of SARs for Nonqualified Stock Options. The Committee shall have the authority in its sole discretion to substitute, without the consent of the affected Participant or any holder or beneficiary of SARs, SARs settled in shares of Common Stock or Alternative Equity (or settled in shares of Common Stock or cash in the sole discretion of the Committee) for outstanding Nonqualified Stock Options, provided that (i) the substitution shall not otherwise result in a modification of the terms of any such Nonqualified Stock Option, (ii) the number of shares of Common Stock underlying the substituted SARs shall be the same as the number of shares of Common Stock underlying such Nonqualified Stock Options and (iii) the Strike Price of the substituted SARs shall be equal to the Exercise Price of such Nonqualified Stock Options; provided, however, that if, in the opinion of the Company’s independent public auditors, the foregoing provision creates adverse accounting consequences for the Company, such provision shall be considered null and void. 9. Restricted Stock and Restricted Stock Units. (a) General. Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award agreement. Each Restricted Stock and Restricted Stock Unit grant shall be subject to the conditions set forth in this Section 9, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award agreement. (b) Stock Certificates and Book Entry; Escrow or Similar Arrangement. Upon the grant of Restricted Stock, the Committee shall cause a stock certificate registered in the name of the Participant to be issued or shall cause share(s) of Common Stock to be registered in the name of the Participant and held in book-entry form subject to the Company’s directions and, if the Committee determines that the Restricted Stock shall be held by the Company or in escrow rather than delivered to the Participant pending the release of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company (i) an escrow agreement satisfactory to the Committee, if applicable, and (ii) the appropriate stock power (endorsed in blank) with respect to the Restricted Stock covered by such agreement. If a Participant shall fail to execute and deliver (in a manner permitted under Section 14(a) or as otherwise determined by the Committee) an agreement evidencing an Award of Restricted Stock and, if applicable, an escrow agreement and blank stock power within the amount of time specified by the Committee, the Award shall be null and void. Subject to the restrictions set forth in this Section 9 and the applicable Award agreement, the Participant generally shall have the rights and privileges of a stockholder as to such Restricted Stock, including without limitation the right to vote such Restricted Stock (provided that if the lapsing of restrictions with 001366-0016-13471-Active.16178760.5

 

16 respect to any grant of Restricted Stock is contingent on satisfaction of performance conditions (other than or in addition to the passage of time), any dividends payable on such shares of Restricted Stock shall be held by the Company and delivered (without interest) to the Participant within fifteen (15) days following the date on which the restrictions on such Restricted Stock lapse (and the right to any such accumulated dividends shall be forfeited upon the forfeiture of the Restricted Stock to which such dividends relate). To the extent shares of Restricted Stock are forfeited, any stock certificates issued to the Participant evidencing such shares shall be returned to the Company, and all rights of the Participant to such shares and as a stockholder with respect thereto shall terminate without further obligation on the part of the Company. (c) Vesting; Acceleration of Lapse of Restrictions. The Restricted Period with respect to Restricted Stock and Restricted Stock Units shall lapse in such manner and on such date or dates determined by the Committee, and the Committee shall determine the treatment of the unvested portion of Restricted Stock and Restricted Stock Units upon termination of employment or service of the Participant granted the applicable Award. (d) Delivery of Restricted Stock and Settlement of Restricted Stock Units. (i) Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth in the applicable Award agreement shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award agreement. If an escrow arrangement is used, upon such expiration, the Company shall deliver to the Participant, or his or her beneficiary, without charge, the stock certificate (or, if applicable, a notice evidencing a book entry notation) evidencing the shares of Restricted Stock which have not then been forfeited and with respect to which the Restricted Period has expired (rounded down to the nearest full share). Dividends, if any, that may have been withheld by the Committee and attributable to any particular share of Restricted Stock shall be distributed to the Participant in cash or, at the sole discretion of the Committee, in shares of Common Stock having a Fair Market Value (on the date of distribution) equal to the amount of such dividends, upon the release of restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends. (ii) Unless otherwise provided by the Committee in an Award agreement, upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, the Company shall deliver to the Participant, or his or her beneficiary, without charge, one (1) share of Common Stock (or other securities or other property, as applicable) for each such outstanding Restricted Stock Unit; provided, however, that the Committee may, in its sole discretion, elect to (i) pay cash or part cash and part Common Stock in lieu of delivering only shares of Common Stock in respect of such Restricted Stock Units or (ii) defer the delivery of shares of Common Stock (or cash or part Common Stock and part cash, as the case may be) beyond the expiration of the Restricted Period if such extension would not cause adverse tax consequences under Section 409A of the Code. If a cash payment is made in lieu of delivering shares of Common Stock, the amount of such payment shall be equal to the Fair Market Value of the shares of Common Stock as of the date on which the Restricted Period lapsed with respect to such 001366-0016-13471-Active.16178760.5

 

17 Restricted Stock Units. To the extent provided in an Award agreement, the holder of outstanding Restricted Stock Units shall be entitled to be credited with dividend equivalent payments (upon the payment by the Company of dividends on shares of Common Stock) either in cash or, at the sole discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to the amount of such dividends (and interest may, at the sole discretion of the Committee, be credited on the amount of cash dividend equivalents at a rate and subject to such terms as determined by the Committee), which accumulated dividend equivalents (and interest thereon, if applicable) shall be payable at the same time as the underlying Restricted Stock Units are settled following the release of restrictions on such Restricted Stock Units, and, if such Restricted Stock Units are forfeited, the Participant shall have no right to such dividend equivalent payments. (e) Legends on Restricted Stock. Each certificate representing Restricted Stock awarded under the Plan, if any, shall bear a legend substantially in the form of the following, in addition to any other information the Company deems appropriate, until the lapse of all restrictions with respect to such shares of Common Stock: TRANSFER OF THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY IS RESTRICTED PURSUANT TO THE TERMS OF THE VIVINT GROUP, INC. AMENDED AND RESTATED 2013 OMNIBUS INCENTIVE PLAN AND A RESTRICTED STOCK AWARD AGREEMENT, BETWEEN VIVINT GROUP, INC. AND PARTICIPANT. A COPY OF SUCH PLAN AND AWARD AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF VIVINT GROUP, INC. 10. Other Stock-Based Awards. The Committee may issue unrestricted shares of Common Stock, rights to receive grants of Awards at a future date, or other Awards denominated in shares of Common Stock (including, without limitation, performance shares or performance units), under the Plan to Eligible Persons, alone or in tandem with other Awards, in such amounts as the Committee shall from time to time in its sole discretion determine. Each Other Stock-Based Award granted under the Plan shall be evidenced by an Award agreement. Each Other Stock-Based Award so granted shall be subject to such conditions not inconsistent with the Plan as may be reflected in the applicable Award agreement. 11. Performance Compensation Awards. (a) General. The Committee shall have the authority, at or before the time of grant of any Award, to designate such Award as a Performance Compensation Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code, to the extent applicable to the Company following a Public Offering. The Committee shall also have the authority to make an award of a cash bonus to any Participant and designate such Award as a Performance Compensation Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code, to the extent applicable to the Company following a Public Offering. Notwithstanding anything in the Plan to the contrary, if the Company determines that 001366-0016-13471-Active.16178760.5

 

18 a Participant who has been granted an Award designated as a Performance Compensation Award is not (or is no longer) a “covered employee” (within the meaning of Section 162(m) of the Code) at any time when Section 162(m) of the Code is applicable to the Company, the terms and conditions of such Award may be modified without regard to any restrictions or limitations set forth in this Section 11 (but subject otherwise to the provisions of Section 13 of the Plan). (b) Discretion of Committee with Respect to Performance Compensation Awards. With regard to a particular Performance Period, the Committee shall have sole discretion to select the length of such Performance Period, the type(s) of Performance Compensation Awards to be issued, the Performance Criteria that will be used to establish the Performance Goal(s), define in an objective fashion the manner of calculating the Performance Criteria it selects to use for such Performance Goal(s), and the kind(s) and/or level(s) of the Performance Goals(s) that is (are) to apply and the Performance Formula. The Committee shall, with regard to the Performance Compensation Awards to be issued for such Performance Period, exercise its discretion with respect to each of the matters enumerated in the immediately preceding sentence and record the same in writing and, if such Performance Period includes any time during which Section 162(m) of the Code is applicable to the Company, shall complete the foregoing within the first ninety (90) days of a Performance Period (or, within any other maximum period allowed under Section 162(m) of the Code). To the extent required under Section 162(m) of the Code, the Committee shall, within the first ninety (90) days of a Performance Period (or, within any other maximum period allowed under Section 162(m) of the Code). (c) Performance Criteria. The Performance Criteria that will be used to establish the Performance Goal(s) may be based on the attainment of specific levels of performance of the Company (and/or one or more Affiliates, divisions or operational and/or business units, product lines, brands, business segments, administrative departments, or any combination of the foregoing). With respect to any Performance Period that covers any period of time during which Section 162(m) of the Code is applicable to the Company, the Performance Criteria shall be limited to the following: (i) net earnings or net income (before or after taxes); (ii) basic or diluted earnings per share (before or after taxes); (iii) net revenue or net revenue growth; (iv) gross revenue or gross revenue growth, gross profit or gross profit growth; (v) net operating profit (before or after taxes); (vi) return measures (including, but not limited to, return on investment, assets, capital, employed capital, invested capital, equity, or sales); (vii) cash flow measures (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital), which may but are not required to be measured on a per share basis; (viii) earnings before or after taxes, interest, depreciation and/or amortization (including EBIT and EBITDA); (ix) gross or net operating margins; (x) productivity ratios; (xi) share price (including, but not limited to, growth measures and total stockholder return); (xii) expense targets or cost reduction goals, general and administrative expense savings; (xiii) operating efficiency; (xiv) objective measures of customer satisfaction; (xv) working capital targets; (xvi) measures of economic value added or other ‘value creation’ metrics; (xvii) inventory control; (xviii) enterprise value; (xix) sales; (xx) stockholder return; (xxi) client retention; (xxii) competitive market metrics; (xxiii) employee retention; (xxiv) timely completion of new product rollouts; (xxv) timely launch of new facilities; (xxvi) strategic objectives; (xxvii) objective measures of personal targets, goals or completion of projects (including but not limited to succession and hiring projects, completion of specific acquisitions, reorganizations or other corporate transactions or capital-raising transactions, expansions of specific business 001366-0016-13471-Active.16178760.5

 

19 operations and meeting divisional or project budgets); (xxviii) system-wide revenues; (xxix) royalty income; (xxx) comparisons of continuing operations to other operations; (xxxi) market share; (xxxii) cost of capital, debt leverage year-end cash position or book value; (xxxiii) development of new product lines and related revenue, sales and margin targets, franchisee growth and retention, co-branding or international operations; or (xxxiv) any combination of the foregoing. Any one or more of the Performance Criteria may be stated as a percentage of another Performance Criteria, or used on an absolute or relative basis to measure the performance of the Company and/or one or more Affiliates as a whole or any divisions or operational and/or business units, product lines, brands, business segments, administrative departments of the Company and/or one or more Affiliates or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Criteria may be compared to the performance of a selected group of comparison companies, or a published or special index that the Committee, in its sole discretion, deems appropriate, or as compared to various stock market indices. The Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of Performance Goals pursuant to the Performance Criteria specified in this paragraph. (d) Modification of Performance Goal(s). In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing Performance Criteria without obtaining stockholder approval of such alterations, the Committee shall have sole discretion to make such alterations without obtaining stockholder approval. Following the Public Offering, at any time that Section 162(m) of the Code applies to any Performance Compensation Awards, unless otherwise determined by the Committee at the time a Performance Compensation Award is granted, the Committee shall, during the first ninety (90) days of a Performance Period (or, within any other maximum period allowed under Section 162(m) of the Code), or at any time thereafter to the extent the exercise of such authority at such time would not cause the Performance Compensation Awards granted to any Participant for such Performance Period to fail to qualify as “performance-based compensation” under Section 162(m) of the Code, specify adjustments or modifications to be made to the calculation of a Performance Goal for such Performance Period, based on and in order to appropriately reflect the following events: (i) asset write-downs; (ii) litigation, claims, judgments or settlements; (iii) the effect of changes in tax laws, accounting principles, or other laws or regulatory rules affecting reported results; (iv) any reorganization and restructuring programs; (v) extraordinary nonrecurring items as described in Accounting Standards Codification Topic 225-20 (or any successor pronouncement thereto) and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the applicable year; (vi) acquisitions or divestitures; (vii) any other specific, unusual or nonrecurring events, or objectively determinable category thereof; (viii) foreign exchange gains and losses; (ix) discontinued operations and nonrecurring charges; and (x) a change in the Company’s fiscal year. (e) Payment of Performance Compensation Awards. (i) Condition to Receipt of Payment. Unless otherwise provided in the applicable Award agreement, a Participant must be employed by the Company or one of its Affiliates or Subsidiaries on the last day of a Performance Period to be eligible for payment in respect of a Performance Compensation Award for such Performance Period. 001366-0016-13471-Active.16178760.5

 

20 (ii) Limitation. Unless otherwise provided in the applicable Award agreement, a Participant shall be eligible to receive payment in respect of a Performance Compensation Award only to the extent that: (A) the Performance Goals for such period are achieved; and (B) all or some of the portion of such Participant’s Performance Compensation Award has been earned for the Performance Period based on the application of the Performance Formula to such achieved Performance Goals. (iii) Certification. Following the completion of a Performance Period, the Committee shall review and certify in writing whether, and to what extent, the Performance Goals for the Performance Period have been achieved and, if so, calculate and certify in writing that amount of the Performance Compensation Awards earned for the period based upon the Performance Formula. The Committee shall then determine the amount of each Participant’s Performance Compensation Award actually payable for the Performance Period and, in so doing, may apply Negative Discretion. (iv) Use of Negative Discretion. In determining the actual amount of an individual Participant’s Performance Compensation Award for a Performance Period, the Committee may reduce or eliminate the amount of the Performance Compensation Award earned under the Performance Formula in the Performance Period through the use of Negative Discretion. Unless otherwise provided in the applicable Award agreement, the Committee shall not have the discretion to (A) grant or provide payment in respect of Performance Compensation Awards for a Performance Period if the Performance Goals for such Performance Period have not been attained; or (B) increase a Performance Compensation Award above the applicable limitations set forth in Section 5 of the Plan. (f) Timing of Award Payments. Unless otherwise provided in the applicable Award agreement, Performance Compensation Awards granted for a Performance Period shall be paid to Participants as soon as administratively practicable following completion of the certifications required by this Section 11. Any Performance Compensation Award that has been deferred shall not (between the date as of which the Award is deferred and the payment date) increase (i) with respect to a Performance Compensation Award that is payable in cash, by a measuring factor for each fiscal year greater than a reasonable rate of interest set by the Committee or (ii) with respect to a Performance Compensation Award that is payable in shares of Common Stock, by an amount greater than the appreciation of a share of Common Stock from the date such Award is deferred to the payment date. Any Performance Compensation Award that is deferred and is otherwise payable in shares of Common Stock shall be credited (during the period between the date as of which the Award is deferred and the payment date) with dividend equivalents (in a manner consistent with the methodology set forth in the last sentence of Section 9(d)(ii)). 12. Changes in Capital Structure and Similar Events. In the event of (a) any dividend or other distribution (whether in the form of cash, shares of Common Stock, other securities or other property and excluding any dividend or distribution used to satisfy indebtedness of Parent and/or its Affiliates and Subsidiaries), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, split-off, spin-off, combination, repurchase or exchange of shares of Common Stock or other securities of the Company, issuance of warrants or other rights to acquire shares of Common Stock or other securities of the 001366-0016-13471-Active.16178760.5

 

21 Company, or other similar corporate transaction or event (including, without limitation, a Change of Control) that affects the shares of Common Stock, or (b) unusual or nonrecurring events (including, without limitation, a Change of Control) affecting the Company or any Subsidiary or Affiliate, or the financial statements of the Company or any Subsidiary or Affiliate, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation system, accounting principles or law, such that in either case an adjustment is determined by the Committee in its sole discretion to be necessary or appropriate, then the Committee shall make any such adjustments in such manner as it may deem equitable, including without limitation, any or all of the following: (i) adjusting any or all of (A) the Absolute Share Limit, or any other limit applicable under the Plan with respect to the number of Awards which may be granted hereunder, (B) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or other property) which may be delivered in respect of Awards or with respect to which Awards may be granted under the Plan (including, without limitation, adjusting any or all of the limitations under Section 5 of the Plan) and (C) the terms of any outstanding Award, including, without limitation, (1) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or other property) subject to outstanding Awards or to which outstanding Awards relate, (2) the Exercise Price or Strike Price with respect to any Award or (3) any applicable performance measures (including, without limitation, Performance Criteria and Performance Goals); (ii) providing for a substitution or assumption of Awards (or awards of an acquiring company), accelerating the exercisability of, lapse of restrictions on, or termination of, Awards or providing for a period of time (which shall not be required to be more than ten (10) days) for Participants to exercise outstanding Awards prior to the occurrence of such event (and any such Award not so exercised shall terminate upon the occurrence of such event); and (iii) cancelling any one or more outstanding Awards and causing to be paid to the holders holding vested Awards (including any Awards that would vest as a result of the occurrence of such event but for such cancellation) the value of such Awards, if any, as determined by the Committee (which if applicable may be based upon the price per share of Common Stock received or to be received by other stockholders of the Company in such event), including without limitation, in the case of an outstanding Option or SAR, a cash payment in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Committee) of the shares of Common Stock subject to such Option or SAR over the aggregate Exercise Price or Strike Price of such Option or SAR, respectively (it being understood that, in such event, any Option or SAR having a per share Exercise Price or Strike Price equal to, or in excess of, the Fair Market Value of a share of Common Stock subject thereto may be canceled and terminated without any payment or consideration therefor); provided, however, that in the case of any “equity restructuring” (within the meaning of the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor pronouncement thereto)), the Committee shall make an equitable or proportionate 001366-0016-13471-Active.16178760.5

 

22 adjustment to outstanding Awards to reflect such equity restructuring. Any adjustment in Incentive Stock Options under this Section 12 (other than any cancellation of Incentive Stock Options) shall be made only to the extent not constituting a “modification” within the meaning of Section 424(h)(3) of the Code, and any adjustments under this Section 12 shall be made in a manner which does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. Any such adjustment shall be conclusive and binding for all purposes. Payments to holders pursuant to clause (iii) above shall be made in cash or, in the sole discretion of the Committee, in the form of such other consideration necessary for a Participant to receive property, cash, or securities (or combination thereof) as such Participant would have been entitled to receive upon the occurrence of the transaction if the Participant had been, immediately prior to such transaction, the holder of the number of shares of Common Stock covered by the Award at such time (less any applicable Exercise Price or Strike Price). In addition, prior to any payment or adjustment contemplated under this Section 12, the Committee may require a Participant to (A) represent and warrant as to the unencumbered title to his Awards, (B) bear such Participant’s pro rata share of any post-closing indemnity obligations, and be subject to the same post-closing purchase price adjustments, escrow terms, offset rights, holdback terms, and similar conditions as the other holders of Stock, and (C) deliver customary transfer documentation as reasonably determined by the Committee. 13. Amendments and Termination. (a) Amendment and Termination of the Plan. The Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided, that no such amendment, alteration, suspension, discontinuation or termination shall be made without stockholder approval if (i) such approval is necessary to comply with any regulatory requirement applicable to the Plan (including, without limitation, as necessary to comply with any rules or regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company may be listed or quoted) or for changes in GAAP to new accounting standards or (ii) after a Public Offering, (A) it would materially increase the number of securities which may be issued under the Plan (except for increases pursuant to Section 5 or 12) or (B) it would materially modify the requirements for participation in the Plan; provided, further, that any such amendment, alteration, suspension, discontinuance or termination that would materially diminish the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the consent of either (x) the affected Participant, holder or beneficiary or (y) two-thirds of such affected Participants. Notwithstanding the foregoing, no amendment shall be made to the last proviso of Section 13(b) without stockholder approval. (b) Amendment of Award Agreements. The Committee may, to the extent consistent with the terms of any applicable Award agreement, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted or the associated Award agreement, prospectively or retroactively (including after a Participant’s termination of employment or service with the Company); provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially diminish the rights of any Participant with respect to any Award theretofore granted shall not to that extent be effective without the consent of either (x) the affected Participant or (y) two-thirds of such affected Participants; provided, further, that 001366-0016-13471-Active.16178760.5

 

23 following a Public Offering, without stockholder approval, except as otherwise permitted under Section 12 of the Plan, (i) no amendment or modification may reduce the Exercise Price of any Option or the Strike Price of any SAR, (ii) the Committee may not cancel any outstanding Option or SAR and replace it with a new Option or SAR (with a lower Exercise Price or Strike Price, as the case may be) or other Award or cash payment that is greater than the value of the cancelled Option or SAR, and (iii) the Committee may not take any other action which is considered a “repricing” for purposes of the stockholder approval rules of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or quoted. 14. General. (a) Award Agreements. Each Award under the Plan shall be evidenced by an Award agreement, which shall be delivered to the Participant and shall specify the terms and conditions of the Award and any rules applicable thereto, including without limitation, the effect on such Award of the death, Disability or termination of employment or service of a Participant, or of such other events as may be determined by the Committee. For purposes of the Plan, an Award agreement may be in any such form (written or electronic) as determined by the Committee (including, without limitation, a Board or Committee resolution, an employment agreement, a notice, a certificate or a letter) evidencing the Award. The Committee need not require an Award agreement to be signed by the Participant or a duly authorized representative of the Company. (b) Nontransferability. (i) Each Award shall be exercisable only by a Participant during the Participant’s lifetime, or, if permissible under applicable law, by the Participant’s legal guardian or representative. No Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or an Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. (ii) Notwithstanding the foregoing, the Committee may, in its sole discretion, permit Awards (other than Incentive Stock Options) to be transferred by a Participant, without consideration, subject to such rules as the Committee may adopt consistent with any applicable Award agreement to preserve the purposes of the Plan, to: (A) Immediate Family Members; (B) a trust solely for the benefit of the Participant and his or her Immediate Family Members; (C) a partnership or limited liability company whose only partners or stockholders are the Participant and his or her Immediate Family Members; or (D) a beneficiary to whom donations are eligible to be treated as “charitable contributions” for federal income tax purposes; (each transferee described in clauses (A), (B), (C) and (D) above is hereinafter referred to as a “Permitted Transferee”); provided that the Participant gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Participant in writing that such a transfer would comply with the requirements of the Plan. 001366-0016-13471-Active.16178760.5

 

24 (iii) The terms of any Award transferred in accordance with the immediately preceding sentence shall apply to the Permitted Transferee and any reference in the Plan, or in any applicable Award agreement, to a Participant shall be deemed to refer to the Permitted Transferee, except that (A) Permitted Transferees shall not be entitled to transfer any Award, other than by will or the laws of descent and distribution; (B) Permitted Transferees shall not be entitled to exercise any transferred Option unless there shall be in effect a registration statement on an appropriate form covering the shares of Common Stock to be acquired pursuant to the exercise of such Option if the Committee determines, consistent with any applicable Award agreement, that such a registration statement is necessary or appropriate; (C) the Committee or the Company shall not be required to provide any notice to a Permitted Transferee, whether or not such notice is or would otherwise have been required to be given to the Participant under the Plan or otherwise; and (D) the consequences of the termination of the Participant’s employment by, or services to, the Company or an Affiliate under the terms of the Plan and the applicable Award agreement shall continue to be applied with respect to the Participant, including, without limitation, that an Option shall be exercisable by the Permitted Transferee only to the extent, and for the periods, specified in the Plan and the applicable Award agreement. (c) Dividends and Dividend Equivalents. The Committee in its sole discretion may provide a Participant as part of an Award with dividends or dividend equivalents, payable in cash, shares of Common Stock, other securities, other Awards or other property, on a current or deferred basis, on such terms and conditions as may be determined by the Committee in its sole discretion, including without limitation, payment directly to the Participant, withholding of such amounts by the Company subject to vesting of the Award or reinvestment in additional shares of Common Stock, Restricted Stock or other Awards; provided, that no dividends or dividend equivalents shall be payable in respect of outstanding (i) Options or SARs or (ii) unearned Performance Compensation Awards or other unearned Awards subject to performance conditions (other than or in addition to the passage of time) (although dividends and dividend equivalents may be accumulated in respect of unearned Awards and paid within 15 days after such Awards are earned and become payable or distributable). (d) Tax Withholding. (i) A Participant shall be required to pay to the Company or any Affiliate in cash or its equivalent (e.g., check), and the Company or any Affiliate shall have the right and is hereby authorized to withhold, from any cash, shares of Common Stock, other securities or other property deliverable under any Award or from any compensation or other amounts owing to a Participant, the amount (in cash, shares of Common Stock, other securities or other property) of any required withholdings or taxes in respect of an Award, its exercise, or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Committee or the Company to satisfy all obligations for the payment of such withholdings and taxes. (ii) Without limiting the generality of clause (i) above, the Committee may, in its sole discretion, permit a Participant to satisfy, in whole or in part, the foregoing withholding liability by (A) the delivery of shares of Common Stock (which are not 001366-0016-13471-Active.16178760.5

 

25 subject to any pledge or other security interest) owned by the Participant having a Fair Market Value equal to such withholding liability or (B) having the Company withhold from the number of shares of Common Stock otherwise issuable or deliverable pursuant to the exercise or settlement of the Award a number of shares of Common Stock with a Fair Market Value equal to such withholding liability, provided that with respect to shares of Common Stock withheld pursuant to clause (B), the number of such shares of Common Stock may not have a Fair Market Value greater than the minimum required statutory withholding liability. (e) No Claim to Awards; No Rights to Continued Employment; Waiver. No employee of the Company or an Affiliate or Subsidiary, or other person, shall have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award. There is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards and the Committee’s determinations and interpretations with respect thereto need not be the same with respect to each Participant and may be made selectively among Participants, whether or not such Participants are similarly situated. Neither the Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ or service of the Company or an Affiliate or Subsidiary, nor shall it be construed as giving any Participant any rights to continued service on the Board. The Company and any of its Affiliates and Subsidiaries may at any time dismiss a Participant from employment or discontinue any consulting relationship, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or any Award agreement. By accepting an Award under the Plan, a Participant shall thereby be deemed to have waived any claim to continued exercise or vesting of an Award or to damages or severance entitlement related to non-continuation of the Award beyond the period provided under the Plan or any Award agreement, except to the extent of any provision to the contrary in any written employment contract or other agreement between the Company and its Affiliates and the Participant, whether any such agreement is executed before, on or after the Date of Grant. (f) International Participants. With respect to Participants who reside or work outside of the United States of America and who are not (and who are not expect to be) “covered employees” within the meaning of Section 162(m) of the Code, to the extent applicable to the Company following a Public Offering, the Committee may in its sole discretion amend the terms of the Plan or Sub-Plans or outstanding Awards with respect to such Participants in order to conform such terms with the requirements of local law or to obtain more favorable tax or other treatment for a Participant, the Company or its Affiliates or Subsidiaries. (g) Designation and Change of Beneficiary. Each Participant may file with the Committee a written designation of one or more persons as the beneficiary(ies) who shall be entitled to receive the amounts payable with respect to an Award, if any, due under the Plan upon his or her death. A Participant may, from time to time, revoke or change his or her beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participant’s death, and in no event shall it be effective as of a date prior to such receipt. If no beneficiary designation is filed by a Participant, 001366-0016-13471-Active.16178760.5

 

26 the beneficiary shall be deemed to be his or her spouse or, if the Participant is unmarried at the time of death, his or her estate. (h) Termination. Except as otherwise provided in an Award agreement, unless determined otherwise by the Committee at any point following such event: (i) neither a temporary absence from employment or service due to illness, vacation or leave of absence (including, without limitation, a call to active duty for military service through a Reserve or National Guard unit) nor a transfer from employment or service with one Service Recipient to employment or service with another Service Recipient (or vice-versa) shall be considered a Termination; and (ii) if a Participant’s undergoes a Termination of employment, but such Participant continues to provide services to the Company and its Affiliates or Subsidiaries in a non-employee capacity, such change in status shall not be considered a Termination for purposes of the Plan. Further, unless otherwise determined by the Committee, in the event that any Service Recipient ceases to be an Affiliate of the Company (by reason of sale, divestiture, spin-off, or other similar transaction), unless a Participant’s employment or service is transferred to another entity that would constitute a Service Recipient immediately following such transaction, such Participant shall be deemed to have suffered a Termination hereunder as of the date of the consummation of such transaction. (i) No Rights as a Stockholder. Except as otherwise specifically provided in the Plan or any Award agreement, no person shall be entitled to the privileges of ownership in respect of shares of Common Stock which are subject to Awards hereunder until such shares of Common Stock have been issued or delivered to that person. (j) Government and Other Regulations. (i) The obligation of the Company to settle Awards in shares of Common Stock or other consideration shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell, and shall be prohibited from offering to sell or selling, any shares of Common Stock pursuant to an Award unless such shares of Common Stock have been properly registered for sale pursuant to the Securities Act with the Securities and Exchange Commission or unless the Company has received an opinion of counsel, satisfactory to the Company, that such shares of Common Stock may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale under the Securities Act any of the shares of Common Stock to be offered or sold under the Plan. The Committee shall have the authority to provide that all shares of Common Stock or other securities of the Company or any Affiliate delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan, the applicable Award agreement, the Federal securities laws, or the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or inter- dealer quotation system on which the securities of the Company are listed or quoted and any other applicable Federal, state, local or non-U.S. laws, rules, regulations and other requirements, and, without limiting the generality of Section 9 of the Plan, the 001366-0016-13471-Active.16178760.5

 

27 Committee may cause a legend or legends to be put on certificates representing shares of Common Stock or other securities of the Company or any Affiliate delivered under the Plan to make appropriate reference to such restrictions or may cause such shares of Common Stock or other securities of the Company or any Affiliate delivered under the Plan in book-entry form to be held subject to the Company’s instructions or subject to appropriate stop-transfer orders. Notwithstanding any provision in the Plan to the contrary, the Committee reserves the right to add any additional terms or provisions to any Award granted under the Plan that it in its sole discretion deems necessary or advisable in order that such Award complies with the legal requirements of any governmental entity to whose jurisdiction the Award is subject. (ii) The Committee may cancel an Award or any portion thereof if it determines, in its sole discretion, that legal or contractual restrictions and/or blockage and/or other market considerations would make the Company’s acquisition of shares of Common Stock from the public markets, the Company’s issuance of shares of Common Stock to the Participant, the Participant’s acquisition of shares of Common Stock from the Company and/or the Participant’s sale of shares of Common Stock to the public markets, illegal, impracticable or inadvisable. If the Committee determines to cancel all or any portion of an Award in accordance with the foregoing, the Company shall pay to the Participant an amount equal to the excess of (A) the aggregate Fair Market Value of the shares of Common Stock subject to such Award or portion thereof canceled (determined as of the applicable exercise date, or the date that the shares of Common Stock would have been vested or delivered, as applicable), over (B) the aggregate Exercise Price or Strike Price (in the case of an Option or SAR, respectively) or any amount payable as a condition of delivery of shares of Common Stock (in the case of any other Award). Such amount shall be delivered to the Participant as soon as practicable following the cancellation of such Award or portion thereof. (k) No Section 83(b) Elections Without Consent of Company. No election under Section 83(b) of the Code or under a similar provision of law may be made unless expressly permitted by the terms of the applicable Award agreement or by action of the Committee in writing prior to the making of such election. If a Participant, in connection with the acquisition of shares of Common Stock under the Plan or otherwise, is expressly permitted to make such election and the Participant makes the election, the Participant shall notify the Company of such election within ten (10) days of filing notice of the election with the Internal Revenue Service or other governmental authority, in addition to any filing and notification required pursuant to Section 83(b) of the Code or other applicable provision. (l) Payments to Persons Other Than Participants. If the Committee shall find that any person to whom any amount is payable under the Plan is unable to care for his or her affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his or her estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to his or her spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor. 001366-0016-13471-Active.16178760.5

 

28 (m) Nonexclusivity of the Plan. Neither the adoption of this Plan by the Board nor the submission of this Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under this Plan, and such arrangements may be either applicable generally or only in specific cases. (n) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate, on the one hand, and a Participant or other person or entity, on the other hand. No provision of the Plan or any Award shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees under general law. (o) Reliance on Reports. Each member of the Committee and each member of the Board shall be fully justified in acting or failing to act, as the case may be, and shall not be liable for having so acted or failed to act in good faith, in reliance upon any report made by the independent public accountant of the Company and its Affiliates and/or any other information furnished in connection with the Plan by any agent of the Company or the Committee or the Board, other than himself. (p) Relationship to Other Benefits. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company except as otherwise specifically provided in such other plan. (q) Governing Law. The Plan shall be governed by and construed in accordance with the internal law of the State of Utah applicable to contracts made and performed wholly within the State of Utah, without giving effect to the conflict of law provisions thereof that would direct the application of the law of any other jurisdiction. Any suit, action or proceeding with respect to this Plan, or any judgment entered by any court in respect of any thereof, shall be brought exclusively in any court of competent jurisdiction in Salt Lake City, Utah, and each of the Company and the Participant’s Immediate Family Members hereby submits to the exclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment. Each of the Participant’s Immediate Family Members and the Company hereby irrevocably waives (i) any objections which it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Plan brought in any court of competent jurisdiction in Salt Lake City, Utah, (ii) any claim that any such suit, action or proceeding brought in any such court has been brought in any inconvenient forum and (iii) any right to a jury trial. 001366-0016-13471-Active.16178760.5

 

29 (r) Severability. If any provision of the Plan or any Award or Award agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any person or entity or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, person or entity or Award and the remainder of the Plan and any such Award shall remain in full force and effect. (s) Obligations Binding on Successors. The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company. (t) 409A of the Code. (i) Notwithstanding any provision of the Plan to the contrary, it is intended that the provisions of this Plan comply with Section 409A of the Code, and all provisions of this Plan shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A of the Code. Each Participant is solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on or in respect of such Participant in connection with this Plan or any other plan maintained by the Company (including any taxes and penalties under Section 409A of the Code), and neither the Company nor any Affiliate or Subsidiary shall have any obligation to indemnify or otherwise hold such Participant (or any beneficiary) harmless from any or all of such taxes or penalties. With respect to any Award that is considered “deferred compensation” subject to Section 409A of the Code, references in the Plan to “termination of employment” (and substantially similar phrases) shall mean “separation from service” within the meaning of Section 409A of the Code. For purposes of Section 409A of the Code, each of the payments that may be made in respect of any Award granted under the Plan is designated as separate payments. (ii) Notwithstanding anything in the Plan to the contrary, if a Participant is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, no payments in respect of any Awards that are “deferred compensation” subject to Section 409A of the Code and which would otherwise be payable upon the Participant’s “separation from service” (as defined in Section 409A of the Code) shall be made to such Participant prior to the date that is six (6) months after the date of such Participant’s “separation from service” or, if earlier, the Participant’s date of death. Following any applicable six (6) month delay, all such delayed payments will be paid in a single lump sum on the earliest date permitted under Section 409A of the Code that is also a business day. (iii) Unless otherwise provided by the Committee, in the event that the timing of payments in respect of any Award (that would otherwise be considered “deferred compensation” subject to Section 409A of the Code) would be accelerated upon the occurrence of (A) a Change of Control, no such acceleration shall be permitted unless the 001366-0016-13471-Active.16178760.5

 

30 event giving rise to the Change of Control satisfies the definition of a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation pursuant to Section 409A of the Code and any Treasury Regulations promulgated thereunder or (B) a Disability, no such acceleration shall be permitted unless the Disability also satisfies the definition of “Disability” pursuant to Section 409A of the Code and any Treasury Regulations promulgated thereunder. (u) Clawback/Forfeiture. Notwithstanding anything to the contrary contained herein, an Award agreement may provide that the Committee may in its sole discretion cancel such Award if the Participant, without the consent of the Company, while employed by or providing services to the Company or any Affiliate or Subsidiary or after termination of such employment or service, violates a non-competition, non-solicitation or non-disclosure covenant or agreement or otherwise has engaged in or engages in conduct that constitutes “Cause” or conduct contributing to any financial restatements or irregularities, as determined by the Committee in its sole discretion. The Committee may also provide in an Award agreement that if the Participant otherwise has engaged in or engages in any activity referred to in the preceding sentence, the Participant will forfeit any gain realized on the vesting or exercise of such Award, and must repay the gain to the Company. The Committee may also provide in an Award agreement that if the Participant receives any amount in excess of what the Participant should have received under the terms of the Award for any reason (including without limitation by reason of a financial restatement, mistake in calculations or other administrative error), then the Participant shall be required to repay any such excess amount to the Company. Without limiting the foregoing, all Awards shall be subject to reduction, cancellation, forfeiture or recoupment to the extent necessary to comply with applicable law. (v) Expenses; Gender; Titles and Headings. The expenses of administering the Plan shall be borne by the Company and its Affiliates or Subsidiaries. Masculine pronouns and other words of masculine gender shall refer to both men and women. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings shall control. 001366-0016-13471-Active.16178760.5

 

Exhibit 10.6 FORM OF RESTRICTED STOCK UNIT AGREEMENT under the VIVINT GROUP, INC. AMENDED AND RESTATED 2013 OMNIBUS INCENTIVE PLAN THIS AGREEMENT (the “Agreement”) by and between Vivint Group, Inc., a Delaware corporation (the “Company”), and the individual named on the signature page hereto (the “Participant”) is made as of the date set forth on such signature page. Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan. RECITALS: WHEREAS, the Company has adopted the Amended and Restated 2013 Omnibus Incentive Plan attached hereto as Exhibit A, and as may be amended or supplemented from time to time in accordance with the terms thereof (the “Plan”), the terms of which are hereby incorporated by reference and made a part of this Agreement; and WHEREAS, the Committee (as defined in the Plan) has determined that it would be in the best interests of the Company and its stockholders to grant the Restricted Stock Units provided for herein to the Participant pursuant to the Plan and the terms set forth herein. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows: 1. Grant of Restricted Stock Units. (a) Grant. The Company hereby grants to the Participant on the date of grant set forth on the signature page hereto (the “Date of Grant”) Restricted Stock Units, on the terms and conditions hereinafter set forth, with respect to the number of shares of Common Stock set forth on the signature page hereto (the “RSU Award”), subject to adjustment as set forth in the Plan and this Agreement. (b) Vesting. Subject to the Participant’s continued Employment through the applicable vesting date, the RSU Award shall vest and become exercisable with respect to one- third (1/3) of the Restricted Stock Units on each of the first three anniversaries of the date specified as the “Vesting Start Date” on the signature page hereto; provided, that upon a Change of Control prior to the applicable vesting date, all then-unvested Restricted Stock Units shall become fully vested immediately prior to the effective time of such Change of Control. For the avoidance of doubt, an initial public offering of the Company or its affiliates shall not be considered a Change of Control. Upon a Termination for any reason all unvested Restricted Stock Units shall be forfeited for no consideration. Any Restricted Stock Unit which has become vested in accordance with the foregoing shall be referred to as a “Vested Restricted Stock Unit”, and any Restricted Stock Unit which is not a Vested Restricted Stock Unit, an “Unvested Restricted Stock Unit”. 001366-0001-15794-Active.25831013.6

 

2 (c) Settlement of Restricted Stock Units. (i) The provisions of Section 9(d)(ii) of the Plan are incorporated herein by reference and made a part hereof and, in accordance therewith, subject to Section 2(b)(i), any Vested Restricted Stock Units shall be settled as soon as reasonably practicable (and, in any event, within two and one-half months) following the earliest to occur of (x) the termination of the Participant’s Employment by the Company or the Participant for any reason other than (1) by the Company for Cause or (2) by the Participant at a time when grounds exist for a termination with Cause, (y) a Change of Control and (z) the fifth (5th) anniversary of the Date of Grant. (ii) Upon the settlement of a Vested Restricted Stock Unit, the Company shall (or shall cause 313 Acquisition LLC, a Delaware limited liability company (“Parent”) to) pay to the Participant an amount equal to one share of Common Stock. As determined by the Committee, the Company or Parent shall pay such amount in (w) cash, (x) shares of Common Stock valued at Fair Market Value, (y) shares or units of capital stock of Parent or one of Parent’s majority-owned Subsidiaries that beneficially owns, directly or indirectly, a majority of the voting power of the Company’s capital stock (“Alternative Equity”) valued at Fair Market Value (measured as though all references to Common Stock in such definition of “Fair Market Value” in the Plan were replaced with Alternative Equity) or (z) any combination thereof. For the avoidance of doubt, it is the expectation of the Committee that the RSU Award will be settled in shares of Common Stock or Alternative Equity issued by Parent or another majority parent entity to the Company. Any fractional shares of Common Stock or Alternative Equity may be settled in cash, at the Committee’s election. (iii) Notwithstanding anything in this Agreement to the contrary, neither the Company nor Parent shall have any obligation to issue or transfer any shares of Common Stock or Alternative Equity as contemplated by this Agreement unless and until such issuance or transfer complies with all relevant provisions of law. As a condition to the settlement of any portion of the RSU Award evidenced by this Agreement, the Participant shall execute the Stockholders’ Agreement (provided that, if the Participant is already a party to the Stockholders’ Agreement, then the shares of Common Stock or Alternative Equity acquired as a result of the settlement of the RSU Award shall automatically become subject to such agreement(s) without any further action). 2. Certain Sales Upon Termination of Employment. (a) Put Option. (i) Prior to a Public Offering, if the Participant’s Employment with the Company, its Affiliates and its Subsidiaries is terminated (x) due to the death of the Participant or (y) by the Company, its Affiliates and its and/or Subsidiaries as a result of the Disability of the Participant, then the Participant and the Participant’s Permitted Transferees (as defined in Section 8 hereof, and together with the Participant hereinafter sometimes collectively referred to as the “Participant’s Family Group”) shall have the 001366-0001-15794-Active.25831013.6

 

3 right, subject to the provisions of Section 3 hereof, for 180 days following the later of (A) the date that is 210 days after the date of termination of Participant’s Employment and (B) the date that is six months and one day after the date on which the any Vested Restricted Stock Units are settled, to sell to the issuer (the “Issuer”) of the shares of Common Stock or Alternative Equity (as applicable, the “Issuer Equity”) (the “Put Right”), and the Issuer shall be required to purchase (subject to the provisions of Section 3 hereof), on one occasion from each member of the Participant’s Family Group, all (but not less than all) of the Issuer Equity acquired pursuant to the settlement of Vested Restricted Stock Units then held by the Participant’s Family Group at a price equal to Fair Market Value of such Issuer Equity (measured as of the date that the relevant election to purchase such Issuer Equity is delivered (the “Repurchase Notice Date”)). In order to exercise its rights with respect to Issuer Equity pursuant to this Section 2(a)(i), the Participant’s Family Group shall also be required to simultaneously exercise any similar rights it may have with respect to any other Issuer Equity held by the Participant’s Family Group in accordance with the terms of the agreements pursuant to which such other Issuer Equity was acquired from the applicable Issuer. (ii) If the Participant’s Family Group desires to exercise the Put Right, the members of the Participant’s Family Group shall send one written notice to the Company setting forth such members’ intention to collectively sell all of their Issuer Equity pursuant to Section 2(a)(i), which notice shall include the signature of each member of the Participant’s Family Group. Subject to the provisions of Section 3(a), the closing of the purchase shall take place at the principal office of the Company on a date specified by the Company no later than the 60th day after the giving of such notice. (b) Call Option. (i) If the Participant’s Employment terminates for any reason or in the event of the Participant’s engaging in a Competitive Activity, the Issuer shall have the right and option, but not the obligation, to purchase any or all of the Issuer Equity held by the Participant and the Participant’s Family Group, during either of the one-year periods following each of (x) the date of termination of Participant’s Employment, (y) the date on which a Competitive Activity occurs (or, if later, the date on which the Board has actual knowledge thereof) or (z) the date that is six months and one day after the date on which the Participant acquires such Issuer Equity pursuant to the settlement of a Vested Restricted Stock Unit(or such later date as is necessary in order to avoid the application of adverse accounting treatment to the Company) (the “Call Option”), in each case, at a price determined as follows (it being understood that if Issuer Equity subject to repurchase hereunder may be repurchased at different prices, the Issuer may elect to repurchase only the portion of the Issuer Equity subject to repurchase hereunder at the lower price): (A) Death or Disability. If the Participant’s Employment is terminated (x) due to the death of the Participant or (y) by the Company and its Subsidiaries as a result of the Disability of the Participant, then the purchase price will be Fair Market Value of such Issuer Equity (measured as of the Repurchase Notice Date); 001366-0001-15794-Active.25831013.6

 

4 (B) Termination without Cause; Other Resignation. If the Participant’s Employment is terminated (x) by the Company without Cause or (y) by the Participant at a time when grounds do not exist for a termination with Cause, then the purchase price will be Fair Market Value of the Issuer Equity (measured as of the Repurchase Notice Date); (C) Competitive Activity. In the event the Participant engages in Competitive Activity not constituting a Restrictive Covenant Violation, then the purchase price will be Fair Market Value of the Issuer Equity (measured as of the Repurchase Notice Date). The Call Option (except in the case of any event described in Section 2(b)(i)(B)) shall expire upon the occurrence of a Public Offering. (ii) Notwithstanding the foregoing, in the event (1) that the Participant’s Employment is terminated (A) by the Company or any of its Subsidiaries with Cause or (B) by the Participant at a time when grounds exist for a termination with Cause, or (2) of a Restrictive Covenant Violation any Issuer Equity acquired pursuant to the settlement of a Vested Restricted Stock Unit shall be forfeited without consideration. (iii) If the Issuer desires to exercise the Call Option pursuant to this Section 2(b), the Company shall, not later than the expiration of the period set forth in Section 2(b) send written notice to each member of the Participant’s Family Group of its intention to purchase Issuer Equity, specifying the number or portion of the Issuer Equity to be purchased (the “Call Notice”). Subject to the provisions of Section 3, the closing of the purchase shall take place at the principal office of the Company on a date specified by the Company no later than the 30th day after the giving of the Call Notice. (iv) Notwithstanding the foregoing, if the Issuer elects not to exercise the Call Option pursuant to this Section 2(b), Parent or The Blackstone Group L.P. (through one of its Affiliates) may elect to cause one of its Affiliates or another designee to purchase such Issuer Equity at any time on the same terms and conditions set forth in this Section 2(b) by providing written notice to each member of the Participant’s Family Group of its intention to purchase Issuer Equity. (c) Obligation to Sell Several. If there is more than one member of the Participant’s Family Group, the failure of any one member thereof to perform its obligations hereunder shall not excuse or affect the obligations of any other member thereof, and the closing of the purchases from such other members by the Issuer or a designee shall not excuse, or constitute a waiver of its rights against, the defaulting member. 3. Certain Limitations on the Company’s Obligations to Purchase Issuer Equity. (a) Deferral of Purchases. Notwithstanding anything to the contrary contained herein, the Issuer shall not be obligated to purchase any portion of Issuer Equity at any time pursuant to Section 2, regardless of whether it has delivered a Call Notice or received a Put Notice, (i) to the extent that the purchase of such Issuer Equity would result in (A) a violation of 001366-0001-15794-Active.25831013.6

 

5 any law, statute, rule, regulation, policy, order, writ, injunction, decree or judgment promulgated or entered by any federal, state, local or foreign court or governmental authority applicable to the Issuer or any of its Affiliates or any of its or their property, or (B) after giving effect thereto, an event which would constitute (or with notice or lapse of time or both would constitute) an event of default under any of the financing documents of Issuer or its Affiliates from time to time and any restrictive financial covenants contained in the organizational documents of Issuer or its Affiliates (a “Financing Default”); (ii) if immediately prior to such purchase there exists a Financing Default which prohibits such purchase; or (iii) to the extent that there is a lack of available cash on hand of the Issuer. The Issuer shall, within fifteen (15) days of learning of any such fact, so notify the Participant (or the Participant’s Family Group, as applicable) that it is not obligated to purchase hereunder. (b) Notwithstanding anything to the contrary contained herein, any Issuer Equity which the Issuer elects or is required to purchase, but which in accordance with Section 3(a) is not purchased at the applicable time provided in Section 2, shall be purchased by the Issuer (x) by delivery of a promissory note for the applicable purchase price payable at such time as would not result in a Financing Default, bearing interest at the prime lending rate in effect as of the date of the exercise of the Call Option or Put Right or at the Applicable Federal Rate at such time, if greater; or (y) if purchase by delivery of a promissory note as described in clause (x) is not permitted due to the terms of any outstanding Issuer indebtedness, or otherwise, then, for the applicable purchase price (measured as of the actual purchase date) on or prior to the fifteenth (15th) day after such date or dates that the purchase of such Issuer Equity is no longer prohibited under Section 3(a) and the Issuer shall give the Participant (or the Participant’s Family Group, as applicable) five (5) days’ prior notice of any such purchase. (c) Payment for Issuer Equity. If at any time the Issuer elects or is required to purchase any Issuer Equity pursuant to Section 2, the Issuer shall pay the purchase price for the Issuer Equity it purchases (i) first, by the cancellation of any indebtedness, if any, owing from the Participant to the Issuer or any of its Affiliates (which indebtedness shall be applied pro rata against the proceeds receivable by each member of the Participant’s Family Group receiving consideration in such repurchase) and (ii) then, by the Issuer’s delivery of a check or wire transfer of immediately available funds for the remainder of the purchase price, if any, against delivery of the certificates or other instruments, if any, representing the Issuer Equity so purchased, duly endorsed; provided that if (x) any of the conditions set forth in Section 3(a) exists or (y) such purchase of Issuer Equity would result in a Financing Default, in each case which prohibits such cash payment (either directly or indirectly as a result of the prohibition of a related cash dividend or distribution) (each a “Cash Payment Restriction”), the portion of the cash payment so prohibited may be made, to the extent such payment is not prohibited, by the Issuer’s delivery of a junior subordinated promissory note (which shall be subordinated and subject in right of payment to the prior payment of any debt outstanding under the senior financing agreements and any modifications, renewals, extensions, replacements and refunding of all such indebtedness) of the Issuer (a “Junior Subordinated Note”) in a principal amount equal to the balance of the purchase price, payable within ten days after the Cash Payment Restriction no longer exists, and bearing interest payable (and compounded to the extent not so paid) as of the last day of each year at the “prime rate” as published for JP Morgan Chase Bank from time to time, and all such accrued and unpaid interest payable on the date of the payment of principal (or, if applicable, the last installment of principal), with payments to be applied in the 001366-0001-15794-Active.25831013.6

 

6 order of: first to any enforcement costs incurred by the Participant or the Participant’s Family Group, second to interest and third to principal. The Issuer shall have the rights set forth in clause (i) of the first sentence of this Section 3(b) whether or not the member of the Participant’s Family Group selling such Issuer Equity is an obligor of the Issuer. The principal of, and accrued interest on, any such Junior Subordinated Note may be prepaid in whole or in part at any time at the option of the Issuer. To the extent that the Issuer is prohibited from paying accrued interest, that is required to be paid on any Junior Subordinated Note prior to maturity, due to the existence of any Cash Payment Restriction, such interest shall be cumulated, compounded annually, and accrued until and to the extent that such Cash Payment Restriction no longer exists, at which time such accrued interest shall be immediately paid. Notwithstanding any other provision in this Agreement, the Issuer may elect to pay the purchase price hereunder in shares or other equity securities of one of its respective direct or indirect Affiliates with a fair market value equal to the applicable purchase price, provided that such Affiliate promptly repurchases such shares or other equity securities for cash equal to the applicable purchase price or a Junior Subordinated Note with a principal amount equal to the applicable purchase price. 4. Restrictive Covenants (Appendix A). The Participant acknowledges and recognizes the highly competitive nature of the businesses of the Company and accordingly agrees, in the Participant’s capacity as an investor and equity holder in the Company and its Affiliates, to the Restrictive Covenants contained in Appendix A to this Agreement and/or incorporated herein by reference. The Participant acknowledges and agrees that the Company’s remedies at law for a breach or threatened breach of any of the provisions of Appendix A would be inadequate and the Company would suffer irreparable damages as a result of such breach or threatened breach. In recognition of this fact, the Participant agrees that, in the event of such a breach or threatened breach by the Participant, regardless of whether a transfer of the RSU Award or Issuer Equity to a Permitted Transferee has occurred and in addition to any remedies at law, the Company, without posting any bond, shall be entitled to cease making any payments or providing any benefit otherwise required by this Agreement and obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. For the purposes of this Agreement, the Participant shall have engaged in “Competitive Activity” if the Participant engages in any activity otherwise prohibited by Appendix A after the time limitations set forth in Appendix A. 5. Repayment of Proceeds. If the Participant’s Employment is terminated by the Company with Cause or a Restrictive Covenant Violation occurs, or the Company discovers after any termination of Employment that grounds for a termination with Cause existed at the time thereof, then the Participant shall be required to pay to the Company, within 10 business days’ of the Company’s request to the Participant therefor, an amount equal to the aggregate after-tax proceeds (taking into account all amounts of tax that would be recoverable upon a claim of loss for payment of such proceeds in the year of repayment) the Participant received either in cash in respect to the settlement of Restricted Stock Units, or upon the sale or other disposition of, or dividends or distributions in respect of, Issuer Equity acquired upon the settlement of the RSU Award. Any reference in this Agreement to grounds existing for a termination with Cause shall be determined without regard to any notice period, cure period or other procedural delay or 001366-0001-15794-Active.25831013.6

 

7 event required prior to finding of, or termination for, Cause. The foregoing remedy shall not be exclusive. 6. No Right to Continued Employment. Neither the Plan nor this Agreement shall be construed as giving the Participant the right to be retained in the employ of, or in any consulting relationship to, the Company or any Affiliate. Further, the Company or any Affiliate may at any time dismiss the Participant or discontinue any consulting relationship, free from any liability or any claim under the Plan or this Agreement, except as otherwise expressly provided herein. 7. Legend on Certificates. The certificates representing the Issuer Equity received upon settlement of the RSU Award, if any, shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Issuer Equity is listed or quoted or market to which the Issuer Equity is admitted for trading and, any applicable federal or state or any other applicable laws and the Company’s Certificate of Incorporation and Bylaws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. 8. Transferability. The RSU Award, and the Restricted Stock Units granted hereunder, may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant otherwise than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No such permitted transfer of the RSU Award or any Restricted Stock Units to heirs or legatees of the Participant shall be effective to bind the Company unless the Committee shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions thereof. During the Participant’s lifetime, the RSU Award is exercisable only by the Participant. 9. Withholding. The provisions of Section 14(d) of the Plan are incorporated herein by reference and made a part hereof. 10. Securities Laws. Upon the acquisition of any Issuer Equity upon settlement of the RSU Award, the Participant will make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws or with this Agreement. 11. Notices. Any notice under this Agreement shall be addressed as follows: if to the Company: Vivint Group, Inc. c/o 313 Acquisition LLC 4931 North 300 West 001366-0001-15794-Active.25831013.6

 

8 Provo, Utah 84604 Attention: General Counsel with copies (which shall not constitute notice) to: The Blackstone Group, L.P. 345 Park Avenue New York, NY 10152 Attention: Peter Wallace and Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, NY 10017 Attention: Gregory T. Grogan If to the Participant: At the address appearing in the personnel records of the Company for the Participant. Following the date hereof, notice may be delivered to either party at such other address as either party hereto may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee. 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Utah applicable to contracts made and to be performed wholly within the state of Utah (except that the provisions of Section 1 of Appendix A shall be governed by the law of the state where Participant is principally employed by the Company or its Subsidiaries or, if the Participant and the Company or its Subsidiaries are party to any employment agreement, the law of the state that governs such employment agreement), without giving effect to the conflict of law provisions that would direct the application of the law of any other jurisdiction. Any suit, action or proceeding with respect to this Agreement, or any judgment entered by any court in respect of any thereof, shall be brought exclusively in any court of competent jurisdiction in Salt Lake City, Utah, and each of the Company and the members of Participant’s Family Group hereby submits to the exclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment. Each of the members of Participant’s Family Group and the Company hereby irrevocably waives (i) any objections which it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement brought in any court of competent jurisdiction in Salt Lake City, Utah, (ii) any claim that any such suit, action or proceeding brought in any such court has been brought in any inconvenient forum and (iii) any right to a jury trial. 13. RSU Award Subject to Plan and Stockholders Agreement. By entering into this Agreement the Participant agrees and acknowledges that the Participant has received and read a copy of the Plan. The RSU Award and the Issuer Equity received upon settlement of 001366-0001-15794-Active.25831013.6

 

9 the RSU Award are subject to the Plan and the Stockholders’ Agreement. The terms and provisions of the Plan and the Stockholders’ Agreement, as each may be adopted or amended from time to time are hereby incorporated by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan and the Stockholders’ Agreement, the applicable terms and provisions of the Plan will govern and prevail. In the event of a conflict between any applicable term or provision of the Plan and any term or provision of the Stockholders’ Agreement, the applicable terms and provisions of the Stockholders’ Agreement will govern and prevail. 14. Amendment. The Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate this Agreement, but no such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination shall materially diminish the rights of the Participant hereunder without the consent of the Participant unless such action is made in accordance with the terms of the Plan. 15. Entire Agreement. This Agreement and the documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to the subject matter hereof and thereof, provided, that if the Company or its Affiliates is a party to one or more agreements with the Participant related to the matters subject to Section 4 and Appendix A, such other agreements shall remain in full force and effect and continue in addition to this Agreement and nothing in this Agreement or incorporated by reference shall supersede or replace any other confidentiality, non-competition, non-solicitation, non-disparagement or similar agreement entered into between the Participant and the Company (or any subsidiary or Affiliate) to the extent that such agreement is more protective of the business of the Company or any subsidiary or Affiliate), and provided, further, that to the extent a Participant is party to any agreement that would, by its terms, vary the terms of this Agreement (other than with respect to the matters subject to Section 4 hereof) or the Stockholders’ Agreement (or provide more favorable rights and remedies to the Participant), such terms will be deemed amended and shall not apply to the RSU Award granted herein or any shares of Common Stock or Alternative Equity acquired as a result of the settlement of the RSU Award. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter, other than as specifically provided for herein. PARTICIPANT ACKNOWLEDGES AND AGREES THAT PARTICIPANT SHALL NOT BE ENTITLED TO ANY ADDITIONAL AWARDS UNDER THE PLAN UNLESS SEPARATELY AGREED TO BY THE COMPANY FOLLOWING THE DATE HEREOF. 16. Injunctive Relief. Participant and Participant’s Permitted Transferees each acknowledges and agrees that a violation of any of the terms of this Agreement will cause the Company and its Affiliates irreparable injury for which adequate remedy at law is not available. Accordingly, it is agreed that the Company shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which it may be entitled at law or equity. 001366-0001-15794-Active.25831013.6

 

10 17. Rights Cumulative; Waiver. The rights and remedies of Participant and the Company and/or its Affiliates under this Agreement shall be cumulative and not exclusive of any rights or remedies which either would otherwise have hereunder or at law or in equity or by statute, and no failure or delay by either party in exercising any right or remedy shall impair any such right or remedy or operate as a waiver of such right or remedy, nor shall any single or partial exercise of any power or right preclude such party’s other or further exercise or the exercise of any other power or right. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by either party to exercise any right or privilege hereunder shall be deemed a waiver of such party’s rights or privileges hereunder or shall be deemed a waiver of such party’s rights to exercise the same at any subsequent time or times hereunder. 18. Section 409A. It is intended that the Restricted Stock Units granted hereunder shall comply with Section 409A of the Code, and all provisions of this Agreement shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A of the Code. 19. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. [Signature page follows] 001366-0001-15794-Active.25831013.6

 

IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto as of the Date of Grant. Participant ____________________________________ Name: Date of Grant: Restricted Stock Units: Vesting Start Date: 001366-0001-15794-Active.25831013.6

 

Acknowledged and agreed as of the date above first written: VIVINT GROUP, INC., for itself and on behalf of any “Issuer” (as defined in the Agreement) ____________________________________ Name: Title: Authorized Signatory 001366-0001-15794-Active.25831013.6

 

Appendix A-1 Appendix A Restrictive Covenants 1. Non-Competition; Non-Solicitation; Non-Disparagement. (a) The Participant acknowledges and recognizes the highly competitive nature of the businesses of the Company and its Affiliates and Subsidiaries, and accordingly agrees as follows: (i) During the Participant’s employment with the Company or its Affiliates or Subsidiaries (the “Employment Term”) and for a period of one year following the date the Participant ceases to be employed by the Company or its Affiliates or Subsidiaries (the “Restricted Period”), the Participant will not, whether on the Participant’s own behalf or on behalf of or in conjunction with any person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise whatsoever (for the purposes of this Appendix A, a “Person”), directly or indirectly solicit or assist in soliciting the business of any then-current or prospective client or customer of any member of the Restricted Group in competition with the Restricted Group in the Business. (ii) During the Restricted Period, the Participant will not directly or indirectly: (A) engage in the Business anywhere in the United States, or in any geographical area that is within 100 miles of any geographical area where the Restricted Group engages in the Business, including, for the avoidance of doubt, by entering into the employment of or rendering any services to a Core Competitor, except where such employment or services do not relate in any manner to the Business; (B) acquire a financial interest in, or otherwise become actively involved with, any Person engaged in the Business, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; or (C) intentionally and adversely interfere with, or attempt to adversely interfere with, business relationships between the members of the Restricted Group and any of their clients, customers, suppliers, partners, members or investors. (iii) Notwithstanding anything to the contrary in this Appendix A, the Participant may, directly or indirectly own, solely as an investment, securities of any Person engaged in a Business (including, without limitation, a Core Competitor) which are publicly traded on a national or regional stock exchange or on the over-the-counter market if the Participant (i) is not a controlling person of, or a member of a group which controls, such person and (ii) does not, directly or indirectly, own 2% or more of any class of securities of such Person. 001366-0001-15794-Active.25831013.6

 

Appendix A-2 (iv) During the Employment Term and the Restricted Period, the Participant will not, whether on the Participant’s own behalf or on behalf of or in conjunction with any Person, directly or indirectly: (A) solicit or encourage any employee of the Restricted Group to leave the employment of the Restricted Group; (B) hire any executive-level employee, key personnel, or manager-level employee (i.e., any operations manager or district sales manager) who was employed by the Restricted Group as of the date of the Participant’s termination of employment with the Company or who left the employment of the Restricted Group coincident with, or within one year prior to or after, the termination of the Participant’s employment with the Company; or (C) encourage any consultant of the Restricted Group to cease working with the Restricted Group. (v) For purposes of this Agreement: (A) “Restricted Group” shall mean, collectively, the Company and its subsidiaries and, to the extent engaged in the Business, their respective Affiliates (including The Blackstone Group L.P. and its Affiliates). (B) “Business” shall mean (1) origination, installation, or monitoring services related to residential or commercial security, life-safety, energy management or home automation services, (2) installation or servicing of residential or commercial solar panels or sale of electricity generated by solar panels, (3) design, engineering or manufacturing of technology or products related to residential or commercial security, life-safety, energy management or home automation services and/or (4) provision of television, wireless voice and/or data services, including internet, through a common internet connectivity pipeline into the home. (C) “Core Competitor” shall mean ADT Security Services/Tyco Integrated Security, Security Networks, LLC, Protection 1, Inc., Protect America, Inc., Stanley Security Solutions, Inc., Vector Security, Inc., Slomins, Inc., Monitronics International, Inc., Life Alert, Comcast Corporation, Time Warner, Inc., AT&T Inc., Verizon Communications, Inc., DISH Network Corp., DIRECTV, Pinnacle, JAB Wireless, Inc., Clearwire Corporation, CenturyLink, Inc., Cox Communication, Inc. and any of their respective Affiliates and current or future dealers, and Sungevity, Inc., RPS, Sunrun Inc., Solar City Corporation, Clean Power Finance, SunPower Corporation, Corbin Solar Solutions LLC, Galkos Construction, Inc., Zing Solar, Terrawatt, Inc., and any of their respective Affiliates or current or future dealers. (vi) Notwithstanding the foregoing, if Executive’s principal place of employment is located in California, then the provisions of Sections 1(a)(i) and 1(a)(ii) of this Appendix A shall not apply following Executive’s termination of employment to the extent any such provision is prohibited by applicable California law. 001366-0001-15794-Active.25831013.6

 

Appendix A-3 (b) During the Employment Term and the three-year period beginning immediately following the Employment Term, the Participant agrees not to make, or cause any other person to make, any communication that is intended to criticize or disparage, or has the effect of criticizing or disparaging, the Company or any of its affiliates, agents or advisors (or any of its or their respective employees, officers or directors (it being understood that comments made in the Participant’s good faith performance of his duties hereunder shall not be deemed disparaging or defamatory for purposes of this Agreement). Nothing set forth herein shall be interpreted to prohibit the Participant from responding truthfully to incorrect public statements, making truthful statements when required by law, subpoena or court order and/or from responding to any inquiry by any regulatory or investigatory organization. (c) It is expressly understood and agreed that although the Participant and the Company consider the restrictions contained in this Section 1 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Appendix A is an unenforceable restriction against the Participant, the provisions of this Appendix A shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Appendix A is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. (d) The period of time during which the provisions of this Section 1 shall be in effect shall be extended by the length of time during which the Participant is in breach of the terms hereof as determined by any court of competent jurisdiction on the Company’s application for injunctive relief. (e) The provisions of Section 1 hereof shall survive the termination of the Participant’s employment for any reason. 2. Confidentiality; Intellectual Property. (a) Confidentiality. (i) The Participant will not at any time (whether during or after the Participant’s employment with the Company) (x) retain or use for the benefit, purposes or account of the Participant or any other Person; or (y) disclose, divulge, reveal, communicate, share, transfer or provide access to any Person outside the Company (other than the Participant’s professional advisers who are bound by confidentiality obligations or otherwise in performance of the Participant’s duties under the Participant’s employment and pursuant to customary industry practice), any non-public, proprietary or confidential information --including without limitation trade secrets, know-how, research and development, software, databases, inventions, processes, formulae, technology, designs and other intellectual property, information concerning finances, investments, profits, pricing, costs, products, services, vendors, customers, clients, partners, investors, 001366-0001-15794-Active.25831013.6

 

Appendix A-4 personnel, compensation, recruiting, training, advertising, sales, marketing, promotions, government and regulatory activities and approvals -- concerning the past, current or future business, activities and operations of the Company, its Affiliates or Subsidiaries and/or any third party that has disclosed or provided any of same to the Company on a confidential basis (“Confidential Information”) without the prior written authorization of the Board. (ii) “Confidential Information” shall not include any information that is (a) generally known to the industry or the public other than as a result of the Participant’s breach of this covenant; (b) made legitimately available to the Participant by a third party without breach of any confidentiality obligation of which the Participant has knowledge; or (c) required by law to be disclosed; provided that with respect to subsection (c) the Participant shall give prompt written notice to the Company of such requirement, disclose no more information than is so required, and reasonably cooperate with any attempts by the Company to obtain a protective order or similar treatment. (iii) Except as required by law, the Participant will not disclose to anyone, other than the Participant’s family (it being understood that, in this Agreement, the term “family” refers to the Participant, the Participant’s spouse, children, parents and spouse’s parents) and advisors, the existence or contents of this Agreement; provided that the Participant may disclose to any prospective future employer the provisions of this Appendix A. This Section 2(a)(iii) shall terminate if the Company publicly discloses a copy of this Agreement (or, if the Company publicly discloses summaries or excerpts of this Agreement, to the extent so disclosed). (iv) Upon termination of the Participant’s employment with the Company for any reason, the Participant shall (x) cease and not thereafter commence use of any Confidential Information or intellectual property (including without limitation, any patent, invention, copyright, trade secret, trademark, trade name, logo, domain name or other source indicator) owned or used by the Company, its Subsidiaries or Affiliates; and (y) immediately destroy, delete, or return to the Company, at the Company’s option, all originals and copies in any form or medium (including memoranda, books, papers, plans, computer files, letters and other data) in the Participant’s possession or control (including any of the foregoing stored or located in the Participant’s office, home, laptop or other computer, whether or not Company property) that contain Confidential Information, except that the Participant may retain only those portions of any personal notes, notebooks and diaries that do not contain any Confidential Information. (b) Intellectual Property. (i) If the Participant creates, invents, designs, develops, contributes to or improves any works of authorship, inventions, intellectual property, materials, documents or other work product (including without limitation, research, reports, software, databases, systems, applications, presentations, textual works, content, or audiovisual materials) (“Works”), either alone or with third parties, at any time during the Participant’s employment by the Company and within the scope of such employment and/or with the use of any the Company resources (“Company Works”), the Participant 001366-0001-15794-Active.25831013.6

 

Appendix A-5 shall promptly and fully disclose same to the Company and hereby irrevocably assigns, transfers and conveys, to the maximum extent permitted by applicable law, all of the Participant’s right, title, and interest therein (including rights under patent, industrial property, copyright, trademark, trade secret, unfair competition, other intellectual property laws, and related laws) to the Company to the extent ownership of any such rights does not vest originally in the Company. If the Participant creates any written records (in the form of notes, sketches, drawings, or any other tangible form or media) of any Company Works, the Participant will keep and maintain same. The records will be available to and remain the sole property and intellectual property of the Company at all times. (ii) The Participant shall take all requested actions and execute all requested documents (including any licenses or assignments required by a government contract) at the Company’s expense (but without further remuneration) to assist the Company in validating, maintaining, protecting, enforcing, perfecting, recording, patenting or registering any of the Company’s rights in the Company Works. (iii) The Participant shall not improperly use for the benefit of, bring to any premises of, divulge, disclose, communicate, reveal, transfer or provide access to, or share with the Company any confidential, proprietary or non-public information or intellectual property relating to a former employer or other third party without the prior written permission of such third party. The Participant shall comply with all relevant policies and guidelines of the Company that are from time to time previously disclosed to the Participant, including regarding the protection of Confidential Information and intellectual property and potential conflicts of interest. (iv) The provisions of Section 2 hereof shall survive the termination of the Participant’s employment for any reason. 001366-0001-15794-Active.25831013.6

 

Exhibit A Vivint Group, Inc. Amended and Restated 2013 Omnibus Incentive Plan (Distributed Separately) 001366-0001-15794-Active.25831013.6

 

Exhibit 31.1
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Todd Pedersen, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September 30, 2018 of APX Group Holdings, 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 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 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 1, 2018

	
 	
/s/ Todd Pedersen	
Todd Pedersen	
Chief Executive Officer and Director
(Principal Executive Officer)	

Exhibit 31.2
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Mark Davies, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September 30, 2018 of APX Group Holdings, 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 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 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 1, 2018

	

/s/ Mark Davies	
Mark Davies	
Chief Financial Officer
(Principal Financial Officer)	

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of APX Group Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2018 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Todd Pedersen, Chief Executive Officer and Director of 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:

•	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	
		
•	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.	
Date: November 1, 2018

	

/s/    Todd Pedersen        	
Todd Pedersen	
Chief Executive Officer and Director
(Principal Executive Officer)	

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of APX Group Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2018 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark Davies, Chief Financial Officer of 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:

•	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	
		
•	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.	
Date: November 1, 2018

	

/s/    Mark Davies        	
Mark Davies	
Chief Financial Officer
(Principal Financial Officer)