Equity

6 Months Ended

Jun. 30, 2020

The Company has a single class of common stock in which stockholders are entitled to one vote for each share of common stock.

Issuance of Shares

During January 2020, the Company issued approximately 16 million shares of the Company’s common stock with a fair value of $114 million in connection with the Defenders Acquisition.

Agreement to Issue Class B Common Stock

On July 31, 2020, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with Google LLC (“Google”) pursuant to which the Company has agreed to issue and sell in a private placement to Google 54,744,525 shares of Class B common stock, par value of $0.01 per share, of the Company (“Class B Common Stock”) for an aggregate purchase price of $450 million, subject to adjustment to limit Google’s investment to 9.9% of the issued and outstanding common stock of the Company on an as-converted basis. The shares of Class B Common Stock are being acquired at a per share purchase price of $8.22 (which is equal to the volume weighted average price of shares of the Company’s common stock for the fifteen trading days immediately prior to entry into the Securities Purchase Agreement), adjusted for the amount of any cash dividend declared by the Company after the date of the Securities Purchase Agreement and prior to the date of closing, to the extent that Google is not entitled to receive such dividend. Based on this number of shares, after closing, Google will hold approximately 6.6% of the issued and outstanding common stock of the Company on an as-converted basis. Prior to closing, Google has the unilateral right to purchase, for the same price per share, additional shares of Class B Common Stock such that, immediately following the closing, Google holds 9.9% of the issued and outstanding common stock on an as-converted basis. Google has indicated to the Company that it does not currently intend to exercise the option.

The Company has agreed to amend its certificate of incorporation pursuant to the terms of the Securities Purchase Agreement prior to closing, to, among other things, authorize the issuance of shares of Class B Common Stock, which will constitute a new class of common stock of the Company. Each share of Class B Common Stock will have equal status and rights to dividends with a share of common stock. The holders of Class B Common Stock shall have one vote for each share of Class B Common Stock held of record by such holder on all matters on which stockholders are entitled to vote generally; provided, however, that holders of Class B Common Stock, as such, shall not be entitled to vote on the election, appointment or removal of directors of the Company. Additionally, each share of Class B Common Stock will immediately become convertible into one share of common stock, at the option of the holder thereof, at any time following the earlier of (i) the expiration or early termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Clearance”), required prior to such holder’s conversion of all such shares of Class B Common Stock, and (ii) to the extent HSR Clearance is not required prior to such holder’s conversion of such shares of Class B Common Stock, the date that such holder owns such shares of Class B Common Stock.

The Securities Purchase Agreement further specifies that, upon closing, the Company and Google will enter into an Investor Rights Agreement (the “Investor Rights Agreement”), pursuant to which Google will agree to be bound by customary transfer restrictions and drag-along rights, and be afforded customary registration rights with respect to shares of Class B Common Stock held directly by Google. Under the terms of the Investor Rights Agreement, Google will be prohibited, subject to certain exceptions, from transferring any shares of Class B Common Stock or any shares of common stock issuable upon conversion of the Class B Common Stock beneficially owned by Google until the earlier of (i) the three-year anniversary of closing, (ii) the date on which the Commercial Agreement (as defined below) has been terminated under certain specified circumstances and (iii) June 30, 2022 if the Company breaches certain of its obligations under the Commercial Agreement (as defined below).

Commercial Agreement

Concurrently with the execution of the Securities Purchase Agreement, ADT LLC, an indirect wholly owned subsidiary of the Company (“ADT LLC”), and Google entered into a Master Supply, Distribution, and Marketing Agreement (the “Commercial Agreement”), pursuant to which Google has agreed to supply ADT LLC with certain Google devices as well as certain Google video and analytics services (“Google Services”), for sale to ADT LLC’s customers. Subject to customary termination rights related to breach and change of control, the Commercial Agreement has an initial term of seven years from the date that the Google Service is successfully integrated into ADT LLC’s end-user security and automation platform, which is targeted for no later than June 30, 2022. If the integrated service is not launched by June 30, 2022 then ADT LLC will be required to offer Google Services without integration for professional installations except for existing customers who already have ADT Pulse or

ADT Control interactive services until such integration has been made. Further, subject to certain carveouts, ADT LLC has agreed to exclusively sell certain devices and services of the Investor for end-user smart home, security or safety devices.

The Commercial Agreement also contains customary termination rights for both parties. In addition, Google has rights to terminate the Commercial Agreement if (i) ADT LLC divests any part of its direct to consumer business and the acquiring entity does not agree to assume all obligations under the Commercial Agreement, or (ii) ADT LLC breaches certain provisions of the Commercial Agreement and does not cure such breaches. In the event of a breach by ADT LLC of the Commercial Agreement in a manner reasonably likely to result in a material adverse effect on Google’s business or brand, or a breach by ADT LLC of certain data security and privacy obligations under the Commercial Agreement, ADT LLC must suspend the sale of Google Services and certain devices during the applicable cure period. Upon termination of the Commercial Agreement, ADT LLC will no longer have rights to sell the Google Service or devices to new customers, subject to an applicable transition period. In addition, the Google Services may not be accessible by ADT LLC customers through ADT’s integrated end-user application during any cure period for breach by ADT LLC of certain data security and privacy provisions of the Commercial Agreement or upon termination of the agreement for a breach of such provisions.

The Commercial Agreement specifies that each party will contribute $150 million towards the joint marketing of devices and services, customer acquisition, training of ADT LLC’s employees for the sales, installation, customer service, and maintenance for the product and service offerings, and technology updates for products included in such offerings. Each party will contribute such funds in three equal tranches, subject to the attainment of certain milestones.

Dividends

During the six months ended June 30, 2020, the Company declared the following dividends on common stock:

Declared Date

Dividend per Share

Record Date

Payment Date

March 5, 2020

$0.035

March 19, 2020

April 2, 2020

May 7, 2020

$0.035

June 18, 2020

July 2, 2020

During the three months ended June 30, 2020, the Company declared dividends of $27 million (or $0.035 per share). The amount of dividends settled in shares of common stock during that period was not material.

During the three months ended June 30, 2019, the Company declared dividends of $26 million (or $0.035 per share), of which $3 million represents the portion of the dividends settled in cash and $23 million represents the portion of the dividends settled in shares of common stock, which resulted in the issuance of approximately 4 million shares of common stock, on July 2, 2019.

During the six months ended June 30, 2020, the Company declared dividends of $54 million (or $0.07 per share). The amount of dividends settled in shares of common stock during that period was not material.

During the six months ended June 30, 2019, the Company declared dividends of $53 million (or $0.07 per share). When including the July 2, 2019 payment date, approximately $7 million represents the portion of the dividends settled in cash and $46 million represents the portion of the dividends settled in shares of common stock, which resulted in the issuance of 7 million shares of common stock.

On August 5, 2020, the Company announced a dividend of $0.035 per share to common stockholders of record on September 18, 2020, which will be distributed on October 2, 2020.

Share Repurchase Program

In February 2019, the Company approved a share repurchase program (the “Share Repurchase Program”), which permits the Company to repurchase up to $150 million of the Company’s shares of common stock through February 27, 2021. On March 23, 2020, the Company approved an increase of $75 million, inclusive of the amount then remaining under the Share Repurchase Program, in the authorized repurchase amount and an extension of the Share Repurchase Program through March 23, 2021.

The Company may effect these repurchases pursuant to one or more trading plans to be adopted in accordance with Rule 10b5-1 (each, a “10b5-1 plan”) under the Securities Exchange Act of 1934 (the “Exchange Act”), in privately negotiated transactions, in open market transactions, or pursuant to an accelerated share repurchase program. The Company intends to conduct the Share Repurchase Program in accordance with Rule 10b-18 under the Exchange Act.

During the three and six months ended June 30, 2020, there were no material repurchases of shares of common stock under the Share Repurchase Program. As of June 30, 2020, the Company had approximately $75 million remaining in the Share Repurchase Program.

During the three and six months ended June 30, 2019, the Company repurchased 21 million and 24 million shares of common stock, respectively, for approximately $128 million and $150 million, respectively. All of the shares repurchased were treated as retirements and reduced the number of shares issued and outstanding. In addition, the Company recorded the excess of the purchase price over the par value per share as a reduction to additional paid-in capital.

Accumulated Other Comprehensive Loss

There were no material reclassifications out of AOCI during the six months ended June 30, 2020 and 2019.