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TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on December 17, 2019

Registration No. 333-          


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Monitronics International, Inc.
(Exact Name of Registrant as Specified in Its Charter)



Delaware
(State or Other Jurisdiction of
Employer Incorporation or Organization)
  7380
(Primary Standard Industrial
Classification Code Number)
  74-2719343
(I.R.S. Identification Number)

1990 Wittington Place
Farmers Branch, Texas 75234
(972) 243-7443

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)



Fred A. Graffam III
Executive Vice President and Chief Financial Officer
1990 Wittington Place
Farmers Branch, Texas 75234
(972) 243-7443
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies of all communications, including communications sent to agent for service, should be sent to:

David J. Miller
Jesse P. Myers
Latham & Watkins LLP
811 Main Street, Suite 3700
Houston, Texas 77002
Telephone: (713) 546-5400

Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.



           If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:    ý

           If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

           If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

           If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

           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. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý   Smaller reporting company o

Emerging growth company o

           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 7(a)(2)(B) of the Securities Act. o



CALCULATION OF REGISTRATION FEE

               
 
Title of Each Class of Securities
to be Registered

  Amount to be
Registered(1)

  Proposed Maximum
Offering Price Per
Share(2)

  Proposed Maximum
Aggregate Offering
Price(2)

  Amount of
Registration Fee

 

Shares of common stock, par value $0.01 per share

  21,191,157   $9.30   $197,077,760.10   $25,580.69

 

(1)
Pursuant to Rule 416 under the Securities Act of 1933, as amended (the "Securities Act"), the shares of common stock being registered hereunder include an indeterminate number of shares of common stock that may be issued in connection with the anti-dilution provisions or stock splits, stock dividends, recapitalizations or similar events.

(2)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act, based on the average of the bid and ask prices per share of the registrant's common stock on December 16, 2019, as reported on the OTCQX Best Market of the OTC Markets Group Inc.



           The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this Registration Statement shall become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.

   


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The information in this prospectus is not complete and may be changed. The securities described herein may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell such securities, and it is not soliciting an offer to buy such securities, in any state or jurisdiction where such offer or sale is not permitted.

Subject to Completion, dated December 17, 2019

PROSPECTUS

Monitronics International, Inc.

Up to 21,191,157 Shares of

Common Stock



        This prospectus relates to the resale of an aggregate of up to 21,191,157 shares of our common stock which may be offered for sale from time to time by the selling stockholders named in this prospectus.

        The number of shares the selling stockholders may sell consists of 21,191,157 shares of common stock. We are registering the offer and sale of the shares of common stock to satisfy registration rights we have granted to the selling stockholders.

        We are not selling any shares of common stock under this prospectus and will not receive any proceeds from the sale of common stock by the selling stockholders. The shares of common stock to which this prospectus relates may be offered and sold from time to time directly by the selling stockholders or alternatively through underwriters, broker-dealers or agents. The shares of common stock may be sold in one or more transactions, at fixed prices, at prevailing market prices at the time of sale or at negotiated prices. The selling stockholders will be responsible for any underwriting fees, discounts and selling commissions due to underwriters, brokers-dealers or agents. Please see the section titled "Plan of Distribution" of this prospectus for a more complete description of how the offered common stock may be sold.

        You should carefully read this prospectus and any prospectus supplement before you invest. You also should read the documents we have referred you to in the "Where You Can Find More Information" section of this prospectus for information about us and our financial statements.

        Our common stock is quoted on the OTCQX Best Market of the OTC Markets Group Inc. under the symbol "SCTY". Although our common stock is quoted on the OTCQX, there is currently no active public trading market in our common stock as trading and quotations of our common stock have been limited and sporadic. On December 16, 2019, the closing price of our common stock on the OTCQX was $9.30 per share.

        Investing in our common stock involves risks. See "Risk Factors" on page 3 of this prospectus.

        Neither the Securities and Exchange Commission (the "SEC") nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.



   

The date of this prospectus is                , 2019.


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CONTENTS

BASIS OF PRESENTATION

   
II
 

TRADEMARKS AND TRADE NAMES

   
III
 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

   
IV
 

PROSPECTUS SUMMARY

   
1
 

RISK FACTORS

   
3
 

USE OF PROCEEDS

   
22
 

DETERMINATION OF OFFERING PRICE

   
23
 

CAPITALIZATION

   
24
 

MARKET PRICE OF OUR COMMON STOCK

   
25
 

DIVIDEND POLICY

   
26
 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

   
27
 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

   
29
 

BUSINESS

   
48
 

MANAGEMENT

   
58
 

EXECUTIVE COMPENSATION

   
63
 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   
85
 

SELLING STOCKHOLDERS

   
87
 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

   
90
 

DESCRIPTION OF CAPITAL STOCK

   
92
 

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS

   
98
 

LEGAL MATTERS

   
104
 

EXPERTS

   
105
 

WHERE YOU CAN FIND MORE INFORMATION

   
106
 

INDEX TO FINANCIAL STATEMENTS

   
F-1
 

PART II INFORMATION NOT REQUIRED IN PROSPECTUS

   
II-1
 

        Neither we nor the selling stockholders have authorized any dealer, salesman or other person to provide you with information other than the information contained in this prospectus. This prospectus does not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy, the common stock offered by this prospectus by any person in any jurisdiction in which it is unlawful for such person to make such an offer or solicitation. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front cover of the prospectus, regardless of the time of delivery of this prospectus or any sale of a security. Our business, financial condition, results of operations and prospects may have changed since those dates.

        This prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. See "Risk Factors" and "Cautionary Statement Regarding Forward-Looking Statements."

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BASIS OF PRESENTATION

        On June 30, 2019, Monitronics International, Inc., (the "Company," the "Registrant," "we" or "us") and certain of the Company's domestic subsidiaries (collectively, the "Debtors") filed voluntary petitions seeking relief (collectively, the "Petitions" and, the cases commenced thereby, the "Chapter 11 Cases") under Title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court"). On August 30, 2019 (the "Effective Date"), the Company emerged from Chapter 11 after completing a series of transactions through which the Company and its former parent, Ascent Capital Group, Inc. ("Ascent") merged (the "Merger") in accordance with the terms of the Agreement and Plan of Merger, dated as of May 24, 2019 (the "Merger Agreement"). The Company was the surviving corporation and, immediately following the Merger, was redomiciled in Delaware in accordance with the terms of the Merger Agreement.

        Upon emergence from Chapter 11 on the Effective Date, the Company has applied Accounting Standards Codification ("ASC") 852, Reorganizations ("ASC 852"), in preparing its consolidated financial statements (see Note 2, Emergence from Bankruptcy and Note 3, Fresh Start Accounting). As a result of the application of fresh start accounting and the effects of the implementation of the Plan, a new entity for financial reporting purposes was created. The Company selected a convenience date of August 31, 2019 (the "Fresh Start Date"), for purposes of applying fresh start accounting as the activity between the convenience date and the Effective Date did not result in a material difference in the financial results. References to "Successor" or "Successor Company" relate to the balance sheet and results of operations of Monitronics on and subsequent to September 1, 2019. References to "Predecessor" or "Predecessor Company" refer to the balance sheet and results of operations of Monitronics prior to September 1, 2019. With the exception of interest and amortization expense, the Company's operating results and key operating performance measures on a consolidated basis were not materially impacted by the reorganization. As such, references to the "Company" could refer to either the Predecessor or Successor periods, as defined.

        Unless otherwise noted or suggested by context, all financial information and data and accompanying financial statements and corresponding notes, as contained in this prospectus, (i) on or prior to the Fresh Start Date, reflect the actual historical results of operations and financial condition of Monitronics for the periods presented and do not give effect to the Debtors' Joint Partial Prepackaged Plan of Reorganization (the "Plan") or any of the transactions contemplated thereby or the adoption of fresh-start accounting, and (ii) following the Fresh Start Date, reflect the actual historical results of operations and financial condition of Monitronics on a consolidated basis and give effect to the Plan and any of the transactions contemplated thereby and the adoption of fresh-start accounting. Thus, the financial information presented herein on or prior to the Fresh Start Date is not comparable to information about our performance or financial condition after the Fresh Start Date.

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TRADEMARKS AND TRADE NAMES

        We own or have rights to various trademarks, service marks and trade names that we use in connection with the operation of our business. This prospectus may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties' trademarks, service marks, trade names or products in this prospectus is not intended to, and does not imply, a relationship with, or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus may appear without the ®, TM or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, service marks and trade names.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management's current expectations and assumptions and involve known and unknown risks and uncertainties and projections of results of operations or of financial condition or forecasts of future events that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Words such as "could," "will," "may," "assume," "forecast," "position," "predict," "strategy," "expect," "intend," "plan," "estimate," "anticipate," "believe," "project," "budget," "potential" or "continue" and similar expressions are used to identify forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this prospectus include statements regarding our business, marketing and operating strategies, new service offerings, the availability of capital, financial prospects, and anticipated sources and uses of capital. Forward-looking statements can be affected by assumptions used, known risks and unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed.

        A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. Monitronics believes that it has chosen these assumptions or bases in good faith and believes that they are reasonable. However, when considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this prospectus, including the specific factors mentioned below. Those risk factors and other factors noted throughout this prospectus could cause Monitronics' actual results to differ materially from those disclosed in any forward looking statement. You are cautioned not to place undue reliance on any forward-looking statements.

        Each forward-looking statement speaks only as of the date of the particular statement, and Monitronics undertakes no obligation to publicly update or revise any forward-looking statements except as required by law.

        Specific factors which could cause actual results to differ from those in the forward-looking statements include:

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PROSPECTUS SUMMARY

        This summary highlights selected information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and financial statements and notes thereto included elsewhere in this prospectus. Because it is abbreviated, this summary is not complete and does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully before making an investment decision, including the information presented under the headings "Risk Factors," "Cautionary Statement Regarding Forward-Looking Statements," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and the notes thereto included elsewhere in this prospectus.

        Unless the context requires otherwise, references in this prospectus to the "Company," "Monitronics," "we," "our" and "us" refer to Monitronics International, Inc. and its subsidiaries on a consolidated basis.


Our Company

        Monitronics International, Inc., a Delaware corporation, does business as Brinks Home Security and provides residential customers and commercial client accounts with monitored home and business security systems, as well as interactive and home automation services, in the United States, Canada and Puerto Rico.


Chapter 11 Plan of Reorganization

        On June 30, 2019, the Debtors filed voluntary petitions for relief in the Bankruptcy Court under the caption In re: Monitronics International, Inc., et al. seeking relief under the provisions of Chapter 11 of Title 11 of the Bankruptcy Code.

        On August 7, 2019, the Bankruptcy Court entered an order, Docket No. 199, confirming and approving the Plan that was previously filed with the Bankruptcy Court on June 30, 2019.

        On the Effective Date, August 30, 2019, the conditions to the effectiveness of the Plan were satisfied and the Company emerged from Chapter 11 after completing a series of transactions through which the Company and Ascent merged in accordance with the terms of the Merger Agreement. The Company was the surviving corporation and, immediately following the Merger, was redomiciled in Delaware in accordance with the terms of the Merger Agreement.


Principal Executive Offices

        Our principal executive office is located at 1990 Wittington Place, Farmers Branch, Texas, telephone number (972) 243-7443. Information contained on our website, www.brinkshome.com, does not constitute a part of this prospectus.

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The Offering

Common Stock Offered by the Selling Stockholders:

  Up to 21,191,157 shares of our common stock

Common Stock Outstanding:

 

22,500,000 shares of common stock outstanding as of December 16, 2019

Use of Proceeds:

 

We will not receive any of the proceeds from the sale of any shares of common stock by the selling stockholders.

Dividend Policy

 

We do not currently anticipate paying any cash dividends on our common stock in the foreseeable future. We are also restricted in our ability to pay dividends under our Credit Facilities. Please read "Dividend Policy."

Listing and Trading Symbols:

 

Our common stock is quoted on the OTCQX Best Market of the OTC Markets Group Inc. under the symbol "SCTY". Due to its relatively small trading volume, it may be difficult for holders to resell their shares of common stock at prices they find attractive, or at all.

Risk Factors:

 

Investing in our common stock involves a high degree of risk. See "Risk Factors" for a discussion of factors you should carefully consider before deciding to invest in our common stock.

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RISK FACTORS

        Investing in shares of our common stock involves a high degree of risk. You should carefully consider the risks described below with all of the other information included in this prospectus, including the matters addressed in the section entitled "Cautionary Statement Regarding Forward-Looking Statements" in evaluating an investment in our common stock. If any of the following risks were to occur, our business, financial condition, results of operations, and cash flows could be materially adversely affected. In that case, the trading price of our common stock could decline and you could lose all or part of your investment. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.

Risks related to our business

We face risks in acquiring and integrating new subscribers.

        The acquisition of alarm monitoring agreements ("AMAs") involves a number of risks, including the risk that the AMAs acquired may not be profitable due to higher than expected account attrition, lower than expected revenues from the AMAs, higher than expected costs for the creation of new subscribers or monitoring accounts or, when applicable, lower than expected recoveries from dealers. The cost incurred to acquire an AMA is affected by the monthly recurring revenue generated by the AMA, as well as several other factors, including the level of competition, prior experience with AMAs acquired from the dealer, the number of AMAs acquired, the subscriber's credit score and the type of security equipment used by the subscriber. To the extent that the servicing costs or the attrition rates are higher than expected or the revenues from the AMAs or, when applicable, the recoveries from dealers are lower than expected, our business and results of operations could be adversely affected.

Our customer generation strategies and the competitive market for customer accounts may affect our future profitability.

        A significant element of our business strategy is the generation of new customer accounts through our exclusive authorized dealer network (the "Dealer Channel"), which accounted for a substantial portion of our new customer accounts. Our future operating results will depend in large part on our ability to manage our generation strategies effectively. Although we currently generate accounts through hundreds of authorized dealers, a significant portion of our accounts originate from a smaller number of dealers. We experience a loss of dealers from our dealer network due to various factors, such as dealers becoming inactive or discontinuing their alarm monitoring business and competition from other alarm monitoring companies. If we experience a loss of dealers representing a significant portion of our account generation engine or if we are unable to replace or recruit dealers in accordance with our business plans, our business, financial condition and results of operations could be materially and adversely affected.

        In recent years, our acquisition of new customer accounts through our Dealer Channel has declined due to the attrition of large dealers, efforts to acquire new accounts from dealers at lower purchase prices, consumer buying behaviors, including trends of buying security products through online sources and increased competition from technology, telecommunications and cable companies in the market. We are increasingly reliant on our direct-to-consumer sales channel (the "Direct to Consumer Channel") and strategic relationships with third parties, such as Nest Labs, Inc. ("Nest"), to counter-balance this declining account generation through our Dealer Channel. If we are unable to generate sufficient accounts through our Direct to Consumer Channel and strategic relationships to replace declining new accounts through dealers, our business, financial condition and results of operations could be materially and adversely affected.

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We rely on a significant number of our subscribers remaining with us for an extended period of time.

        We incur significant upfront costs for each new subscriber. We require a substantial amount of time, typically exceeding the initial term of the related AMA, to receive cash payments (net of variable cash operating costs) from a particular subscriber that are sufficient to offset this upfront cost. Accordingly, our long-term performance is dependent on our subscribers remaining with us for as long as possible. This requires us to minimize our rate of subscriber cancellations, or attrition. Factors that can increase cancellations include subscribers who relocate and do not reconnect, prolonged downturns in the housing market, problems with service quality, competition from other alarm monitoring companies, equipment obsolescence, adverse economic conditions, conversion of wireless spectrums and the affordability of our service. If we fail to keep our subscribers for a sufficiently long period of time, attrition rates would be higher than expected and our financial position and results of operations could be materially and adversely affected. In addition, we may experience higher attrition rates with respect to subscribers acquired in bulk buys than subscribers acquired pursuant to our authorized dealer program.

We are subject to credit risk and other risks associated with our subscribers.

        Substantially all of our revenues are derived from the recurring monthly revenue due from subscribers under the AMAs. Therefore, we are dependent on the ability and willingness of subscribers to pay amounts due under the AMAs on a monthly basis in a timely manner. Although subscribers are contractually obligated to pay amounts due under an AMA and are generally prohibited from canceling the AMA for the initial term of the AMA, subscribers' payment obligations are unsecured, which could impair our ability to collect any unpaid amounts from our subscribers. To the extent payment defaults by subscribers under the AMAs are greater than anticipated, our business and results of operations could be materially and adversely affected.

        We are also exploring different pricing plans for our products and services, including larger up-front payments and consumer financing options for residential equipment purchases. We currently have arrangements with a third-party financing company to provide financing to customers who wish to finance their equipment purchases from us. These financing arrangements could increase the credit risks associated with our subscribers and any efforts to mitigate risk may not be sufficient to prevent our results of operations from being materially adversely affected.

We are subject to credit risk and other risks associated with our dealers.

        Under the standard alarm monitoring contract acquisition agreements that we enter into with our dealers, if a subscriber terminates the subscriber's service with us during the first twelve months after the AMA has been acquired, the dealer is typically required to elect between substituting another AMA for the terminating AMA or compensating us in an amount based on the original acquisition cost of the terminating AMA. We are subject to the risk that dealers will breach their obligation to provide a comparable substitute AMA for a terminating AMA. Although we withhold specified amounts from the acquisition cost paid to dealers for AMAs ("holdback"), which may be used to satisfy or offset these and other applicable dealer obligations under the alarm monitoring contract acquisition agreements, there can be no guarantee that these amounts will be sufficient to satisfy or offset the full extent of the default by a dealer of its obligations under its agreement. If the holdback does prove insufficient to cover dealer obligations, we are also subject to the credit risk that the dealers may not have sufficient funds to compensate us or that any such dealer will otherwise breach its obligation to compensate us for a terminating AMA. To the extent defaults by dealers of the obligations under their agreements are greater than anticipated, our financial condition and results of operations could be materially and adversely affected. In addition, a significant portion of our accounts originate from a small number of dealers. If any of these dealers discontinue their alarm monitoring business or cease operations altogether as a result of business conditions or due to increasingly burdensome regulatory

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compliance, the dealer may breach its obligations under the applicable alarm monitoring contract acquisition agreement and, to the extent such dealer has originated a significant portion of our accounts, our financial condition and results of operations could be materially and adversely affected to a greater degree than if the dealer had originated a smaller number of accounts.

An inability to provide the contracted monitoring service could adversely affect our business.

        A disruption to the main monitoring facility, the back-up monitoring facility and/or third party monitoring facility could affect our ability to provide alarm monitoring services to our subscribers. Our main monitoring facility holds Underwriter Laboratories listings as a protective signaling services station and maintains certain standards of building integrity, redundant computer and communications facilities and backup power, among other safeguards. However, no assurance can be given that our main monitoring facility will not be disrupted by a technical failure, including communication or hardware failures, catastrophic event or natural disaster, fire, weather, malicious acts or terrorism. Furthermore, no assurance can be given that our back-up or third party monitoring center will not be disrupted by the same or a simultaneous event or that it will be able to perform effectively in the event its main monitoring center is disrupted. Any such disruption, particularly one of a prolonged duration, could have a material adverse effect on our business.

Our reputation as a service provider of high quality security offerings may be adversely affected by product defects or shortfalls in customer service.

        Our business depends on our reputation and ability to maintain good relationships with our subscribers, dealers and local regulators, among others. Our reputation may be harmed either through product defects, such as the failure of one or more of our subscribers' alarm systems, or shortfalls in customer service. Subscribers generally judge our performance through their interactions with the staff at the monitoring and customer care centers, dealers and technicians who perform on-site maintenance services. Any failure to meet subscribers' expectations in such customer service areas could cause an increase in attrition rates or make it difficult to recruit new subscribers. Any harm to our reputation or subscriber relationships caused by the actions of our staff at the monitoring and customer care centers, dealers, personnel or third party service providers or any other factors could have a material adverse effect on our business, financial condition and results of operations.

Due to the ever-changing threat landscape, our products may be subject to potential vulnerabilities of wireless and Internet-of-things devices and our services may be subject to certain risks, including hacking or other unauthorized access to control or view systems and obtain private information.

        Companies that collect and retain sensitive and confidential information are under increasing attack by cyber-criminals around the world. While we implement security measures within our products, services, operations and systems, those measures may not prevent cybersecurity breaches, the access, capture or alteration of information by criminals, the exposure or exploitation of potential security vulnerabilities, distributed denial of service attacks, the installation of malware or ransomware, acts of vandalism, computer viruses, misplaced data or data loss that could be detrimental to our reputation, business, financial condition, and results of operations. Third parties, including our dealers, partners and vendors, could also be a source of security risk to us in the event of a failure of their own products, components, networks, security systems, and infrastructure. In addition, we cannot be certain that advances in criminal capabilities, new discoveries in the field of cryptography, or other developments will not compromise or breach the technology protecting the networks that access our products and services.

        A significant actual or perceived (whether or not valid) theft, loss, fraudulent use or misuse of customer, employee, or other personally identifiable data, whether by us, our partners and vendors, or other third parties, or as a result of employee error or malfeasance or otherwise, non-compliance with

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applicable industry standards or our contractual or other legal obligations regarding such data, or a violation of our privacy and information security policies with respect to such data, could result in costs, fines, litigation, or regulatory actions against us. Such an event could additionally result in unfavorable publicity and therefore materially and adversely affect the market's perception of the security and reliability of our services and our credibility and reputation with our customers, which may lead to customer dissatisfaction and could result in lost sales and increased customer revenue attrition.

        In addition, we depend on our information technology infrastructure for business-to-business and business-to-consumer electronic commerce. Security breaches of, or sustained attacks against, this infrastructure could create system disruptions and shutdowns that could negatively impact our operations. Increasingly, our products and services are accessed through the Internet, and security breaches in connection with the delivery of our services via the Internet may affect us and could be detrimental to our reputation, business, operating results, and financial condition. We continue to invest in new and emerging technology and other solutions to protect our network and information systems, but there can be no assurance that these investments and solutions will prevent any of the risks described above. While we maintain cyber liability insurance that provides both third-party liability and first-party insurance coverages, our insurance may not be sufficient to protect against all of our losses from any future disruptions or breaches of our systems or other event as described above.

Privacy concerns, such as consumer identity theft and security breaches, could hurt our reputation and revenues.

        As part of our operations, we collect a large amount of private information from our subscribers, including social security numbers, credit card information, images and voice recordings. Unauthorized parties may attempt to gain access to our systems or facilities by, among other things, hacking into our systems or facilities or those of our customers, partners or vendors, or through fraud or other means of deceiving our employees, partners or vendors. In addition, hardware, software or applications we develop or obtain from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. The techniques used to gain such access to our information technology systems, our data or customers' data, disable or degrade service, or sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized until launched against a target. We have implemented systems and processes intended to secure our information technology systems and prevent unauthorized access to or loss of sensitive data, but as with all companies, these security measures may not be sufficient for all eventualities and there is no guarantee that they will be adequate to safeguard against all data security breaches, system compromises or misuses of data. If we were to experience a breach of our data security, it may put private information of our subscribers at risk of exposure. To the extent that any such exposure leads to credit card fraud or identity theft, we may experience a general decline in consumer confidence in our business, which may lead to an increase in attrition rates or may make it more difficult to attract new subscribers. If consumers become reluctant to use our services because of concerns over data privacy or credit card fraud, our ability to generate revenues would be impaired. In addition, if technology upgrades or other expenditures are required to prevent security breaches of our network, boost general consumer confidence in our business, or prevent credit card fraud and identity theft, we may be required to make unplanned capital expenditures or expend other resources. Any such loss of confidence in our business or additional capital expenditure requirement could have a material adverse effect on our business, financial condition and results of operations.

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Our independent, third-party authorized dealers may not be able to mitigate certain risks such as information technology breaches, data security breaches, product liability, errors and omissions, and marketing compliance.

        We generate a portion of our new customers through our authorized dealer network. We rely on independent, third-party authorized dealers to implement mitigation plans for certain risks they may experience, including but not limited to, information technology breaches, data security breaches, product liability, errors and omissions, and marketing compliance. If our authorized dealers experience any of these risks, or fail to implement mitigation plans for their risks, or if such implemented mitigation plans are inadequate or fail, we may be susceptible to risks associated with our authorized dealers on which we rely to generate customers. Any interruption or permanent disruption in the generation of customer accounts or services provided by our authorized dealers could materially adversely affect our business, financial condition, results of operations, and cash flows.

Our business is subject to technological innovation over time.

        Our monitoring services depend upon the technology (both hardware and software) of security alarm systems located at subscribers' premises as well as information technology networks and systems, including Internet and Internet-based or "cloud" computing services, to collect, process, transmit, and store electronic information. We may be required to implement new technology both to attract and retain subscribers or in response to changes in technology or other factors, which could require significant expenditures. Such changes could include making changes to legacy systems, replacing legacy systems with successor systems with new functionality, and implementing new systems. There are inherent costs and risks associated with replacing and changing these systems and implementing new systems, including potential disruption of our sales, operations and customer service functions, potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating expenses, retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time, and other risks and costs of delays or difficulties in transitioning to new systems or of integrating new systems into our current systems. In addition, our technology system implementations may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. The implementation of new technology systems may also cause disruptions in our business operations and have a material adverse effect on our business, cash flows, and results of operations.

        Further, the availability of any new features developed for use in our industry (whether developed by us or otherwise) can have a significant impact on a subscriber's initial decision to choose our or our competitors' products and a subscriber's decision to renew with us or switch to one of our competitors. To the extent our competitors have greater capital and other resources to dedicate to responding to technological innovation over time, the products and services offered by us may become less attractive to current or future subscribers thereby reducing demand for such products and services and increasing attrition over time. Those competitors that benefit from more capital being available to them may be at a particular advantage to us in this respect. If we are unable to adapt in response to changing technologies, market conditions or customer requirements in a timely manner, such inability could adversely affect our business by increasing our rate of subscriber attrition. We also face potential competition from improvements in self-monitoring systems, which enable current or future subscribers to monitor their home environments without third-party involvement, which could further increase attrition rates over time and hinder the acquisition of new AMAs.

The high level of competition in our industry could adversely affect our business.

        The security alarm monitoring industry is highly competitive and fragmented. As of December 31, 2018, we were one of the largest alarm monitoring companies in the U.S. when measured by the total number of subscribers under contract. We face competition from other alarm monitoring companies,

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including companies that have more capital and that may offer higher prices and more favorable terms to dealers for AMAs or charge lower prices to customers for monitoring services. We also face competition from a significant number of small regional competitors that concentrate their capital and other resources in targeting local markets and forming new marketing channels that may displace the existing alarm system dealer channels for acquiring AMAs. Further, we are facing increasing competition from telecommunications, cable and technology companies who are expanding into alarm monitoring services and bundling their existing offerings with monitored security services. The existing access to and relationship with subscribers that these companies have could give them a substantial advantage over us, especially if they are able to offer subscribers a lower price by bundling these services. Any of these forms of competition could reduce the acquisition opportunities available to us, thus slowing our rate of growth, or requiring us to increase the price paid for subscriber accounts, thus reducing our return on investment and negatively impacting our revenues and results of operations.

Risks of liability from our business and operations may be significant.

        The nature of the services we provide potentially exposes us to greater risks of liability for employee acts or omissions or system failures than may be inherent in other businesses. If subscribers believe that they incurred losses as a result of an action or failure to act by us, the subscribers (or their insurers) could bring claims against us, and we have been subject to lawsuits of this type from time to time. Similarly, if dealers believe that they incurred losses or were denied rights under the alarm monitoring contract acquisition agreements as a result of an action or failure to act by us, the dealers could bring claims against us. Although substantially all of our AMAs and alarm monitoring contract acquisition agreements contain provisions limiting our liability to subscribers and dealers, respectively, in an attempt to reduce this risk, the AMAs or alarm monitoring contract acquisition agreements that do not contain such provisions expose us to risks of liability that could materially and adversely affect our business. Moreover, even when such provisions are included in an AMA or alarm monitoring contract acquisition agreement, in the event of any such litigation, no assurance can be given that these limitations will be enforced, and the costs of such litigation or the related settlements or judgments could have a material adverse effect on our financial condition. In addition, there can be no assurance that we are adequately insured for these risks. Certain of our insurance policies and the laws of some states may limit or prohibit insurance coverage for punitive or certain other types of damages or liability arising from gross negligence. If significant uninsured damages are assessed against us, the resulting liability could have a material adverse effect on our financial condition or results of operations.

Future litigation could result in reputational damage for us.

        In the ordinary course of business, from time to time, the Company and our subsidiaries are the subject of complaints or litigation from subscribers or inquiries or investigations from government officials, sometimes related to alleged violations of state or federal consumer protection statutes (including by our dealers), violations of "false alarm" ordinances or other regulations, negligent dealer installation or negligent service of alarm monitoring systems. We may also be subject to employee claims based on, among other things, alleged discrimination, harassment or wrongful termination claims. In addition to diverting management resources, damage resulting from such allegations may materially and adversely affect our reputation in the communities we service, regardless of whether such allegations are unfounded. Such reputational damage could result in higher attrition rates and greater difficulty in attracting new subscribers on terms that are attractive to us or at all.

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The alarm monitoring business is subject to macroeconomic factors that may negatively impact our results of operations, including prolonged downturns in the economy.

        The alarm monitoring business is dependent in part on national, regional and local economic conditions. In particular, where disposable income available for discretionary spending is reduced (such as by higher housing, energy, interest or other costs or where the actual or perceived wealth of customers has decreased because of circumstances such as lower residential real estate values, increased foreclosure rates, inflation, increased tax rates or other economic disruptions), the alarm monitoring business could experience increased attrition rates and reduced consumer demand. In periods of economic downturn, no assurance can be given that we will be able to continue acquiring quality AMAs or that we will not experience higher attrition rates. In addition, any deterioration in new construction and sales of existing single family homes could reduce opportunities to grow our subscriber accounts from the sales of new security systems and services and the take-over of existing security systems that had previously been monitored by our competitors. If there are prolonged durations of general economic downturn, our results of operations and subscriber account growth could be materially and adversely affected.

Adverse economic conditions or natural disasters in states where our subscribers are more heavily concentrated may negatively impact our results of operations.

        Even as economic conditions may improve in the United States as a whole, this improvement may not occur or further deterioration may occur in the regions where our subscribers are more heavily concentrated such as, Texas, California, Florida and Arizona which, in the aggregate, comprise approximately 40% of our subscribers. Further, certain of these regions are more prone to natural disasters, such as hurricanes, floods or earthquakes. Although we have a geographically diverse subscriber base, adverse conditions in one or more states where our business is more heavily concentrated could have a significant adverse effect on our business, financial condition and results of operations.

If the insurance industry were to change its practice of providing incentives to homeowners for the use of alarm monitoring services, we may experience a reduction in new customer growth or an increase in our subscriber attrition rate.

        It has been common practice in the insurance industry to provide a reduction in rates for policies written on homes that have monitored alarm systems. There can be no assurance that insurance companies will continue to offer these rate reductions. If these incentives were reduced or eliminated, new homeowners who otherwise may not feel the need for alarm monitoring services would be removed from our potential customer pool, which could hinder the growth of our business, and existing subscribers may choose to disconnect or not renew their service contracts, which could increase our attrition rates. In either case our results of operations and growth prospects could be adversely affected.

Our acquisition strategy may not be successful.

        We may seek opportunities to grow free cash flow through strategic acquisitions, which may include leveraged acquisitions. However, there can be no assurance that we will be able to invest our capital in acquisitions that are accretive to free cash flow which could negatively impact our growth. Our ability to consummate such acquisitions may be negatively impacted by various factors, including among other things:

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        If we engage in any acquisition, we will incur a variety of costs, and may never realize the anticipated benefits of the acquisition. If we undertake any acquisition, the process of operating such acquired business may result in unforeseen operating difficulties and expenditures, including the assumption of the liabilities and exposure to unforeseen liabilities of such acquired business and the possibility of litigation or other claims in connection with, or as a result of, such an acquisition, including claims from terminated employees, customers, former stockholders or other third parties. Moreover, we may fail to realize the anticipated benefits of any acquisition as rapidly as expected or at all, and we may experience increased attrition in our subscriber base and/or a loss of dealer or other strategic relationships and difficulties integrating acquired businesses, technologies and personnel into our business or achieving anticipated operations efficiencies or cost savings. Future acquisitions could cause us to incur debt and expose us to liabilities. Further, we may incur significant expenditures and devote substantial management time and attention in anticipation of an acquisition that is never realized. Lastly, while we intend to implement appropriate controls and procedures as we integrate any acquired companies, we may not be able to certify as to the effectiveness of these companies' disclosure controls and procedures or internal control over financial reporting within the time periods required by U.S. federal securities laws and regulations.

We may pursue business opportunities that diverge from our current business model, which may cause our business to suffer.

        We may pursue business opportunities that diverge from our current business model, including expanding our products or service offerings, investing in new and unproven technologies, adding or modifying the focus of our customer acquisition channels and forming new alliances with companies to market our services. We can offer no assurance that any such business opportunities will prove to be successful. Among other negative effects, our pursuit of such business opportunities could cause our cost of investment in new customers to grow at a faster rate than our recurring revenue. Additionally, any new alliances or customer acquisition channels could have higher cost structures than our current arrangements, which could reduce operating margins and require more working capital. In the event that working capital requirements exceed operating cash flow, we might be required to draw on our Credit Facilities (defined below) or pursue other external financing, which may not be readily available. Further, new alliances or customer acquisition channels may also result in the cannibalization of our products, such as in the case of the alliance with Nest. Any of these factors could materially and adversely affect our business, financial condition, results of operations and cash flows.

Third party claims with respect to our intellectual property, if decided against us, may result in competing uses of our intellectual property or require the adoption of new, non-infringing intellectual property.

        We have received and may in the future receive notices claiming we committed intellectual property infringement, misappropriation or other intellectual property violations and third parties have claimed, and may, in the future, claim that we do not own or have rights to use all intellectual property rights used in the conduct of our business. While we do not believe that any of the claims we previously received are material, there can be no assurance that third parties will not assert future infringement claims against us or claim that our rights to our intellectual property are invalid or unenforceable, and we cannot guarantee that these claims will be unsuccessful. The "Brinks" and "Brinks Home Security" trademarks are licensed from The Brinks Company ("Brinks"). While Brinks is required to defend its intellectual property rights related to the "Brinks" or "Brinks Home Security" trademarks, any claims involving rights to use the "Brinks" or "Brinks Home Security" trademarks could have a material adverse effect on our business if such claims were decided against Brinks and Brinks was precluded from using or licensing the "Brinks" or "Brinks Home Security" trademarks or others were allowed to use such trademarks. If we were required to adopt a new name, it would entail marketing costs in connection with building up recognition and goodwill in such new name. In the event that we were enjoined from using any of our other intellectual property, there would be costs

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associated with the replacement of such intellectual property with developed, acquired or licensed intellectual property. There would also be costs associated with the defense and settlement of any infringement or misappropriation allegations and any damages that may be awarded.

We rely on third parties to transmit signals to our monitoring facilities and provide other services to our subscribers.

        We rely on various third party telecommunications providers and signal processing centers to transmit and communicate signals to our monitoring facilities in a timely and consistent manner. These telecommunications providers and signal processing centers could fail to transmit or communicate these signals to the monitoring facility for many reasons, including due to disruptions from fire, natural disasters, weather, transmission interruption, malicious acts or terrorism. The failure of one or more of these telecommunications providers or signal processing centers to transmit and communicate signals to the monitoring facility in a timely manner could affect our ability to provide alarm monitoring, home automation and interactive services to our subscribers. We also rely on third party technology companies to provide home automation and interactive services to our subscribers, including video surveillance services. These technology companies could fail to provide these services consistently, or at all, which could result in our inability to meet customer demand and damage our reputation. There can be no assurance that third-party telecommunications providers, signal processing centers and other technology companies will continue to transmit, communicate signals to the monitoring facilities or provide home automation and interactive services to subscribers without disruption. Any such disruption, particularly one of a prolonged duration, could have a material adverse effect on our business. See also "Shifts in customer choice of, or telecommunications providers' support for, telecommunications services and equipment will require significant capital expenditures and could adversely impact Monitronics' business" below with respect to risks associated with changes in signal transmissions.

In the absence of regulation, certain providers of Internet access may block Monitronics' services or charge their customers more for using Monitronics' services, or government regulations relating to the Internet could change, which could materially adversely affect Monitronics' revenue and growth.

        Monitronics' interactive and home automation services are primarily accessed through the Internet and Monitronics' security monitoring services are increasingly delivered using Internet technologies. Users who access Monitronics' services through mobile devices, such as smart phones, laptops, and tablet computers must have a high-speed Internet connection, such as Wi-Fi, 3G, or 4G, to use such services. Currently, this access is provided by telecommunications companies and Internet access service providers that have significant and increasing market power in the broadband and Internet access marketplace. In the absence of government regulation, these providers could take measures that affect their customers' ability to use Monitronics' products and services, such as degrading the quality of the data packets Monitronics transmits over their lines, giving Monitronics' packets low priority, giving other packets higher priority than Monitronics', blocking Monitronics' packets entirely, or attempting to charge their customers more for using Monitronics' products and services. To the extent that Internet service providers implement usage-based pricing, including meaningful bandwidth caps, or otherwise try to monetize access to their networks, Monitronics could incur greater operating expenses and customer acquisition and retention could be negatively impacted. Furthermore, to the extent network operators were to create tiers of Internet access service and either charge Monitronics for or prohibit Monitronics' services from being available to Monitronics' customers through these tiers, Monitronics' business could be negatively impacted. Some of these providers also offer products and services that directly compete with Monitronics' own offerings, which could potentially give them a competitive advantage.

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        In addition, the elimination of net neutrality rules and any changes to the rules could affect the market for broadband Internet access service in a way that impacts our business, for example, if Internet access providers provide better Internet access for their own alarm monitoring or interactive services that compete with Monitronics' services or limit the bandwidth and speed for the transmission of data from Monitronics' equipment, thereby depressing demand for our services or increasing the costs of services we provide.

Monitronics may be in the future subject to litigation with respect to the Merger, which could be time consuming and divert the resources and attention of Monitronics' management.

        Monitronics and the individual members of its board of directors may be named in lawsuits relating to the Merger Agreement and the Merger, which could, among other things, seek monetary damages. The defense of any such lawsuits may be expensive and may divert management's attention and resources, which could adversely affect Monitronics' business results of operations and financial condition.

Shifts in customer choice of, or telecommunications providers' support for, telecommunications services and equipment will require significant capital expenditures and could adversely impact Monitronics' business.

        Substantially all of Monitronics' subscriber alarm systems use either cellular service or traditional land-lines to communicate alarm signals from the subscribers' locations to Monitronics' monitoring facilities. The number of land-line customers has continued to decline as fewer new customers utilize land-lines and consumers give up their land-line and exclusively use cellular and IP communication technology in their homes and businesses. As land-line and cellular network service is discontinued or disconnected, subscribers with alarm systems that communicate over these networks may need to have certain equipment in their security system replaced to maintain their monitoring service. The process of changing out this equipment may require Monitronics to subsidize the replacement of subscribers' outdated equipment and is likely to cause an increase in subscriber attrition. For example, certain cellular carriers recently announced that they plan to retire their 3G and CDMA networks by the end of 2022. As of September 30, 2019, Monitronics has approximately 450,000 subscribers with 3G or CDMA equipment which may have to be upgraded as a result of these retirements. Additionally, in the month of September of 2019, other certain cellular carriers of 2G cellular networks have announced that the 2G cellular networks will be sunsetting as of December 31, 2020. As of September 30, 2019, Monitronics has approximately 26,000 subscribers with 2G cellular equipment which may have to be upgraded as a result of this retirement. Monitronics is working on plans to identify and offer equipment upgrades to this population of subscribers. Monitronics does expect to incur significant incremental costs over the next three years related to the retirement of 3G and CDMA networks. While Monitronics is currently unable to provide a more precise estimate for such retirement costs, it currently estimates that it will incur between $70 million and $90 million to complete the retirement of these networks. Total costs for the conversion of such customers are subject to numerous variables, including Monitronics' ability to work with its partners and subscribers on cost sharing initiatives, and the costs that it actually incurs could be materially higher than its current estimates. If Monitronics is unable to adapt timely to changing technologies, market conditions, customer preferences, or convert a substantial portion of its current 3G and CDMA subscribers before the 2022 retirement of these networks, its business, financial condition, results of operations and cash flows could be materially and adversely affected.

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Monitronics' certificate of incorporation has designated the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by Monitronics' stockholders, which could limit Monitronics' stockholders' ability to obtain a favorable judicial forum for disputes with Monitronics or its directors, officers, employees or agents.

        Monitronics' certificate of incorporation provides that, unless Monitronics consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for any stockholder of Monitronics (including beneficial owners) to bring (i) any derivative action or proceeding brought on behalf of Monitronics, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of Monitronics' directors, officers, or other employees to Monitronics or its stockholders, (iii) any action asserting a claim against Monitronics, or its directors, officers or other employees arising pursuant to any provision of the General Corporation Law of the State of Delaware, Monitronics' certificate of incorporation or Monitronics' bylaws, or (iv) any action asserting a claim against Monitronics or any of its directors or officers or other employees that is governed by the internal affairs doctrine, except as to each of (i) through (iv) above, subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. Any person or entity purchasing or otherwise holding any interest in shares of Monitronics' capital stock will be deemed to have notice of, and consented to, the provisions of Monitronics' certificate of incorporation described in the preceding sentence. This choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with Monitronics' directors, officers, employees or agents, which may discourage such lawsuits against Monitronics and such persons. Alternatively, if a court were to find these provisions of Monitronics' certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, Monitronics may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect its business, financial condition or results of operations.

        Monitronics' certificate of incorporation provides that the exclusive forum provision will be applicable to the fullest extent permitted by applicable law. Section 27 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Accordingly, Monitronics' certificate of incorporation provides that the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act, the Securities Act, or any other claim for which the federal courts have exclusive jurisdiction.

Monitronics has a substantial amount of indebtedness and the costs of servicing that debt may materially affect its business.

        Monitronics has a significant amount of indebtedness. Monitronics' indebtedness includes a $145 million revolving credit facility (the "Successor Revolving Credit Facility"), a $150 million term loan facility (the "Successor Term Loan Facility") and a $822.5 million takeback term loan facility (the "Successor Takeback Loan Facility," and together with the Successor Term Loan Facility and Successor Revolving Credit Facility, the "Credit Facilities"). That substantial indebtedness, combined with its other financial obligations and contractual commitments, could have important consequences to us. For example, it could:

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The agreements that govern Monitronics' various debt obligations impose restrictions on its business and the business of its subsidiaries and such restrictions could adversely affect Monitronics' ability to undertake certain corporate actions.

        The agreements that govern Monitronics' indebtedness restrict its ability to, among other things:

        In addition, Monitronics is required to comply with certain financial covenants that will require it to, among other things, maintain to maintain (i) a maximum senior secured debt to Recurring Monthly Revenue ("RMR") ratio of 30.0:1.00, (ii) a maximum total debt to EBITDA ratio of 4.50:1.00 for each

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fiscal quarter ending on or prior to December 31, 2020, with a stepdown to 4.25:1.00 for the fiscal quarters ending on March 31, 2021, through December 31, 2021, and 4.00:1.00 beginning with the fiscal quarter ending on March 31, 2022, and for each fiscal quarter thereafter, and (iii) minimum liquidity of $25.0 million. If Monitronics fails to comply with any of the financial covenants, or if Monitronics or any of its subsidiaries fails to comply with the restrictions contained in the Credit Facilities, such failure could lead to an event of default and Monitronics may not be able to make additional drawdowns under the Successor Revolving Credit Facility, which would limit its ability to manage its working capital requirements, and could result in the acceleration of a substantial amount of Monitronics' indebtedness.

We may be unable to obtain future financing or refinance our existing indebtedness on terms acceptable to us or at all, which may hinder our ability to grow our business or satisfy our obligations and could adversely affect our ability to continue as a going concern.

        We intend to continue to pursue growth through the acquisition of subscriber accounts through our authorized dealer network, our strategic relationships and our Direct to Consumer Channel, among other means. To continue our growth strategy, we intend to make additional drawdowns under Successor Revolving Credit Facility and may seek financing through new credit arrangements or the possible sale of new securities, any of which may lead to higher leverage or result in higher borrowing costs. In addition, any future downgrade in our credit rating could also result in higher borrowing costs. An inability to obtain funding through external financing sources on favorable terms or at all is likely to adversely affect our ability to continue or accelerate our subscriber account acquisition activities.

We have a history of losses and may incur losses in the future.

        We have incurred losses in each of our last five fiscal years. In future periods, we may not be able to achieve or sustain profitability on a consistent quarterly or annual basis. Failure to maintain profitability in future periods may materially and adversely affect our ability to make payments on our outstanding debt obligations.

Risks Related to our emergence from Chapter 11 Bankruptcy

We recently emerged from bankruptcy, which could adversely affect our business and relationships.

        It is possible that our having filed for bankruptcy and our recent emergence from the Chapter 11 bankruptcy proceedings could adversely affect our business and relationships with customers, vendors, contractors, employees or suppliers. Due to uncertainties, many risks exist, including the following:

        The occurrence of one or more of these events could have a material and adverse effect on our operations, financial condition and reputation. We cannot assure you that having been subject to bankruptcy protection will not adversely affect our operations in the future.

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Our actual financial results after emergence from bankruptcy may not be comparable to our historical financial information as a result of the implementation of the Plan and the transactions contemplated thereby and our adoption of fresh start accounting.

        In connection with the disclosure statement we filed with the Bankruptcy Court (the "Disclosure Statement"), and the hearing to consider confirmation of the Plan, we prepared projected financial information to demonstrate to the Bankruptcy Court the feasibility of the Plan and our ability to continue operations upon our emergence from bankruptcy. Those projections were prepared solely for the purpose of the bankruptcy proceedings and have not been, and will not be, updated on an ongoing basis and should not be relied upon by investors. Although the financial projections disclosed in our Disclosure Statement represent our view based on then current known facts and assumptions about the future operations of the Company there is no guarantee that the financial projections will be realized. We may not be able to meet the projected financial results or achieve projected revenues and cash flows assumed in projecting future business prospects. To the extent we do not meet the projected financial results or achieve projected revenues and cash flows, we may lack sufficient liquidity to continue operating as planned and may be unable to service our debt obligations as they come due or may not be able to meet our operational needs. Any one of these failures may preclude us from, among other things, taking advantage of future opportunities and growing our businesses.

        In addition, upon our emergence from bankruptcy, we adopted fresh start accounting, as a consequence of which we allocated the reorganization value to our individual assets based on their estimated fair values. Accordingly, our financial condition and results of operations from and after the Fresh Start Date are not comparable to the financial condition or results of operations reflected in our historical financial statements. Further, as a result of the implementation of the Plan and the transactions contemplated thereby, our historical financial information may not be indicative of our future financial performance.

Upon our emergence from bankruptcy, the composition of our board of directors changed significantly.

        Pursuant to the Plan, the composition of the board of directors changed significantly. Upon emergence, the board of directors is now made up of seven directors, of which six will not have previously served on the board of directors. The new directors have different backgrounds, experiences and perspectives from those individuals who previously served on the board of directors and, thus, may have different views on the issues that will determine the future of the Company. There is no guarantee that the new board will pursue, or will pursue in the same manner, our current strategic plans. As a result, the future strategy and plans of the Company may differ materially from those of the past.

The ability to attract and retain key personnel is critical to the success of our business and may be affected by our emergence from bankruptcy.

        The success of our business depends on key personnel. The ability to attract and retain these key personnel may be difficult in light of our emergence from bankruptcy, the uncertainties currently facing the business and changes we may make to the organizational structure to adjust to changing circumstances. We may need to enter into retention or other arrangements that could be costly to maintain. If executives, managers or other key personnel resign, retire or are terminated, or their service is otherwise interrupted, we may not be able to replace them in a timely manner and we could experience significant declines in productivity.

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Our ability to utilize our net operating loss carryforwards ("NOLs") may be limited as a result of our emergence from bankruptcy.

        In general, Section 382 of the Internal Revenue Code ("the Code") of 1986, as amended, provides an annual limitation with respect to the ability of a corporation to utilize its tax attributes, as well as certain built-in-losses, against future taxable income in the event of a change in ownership. Our emergence from Chapter 11 bankruptcy proceedings resulted in a change in ownership for purposes of the Section 382 of the Code, which may limit our ability to utilize out NOLs to offset future taxable income.

        Limitations imposed on our ability to use NOLs to offset future taxable income may cause U.S. federal income taxes to be paid earlier than otherwise would be paid if such limitations were not in effect and could cause such NOLs to expire unused, in each case reducing or eliminating the benefit of such NOLs. Similar rules and limitations may apply for state income tax purposes. Furthermore, any available NOLs would have value only to the extent there is income in the future against which such NOLs may be offset. We have recorded a full valuation allowance related to our NOLs due to the uncertainty of the ultimate realization of the future benefits of those assets.

Risks Relating to Regulatory Matters

Our business operates in a regulated industry.

        Our business, operations and dealers are subject to various U.S. federal, state and local consumer protection laws, licensing regulation and other laws and regulations, and, to a lesser extent, similar Canadian laws and regulations. While there are no U.S. federal laws that directly regulate the security alarm monitoring industry, our advertising and sales practices and that of our dealer network are subject to regulation by the U.S. Federal Trade Commission (the "FTC") in addition to state consumer protection laws. The FTC and the Federal Communications Commission (the "FCC") have issued regulations that place restrictions on, among other things, unsolicited automated telephone calls to residential and wireless telephone subscribers by means of automatic telephone dialing systems and the use of prerecorded or artificial voice messages. If the Company (through our direct marketing efforts) or our dealers were to take actions in violation of these regulations, such as telemarketing to individuals on the "Do Not Call" registry, we could be subject to fines, penalties, private actions, investigations or enforcement actions by government regulators. We have been named, and may be named in the future, as a defendant in litigation arising from alleged violations of the Telephone Consumer Protection Act (the "TCPA"). While we endeavor to comply with the TCPA, no assurance can be given that we will not be exposed to liability as a result of our or our dealers' direct marketing efforts or debt collections. For example, we recognized a $28 million legal settlement reserve in the second quarter of 2017 related to a class action lawsuit based on alleged TCPA violations. In addition, although we have taken steps to insulate our Company from any such wrongful conduct by our dealers, and to require our dealers to comply with these laws and regulations, no assurance can be given that we will not be exposed to liability as result of our dealers' conduct. If the Company or any such dealers do not comply with applicable laws, we may be exposed to increased liability and penalties and there can be no assurance, in the event of such liability, that Brinks Home Security would be adequately covered, if at all, by its insurance policies. Further, to the extent that any changes in law or regulation further restrict the lead generation activity of the Company or our dealers, these restrictions could result in a material reduction in subscriber acquisition opportunities, reducing the growth prospects of our business and adversely affecting our financial condition and future cash flows. In addition, most states in which we operate have licensing laws directed specifically toward the monitored security services industry. Our business relies heavily upon wireline and cellular telephone service to communicate signals. Wireline and cellular telephone companies are currently regulated by both federal and state governments. Changes in laws or regulations could require us to change the way we operate, which could increase costs or otherwise disrupt operations. In addition, failure to comply with any such

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applicable laws or regulations could result in substantial fines or revocation of our operating permits and licenses, including in geographic areas where our services have substantial penetration, which could adversely affect our business and financial condition. Further, if these laws and regulations were to change or we failed to comply with such laws and regulations as they exist today or in the future, our business, financial condition and results of operations could be materially and adversely affected.

Increased adoption of statutes and governmental policies purporting to void automatic renewal provisions in AMAs, or purporting to characterize certain charges in the AMAs as unlawful, could adversely affect our business and operations.

        AMAs typically contain provisions automatically renewing the term of the contract at the end of the initial term, unless a cancellation notice is delivered in accordance with the terms of the contract. If the customer cancels prior to the end of the contract term, other than in accordance with the contract, we may charge the customer an early cancellation fee as specified in the contract, which typically allows us to charge 80% of the amounts that would have been paid over the remaining term of the contract. Several states have adopted, or are considering the adoption of, consumer protection policies or legal precedents which purport to void or substantially limit the automatic renewal provisions of contracts such as the AMAs, or otherwise restrict the charges that can be imposed upon contract cancellation. Such initiatives could negatively impact our business. Adverse judicial determinations regarding these matters could increase legal exposure to customers against whom such charges have been imposed, and the risk that certain customers may seek to recover such charges through litigation. In addition, the costs of defending such litigation and enforcement actions could have an adverse effect on our business and operations.

False alarm ordinances could adversely affect our business and operations.

        Significant concern has arisen in certain municipalities about the high incidence of false alarms. In some localities, this concern has resulted in local ordinances or policies that restrict police response to third-party monitored burglar alarms. In addition, an increasing number of local governmental authorities have considered or adopted various measures aimed at reducing the number of false alarms; measures include alarm fines to us and/or our customers, limits on number of police responses allowed, and requiring certain alarm conditions to exist before a response is granted. In extreme situations, authorities may not respond to an alarm unless a verified problem exists.

        Enactment of these measures could adversely affect our future operations and business. Alarm monitoring companies operating in areas impacted by government alarm ordinances may choose to hire third-party guard firms to respond to an alarm. If we need to hire third-party guard firms, it could have a material adverse effect on our business through either increased servicing costs, which could negatively affect the ability to properly fund our ongoing operations, or increased costs to our customers, which may limit our ability to attract new customers or increase our subscriber attrition rates. In addition, the perception that police departments will not respond to monitored burglar alarms may reduce customer satisfaction or customer demand for an alarm monitoring service. Although we currently have less than 80,000 subscribers in areas covered by these ordinances or policies, a more widespread adoption of policies of this nature could adversely affect our business.

Risks relating to an investment in our common stock

The market price of our common stock is volatile.

        The trading price of our common stock and the price at which we may sell common stock in the future are subject to large fluctuations in response to any of the following:

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There may be circumstances in which the interests of our significant stockholders could be in conflict with the interests of our other stockholders.

        A large portion of our common stock is beneficially owned by a relatively small number of stockholders. Circumstances may arise in which these stockholders may have an interest in pursuing or preventing acquisitions, divestitures, hostile takeovers or other transactions, including the payment of dividends or the issuance of additional equity or debt, that, in their judgment, could enhance their investment in us or another company in which they invest. Such transactions might adversely affect us or other holders of our common stock. In addition, our significant concentration of share ownership may adversely affect the trading price of our common stock because investors may perceive disadvantages in owning shares in companies with significant stockholder concentrations.

We do not anticipate paying dividends on our common stock in the near future.

        We do not currently anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all future earnings to fund the development and growth of our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will depend on our results of operations, financial condition, capital requirements and other factors deemed relevant by our board of directors. We are also restricted in our ability to pay dividends under our Credit Facilities.

Certain anti-takeover provisions may affect your rights as a stockholder.

        Our certificate of incorporation, which became effective upon our emergence from bankruptcy, authorizes our board of directors to set the terms of and issue preferred stock, subject to certain restrictions. Our board of directors could use the preferred stock as a means to delay, defer or prevent a takeover attempt that a stockholder might consider to be in our best interest. In addition, our Credit Facilities contain terms that may restrict our ability to enter into change of control transactions, including requirements to repay borrowings under our Credit Facilities on a change in control. These provisions, along with specified provisions of the Delaware General Corporation Law ("DGCL") and our certificate of incorporation and our bylaws, may discourage or impede transactions involving actual or potential changes in our control, including transactions that otherwise could involve payment of a premium over prevailing market prices to holders of our common stock.

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We are not subject to compliance with rules requiring the adoption of certain corporate governance measures and as a result our stockholders have limited protections against interested director transactions, conflicts of interest and similar matters.

        The Sarbanes-Oxley Act, as well as resulting rule changes enacted by the SEC, the New York Stock Exchange and the NASDAQ Stock Market, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed on those exchanges. Because we are not listed on the NASDAQ Stock Market or the New York Stock Exchange, we are not presently required to comply with many of the corporate governance provisions. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest and similar matters.

We do not have a class of our securities registered under Section 12 of the Exchange Act. Until we do, we will not be required to provide certain reports to our stockholders.

        We do not have a class of our securities registered under Section 12 of the Exchange Act. Until we do, we will not be required to provide certain reports to our stockholders. We are currently required to file periodic reports with the SEC by virtue of Section 15(d) of the Exchange Act. However, until we register a class of our securities under Section 12 of the Exchange Act, we are not subject to the SEC's proxy rules, and large holders of our capital stock will not be subject to beneficial ownership reporting requirements under Sections 13 or 16 of the Exchange Act and their related rules. As a result, our stockholders and potential investors may not have available to them as much or as robust information as they may have if and when we become subject to those requirements.

Sales of our common stock could cause the price of our common stock to decrease.

        This prospectus covers the sale by selling stockholders of a substantial number of shares of our common stock. We may also sell additional shares of common stock in subsequent public offerings. The issuance of any securities for acquisitions, financing, upon conversion or exercise of convertible securities, or otherwise may result in a reduction of the book value and market price of our outstanding common stock. If we issue any such additional securities, the issuance will cause a reduction in the proportionate ownership and voting power of all current stockholders. We cannot predict the size of future issuances of our common stock or securities convertible into common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales our common stock (including shares issued in connection with an acquisition), or the perception that sales could occur, may adversely affect prevailing market prices of our common stock.

There is a limited trading market for our securities and the market price of our securities is subject to volatility.

        Upon our emergence from bankruptcy, our old common stock was canceled and we issued new common stock. Our common stock is not listed on any national or regional securities exchange. The market price of our common stock could be subject to wide fluctuations in response to, and the level of trading that develops with our common stock may be affected by, numerous factors, many of which are beyond our control. These factors include, among other things, our new capital structure as a result of the transactions contemplated by the Plan, our limited trading history subsequent to our emergence from bankruptcy, our limited trading volume, the concentration of holdings of our common stock, the lack of comparable historical financial information due to our adoption of fresh start accounting, actual or anticipated variations in our operating results and cash flow, the nature and content of our earnings releases, announcements or events that impact our products, customers, competitors or markets,

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business conditions in our markets and the general state of the securities markets and the market for energy-related stocks, as well as general economic and market conditions and other factors that may affect our future results, including those described under this "Risk Factors" and elsewhere in this prospectus. No assurance can be given that an active market will develop for the common stock or as to the liquidity of the trading market for the common stock. The common stock may be traded only infrequently in transactions arranged through brokers or otherwise, and reliable market quotations may not be available. Holders of our common stock may experience difficulty in reselling, or an inability to sell, their shares. In addition, if an active trading market does not develop or is not maintained, significant sales of our common stock, or the expectation of these sales, could materially and adversely affect the market price of our common stock.

There is currently no active public trading market for our common stock. Therefore, you may be unable to liquidate your investment in our common stock.

        Our common stock is quoted on the OTCQX Best Market of the OTC Markets Group Inc. under the symbol "SCTY". Although our common stock is quoted on the OTCQX, there is currently no active public trading market of our common stock and the market price of our common stock may be difficult to ascertain. As a result, investors in our securities may not be able to resell their shares at or above the purchase price paid by them or may not be able to resell them at all.

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USE OF PROCEEDS

        The common stock to be offered and sold using this prospectus will be offered and sold by the selling stockholders named in this prospectus. See "Selling Stockholders." Accordingly, we will not receive any proceeds from the sale of shares of our common stock in this offering.

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DETERMINATION OF OFFERING PRICE

        The selling stockholders will determine at what price they may sell the common stock offered by this prospectus, and such sales may be made at fixed prices, prevailing market prices at the time of the sale, varying prices determined at the time of sale or negotiated prices.

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CAPITALIZATION

        The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2019, on a historical basis. This offering will not affect our capitalization.

        This table is derived from, and should be read together with and is qualified in its entirety by reference to the historical consolidated financial statements and the accompanying notes included elsewhere in this prospectus. You should also read this table in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  As of
September 30,
2019
(in thousands)
 
 
  Historical  

Cash and cash equivalents

  $ 28,589  

Long-term debt

  $ 985,775  

Stockholders' equity:

       

Preferred stock, 5,000,000 shares authorized, none issued and outstanding as of December 16, 2019

  $  

Common stock, par value $0.01 per share, 45,000,000 shares authorized and 22,500,000 shares issued and outstanding as of December 16, 2019

  $ 225  

Additional paid-in capital

  $ 379,175  

Accumulated deficit

  $ (10,807 )

Total stockholders' equity

  $ 368,593  

Total capitalization

  $ 1,457,388  

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MARKET PRICE OF OUR COMMON STOCK

        In connection with the Restructuring Support Agreement, on August 30, 2019 (the "Restructuring Support Agreement"), all shares of Ascent's Series A common stock, par value $0.01 per share (the "Series A common stock") and all shares of Ascent's Series B common stock, par value $0.01 per share (the "Series B common stock" and, together with the Series A common stock, the "Ascent common stock"), in each case, issued and outstanding immediately prior to the effective time of the Merger, were converted into the right to receive 1,309,757 shares of our common stock. Simultaneously with the conversion of the Ascent common stock, we issued 21,190,243 additional shares of our common stock primarily to holders of certain classes of claims in the Chapter 11 Cases. Our common stock is quoted on the OTCQX Best Market of the OTC Markets Group Inc. under the symbol "SCTY". Our common stock began quoting on the OTCQX on September 5, 2019. No established public trading market existed for our common stock prior to that date. Although our common stock is quoted on the OTCQX, there is currently no active public trading market in our common stock have been limited and sporadic. Over-the-counter market quotations reflect interdealer prices, without retailer markup, markdown, or commission and may not necessarily represent actual transactions. The following table sets forth the high and low last reported sales prices per share of our common stock, as reported on the OTCQX, of which we are aware for the period indicated. Based on information available to us, we believe transactions in our common stock can be fairly summarized as follows for the periods indicated:

Quarter Ending:
  High   Low  

Common stock

             

September 30, 2019 (beginning September 5, 2019 and through September 30, 2019)

  $ 9.50   $ 7.00  

December 31, 2019 (through December 16, 2019)

  $ 10.00   $ 7.50  

        The closing sale price of our common stock on the OTCQX on December 16, 2019 was $9.30 per share. As of December 16, 2019, we had 154 holders of record of our common stock, based on information provided by our transfer agent. Such amounts do not include the number of stockholders whose shares are held of record by banks, brokers or other nominees, but include each such institution as one holder.

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DIVIDEND POLICY

        We do not currently anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all future earnings to fund the development and growth of our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will depend on our results of operations, financial condition, capital requirements and other factors deemed relevant by our board. We are also restricted in our ability to pay dividends under our Credit Facilities.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

        The following table presents selected historical consolidated financial data of Monitronics International, Inc. as of the dates and for the periods indicated. The selected historical consolidated financial data for the years ended December 31, 2018, 2017 and 2016, derived from the audited financial statements of our Predecessor included elsewhere in this prospectus. The selected historical consolidated financial data for the years ended December 31, 2015 and 2014, are derived from the audited financial statements of our Predecessor and are not included in this prospectus. The selected historical consolidated interim financial data for the period from July 1, 2019, through August 31, 2019, and as of and for the three months ended September 30, 2019, for the Predecessor are derived from the unaudited interim financial statements of our Predecessor included elsewhere in this prospectus. The unaudited condensed consolidated balance sheet as of September 30, 2019, and the unaudited condensed statements of operations and cash flows of the Successor for the period from September 1, 2019, through September 30, 2019, are derived from the unaudited interim condensed consolidated financial statements of the Successor included elsewhere in this prospectus.

        The unaudited interim condensed consolidated financial statements have been prepared on the same basis as our audited financial statements and, in our opinion, include all adjustments, consisting of normal recurring adjustments, which are considered necessary for a fair presentation of the financial position, results of operations and cash flows for such periods. Historical results are not necessarily indicative of future results.

        The financial information included in this prospectus may not be indicative of our future results of operations, financial position and cash flows. As a result of the application of the implementation of the Plan, the Predecessor and Successor periods may lack comparability. For more information on the comparability of our results, please read "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 29.

        You should read the following table in conjunction with "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical condensed consolidated financial statements included elsewhere in this prospectus. Among other things, those

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historical condensed consolidated financial statements include more detailed information regarding the basis of presentation for the following information.

 
  Successor   Predecessor  
 
  Period from
September 1
through
September 30
  Year Ended December 31,   Period from
July 1, 2019
through
August 31
  Three
Months
Ended
September 30,
 
 
  2019   2018   2017   2016   2015   2014   2019   2018  
 
  (unaudited)
  (audited)
  (unaudited)
 
 
  (Amount in thousands, except for subscriber account data)
 

Results of Operations Data:

                                                 

Net Revenue

  $ 36,289   $ 540,358   $ 553,455   $ 570,372   $ 563,356   $ 539,449   $ 84,589   $ 137,156  

Operating expenses:

                                                 

Cost of services

    8,976     128,939     119,193     115,236     110,246     93,600     19,986     35,059  

Selling, general, and administrative, including stock-based and long-term incentive compensation

    11,390     118,940     155,902     114,152     106,287     87,943     20,980     34,266  

Radio Conversion Program costs

    825         450     18,422     14,369     1,113     931      

Amortization of subscriber accounts, deferred contract acquisition costs, dealer network and other intangible assets

    17,302     211,639     236,788     246,753     258,668     253,403     32,508     52,671  

Restructuring charges

                        952          

Depreciation

    925     11,434     8,818     8,160     10,066     9,019     1,073     2,880  

Loss on goodwill impairment

        563,549                          

Gain on disposal of operating assets, net

                    (5 )   (71 )        

Total operating expenses

    39,418     1,034,501     521,151     502,723     499,631     445,959     75,478     124,876  

Operating (loss) income

  $ (3,129 ) $ (494,143 ) $ 32,304   $ 67,649   $ 63,725   $ 93,490   $ 9,111   $ 12,280  

Other (income) expense, net:

                                                 

Gain on restructuring and reorganization, net

                            (702,824 )    

Interest expense

    7,474     180,770     145,492     127,308     125,415     119,607     27,112     39,077  

Unrealized loss on derivative financial instruments

        3,151                          

Refinancing expense

        12,238         9,500     4,468             5,697  

Total other (income) expense, net

    7,474     196,159     145,492     136,808     129,883     119,607     (675,712 )   (44,774 )

(Loss) income before income taxes

    (10,603 )   (690,302 )   (113,188 )   (69,159 )   (66,158 )   (26,117 )   684,823     (32,494 )

Income tax expense (benefit)

    204     (11,552 )   (1,893 )   7,148     6,290     3,600     438     1,346  

Net (loss) income

  $ (10,807 ) $ (678,750 ) $ (111,295 ) $ (76,307 ) $ (72,448 ) $ (29,717 ) $ 684,385   $ (33,840 )

Other comprehensive income (loss):

                                                 

Unrealized gain (loss) on derivative contracts, net

      $ 14,378   $ 1,582   $ 4,589   $ (8,741 ) $ (4,879 )     $ 3,269  

Total other comprehensive income (loss), net of tax

        14,378     1,582     4,589     (8,741 )   (4,879 )       3,269  

Comprehensive (loss) income

  $ (10,807 ) $ (664,372 ) $ (109,713 ) $ (71,718 ) $ (81,189 ) $ (34,596 ) $ 684,385   $ (30,571 )

Other Operating and Financial Data:

                                                 

Net cash provided by operating activities

    13,170     104,503     150,204     190,527     209,162     234,282     15,243     6,961  

Net cash provided by financing activities

        49,925     7,223     20,574     127,255     39,418     20,621     62,221  

Net cash used in investing activities

    (9,135 )   (155,353 )   (157,302 )   (210,559 )   (335,790 )   (276,102 )   (22,812 )   (44,421 )

Adjusted EBITDA(1)

    17,144     289,448     313,553     344,848     354,807     362,227     45,358     71,282  

Gross expensed subscriber acquisition costs

    2,958     47,874     40,312     29,367     18,298         6,752     14,098  

Revenue associated with expensed subscriber acquisition costs

    534     4,678     4,852     5,310     4,022         1,391     722  

Net expensed subscriber acquisition costs

    2,424     43,196     35,460     24,057     14,276         5,361     13,376  

Balance Sheet Data (at period end):

                                                 

Cash and cash equivalents

    28,589     2,188     3,302     3,177     2,580     1,953     19,862     26,835  

Total assets

    1,457,388     1,305,768     1,941,315     2,033,717     2,070,267     1,997,162     1,281,958     1,705,269  

Total liabilities

    1,088,795     1,894,743     1,838,579     1,818,772     1,869,202     1,739,596     2,010,545     1,908,176  

Total stockholder's (deficit) equity

  $ 368,593   $ (588,975 ) $ 102,736   $ 214,945   $ 201,065   $ 257,566   $ (728,587 ) $ (202,907 )

(1)
See definition and reconciliation of Net income (loss) to Adjusted EBITDA for each of the periods presented in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 29.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION

        The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements included elsewhere in this prospectus.

        In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements."

Overview

        Monitronics International, Inc. and its subsidiaries (collectively, "Monitronics" or the "Company", doing business as Brinks Home Security) provide residential customers and commercial client accounts with monitored home and business security systems, as well as interactive and home automation services, in the United States, Canada and Puerto Rico. Monitronics customers are obtained through our direct-to-consumer sales channel (the "Direct to Consumer Channel"), which offers both Do-It-Yourself and professional installation security solutions and our exclusive authorized dealer network (the "Dealer Channel"), which provides product and installation services, as well as support to customers.

        As previously disclosed, on June 30, 2019, Monitronics and certain of its domestic subsidiaries (collectively, the "Debtors"), filed voluntary petitions for relief (collectively, the "Petitions" and, the cases commenced thereby, the "Chapter 11 Cases") under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court"). The Debtors' Chapter 11 Cases were jointly administered under the caption In re Monitronics International, Inc., et al., Case No. 19-33650. On August 7, 2019, the Bankruptcy Court entered an order, Docket No. 199 (the "Confirmation Order"), confirming and approving the Debtors' Joint Partial Prepackaged Plan of Reorganization (including all exhibits thereto, and a modified by the Confirmation Order, the "Plan") that was previously filed with the Bankruptcy Court on June 30, 2019. On August 30, 2019 (the "Effective Date"), the conditions to the effectiveness of the Plan were satisfied and the Company emerged from Chapter 11 after completing a series of transactions through which the Company and its former parent, Ascent Capital Group, Inc. ("Ascent") merged (the "Merger") in accordance with the terms of the Agreement and Plan of Merger, dated as of May 24, 2019 (the "Merger Agreement"). Monitronics was the surviving corporation and, immediately following the Merger, was redomiciled in Delaware in accordance with the terms of the Merger Agreement.

        Upon emergence from Chapter 11 on the Effective Date, the Company has applied Accounting Standards Codification ("ASC") 852, Reorganizations ("ASC 852"), in preparing its consolidated financial statements. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, a new entity for financial reporting purposes was created. The Company selected a convenience date of August 31, 2019 for purposes of applying fresh start accounting as the activity between the convenience date and the Effective Date did not result in a material difference in the financial results. References to "Successor" or "Successor Company" relate to the balance sheet and results of operations of Monitronics on and subsequent to September 1, 2019. References to "Predecessor" or "Predecessor Company" refer to the balance sheet and results of operations of Monitronics prior to September 1, 2019. With the exception of interest and amortization expense, the Company's operating results and key operating performance measures on a consolidated basis were not materially impacted by the reorganization. As such, references to the "Company" could refer to either the Predecessor or Successor periods, as defined.

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Strategic Initiatives

        In recent years, Monitronics has implemented several initiatives related to account growth, creation costs, attrition and margin improvements to combat decreases in the generation of new subscriber accounts and negative trends in subscriber attrition.

Account Growth

        We believe that generating account growth at a reasonable cost is essential to scaling our business and generating stakeholder value. The Company currently generates new accounts through both our Dealer and Direct to Consumer Channels. Our ability to grow new accounts in the future will be impacted by our ability to adjust to changes in consumer buying behavior and increased competition from technology, telecommunications and cable companies. The Company currently has several initiatives in place to drive profitable account growth, which include:

Creation Cost Efficiency

        We also consider the management of creation costs to be a key driver in improving the Company's financial results. Generating accounts at lower creation costs per account would improve the Company's profitability and cash flows. The initiatives related to managing creation costs include:

Attrition

        While we have also experienced higher subscriber attrition rates in the past few years, we have continued to develop our efforts to manage subscriber attrition, which we believe will help drive increases in our subscriber base and stakeholder value. The Company currently has several initiatives in place to reduce subscriber attrition, which include:

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Margin Improvement

        We have also adopted initiatives to reduce expenses and improve our financial results, which include:

        While there are uncertainties related to the successful implementation of the foregoing initiatives impacting the Company's ability to achieve net profitability and positive cash flows in the near term, we believe they will position the Company to improve its operating performance, increase cash flows and create stakeholder value over the long-term.

Accounts Acquired

For the Three Months Ended September 30, 2019

        During the three months ended September 30, 2019 and 2018, the Company acquired 21,228 and 33,065 subscriber accounts, respectively, through our Dealer and Direct to Consumer Channels. The decrease in accounts acquired for the three months ended September 30, 2019 is principally due to year over year decline in accounts acquired from bulk buys and fewer accounts generated in the Direct to Consumer Channel. During the three months ended September 30, 2019, Direct to Consumer accounts generated were impacted by the Company's decision to reduce equipment subsidies offered to new customers with the goal of reducing creation costs and improving credit quality. There were no bulk buys during the three months ended September 30, 2019 as compared to approximately 6,700 accounts in the prior year period.

        Recurring Monthly Revenue ("RMR") acquired during the three months ended September 30, 2019 and 2018 was $1,032,000 and $1,589,000, respectively.

For the Nine Months Ended September 30, 2019

        During the nine months ended September 30, 2019 and 2018, the Company acquired 63,974 and 91,995 subscriber accounts, respectively, through our Dealer and Direct to Consumer Channels. The decrease in accounts acquired for the nine months ended September 30, 2019 is due to year over decline in accounts generated in the Direct to Consumer Channel and fewer accounts acquired from bulk buys, partially offset by an increase in accounts acquired from the Dealer Channel. There were no bulk buys during the nine months ended September 30, 2019 as compared to approximately 17,600 accounts in the prior year period.

        RMR acquired during the nine months ended September 30, 2019 and 2018 was $3,098,000 and $4,335,000, respectively.

Attrition

        Account cancellations, otherwise referred to as subscriber attrition, has a direct impact on the number of subscribers that the Company services and on its financial results, including revenues, operating income and cash flow. A portion of the subscriber base can be expected to cancel their

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service every year. Subscribers may choose not to renew or to terminate their contract for a variety of reasons, including relocation, cost, switching to a competitor's service, limited use by the subscriber or low perceived value. The largest categories of cancelled accounts relate to subscriber relocation or those cancelled due to non-payment. The Company defines its attrition rate as the number of cancelled accounts in a given period divided by the weighted average number of subscribers for that period. The Company considers an account cancelled if payment from the subscriber is deemed uncollectible or if the subscriber cancels for various reasons. If a subscriber relocates but continues its service, it is not a cancellation. If the subscriber relocates, discontinues its service and a new subscriber assumes the original subscriber's service and continues the revenue stream, it is also not a cancellation. The Company adjusts the number of cancelled accounts by excluding those that are contractually guaranteed by its dealers. The typical dealer contract provides that if a subscriber cancels in the first year of its contract, the dealer must either replace the cancelled account with a new one or refund to the Company the cost paid to acquire the contract. To help ensure the dealer's obligation to the Company, the Company typically maintains a dealer funded holdback reserve ranging from 5-8% of subscriber accounts in the guarantee period. In some cases, the amount of the holdback liability is less than actual attrition experience.

        The table below presents subscriber data for the twelve months ended September 30, 2019 and 2018:

 
  Twelve Months Ended
September 30,
 
 
  2019   2018  

Beginning balance of accounts

    942,157     998,087  

Accounts acquired

    84,899     110,358  

Accounts cancelled

    (156,047 )   (161,657 )

Cancelled accounts guaranteed by dealer and other adjustments(a)

    (5,161 )   (4,631 )

Ending balance of accounts

    865,848     942,157  

Monthly weighted average accounts

    903,424     965,026  

Attrition rate—Unit

    17.3 %   16.8 %

Attrition rate—RMR(b)

    17.6 %   14.1 %

(a)
Includes cancelled accounts that are contractually guaranteed to be refunded from holdback.

(b)
The RMR of cancelled accounts follows the same definition as subscriber unit attrition as noted above. RMR attrition is defined as the RMR of cancelled accounts in a given period, adjusted for the impact of price increases or decreases in that period, divided by the weighted average of RMR for that period.

        The unit attrition rate for the twelve months ended September 30, 2019 and 2018 was 17.3% and 16.8%, respectively. The RMR attrition rate for the twelve months ended September 30, 2019 and 2018 was 17.6% and 14.1%, respectively. Contributing to the increase in unit and RMR attrition were fewer customers under contract or in the dealer guarantee period for the twelve months ended September 30, 2019, as compared to the prior period, as well as some impact from competition, including new market entrants. The increase in the RMR attrition rate for the twelve months ended September 30, 2019 was also impacted by price guarantees and a less aggressive price increase strategy in the first nine months of 2019.

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        We analyze our attrition by classifying accounts into annual pools based on the year of acquisition. We then track the number of cancelled accounts as a percentage of the initial number of accounts acquired for each pool for each year subsequent to its acquisition. Based on the average cancellation rate across the pools, the Company's attrition rate is generally very low within the initial 12 month period after considering the accounts which were replaced or refunded by the dealers at no additional cost to the Company. Over the next few years of the subscriber account life, the number of subscribers that cancel as a percentage of the initial number of subscribers in that pool gradually increases and historically has peaked following the end of the initial contract term, which is typically three to five years. Subsequent to the peak following the end of the initial contract term, the number of subscribers that cancel as a percentage of the initial number of subscribers in that pool normalizes.

Adjusted EBITDA

        We evaluate the performance of our operations based on financial measures such as revenue and "Adjusted EBITDA." Adjusted EBITDA is a non-GAAP measure and is defined as net income (loss) before interest expense, interest income, income taxes, depreciation, amortization (including the amortization of subscriber accounts, dealer network and other intangible assets), restructuring charges, stock-based compensation, and other non-cash or non-recurring charges. We believe that Adjusted EBITDA is an important indicator of the operational strength and performance of our business. In addition, this measure is used by management to evaluate operating results and perform analytical comparisons and identify strategies to improve performance. Adjusted EBITDA is also a measure that is customarily used by financial analysts to evaluate the financial performance of companies in the security alarm monitoring industry and is one of the financial measures, subject to certain adjustments, by which our covenants are calculated under the agreements governing our debt obligations. Adjusted EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles in the United States ("GAAP"), should not be construed as an alternative to net income or loss and is indicative neither of our results of operations nor of cash flows available to fund all of our cash needs. It is, however, a measurement that we believe is useful to investors in analyzing our operating performance. Accordingly, Adjusted EBITDA should be considered in addition to, but not as a substitute for, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. Adjusted EBITDA is a non-GAAP financial measure. As companies often define non-GAAP financial measures differently, Adjusted EBITDA as calculated by Monitronics should not be compared to any similarly titled measures reported by other companies.

Results of Operations

Three Months Ended September 30, 2019, Compared to Three Months Ended September 30, 2018

        The following table sets forth selected data from the accompanying condensed consolidated statements of operations and comprehensive income (loss) for the periods indicated (dollar amounts in thousands).

        Fresh Start Accounting Adjustments.    With the exception of interest and amortization expense, the Company's operating results and key operating performance measures on a consolidated basis were not materially impacted by the reorganization. We believe that certain of our consolidated operating results for the period from July 1, 2019, through August 31, 2019 when combined with our consolidated operating results for the period from September 1, 2019, through September 30, 2019 is comparable to certain operating results from the comparable prior year period. Accordingly, we believe that discussing the non-GAAP combined results of operations and cash flows of the Predecessor Company and the

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Successor Company for the three month period ended September 30, 2019 is useful when analyzing certain performance measures.

 
   
  Successor
Company
  Predecessor Company  
 
  Non-GAAP
Combined
Three Months
Ended
September 30,
  Period from
September 1,
2019 through
September 30,
  Period from
July 1, 2019
through
August 31,
  Three Months
Ended
September 30,
 
 
  2019   2019   2019   2018  

Net revenue

  $ 120,878   $ 36,289   $ 84,589   $ 137,156  

Cost of services

    28,962     8,976     19,986     35,059  

Selling, general and administrative, including stock-based and long-term incentive compensation

    32,370     11,390     20,980     34,266  

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets

    49,810     17,302     32,508     52,671  

Interest expense

    34,586     7,474     27,112     39,077  

Income (loss) before income taxes

    674,220     (10,603 )   684,823     (32,494 )

Income tax expense

    642     204     438     1,346  

Net income (loss)

    673,578     (10,807 )   684,385     (33,840 )

Adjusted EBITDA(a)

    62,502     17,144     45,358     71,282  

Adjusted EBITDA as a percentage of Net revenue

    51.7 %   47.2 %   53.6 %   52.0 %

Expensed subscriber acquisition costs, net

                         

Gross subscriber acquisition costs

  $ 9,710   $ 2,958   $ 6,752   $ 14,098  

Revenue associated with subscriber acquisition costs

    (1,925 )   (534 )   (1,391 )   (722 )

Expensed subscriber acquisition costs, net

  $ 7,785   $ 2,424   $ 5,361   $ 13,376  

(a)
See reconciliation of Net income (loss) to Adjusted EBITDA below.

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Table of Contents

        The following table provides a reconciliation of Net income (loss) to total Adjusted EBITDA for the periods indicated (amounts in thousands):

 
   
  Successor
Company
  Predecessor Company  
 
  Non-GAAP
Combined
Three Months
Ended
September 30,
  Period from
September 1,
2019 through
September 30,
  Period from
July 1, 2019
through
August 31,
  Three Months
Ended
September 30,
 
 
  2019   2019   2019   2018  

Net income (loss)

  $ 673,578   $ (10,807 ) $ 684,385   $ (33,840 )

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets

    49,810     17,302     32,508     52,671  

Depreciation

    1,998     925     1,073     2,880  

Radio conversion costs

    1,756     825     931      

Stock-based compensation

    266         266     373  

Long-term incentive compensation

    107     67     40      

LiveWatch acquisition contingent bonus charges

                63  

Rebranding marketing program

                3,060  

Integration / implementation of company initiatives

    2,583     1,154     1,429     195  

Gain on revaluation of acquisition dealer liabilities

                (240 )

Gain on restructuring and reorganization, net

    (702,824 )       (702,824 )    

Interest expense

    34,586     7,474     27,112     39,077  

Refinancing expense

                5,697  

Income tax expense

    642     204     438     1,346  

Adjusted EBITDA

  $ 62,502   $ 17,144   $ 45,358   $ 71,282  

        Net revenue.    Net revenue decreased $16,278,000, or 11.9%, for the three months ended September 30, 2019, as compared to the corresponding prior year period. The decrease in net revenue is attributable to the lower average number of subscribers in the third quarter of 2019 as compared to the corresponding prior year period. Net revenue also reflects the negative impact of a $5,277,000 fair value adjustment that reduced deferred revenue upon the Company's emergence from bankruptcy in accordance with ASC 852. Due to recent strategy changes in our product pricing, these decreases were partially offset by increases in product sales revenue to both our new customers in our Direct to Consumer Channel and to our existing customers as part of upgrade retention offers. Furthermore, revenue was favorably impacted by increases in average RMR per subscriber for the third quarter of 2019, as compared to the corresponding prior year period.

        Cost of services.    Cost of services decreased $6,097,000, or 17.4%, for the three months ended September 30, 2019, as compared to the corresponding prior year period. The decrease for the three months ended September 30, 2019 is primarily attributable to the impact of lower product sales volume (subscriber acquisition costs) seen in the Company's Direct to Consumer Channel, as discussed "Accounts Acquired" above. Subscriber acquisition costs, which include expensed equipment and labor costs associated with the creation of new subscribers, decreased to $2,241,000 for the three months ended September 30, 2019 as compared to $4,591,000 for the three months ended September 30, 2018. Also contributing to the decrease are lower field service costs and decreased headcount. Cost of services as a percentage of net revenue, excluding the effect of the fair value adjustment, decreased from 25.6% for the three months ended September 30, 2018 to 23.0% for the three months ended September 30, 2019.

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Table of Contents

        Selling, general and administrative.    Selling, general and administrative costs ("SG&A") decreased $1,896,000, or 5.5%, for the three months ended September 30, 2019, as compared to the corresponding prior year period. The decrease is attributable to reduced subscriber acquisition selling and marketing costs associated with the creation of new subscribers and $3,060,000 of the Company's rebranding expense recognized in the three months ended September 30, 2018 that was not incurred in the current period. Subscriber acquisition costs included in SG&A decreased to $7,469,000 for the three months ended September 30, 2019 as compared to $9,507,000 for the three months ended September 30, 2018. These decreases are partially offset by increased consulting fees relating to integration and implementation of various company initiatives and increased Topic 606 contract asset impairment costs incurred during the three months ended September 30, 2019. SG&A as a percentage of net revenue, excluding the effect of the fair value adjustment, increased from 25.0% for the three months ended September 30, 2018 to 25.7% for the three months ended September 30, 2019.

        Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets.    Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets decreased $2,861,000, or 5.4%, for the three months ended September 30, 2019, as compared to the corresponding prior year period. The decrease is related to a lower number of subscriber accounts purchased in the last twelve months ended September 30, 2019 compared to the prior corresponding period. This decrease is being offset by the impact of the fresh start adjustments, in which the existing subscriber accounts as of August 31, 2019 were stated at fair value and set up on the 14-year 235% double-declining curve. This curve is shorter than the methodology utilized on newly generated subscriber accounts, due to the various aged vintages of the Company's subscriber base at August 31, 2019. The shorter amortization curve results in higher amortization expense per period. Additionally contributing to the offset is amortization on the newly established Dealer Network asset recognized upon the Company's emergence from bankruptcy.

        Interest expense.    Interest expense decreased $4,491,000, or 11.5%, for the three months ended September 30, 2019, as compared to the corresponding prior year period. The decrease in interest expense is attributable to the Company's decreased outstanding debt balances upon the reorganization, primarily related to the retirement of the Predecessor's Company's 9.125% Senior Notes ("Senior Notes").

        Income tax expense.    The Company had pre-tax income of $674,220,000 and income tax expense of $642,000 for the three months ended September 30, 2019. The driver behind the pre-tax income for the three months ended September 30, 2019 is the gain on restructuring and reorganization of $702,824,000 recognized during the three months ended September 30, 2019, primarily due to gains recognized on the conversion from debt to equity and discounted cash settlement of the Senior Notes in accordance with the Company's bankruptcy Plan. There are no income tax impacts from this gain due to net operating loss carryforwards available for the 2019 tax year. Income tax expense for the three months ended September 30, 2019 is attributable to the Company's state tax expense incurred from Texas margin tax. The Company had pre-tax loss of $32,494,000 and income tax expense of $1,346,000 for the three months ended September 30, 2018. Income tax expense for the three months ended September 30, 2018 is attributable to the Company's state tax expense incurred from Texas margin tax and the deferred tax impact from amortization of deductible goodwill related to the Company's business acquisitions.

        Net income (loss).    The Company had net income of $673,578,000 for the three months ended September 30, 2019, as compared to a net loss of $33,840,000 for the three months ended September 30, 2018. The driver behind the net income for the three months ended September 30, 2019 is the gain on restructuring and reorganization of $702,824,000 recognized during the three months ended September 30, 2019, primarily due to gains recognized on the conversion from debt to equity and discounted cash settlement of the Senior Notes in accordance with the Company's bankruptcy plan.

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Table of Contents

        Adjusted EBITDA.    Adjusted EBITDA decreased $8,780,000, or 12.3%, for the three months ended September 30, 2019, as compared to the corresponding prior year period. The decrease for the three months ended September 30, 2019 is primarily the result of decreases in net revenue, including the effect of the $5,277,000 fair value adjustment, offset by favorable decreases in cost of services and SG&A, including subscriber acquisition costs.

        Expensed subscriber acquisition costs, net.    Subscriber acquisition costs, net decreased to $7,785,000 for the three months ended September 30, 2019 as compared to $13,376,000 for the three months ended September 30, 2018. The decrease in subscriber acquisition costs, net is primarily attributable to decreased production volume in the Company's Direct to Consumer Channel year over year.

Nine Months Ended September 30, 2019, Compared to Nine Months Ended September 30, 2018

        The following table sets forth selected data from the accompanying condensed consolidated statements of operations and comprehensive income (loss) for the periods indicated (dollar amounts in thousands).

        Fresh Start Accounting Adjustments.    With the exception of interest and amortization expense, the Company's operating results and key operating performance measures on a consolidated basis were not materially impacted by the reorganization. We believe that certain of our consolidated operating results for the period from January 1, 2019, through August 31, 2019 when combined with our consolidated operating results for the period from September 1, 2019 through September 30, 2019 is comparable to certain operating results from the comparable prior year period. Accordingly, we believe that discussing the non-GAAP combined results of operations and cash flows of the Predecessor Company and the Successor Company for the nine month period ended September 30, 2019 is useful when analyzing certain performance measures.

 
   
  Successor
Company
  Predecessor Company  
 
  Non-GAAP
Combined
Nine Months
Ended
September 30,
  Period from
September 1,
2019 through
September 30,
  Period from
January 1, 2019
through
August 31,
  Nine Months
Ended
September 30,
 
 
  2019   2019   2019   2018  

Net revenue

  $ 378,575   $ 36,289   $ 342,286   $ 405,922  

Cost of services

    84,262     8,976     75,286     100,807  

Selling, general, and administrative, including stock-based and long-term incentive compensation

    91,755     11,390     80,365     98,935  

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets

    148,093     17,302     130,791     160,973  

Interest expense

    112,555     7,474     105,081     114,550  

Income (loss) before income taxes

    589,585     (10,603 )   600,188     (297,800 )

Income tax expense

    1,979     204     1,775     4,039  

Net income (loss)

    587,606     (10,807 )   598,413     (301,839 )

Adjusted EBITDA(a)

  $ 204,517   $ 17,144   $ 187,373   $ 213,480  

Adjusted EBITDA as a percentage of Net revenue

    54.0 %   47.2 %   54.7 %   52.6 %

Expensed subscriber acquisition costs, net

                         

Gross subscriber acquisition costs

  $ 27,902   $ 2,958   $ 24,944   $ 38,923  

Revenue associated with subscriber acquisition costs

    (6,021 )   (534 )   (5,487 )   (3,489 )

Expensed subscriber acquisition costs, net

  $ 21,881   $ 2,424   $ 19,457   $ 35,434  

(a)
See reconciliation of Net income (loss) to Adjusted EBITDA below.

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Table of Contents

        The following table provides a reconciliation of Net income (loss) to total Adjusted EBITDA for the periods indicated (amounts in thousands):

 
   
  Successor
Company
  Predecessor Company  
 
  Non-GAAP
Combined
Nine Months
Ended
September 30,
  Period from
September 1,
2019 through
September 30,
  Period from
January 1, 2019
through
August 31,
  Nine Months
Ended
September 30,
 
 
  2019   2019   2019   2018  

Net income (loss)

  $ 587,606   $ (10,807 ) $ 598,413   $ (301,839 )

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets

    148,093     17,302     130,791     160,973  

Depreciation

    8,273     925     7,348     8,360  

Radio conversion costs

    1,756     825     931     —-  

Stock-based compensation

    42         42     803  

Long-term incentive compensation

    657     67     590      

LiveWatch acquisition contingent bonus charges

    63         63     187  

Legal settlement reserve (related insurance recovery)

    (4,800 )       (4,800 )    

Rebranding marketing program

                6,355  

Integration / implementation of company initiatives

    5,997     1,154     4,843     195  

Gain on revaluation of acquisition dealer liabilities

                (240 )

Loss on goodwill impairment

                214,400  

Gain on restructuring and reorganization, net

    (669,722 )       (669,722 )    

Interest expense

    112,555     7,474     105,081     114,550  

Realized and unrealized (gain) loss, net on derivative financial instruments

    6,804         6,804      

Refinancing expense

    5,214         5,214     5,697  

Income tax expense

    1,979     204     1,775     4,039  

Adjusted EBITDA

  $ 204,517   $ 17,144   $ 187,373   $ 213,480  

        Net revenue.    Net revenue decreased $27,347,000, or 6.7%, for the nine months ended September 30, 2019, as compared to the corresponding prior year period. The decrease in net revenue is attributable to the lower average number of subscribers in 2019. Net revenue also reflects the negative impact of a $5,277,000 fair value adjustment that reduced deferred revenue upon the Company's emergence from bankruptcy in accordance with ASC 852. In addition, the Company recognized a decrease in revenue of $4,503,000 for the nine months ended September 30, 2019 as compared to an increase in revenue of $6,986,000 for the nine months ended September 30, 2018, related to changes in Topic 606 contract assets. These decreases were partially offset by an increase in average RMR per subscriber due to certain price increases enacted during the past twelve months and increased product sales revenue to both our new customers in our Direct to Consumer Channel and to our existing customers as part of upgrade retention offers. Average RMR per subscriber increased from $45.12 as of September 30, 2018 to $45.29 as of September 30, 2019.

        Cost of services.    Cost of services decreased $16,545,000, or 16.4%, for the nine months ended September 30, 2019, as compared to the corresponding prior year period. The decrease for the nine months ended September 30, 2019 is primarily attributable to decreased field service costs and a decrease in expensed subscriber acquisition costs. Subscriber acquisition costs, which include expensed

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Table of Contents

equipment and labor costs associated with the creation of new subscribers, decreased to $7,085,000 for the nine months ended September 30, 2019, as compared to $12,521,000 for the nine months ended September 30, 2018 due to lower product sales volume in the Company's Direct to Consumer Channel as discussed above. Cost of services as a percentage of net revenue, excluding the effect of the fair value adjustment, decreased from 24.8% for the nine months ended September 30, 2018 to 22.0% for the nine months ended September 30, 2019.

        Selling, general and administrative.    Selling, general and administrative costs ("SG&A") decreased $7,180,000, or 7.3%, for the nine months ended September 30, 2019 as compared to the corresponding prior year period. Subscriber acquisition costs included in SG&A decreased to $20,817,000 for the nine months ended September 30, 2019, as compared to $26,402,000 for the nine months ended September 30, 2018 due to reduced subscriber acquisition selling and marketing costs associated with the creation of new subscribers. Also contributing to the year to date decreases in SG&A was the Company receiving a $4,800,000 insurance receivable settlement in April 2019 from an insurance carrier that provided coverage related to the 2017 class action litigation of alleged violation of telemarketing laws and rebrand expenses recognized in the nine months ended September 30, 2018 of $6,355,000. These decreases are partially offset by a legal settlement received in the second quarter of 2018 for $983,000, increased consulting fees on integration and implementation of various company initiatives and increased Topic 606 contract asset impairment costs incurred during the nine months ended September 30, 2019. SG&A as a percentage of net revenue, excluding the effect of the fair value adjustment, decreased from 24.4% for the nine months ended September 30, 2018 to 23.9% for the nine months ended September 30, 2019.

        Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets.    Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets decreased $12,880,000, or 8.0%, for the nine months ended September 30, 2019, as compared to the corresponding prior year period. The decrease is related to a lower number of subscriber accounts purchased in the last twelve months ended September 30, 2019, compared to the prior corresponding period. This decrease is being offset by the impact of the fresh start adjustments, in which the existing subscriber accounts as of August 31, 2019, were stated at fair value and set up on the 14-year 235% double-declining curve. This curve is shorter than the methodology utilized on newly generated subscriber accounts, due to the various aged vintages of the Company's subscriber base at August 31, 2019. The shorter amortization curve results in higher amortization expense per period. Additionally contributing to the offset is amortization on the newly established Dealer Network asset recognized upon the Company's emergence from bankruptcy.

        Interest expense.    Interest expense decreased $1,995,000, or 1.7%, for the nine months ended September 30, 2019, as compared to the corresponding prior year period. The decrease in interest expense is attributable to the Company's decreased outstanding debt balances upon the reorganization, primarily related to the retirement of the Senior Notes. Offsetting the decreases seen in the third quarter of 2019, were increases in interest expense prior to and in the bankruptcy, due to higher debt outstanding and higher interest rates.

        Income tax expense.    The Company had pre-tax income of $589,585,000 and income tax expense of $1,979,000 for the nine months ended September 30, 2019. The driver behind the pre-tax income for the nine months ended September 30, 2019 is the gain on restructuring and reorganization of $669,722,000 recognized during the nine months ended September 30, 2019, primarily due to gains recognized on the conversion from debt to equity and discounted cash settlement of the Senior Notes in accordance with the Company's bankruptcy Plan. There are no income tax impacts from this gain due to net operating loss carryforwards available for the 2019 tax year. Income tax expense for the nine months ended September 30, 2019 is attributable to the Company's state tax expense incurred from Texas margin tax. The Company had pre-tax loss of $297,800,000 and income tax expense of $4,039,000

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Table of Contents

for the nine months ended September 30, 2018. Income tax expense for the nine months ended September 30, 2018 is attributable to the Company's state tax expense incurred from Texas margin tax and the deferred tax impact from amortization of deductible goodwill related to the Company's business acquisitions.

        Net income (loss).    The Company had net income of $587,606,000 for the nine months ended September 30, 2019, as compared to a net loss of $301,839,000 for the nine months ended September 30, 2018. The driver behind the net income for the nine months ended September 30, 2019 is the gain on restructuring and reorganization of $669,722,000 recognized during the nine months ended September 30, 2019, primarily due to gains recognized on the conversion from debt to equity and discounted cash settlement of the Senior Notes in accordance with the Company's bankruptcy Plan. This gain was offset by net loss generated from normal operations as discussed above. The net loss for the nine months ended September 30, 2018 was caused largely by the goodwill impairment of $214,400,000 recognized in the second quarter of 2018 and net losses generated from normal operations.

        Adjusted EBITDA.    Adjusted EBITDA decreased $8,963,000, or 4.2%, for the nine months ended September 30, 2019, as compared to the corresponding prior year period. The decrease for the nine months ended September 30, 2019 is primarily the result of decreases in net revenue, including the effect of the $5,277,000 fair value adjustment, offset by favorable decreases in cost of services and SG&A, including subscriber acquisition costs.

        Expensed subscriber acquisition costs, net.    Subscriber acquisition costs, net decreased to $21,881,000 for the nine months ended September 30, 2019 as compared to $35,434,000 for the nine months ended September 30, 2018. The decrease in subscriber acquisition costs, net is primarily attributable to decreased production volume in the Company's Direct to Consumer Channel year over year.

Twelve Months Ended December 31, 2018, Compared to Twelve Months Ended December 31, 2017

        The following table sets forth selected data from the accompanying condensed consolidated statements of operations and comprehensive income (loss) for the periods indicated (dollar amounts in thousands).

 
  Year Ended December 31,  
 
  2018   2017  

Net revenue

  $ 540,358   $ 553,455  

Cost of services

    128,939     119,193  

Selling, general and administrative, including stock-based and long-term incentive compensation

    118,940     155,902  

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets

    211,639     236,788  

Interest expense

    180,770     145,492  

Income tax benefit

    (11,552 )   (1,893 )

Net loss(b)

    (678,750 )   (111,295 )

Adjusted EBITDA(a)

  $ 289,448   $ 313,553  

Adjusted EBITDA as a percentage of Net revenue

    53.6 %   56.7 %

Expensed subscriber acquisition costs, net

             

Gross subscriber acquisition costs

  $ 47,874   $ 40,312  

Revenue associated with subscriber acquisition costs

    (4,678 )   (4,852 )

Expensed subscriber acquisition costs, net

  $ 43,196   $ 35,460  

(a)
See reconciliation of Net loss to Adjusted EBITDA below.

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Table of Contents

(b)
Included in net loss for the year ended December 31, 2018, is a goodwill impairment of $563,549,000. Refer to Note 7, Goodwill, of our consolidated financial statements for the year ended December 31, 2018, for further information.

        The following table provides a reconciliation of Net loss to total Adjusted EBITDA for the periods indicated (amounts in thousands):

 
  Year Ended December 31,  
 
  2018   2017  

Net loss

  $ (678,750 ) $ (111,295 )

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets

    211,639     236,788  

Depreciation

    11,434     8,818  

Radio conversion costs

        450  

Stock-based compensation

    474     2,981  

Legal settlement reserve (related insurance recovery)

    (12,500 )   28,000  

Severance expense(a)

    1,059     1,363  

LiveWatch acquisition contingent bonus charges

    250     189  

Rebranding marketing program

    7,410     880  

Integration / implementation of company initiatives

    516     2,425  

Gain on revaluation of acquisition dealer liabilities

    (240 )   (1,358 )

Impairment of capitalized software

        713  

Loss on goodwill impairment

    563,549      

Interest expense

    180,770     145,492  

Unrealized loss on derivative financial instruments

    3,151      

Refinancing expense

    12,238      

Income tax benefit

    (11,552 )   (1,893 )

Adjusted EBITDA

  $ 289,448   $ 313,553  

(a)
Severance expense for the year ended December 31, 2018, related to a reduction in headcount event. Severance expense for the year ended December 31, 2017, related to transitioning executive leadership and a reduction in headcount event.

        Net revenue.    Revenue decreased $13,097,000, or 2.4%, for the year ended December 31, 2018 as compared to the corresponding prior year. The decrease in net revenue is attributable to the lower average number of subscribers in 2018. This decrease was partially offset by an increase in average RMR per subscriber due to certain price increases enacted during the past twelve months. Average RMR per subscriber increased from $44.04 as of December 31, 2017 to $45.27 as of December 31, 2018. In addition, the Company recognized a $8,149,000 increase in revenue for the year ended December 31, 2018 from the favorable impact of the new revenue recognition guidance, Topic 606, adopted effective January 1, 2018.

        Cost of services.    Cost of services increased $9,746,000, or 8.2%, for the year ended December 31, 2018 as compared to the corresponding prior year. The increase is primarily due to expensing certain direct and incremental field service costs on new contracts obtained in connection with a subscriber move ("Moves Costs") of $8,646,000 for the year ended December 31, 2018. Upon adoption of Topic 606, all Moves Costs are expensed, whereas prior to adoption, certain Moves Costs were capitalized on the balance sheet. For comparative purposes, Moves Costs capitalized as Subscriber accounts, net for the year ended December 31, 2017 were $14,366,000. Furthermore, subscriber acquisition costs, which include expensed equipment and labor costs associated with the creation of new subscribers, increased to $14,722,000 for the year ended December 31, 2018 as compared to

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$12,158,000 for the year ended December 31, 2017. The increase is attributable to increased production volume in the Company's Direct to Consumer Channel. These increases were partially offset by reduced salary and wage expense due to lower headcount. Cost of services as a percent of net revenue increased from 21.5% for the year ended December 31, 2017 to 23.9% for the year ended December 31, 2018.

        Selling, general and administrative.    Selling, general and administrative costs ("SG&A") decreased $36,962,000, or 23.7%, for the year ended December 31, 2018 as compared to the corresponding prior year. The decrease is primarily attributable to a $28,000,000 legal settlement recognized in the second quarter of 2017 for class action litigation of alleged violation of telemarketing laws and the 2018 recognition of an aggregate of $12,500,000 in related insurance receivable settlements reached with multiple carriers that provided coverage on the matter. Also contributing to the decrease in 2018 were decreases in stock-based compensation expense, consulting fees related to company cost reduction initiatives and general and administrative headcount. These decreases were offset by increases in rebranding expense and SG&A subscriber acquisition costs associated with the creation of new subscribers. Subscriber acquisition costs included in SG&A increased to $33,152,000 for the year ended December 31, 2018 as compared to $28,154,000 for the year ended December 31, 2017. SG&A as a percent of net revenue decreased from 28.2% for the year ended December 31, 2017 to 22.0% for the year ended December 31, 2018.

        Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets.    Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets decreased $25,149,000, or 10.6%, for the year ended December 31, 2018 as compared to the corresponding prior year. The decrease is related to a lower number of subscriber accounts purchased in the last year ended December 31, 2018 compared to the corresponding prior year as well as the timing of amortization of subscriber accounts acquired prior to 2018, which have a lower rate of amortization in 2018 based on the applicable double declining balance amortization method. Additionally, as discussed above, Moves Costs are expensed under Topic 606, whereas prior to adoption, these Moves Costs were capitalized on the balance sheet and amortized. This change resulted in a $7,487,000 decrease in amortization expense for the year ended December 31, 2018. The decrease is partially offset by increased amortization related to accounts acquired subsequent to December 31, 2017.

        Interest expense.    Interest expense increased $35,278,000, or 24.2%, for the year ended December 31, 2018 as compared to the corresponding prior year. The increase in interest expense is attributable to increases in the Company's revolving credit facility activity, higher interest rates from increasing LIBOR rates and increased amortization of debt discount and deferred debt costs under the effective interest rate method. Amortization of debt discount and deferred debt costs included in interest expense for the years ended December 31, 2018 and 2017 was $33,452,000 and $6,819,000, respectively. Included in the Amortization of debt discount and deferred debt costs in interest expense for the year ended December 31, 2018 is $2,870,000 of accelerated amortization related to the Senior Notes debt premium and deferred debt costs and $23,215,000 of accelerated amortization related to the Company's credit facility debt discount and deferred debt costs.

        Income tax benefit.    The Company had pre-tax loss of $690,302,000 and income tax benefit of $11,552,000 for the year ended December 31, 2018. The Company had pre-tax loss of $113,188,000 and income tax benefit of $1,893,000 for the year ended December 31, 2017. The income tax benefit for the year ended December 31, 2018 is attributable to the deferred tax impact of the full impairment of the Company's goodwill, partially offset by the Company's state tax expense incurred from Texas margin tax. The income tax benefit for the year ended December 31, 2017 is primarily attributable to the United States federal tax reform legislation that was enacted on December 22, 2017, which lowered the federal corporate income tax rate from 35% to 21% beginning in fiscal year 2018.

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        Net loss.    The Company had net loss of $678,750,000 for the year ended December 31, 2018, as compared to $111,295,000 for the year ended December 31, 2017. The increase in net loss is primarily related to the $563,549,000 goodwill impairment recognized in 2018 and reductions in net revenue offset by the $28,000,000 legal settlement reserve recognized in the second quarter of 2017 as discussed above.

        Adjusted EBITDA.    Adjusted EBITDA decreased $24,105,000, or 7.7%, for the year ended December 31, 2018 as compared to the corresponding prior year. The decrease is primarily the result of lower revenues, the expensing of subscriber moves in 2018 and an increase in subscriber acquisition costs as discussed above.

        Expensed subscriber acquisition costs, net.    Subscriber acquisition costs, net increased to $43,196,000 for the year ended December 31, 2018 as compared to $35,460,000 for the year ended December 31, 2017. The increase in subscriber acquisition costs, net is primarily attributable to the increase in volume of direct sales subscriber acquisitions year over year.

Twelve Months Ended December 31, 2017, Compared to Twelve Months Ended December 31, 2016

        The following table sets forth selected data from the accompanying condensed consolidated statements of operations and comprehensive income (loss) for the periods indicated (dollar amounts in thousands).

 
  Year Ended December 31,  
 
  2017   2016  

Net revenue

  $ 553,455   $ 570,372  

Cost of services

    119,193     115,236  

Selling, general and administrative, including stock-based and long-term incentive compensation

    155,902     114,152  

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets

    236,788     246,753  

Interest expense

    145,492     127,308  

Income tax expense (benefit)

    (1,893 )   7,148  

Net loss

    (111,295 )   (76,307 )

Adjusted EBITDA(a)

  $ 313,553   $ 344,848  

Adjusted EBITDA as a percentage of Net revenue

    56.7 %   60.5 %

Expensed subscriber acquisition costs(b)

             

Gross subscriber acquisition costs

  $ 40,312   $ 29,367  

Revenue associated with subscriber acquisition costs

    (4,852 )   (5,310 )

Expensed subscriber acquisition costs, net

  $ 35,460   $ 24,057  

(a)
See reconciliation of Net loss to Adjusted EBITDA below

(b)
Gross subscriber acquisition costs and Revenue associated with subscriber acquisition costs for the year ended December 31, 2016, has been restated to include $3,241,000 of costs and $817,000 of revenue related to Monitronics' direct-to-consumer sales channel activities for the period.

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        The following table provides a reconciliation of net loss to total Adjusted EBITDA for the periods indicated (amounts in thousands):

 
  Year Ended December 31,  
 
  2017   2016  

Net loss

  $ (111,295 ) $ (76,307 )

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets

    236,788     246,753  

Depreciation

    8,818     8,160  

Radio conversion costs

    450     18,422  

Stock-based compensation

    2,981     2,598  

Legal settlement reserve

    28,000      

Severance expense(a)

    1,363     730  

LiveWatch acquisition contingent bonus charges

    189     3,944  

Rebranding marketing program

    880     2,991  

Software implementation/integration

        511  

Integration / implementation of company initiatives

    2,425     250  

Gain on revaluation of acquisition dealer liabilities

    (1,358 )   (7,160 )

Impairment of capitalized software

    713      

Interest expense

    145,492     127,308  

Refinancing expense

        9,500  

Income tax expense (benefit)

    (1,893 )   7,148  

Adjusted EBITDA

  $ 313,553   $ 344,848  

(a)
Severance expense related to a reduction in headcount event and transitioning executive leadership at Monitronics.

        Net revenue.    Revenue decreased $16,917,000, or 3.0%, for the year ended December 31, 2017 as compared to the corresponding prior year. The decrease in net revenue is attributable to the lower average number of subscribers in 2017 as a result of the softness in the Dealer Channel and increased attrition as discussed in more detail above. This decrease was partially offset by an increase in average RMR per subscriber due to certain price increases enacted during the past twelve months and an increase in average RMR per new subscriber acquired. Average RMR per subscriber increased from $43.10 as of December 31, 2016 to $44.04 as of December 31, 2017.

        Cost of services.    Cost of services increased $3,957,000, or 3.4%, for the year ended December 31, 2017 as compared to the corresponding prior year. The increase is primarily attributable to increased field service costs due to a higher volume of retention jobs being completed and an increase in expensed subscriber acquisition costs attributable to Monitronics, as a result of the initiation of the Monitronics Direct installation sales channel. Subscriber acquisition costs included in cost of services, which include expensed equipment and labor costs associated with the creation of new subscribers for Monitronics and LiveWatch Security, LLC ("LiveWatch"), increased to $12,158,000 for the year ended December 31, 2017 as compared to $8,928,000 for the year ended December 31, 2016. Cost of services as a percent of net revenue increased from 20.2% for the year ended December 31, 2016 to 21.5% for the year ended December 31, 2017.

        Selling, general and administrative.    Selling, general and administrative costs ("SG&A") increased $41,750,000, or 36.6%, for the year ended December 31, 2017 as compared to the corresponding prior year. The increase is primarily attributable to a $28,000,000 legal settlement recognized in the second quarter of 2017 in relation to putative class action litigation that alleged violation of telemarketing laws. Subscriber acquisition costs included in SG&A increased to $28,154,000 for the year ended

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December 31, 2017 as compared to $20,439,000 for the year ended December 31, 2016. Contributing to the increase in SG&A costs in 2017 is a $7,160,000 gain on the revaluation of a dealer liability related to the acquisition of Security Networks, LLC ("Security Networks") that was recorded in 2016 with only a similar gain of $1,358,000 recorded in 2017. Other increases are attributed to consulting fees incurred on strategic company initiatives as well as the severance event and transitioning executive leadership at Monitronics' Dallas, Texas headquarters. These increases were offset by decreases to the LiveWatch acquisition contingent bonus expense as the Company settled the retention portion of the bonus earlier in 2017 when it became due and payable and negotiated a lesser buy out of the earnout portion of the bonus in the fourth quarter of 2017. SG&A as a percent of net revenue increased from 20.0% for the year ended December 31, 2016 to 28.2% for the year ended December 31, 2017.

        Amortization of subscriber accounts, dealer network and other intangible assets.    Amortization of subscriber accounts, dealer network and other intangible assets decreased $9,965,000 and $11,915,000 for the years ended December 31, 2017 and December 31, 2016, respectively, as compared to the corresponding prior years. The decreases are attributable to the timing of amortization of subscriber accounts acquired prior to each of the preceding years ended which have a lower rate of amortization in 2016 and 2017 and are not offset by amortization on subsequent subscriber accounts acquired due to decreased purchases occurring in 2016 and 2017.

        Interest expense.    Interest expense increased $18,184,000 and $1,893,000 for the years ended December 31, 2017 and 2016, respectively, as compared to the corresponding prior years. The increase in interest expense is attributable to increases in the Company's consolidated debt balance and higher applicable margins on credit facility borrowings as a result of the refinancing of our credit facility in September 2016. The increase includes the impact of the amortization of the debt discount and deferred financing costs related to the Company's outstanding debt. Amortization of debt discount and deferred debt costs included in interest expense for the years ended December 31, 2017 and 2016, was $6,819,000 and $6,936,000, respectively. These increases were offset by decreased interest expense on the Ascent intercompany loan, as Ascent effectively retired $88,000,000 of the loan through a capital contribution in February of 2016.

        Income tax expense (benefit).    For the year ended December 31, 2017, we had a pre-tax loss of $113,188,000 and an income tax benefit of $1,893,000. For the year ended December 31, 2016, we had a pre-tax loss of $69,159,000 and income tax expense of $7,148,000. The income tax benefit for the year ended December 31, 2017, is primarily attributable to the enactment of tax reform legislation, which lowered the federal corporate income tax rate from 35% to 21% beginning in fiscal year 2018. This reduction required the Company to revalue its net deferred tax liabilities to the lower rate which resulted in an income tax benefit of approximately $9,000,000. This benefit was offset by the deferred tax impact from 2017 amortization of deductible goodwill related to the Company's business acquisitions and the Company's state tax expense. Income tax expense for the years ended December 31, 2017 and 2016, is attributable to the Company's state tax expense and the deferred tax impact from amortization of deductible goodwill attributable to Company's business acquisitions.

        Net loss.    For the year ended December 31, 2017, net loss increased to $111,295,000 from $76,307,000 for the year ended December 31, 2016. The increase in net loss is primarily related to the $28,000,000 legal settlement recognized in the second quarter of 2017, as well as other decreases in operating income through the changes in Net revenue, Cost of services and SG&A discussed above. These changes were offset by a reduction in costs incurred in 2017 under our program to upgrade subscribers' alarm monitoring systems that communicated across the AT&T 2G network, as the Company has substantially completed its radio conversion program in 2016.

        Adjusted EBITDA.    Adjusted EBITDA decreased $31,295,000, or 9.1%, for the year ended December 31, 2017 and $9,959,000, or 2.8%, for the year ended December 31, 2016, as compared to the corresponding prior years. The decrease is primarily the result of lower revenues, as discussed

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above, and an increase in subscriber acquisition costs, net of related revenue, which is primarily associated with an increase in Monitronics' direct-to-consumer sales activities. Subscriber acquisition costs, net of related revenue, were $35,460,000 and $24,057,000 for the years ended December 31, 2017 and 2016, respectively.

        Expensed subscriber acquisition costs.    Subscriber acquisition costs increased $11,403,000 and $9,781,000 for the years ended December 31, 2017 and 2016, respectively, as compared to the corresponding prior years. The increase in subscriber acquisition costs for the year ended December 31, 2017 is primarily attributable to the initiation of the Monitronics Direct installation sales channel and an increase in new accounts generated in LiveWatch's direct-to-consumer sales channel. The increase in subscriber acquisition costs for the year ended December 31, 2016, is related to increased account production from LiveWatch and the inclusion of only a portion of the first quarter production for LiveWatch in 2015, as it was acquired in late February 2015.

Liquidity and Capital Resources

        At September 30, 2019, we had $28,589,000 of cash and cash equivalents. Our primary sources of funds is our cash flows from operating activities which are generated from alarm monitoring and related service revenues. During the nine months ended September 30, 2019 and 2018, our cash flow from operating activities was $128,785,000 and $74,458,000, respectively. The primary drivers of our cash flow from operating activities are the fluctuations in revenues and operating expenses as discussed in "Results of Operations" above. In addition, our cash flow from operating activities may be significantly impacted by changes in working capital.

        During the nine months ended September 30, 2019 and 2018, we used cash of $91,826,000 and $111,531,000, respectively, to fund subscriber account acquisitions, net of holdback and guarantee obligations. In addition, during the nine months ended September 30, 2019 and 2018, we used cash of $8,223,000 and $11,513,000, respectively, to fund our capital expenditures.

        Our existing long-term debt at September 30, 2019 includes the aggregate principal balance of $994,000,000 under the Successor Takeback Loan Facility, Successor Term Loan Facility and the Successor Revolving Credit Facility. The Successor Takeback Loan Facility has an outstanding principal balance of $822,500,000 as of September 30, 2019 and requires principal payments of $2,056,250 per quarter, beginning December 31, 2019, with the remaining amount becoming due on March 29, 2024. The Successor Term Loan Facility has an outstanding principal balance of $150,000,000 as of September 30, 2019 and becomes due on July 3, 2024. The Successor Revolving Credit Facility has an outstanding balance of $21,500,000 as of September 30, 2019 and becomes due on July 3, 2024.

Radio Conversion Costs

        Certain cellular carriers of 3G and CDMA cellular networks have announced that they will be retiring these networks by the end of 2022. As of September 30, 2019, we have approximately 450,000 subscribers with 3G or CDMA equipment which may have to be upgraded as a result of these retirements. Additionally, in the month of September of 2019, other certain cellular carriers of 2G cellular networks have announced that the 2G cellular networks will be sunsetting as of December 31, 2020. As of September 30, 2019, we have approximately 26,000 subscribers with 2G cellular equipment which may have to be upgraded as a result of this retirement. We currently expect that we will incur between $70,000,000 to $90,000,000 during the remainder of 2019 until the second half of 2022 to complete the required upgrades. For the three and nine months ended September 30, 2019, the Company incurred radio conversion costs of $1,756,000. Total costs for the conversion of such customers are subject to numerous variables, including our ability to work with our partners and subscribers on cost sharing initiatives, and the costs that we actually incur could be materially higher than our current estimates.

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Liquidity Outlook

        In considering our liquidity requirements for the next twelve months, we evaluated our known future commitments and obligations. We will require the availability of funds to finance our strategy to grow through the acquisition of subscriber accounts. We considered our expected operating cash flows as well as the borrowing capacity of our Successor Revolving Credit Facility, under which we could borrow an additional $123,500,000 as of September 30, 2019. Based on this analysis, we expect that cash on hand, cash flow generated from operations and available borrowings under the Successor Revolving Credit Facility will provide sufficient liquidity for the next twelve months, given our anticipated current and future requirements.

        Subject to our credit agreements, we may seek debt financing in the event of any new investment opportunities, additional capital expenditures or our operations requiring additional funds, but there can be no assurance that we will be able to obtain debt financing on terms that would be acceptable to us or at all. Our ability to seek additional sources of funding depends on our future financial position and results of operations, which are subject to general conditions in or affecting our industry and our customers and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

Off-Balance Sheet Arrangements

        We do not have any off-balance sheet arrangements, as defined by applicable regulations of the SEC, that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

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BUSINESS

Overview

        Monitronics International, Inc. and its subsidiaries provide residential customers and commercial client accounts with monitored home and business security systems, as well as interactive and home automation services, in the United States, Canada and Puerto Rico. Monitronics customers are obtained through our direct-to-consumer sales channel (the "Direct to Consumer Channel"), which offers both Do-It-Yourself and professional installation security solutions and our exclusive authorized dealer network (the "Dealer Channel"), which provides product and installation services, as well as support to customers.

Chapter 11 Reorganization and Merger

        On June 30, 2019, the Debtors filed the Chapter 11 Cases under the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas. The Debtors' Chapter 11 Cases were jointly administered under the caption In re Monitronics International, Inc., et al., Case No. 19-33650. On August 7, 2019, the Bankruptcy Court entered an order, Docket No. 199, confirming and approving the Debtors' Plan that was previously filed with the Bankruptcy Court on June 30, 2019. On August 30, 2019, the conditions to the effectiveness of the Plan were satisfied and the Company emerged from Chapter 11 after completing a series of transactions through which the Company and its former parent, Ascent Capital Group, Inc. merged in accordance with the terms of the Agreement and Plan of Merger, dated as of May 24, 2019. Monitronics was the surviving corporation and, immediately following the Merger, was redomiciled in Delaware in accordance with the terms of the Merger Agreement.

        Upon emergence from Chapter 11 on the Effective Date, the Company has applied ASC 852 in preparing its consolidated financial statements (see Note 2, Emergence from Bankruptcy and Note 3, Fresh Start Accounting). As a result of the application of fresh start accounting and the effects of the implementation of the Plan, a new entity for financial reporting purposes was created. The Company selected a convenience date of August 31, 2019, for purposes of applying fresh start accounting as the activity between the convenience date and the Effective Date did not result in a material difference in the financial results. References to "Successor" or "Successor Company" relate to the balance sheet and results of operations of Monitronics on and subsequent to September 1, 2019. References to "Predecessor" or "Predecessor Company" refer to the balance sheet and results of operations of Monitronics prior to September 1, 2019. With the exception of interest and amortization expense, the Company's operating results and key operating performance measures on a consolidated basis were not materially impacted by the reorganization. As such, references to the "Company" could refer to either the Predecessor or Successor periods, as defined.

General Development of Business

        Monitronics International, Inc. and its consolidated subsidiaries were wholly-owned subsidiaries of Ascent until August 30, 2019. On December 17, 2010, Ascent acquired 100% of the outstanding capital stock of Monitronics through the merger of Mono Lake Merger Sub, Inc., a direct wholly-owned subsidiary of Ascent that was established to consummate the merger, with and into Monitronics, with Monitronics as the surviving corporation in the merger. We were incorporated in the state of Texas on August 31, 1994.

        On August 16, 2013, we acquired all of the equity interests of Security Networks and certain affiliated entities (the "Security Networks Acquisition"). On February 23, 2015, we acquired LiveWatch Security, LLC, a DIY home security firm, offering professionally monitored security services through a direct-to-customer sales channel (the "LiveWatch Acquisition").

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        On February 26, 2018, we entered into an exclusive, long-term, trademark licensing agreement with The Brinks Company which resulted in a complete rebranding of Monitronics and its subsidiary, LiveWatch, as Brinks Home Security (the "Brinks License Agreement"). The rollout of the Brinks Home Security brand in the second quarter of 2018 included the integration of our business model under a single brand. As part of the integration, we reorganized our business from two reportable segments, "MONI" and "LiveWatch," to one reportable segment, Brinks Home Security.

        Brinks Home Security provides residential customers and commercial client accounts with monitored home and business security systems, as well as interactive and home automation services, in the United States, Canada and Puerto Rico. Brinks Home Security customers are obtained through our Direct to Consumer Channel, which offers both Do-It-Yourself and professional installation security solutions and our Dealer Channel, which provides product and installation services, as well as support to customers.

Description of Business

        Monitronics International, Inc., a Delaware corporation, does business as Brinks Home Security and provides residential customers and commercial client accounts with monitored home and business security systems, as well as interactive and home automation services, in the United States, Canada and Puerto Rico. Our principal executive office is located at 1990 Wittington Place, Farmers Branch, Texas, telephone number (972) 243-7443.

Brinks Home Security

        We are one of the largest security alarm monitoring companies in North America, with customers under contract in all 50 states, the District of Columbia, Puerto Rico and Canada. We offer:

        Our business model consists of two principal sales channels consisting of customers sourced through our Dealer Channel and our Direct to Consumer Channel, which sources customers through direct-to-consumer advertising primarily through internet, print and partnership program marketing activities. In May 2018, both the Dealer Channel and Direct to Consumer Channels began to go to market under the Brinks Home Security brand.

        Our Dealer Channel, which we consider exclusive based on our right of first refusal with respect to any accounts generated by such dealers, is our largest source of customers, representing 66% of gross additional customers during the year ended December 31, 2018, when excluding bulk account purchases in the period. By outsourcing the low margin, high fixed-cost elements of our business to a large network of dealers, it has significant flexibility in managing our asset-light cost structure across business cycles. Accordingly, we are able to allocate capital to growing our revenue-generating customer base rather than to local offices or depreciating hard assets and, we believe, derive higher cash flow generation.

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        Our Direct to Consumer Channel is an important addition to our channel diversity. Our Direct to Consumer Channel accounted for 34% of our gross additional customers during the year ended December 31, 2018, when excluding bulk account purchases in the period. Our Direct to Consumer Channel provides customers with a DIY home security product and a professional installation option. Our DIY offering provides an asset-light, geographically unconstrained product. In contrast to our Dealer Channel with local market presence, our Direct to Consumer Channel generates accounts through leads from direct response marketing. The Direct to Consumer Channel, including DIY, is expected to lower creation costs per account acquired.

        We generate nearly all of our revenue from fees charged to customers under AMAs, which include access to interactive and automation features at a higher fee. Additional revenue is also generated as our customers bundle other interactive services with their traditional monitoring services. During the year ended December 31, 2018, 94% of new customers purchased at least one of our interactive services alongside traditional security monitoring services. As of December 31, 2018, we had 921,750 subscribers generating $41,700,000 of RMR. During the nine months ended September 30, 2019, the company acquired 63,974 additional subscriber accounts for a total of 865,848 subscribers at the end of the period, generating RMR of $39,200,000.

        We generate incremental revenue through product and installation sales or by providing additional services, such as maintenance and wholesale contract monitoring. Contract monitoring includes fees charged to other security alarm companies for monitoring their accounts on a wholesale basis. As of December 31, 2018, we provided wholesale monitoring services for approximately 56,000 accounts. The incremental revenue streams do not represent a significant portion of our overall revenue.

Sales and Marketing

        In June 2018, management began marketing the Brinks Home Security brand directly to consumers through internet and print national advertising campaigns and partnerships with other subscription- or member-based organizations and businesses. This, coupled with our authorized dealer nationwide network, is an effective way for us to market alarm systems. Locally-based dealers are often an integral part of the communities they serve and understand the local market and how best to satisfy local needs. By combining the dealer's local presence and reputation with the nationally marketed Brinks Home Security brand, accompanied with its high quality service and support, we are able to cost-effectively provide local services and take advantage of economies of scale where appropriate. We also offer a differentiated go-to-market strategy through direct response TV, internet and radio advertising.

Dealer Channel

        Our Dealer Channel consists of approximately 300 independent dealers who are typically small businesses that sell and install alarm systems. These dealers generally do not retain the AMAs due to the scale and large upfront investment required to build and efficiently operate monitoring stations and related infrastructure. These dealers typically sell the AMAs to third parties and outsource the monitoring function for any AMAs they retain. The initial contract term for contracts generated by the dealers are typically three years, with automatic renewals annually or on a month-to-month basis depending on state and local regulations. We have the ability to monitor signals from nearly all types of residential security systems.

        We generally enter into exclusive contracts with dealers that typically have initial terms ranging between two to five years, with renewal terms thereafter. In order to maximize revenue and geographic diversification, we partner with dealers from throughout the U.S. We believe our ability to maximize return on invested capital is largely dependent on the quality of our dealers and the accounts acquired. In addition, rigorous underwriting standards are applied to, and a detailed review is conducted of, each AMA to be acquired.

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        We generally acquire each new AMA at a cost based on a multiple of the account's RMR. The dealer contracts generally provide that if an acquired AMA is terminated within the first 12 months, the dealer must replace the AMA or refund the AMA purchase price. To secure the dealer's obligation, we typically retain a percentage of the AMA purchase price.

Customer Integration and Marketing

        Dealers in our Dealer Channel typically introduce customers to us when describing our central monitoring station. Following the acquisition of an AMA from a dealer, the customer is notified that we are responsible for all their monitoring and customer service needs. The customer's awareness and identification of our brand as the monitoring service provider is further supported by the distribution of branded materials by the dealer to the customer at the point of sale. Such materials may include the promotional items listed below. All materials provided in the dealer model focus on the Brinks Home Security brand and our role as the single source of support for the customer.

Dealer Network Development

        We remain focused on expanding our network of independent authorized dealers. To do so, we have established a dealer program that provides participating dealers with a variety of support services to assist them as they grow their businesses. Authorized dealers may use the Brinks Home Security brand name in their sales and marketing activities and on the products they sell and install. Authorized dealers benefit from their affiliation with us and our national reputation for high customer satisfaction, as well as the support they receive from us. Authorized dealers also have the opportunity to obtain discounts on alarm systems and other equipment purchased by such dealers from original equipment manufacturers. We also make available sales, business and technical training, sales literature, co-branded marketing materials, sales leads and management support to our authorized dealers. In most cases, these services and cost savings would not be available to security alarm dealers on an individual basis.

        Currently, we employ sales representatives to promote our authorized dealer program, find account acquisition opportunities and sell our monitoring services. We target independent alarm dealers across the U.S. that can benefit from our dealer program services and can generate high quality monitoring customers for us. We use a variety of marketing techniques to promote the dealer program and related services. These activities include direct mail, trade magazine advertising, trade shows, internet web site marketing, publicity and telemarketing.

Dealer Marketing Support

        We offer our authorized dealers an extensive marketing support program that is focused on developing professionally designed sales and marketing materials that will help dealers market alarm systems and monitoring services with maximum effectiveness. Materials offered to authorized dealers include:

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        These materials are made available to dealers at prices that our management believes would not be available to dealers on an individual basis.

        Sales materials used by authorized dealers promote both the Brinks Home Security brand and the dealer's status as a Brinks Home Security authorized dealer. Dealers often sell and install alarm systems which display the Brinks Home Security logo and telephone number, which further strengthens consumer recognition of their status as Brinks Home Security authorized dealers. Management believes that the dealers' use of our brand to promote their affiliation with one of the nation's largest alarm monitoring companies boosts the dealers' credibility and reputation in their local markets and also assists in supporting their sales success.

Negotiated Account Acquisitions

        In addition to the development of our Dealer Channel, we periodically acquire alarm monitoring accounts from other alarm companies in bulk on a negotiated basis. Our management has extensive experience in identifying potential opportunities, negotiating account acquisitions and performing thorough due diligence, which helps facilitate execution of new acquisitions in a timely manner.

Direct to Consumer Channel

        We are also a leading DIY home security provider offering professionally monitored security services through the Direct to Consumer Channel. The Direct to Consumer Channel obtains subscribers through e-commerce online sales and through a trained inside sales phone operation. Historically, this channel offered substantial equipment subsidies to initiate, renew or upgrade AMAs. However, we have recently changed our approach on the initial sale and are now charging and collecting full sales price on most of our equipment offerings. For certain qualified customers, third party financing is available for customers to pay for their equipment. We receive the cash for these sales from the third party financing company, and we pay a contractual financing fee per transaction. Contract terms for AMAs originated through the Direct to Consumer Channel can vary depending on packages selected, with the current standard offering being a three year contract. The Company is recently exploring no contract options for certain security offerings. The Direct to Consumer Channel is currently the primary channel to market and acquire customers subscribing to alarm monitoring and other interactive services provided in our Nest partnership.

        When a customer initiates and completes the sales process to obtain alarm monitoring services, including signing an AMA, we pre-configure the alarm monitoring system based on the customer's specifications, then package and ship the equipment directly to the customer. The customer can either self-install the equipment or we can provide an installation technician to perform the installation on-site. The customer or installation technician activates the monitoring service with our central station over the phone.

Customer Operations

        Once a customer has contracted for services, we provide 24-hour monitoring services through our alarm monitoring center as well as billing and 24-hour technical support through our customer care center, located in Farmers Branch, Texas. Our alarm monitoring center has received the Monitoring Association's prestigious Five Diamond certification. Five Diamond certification is achieved by having all alarm monitoring operators complete special industry training and pass an exam.

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        We have a back-up facility in Dallas, Texas that is capable of supporting monitoring and certain customer service operations in the event of a disruption at our primary alarm monitoring and customer care center.

        Our telephone systems utilize high-capacity, high-quality, digital circuits backed up by conventional telephone lines. When an alarm signal is received at the monitoring facility, it is routed to an operator. At the same time, information concerning the subscriber whose alarm has been activated and the nature and location of the alarm signal is delivered to the operator's computer terminal. The operator is then responsible for following standard procedures to contact the subscriber or take other appropriate action, including, if the situation requires, contacting local emergency service providers. We never dispatch our own personnel to the subscriber's premises in response to an alarm event. If a subscriber lives in an area where the emergency service provider will not respond without verification of an actual emergency, we will contract with an independent third party responder if available in that area.

        Security system interactive and home automation services are contracted with and provided by various third party technology companies to the subscriber.

        We seek to increase subscriber satisfaction and retention by carefully managing customer and technical service. The customer care center handles all general inquiries from all subscribers, including those related to subscriber information changes, basic alarm troubleshooting, alarm verification, technical service requests and requests to enhance existing services. We have a proprietary centralized information system that enables us to satisfy a substantial amount of subscriber technical inquiries over the telephone, without dispatching a service technician. If the customer requires field service, we rely on our nationwide network of independent service dealers and over 85 employee field service technicians to provide such service. We closely monitor service dealer performance with customer satisfaction forms, follow-up quality assurance calls and other performance metrics. In 2018, we dispatched approximately 255 independent service dealers around the country to handle our field service.

Customers

        We believe that our subscriber acquisition process, which includes both clearly defined customer account standards and a comprehensive due diligence process focusing on both the dealers and the AMAs to be acquired, contributes significantly to the high quality of our subscriber base. For each of the last five calendar years, the average credit score associated with AMAs that were acquired was 710 or higher on the FICO scale.

        Approximately 94% of our subscribers are residential homeowners and the remainder are small commercial accounts. We believe that by focusing on residential homeowners, rather than renters, we can reduce attrition, because homeowners relocate less frequently than renters.

Intellectual Property

        Pursuant to the terms of the Brinks License Agreement, Monitronics has exclusive use of the Brinks and Brinks Home Security trademarks related to the residential smart home and home security categories in the U.S. and Canada. The Brinks License Agreement provides for an initial term of seven years and, subject to certain conditions, allows for subsequent renewal periods whereby Monitronics can extend the agreement beyond 20 years. We also own certain proprietary software applications that are used to provide services to our dealers and subscribers, including various trademarks, patents and patents pending related to our "ASAPer" system, which causes a predetermined group of recipients to receive a text message automatically once an alarm is triggered. Other than as mentioned above, we and our subsidiaries do not hold any patents or other intellectual property rights on our proprietary software applications.

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Strategy

        Our goal is to maximize return on invested capital, which we believe may be achieved by pursuing the following strategies:

        We seek to capitalize on what we view as the current limited market penetration in security services and grow our existing customer base through the following initiatives:

        Customer attrition has historically been reasonably predictable, and we regularly identify and monitor the principal drivers thereof, including our customers' credit scores, which we believe are the strongest predictors of retention. We seek to maximize customer retention by consistently offering high quality automated home monitoring services and increasing the average life of acquired AMAs through the following initiatives:

        Due to the scalability of our operations and the low fixed and variable costs inherent in our cost structure, we believe we will continue to experience Adjusted EBITDA margins as costs are spread over our recurring revenue streams. In addition, we seek to optimize the rate of return on investment by managing subscriber acquisition costs. Subscriber acquisition costs, whether capitalized or expensed, include the direct costs related to the Direct to Consumer Channel, the acquisition costs to acquire AMAs from the Dealer Channel and certain sales and marketing costs. We consistently offer what we

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view as competitive rates for account acquisition. We believe our cash flows may also benefit from our continued efforts to decrease our cost to serve by investing in customer service automation and targeting cost saving initiatives. For a discussion of Adjusted EBITDA, see "Management's Discussion and Analysis of Financial Condition and Results of Operations."

        We plan to expand AMA acquisitions by targeting new dealers from whom we expect to generate high quality customers. We believe that by providing dealers with a full range of services designed to assist them in all aspects of their business, including sales leads, sales training, technical training, comprehensive on-line account access, detailed weekly account summaries, sales support materials and discounts on security system hardware purchased through our strategic alliances with security system manufacturers, we are able to attract and partner with dealers that will succeed in our existing dealer network.

        For a description of the risks associated with the foregoing strategies, and with the Company's business in general, see "Risk Factors."

Seasonality

        Our business experiences a certain level of seasonality. Because more household moves take place during the second and third calendar quarters of each year, our disconnect rate and new customer additions may be higher in those quarters than in the first and fourth calendar quarters. In addition, we may see increased servicing costs related to higher alarm signals and customer service requests as a result of customer power outages and other issues due to weather-related incidents.

Industry; Competition

        The security alarm industry is highly competitive and fragmented. Our competitors include other major security alarm companies with nationwide coverage, numerous smaller providers with regional or local coverage and certain large multi-service organizations that operate in multiple industries, including the technology, telecommunications and cable businesses. Our significant competitors for obtaining subscriber AMAs include:

        Competition in the security alarm industry is based primarily on reputation for quality of service, market visibility, services offered, price and the ability to identify and obtain customer accounts. Competition for customers has also increased in recent years with the emergence of DIY home security providers and other technology companies expanding into the security alarm industry. We believe we compete effectively with our competitors due to our reputation for reliable monitoring, customer and technical services, the quality of our services and our relatively lower cost structure. We believe the dynamics of the security alarm industry favor larger alarm monitoring companies, such as Brinks Home Security, with a nationwide focus that have greater resources and benefit from economies of scale in technology, advertising and other expenditures.

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        Some of these security alarm companies have also adopted, in whole or in part, a dealer program similar to ours. In these instances, we must also compete with these programs in recruiting dealers. We believe we compete effectively with other dealer programs due to the quality of our dealer support services and our competitive acquisition terms. Our significant competitors for recruiting dealers include:

Regulatory Matters

        Our operations are subject to a variety of laws, regulations and licensing requirements of federal, state and local authorities including federal and state customer protection laws. In certain jurisdictions, we are required to obtain licenses or permits to comply with standards governing employee selection and training and to meet certain standards in the conduct of our business. The security industry is also subject to requirements imposed by various insurance, approval, listing and standards organizations. Depending upon the type of subscriber served, the type of security service provided and the requirements of the applicable local governmental jurisdiction, adherence to the requirements and standards of such organizations is mandatory in some instances and voluntary in others.

        Although local governments routinely respond to panic and smoke/fire alarms, there are an increasing number of local governmental authorities that have adopted or are considering various measures aimed at reducing the number of false burglar alarms. Such measures include:

        Enhanced Call Verification has been implemented as standard policy by us.

        Security alarm systems monitored by us utilize telephone lines, internet connections, cellular networks and radio frequencies to transmit alarm signals. The cost of telephone lines and the type of equipment that may be used in telephone line transmissions are currently regulated by both federal and state governments. The operation and utilization of cellular and radio frequencies are regulated by the FCC and state public utility commissions. For additional information on the regulatory framework in which we operate, please see "Risk Factors—Risks Relating to Regulatory Matters."

Employees

        As of December 31, 2018, we had over 1,190 full-time employees and over 40 part-time employees, all of which are located in the U.S.

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Legal Proceedings

        In the ordinary course of business, from time to time, the Company and its subsidiaries are the subject of complaints or litigation from subscribers or inquiries or investigations from government officials, sometimes related to alleged violations of state or federal consumer protection statutes. The Company and its subsidiaries may also be subject to employee claims based on, among other things, alleged discrimination, harassment or wrongful termination claims. Although no assurances can be given, in the opinion of management, none of the pending actions are likely to have a material adverse impact on the Company's financial position or results of operations, either individually or in the aggregate.

Quantitative and Qualitative Disclosure of Market Risks

        We have exposure to changes in interest rates related to the terms of our debt obligations. The table below provides information about our outstanding debt obligations that are sensitive to changes in interest rates. Debt amounts represent principal payments by maturity date as of September 30, 2019.

Year
  Amount
(in thousands)
 

Remainder of 2019

  $ 2,056  

2020

    8,225  

2021

    8,225  

2022

    8,225  

2023

    8,225  

2024

    959,044  

Thereafter

     

Total

  $ 994,000  

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MANAGEMENT

Directors and Executive Officers of Monitronics International, Inc.

        The following table provides information regarding our current executive officers and directors.

Name
  Age   Position
Jeffery R. Gardner   59   Chief Executive Officer and Director
Fred A. Graffam III   53   Chief Financial Officer and Executive Vice President
William E. Niles   56   General Counsel and Executive Vice President
Patrick J. Bartels, Jr   43   Director
Stephen Escudier   37   Director
Mitchell Grossinger Etess   61   Director
Michael Kneeland   65   Director
Michael Meyers   62   Director
Dick Seger   66   Director

        Jeffrey R. Gardner serves as a Director and as the Chief Executive Officer and President of Monitronics and has served as a Director of Ascent since November 2016. Mr. Gardner has more than 25 years of expertise in the telecommunications industry and has specific expertise in the areas of operations management, strategic development, finance, accounting and financial reporting. Mr. Gardner was the President and CEO of Windstream, a Fortune 500 communications and services provider. Before that, he was Executive Vice President and Chief Financial Officer of Alltel Corporation, and served in various executive positions at 360 Communications. Mr. Gardner also currently serves on the board of directors for CalAmp Corporation and the Qorvo Corporation, where he is also Chair of the audit committee. From 2006 to 2015, Mr. Gardner served on the board of directors for Windstream Corporation. From 2012 to 2013, Mr. Gardner served as Chair of the United States Telecom Association. Mr. Gardner earned a B.A. in finance and accounting from Purdue University and holds an MBA from the College of William & Mary. We believe Mr. Gardner is qualified to serve on our board of directors due to his extensive executive leadership experience and board experience, including experience with subscription-based businesses.

        Fred A. Graffam III has served as Chief Financial Officer and Executive Vice President of Monitronics since October 2017. Before joining the Company, Mr. Graffam had served as Senior Vice President of Finance, Investor Relations & Corporate Development of DigitalGlobe, Inc. since April 2015, as its Interim Chief Financial Officer from September 2014 to March 2015 and as Vice President Financial Planning and Analysis from July 2013 to August 2014. From April 2012 to July 2013, Mr. Graffam was Senior Vice President and Chief Financial Officer—North America/APAC Region at Level 3 Communications, Inc. (Level 3). Before joining Level 3, he spent 17 years with Comcast Corporation, serving as Senior Vice President of its Beltway Region from 2008 to 2011 and as Senior Vice President-Finance, West Division from 2002 to 2008.

        William E. Niles has served as General Counsel and Executive Vice President of Monitronics since September 2019, prior to which he served as Executive Vice President and Secretary. Mr. Niles previously served as Chief Executive Officer of Ascent from March 2018 to August 2019 and as General Counsel and Secretary of Ascent from September 2008 to August 2019. He also served as Executive Vice President of Ascent from September 2008 through March 2018 and as Executive Vice President and General Counsel of Ascent Media Group, LLC ("AMG") from January 2002 until the sale of AMG in December 2010. From August 2006 through February 2008, Mr. Niles was a member of AMG's executive committee. Prior to 2002, Mr. Niles was a senior executive handling legal and business affairs within AMG and its predecessor companies.

        Patrick J. Bartels, Jr. is a senior investment professional with 20 years of experience and currently serves as the Managing Member of Redan Advisors, LLC. His professional experience includes

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investing in complex financial restructurings and process intensive situations in North America, Asia and Europe in a broad universe of industries. Mr. Bartels has led creditors' committees and served as a director on numerous public and private boards of directors where has had experience with corporate governance, capital markets transactions and mergers and acquisitions. Mr. Bartels currently serves on the board of directors of B. Riley Principal Merger Corp., Parker Drilling Company, Vanguard Natural Resources, Inc., and Arch Coal, Inc. Mr. Bartels also served on the board of directors of WCI Communities, Inc. Mr. Bartels was previously a Managing Principal of Monarch Alternative Capital LP in New York, a private investment firm that focuses primarily on distressed companies. Prior to joining Monarch Alternative Capital LP, Mr. Bartels was a high-yield investments analyst at Invesco Ltd. He began his career at PricewaterhouseCoopers LLP, where he was a Certified Public Accountant. Mr. Bartels received a Bachelor of Science in Accounting with a concentration in Finance from Bucknell University. He also holds the Chartered Financial Analyst designation. We believe Mr. Bartels is qualified to serve on our board of directors due to his extensive financial and accounting experience and public company board experience.

        Stephen Escudier is a Partner with the Credit Platform at EQT Partners ("EQT") based in New York. Mr. Escudier joined EQT in 2010 in London and in 2017, moved to New York to establish EQT's credit business in North America focusing on the special situations strategy. From 2006 to 2009, prior to joining EQT, Mr. Escudier worked for Apollo Management, a private equity investment firm focusing on leveraged buyouts and the purchase of distressed securities. Before this, he was involved in structuring and negotiating financing for leveraged buyouts and corporate acquisitions in the Morgan Stanley Leveraged and Acquisition Finance team in London from 2004 to 2006. Mr. Escudier graduated from Imperial College of Science, Technology and Medicine in 2004 with a first class honours Master's degree in Mechanical Engineering. We believe Mr. Escudier is qualified to serve on our board of directors due to his extensive financial and accounting experience.

        Mitchell Grossinger Etess served as Chief Executive Officer of Mohegan Gaming & Entertainment ("Mohegan") from May 2006 to September 2015. He also served as President and Chief Executive Officer of the Mohegan Sun, a gaming and entertainment complex owned by Mohegan, from August 2004 to December 2010. Mr. Etess previously served as Mohegan's Executive Vice President of Marketing from October 1999 to August 2004 and Senior Vice President of Marketing from November 1995 to October 1999. Prior to his employment with Mohegan and Mohegan Sun, Mr. Etess served as Vice President of Marketing at Players Island and Senior Vice President of Marketing and Hotel Operations at Trump Plaza Hotel and Casino. He also held various management positions in the hospitality and advertising industries. We believe Mr. Etess is qualified to serve on our board of directors due to his extensive management experience.

        Michael Kneeland has more than 35 years of management experience in the equipment rental industry, including key positions in sales and operations with private, public and investor-owned companies, including United Rentals, Inc., Free State Industries, Inc. and Equipment Supply Company. Mr. Kneeland has been non-executive Chair of the board of directors of United Rentals since May 2019, following his retirement as chief executive officer, a position he had held since 2008. He has also served as a member of the board since 2008 and, from 2008 until March 2018, he served as president of United Rentals. Previously, he served as interim chief executive officer of United Rentals from 2007 to 2008. Mr. Kneeland joined United Rentals in 1998 as district manager upon its acquisition of Equipment Supply Company and held a variety of management roles from 1998 to 2007, including being named as Executive Vice President—Operations in 2003. Mr. Kneeland also serves on the board of directors of Anticimex Group, a private pest-control company with headquarters in Stockholm, Sweden. From 2011 until June 2019, he also served on the board of directors of YRC Worldwide, Inc., a leading provider of transportation and global logistics services, and he served as the Chair of the Compensation Committee from July 2011 until May 2017. In 2015, Mr. Kneeland was designated Co-Chair, Transportation Stakeholder Alliance (The Business Council of Fairfield County) and was also

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appointed to the National Advisory Board for the Johns Hopkins Berman Institute of Bioethics. We believe Mr. Kneeland is qualified to serve on our board of directors due to his extensive management experience and previous public company board experience.

        Michael Meyers currently serves as an adjunct professor at Texas Christian University, where he teaches an MBA case study course at the Neeley School of Business that focuses on how capital structure enhances shareholder value. Mr. Meyers has held this position since January 2018. He also currently serves as the Manager of Mike R. Meyers LLC, a consulting and advisory services firm. Mr. Meyers previously served as Senior Vice President and Chief Financial Officer of Ascent from 2011 until October 2017. Mr. Meyers also served as the Chief Financial Officer of Monitronics International, Inc., from July 1996 to October 2017. Prior to joining Monitronics, Mr. Meyers had over 15 years of accounting, finance, and operations experience, including working in public accounting firms as a certified public accountant. He has worked with a variety of businesses, including Fortune 500, medium and small companies. We believe Mr. Meyer is qualified to serve on our board of directors due to his experience in the home security industry and his understanding of our business and the history of our organization.

        Dick Seger founded the residential home security company Securitas Direct Verisure in Sweden in 1988 as a division of Securitas AB, a global guarding and security services company. He was appointed President and Chief Executive Officer of Securitas Direct Verisure in 2006 after it was spun-off from Securitas AB and listed at the Nasdaq OMX Stockholm Exchange. Mr. Seger served in this role until 2016. He has also has served as a board member of Anticimex AB, a global pest control company, since 2018 and as a board member of Securitas AB since 2017. Mr. Seger serves as an industrial adviser to EQT, a private equity firm, as well as to small technology start-ups. Mr. Seger holds a Master of Science from the Linköping University in Sweden. We believe Mr. Seger is qualified to serve on our board of directors due to his extensive management experience in the home security industry.

Board of Directors

        The board of directors of Monitronics consists of seven members and the current chair of the board of directors is Michael J. Kneeland. The board of directors is divided into three classes, with two directors in each of Class I and Class II and three directors in Class III. Our certificate of incorporation provides that each director shall serve for a term ending on the date of the third annual meeting of stockholders next following the annual meeting at which such director was elected; provided that each director appointed on the Effective Date (an "Initial Director") to the first class of directors will serve for an initial term expiring at the first annual meeting of stockholders following the Effective Date (which will occur no earlier than the date that is 12 months after the Effective Date), each Initial Director appointed to the second class of directors will serve for an initial term expiring at the second annual meeting of stockholders following the Effective Date, and each Initial Director appointed to the third class of directors will serve for an initial term expiring at the third annual meeting of stockholders following the Effective Date. The Class I directors are Mitchell G. Etess and Jeffery R. Gardner; the Class II directors are Patrick J. Bartels, Jr. and Michael R. Meyers; and the Class III directors are Stephen Escudier, Dick Seger and Michael J. Kneeland. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change in control of our company. Our directors may be removed only for cause except (i) until the date of the first annual meeting of stockholders to occur after the second anniversary of the Effective Date, with the prior written consent of the stockholder(s) who designated such director an Initial Director pursuant to the Plan and (ii) a director designated or nominated by a stockholder which, together with its affiliates, beneficially owns at least ten percent of the outstanding common stock of the corporation as of the Effective Date (a "Significant Stockholder") may be removed with the prior written consent of such Significant Stockholder.

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        In connection with our emergence from Chapter 11, we entered into director nominating agreements that provide affiliates of EQT the right to nominate: (i) three Class III directors so long as EQT and its affiliates own at least 27.5% of the total voting power of the Company; (ii) two Class III directors so long as EQT and its affiliates own at least 17.5% of the total voting power of the Company and (iii) one Class III director so long as EQT and its affiliates own at least 10% of the total voting power of the Company, and provide affiliates of Brigade Capital Management, LP ("Brigade") the right to nominate (i) one Class I directors so long as Brigade and its affiliates own at least 17.5% of the total voting power of the Company and (ii) one Class II directors so long as Brigade and its affiliates own at least 10% of the total voting power of the Company. See "Certain Relationships and Related Party Transactions—Director Nominating Agreement." In connection with our emergence, Stephen Escudier, Andrew Konopelski and Michael J. Kneeland were nominated as directors by EQT and Michael R. Meyers and Mitchell Etess were nominated as directors by Brigade.

        Our certificate of incorporation provides that the authorized number of directors will initially be fixed at seven directors and the total number of directors may be increased or decreased (but to no less than five or no more than nine directors) from time to time only pursuant to a resolution adopted by directors representing at least three-fourths of the whole board of directors. In addition, our certificate of incorporation and our bylaws provide that, in general, vacancies on the board of directors may be filled by a majority of directors remaining in office, even if less than a quorum.

Board Committees

        Shortly after the appointment of the current board of directors on the Effective Date, three standing committees of the board of directors were established: an Audit Committee, a Compensation Committee and a Strategy Committee. Each of these committees is governed by a charter adopted by the board. These charters establish the purposes of the respective committees as well as committee membership guidelines. They also define the authority, responsibilities and procedures of each committee in relation to each committee's role in supporting the board and assisting the board in discharging its duties in supervising and governing the Company. Each charter is available on our website at www.brinkshome.com. Information contained on or available through our website is not part of or incorporated by reference into this prospectus or any other report we may file with the SEC.

        The Audit Committee consists of Michael Meyers, Patrick J. Bartels, Jr. and Stephen Escudier, each of whom is independent under Rule 10A-3 of the Exchange Act and the applicable rules of the OTC Markets Group Inc. (the "OTC Group") (as described below). The board has determined that Mr. Bartels satisfies the definition of "audit committee financial expert" under applicable SEC rules. The chair of the Audit Committee is Michael Meyers.

        The Audit Committee oversees, reviews, acts on and reports on various auditing and accounting matters to the board, including the appointment, compensation and retention of the independent auditor, the scope of our annual audits, fees to be paid to the independent registered public accounting firm, the performance of our independent registered public accounting firm and our accounting practices. In addition, the Audit Committee oversees our compliance programs relating to legal and regulatory requirements.

        The Compensation Committee currently consists of Stephen Escudier, Patrick J. Bartels, Jr. and Mitchell G. Etess. The chair of the Compensation Committee is Stephen Escudier. The Compensation Committee approves salaries, incentives and other forms of compensation for officers and other employees. The Compensation Committee also administers any incentive compensation and benefit plans. The Compensation Committee also develops qualification criteria for selecting director candidates, identifies individuals qualified to become board members for recommendation to the board, reviews the board committee structure and recommends directors to serve as members of each committee to the board for its approval.

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        The Strategy Committee consists of Dick Seger, Stephen Escudier, Michael Kneeland, Mitchell G. Etess, and Jeffery R. Gardner. The Strategy Committee assists and advises management and the board with respect to forming and evaluating our long-term plans, strategies and goals and assisting management and the board in executing such plans and strategies. The chair of the Strategy Committee is Dick Seger.

Director Independence

        Our board of directors uses the independence standards under the rules of the OTC Group applicable to issuers listed on the OTCQX Best Market. The OTC Group's definition of independence requires that the director is not an executive officer or employee of the Company and does not have any relationship, in the opinion of the Company's board, which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The board has determined that Dick Seger, Michael Kneeland, Michael Meyers, Mitchell G. Etess and Patrick J. Bartels, Jr. are independent under the OTC Group rules for purposes of service on the board of directors. There are no family relationships among any of our directors or executive officers.

Compensation Committee Interlocks and Insider Participation

        None of our executive officers serve on the board of directors or compensation committee of a company that has an executive officer who serves on our board or Compensation Committee. No member of our board is an executive officer of a company in which one of our executive officers serves as a member of the board of directors or compensation committee of that company.

Risk Oversight

        One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through our board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure and our Audit Committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. Our Audit Committee also monitors compliance with legal and regulatory requirements. Our Compensation Committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, our entire board of directors is regularly informed through committee reports about such risks.

Code of Ethics and Corporate Governance Guidelines

        We have adopted a Code of Business Conduct and Ethics that is applicable to all employees, officers and members of our board of directors and Corporate Governance Guidelines applicable to our board of directors, each of which are available on our website at www.brinkshome.com. Information contained on or available through our website is not part of or incorporated by reference into this prospectus or any other report we may file with the SEC.

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EXECUTIVE COMPENSATION

        This section sets forth information relating to, and an analysis and discussion of, compensation paid by our Company to:

        Prior to the Merger with Ascent, certain of our named executive officers received compensation from Ascent. The following disclosure describes the compensation paid to our named executive officers in 2018 by Monitronics and by Ascent (which we refer to collectively in this section as the "Company"). We refer to Messrs. Fitzgerald, Gardner, Graffam and Niles in this prospectus, collectively, as our named executive officers.

Compensation Discussion and Analysis

        Prior to the Merger, the compensation committee of Ascent's board of directors had responsibility for overseeing the compensation of our named executive officers and ensuring that their compensation packages are consistent with our compensation objectives. In furtherance of this purpose, the compensation committee considered and approved all components of the named executive officers' compensation packages, including periodic corporate goals and objectives upon which compensation decisions are made. The compensation committee also administered Ascent's equity incentive plans and had the authority to make and modify grants under, and to approve or disapprove participation in, such plans (in each case, other than with respect to awards granted to nonemployee directors). Since the Merger, our board of directors has had responsibility for overseeing the compensation of our named executive officers.

        The compensation program for our named executive officers in 2018 was designed to meet the following objectives that align with and support our strategic business goals:

        The following principles were used to guide the design of our executive compensation program in 2018 and to ensure that the program is consistent with the objectives described above:

        Competitive Positioning.    We believe that our executive compensation program must provide compensation to our named executive officers that is both reasonable in relation to, and competitive with, the compensation paid to similarly situated employees of companies in our similar industries and companies with which we compete for talent, taking into account many factors, including cost-of-living considerations. See "Setting Executive Compensation" below.

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        "Pay for Performance" Philosophy.    We believe our compensation program should align the interests of our named executive officers with the interests of our Company and our stockholders by strengthening the link between pay and Company and individual performance. Accordingly, the compensation committee believed variable compensation, including plan-based awards, should represent a significant portion of the total compensation mix for our named executive officers.

        At Ascent's 2017 annual stockholders meeting, Ascent's stockholders representing 97.5% of its aggregate voting power present and entitled to vote on our say-on-pay proposal approved, on an advisory basis, Ascent's executive compensation, as disclosed in Ascent's proxy statement for its 2017 annual meeting of stockholders. Ascent's compensation committee did not implement any material changes in 2018 to the executive compensation program as a result of that vote.

        As a general matter, our Chief Executive Officer provided recommendations to the compensation committee with respect to all elements of compensation proposed to be paid to the other named executive officers in conjunction with his evaluation of their performance. Mr. Fitzgerald participated in the compensation committee's discussions with respect to the compensation of Messrs. Gardner, Graffam and Niles, and Messrs. Gardner, Graffam and Niles provided recommendations to the compensation committee with respect to the design of our Company's 2018 cash and equity incentive awards. For additional information regarding our named executive officers' compensation packages, see "Equity Incentive Compensation" and "Employment Agreements" below.

        Consistent with the principles outlined above, the compensation committee considered compensation data relating to other companies in reviewing and approving the compensation packages of our named executive officers. Historically, the compensation committee had focused on a select group of peer companies that operated in various markets within the technology, media, communications and entertainment industries. However, in connection with the transition out of the media and entertainment business, the compensation committee hired Compensia, Inc., a compensation consultant ("Compensia"), in May 2011 to assist the compensation committee in identifying a new peer group of companies, gathering market data on competitive market practices with respect to cash and equity-based compensation and developing an updated compensation framework, including with respect to equity awards (such as award types, vesting parameters and individual allocations).

        Along with Compensia, the compensation committee developed a peer group list taking into account our focus on the alarm monitoring and security business (a technology business supported by subscription-based revenue), our range of financial performance metrics and our aggregate market capitalization. Compensia advised the compensation committee that our peer group of companies should be comprised of those in the technology space and those with a subscription/service-based business model, which together most closely correlate to our current business and operations. The compensation committee then further updated the peer group in September 2017 as set forth below:

8x8, Inc.   Control4 Corporation
Alarm.com Holdings, Inc.   CSG Systems International, Inc.
ATN International, Inc.   Cumulus Media, Inc.
Barracuda Networks, Inc.   DigitalGlobe, Inc.
BroadSoft, Inc.   Gigamon Inc.
Cardtronics Inc.   National CineMedia, Inc.
Consolidated Communications Holdings, Inc.   RingCentral, Inc.
    Vonage Holdings Corporation

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        The compensation committee did not apply specific benchmarking parameters that formed the basis for any of the named executive officers' employment agreements. Rather, the compensation committee incorporated the competitive market data received from Compensia, including as to the compensation paid by the peer groups described above, into the compensation committee's total mix of information (including its members' general business and industry knowledge and experience and its evaluation of each named executive officer's job performance) in establishing what the compensation committee believed to be reasonable and competitive variable elements of each named executive officer's compensation package.

Elements of 2018 Executive Compensation

        For 2018, the principal components of compensation for our named executive officers were:

        A summary of each element of our 2018 compensation program is set forth below. We believe that each element complements the others and that together they serve to achieve our compensation objectives.

        We provide competitive base salaries to attract and retain high-performing executive talent. We believe that a competitive base salary is an important component of compensation, as it provides a degree of financial stability for executives. The base salary level of each named executive officer is generally determined based on the responsibilities performed by such officer, his or her experience, overall effectiveness and demonstrated leadership ability, the performance expectations set for such officer, and competitive market factors. Messrs. Gardner and Graffam did not receive a base salary increase with respect to 2018. In recognition of the favorable 2018 performance of Mr. Niles of his duties as General Counsel of Ascent and taking into account cost-of-living adjustments, with respect to 2018, Mr. Niles received a $10,000 increase in his base salary to $460,000 for 2018. The compensation committee later increased Mr. Niles' 2018 base salary to $500,000, effective April 1, 2018, in connection with his appointment as Chief Executive Officer of Ascent. Mr. Fitzgerald received a base salary of $825,000 under his former employment agreement, which established his compensation as our Chairman of the Board and Chief Executive Officer prior to its expiration on March 31, 2018. In connection with the expiration of his employment agreement, the Ascent board of directors appointed Mr. Fitzgerald non-executive Chairman of the Board and approved an annual cash retainer of $282,500 (annualized) and certain performance equity awards his continued service on our Board.

        Bonuses: Performance-Based and Other.    The compensation committee adopted performance-based bonus programs for 2018 for Messrs. Niles, Gardner and Graffam. Mr. Niles' performance-based bonus would be determined based on an evaluation of his performance against certain key performance indicators ("KPIs") below. Mr. Gardner's employment agreement provides that 80% of his performance-based bonus was subject to achieving quantitative financial objectives, which were as follows for 2018: (i) Pre-SAC Adjusted EBITDA (which is Adjusted EBITDA as defined in our Annual Report on Form 10-K for the year ended December 31, 2017 (the "2017 Form 10-K"), including moves costs and licensing fees but excluding subscriber acquisition costs and the related revenue of LiveWatch Security, LLC ("LiveWatch") and bonus accruals), for 2018 of approximately $331.358 million

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(weighted 25%), (ii) recurring monthly revenue ("RMR") created of approximately $6.843 million for 2018 (weighted 25%), (iii) account creation cost multiple at or below 33.3x for 2018 (weighted 25%) and (iv) RMR attrition for 2018 at or below 12.0% (weighted 25.0%) (collectively, the "Quantitative Objectives"). The remaining 20% of Mr. Gardner's performance-based bonus would be determined based on an evaluation of his performance against certain KPIs below. For Mr. Graffam, 90% of his performance-based bonus was subject to achieving the Quantitative Objectives and the remaining 10% would be determined based on an evaluation of his performance against certain KPIs below.

        Messrs. Niles, Gardner and Graffam's target and maximum bonus amount for 2018 was determined by the committee taking into account each named executive officer's applicable employment agreement and was as follows: Mr. Niles: $375,000, Mr. Gardner: $945,000 and Mr. Graffam $219,000. Only the Pre-SAC Adjusted EBITDA Quantitative Objective was met with respect to the awards of Mr. Gardner and Mr. Graffam. In January 2019, the compensation committee determined, in its sole discretion, the actual portion of Messrs. Niles, Gardner and Graffam's target (which was his maximum) bonus amount that was payable under the program, after taking into account each individual's personal performance over the year based on a set of KPIs adopted for Messrs. Niles,

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Gardner and Graffam with respect to 2018. The KPIs considered for Messrs. Niles, Gardner and Graffam were as follows:

Name
  KPIs
William E. Niles  

Provide sound and prudent advice to the Chairman of the Board, the Board and its constituent committees on all legal and material business matters

   

Pursue objectives, strategies and opportunities consistent with improving our near-term and long-term financial performance which serves to enhance shareholder value

   

Participate in all material corporate development activities including leading the negotiation of the Monitronics licensing agreement and working with constituent parties in identifying, evaluating and executing other strategic transactions, to enhance shareholder value

   

Support the Monitronics Chief Executive Officer and management team in their efforts to drive improvements in the key financial performance metrics of Monitronics

   

Manage Ascent and Monitronics' litigation portfolio and corporate secretarial function

   

Collaborate with Ascent's Chief Financial Officer regarding SEC reporting compliance, debt covenant compliance and refinancing solutions for Monitronics

Jeffery R. Gardner

 

Deliver solid gross customer gains across all channels, consistent with the 2018 budget plan

   

Manage consolidation of LiveWatch and Monitronics' direct sales platforms and drive efficient unit growth consistent with 2018 budget

   

Stabilize dealer channel through new customer gains

   

Effectively manage Monitronics' rebranding efforts and develop a transformative marketing and sales plan to drive revenue growth

   

Collaborate with Chief Financial Officer in the execution of GreenSky consumer financing initiative

   

Create and implement customer retention strategy to improve RMR attrition and unit attrition

   

Support Chief Financial Officer in refinancing of Monitronics' debt; with primarily focus on managing operational performance and positioning the business to show improvements to performance metrics

Fred A. Graffam III

 

Partner with Ascent's Chief Executive Officer in executing the refinancing strategy

   

Successfully execute on delivering accurate and timely SEC filings

   

Lead setting cost control goals for the team

   

Act as a strategic leader in the execution of GreenSky consumer financing initiative

   

Lead investor relations messaging, strategy and execution through a challenging financial year

        After evaluating Messrs. Niles, Gardner and Graffam's performance, including Mr. Niles' performance as both General Counsel and Chief Executive Officer, over the year and taking into account the aggregate amount of his respective compensation outside of the program, the compensation committee determined the appropriate blend of compensation components for each of

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these named executive officers and exercised its discretionary authority to determine the amount payable to each named executive officer who participated in the program for 2018. The compensation committee also exercised its discretionary authority to pay the bonus amount payable to each such named executive officer in cash. The bonus for each named executive officer was paid as follows:

Name
  Target/ Maximum
Bonus
  Percentage of
Target/Maximum
Bonus Payable
  Total
Discretionary
Bonus
  Cash Portion of
Total Bonus
 

William E. Niles

  $ 375,000     100 % $ 25,000   $ 400,000  

Jeffery R. Gardner

  $ 945,000     13.86 % $   $ 131,000  

Fred A. Graffam III

  $ 219,000     41.96 % $   $ 91,884  

William R. Fitzgerald(1)

  $     % $   $  

(1)
Mr. Fitzgerald did not receive any bonus payment for 2018. For more information on these awards, see "Summary Compensation Table" and "Grant of Plan-Based Awards" below.

        Monitronics Plan Awards.    In 2017, Monitronics adopted the Monitronics International, Inc. 2017 Cash Incentive Plan (the "Monitronics Plan") to encourage key employees to stay with the Company and to increase their personal interest in the continued success and progress of the Company. The Monitronics Plan provides for the grant of phantom units that are valued based on our Series A common stock and are payable in cash on each vesting date. Consistent with the Monitronics Plan's purpose, in March 2018, the compensation committee granted an additional incentive award to Mr. Graffam in the form of 61,141 phantom units with an aggregate value of $225,000 (the "CFO performance award") under the Monitronics Plan, with each unit equal to the value of one share of Ascent's Series A common stock. On the settlement date, which will be no later than fifteen days following the 20th trading day following the filing date of Ascent's Annual Report on Form 10-K in each relevant calendar year, the fair market value of the phantom units that are earned by Mr. Graffam, as determined by the compensation committee, shall be paid to Mr. Graffam in cash. The CFO performance award was divided into three tranches, with each tranche subject to the satisfaction of annual performance measures to be established by the compensation committee annually. In order for Mr. Graffam to earn any of the first tranche of the CFO performance award, Monitronics had to achieve Pre-SAC Adjusted EBITDA (as defined above) of at least 98.5% of $331.358 million, or $326.388 million, during 2018. In January 2019, the compensation committee determined that 15,285 phantom units from the first tranche of the CFO performance award had been earned by Mr. Graffam, that will be paid in cash on the settlement date. The unearned portion of the first tranche of CFO performance award was forfeited.

        Consistent with the terms of his employment agreement, in March 2018, Mr. Graffam received an additional award under the Monitronics Plan of 61,242 phantom units with an aggregate value of $225,000 (the "CFO service award"). The CFO service award is payable in cash and vests in three equal annual installments beginning on March 29, 2019, subject to his employment with the Company on each vesting date. On the settlement date, the fair market value of the phantom units that vest shall be paid to Mr. Graffam in cash. In connection with the Merger, the phantom units were adjusted to cover the value of our (post-Merger) common stock.

        Equity Incentive Compensation.    Consistent with our compensation philosophy, we seek to align the interests of our named executive officers with those of our stockholders by awarding equity-based incentive compensation, ensuring that our executives have a continuing stake in the long-term success of our Company and our subsidiaries. Accordingly, the compensation committee believes that an executive's overall mix of compensation should be weighted more heavily toward equity-based incentives.

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        In 2018, Ascent maintained the Ascent Capital Group, Inc. 2015 Omnibus Incentive Plan (the "Ascent Incentive Plan"), which provided for the grant of a variety of incentive awards, including non-qualified stock options, SARs, restricted shares, restricted stock units, cash awards and performance awards and are administered by Ascent's compensation committee (other than with respect to awards made to nonemployee directors under the Ascent Incentive Plan, which are administered by the full Ascent board of directors). Our executives historically were granted stock options and awards of restricted stock in preference to other awards because of Ascent's belief that options and restricted shares better promote retention of key employees through the continuing, long-term nature of an equity investment. It was the policy of the compensation committee that stock options be awarded with an exercise price equal to fair market value on the date of grant, measured by reference to the closing sale price on the grant date.

        In 2015, the compensation committee began granting awards of performance-based restricted stock units ("performance RSUs" or "PRSUs") under the Ascent Incentive Plan that may be earned based on our achievement of KPIs selected by the committee. If the performance RSUs are not earned after the first performance period prescribed in the applicable award agreement, the applicable award agreement may provide that such unearned performance RSUs will be available to be earned in one or more subsequent years subject to the applicable performance criteria selected by the compensation committee. To the extent earned, the performance RSUs would have been subject to a back-loaded time-vesting condition over a three-year period and could have been settled in cash, shares of Ascent's Series A common stock or a combination of the foregoing. These awards are meant to encourage executives to remain with our Company over the long-term and to better align their interests with those of our stockholders.

        In March 2018, the compensation committee approved the following performance RSU awards: for Mr. Niles, the 50,000 performance RSUs with a grant date fair value of $184,000 (the "CEO PRSUs"); and for Mr. Gardner, (i) the 271,739 performance RSUs with a grant date fair value of $1.0 million (the "2018 Gardner PRSUs") and (ii) the 135,870 performance RSUs with a grant date fair value of $500,000 (the "2018-2020 Gardner PRSUs"), which in each case was the maximum number of performance RSUs that could be earned under the award. Mr. Niles received the CEO PRSUs pursuant to his appointment as our Chief Executive Officer. Mr. Gardner received his 2018 Gardner PRSUs and 2018-2020 Gardner PRSUs pursuant to his employment agreement. See "Employment Agreements." In March 2018, the compensation committee also approved, for Mr. Fitzgerald, the Chairman PRSUs (as defined below) in connection with his continued service as non-executive Chairman of the Board. See "Compensation of Directors."

        The CEO PRSUs were divided between (i) 25,000 PRSUs with a performance condition related to the capital structure of the Company and (ii) 25,000 additional PRSUs contingent upon the successful completion of a material transaction that enhances stockholder value, as determined by the compensation committee.

        In order for Mr. Gardner to earn any of the 2018 Gardner PRSUs, our Company had to achieve the Quantitative Objectives described in "Performance Based Bonuses." In April 2019, the compensation committee determined that 25% of the 2018 Gardner PRSUs had been earned by Mr. Gardner. The earned performance RSUs accelerated and vested in connection with the Merger. In order for Mr. Gardner to earn all of the 2018-2020 Gardner RSUs, our Company has to achieve Pre-SAC Adjusted EBITDA, net of subscriber acquisition costs and related revenues, of at least 95% of $375.39 million, or $356.62 million, during the three year period that commenced on January 1, 2018 and ends on December 31, 2020.

        In connection with the Merger, the compensation committee determined that the applicable performance conditions were not met, thus resulting in the forfeiture of the CEO PRSUs and the 2018-2020 Gardner PRSUs.

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        Other Stock Awards.    In March 2018, the compensation committee approved an award of 50,000 restricted stock units, with a grant date fair value of $184,000, for Mr. Niles that vest ratably over four quarters commencing April 1, 2018 in connection with his appointment as our Chief Executive Officer (the "CEO RSUs"). In March 2018, the compensation committee also approved, for Mr. Fitzgerald, the Chairman RSA (as defined below) in connection with his continued service as non-executive Chairman of the Board. See "Compensation of Directors." The CEO RSUs and Chairman RSA accelerated and vested in full in connection with the Merger.

        Severance Benefits.    Effective April 1, 2018, Mr. Fitzgerald's employment agreement pursuant to which, among other things, he served as Ascent's Chairman of the Board and Chief Executive Officer, expired in accordance with its terms, and Ascent entered into a severance agreement and general release. Mr. Fitzgerald received the following payments and benefits pursuant to his severance agreement: (i) a $2,887,500 lump sum severance payment, (ii) a payment of $5,000 with respect to a tax preparation assistance, (iii) reimbursement for continued health care coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") ending on the earlier of the 24-month anniversary of March 31, 2018 and the expiration of the coverage period specified in COBRA, and (iv) a payment of $95,194 with respect to accrued but unused vacation and personal holidays.

        Perquisites and Personal Benefits.    For the year ended December 31, 2018, the limited perquisites and personal benefits provided to our named executive officers consisted generally of term life and accidental death & dismemberment insurance premiums, 401(k) matching contributions and a reimbursement from our Company relating to health insurance premiums paid by each such individual. We offer our named executive officers other benefits that are also available on the same basis to all of our salaried employees, such as medical and disability insurance premiums.

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SUMMARY COMPENSATION TABLE

Summary Compensation Table

        The following table sets forth information regarding the compensation paid to our named executive officers during the years ended December 31, 2018, 2017 and 2016 for services to us and Ascent.

Name and Principal Position
  Year   Salary
($)
  Bonus
($)
  Stock
Awards
($)(1)
  Option
Awards
($)
  Non-Equity
Incentive
Plan
Compensation
($)
  All
Other
Compensation
($)
  Total
($)
 

William E. Niles

    2018     486,923 (2)   25,000 (3)   368,000         375,000     14,421 (4)(5)(6)   1,269,344  

Chief Executive Officer,

    2017     449,616     270,000 (7)               13,265 (4)(5)(6)   732,881  

General Counsel and

    2016     439,994                 235,000     12,842 (4)(5)(6)   687,836  

Secretary

                                                 

Jeffery R. Gardner

   
2018
   
540,000
   
   
1,500,000
   
   
131,000
   
11,022

(4)(6)
 
2,182,022
 

Executive Vice President

    2017     540,000         1,500,000             10,139 (4)(6)   2,050,139  

    2016     525,388         1,500,000         400,000     9,735 (4)(6)   2,435,123  

Fred A. Graffam III

   
2018
   
365,000
   
   
450,000
   
   
91,884
   
5,581

(4)(6)
 
912,465
 

Senior Vice President and

    2017     84,231 (8)   50,538 (9)   150,000             37,959 (4)(10)   322,728  

Chief Financial Officer

                                                 

William R. Fitzgerald

   
2018
   
237,981

(11)
 
   
   
   
   
3,692,718

(5)(6)(12)
 
3,930,699
 

Chairman and former

    2017     825,000                     18,062 (4)(5)(6)   843,062  

Chief Executive Officer

    2016     825,379                 425,000     18,898 (4)(5)(6)   1,269,277  

(1)
The aggregate grant date fair value of Ascent restricted share awards and performance-based restricted stock unit awards and Monitronics phantom unit awards has been computed in accordance with FASB ASC Topic 718, but (pursuant to SEC regulations) without reduction for estimated forfeitures. For a description of the assumptions applied in these calculations, see Note 14 to our consolidated financial statements for the year ended December 31, 2018 (which are included in Ascent's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the "2018 Form 10-K")). With respect to Messrs. Gardner and Niles' performance RSU awards and Mr. Graffam's CFO performance award, the amounts included in the Stock Awards column reflect the grant date fair value of the maximum number of performance RSUs or, in Mr. Graffam's case, phantom units that may be earned.

(2)
Reflects Mr. Niles' base salary as our General Counsel and Secretary through March 31, 2018 and his base salary as our Chief Executive Officer, General Counsel and Secretary on and after April 1, 2018.

(3)
Represents a discretionary bonus in the amount of $25,000 for Mr. Niles.

(4)
Includes the following term life and AD&D insurance premiums:
 
  Amounts ($)  
Name
  2018   2017   2016  

William E. Niles

    1,005     771     754  

Jeffery R. Gardner

    45     45     45  

Fred A. Graffam III

    45     11     N/A  

William R. Fitzgerald

        1,116     1,116  
(5)
Includes the following matching contributions to the applicable named executive officer's 401(k) account:
 
  Amounts ($)  
Name
  2018   2017   2016  

William E. Niles

    2,438     2,400     2,650  

William R. Fitzgerald

    2,650     2,650     2,650  
(6)
Includes a reimbursement paid to Messrs. Niles, Gardner and Graffam with respect to health insurance premiums paid by Messrs. Niles and Gardner for 2016 and 2017 and by Mr. Graffam for 2018 and a reimbursement paid to Mr. Fitzgerald for continued health care coverage pursuant to COBRA.

(7)
Represents a discretionary bonus in the amount of $270,000 for Mr. Niles.

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(8)
Prorated for Mr. Graffam based on length of employment in 2017.

(9)
Represents a one-time bonus amount paid to Mr. Graffam pursuant to his employment agreement. See "Employment Agreements" below.

(10)
Includes $37,948 in relocation expenses reimbursed to Mr. Graffam.

(11)
Prorated for Mr. Fitzgerald based on length of employment in 2018. Mr. Fitzgerald received an annual cash retainer for his service as non-executive Chairman of the Board, as disclosed under "All Other Compensation."

(12)
Includes a $2,887,500 lump sum severance payment, a payment of $5,000 with respect to tax preparation assistance, and a payment of $95,194 with respect to accrued but unused vacation and personal holidays pursuant to the severance agreement and general release entered into between Mr. Fitzgerald and Ascent. Also includes, with respect to Mr. Fitzgerald's service as non-executive Chairman of the Board, aggregate payments of (i) $211,875, with respect to the prorated portion of his annual cash retainer fee, (ii) $88,125, representing the grant date fair value of the Chairman RSA, and (iii) $400,000, representing the grant date fair value of the Chairman PRSUs. The aggregate grant date fair value of Mr. Fitzgerald's Chairman RSA and Chairman PRSUs has been computed in accordance with FASB ASC Topic 718, but (pursuant to SEC regulations) without reduction for estimated forfeitures. For a description of the assumptions applied in these calculations, see Note 14 to Ascent's consolidated financial statements for the year ended December 31, 2018 (which are included in Ascent's 2018 Form 10-K).

Employment Agreements

        Each of Messrs. Niles, Gardner, Graffam and Fitzgerald entered into an employment agreement with Ascent, which agreement, in each case, sets forth the respective terms and conditions of the applicable named executive officer's employment. In April 2018, Ascent entered into an amended and restated employment agreement with Mr. Niles in connection with his employment as Chief Executive Officer, General Counsel and Secretary. Mr. Fitzgerald's employment agreement expired in March 2018 in accordance with its terms, and Ascent entered into a severance agreement and general release and director compensation arrangements with him in connection with his continued service as non-executive Chairman of the Board. See "Compensation Discussion and Analysis—Elements of 2018 Executive Compensation—Severance Benefits" and "Compensation of Directors."

        The material terms of the employment agreements of Messrs. Niles, Gardner, Graffam and Fitzgerald in effect during 2018 are described below.

        Term.    The term of Mr. Niles' former employment agreement was nine years, commencing effective as of March 1, 2011 and ending on March 1, 2020. The term of Mr. Niles' amended and restated employment agreement is approximately two years, commencing effective as of April 1, 2018 and ending on February 28, 2020. The term of Mr. Gardner's employment agreement is five years, commencing effective as of September 10, 2015 and ending on September 9, 2020. The term of Mr. Graffam's employment is three years, commencing effective as of October 9, 2017 and ending on October 9, 2020. The term of Mr. Fitzgerald's employment agreement was five years, commencing effective as of January 1, 2013 and ending on December 31, 2017, which agreement was extended through March 31, 2018 and expired in accordance with its terms.

        Base Salary.    Pursuant to their respective employment agreements, each of our named executive officers receives (or in Mr. Fitzgerald's case, received) a base salary that is (or was) subject to an annual review for increase by the compensation committee. The 2018 base salaries for each of our named executive officers are set forth in the "Summary Compensation Table" above. For 2018, Mr. Niles' base salary $460,000 until he was appointed Chief Executive Officer, effective April 1, 2018, at which time his base salary increased to $500,000 under his amended and restated employment agreement. Mr. Fitzgerald received a base salary of $825,000 under his former employment agreement, which established his compensation as Ascent's Chairman of the Board and Chief Executive Officer prior to its expiration on March 31, 2018. In connection with the expiration of his employment agreement, Ascent's Board appointed Mr. Fitzgerald non-executive Chairman of the Board and approved an annual cash retainer of $282,500 (annualized). See "Compensation of Directors."

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        Bonus.    Each of our named executive officers other than Mr. Fitzgerald is eligible to receive a bonus in a certain range based on percentages of the applicable named executive officer's base salary (75% in the case of Mr. Niles, 75% to 175% in the case of Mr. Gardner and 60% in the case of Mr. Graffam). Each named executive officer's entitlement to receive such bonus, and the actual amount thereof, is determined by the compensation committee in its sole discretion based on the applicable named executive officer's achievement of certain performance criteria as the compensation committee may establish in its sole discretion.

        Monitronics Plan Awards.    Commencing with the 2018 fiscal year, Mr. Graffam is eligible to receive an annual incentive award of equity or cash with a fair value of $450,000 under the Ascent Incentive Plan or the Monitronics Plan, in our sole discretion. A portion of Mr. Graffam's annual incentive award is subject to the satisfaction of performance criteria to be determined by the compensation committee. For 2018, Mr. Graffam's annual incentive award consisted of the CFO performance award and the CFO service award that each had an aggregate value of $225,000. See "Compensation Discussion and Analysis—Elements of 2018 Executive Compensation—Monitronics Plan Awards."

        Equity Incentive Awards.    Mr. Niles' prior employment agreement as Executive Vice President, General Counsel and Secretary provided for equity grants made in prior years in connection with his entrance into his original employment agreement in 2011. As part of the consideration for Mr. Niles' entry into an amended employment agreement in July 2015 as Executive Vice President, General Counsel and Secretary, the compensation committee granted Mr. Niles an award of 57,485 performance RSUs with respect to shares of Ascent's Series A common stock under the Ascent Incentive Plan. In March 2016, the compensation committee determined that Mr. Niles' performance RSUs were earned after the 2015 performance period and, as a result, would vest in 20%, 30% and 50% tranches on a quarterly basis during the one-year periods beginning on March 1, 2017, 2018 and 2019, respectively. As part of the consideration for Mr. Niles' entry into his amended and restated employment agreement in April 2018 as Chief Executive Officer, General Counsel and Secretary, the compensation committee granted Mr. Niles 50,000 restricted stock units and the CEO PRSUs. Under his employment agreement, Mr. Gardner will be eligible to receive an annual $1.5 million grant of performance RSUs under the Ascent Incentive Plan. One-third of Mr. Gardner's annual performance RSU award, or $500,000, may be earned based on satisfaction, as determined by the compensation committee, of certain quantitative performance criteria for a 36-month performance period, and if earned, such performance RSUs will vest immediately. Two-thirds of Mr. Gardner's annual performance RSU award, or $1 million, may be earned based on satisfaction, as determined by the compensation committee, of certain quantitative performance criteria for a 12-month performance period, and if earned, such earned performance RSUs will vest on a quarterly basis during the two year period beginning on January 1 of the year following the expiration of the respective performance period.

        Mr. Graffam's employment agreement provided for an initial $150,000 grant of restricted shares of Ascent's Series A common stock that will vest in 33%, 33% and 34% tranches under the Ascent Incentive Plan on each of the first three anniversaries of the commencement date of his employment.

        See "Compensation Discussion and Analysis—Elements of 2018 Executive Compensation-Equity Incentive Compensation," "Grants of Plan-based Awards" and "Outstanding Equity Awards at Fiscal Year-End."

        Termination.    The terms and conditions of compensation payable upon termination of the employment of each named executive officer (excluding Mr. Fitzgerald) are summarized in "Potential Payments Upon Termination or Change in Control" below.

        2019 Niles Agreement.    On February 1, 2019, Mr. Niles entered into an amended and restated employment agreement (the "2019 Niles Agreement") with the Company, effective as of January 1,

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2019, which (i) increases his annual base salary from $500,000 to $600,000, (ii) increases his target bonus from 75% to 100% of his annual base salary and (iii) clarifies that a termination after a Change in Control (as defined in the 2019 Niles Agreement) is treated as a Termination Without Cause (as defined in the 2019 Niles Agreement). In addition, if any payments or benefits that Mr. Niles has the right to receive in connection with a change in control would constitute a "parachute payment" under Section 280G of the Code that would be subject to excise tax under Section 4999 of the Code, then the 2019 Niles Agreement provides that such payments and benefits will either be reduced to avoid the excise tax or paid in full, whichever produces the better net after-tax result. All of the other terms of Mr. Niles' employment agreement, as described herein, remain in effect.

        As required under and calculated in accordance with Item 402(u) of Regulation S-K (the "Pay Ratio Rule"), we have determined a reasonable estimate of the pay ratio for 2018 of our CEO and the median of the annual total compensation of all of our employees was 41:1. This ratio was calculated as described below using annual total compensation of Mr. Niles, our Chief Executive Officer on December 31, 2018, as reported in the Total column of our 2018 Summary Compensation Table, of $1,269,344 compared to the median of the annual total compensation of all employees excluding Mr. Niles for 2018 of $31,218.

        We note that our median employee did not receive any equity awards during 2018 and that our calculation of our median employee's compensation does not include elements of our employee compensation package, such as health insurance and other benefits, that are generally applicable to all employees. We also did not annualize any employee's compensation or apply any adjustments, including cost-of-living adjustments to identify our median employee or to calculate our median employee's annual total compensation for 2018.

        As previously reported in Ascent's proxy statement for its 2018 annual meeting of stockholders (the "2018 Proxy Statement"), we identified the median employee by examining 2017 income reported in Box 5 of the Form W-2s of persons employed by Ascent and its subsidiaries, including Monitronics, on December 31, 2017. Under the Pay Ratio Rule, the median employee may be identified once every three years if there has been no change in a company's employee population or compensation arrangements that would significantly impact its pay ratio disclosure, and we believe there were such no such changes for 2018 that significantly affected our pay ratio disclosure. However, because we no longer employ the median employee identified last year, we have instead identified another employee whose 2017 income, as reported in Box 5 of Form W-2, was substantially similar to that of our original median employee. As a result of our methodology for determining the pay ratio, which is described in the 2018 Proxy Statement, our pay ratio may not be comparable to the pay ratios of other companies in our industry or in other industries because the SEC rules allow companies to use estimates, assumptions, adjustments and unique definitions of compensation to identify the median employee that differ from those that we used to determine our pay ratio.

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Grants of Plan-Based Awards

        The following table contains information regarding plan-based incentive awards granted during the year ended December 31, 2018 to our named executive officers.

 
   
  Estimated Future Payouts
under Non-Equity Incentive
Plan Awards
  Estimated Future Payouts
under Equity Incentive Plan
Awards
  All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
  Grant Date
Fair Value
of Stock
and
Option
Awards
($)
 
Name
  Grant
Date
  Threshold
($)(1)
  Target
($)(2)
  Maximum
($)(2)
  Threshold
(#)(3)
  Target
(#)(4)
  Maximum
(#)(4)
 

William E. Niles

    3/29/2018 (5)       375,000     375,000                      

    3/30/2018 (6)                           50,000     184,000  

    3/30/2018 (7)                   25,000     25,000         92,000  

    3/30/2018 (7)                   25,000     25,000         92,000  

Jeffery R. Gardner

    3/29/2018 (5)       945,000     945,000                      

    3/30/2018 (8)                   271,739     271,739         1,000,000  

    3/30/2018 (8)                   135,870     135,870         500,000  

Fred A. Graffam III

    3/29/2018 (5)       219,000     219,000                      

    3/30/2018 (9)                   61,141     61,141         225,000  

    3/30/2018 (9)                           61,142     225,000  

William R. Fitzgerald

    3/30/2018 (10)                           23,947     88,125  

    3/30/2018 (10)                   54,348     54,348         200,000  

    3/30/2018 (10)                   54,348     54,348         200,000  

(1)
Our 2018 performance-based bonus program did not provide for a threshold bonus amount.

(2)
Represents the target and maximum bonus amounts payable under the performance-based bonus program, as determined by the compensation committee in accordance with the terms of each named executive officer's employment agreement. See "Compensation Discussion and Analysis—Elements of 2018 Executive Compensation—Performance-Based Bonuses."

(3)
The CEO PRSUs, 2018 Gardner PRSUs, 2018-2020 Gardner PRSUs, CFO performance award and Chairman PRSUs did not provide for a threshold amount.

(4)
Represents the target and maximum number of each of (i) CEO PRSUs that could be earned by Mr. Niles, (ii) performance RSUs that could be earned by Mr. Gardner, (iii) the CFO performance award that could be earned by Mr. Graffam and (iv) the Chairman PRSUs that could be earned by Mr. Fitzgerald, as determined by the compensation committee. In January 2019, the compensation committee determined that Mr. Graffam had earned 15,285 phantom units with respect to the first tranche of the CFO performance award, which will result in a cash payment to be made to Mr. Graffam on the settlement date as described above. In April 2019, the compensation committee determined that 25% of the 2018 Gardner PRSUs had been earned by Mr. Gardner. See "Compensation Discussion and Analysis—Elements of 2018 Executive Compensation—Equity Incentive Compensation."

(5)
Reflects the date on which the compensation committee established the terms of the 2018 performance-based bonus program, as described under "Compensation Discussion and Analysis—Elements of 2018 Executive Compensation—Bonuses: Performance-Based and Other."

(6)
Represents the date on which the compensation committee established the terms of Mr. Niles' CEO RSUs, as described under "Compensation Discussion and Analysis—Elements of 2018 Executive Compensation—Equity Incentive Compensation—Other Stock Awards."

(7)
Represents the date on which the compensation committee established the terms of Mr. Niles' CEO PRSUs, as described under "Compensation Discussion and Analysis—Elements of 2018 Executive Compensation—Equity Incentive Compensation."

(8)
Represents the date on which the compensation committee approved the grant of the 2018 Gardner PRSUs and the 2018-2020 Gardner PRSUs pursuant to his employment agreement. See "Compensation Discussion and Analysis—Elements of 2018 Executive Compensation—Equity Incentive Compensation."

(9)
Reflects the date on which the compensation committee approved the grant of Mr. Graffam's CFO performance award and CFO service award, as described under "Compensation Discussion and Analysis—Elements of 2018 Executive Compensation—Monitronics Plan Awards."

(10)
Represents the date on which the compensation committee established the terms of Mr. Fitzgerald's Chairman RSA and Chairman PRSUs, as described under "Compensation of Directors."

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        The following table contains information regarding unexercised options to acquire shares of Ascent's common stock, and unvested PRSU, RSU, restricted stock and phantom stock unit awards, which were outstanding as of December 31, 2018 and held by our named executive officers.

 
   
   
   
   
  Stock Awards  
 
   
   
   
   
   
   
   
  Equity
Incentive
Plan
Awards:
Market
or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)
 
 
   
   
   
   
   
   
  Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
 
 
  Option Awards    
  Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)
 
Name
  Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
  Option
Exercise
Price
($)
  Option
Expiration
Date
  Number of
Shares or
Units of
Stock
That Have
Not Vested
(#)
 

William E. Niles

                                                 

Option Award

                                                 

Series A

    17,640         25.09     1/16/2019                  

PRSU Awards

                                                 

Series A

                    33,055 (1)   12,891          

Series A

                            25,000 (2)   9,750  

Series A

                            25,000 (3)   9,750  

RSU Award

                                                 

Series A

                    25,000 (4)   9,750          

Jeffery R. Gardner

   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

PRSU Awards

                                                 

Series A

                    4,845 (5)   1,890          

Series A

                            35,211 (6)   13,732  

Series A

                            36,231 (7)   14,130  

Series A

                            271,739 (8)   105,978  

Series A

                            135,870 (9)   52,989  

Fred A. Graffam III

   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Restricted Stock Award

                                                 

Series A

                    8,504 (10)   3,317          

Phantom Stock Unit Awards

                                                 

Series A

                            61,141 (11)   23,845  

Series A

                    61,142 (12)   23,845          

William R. Fitzgerald

   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Option Award

                                                 

Series A

    380,460         61.21     11/30/2019                  

Restricted Stock Award

                                                 

Series A

                    17,961 (13)   7,005          

PRSU Awards

                                                 

Series A

                            54,348 (14)   21,196  

Series A

                            54,348 (15)   21,196  

(1)
Represents the number of performance RSUs Mr. Niles had earned based on the compensation committee's assessment of performance in 2015 and that remain subject to the following time-vesting schedule (a) 7.5% of the performance RSUs will vest on February 28, 2019 and (b) 50% of the performance RSUs will vest in equal installments on May 31, 2019, August 31, 2019, November 30, 2019 and February 28, 2020, in each case subject to Mr. Niles' employment with our company on the vesting date. 15% of the performance RSUs had vested during 2017 and 27.5% of the performance RSUs had vested during 2018.

(2)
Represents the CEO PRSUs that may be earned subject to a performance condition related to the capital structure of Ascent. The units were scheduled to vest when, and if, the compensation committee is satisfied that the condition has been met. The CEO PRSUs were forfeited in connection with the Merger.

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(3)
Represents the CEO PRSUs that may be earned contingent upon the successful completion of a material transaction that enhances stockholder value. The units were scheduled to vest when, and if, the compensation committee is satisfied that the condition has been met. The CEO PRSUs were forfeited in connection with the Merger.

(4)
Represents the CEO RSUs that were subject to the following time-vesting schedule (a) 25% of the CEO RSUs will vest on January 1, 2019 and (b) 25% of the CEO RSUs will vest on April 1, 2019. 50% of the 50,000 CEO RSUs vested in 2018. The CEO RSUs vested in full in connection with the Merger.

(5)
The amount represented was scheduled to vest on December 31, 2018 but did not do so until 2019.

(6)
Represents the target and maximum number of PRSUs that may be earned by Mr. Gardner based on our 2016-2018 Adjusted EBITDA (the "2016-2018 Gardner PRSUs"). In January 2019, the compensation committee determined the performance requirements were not met and, accordingly, all of the 2016-2018 Gardner PRSUs were cancelled with no payment.

(7)
Represents the target and maximum number of PRSUs that may be earned by Mr. Gardner on March 31, 2020 based on our 2017-2019 Adjusted EBITDA (the "2017-2019 Gardner PRSUs"). The 2017-2019 Gardner PRSUs were forfeited in connection with the Merger.

(8)
Represents the target and maximum number of 2018 Gardner PRSUs that may be earned based on our performance compared to the Quantitative Objectives during 2018. In April 2019, the compensation committee determined that 25% of this award had been earned and will vest in eight equal quarterly installments beginning on March 31, 2019; these vested in full in connection with the Merger. The unearned portion of the 2018 Gardner PRSUs was forfeited. See "Compensation Discussion and Analysis—Elements of 2018 Executive Compensation—Equity Incentive Compensation."

(9)
Represents the target and maximum number of 2018-2020 Gardner PRSUs that may be earned by Mr. Gardner on March 31, 2021 based on our 2018-2020 Adjusted EBITDA. See "Compensation Discussion and Analysis—Elements of 2018 Executive Compensation—Equity Incentive Compensation." The 2018-2020 Gardner PRSUs were forfeited in connection with the Merger.

(10)
Represents the grant of restricted shares pursuant to Mr. Graffam's employment agreement that remain subject to the following time-vesting schedule (a) 33% of the restricted shares will vest on October 8, 2019 and (b) 33% of the restricted shares will vest on October 8, 2020, in each case subject to Mr. Graffam's employment with our company on the vesting date. 33% of the 12,755 restricted shares that were originally granted had vested on October 8, 2018. The remaining restricted shares vested in connection with the Merger.

(11)
Represents the target and maximum number of phantom units that may be earned by Mr. Graffam under the CFO performance award. In January 2019, the compensation committee determined that Mr. Graffam had earned 15,285 phantom units with respect to the first tranche of the CFO performance award, which will result in a cash payment to be made to Mr. Graffam on the settlement date as described above. See "Compensation Discussion and Analysis—Elements of 2018 Executive Compensation—Monitronics Plan Awards."

(12)
Represents the phantom units under the CFO service award that vest in three equal annual installments beginning on March 29, 2019, subject to Mr. Graffam's employment on each vesting date. See "Compensation Discussion and Analysis—Elements of 2018 Executive Compensation—Monitronics Plan Awards."

(13)
Represents the Chairman RSA that remains subject to the following time-vesting schedule (a) 50% of the restricted shares will vest in equal installments on January 1, 2019, April 1, 2019, July 1, 2019 and October 1, 2019 and (b) 25% of the restricted shares will vest in equal installments on January 1, 2020 and April 1, 2020, in each case subject to Mr. Fitzgerald's continued service on our company's Board of Directors on the vesting date. 25% of the 23,947 Chairman RSA vested during 2018. The Chairman RSA vested in full in connection with the Merger.

(14)
Represents the target and maximum number of Chairman PRSUs that may be earned subject to a performance condition related to the capital structure of the Company. The Chairman PRSUs were forfeited in connection with the Merger.

(15)
Represents the target and maximum number of Chairman PRSUs that may be earned contingent upon the successful completion of a material transaction that enhances stockholder value. The Chairman PRSUs were forfeited in connection with the Merger.

        The following table sets forth information regarding the vesting of restricted stock or restricted stock units held by our named executive officers, in each case, during the year ended December 31, 2018. None

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of our named executive officers had any exercises of option awards during the year ended December 31, 2018.

 
  Stock Awards  
Name
  Number of Ascent
Shares Acquired
on Vesting
(#)(1)
  Value Realized
on Vesting
($)
 

William E. Niles

             

Series A

    40,808     103,281  

Jeffery R. Gardner

             

Series A

    19,364     97,827  

Fred A. Graffam III

             

Series A

    4,251     6,525  

William R. Fitzgerald

             

Series A

    22,532     210,554  

(1)
Includes shares withheld in payment of withholding taxes at election of holder.

        Each of the employment agreements of our named executive officers, as in effect on December 31, 2018, and each of our incentive plans provides for rights upon certain termination events, with adjustments to be made to the amounts payable to certain named executive officers if the termination occurs concurrently with or following a change of control of our Company. As of December 31, 2018, all of our named executive officers (other than Mr. Fitzgerald) had employment agreements with our Company, which are described below. This section sets forth the potential payments to Messrs. Niles, Gardner and Graffam if their employment with Ascent had terminated or a change in control had occurred, in each case, as of December 31, 2018, as well as the payments and benefits Mr. Fitzgerald is entitled to receive in connection with the expiration of his employment agreement with our Company. In connection with the expiration of Mr. Fitzgerald's employment agreement, Ascent entered into a severance agreement and general release with him, which is described above in "Compensation Discussion and Analysis—Elements of 2018 Executive Compensation—Severance Benefits."

        Under the employment agreements of Messrs. Niles, Gardner and Graffam, a change of control of Ascent would have resulted in an increase in each such executive's severance, as described under "Termination Without Cause" below.

        If Mr. Niles' employment with our Company or any of our subsidiaries was terminated without cause or by the executive for good reason within 12 months after a change in control, his CEO PRSUs, other performance RSU awards and CEO RSUs would have vested in full on the date of such termination.

        If Mr. Gardner's employment was terminated by our Company without cause or by Mr. Gardner with good reason within 12 months after a change in control, his 2016-2018 Gardner PRSUs, 2017-2019 Gardner PRSUs, 2018 Gardner PRSUs and 2018-2020 Gardner PRSUs would have vested in full on the date of such termination.

        Pursuant to the Monitronics Plan, upon the occurrence of certain approved transactions, a board change or a control purchase (all as defined in the Monitronics Plan), Mr. Graffam's CFO performance award and CFO service award will vest in full.

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        If our Company terminated any of Messrs. Niles, Gardner and Graffam for "Cause," we would have no further liability or obligations under the applicable agreement to such named executive officer other than accrued and unpaid base salary and vacation time and all incurred and unpaid expenses. "Cause" is generally defined to include: breaches of material obligations under the applicable employment agreement; continued failure to perform the applicable named executive officer's duties; material violations of Company policies or applicable laws and regulations; fraud, dishonesty or misrepresentation; gross negligence in the performance of duties; conviction of a felony or crime of moral turpitude; and other misconduct that is materially injurious to our financial condition or business reputation.

        If our Company terminated the employment of Mr. Niles without Cause on December 31, 2018, our Company would become obligated to pay Mr. Niles all accrued and unpaid base salary and vacation time, all approved and unpaid bonus amounts, all incurred and unpaid expenses, as well as a severance payment equal to:

        If Mr. Niles had been terminated without Cause, the CEO PRSUs would have been forfeited, and Mr. Niles' other performance RSUs would have vested on a pro rata basis based on the number of calendar quarters that have elapsed between April 1, 2016 and the date of his termination divided by 16. The CEO RSUs would have become fully vested if Mr. Niles had been terminated without Cause.

        If our Company terminated the employment of Messrs. Gardner or Graffam without Cause on December 31, 2018, our Company would become obligated to pay the applicable named executive officer all accrued and unpaid base salary and vacation time, all approved and unpaid bonus amounts and all incurred and unpaid expenses, as well as a severance payment equal to:

        If Mr. Gardner had been terminated without Cause on December 31, 2018, the 2016-2018 Gardner PRSUs, 2017-2019 Gardner PRSUs, 2018 Gardner PRSUs and 2018-2020 Gardner PRSUs would be forfeited if the compensation committee had not certified that such PRSUs had been earned prior to the date of his termination. If the compensation committee had determined that the 2016-2018 Gardner PRSUs, 2017-2019 Gardner PRSUs, 2018 Gardner PRSUs and 2018-2020 Gardner PRSUs were earned prior to his termination without Cause, the 2018 Gardner PRSUs would vest on a pro rata basis based on the number of calendar quarters that have elapsed between January 1, 2018 and the date of his termination divided by 12, and the 2016-2018 Gardner PRSUs, 2017-2019 Gardner PRSUs,

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and 2018-2020 Gardner PRSUs would vest in full upon a termination of Mr. Gardner's employment without Cause.

        If Mr. Graffam had been terminated without Cause on December 31, 2018, the CFO service award and, assuming Mr. Graffam's achievement of the applicable KPIs, the CFO performance award provide that any unvested portion thereof may vest in the discretion of the committee appointed to administer the Monitronics Plan. With respect to the below table, we have assumed that such committee determined to vest the CFO service award and CFO performance award in full. In addition, Mr. Graffam's restricted stock award vests on a pro rata basis based on the number of calendar quarters that have elapsed between December 21, 2017 and the date of his termination divided by 12.

        Subject to certain notice provisions and our rights with respect to a cure period or a renegotiation period, as applicable, each of Messrs. Niles, Gardner and Graffam may terminate his employment for "Good Reason" and receive the same rights and payments, including the same vesting rights, as if such named executive officer's employment was terminated without Cause. "Good Reason" is defined in each employment agreement to include:

        In the event any of Messrs. Niles, Gardner and Graffam dies or becomes disabled during such named executive officer's term of employment, we become obligated to pay such named executive officer (or his legal representative, as applicable) all accrued and unpaid base salary and vacation time, all approved and unpaid bonus amounts and all incurred and unpaid expenses. In addition, Mr. Niles is entitled to a lump sum amount equal to his annual base salary in effect on the date of termination multiplied by 1.5 and Mr. Gardner is entitled to a lump sum amount equal to his annual base salary in effect on the date of termination.

        In the event Mr. Niles dies or becomes disabled, he would be entitled to full vesting of the CEO PRSUs, Mr. Niles' other performance RSUs and the CEO RSUs. Mr. Gardner would only have been entitled to full vesting of the 2016-2018 Gardner PRSUs, 2017-2019 Gardner PRSUs, 2018 Gardner PRSUs and 2018-2020 Gardner PRSUs if the compensation committee had certified that such PRSUs had been earned prior to his death or disability. In the event Mr. Graffam dies or becomes disabled, he would have been entitled to full vesting of the CFO service award and the CFO performance award.

        Each of the employment agreements of Messrs. Niles, Gardner and Graffam provides that, if (i) we do not offer him a new employment agreement beyond the term of his existing employment agreement or (ii) we do offer him such a new employment agreement but it is generally not as favorable, in all material respects, as his existing employment agreement, then such named executive officer will be deemed terminated without Cause and entitled to the severance benefits described under "Termination Without Cause" above.

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        Pursuant to the terms of the Ascent Incentive Plan, under certain conditions, including the occurrence of certain approved transactions, a board change or a control purchase (all as defined in the Ascent Incentive Plan), options and SARs will become immediately exercisable, the restrictions on restricted shares will lapse and restricted stock units will become fully vested, unless individual agreements state otherwise. At the time an award was granted, the compensation committee determined, and the relevant agreement provided for, any vesting or early termination, upon a holder's termination of employment with our Company, of any unvested options, SARs, restricted stock units or restricted shares, and the period following any such termination during which any vested options, SARs and stock units must be exercised. Unless otherwise provided in the relevant agreement, (1) no option or SAR may be exercised after its scheduled expiration date, (2) if the holder's service terminates by reason of death or disability (as defined in the Ascent Incentive Plan), his or her options or SARs shall remain exercisable for a period of at least one year following such termination (but not later than the scheduled expiration date) and (3) any termination of the holder's service for "cause" (as defined in the Ascent Incentive Plan) will result in the immediate termination of all options, SARs and restricted stock units and the forfeiture of all rights to any restricted shares retained distributions, unpaid dividend equivalents and related cash amounts held by such terminated holder. If a holder's service terminates due to death or disability, options and SARs will become immediately exercisable, the restrictions on restricted shares will lapse and stock units will become fully vested, unless individual agreements state otherwise.

        Pursuant to the terms of the Monitronics Plan, under certain conditions, including the occurrence of certain approved transactions, a board change or a control purchase (all as defined in the Monitronics Plan), phantom units and unpaid dividend equivalents will become vested and any related cash amounts will be adjusted as provided for in the individual agreement, unless individual agreements state otherwise.

        The following table sets forth benefits that would have been payable to Messrs. Niles, Gardner and Graffam if the employment of such named executive officer had been terminated on December 31, 2018 and assumes that all salary, vacation, bonus and expense reimbursement amounts accrued and payable on or before December 31, 2018 had been paid in full as of such date. The amounts provided in the tables with respect to restricted stock, phantom stock, RSUs and performance RSUs are based

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on the closing market price on December 31, 2018, the last trading day of such year, for Ascent's Series A common stock, which was $0.39.

Name
  Voluntary
Termination
  Termination
for Cause
  Termination
Without
Cause or for
Good
Reason
(After a
Change in
Control)
  Termination
Without
Cause or for
Good
Reason
(Without a
Change in
Control)
  Death   Disability  

William E. Niles

                                     

Severance

            2,187,500     1,750,000     750,000     750,000  

PRSUs

            32,391 (2)   5,885 (3)   32,391 (4)   32,391 (4)

RSUs

            9,750 (2)   9,750 (3)   9,750 (4)   9,750 (4)

Options

    (1)       (1)   (1)   (1)   (1)

Total

  $   $   $ 2,229,641   $ 1,765,635   $ 792,141   $ 792,141  

Jeffery R. Gardner

                                     

Severance

            2,160,000     1,080,000     540,000     540,000  

PRSUs

            188,719 (2)   1,890 (3)   1,890 (4)   1,890 (4)

Total

  $   $   $ 2,348,719 (5) $ 1,081,890 (5) $ 541,890   $ 541,890  

Fred A. Graffam III

                                     

Severance

            1,168,000     876,000          

Restricted Stock

            3,317 (2)   415 (3)   3,317 (4)   3,317 (4)

Phantom Units

            47,690 (2)   47,690 (3)   47,690 (4)   47,690 (4)