APi Group Corp (Form: 10-Q, Received: 11/10/2021 12:27:22)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-39275

APi Group Corporation

(Exact Name of Registrant as Specified in its Charter)


Delaware		98-1510303
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1100 Old Highway 8 NW New Brighton, Minnesota		55112
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (651) 636-4320

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	APG	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 224,625,193 shares of Common Stock as of November 3, 2021.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION		3

Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 3. Quantitative and Qualitative Disclosures about Market Risk		46
Item 4. Controls and Procedures		47

PART II. OTHER INFORMATION		48

Item 1A. Risk Factors		48
Item 4. Mine Safety Disclosures		49
Item 6. Exhibits		50

SIGNATURES		51

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

APi Group Corporation

Condensed Consolidated Balance Sheets (Unaudited)

(In millions, except per share data)


	September 30, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	1,128		$	515
Accounts receivable, net of allowances of $3 and $4 at September 30, 2021 and December 31, 2020, respectively		723			639
Inventories		71			64
Contract assets		224			142
Prepaid expenses and other current assets		93			77
Total current assets		2,239			1,437

Property and equipment, net		337			355
Operating lease right of use assets		102			107
Goodwill		1,099			1,082
Intangible assets, net		897			965
Deferred tax assets		86			89
Other assets		23			30
Total assets	$	4,783		$	4,065

Liabilities and Shareholders’ Equity
Current liabilities:
Short-term and current portion of long-term debt	$	1		$	18
Accounts payable		205			150
Contingent consideration and compensation liabilities		22			41
Accrued salaries and wages		147			182
Deferred consideration		—			67
Other accrued liabilities		151			133
Contract liabilities		238			219
Operating and finance leases		28			31
Total current liabilities		792			841

Long-term debt, less current portion		1,469			1,397
Contingent consideration and compensation liabilities		11			22
Operating and finance leases		79			96
Deferred tax liabilities		45			45
Other noncurrent liabilities		90			106
Total liabilities		2,486			2,507

Shareholders’ equity:
Series A Preferred shares, $0.0001 par value, 7 authorized shares, 4 shares issued and outstanding at September 30, 2021 and December 31, 2020		—			—
Common shares, $0.0001 par value, 500 authorized shares, 224 shares and 168 shares issued at September 30, 2021 and December 31, 2020, respectively (includes 12 shares declared for stock dividend at December 31, 2020)		—			—
Additional paid-in capital		2,559			1,856
Accumulated deficit		(252	)		(284	)
Accumulated other comprehensive loss		(10	)		(14	)
Total shareholders’ equity		2,297			1,558
Total liabilities and shareholders’ equity	$	4,783		$	4,065

See notes to condensed consolidated financial statements.

APi Group Corporation

Condensed Consolidated Statements of Operations (Unaudited)

(In millions, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Net revenues	$	1,047		$	958		$	2,828		$	2,705
Cost of revenues		795			736			2,163			2,147
Gross profit		252			222			665			558
Selling, general, and administrative expenses		211			171			579			506
Impairment of goodwill and intangible assets		—			(11	)		—			197
Operating income (loss)		41			62			86			(145	)
Interest expense, net		14			13			43			41
Loss on extinguishment of debt		—			—			9			—
Investment income and other, net		(3	)		(6	)		(12	)		(20	)
Other expense, net		11			7			40			21
Income (loss) before income taxes		30			55			46			(166	)
Income tax provision (benefit)		11			28			14			(35	)
Net income (loss)	$	19		$	27		$	32		$	(131	)
Net income (loss) per common share:
Basic	$	0.08		$	0.14		$	0.14		$	(0.77	)
Diluted		0.08			0.13			0.14			(0.77	)
Weighted average shares outstanding:
Basic		205			169			199			170
Diluted		209			182			205			170

See notes to condensed consolidated financial statements.

APi Group Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In millions)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2021			2020		2021			2020
Net income (loss)	$	19		$	27	$	32		$	(131	)
Other comprehensive income (loss):
Fair value change - derivatives, net of tax (expense) benefit of ($1), $0, ($4), and $10, respectively		5			—		13			(30	)
Foreign currency translation adjustment		(9	)		1		(9	)		1
Comprehensive income (loss)	$	15		$	28	$	36		$	(160	)

See notes to condensed consolidated financial statements.

APi Group Corporation

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(In millions, except share amounts)


	Preferred Shares Issued and Outstanding				Common Shares Issued and Outstanding					Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Shareholders’
	Shares		Amount		Shares			Amount		Capital		Deficit			Income (Loss)			Equity
Balance, December 31, 2020		4,000,000	$	—		168,052,024		$	—	$	1,856	$	(284	)	$	(14	)	$	1,558
Net loss		—		—		—			—		—		(8	)		—			(8	)
Fair value change - derivatives		—		—		—			—		—		—			(1	)		(1	)
Foreign currency translation adjustment		—		—		—			—		—		—			(4	)		(4	)
Preferred Share dividend		—		—		12,447,912			—		—		—			—			—
Warrants exercised		—		—		19,994,203			—		230		—			—			230
Profit sharing plan contributions		—		—		630,109			—		13		—			—			13
Share-based compensation and other, net		—		—		157,979			—		3		—			—			3
Balance, March 31, 2021		4,000,000	$	—		201,282,227		$	—	$	2,102	$	(292	)	$	(19	)	$	1,791
Net income		—		—		—			—		—		21			—			21
Fair value change - derivatives		—		—		—			—		—		—			9			9
Foreign currency translation adjustment		—		—		—			—		—		—			4			4
Share-based compensation and other, net		—		—		(1,140	)		—		3		—			—			3
Balance, June 30, 2021		4,000,000	$	—		201,281,087		$	—	$	2,105	$	(271	)	$	(6	)	$	1,828
Net income		—		—		—			—		—		19			—			19
Fair value change - derivatives		—		—		—			—		—		—			5			5
Foreign currency translation adjustment		—		—		—			—		—		—			(9	)		(9	)
Issuance of common shares		—		—		22,716,049			—		446		—			—			446
Share-based compensation and other, net		—		—		452,840			—		8		—			—			8
Balance, September 30, 2021		4,000,000	$	—		224,449,976		$	—	$	2,559	$	(252	)	$	(10	)	$	2,297


	Preferred Shares Issued and Outstanding				Common Shares Issued and Outstanding					Additional Paid-In			Accumulated			Accumulated Other Comprehensive			Total Shareholders’
	Shares		Amount		Shares			Amount		Capital			Deficit			Income (Loss)			Equity
Balance, December 31, 2019		4,000,000	$	—		169,902,260		$	—	$	1,885		$	(131	)	$	3		$	1,757
Net loss		—		—		—			—		—			(194	)		—			(194	)
Fair value change - derivatives		—		—		—			—		—			—			(27	)		(27	)
Foreign currency translation adjustment		—		—		—			—		—			—			(6	)		(6	)
Share cancellations		—		—		(608,016	)		—		(6	)		—			—			(6	)
Share-based compensation		—		—		—			—		1			—			—			1
Balance, March 31, 2020		4,000,000	$	—		169,294,244		$	—	$	1,880		$	(325	)	$	(30	)	$	1,525
Net income		—		—		—			—		—			36			—			36
Fair value change - derivatives		—		—		—			—		—			—			(3	)		(3	)
Foreign currency translation adjustment		—		—		—			—		—			—			6			6
Share-based compensation		—		—		—			—		1			—			—			1
Balance, June 30, 2020		4,000,000	$	—		169,294,244		$	—	$	1,881		$	(289	)	$	(27	)	$	1,565
Net income		—		—		—			—		—			27			—			27
Fair value change - derivatives		—		—		—			—		—			—			—			—
Foreign currency translation adjustment		—		—		—			—		—			—			1			1
Warrants exercised		—		—		250,000			—		3			—			—			3
Share-based compensation		—		—		—			—		2			—			—			2
Balance, September 30, 2020		4,000,000	$	—		169,544,244		$	—	$	1,886		$	(262	)	$	(26	)	$	1,598

See notes to condensed consolidated financial statements.

APi Group Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)


	Nine Months Ended September 30,
	2021			2020
Cash flows from operating activities:
Net income (loss)	$	32		$	(131	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		59			62
Amortization		95			134
Impairment of goodwill and intangible assets		—			197
Deferred taxes		(1	)		(49	)
Share-based compensation expense		8			4
Profit-sharing expense		11			6
Non-cash lease expense		24			22
Loss on extinguishment of debt		9			—
Other, net		5			3
Changes in operating assets and liabilities, net of effects of business acquisitions:
Accounts receivable		(76	)		93
Contract assets		(81	)		(27	)
Inventories		(5	)		1
Prepaid expenses and other current assets		(11	)		(19	)
Accounts payable		54			(14	)
Accrued liabilities and income taxes payable		(11	)		46
Contract liabilities		16			57
Other assets and liabilities		(60	)		(56	)
Net cash provided by operating activities		68			329
Cash flows from investing activities:
Acquisitions, net of cash acquired		(51	)		(6	)
Purchases of property and equipment		(43	)		(24	)
Proceeds from sales of property, equipment, held for sale assets, and businesses		13			13
Net cash used in investing activities		(81	)		(17	)
Cash flows from financing activities:
Proceeds from long-term borrowings		350			2
Payments on long-term borrowings		(320	)		(16	)
Payments of debt issuance costs		(4	)		—
Proceeds from share issuance and warrant exercises		676			3
Payments of acquisition-related consideration		(72	)		(90	)
Restricted shares tendered for taxes		(1	)		—
Net cash provided by (used in) financing activities		629			(101	)
Effect of foreign currency exchange rate change on cash and cash equivalents		(1	)		—
Net increase in cash and cash equivalents		615			211
Cash, cash equivalents, and restricted cash, beginning of period		515			256
Cash, cash equivalents, and restricted cash, end of period	$	1,130		$	467
Supplemental cash flow disclosures:
Cash paid for interest	$	32		$	37
Cash paid for income taxes, net of refunds		55			19
Accrued consideration issued in business combinations		13			5
Shares issued to profit sharing plan		13			—

See notes to condensed consolidated financial statements.

APi Group Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in millions, except shares and where noted otherwise)

NOTE 1. NATURE OF BUSINESS

APi Group Corporation (the “Company” or “APG”) is a market-leading business services provider of safety, specialty, and industrial services in over 200 locations, primarily in North America and Europe.

NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying interim unaudited condensed consolidated financial statements (the “Interim Statements”) include the accounts of the Company and of its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. These Interim Statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements. The unaudited condensed consolidated balance sheet as of December 31, 2020 was derived from audited financial statements for the year then ended but does not include all of the information and footnotes required by U.S. GAAP with respect to annual financial statements. In the opinion of management, the Interim Statements include all adjustments (including normal recurring accruals) necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the dates and periods presented. It is recommended that these Interim Statements be read in conjunction with the Company’s audited annual consolidated financial statements and accompanying footnotes thereto for the year ended December 31, 2020. Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include cash on hand and highly liquid investments that have a maturity of three months or less when purchased. Restricted cash reflects collateral against certain bank guarantees. Restricted cash is reported as prepaid expenses and other current assets and other assets in the unaudited condensed consolidated balance sheets.

Investments

The Company holds investments in joint ventures which are accounted for under the equity method of accounting as the Company does not exercise control over the joint ventures. The Company’s share of earnings from the joint ventures was $1 and $5 during the three months ended September 30, 2021 and 2020, respectively, and $3 and $12 during the nine months ended September 30, 2021 and 2020, respectively. The earnings are recorded within investment income and other, net in the unaudited condensed consolidated statements of operations. The investment balances were $6 and $9 as of September 30, 2021 and December 31, 2020, respectively, and are recorded within other assets in the unaudited condensed consolidated balance sheets.

NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS

See the recent accounting pronouncements discussion below for information pertaining to the effects of recently adopted and other recent accounting pronouncements as updated from the discussion in the Company’s 2020 audited consolidated financial statements included in the Company’s Form 10-K filed on March 24, 2021.

Accounting standards issued and adopted:

In January 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (“ASU 2020-01”) to clarify the interaction in accounting for equity securities under Topic 321, investments accounted for under the equity method of accounting in Topic 323, and the accounting for certain forward contracts and purchased options accounted for under Topic 815. ASU 2020-01 is effective for fiscal years, and for

interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted. The Company adopted this ASU on January 1, 2021 and it did not have a material impact on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions to the existing guidance for income taxes related to the approach for intra-period tax allocations, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This ASU also simplifies the accounting for income taxes by clarifying and amending existing guidance related to the effects of enacted changes in tax laws or rates in the effective tax rate computation, the recognition of franchise tax, and the evaluation of a step-up in the tax basis of goodwill, among other clarifications. ASU 2019-12 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted. The Company adopted this ASU on January 1, 2021 and it had no impact on its consolidated financial statements.

Accounting standards issued but not yet adopted:

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"), which improves comparability after business combinations by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. ASU 2021-08 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.

NOTE 4. BUSINESS COMBINATIONS

The Company continually evaluates potential acquisitions that strategically fit within the Company’s existing portfolio or expand the Company’s portfolio into a new and attractive business area. Acquisitions are accounted for as business combinations using the acquisition method of accounting. As such, the Company makes a preliminary allocation of the purchase price to the tangible assets and identifiable intangible assets acquired and liabilities assumed. In the months after closing, as the Company obtains additional information about the acquired assets and liabilities and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. Purchase price is allocated to acquired assets and liabilities assumed based upon their estimated fair values as determined based on estimates and assumptions deemed reasonable by the Company. The Company engages third-party valuation specialists to assist with preparation of critical assumptions and calculations of the fair value of acquired intangible assets in connection with significant acquisitions. The excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed is recorded as goodwill. Goodwill is attributable to the workforce of the acquired businesses, the complementary strategic fit and resulting synergies these businesses bring to existing operations, and the opportunities in new markets expected to be achieved from the expanded platform.

2021 Acquisitions

During the nine months ended September 30, 2021, the Company completed the acquisition of Premier Fire & Security, Inc. ("Premier Fire") on July 1, 2021, and included in the Safety Services segment, as well as several other individually immaterial acquisitions. Total purchase consideration for all of the completed acquisitions of $68 consisted of cash paid at closing of $51, net of cash acquired of $4, and accrued consideration of $13. The results of operations of these acquisitions are included in the Company’s unaudited condensed consolidated statement of operations from their respective dates of acquisition. Net revenues and operating income from material acquisitions were $9 and less than $1, respectively, for the nine months ended September 30, 2021.

The Company has not finalized its accounting for 2021 acquisitions. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required. Based on preliminary estimates, the total amount of goodwill from the 2021 acquisitions expected to be deductible for tax purposes is $21. See Note 6 – “Goodwill and Intangibles” for the provisional goodwill assigned to each segment.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the dates of acquisition:


	Premier Fire			Other 2021 Acquisitions
Cash paid at closing	$	32		$	23
Accrued consideration		7			6
Total consideration	$	39		$	29

Cash	$	3		$	1
Current assets		10			5
Property and equipment		1			2
Intangible assets, net		13			5
Goodwill		17			18
Current liabilities		(5	)		(2	)
Noncurrent liabilities		—			—
Net assets acquired	$	39		$	29

On July 26, 2021, the Company entered into an agreement to acquire the Chubb Limited fire and security business from Carrier Global Corporation for an enterprise value of $3,100, which is comprised of $2,900 cash and approximately $200 of assumed liabilities, subject to adjustments at closing.

2020 Acquisitions

During 2020, the Company completed the acquisition of SK FireSafety (“SKG”) within the Safety Services segment and a number of other immaterial acquisitions for consideration transferred of $324, which includes a cash payment made at closing of $319, net of cash acquired, and $5 of accrued consideration that may be paid out in 1-2 years from date of acquisition.

SKG is a European market-leading provider of commercial safety services with operations primarily in the Netherlands, Belgium, Sweden, Norway, and the United Kingdom. On October 1, 2020, the Company completed the SKG Acquisition and acquired all of the outstanding stock. Through the acquisition of SKG, APG established a European platform for international organic and acquisition expansion. The other acquisitions were primarily in the Safety Services segment and based in the United States.

The Company has finalized its accounting for all 2020 acquisitions. During Q2 2021, the Company recorded a measurement period adjustment, primarily related to intangible assets and goodwill, for which the resulting impact to amortization expense was immaterial. Based on final purchase price allocations, the total amount of goodwill from the 2020 acquisitions expected to be deductible for tax purposes is $20. See Note 6 – “Goodwill and Intangibles” for the provisional goodwill assigned to each segment.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the dates of acquisition:


Cash paid at closing	$	329
Accrued consideration		5
Total consideration	$	334

Cash	$	10
Current assets		76
Property and equipment		12
Customer relationships		82
Trade names and trademarks		16
Contractual backlog		1
Goodwill		215
Other noncurrent assets		14
Current liabilities		(54	)
Noncurrent liabilities		(38	)
Net assets acquired	$	334

Accrued Consideration

The Company’s acquisition purchase agreements typically include deferred payment provisions, often to sellers who become employees of the Company. The provisions are made up of three general types of arrangements, contingent compensation and contingent consideration (both of which are contingent on the future performance of the acquired entity) and deferred payments related to indemnities. Contingent compensation arrangements are typically contingent on the former owner’s future employment with the Company, and the related amounts are recognized over the required employment period, which is typically three to five years. Contingent consideration arrangements are not contingent on employment and are included as part of purchase consideration at the time of the initial acquisition and are paid over a three to five year period. The liability for deferred payments is recognized at the date of acquisition based on the Company’s best estimate and is typically payable over a twelve-twenty-four month period. Deferred payments are not contingent on any future performance or employment obligations and can be offset for working capital true-ups, and representations and warranty items.

The total contingent compensation arrangement liability was $13 and $39 at September 30, 2021 and December 31, 2020, respectively. The maximum payout of these arrangements upon completion of the future performance periods was $49 and $85, inclusive of the $13 and $39, accrued as of September 30, 2021 and December 31, 2020, respectively. The contingent compensation liability is included in contingent consideration and compensation liabilities in the unaudited condensed consolidated balance sheets for all periods presented. The Company primarily determines the contingent compensation liability based on forecasted cumulative earnings compared to the cumulative earnings target set forth in the arrangement. For one of the Company’s contingent compensation arrangements, the liability is determined based on the Monte Carlo Simulation method. Compensation expense associated with these arrangements is recognized ratably over the required employment period. For additional considerations regarding the fair value of the Company's contingent consideration liabilities, see Note 7 - "Fair Value of Financial Instruments."

The total liability for deferred payments was $13 and $16 at September 30, 2021 and December 31, 2020, respectively, and are included in contingent consideration and compensation liabilities in the unaudited condensed consolidated balance sheets for all periods presented.

NOTE 5. NET REVENUES

Under ASC 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when or as control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred. Net revenues are primarily recognized by the Company over time utilizing the cost-to-cost measure of progress, consistent with the Company’s previous revenue recognition practices. Net revenues recognized at a point in time primarily relate to distribution contracts and were not material for the three and nine months ended September 30, 2021 and 2020, respectively.

Contracts with Customers

The Company derives net revenues primarily from Safety Services, Specialty Services and Industrial Services contracts with a duration of less than one week to three years (with the majority of contracts with durations of less than six months) which are subject to multiple pricing options, including fixed price, unit price, time and material, or cost plus a markup. The Company also enters into fixed price service contracts related to monitoring, maintenance and inspection of safety systems. The Company may utilize subcontractors in the fulfillment of its performance obligations. When doing so, the Company is considered the principal in these transactions and revenues are recognized on a gross basis.

Net revenues for fixed price agreements are generally recognized over time using the cost-to-cost method of accounting, which measures progress based on the cost incurred relative to total expected cost in satisfying the performance obligation. The cost-to-cost method is used as it best depicts the continuous transfer of control of goods or services to the customer. Costs incurred include direct materials, labor and subcontract costs, and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. These contract costs are included in the results of operations under cost of revenues. Labor costs are considered to be incurred as the work is performed. Subcontractor labor is recognized as the work is performed.

Net revenues from time and material contracts are recognized as the services are provided and is equal to the sum of the contract costs incurred plus an agreed upon markup. Net revenues earned from distribution contracts are recognized upon shipment or performance of the service.

The cost estimation process for recognizing net revenues over time under the cost-to-cost method is based on the professional knowledge and experience of the Company’s project managers, engineers and finance professionals. Management reviews estimates of total contract transaction price and total project costs on an ongoing basis. Changes in job performance, job conditions, and management’s assessment of expected variable consideration are factors that influence estimates of the total contract transaction price, total costs to complete those contracts, and the Company’s profit recognition. Changes in these factors could result in cumulative revisions to net revenues in the period in which the revisions are determined, which could materially affect the Company’s consolidated results of operations for that period. Provisions for estimated losses on uncompleted contracts are recorded in the period in which such estimated losses are determined.

The Company disaggregates its net revenues primarily by segment, service type, and country from which revenues are invoiced, as the nature, timing and uncertainty of cash flows are relatively consistent within each of these categories. Disaggregated net revenues information is as follows:


	Three Months Ended September 30, 2021
	Safety Services		Specialty Services		Industrial Services		Corporate and Eliminations			Consolidated
Life Safety	$	428	$	—	$	—	$	—		$	428
Heating, Ventilation and Air Conditioning ("HVAC")		105		—		—		—			105
Infrastructure/Utility		—		220		—		—			220
Fabrication		—		45		—		—			45
Specialty Contracting		—		171		—		—			171
Transmission		—		—		68		—			68
Civil		—		—		35		—			35
Corporate and Eliminations		—		—		—		(25	)		(25	)
Net revenues	$	533	$	436	$	103	$	(25	)	$	1,047


	Three Months Ended September 30, 2020
	Safety Services		Specialty Services		Industrial Services		Corporate and Eliminations			Consolidated
Life Safety	$	322	$	—	$	—	$	—		$	322
HVAC		82		—		—		—			82
Infrastructure/Utility		—		230		—		—			230
Fabrication		—		58		—		—			58
Specialty Contracting		—		112		—		—			112
Transmission		—		—		127		—			127
Civil		—		—		25		—			25
Inspection		—		—		6		—			6
Corporate and Eliminations		—		—		—		(4	)		(4	)
Net revenues	$	404	$	400	$	158	$	(4	)	$	958


	Nine Months Ended September 30, 2021
	Safety Services		Specialty Services		Industrial Services		Corporate and Eliminations			Consolidated
Life Safety	$	1,199	$	—	$	—	$	—		$	1,199
HVAC		312		—		—		—			312
Infrastructure/Utility		—		561		—		—			561
Fabrication		—		186		—		—			186
Specialty Contracting		—		425		—		—			425
Transmission		—		—		141		—			141
Civil		—		—		55		—			55
Corporate and Eliminations		—		—		—		(51	)		(51	)
Net revenues	$	1,511	$	1,172	$	196	$	(51	)	$	2,828


	Nine Months Ended September 30, 2020
	Safety Services		Specialty Services		Industrial Services		Corporate and Eliminations			Consolidated
Life Safety	$	963	$	—	$	—	$	—		$	963
HVAC		236		—		—		—			236
Infrastructure/Utility		—		615		—		—			615
Fabrication		—		129		—		—			129
Specialty Contracting		—		305		—		—			305
Transmission		—		—		336		—			336
Civil		—		—		50		—			50
Inspection		—		—		82		—			82
Corporate and Eliminations		—		—		—		(11	)		(11	)
Net revenues	$	1,199	$	1,049	$	468	$	(11	)	$	2,705


	Three Months Ended September 30, 2021
	Safety Services		Specialty Services		Industrial Services		Corporate and Eliminations			Consolidated
United States	$	452	$	436	$	92	$	(25	)	$	955
Canada and Europe		81		—		11		—			92
Net revenues	$	533	$	436	$	103	$	(25	)	$	1,047


	Three Months Ended September 30, 2020
	Safety Services		Specialty Services		Industrial Services		Corporate and Eliminations			Consolidated
United States	$	361	$	400	$	144	$	(4	)	$	901
Canada and Europe		43		—		14		—			57
Net revenues	$	404	$	400	$	158	$	(4	)	$	958


	Nine Months Ended September 30, 2021
	Safety Services		Specialty Services		Industrial Services		Corporate and Eliminations			Consolidated
United States	$	1,257	$	1,172	$	172	$	(51	)	$	2,550
Canada and Europe		254		—		24		—			278
Net revenues	$	1,511	$	1,172	$	196	$	(51	)	$	2,828


	Nine Months Ended September 30, 2020
	Safety Services		Specialty Services		Industrial Services		Corporate and Eliminations			Consolidated
United States	$	1,074	$	1,049	$	445	$	(11	)	$	2,557
Canada and Europe		125		—		23		—			148
Net revenues	$	1,199	$	1,049	$	468	$	(11	)	$	2,705

The Company’s contracts with its customers generally require significant services to integrate complex activities and equipment into a single deliverable and are, therefore, generally accounted for as a single performance obligation to provide a single contracted service for the duration of the project. For contracts with multiple performance obligations, the transaction price of a contract is allocated to each performance obligation and recognized as net revenues when or as the performance obligation is satisfied using the estimated stand-alone selling price of each distinct good or service. The stand-alone selling price is estimated using the expected cost plus a margin approach for each performance obligation. The Company utilizes the practical expedient under ASC 606 and does not disclose unsatisfied performance obligations for service contracts as these contracts generally have an original duration of less than one year. For those contracts with an original duration exceeding one year, the aggregate amount of transaction price allocated to the performance obligations unsatisfied at September 30, 2021 was $998. The Company expects to recognize revenue on approximately 90% of the remaining performance obligations over the next 12 months.

When more than one contract is entered into with a customer on or close to the same date, management evaluates whether those contracts should be combined and accounted for as a single contract as well as whether those contracts should be accounted for as one,

or more than one, performance obligation. This evaluation requires significant judgment and is based on the facts and circumstances of the various contracts.

Contracts are often modified through change orders to account for changes in the scope and price of the goods or services being provided. Although the Company evaluates each change order to determine whether such modification creates a separate performance obligation, the majority of change orders are for goods or services not distinct within the context of the original contract and, therefore, not treated as separate performance obligations but rather as a modification of the existing contract and performance obligation.

Variable Consideration

Transaction prices for customer contracts may include variable consideration which comprises items such as early completion bonuses and liquidated damages provisions. Management estimates variable consideration for a performance obligation utilizing estimation methods believed to best predict the amount of consideration to which the Company will be entitled. Variable consideration is included in the transaction price only to the extent it is probable, in the Company’s judgment, that a significant future reversal in the amount of cumulative revenue recognized under the contract will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

Changes in the estimates of transaction prices are recognized in net revenues on a cumulative catch-up basis in the period in which the revisions to the estimates are made. Such changes in estimates may also result in the reversal of previously recognized net revenues if the ultimate outcome differs from the Company’s previous estimate. For the three and nine months ended September 30, 2021 and 2020, there were no significant reversals of net revenues recognized associated with the revision of transaction prices. The Company typically does not incur any returns, refunds or similar obligations after the completion of the performance obligation since any deficiencies are corrected during the course of performance.

Contract Assets and Liabilities

The Company typically invoices customers with payment terms of net due in 30 days. It is also common for contracts in the Company’s industries to specify a general contractor is not required to submit payments to a subcontractor until it has received those funds from the owner or funding source. In most instances, the Company receives payment of invoices between 30 to 90 days of the date of the invoice.

The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from the Company’s projects when net revenues are recognized under the cost-to-cost measure of progress and exceeds the amounts invoiced to the Company’s customers, as the amounts cannot be billed under the terms of the Company’s contracts. In addition, many of the Company’s time and material arrangements are billed in arrears pursuant to contract terms, resulting in contract assets being recorded as net revenues are recognized in advance of billings.

The Company utilizes the practical expedient under ASC 606 and does not adjust for a significant financing component if the time between payment and the transfer of the related good or service is expected to be one year or less. The Company’s revenue arrangements are typically accounted for under such expedient as payments are within one year of performance for the Company’s services. As of September 30, 2021, none of the Company’s contracts contained a significant financing component. Contract liabilities from the Company’s contracts arise when amounts invoiced to the Company’s customers exceed net revenues recognized under the cost-to-cost measure of progress. Contract liabilities also include advance payments from the Company’s customers on certain contracts. Contract liabilities decrease as the Company recognizes net revenues from the satisfaction of the related performance obligation. Contract assets and liabilities are classified as current in the unaudited condensed consolidated balance sheets as all amounts are expected to be relieved within one year.

The opening and closing balances of accounts receivable, net of allowances, contract assets and contract liabilities from contracts with customers as of September 30, 2021 and December 31, 2020 are as follows:


	Accounts receivable, net of allowances		Contract Assets		Contract Liabilities
Balance as of September 30, 2021	$	723	$	224	$	238
Balance as of December 31, 2020		639		142		219

The Company did not recognize significant net revenues associated with the final settlement of contract value for any projects completed in prior periods. In accordance with industry practice, accounts receivable includes retentions receivable, a portion of which may not be received within one year. At September 30, 2021 and December 31, 2020, retentions receivable were $117 and $122, respectively, while the portions that may not be received within one year were $21 and $26, respectively. There were no other significant changes due to business acquisitions or significant changes in estimates of contract progress or transaction price. There were no significant impairments of contract assets recognized during the period.

Costs to Obtain or Fulfill a Contract

The Company generally does not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project. The Company may incur certain fulfilment costs such as initial design or mobilization costs which are capitalized if: (i) they relate directly to the contract; (ii) are expected to generate resources that will be used to satisfy the Company’s performance obligation under the contract; and (iii) are expected to be recovered through revenues generated under the contract. Such costs, which are amortized over the life of the respective project, were not material for any period presented.

NOTE 6. GOODWILL AND INTANGIBLES

Goodwill

The changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2021 are as follows:


	Safety Services			Specialty Services		Industrial Services		Total Goodwill
Goodwill as of December 31, 2020	$	906		$	172	$	4	$	1,082
Acquisitions		30			5		—		35
Measurement period adjustments and other (1)		(18	)		—		—		(18	)
Goodwill as of September 30, 2021	$	918		$	177	$	4	$	1,099

(1)

Measurement period adjustments related to the purchase accounting for SKG and finalization of certain immaterial acquisitions in 2020 (see Note 4 – “Business Combinations”). Other includes fluctuations due to foreign currency translation.

As of September 30, 2020, the Company had recorded accumulated goodwill impairment charges of $193, including $83 in the Safety Services segment, $52 in the Specialty Services segment, and $58 in the Industrial Services segment.

During 2020, while the Company’s services were largely deemed essential under various governmental orders, the Company did experience negative impacts from COVID-19 on its operations including impacts from the Company’s suppliers, other vendors, and customer base. In addition to the impacts of COVID-19, the Company was also impacted by a significant decline in demand and volatility in oil prices as some of the Company’s services involve work within the energy industry. As a result of these factors and the significant decline in the Company’s market capitalization during the first quarter 2020, the Company concluded an impairment triggering event had occurred for all of its reporting units and performed impairment tests for its goodwill and recoverability tests for its long-lived assets, which primarily include finite-lived intangible assets, property and equipment and right of use lease assets. During the first quarter of 2020, based on preliminary carrying values from the October 1, 2019 acquisition of APi Group, Inc. (“APi Acquisition”), the Company determined goodwill was impaired as the preliminary carrying values of some reporting units exceeded fair values. During the nine months ended September 30, 2020, the Company recorded an impairment charge to goodwill of $193.

Intangibles

The Company’s identifiable intangible assets are comprised of the following as of September 30, 2021 and December 31, 2020:


	September 30, 2021
	Weighted Average Remaining Useful Lives (in Years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortized intangibles:
Contractual backlog		1.0	$	101	$	(96	)	$	5
Customer relationships		6.6		845		(195	)		650
Trade names		13.0		278		(36	)		242
Total			$	1,224	$	(327	)	$	897


	December 31, 2020
	Weighted Average Remaining Useful Lives (in Years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortized intangibles:
Contractual backlog		1.6	$	101	$	(92	)	$	9
Customer relationships		7.0		823		(119	)		704
Trade names		13.8		274		(22	)		252
Total			$	1,198	$	(233	)	$	965

Amortization expense recognized on identifiable intangible assets are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Cost of revenues	$	2	$	6	$	5	$	51
Selling, general, and administrative expense		30		25		90		83
Total intangible asset amortization expense	$	32	$	31	$	95	$	134

During the year ended December 31, 2020, the Company finalized the fair value of goodwill and intangible assets related to the APi Acquisition. The measurement period adjustments recorded during the year ended December 31, 2020 resulted in a cumulative reversal to amortization expense that had been recorded earlier in the year. If the final intangible assets fair values had been known at the date of the APi Acquisition, amortization expense would have increased by $15 to $46 and by $5 to $139 for the three and nine months ended September 30, 2020, respectively.

NOTE 7. FAIR VALUE OF FINANCIAL INSTRUMENTS

U.S. GAAP defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. As the basis for evaluating such inputs, a three-tier value hierarchy prioritizes the inputs used in measuring fair value as follows:


Level 1:	Observable inputs such as quoted prices for identical assets or liabilities in active markets.

Level 2:	Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3:	Unobservable inputs that reflect the reporting entity’s own assumptions.

Recurring Fair Value Measurements

The Company’s financial assets and liabilities (adjusted to fair value at least quarterly) are derivative instruments, which are primarily included in other noncurrent liabilities, and contingent consideration, which is primarily included in contingent consideration and compensation liabilities in the unaudited condensed consolidated balance sheets.

The following tables summarize the fair values and levels within the fair value hierarchy in which the measurements fall for assets and liabilities measured on a recurring basis as of September 30, 2021 and December 31, 2020:


	Fair Value Measurements at September 30, 2021
Assets (Liabilities)	Level 1		Level 2			Level 3			Total
Derivatives designated as hedge instruments
Interest rate swaps	$	—	$	(22	)	$	—		$	(22	)
Cross currency swaps		—		3			—			3
Net investment hedges		—		6			—			6
Contingent consideration obligations		—		—			(4	)		(4	)
	$	—	$	(13	)	$	(4	)	$	(17	)


	Fair Value Measurements at December 31, 2020
Assets (Liabilities)	Level 1		Level 2			Level 3			Total
Derivatives designated as hedge instruments
Interest rate swaps	$	—	$	(35	)	$	—		$	(35	)
Derivatives not designated as hedge instruments
Foreign currency contracts		—		(9	)		—			(9	)
Contingent consideration obligations		—		—			(7	)		(7	)
	$	—	$	(44	)	$	(7	)	$	(51	)

The Company determines the fair value of its derivative instruments designated as hedge instruments using standard pricing models and market-based assumptions for all inputs such as yield curves and quoted spot and forward exchange rates. Accordingly, the Company’s derivative instruments are classified as Level 2.

The value of the contingent consideration obligations is determined using a probability-weighted discounted cash flow method. This fair value measurement is based on unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the purchase agreements (e.g., potential payment amounts, length of measurement periods, manner of calculating any amounts due) and utilizes assumptions with regard to future cash flows, probabilities of achieving such future cash flows, and a discount rate. Depending on the contractual terms of the purchase agreement, the

probability of achieving future cash flows or earnings generally represent the only significant unobservable inputs. The contingent consideration obligations are measured at fair value each reporting period and changes in estimates of fair value are recognized in earnings.

The table below presents a reconciliation of the fair value of the Company’s contingent consideration obligations that use unobservable inputs (Level 3), as well as other information about the contingent consideration obligations:


	Nine Months Ended September 30, 2021
Balance as of December 31, 2020	$	7
Issuances		3
Settlements		(6	)
Adjustments to fair value		—
Balance as of September 30, 2021	$	4
Number of open contingent consideration arrangements at the end of period		4
Maximum potential payout at end of period	$	5

At September 30, 2021, the remaining open contingent consideration arrangements are set to expire at various dates through 2024. Level 3 unobservable inputs were used to calculate the fair value adjustments shown in the table above. The fair value adjustments and the related unobservable inputs were not considered significant for the three and nine months ended September 30, 2021.

Fair Value Estimates

The following table presents the carrying amount and fair value of the Company’s non-variable interest rate debt (“ 4.125% Senior Notes,” as defined in Note 10 – “Debt”), including current portion and excluding unamortized debt issuance costs, which is estimated by discounting future cash flows at currently available rates for borrowing arrangements with similar terms and conditions, which are considered to be Level 2 inputs under the fair value hierarchy. The carrying values of variable interest rate long-term debt, including current portions and excluding accrued interest, approximate their fair values because of the variable interest rates of these instruments, which generally are reset monthly.


	September 30, 2021				December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value
4.125% Senior Notes	$	350	$	343	$	-	$	-

NOTE 8. DERIVATIVES

From time to time, the Company enters into derivative transactions to hedge its exposure to fluctuations in interest and foreign currency rates. The Company does not enter into derivative transactions for trading purposes, and is not party to any derivatives that require collateral to be posted prior to settlement.

Interest Rate Swaps

The Company manages its fixed and floating rate debt mix using interest rate swaps. Interest rate swap contracts are used by the Company to separate interest rate risk management from the debt funding decision. The cash paid and received from the settlement of interest rate swaps is included in interest expense in the unaudited condensed consolidated statement of operations.

At September 30, 2021, the Company had a 5-year $720 notional amount interest rate swap which effectively provides a fixed London Interbank Offering Rate (“LIBOR”) at 1.62%. This interest rate swap is designated as a cash flow hedge of the interest rate risk attributable to the Company’s forecasted variable interest payments and has a maturity date of October 2024.

Variations in the liability balance are primarily driven by changes in the applicable forward yield curves related to the LIBOR. The fair value of the interest rate swap designated as a hedging instrument was a liability of $22 and $35 as of September 30, 2021 and December 31, 2020, respectively.

Cross Currency Swaps

Currency exchange contracts utilized to maintain the functional currency value of expected financial transactions denominated in foreign currencies are designated as cash flow hedges. Gains and losses related to changes in the market value of these contracts are reported as a component of accumulated other comprehensive income (loss) (“AOCI”) within shareholders’ equity in the unaudited condensed consolidated balance sheets and reclassified to earnings in the same line item in the unaudited condensed consolidated statements of operations and in the same period as the recognition of the underlying hedged transaction. The Company periodically assesses whether its currency exchange contracts are effective, and when a contract is determined to be no longer effective as a hedge, the Company discontinues hedge accounting prospectively.

During the first quarter of 2021, the Company entered into cross-currency swaps with gross notional U.S. dollar equivalent amount of $120. The fair value of the cross-currency swaps was an asset of $3 as of September 30, 2021.

Net Investment Hedge

The Company has net investments in foreign subsidiaries subject to changes in foreign currency exchange rates. During the first quarter of 2021, the Company entered into a $230 notional foreign currency swap designated as a net investment hedge for a portion of the Company’s net investments in Euro-denominated subsidiaries. Gains and losses resulting from a change in fair value of the net investment hedge are offset by gains and losses on the underlying foreign currency exposure and are included in AOCI in the unaudited condensed consolidated balance sheets.

During the third quarter of 2021, the Company amended the critical terms of the foreign currency swap by extending the maturity date and modifying the U.S. dollar and Euro coupons. The amended swap was redesignated as a net investment hedge as a result of the amendment, and the initial net investment hedge was dedesignated. The amended swap was redesignated as a net investment hedge and recorded at fair value with changes recorded in AOCI. The amended net investment hedge reduces the Company’s interest expense by approximately $3 annually and reduces its overall effective interest rate by approximately 24 basis points. The fair value of the amended net investment hedge was an asset of $6 as of September 30, 2021.

The present value as of the date of designation of the dedesignated swap is recorded in AOCI on the unaudited condensed consolidated balance sheets. The fair value previously recognized in AOCI related to interest rate movements of the dedesignated swap and is being amortized to interest expense on a straight-line basis through the third quarter 2029. The amount amortized from AOCI into interest expense during the three and nine months ended September 30, 2021 was less than $1. As of September 30, 2021, approximately $5 of unrealized pre-tax gains remained in AOCI.

Foreign Currency Contracts

The Company used foreign currency contracts, primarily forward foreign currency contracts, to mitigate the foreign currency exposure of certain other foreign currency transactions. At September 30, 2021, the Company had no foreign currency contracts outstanding that are not designated as hedging instruments for accounting purposes. Fair market value gains or losses on foreign currency contracts not designated as hedging instruments were included in the results of operations and are classified in investment income and other, net in the unaudited condensed consolidated statement of operations.

The Company recognized income of $0 and $1 in investment income and other, net, during the three and nine months ended September 30, 2021, respectively, and $0 during the three and nine months ended September 30, 2020 related to derivatives not designated as hedging instruments.

As of December 31, 2020, foreign currency contracts carried a liability balance of $9 and an asset balance of less than $1.

NOTE 9. PROPERTY AND EQUIPMENT, NET

The components of property and equipment as of September 30, 2021 and December 31, 2020 are as follows:


	Estimated Useful Lives (In Years)	September 30, 2021			December 31, 2020
Land	N/A	$	26		$	26
Building	39		77			76
Machinery and equipment	2-20		234			217
Autos and trucks	5-10		108			92
Office equipment	3-7		25			24
Leasehold improvements	1-15		16			14
Total cost			486			449
Accumulated depreciation			(149	)		(94	)
Property and equipment, net		$	337		$	355

Depreciation expense related to property and equipment, including finance leases, was $20 and $21 during the three months ended September 30, 2021 and 2020, respectively, and $59 and $62 during the nine months ended September 30, 2021 and 2020, respectively. Depreciation expense is included within cost of revenues and selling, general and administrative expenses in the unaudited condensed consolidated statements of operations.

During the second quarter of 2020, the Company finalized the fair values of property and equipment acquired in the APi Acquisition. These measurement period adjustments resulted in a cumulative adjustment to depreciation expense. If the property and equipment fair values had been known at the date of the APi Acquisition, depreciation expense would have decreased by $2 to $60 for the nine months ended September 30, 2020.

NOTE 10. DEBT

Debt obligations consist of the following:


	Maturity Date	September 30, 2021			December 31, 2020
Term Loan Facility
Revolving Credit Facility	October 1, 2024	$	—		$	—
2019 Term Loan	October 1, 2026		1,140			1,188
2020 Term Loan	October 1, 2026		—			250
4.125% Senior Notes	July 15, 2029		350			—
Other Obligations			1			5
Total debt obligations			1,491			1,443
Less: unamortized deferred financing costs			(21	)		(28	)
Total debt, net of deferred financing costs			1,470			1,415
Less: short-term and current portion of long-term debt			(1	)		(18	)
Long-term debt, less current portion		$	1,469		$	1,397

Term Loan Facility

As of September 30, 2021, the Company had $1,140 of principal outstanding under the 2019 Term Loan. As of September 30, 2021, the Company had a 5-year interest rate swap with respect to $720 of notional value of the 2019 Term Loan, exchanging one-month LIBOR for a fixed rate of 1.62% per annum. Accordingly, the Company's fixed interest rate per annum on the swapped $720 notional value of the 2019 Term Loan is 4.12% through its maturity. The remaining $420 of the 2019 Term Loan balance is bearing interest at 2.58% per annum based on one-month LIBOR plus 250 basis points. Refer to Note 8 - "Derivatives" for additional information.

The interest rate applicable to borrowings under the $300 five-year senior secured revolving credit facility (the “Revolving Credit Facility”) is, at the Company’s option, either (1) a base rate plus an applicable margin equal to 1.25%, or (2) a Eurocurrency rate (adjusted for statutory reserves) plus an applicable margin equal to 2.25%.

At September 30, 2021 and December 31, 2020, the Company had no amounts outstanding under the Revolving Credit Facility, and $226 and $230 was available at September 30, 2021 and December 31, 2020, respectively, after giving effect to $74 and $70 of outstanding letters of credit.

As of September 30, 2021 and December 31, 2020, the Company was in compliance with all applicable debt covenants.

Senior Notes

During the second quarter of 2021, APi Group DE, Inc, a wholly-owned subsidiary, completed a private offering of $350 aggregate principal amount of 4.125% Senior Notes (“ 4.125% Senior Notes”) issued under an indenture dated June 22, 2021 (the “Indenture”). The 4.125% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and certain of the Company’s existing and future domestic subsidiaries. The Company used the net proceeds from the sale of the 4.125% Senior Notes to repay the $250 million 2020 Term Loan, prepay a portion of the 2019 Term Loan and fund general corporate purposes. In connection with the repayment of the 2020 Term Loan and prepayment on the 2019 Term Loan, the Company incurred a loss on debt extinguishment of $9 related to unamortized debt issuance costs, which was recorded within loss on debt extinguishment in the unaudited condensed consolidated statements of operations.

The Indenture contains customary terms and provisions (including representations, covenants, and conditions). Certain covenants, among other things, restrict the Company's, and restricted subsidiaries’, ability to (i) incur additional indebtedness; (ii) pay dividends or make other distributions or repurchase or redeem capital stock; (iii) prepay, redeem or repurchase certain debt; (iv) make loans and investments; (v) sell, transfer and otherwise dispose of assets; (vi) incur or permit to exist certain liens; (vii) enter into transactions with affiliates; (viii) enter into agreements restricting subsidiaries’ ability to pay dividends; and (ix) consolidate, amalgamate, merge or sell all or substantially all assets. The Indenture also contains customary events of default.

The Company was in compliance with all covenants contained in the Indenture as of September 30, 2021.

Other Obligations

As of September 30, 2021 and December 31, 2020, the Company had $1 and $5 in notes outstanding, respectively, for the acquisition of equipment and vehicles.

Note 11. Income Taxes

The Company’s quarterly income tax provision is measured using an estimate of its consolidated annual effective tax rate, adjusted in the current period for discrete income tax items, within the periods presented. The comparison of the Company’s income tax provision between periods may be impacted by the level and mix of earnings and losses by tax jurisdiction, foreign income tax rate differentials and discrete items. The Company’s effective tax rate was 38.5% and 50.1% for the three months ended September 30, 2021 and 2020, respectively and 31.3% and 21.2% for the nine months ended September 30, 2021 and 2020, respectively. The difference between the effective tax rate and the statutory U.S. Federal income tax rate of 21.0% for the three and nine months ended September 30, 2021 and 2020 is due to nondeductible permanent items, state taxes and taxes on foreign earnings in jurisdictions that have higher tax rates.

As of September 30, 2021, the Company’s deferred tax assets included a valuation allowance of $4 primarily related to certain deferred tax assets of the Company’s foreign subsidiaries and a capital loss carryforward in the U.S. The factors used to assess the likelihood of realization were the past performance of the related entities, forecasts of future taxable income, future reversals of existing taxable temporary differences, and available tax planning strategies that could be implemented to realize the deferred tax assets. The ability or failure to achieve the forecasted taxable income in these entities could affect the ultimate realization of deferred tax assets.

As of September 30, 2021, the Company had gross federal, state and foreign net operating loss carryforwards of approximately $0, $15 and $9, respectively. The state net operating losses have carryforward periods of five to twenty years and begin to expire in 2024. The foreign net operating losses generally have carryback periods of three years, carryforward periods of twenty years, or are indefinite, and begin to expire in 2034.

The Company’s liability for unrecognized tax benefits is recorded within other non-current liabilities in the consolidated balance sheets and recognizes interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes in the income statement. As of September 30, 2021 and December 31, 2020, the total gross unrecognized tax benefits were $3 and $2, respectively. The Company had accrued gross interest and penalties as of September 30, 2021 and December 31, 2020 of $1 and $1,

respectively. During the nine months ended September 30, 2021 and 2020, the Company recognized net interest expense of $0 for all periods.

If all of the Company’s unrecognized tax benefits as of September 30, 2021 were recognized, $2 would impact the Company’s effective tax rate. The Company expects $1 of unrecognized tax benefits to expire in the next twelve months due to lapses in the statute of limitations.

As of September 30, 2021, with few exceptions, neither the Company nor its subsidiaries are subject to examination prior to tax year 2014. The U.S. federal jurisdiction exam for the period ended December 31, 2017 closed in the third quarter. An adjustment for $1 was agreed to by the Company and the IRS. Because the Company was previously an S corporation, this adjustment passed through to the former shareholders of the Company and did not have an impact on the consolidated financial statements. There are various other audits in state and foreign jurisdictions. No adjustments have been proposed and the Company does not expect the results of the audits to have a material impact on the consolidated financial statements.

On December 27, 2020, the Consolidated Appropriations Act was signed into law, which included a temporary provision that allows for a 100 percent deduction for business meals expenses purchased from a restaurant between December 31, 2020 and January 1, 2023. The tax law changes in the Consolidated Appropriations Act did not have a material impact on the Company’s quarterly income tax provision.

Note 12. Employee Benefit Plans

Certain Company subsidiaries, including certain subsidiaries in Canada, contribute amounts to multiemployer pension plans and other multiemployer benefit plans and trusts, which are recorded as a component of employee wages and salaries within costs of revenue. Contributions are generally based on fixed amounts per hour per employee for employees covered under these plans. Multiemployer plan contribution rates are determined annually and assessed on a pay-as-you-go basis based on union employee payrolls. Union payrolls cannot be determined for future periods because the number of union employees employed at a given time, and the plans in which they participate, vary depending upon the location and number of ongoing projects and the need for union resources in connection with those projects. Total consolidated contributions to multiemployer plans were $26 and $25 during the three months ended September 30, 2021 and 2020, respectively and $69 and $71 during the nine months ended September 30, 2021 and 2020, respectively.

The Company also has a trustee-administered profit sharing retirement plan covering substantially all of the Company's employees in the U.S. not covered by collective bargaining agreements and also adopted a profit sharing plan for employees in Canada (collectively, “Profit Sharing Plans”). The Profit Sharing Plans provide for annual discretionary contributions in amounts based on a performance grid as determined by the Company’s directors. In connection with these plans, the Company recognized $4 and less than $1 in expense during the three months ended September 30, 2021 and 2020, respectively and $11 and $6 in expense during the nine months ended September 30, 2021 and 2020, respectively.

Effective January 1, 2021, most of the Company’s employees in the U.S and Canada, including named executive officers, are eligible to participate in the Company’s Employee Stock Purchase Plan (the “ESPP”). Sales of shares of the Company’s common stock under the ESPP are generally made pursuant to offerings that are intended to satisfy the requirements of Section 423 of the Internal Revenue Code. The ESPP permits employees of the Company to purchase common stock at a price equal to 85% of the lesser of (i) the market value of the common stock on the first day of the offering period, or (ii) the market value of the common stock on the purchase date, whichever is lower. Participants are subject to eligibility requirements and may not purchase more than 500 shares in any offering period or more than ten thousand dollars of common stock in a year under the ESPP. During the three and nine months ended September 30, 2021, the Company has recognized $1 and $3 of expense, respectively, and issued 411,320 shares of the Company's common stock related to the ESPP.

Note 13. Related-Party Transactions

An annual dividend for Series A Preferred Shares was declared as of December 31, 2020 and settled in shares during January 2021. The Company issued 12.4 million shares to Mariposa Acquisition IV, LLC, a related entity that is controlled by the co-chairperson of the Company’s Board of Directors. In addition, the Company incurred advisory fees of $1 during both the three months ended September 30, 2021 and 2020, and $3 during both the nine months ended September 30, 2021 and 2020, payable to Mariposa Capital, LLC, an entity owned by the co-chairperson of the Company’s Board of Directors.

The Company has entered into a Securities Purchase Agreement with Viking Global Equities Master Ltd. and Viking Global Equities II LP ("Viking Purchasers"), an owner of more than 5% of the Company's outstanding stock, to sell 200,000 Series B Preferred Shares (as defined in Note 14 - "Shareholders' Equity") for an aggregate purchase price of $200.

The Company has entered into sales contracts with Royal Oak Enterprises, an entity controlled by the co-chairperson of the Company's Board of Directors, and recorded $5 in net revenues for the nine months ended September 30, 2021, and as of September 30, 2021 had $2 in accounts receivable, net of allowances.

From time to time the Company also enters into other immaterial related party transactions.

NOTE 14. SHAREHOLDERS’ EQUITY

Preferred Shares

Series A Preferred Shares

The Company has 4,000,000 shares of Series A Preferred Stock issued and outstanding as of September 30, 2021 ("Series A Preferred Shares"). The Series A Preferred Shares will be automatically converted into shares of common stock on a one for one basis upon the last day of 2026. The holders of the Series A Preferred Shares are entitled to receive an annual dividend in the form of common stock or cash, at the Company’s sole option based on the increase in the market price of the Company’s common stock.

Series B Preferred Shares

On July 26, 2021, the Company entered into a Securities Purchase Agreement to sell 800,000 shares of the Company’s Series B Perpetual Convertible Preferred Stock, (the “Series B Preferred Shares”), for an aggregate purchase price of $800. The holders of the Series B Preferred Shares will be entitled to dividends at the rate of 5.5% per annum, payable in cash or the Company’s common stock, at the Company's election. The Series B Preferred Shares will rank senior to common stock and Series A Preferred Shares with respect to dividend rights and rights upon the voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Company.

The Series B Preferred Shares will be convertible, at the holder’s option, into shares of the Company’s common stock at a conversion price equal to $24.60 per share, subject to certain adjustments. The Series B Preferred Shares rights include voting rights on an as-converted basis, certain pre-emptive rights on private equity offerings by the Company and certain registration rights.

The Company intends to use the net proceeds from the Series B Preferred Shares issuance to fund a portion of the consideration for the Chubb Acquisition. The Series B Preferred Shares issuance is expected to close concurrently with the closing of the Chubb Acquisition, which is anticipated to be around year-end 2021.

Common Shares

During September 2021, the Company issued 22,716,049 shares of the Company’s common stock in a public underwritten offering. The proceeds from this offering totaled approximately $446, net of related expenses. The Company expects to use the net proceeds from this offering for general corporate purposes, which may include future acquisitions and other business opportunities, capital expenditures and working capital.

Note 15. Earnings (Loss) Per Share

Net income is allocated between the Company’s common shares and other participating securities based on their participation rights. The Series A Preferred Shares represent participating securities. Earnings attributable to Series A Preferred Shares are not included in earnings attributable to common shares in calculating earnings per common share (the two-class method). For periods of net loss, there is no impact from the two-class method on earnings (loss) per share (“EPS”) as net loss is allocated to common shares because Series A Preferred Shares are not contractually obligated to share the loss.

The following table sets forth the computation of earnings (loss) per common share using the two-class method. The dilutive effect of outstanding Series A Preferred Shares and the Series A Preferred Share dividend is reflected in diluted EPS using the if-converted method, and warrants, options, and restricted and performance shares are reflected using the treasury stock method. For periods of net loss, basic and diluted EPS are the same, as the assumed exercise of Series A Preferred Shares, restricted and performance shares, warrants and stock options are anti-dilutive (amounts in millions, except share and per share amounts):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Basic earnings (loss) per common share:
Net income (loss)	$	19		$	27		$	32		$	(131	)
Less income attributable to Series A Preferred Shares		(2	)		(4	)		(4	)		—
Net income (loss) attributable to common shareholders - basic	$	17		$	23		$	28		$	(131	)

Weighted average shares outstanding - basic		204,851,780			169,387,541			199,472,387			169,501,289
Basic earnings (loss) per common share	$	0.08		$	0.14		$	0.14		$	(0.77	)

Diluted earnings (loss) per common share:
Net income (loss)	$	19		$	27		$	32		$	(131	)
Less income attributable to Series A Preferred Shares		(2	)		(4	)		(4	)		—
Net income (loss) attributable to common shareholders - diluted	$	17		$	23		$	28		$	(131	)

Weighted average shares outstanding - basic		204,851,780			169,387,541			199,472,387			169,501,289
Dilutive securities:
RSUs, warrants and stock options (1)		713,750			4,346,291			1,773,018			—
Shares issuable pursuant to the annual Series A Preferred Share dividend (2)		3,821,671			8,299,338			3,547,120			—
Weighted average shares outstanding - diluted		209,387,201			182,033,170			204,792,525			169,501,289
Diluted earnings (loss) per common share	$	0.08		$	0.13		$	0.14		$	(0.77	)

(1)

For all periods presented, 4,000,000 Series A Preferred Shares, which are convertible to the same number of common shares, have been excluded from the calculation of diluted shares, as their inclusion would be anti-dilutive. For the nine months ended September 30, 2020, 162,500 stock options to purchase the same number of common shares and 21,265,359 common shares that would be issuable upon exercise of 63,796,076 warrants exercisable to purchase common shares on a 3:1 basis (21,265,359 ordinary share equivalents) for which the exercise price exceeded the average market price, have been excluded from the calculation of diluted shares, as their inclusion would be anti-dilutive.

(2)

For the three and nine months ended September 30, 2021, and the three months ended September 30, 2020, dilutive securities include common share equivalents which represent the annual dividend, payable in common shares, that Series A Preferred Shares would be entitled to receive assuming that the volume weighted average price of the Company’s common shares for the last ten trading days of the period would be the same average price during the last ten trading days of the calendar year. The annual dividend amount is equal to 20% of the increase in the volume-weighted average market price per share of the Company’s common shares for the last ten trading days of the calendar year, multiplied by 141,194,638 shares (the “Annual Dividend Amount”). During 2020, the Annual Dividend Amount was calculated based on the Company’s share price appreciation over the initial offering price of $10.00. During 2021, the Annual Dividend Amount was calculated based on the Company’s share price appreciation over the highest price previously used in calculating the Annual Dividend Amount of $17.8829.

Note 16. Segment Information

The Company manages its operations under three operating segments which represent the Company’s three reportable segments: Safety Services, Specialty Services, and Industrial Services. This structure is generally focused on various businesses related to contracting services and maintenance of industrial and commercial facilities. All three reportable segments derive their revenues from installation, inspection, maintenance, service and repair, retrofitting and upgrading, engineering and design, distribution, fabrication, and various types of other services primarily in the United States as well as Canada and Europe.

The Safety Services segment focusing on end-to-end integrated occupancy systems (fire protection solutions, HVAC and entry systems), including design, installation, inspection and service of these integrated systems. The work performed within this segment spans across industries and facilities and includes commercial, education, healthcare, high tech, industrial and special-hazard settings.

The Specialty Services segment provides a variety of infrastructure services and specialized industrial plant services, which includes maintenance and repair of critical infrastructure such as underground electric, gas, water, sewer and telecommunications infrastructure. This segment’s services include engineering and design, fabrication, installation, maintenance service and repair, and retrofitting and upgrading. Customers within this segment vary from private and public utilities, communications, healthcare, education, transportation, manufacturing, industrial plants and governmental agencies throughout the United States.

The Industrial Services segment provides a variety of services to the energy industry focused on transmission and distribution. This segment’s services include pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance

The accounting policies of the reportable segments are the same as those described in Note 2 – “Basis of Presentation and Significant Accounting Policies.” All intercompany transactions and balances are eliminated in consolidation. Intercompany revenues and costs between entities within a reportable segment are eliminated to arrive at segment totals and eliminations between segments are separately presented. Corporate results include amounts related to corporate functions such as administrative costs, professional fees, acquisition-related transaction costs (exclusive of acquisition integration costs, which are included within the segment results of the acquired businesses), and other discrete items.

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is the measure of profitability used by management to manage its segments and, accordingly, in its segment reporting. As appropriate, the Company supplements the reporting of consolidated financial information determined in accordance with U.S. GAAP with certain non-U.S. GAAP financial measures, including EBITDA. The Company believes these non-U.S. GAAP measures provide meaningful information and help investors understand the Company’s financial results and assess its prospects for future performance. The Company uses EBITDA to evaluate its performance, both internally and as compared with its peers, because it excludes certain items that may not be indicative of the Company’s core operating results for its reportable segments. Segment EBITDA is calculated in a manner consistent with consolidated EBITDA.

Summarized financial information for the Company’s reportable segments is presented and reconciled to consolidated financial information in the following tables, including a reconciliation of consolidated operating income to EBITDA. The tables below may contain slight summation differences due to rounding:


	Three Months Ended September 30, 2021
	Safety Services		Specialty Services		Industrial Services		Corporate and Eliminations			Consolidated
Net revenues	$	533	$	436	$	103	$	(25	)	$	1,047
EBITDA Reconciliation
Operating income (loss)	$	56	$	31	$	—	$	(46	)	$	41
Plus:
Investment income and other, net		—		3		1		(1	)		3
Depreciation		3		11		5		1			20
Amortization		16		11		3		2			32
EBITDA	$	75	$	56	$	9	$	(44	)	$	96
Total assets	$	3,108	$	1,284	$	198	$	193		$	4,783
Capital expenditures		3		4		2		—			9


	Three Months Ended September 30, 2020
	Safety Services			Specialty Services		Industrial Services			Corporate and Eliminations			Consolidated
Net revenues	$	404		$	400	$	158		$	(4	)	$	958
EBITDA Reconciliation
Operating income (loss)	$	(24	)	$	105	$	17		$	(36	)	$	62
Plus:
Investment income and other, net		4			5		—			(3	)		6
Depreciation		2			11		6			2			21
Amortization		35			5		(10	)		1			31
EBITDA	$	17		$	126	$	13		$	(36	)	$	120
Total assets	$	1,702		$	1,105	$	341		$	678		$	3,826
Capital expenditures		—			5		2			—			7


	Nine Months Ended September 30, 2021
	Safety Services		Specialty Services		Industrial Services			Corporate and Eliminations			Consolidated
Net revenues	$	1,511	$	1,172	$	196		$	(51	)	$	2,828
EBITDA Reconciliation
Operating income (loss)	$	153	$	60	$	(23	)	$	(104	)	$	86
Plus:
Investment income and other, net		5		5		3			(1	)		12
Loss on extinguishment of debt		—		—		—			(9	)		(9	)
Depreciation		6		32		17			4			59
Amortization		49		34		9			3			95
EBITDA	$	213	$	131	$	6		$	(107	)	$	243
Total assets	$	3,108	$	1,284	$	198		$	193		$	4,783
Capital expenditures		5		25		13			—			43


	Nine Months Ended September 30, 2020
	Safety Services			Specialty Services			Industrial Services			Corporate and Eliminations			Consolidated
Net revenues	$	1,199		$	1,049		$	468		$	(11	)	$	2,705
EBITDA Reconciliation
Operating income (loss)	$	(12	)	$	(9	)	$	(37	)	$	(87	)	$	(145	)
Plus:
Investment income and other, net		9			13			—			(2	)		20
Depreciation		4			35			19			4			62
Amortization		83			41			7			3			134
EBITDA	$	84		$	80		$	(11	)	$	(82	)	$	71
Total assets	$	1,702		$	1,105		$	341		$	678		$	3,826
Capital expenditures		1			14			8			1			24

Note 17. SUBSEQUENT EVENTS

In October 2021, APi Escrow Corp. (the “Escrow Issuer”), a wholly-owned subsidiary of the Company, completed a private offering of $300 aggregate principal amount of 4.750% Senior Notes due 2029 ("4.750% Senior Notes"). The Company intends to use the net proceeds from the sale of the 4.750% Senior Notes to finance a portion of the consideration for the Chubb Acquisition and related fees and expenses.

The gross proceeds from the offering (plus an additional amount in cash sufficient to fund a Special Mandatory Redemption on the last day of the third full calendar month following the closing of the offering) were deposited into an escrow account. If and when the Chubb Acquisition occurs, the Special Mandatory Redemption provisions will terminate and the Escrow Issuer will merge with and into APi Group DE, Inc. (“APi DE”), a wholly-owned subsidiary of the Company, with APi DE continuing as the surviving entity. Upon the merger, APi DE will assume all of the obligations of the Escrow Issuer, and at that time the 4.750% Senior Notes will be fully and unconditionally guaranteed on a senior unsecured basis by the Company and certain of the Company’s existing and future subsidiaries.

If escrow conditions, including the closing of the Chubb Acquisition, do not occur on or prior to October 27, 2022, the Escrow Issuer must redeem all of the 4.750% Senior Notes at a price equal to the principal amount of the Senior Notes plus accrued interest (the “Special Mandatory Redemption”). If the escrow conditions do occur prior to October 27, 2022, then all amounts in the escrow account will be released to fund the Chubb Acquisition and related fees and expenses.

During November 2021, the Company completed an acquisition within the Safety Services segment for a purchase price of $34, primarily made up of cash paid at closing.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report contains “forward-looking statements”. These forward-looking statements are based on beliefs and assumptions as of the date such statements are made and are subject to risks and uncertainties. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms including “expect”, “anticipate”, “project”, “will”, “should”, “believe”, “intend”, “plan”, “estimate”, “potential”, “target”, “would”, and similar expressions, although not all forward-looking statements contain these identifying terms.

These forward-looking statements are based on our current expectations and assumptions and on information currently available to management and include, among others, statements regarding, as of the date such statements are made:



our expectations regarding the impact of the COVID-19 pandemic on our business, including the seasonal and cyclical volatility of our business, and future financial results;



our beliefs regarding the recurring and repeat nature of our business and its impact on our cash flows and organic growth opportunities;



our expectations regarding industry trends and their impact on our business, and our ability to capitalize on the opportunities presented in the markets we serve;



our intent to continue to grow our business, both organically and through acquisitions, and our beliefs regarding the impact of our business strategies on our growth;



our beliefs regarding our customer relationships;



our beliefs regarding our ability to pass along commodity price increases to our customers;



our beliefs regarding market risk and our ability to mitigate that risk;



our expectations and beliefs regarding accounting and tax matters;



our expectations regarding future capital expenditures;



our expectations regarding the pending acquisition of the Chubb fire and security business, including the timing for closing, the sources of financing for the consideration, and the expected benefits of the acquisition and future value creation opportunities; and



our beliefs regarding the sufficiency of our current sources of liquidity to fund our future liquidity requirements, our expectations regarding the types of future liquidity requirements and our expectations regarding the availability of future sources of liquidity.

These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this quarterly report and in our Annual Report on Form 10-K, filed on March 24, 2021, including those described under “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in such Form 10-K, and other filings we make with the SEC. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this quarterly report may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Important factors that may materially affect the forward-looking statements include the following:



the impact of the COVID-19 pandemic on our business, markets, supply chain, customers and workforce, on the credit and financial markets, and on the global economy generally;



adverse developments in the credit markets that could adversely affect funding of construction projects;



the ability and willingness of customers to invest in infrastructure projects;



a decline in demand for our services or for the products and services of our customers;



the fact our revenues are derived primarily from contracts with durations of less than six months and the risk that customers will not renew or enter into new contracts;



our ability to successfully acquire other businesses, successfully integrate acquired businesses into our operations and manage the risks and potential liabilities associated with those acquisitions;



the impact of our regional, decentralized business model on our ability to execute on our business strategies and operate our business successfully;



our ability to compete successfully in the industries and markets we serve;



our ability to properly manage and accurately estimate costs associated with specific customer projects, in particular for arrangements with fixed price terms;



increases in the cost, or reductions in the supply, of the materials we use in our business and for which we bear the risk of such increases;



our relationship with our employees, a large portion of which are covered by collective bargaining arrangements, and our ability to effectively manage and utilize our workforce;



the inherently dangerous nature of the services we provide and the risks of potential liability;



the impact of customer consolidation;



the loss of the services of key senior management personnel and the availability of skilled personnel;



the seasonality of our business and the impact of weather conditions;



the variability of our operating results between periods and the resulting difficulty in forecasting future operating results;



the impact of the COVID-19 pandemic on our accounting estimates and assumptions;



litigation that results from our business, including costs related to any damages we may be required to pay as a result of general liability or workmanship claims brought by our customers;



the impact of health, safety and environmental laws and regulations, and the costs associated with compliance with such laws and regulations;



our substantial level of indebtedness and the effect of restrictions on our operations set forth in the documents that govern such indebtedness;



our ability to successfully complete the pending acquisition of the Chubb fire and security business, including obtaining the necessary regulatory approvals and financing for the consideration, and to realize the expected benefits of the acquisition; and



our compliance with certain financial maintenance covenants in our credit agreement and the effect on our liquidity of any failure to comply with such covenants.

The factors identified above are believed to be important factors, but not necessarily all of the important factors, that could cause actual results to differ materially from those expressed in any forward-looking statement made by us. Other factors not discussed herein could also have a material adverse effect on us. You should not rely upon forward-looking statements as predictions of future events. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. These forward-looking statements speak only as of the date of this quarterly report. We assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future, except as required by applicable law.

All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this quarterly report and hereafter in our other SEC filings and public communications. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) section should be read in conjunction with the Interim Statements and related notes included in this quarterly report, and the Consolidated Financial Statements, related notes and the MD&A section and other disclosures contained in our Annual Report on Form 10-K, including financial results for the year ended December 31, 2020. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed under the “Cautionary Note Regarding Forward-Looking Statements” section of this quarterly report.

We prepare our financial statements in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). To supplement our financial results presented in accordance with U.S. GAAP in this MD&A section, we present EBITDA, which is a non-U.S. GAAP financial measure, to assist readers in understanding our performance and provide an additional perspective on trends and underlying operating results on a period-to-period comparable basis. Non-U.S. GAAP financial measures either exclude or include amounts not reflected in the most directly comparable measure calculated and presented in accordance with U.S. GAAP. Where a non-U.S. GAAP financial measure is used, we have provided the most directly comparable measure calculated and presented in accordance with U.S. GAAP, a reconciliation to the U.S. GAAP measure and a discussion of the reasons why management believes this information is useful to it and may be useful to investors.

Unless the context otherwise requires, all references in this section to “APG”, the “Company”, “we”, “us”, and “our” refer to APi Group Corporation and its subsidiaries.

Overview

APG is a market-leading business services provider of safety, specialty and industrial services in over 200 locations, primarily in North America and with an expanding platform in Europe. We provide statutorily mandated and other contracted services to a strong base of long-standing customers across industries. We have a winning leadership culture driven by entrepreneurial business leaders that deliver innovative solutions to our customers.

We operate our business under three primary operating segments which are also our reportable segments:



Safety Services – A leading provider of safety services in North America and Europe, focusing on end-to-end integrated occupancy systems (fire protection solutions, Heating, Ventilation, and Air Conditioning (“HVAC”) and entry systems), including design, installation, inspection and service of these integrated systems. The work performed within this segment spans across industries and facilities and includes commercial, education, healthcare, high tech, industrial and special-hazard settings.



Specialty Services – A leading provider of a variety of infrastructure services and specialized industrial plant services, which include maintenance and repair of critical infrastructure such as underground electric, gas, water, sewer and telecommunications infrastructure. Our services include engineering and design, fabrication, installation, maintenance service and repair, and retrofitting and upgrading. Customers within this segment vary from private and public utilities, communications, healthcare, education, transportation, manufacturing, industrial plants and governmental agencies throughout the United States.



Industrial Services – A leading provider of a variety of services to the energy industry focused on transmission and distribution. This segment’s services include pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance.

We focus on growing our recurring revenues and repeat business from our diversified long-standing customers across a variety of end markets, which we believe provides us with stable cash flows and a platform for organic growth. Maintenance and service revenues are generally more predictable through contractual arrangements with typical terms ranging from days to three years, with the majority having durations of less than six months and are often recurring due to consistent renewal rates and long-standing customer relationships.

For financial information about our operating segments, see Note 16 – “Segment Information” to our unaudited condensed consolidated financial statements included herein.

Certain Factors and Trends Affecting our Results of Operations

Effect of Seasonality and Cyclical Nature of Business

Our net revenues and results of operations can be subject to seasonal and other variations. These variations are influenced by weather and include impacts of customer spending patterns, bidding seasons, project schedules, holidays and timing, in particular, for large, non-recurring projects. Typically, our net revenues are lowest in the first quarter during the winter months in North America because cold, snowy or wet conditions can cause project delays. Continued cold and wet weather can often affect second quarter productivity. Net revenues are generally higher during the summer and fall months during the third and early fourth quarter, due to increased demand for our services when favorable weather conditions exist in many of the regions in which we operate. In the fourth quarter, many projects tend to be completed by customers seeking to spend their capital budgets before the end of the year, which generally has a positive effect on our net revenues. However, the holiday season and inclement weather can cause delays, which can reduce net revenues and increase costs on affected projects.

Additionally, the industries we serve can be cyclical. Fluctuations in end-user demand within those industries, or in the supply of services within those industries, can affect demand for our services. As a result, our business may be adversely affected by industry declines or by delays in new projects. Variations or unanticipated changes in project schedules in connection with large projects can create fluctuations in net revenues.

Economic, Industry and Market Factors

We closely monitor the effects of general changes in economic and market conditions on our customers. General economic and market conditions can negatively affect demand for our customers’ products and services, which can affect their planned capital and maintenance budgets in certain end markets. Market, regulatory and industry factors could affect demand for our services, including: (i) changes to customers’ capital spending plans; (ii) mergers and acquisitions among the customers we serve; (iii) new or changing regulatory requirements or other governmental policy changes or uncertainty; (iv) economic, market or political developments; (v) changes in technology, tax and other incentives; and (vi) access to capital for customers in the industries we serve. Availability of transportation and transmission capacity and fluctuations in market prices for energy and other fuel sources can also affect demand for our services for pipeline and power generation construction services. These fluctuations, as well as the highly competitive nature of our industries, can result, and has resulted, in lower proposals and lower profit on the services we provide. In the face of increased pricing pressure on key materials, such as steel, or other market developments, we strive to maintain our profit margins through productivity improvements, cost reduction programs, pricing adjustments, and business streamlining efforts. Increased competition for skilled labor resources and higher labor costs can reduce our profitability and impact our ability to deliver timely service to our customers. While we actively monitor economic, industry and market factors that could affect our business, we cannot predict the effect that changes in such factors may have on our future consolidated results of operations, liquidity and cash flows, and we may be unable to fully mitigate, or benefit from, such changes.

Recent Developments

Acquisitions

On July 1, 2021, we completed the acquisition of Premier Fire & Security, Inc. within the Safety Services segment. We also completed several individually immaterial acquisitions during the nine months ended September 30, 2021. Total purchase consideration for all of the completed acquisitions of $68 million consisted of cash paid at closing of $51 million, net of cash acquired of $4 million, and accrued consideration of $13 million. The results of operations of these acquisitions are included in the Company’s unaudited condensed consolidated statement of operations from their respective dates of acquisition. Net revenues and operating income from material acquisitions were $9 million and less than $1 million, respectively, for the nine months ended September 30, 2021. See Note 4 – “Business Combinations” for further details.

Chubb Acquisition Overview

On July 26, 2021, we entered into an agreement to acquire the Chubb Limited fire and security business (the "Chubb Business") from Carrier Global Corporation for an enterprise value of $3,100 million, which is comprised of $2,900 million cash and approximately $200 million of assumed liabilities, and other adjustments (the "Chubb Acquisition"). This amount is subject to working capital and other closing adjustments as of the date of the acquisition, which is expected to close around year-end 2021. We expect the Chubb Business will be a core asset for us, and will provide meaningful opportunities for future value creation through

providing complementary revenue growth by expanding our opportunities for cross-selling products and services across our key end markets.

COVID-19 Update

We continue to monitor short- and long-term impacts of the COVID-19 pandemic. As the situation has continued to evolve, the impacts on our work have also evolved due to the domino effects of various local, state and national governmental orders, including but not limited to, reduced efficiency in performing our work while adhering to physical distancing protocols demanded by COVID-19.

Beginning in the fourth quarter of 2021, the U.S. government began implementation of a COVID-19 vaccine mandate for certain federal contractors and subcontractors, subject to exception upon an approved reasonable accommodation based on disability or religion. In addition, the U.S. Occupational Health and Safety Administration (“OSHA”) has implemented, via an Emergency Temporary Standard (“ETS”), a COVID-19 mandate applicable to all private employers with 100 or more employees. Employers subject to the ETS are required, in turn, to mandate that their employees are vaccinated against COVID-19 or submit to weekly testing and other safety measures. States may issue similar vaccination and\or testing mandates for state contractors; other states, in opposition to the current and anticipated federal mandates, may issue orders intended to obstruct compliance with those mandates. We may experience labor shortages or loss of work as a result of current and anticipated COVID-19-vaccine-related mandates.

Although we are actively quoting new work for customers, should the macro economy continue to be negatively impacted by the COVID-19 pandemic or worsen due to surges in cases, new variants, vaccination mandates, or additional restrictions on operations, it is possible additional projects could be delayed indefinitely or cancelled, or that we may not be allowed access to our customers’ facilities to perform inspection and service projects. In addition, the effects of the COVID-19 pandemic have resulted and could continue to result in greater seasonal and cyclical volatility than would otherwise exist under normal conditions. In the event that vaccination mandates lead to a substantial increase in requests for accommodation and/or conflicts with certain state laws, we may have increased exposure to employment law and litigation risk.

Vaccination mandates or other mitigation efforts, and outbreaks in jurisdictions in which we operate or at our project or work sites, could have a material negative impact on our net revenues and earnings. If a large number of our employees who are located in a particular jurisdiction or are working on a project or work site are exposed to or infected with COVID-19 and we are unable to hire qualified personnel due to labor shortages and other impacts of the COVID-19 outbreak, we may be required to delay projects or the provision of our services for a period of time. This could negatively impact our net revenues, have a material adverse impact on our operating results, and cause harm to our reputation.

Generally, in 2021, with end of shelter-in-place orders and increases in vaccination rates, we continue to experience stabilization and volume improvements as our teams and customers have adapted to working in the long-term COVID-19 environment. There can be no assurance this trend, which would allow us to recover pre-pandemic volume levels, will continue in a positive manner. We have begun to experience supply chain disruptions, which are negatively impacting the source and supply of materials needed for our business. The continued impact of COVID-19 on our vendors is evolving and could continue to make it difficult to obtain needed materials at reasonable prices.

The preemptive cost reduction plan, which saved both expense and cash in 2020, has been generally eased in 2021.

The United States Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency has warned cybercriminals will take advantage of the uncertainty created by COVID-19 to launch cybersecurity attacks. The risks could include more frequent malicious cybersecurity and fraudulent activities, as well as schemes which attempt to take advantage of employees’ use of various technologies to enable remote work activities. We believe the COVID-19 outbreak has incrementally increased our cyber risk profile, but we are unable to predict the extent or impacts of those risks at this time. A significant disruption in our information technology systems, unauthorized access to or loss of confidential information, or legal claims resulting from violation of privacy laws could each have a material adverse effect on our business.

While we cannot estimate the duration or future negative financial impact of the COVID-19 pandemic on our business, we are currently experiencing some negative impact, which we expect to continue in the future.

In prior economic downturns, such as those caused by recessions, the impact on our business has generally lagged when compared to the impact on other industries. It remains uncertain if the economic downturn caused by COVID-19 will impact us in a manner similar to past economic downturns.

Recent Accounting Pronouncements

A summary of recent accounting pronouncements is included in Note 3 – “Recent Accounting Pronouncements” to our unaudited condensed consolidated financial statements included herein.

Description of Key Line Items

Net Revenues

Net revenues are generated from the sale of various types of contracted services, fabrication and distribution. We derive net revenues primarily from services under contractual arrangements with durations ranging from days to three years, with the majority having durations of less than six months, and which may provide the customer with pricing options that include a combination of fixed, unit, or time and material pricing. Net revenues for fixed price agreements are generally recognized over time using the cost-to-cost method of accounting which measures progress based on the cost incurred to total expected cost in satisfying our performance obligation.

Net revenues from time and material contracts are recognized as the services are provided. Net revenues earned are based on total contract costs incurred plus an agreed upon markup. Net revenues for these cost-plus contracts are recognized over time on an input basis as labor hours are incurred, materials are utilized, and services are performed. Net revenues from wholesale or retail unit sales are recognized at a point-in-time upon shipment.

Cost of Revenues

Cost of revenues consists of direct labor, materials, subcontract costs and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Labor costs are considered to be incurred as the work is performed. Subcontractor labor is recognized as the work is performed.

Gross Profit

Our gross profit is influenced by direct labor, materials and subcontract costs. Our profit margins are also influenced by raw material costs, contract mix, weather and proper coordination with contract providers. Labor intensive contracts usually drive higher margins than those contracts that include material, subcontract and equipment costs.

Selling, General and Administrative Expenses

Selling expenses consist primarily of compensation and associated costs for sales and marketing personnel, costs of advertising, trade shows and corporate marketing. General and administrative expense consists primarily of compensation and associated costs for executive management, personnel, facility leases, outside professional fees and other corporate expenses.

Amortization of Intangible Assets

Amortization expense reflects the charges incurred to amortize our finite-lived identifiable intangible assets, such as customer relationships, which are amortized over their estimated useful lives. There is a portion of amortization expense related to the backlog of intangible assets reflected in cost of revenues in the unaudited condensed consolidated statement of operations.

Impairment of Goodwill and Intangible Assets

Goodwill is tested for impairment annually, or more frequently as events and circumstances change. Expenses for impairment charges related to the write-down of goodwill balances and identifiable intangible assets balances are recorded to the extent their carrying values exceed their estimated fair values. Expenses for impairment charges related to the write-down of other long-lived assets (which includes amortizable intangibles) are recorded when triggering events indicate their carrying values may exceed their estimated fair values.

Critical Accounting Policies and Estimates

For information regarding our Critical Accounting Policies, see the “Critical Accounting Policies” section of the “APG Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K.

Results of Operations

The following is a discussion of our financial condition and results of operations during the three and nine months ended September 30, 2021 and the three and nine months ended September 30, 2020.

Three months ended September 30, 2021 compared to the three months ended September 30, 2020


	Three Months Ended September 30,						Change
($ in millions)	2021			2020			$			%
Net revenues	$	1,047		$	958		$	89			9.3	%
Cost of revenues		795			736			59			8.0	%
Gross profit		252			222			30			13.5	%
Selling, general, and administrative expenses		211			171			40			23.4	%
Impairment of goodwill and intangible assets		—			(11	)		11		NM
Operating income		41			62			(21	)		(33.9	)%
Interest expense, net		14			13			1			7.7	%
Investment income and other, net		(3	)		(6	)		3			50.0	%
Other expense, net		11			7			4			57.1	%
Income before income taxes		30			55			(25	)		(45.5	)%
Income tax provision		11			28			(17	)		(60.7	)%
Net income	$	19		$	27		$	(8	)		(29.6	)%

NM = Not meaningful

Net revenues

Net revenues for the three months ended September 30, 2021 were $1,047 million compared to $958 million for the same period in 2020, an increase of $89 million or 9.3%. The increase in net revenues was primarily driven by additional revenues from acquisitions completed in the previous 12 months in the Safety Services segment. In addition, the increase in net revenues was due to general market recoveries from the COVID-19 pandemic within our Safety Services segment, growth in inspection and service revenue, and increased demand and timing for specialty contracting work within our Specialty Services segment. These increases were partially offset by a decline in the Industrial Services segment.

Gross profit

The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the three months ended September 30, 2021 and 2020, respectively:


	Three Months Ended September 30,						Change
($ in millions)	2021			2020			$		%
Gross profit	$	252		$	222		$	30		13.5	%
Gross margin		24.1	%		23.2	%

Our gross profit for the three months ended September 30, 2021 was $252 million compared to $222 million for the same period in 2020, an increase of $30 million, or 13.5%. Gross margin was 24.1%, an increase of 90 basis points compared to prior year, primarily due to a $4 million decrease in backlog amortization expense, which positively impacted the rate by 40 basis points. Also driving the improvement was outsized growth in the Safety Services segment, our highest margin segment, and improved mix of service and inspection revenue, partially offset by supply chain disruptions and inflation causing downward pressure on margins.

Operating expenses

The following table presents operating expenses and operating margin (operating income as a percentage of net revenues) for the three months ended September 30, 2021 and 2020, respectively:


	Three Months Ended September 30,						Change
($ in millions)	2021			2020			$		%
Selling, general, and administrative expenses (excluding amortization expense)	$	181		$	146		$	35		24.0	%
Amortization expense		30			25			5		20.0	%
Impairment of goodwill and intangible assets		—			(11	)		11	NM
Total operating expenses	$	211		$	160		$	51		31.9	%
Operating expenses as a % of net revenues		20.2	%		16.7	%
Operating margin		3.9	%		6.5	%

Our operating expenses for the three months ended September 30, 2021 were $211 million compared to $160 million for the same period in 2020, an increase of $51 million. Operating expenses as a percentage of net revenues were 20.2% for 2021 compared to 16.7% for 2020. In the second quarter of 2020, we took various actions in response to the COVID-19 pandemic which resulted in lower operating expenses as a percentage of net revenues for the three months ended September 30, 2020. This included implementing a preemptive cost reduction plan to lower expenses throughout 2020. However, as COVID-19 restrictions began to ease and volumes increased, we restored many of these costs in fourth quarter of 2020 and into 2021, resulting in an increase in operating expenses as a percentage of net revenues. Also driving the increase was higher levels of spending related to higher sales volumes, acquisition expenses and business process transformation projects, including system and process development costs and expenses associated with the implementation of compliance programs related to the Sarbanes-Oxley Act of 2002 during the third quarter of 2021. In addition, the third quarter of 2020 included an impairment charge reversal of $11 million that did not recur in the third quarter of 2021.

Interest expense, net

Interest expense was relatively flat at $14 million and $13 million for the three months ended September 30, 2021 and 2020, respectively.

Investment income and other, net

Investment income and other, net was income of $3 million and $6 million for the three months ended September 30, 2021 and 2020, respectively. The decline in investment income and other, net was primarily due to a decrease in income from joint venture investments of $4 million.

Income tax provision

The income tax expense for the three months ended September 30, 2021 was $11 million compared to $28 million in the same period of the prior year. This change was driven by lower income before taxes in the three months ended September 30, 2021 compared to the same period in 2020. The effective tax rate for the three months ended September 30, 2021 was 38.5%, compared to 50.1% in the same period of 2020. The difference in the effective tax rate was driven by discrete and nondeductible permanent items, which have a greater impact on the effective tax rate when income or losses are smaller. The difference between the effective tax rate and the statutory U.S. federal income tax rate of 21.0% is due to the nondeductible permanent items, state taxes, and foreign earnings in jurisdictions that have higher tax rates.

Net income and EBITDA

The following table presents net income and EBITDA for the three months ended September 30, 2021 and 2020, respectively:


	Three Months Ended September 30,						Change
($ in millions)	2021			2020			$			%
Net income	$	19		$	27		$	(8	)		(29.6	)%
EBITDA		96			120			(24	)		(20.0	)%
Net income as a % of net revenues		1.8	%		2.8	%
EBITDA as a % of net revenues		9.2	%		12.5	%

Our net income for the three months ended September 30, 2021 was $19 million compared to $27 million for the same period in 2020, a decrease of $8 million. Net income as a percentage of net revenues for the three months ended September 30, 2021 was 1.8% compared to 2.8% for the same period in 2020. EBITDA for the three months ended September 30, 2021 was $96 million compared to $120 million for the same period in 2020, a decrease of $24 million. The decline in net income and EBITDA resulted from higher spending related to acquisition expenses and business process transformation projects to enhance systems and implement compliance programs related to the Sarbanes-Oxley Act of 2002 and a favorable adjustment related to impairment charges that was recorded in the third quarter of 2020. These items were partially offset by an improved mix of service and inspection revenue.

Operating Segment Results for the three months ended September 30, 2021 versus the three months ended September 30, 2020


	Net Revenues
	Three Months Ended September 30,						Change
($ in millions)	2021			2020			$			%
Safety Services	$	533		$	404		$	129			31.9	%
Specialty Services		436			400			36			9.0	%
Industrial Services		103			158			(55	)		(34.8	)%
Corporate and Eliminations		(25	)		(4	)		(21	)		(525.0	)%
	$	1,047		$	958		$	89			9.3	%


	Operating Income (Loss)
	Three Months Ended September 30,						Change
($ in millions)	2021			2020			$			%
Safety Services	$	56		$	(24	)	$	80			333.3	%
Safety Services operating margin		10.5	%		(5.9	)%
Specialty Services		31			105			(74	)		(70.5	)%
Specialty Services operating margin		7.1	%		26.3	%
Industrial Services		—			17			(17	)	NM
Industrial Services operating margin		0	%		10.8	%
Corporate and Eliminations		(46	)		(36	)		(10	)		(27.8	)%
	$	41		$	62		$	(21	)		(33.9	)%


	EBITDA
	Three Months Ended September 30,						Change
($ in millions)	2021			2020			$			%
Safety Services	$	75		$	17		$	58			341.2	%
Safety Services EBITDA as a % of net revenues		14.1	%		4.2	%
Specialty Services		56			126			(70	)		(55.6	)%
Specialty Services EBITDA as a % of net revenues		12.8	%		31.5	%
Industrial Services		9			13			(4	)		(30.8	)%
Industrial Services EBITDA as a % of net revenues		8.7	%		8.2	%
Corporate and Eliminations		(44	)		(36	)		(8	)		(22.2	)%
	$	96		$	120		$	(24	)		(20.0	)%

The following discussion breaks down the net revenues, operating income (loss) and EBITDA by operating segment for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Safety Services

Safety Services net revenues for the three months ended September 30, 2021 increased by $129 million or 31.9% compared to the same period in the prior year. The increase was primarily driven by additional net revenues contributed by acquisitions completed in the prior 12 months and general market recoveries in both our Life Safety and HVAC service businesses as compared to the poor market conditions in the third quarter of 2020, which was negatively impacted by the COVID-19 pandemic. We also experienced an increase in inspection and service revenue in our Life Safety business.

Safety Services operating margin for the three months ended September 30, 2021 and 2020 was approximately 10.5% and (5.9)%, respectively. The improvement was the result of an impairment charge of $49 million recorded in the third quarter of 2020 that did not recur, and decreased amortization expense of $19 million. The improvement was partially offset by an increase in operating expenses resulting from the restoration of costs that had been reduced during the prior year as part of our COVID-19 response. Safety Services EBITDA as a percentage of net revenues for the three months ended September 30, 2021 and 2020 was approximately 14.1% and 4.2%, respectively. This improvement is primarily related to the non-recurrence of the impairment charge recorded during the prior year and higher volume as described above.

Specialty Services

Specialty Services net revenues for the three months ended September 30, 2021 increased by $36 million or 9.0% compared to the same period in the prior year. The increase was primarily driven by higher demand and timing for specialty contracting services during the third quarter of 2021, resulting from general improvements in market conditions compared to the prior year, which was negatively impacted by the COVID-19 pandemic. These increases were partially offset by lower volumes in fabrication, infrastructure, and certain utility businesses.

Specialty Services operating margin for the three months ended September 30, 2021 and 2020 was approximately 7.1% and 26.3%, respectively. The decrease was due to the non-recurrence of a $68 million favorable adjustment that was recorded during the three months ended September 30, 2020 to reverse part of an impairment charge recorded in the first quarter of 2020. The decrease was partially offset by increased amortization expense of $6 million and supply chain disruptions and inflation causing downward pressure on margins. Our Specialty Services EBITDA as a percentage of net revenues for the three months ended September 30, 2021 and 2020 was approximately 12.8% and 31.5%, respectively, due to the factors discussed above and a decrease in income from joint venture investments of $4 million.

Industrial Services

Industrial Services net revenues for the three months ended September 30, 2021 decreased by $55 million or (34.8)% compared to the same period in the prior year. The decline was the result of the suppression of demand for our services due to decisions by our customers to delay and suspend projects, strategic focus on improving margin resulting from disciplined project and customer selection, and difficult market conditions. In addition, the sale of two Industrial Services businesses accounted for $5 million of the decline.

Industrial Services operating margin for the three months ended September 30, 2021 and 2020 was approximately 0% and 10.8%, respectively. The decline was the result of lower volume of projects while certain indirect costs for leases and equipment did not decline as significantly, and an increase in amortization expense of $13 million, partially offset by a $8 million impairment charge recorded in the third quarter of 2020 that did not recur. Industrial Services EBITDA as a percentage of net revenues was 8.7% and 8.2% for the three months ended September 30, 2021 and 2020, respectively, driven by the impacts of lower volumes and factors described above.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020


	Nine Months Ended September 30,						Change
($ in millions)	2021			2020			$			%
Net revenues	$	2,828		$	2,705		$	123			4.5	%
Cost of revenues		2,163			2,147			16			0.7	%
Gross profit		665			558			107			19.2	%
Selling, general, and administrative expenses		579			506			73			14.4	%
Impairment of goodwill and intangible assets		—			197			(197	)	NM
Operating income (loss)		86			(145	)		231			159.3	%
Interest expense, net		43			41			2			4.9	%
Loss on extinguishment of debt		9			—			9		NM
Investment income and other, net		(12	)		(20	)		8			40.0	%
Other expense, net		40			21			19			90.5	%
Income (loss) before income taxes		46			(166	)		212			127.7	%
Income tax provision (benefit)		14			(35	)		49			140.0	%
Net income (loss)	$	32		$	(131	)	$	163			124.4	%

NM = Not meaningful

Net revenues

Net revenues for the nine months ended September 30, 2021 were $2,828 million compared to $2,705 million for the same period in 2020, an increase of $123 million or 4.5%. The increase in net revenues was primarily driven by growth in inspection and services revenue in our Life Safety business and additional revenue contributed by acquisitions completed in the previous 12 months within our Safety Services segment. Also driving the increase was greater demand for specialty contracting work within our Specialty Services segment. Both our Safety Services and Specialty Services segments benefited from general market recoveries from the COVID-19 pandemic during the nine months ended September 30, 2021. These improvements were partially offset by a decline in our Industrial Services segment, which continued to experience difficult market conditions and suppressed demand during the nine months ended September 30, 2021.

Gross profit

The following table presents our gross profit (net revenues less cost of revenues) and gross margin (gross profit as a percentage of net revenues) for the nine months ended September 30, 2021 and 2020, respectively:


	Nine Months Ended September 30,						Change
($ in millions)	2021			2020			$		%
Gross profit	$	665		$	558		$	107		19.2	%
Gross margin		23.5	%		20.6	%

Our gross profit for the nine months ended September 30, 2021 was $665 million, compared to $558 million for the same period in 2020, an increase of $107 million or 19.2%. Gross margin was 23.5%, an increase of 290 basis points compared to prior year primarily due to a $46 million decrease in backlog amortization expense, which positively impacted the rate by 160 basis points. In addition, outsized growth in the Safety Services segment, improved mix of service and inspection, and disciplined project and customer selection drove higher gross margins. These increases were partially offset by supply chain disruptions and inflation causing downward pressure on margins, project delays, jobsite conditions and suppression of demand in the energy industry.

Operating expenses

The following table presents operating expenses and operating margin (operating income as a percentage of net revenues) for the nine months ended September 30, 2021 and 2020, respectively:


	Nine Months Ended September 30,						Change
($ in millions)	2021			2020			$			%
Selling, general, and administrative expenses (excluding amortization expense)	$	489		$	423		$	66			15.6	%
Amortization expense		90			83			7			8.4	%
Impairment of goodwill and intangible assets		—			197			(197	)	NM
Total operating expenses	$	579		$	703		$	(124	)		(17.6	)%
Operating expenses as a % of net revenues		20.5	%		26.0	%
Operating margin		3.0	%		(5.4	)%

Our operating expenses for the nine months ended September 30, 2021 were $579 million, compared to $703 million for the same period in 2020, a decrease of $124 million. Operating expenses as a percentage of net revenues were 20.5% for 2021 compared to 26.0% for 2020, improving primarily due to the $197 million impairment charge related to goodwill and intangible assets recorded in the nine months ended September 30, 2020 that did not recur in 2021. This decline was offset by an increase of 15.6% in selling, general, and administrative expenses (excluding amortization) due to higher spending related to acquisition expenses, business process transformation projects to enhance systems and implement compliance programs related to Sarbanes-Oxley Act of 2002, and the preemptive cost reduction plan we implemented in the second quarter of 2020 to reduce expenses in response to the COVID-19 pandemic. As COVID-19 restrictions began to ease, we restored many of these costs in the fourth quarter of 2020, resulting in an increase in selling, general, and administrative expenses in the nine months ended September 30, 2021.

Interest expense, net

Interest expense was $43 million for the nine months ended September 30, 2021 which is slightly higher than $41 million for the same period of the prior year.

Investment income and other, net

Investment income and other, net was income of $12 million and $20 million for the nine months ended September 30, 2021 and 2020, respectively. The decline in investment income and other, net was primarily due to a decrease in income from joint venture investments of $9 million.

Loss on extinguishment of debt

During the second quarter of 2021 we completed a private offering of $350 million aggregate principal amount of senior notes. The proceeds from the offering were used to repay all outstanding indebtedness under the 2020 Term Loan, prepay a portion of the 2019 Term Loan, pay for transaction fees and expenses, and fund general corporate purposes. In connection with the repayment of the 2020 Term Loan and prepayment on a portion of the 2019 Term Loan, the Company incurred a loss on extinguishment of debt of $9 million related to unamortized debt issuance costs.

Income tax provision (benefit)

The income tax expense for the nine months ended September 30, 2021 was $14 million compared to a benefit of $35 million in the same period of the prior year. This change was driven by the fact that we had net income for the first nine months of 2021, whereas we were in a loss position in the same period of 2020 due to an impairment charge recorded in 2020. The effective tax rate for the nine months ended September 30, 2021 was 31.3% compared to 21.2% in the same period of 2020. The difference in the effective tax rate was driven by discrete and nondeductible permanent items, which have a greater impact on the effective tax rate when income or losses are smaller. The difference between the effective tax rate and the statutory U.S. federal income tax rate of 21.0% is due to the nondeductible permanent items, state taxes and foreign earnings in jurisdictions that have higher tax rates.

Net income (loss) and EBITDA

The following table presents net income and EBITDA for the nine months ended September 30, 2021 and 2020, respectively:


	Nine Months Ended September 30,						Change
($ in millions)	2021			2020			$		%
Net income (loss)	$	32		$	(131	)	$	163		124.4	%
EBITDA		243			71			172		242.3	%
Net income (loss) as a % of net revenues		1.1	%		(4.8	)%
EBITDA as a % of net revenues		8.6	%		2.6	%

Our net income (loss) for the nine months ended September 30, 2021 was $32 million compared to $(131) million for the same period in 2020, an improvement of $163 million. Net income (loss) as a percentage of net revenues for the nine months ended September 30, 2021 was 1.1% compared to (4.8)% for the same period in 2020. The change was principally from an impairment charge that occurred in the nine months ended September 30, 2020 related to goodwill of $197 million that did not recur in 2021, and improved gross margin. EBITDA as a percentage of net revenues for the nine months ended September 30, 2021 was 8.6% compared to 2.6% for the same period in 2020. Improvements in EBITDA were primarily a result of the non-recurrence of the impairment charge of $197 million recorded in the nine months ended September 30, 2020 and improved gross margin. See the discussion and reconciliation of our non-U.S. GAAP financial measures below.

Operating Segment Results for the nine months ended September 30, 2021 versus the nine months ended September 30, 2020


	Net Revenues
	Nine Months Ended September 30,						Change
($ in millions)	2021			2020			$			%
Safety Services	$	1,511		$	1,199		$	312			26.0	%
Specialty Services		1,172			1,049			123			11.7	%
Industrial Services		196			468			(272	)		(58.1	)%
Corporate and Eliminations		(51	)		(11	)		(40	)		(363.6	)%
	$	2,828		$	2,705		$	123			4.5	%


	Operating Income (Loss)
	Nine Months Ended September 30,						Change
($ in millions)	2021			2020			$			%
Safety Services	$	153		$	(12	)	$	165			1,375.0	%
Safety Services operating margin		10.1	%		(1.0	)%
Specialty Services		60			(9	)		69			766.7	%
Specialty Services operating margin		5.1	%		(0.9	)%
Industrial Services		(23	)		(37	)		14			37.8	%
Industrial Services operating margin		(11.7	)%		(7.9	)%
Corporate and Eliminations		(104	)		(87	)		(17	)		(19.5	)%
	$	86		$	(145	)	$	231			159.3	%


	EBITDA
	Nine Months Ended September 30,						Change
($ in millions)	2021			2020			$			%
Safety Services	$	213		$	84		$	129			153.6	%
Safety Services EBITDA as a % of net revenues		14.1	%		7.0	%
Specialty Services		131			80			51			63.8	%
Specialty Services EBITDA as a % of net revenues		11.2	%		7.6	%
Industrial Services		6			(11	)		17			154.5	%
Industrial Services EBITDA as a % of net revenues		3.1	%		(2.4	)%
Corporate and Eliminations		(107	)		(82	)		(25	)		(30.5	)%
	$	243		$	71		$	172			242.3	%

The following discussion breaks down the net revenues, operating income and EBITDA by operating segment for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Safety Services

Safety Services net revenues for the nine months ended September 30, 2021 increased by $312 million or 26.0% compared to the same period in the prior year. This increase is primarily attributable to an increase in inspection and service revenue within our Life Safety business, market recoveries in both Life Safety and HVAC services, and additional revenue contributed by acquisitions completed in the prior 12 months.

Safety Services operating margin for the nine months ended September 30, 2021 and 2020 was approximately 10.1% and (1.0)%, respectively. The improvement was primarily driven by an impairment charge of $83 million recorded in the nine months ended September 30, 2020 that did not recur in 2021. In addition, the improvement was driven by disciplined project and customer selection, and a decrease in amortization expense of $34 million. Safety Services EBITDA as a percentage of net revenues for the nine months ended September 30, 2021 and 2020 was approximately 14.1% and 7.0%, respectively. This expansion is primarily related to improved mix and non-recurrence of impairment charges recorded in the nine months ended September 30, 2020.

Specialty Services

Specialty Services net revenues for the nine months ended September 30, 2021 increased by $123 million or 11.7% compared to the same period in the prior year. The increase was primarily driven by increased demand and timing for our specialty contracting services and timing for project work as compared to the prior year, which was negatively impacted by the COVID-19 pandemic. These increases were partially offset by project deferrals and jobsite disruptions driven by unfavorable weather conditions in the first quarter of 2021 and lower volumes in fabrication, infrastructure, and certain utility businesses.

Specialty Services operating margin for the nine months ended September 30, 2021 and 2020 was approximately 5.1% and (0.9)%, respectively. The improvement was the result of an impairment charge of $52 million recorded in the nine months ended September 30, 2020 that did not recur and a decrease in amortization expense of $7 million. Our Specialty Services EBITDA as a percentage of net revenues for the nine months ended September 30, 2021 and 2020 was approximately 11.2% and 7.6%, respectively. This improvement is primarily related to the impairment charge recorded in the nine months ended September 30, 2020 that did not recur, partially offset by a decrease in income from joint venture investments of $9 million.

Industrial Services

Industrial Services net revenues for the nine months ended September 30, 2021 decreased by $272 million or (58.1)% compared to the same period in the prior year. The decline was the result of a suppression of demand for our services, our strategic focus on improving margin resulting from disciplined project and customer selection, and a general market weakness in the energy industry. Also impacting the decline was the sale of two Industrial Services businesses that accounted for $83 million of net revenues during the nine months ended September 30, 2020.

Industrial Services operating margin for the nine months ended September 30, 2021 and 2020 was approximately (11.7)% and (7.9)%, respectively. The decline was primarily attributable to a lower volume of projects while certain indirect costs for leases and equipment remained consistent with prior periods and increased amortization expense of $2 million, partially offset by an impairment charge of $62 million recorded in the nine months ended September 30, 2020 that did not recur. Industrial Services EBITDA as a percentage of net revenues was 3.1% and (2.4)% for the nine months ended September 30, 2021 and 2020, respectively. This improvement is primarily related to the impairment charge of $62 million in 2020 that did not recur, partially offset by impacts of lower volumes described above.

Non-GAAP Financial Measures (Unaudited)

We supplement our reporting of consolidated financial information determined in accordance with U.S. GAAP with EBITDA (defined below), which is a non-U.S. GAAP financial measure. We use EBITDA to evaluate our performance, both internally and as compared with our peers, because it excludes certain items that may not be indicative of our core operating results. Management believes this measure is useful to investors since it (a) permits investors to view the Company’s performance using the same tools management uses to evaluate the Company’s past performance, reportable business segments and prospects for future performance, (b) permits investors to compare the Company with its peers, and (c) determines certain elements of management’s incentive

compensation. Specifically, earnings before interest, taxes, depreciation and amortization (“EBITDA”) is the measure of profitability used by management to manage its segments and, accordingly, in its segment reporting. The Company supplements the reporting of its consolidated financial information with EBITDA. The Company believes this non-U.S. GAAP measure provides meaningful information and help investors understand the Company’s financial results and assess its prospects for future performance. Consolidated EBITDA is calculated in a manner consistent with segment EBITDA, which is a measure of segment profitability.

This non-U.S. GAAP financial measure, however, has limitations as an analytical tool and should not be considered in isolation from, a substitute for, or superior to, the related financial information we report in accordance with U.S. GAAP. The principal limitation of this non-U.S. GAAP financial measure is it excludes significant expenses required by U.S. GAAP to be recorded in our financial statements and may not be comparable to similarly titled measures of other companies due to potential differences in calculation methods. In addition, this measure is subject to inherent limitations as it reflects the exercise of judgment by management about which items are excluded or included in determining this non-U.S. GAAP financial measure. Investors are encouraged to review the following reconciliation of this non-U.S. GAAP financial measure to its most comparable U.S. GAAP financial measure and not to rely on any single financial measure to evaluate our business.

The following table presents a reconciliation of net income to EBITDA for the periods indicated:


	Three Months Ended September 30,
($ in millions)	2021		2020
Reported net income	$	19	$	27
Adjustments to reconcile net income to EBITDA:
Interest expense, net		14		13
Income tax provision		11		28
Depreciation		20		21
Amortization		32		31
EBITDA	$	96	$	120


	Nine Months Ended September 30,
($ in millions)	2021		2020
Reported net income (loss)	$	32	$	(131	)
Adjustments to reconcile net income (loss) to EBITDA:
Interest expense, net		43		41
Income tax provision (benefit)		14		(35	)
Depreciation		59		62
Amortization		95		134
EBITDA	$	243	$	71

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash flows from the operating activities of our consolidated subsidiaries, available cash and cash equivalents, and our access to our Revolving Credit Facility. We believe these sources will be sufficient to fund our liquidity requirements for at least the next twelve months. Although we believe we have sufficient resources to fund our future cash requirements, there are many factors with the potential to influence our cash flow position including weather, seasonality, commodity prices, market conditions, and prolonged impacts of COVID-19, over which we have no control. As of September 30, 2021, we had $1,354 million of total liquidity, comprising $1,128 million in cash and cash equivalents and $226 million ($300 million less outstanding letters of credit of approximately $74 million, which reduce availability) of available borrowings under our Revolving Credit Facility. During the nine months ended September 30, 2021, we received approximately $230 million of cash proceeds from the exercise of approximately 60 million outstanding warrants, resulting in the issuance of approximately 20 million shares of common stock, and $446 million in cash proceeds from the issuance of approximately 23 million shares of common stock.

During the second quarter of 2021, we completed a private offering of $350 million aggregate principal amount of 4.125% Senior Notes due 2029 (the “4.125% Senior Notes”). The 4.125% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by us and certain of our existing and future domestic subsidiaries. The proceeds from the sale of the 4.125% Senior Notes were used to repay all outstanding indebtedness under the term loan incurred on October 22, 2020 (the “2020 Term Loan”), prepay a portion of the term loan incurred on October 1, 2019 (the “2019 Term Loan”), pay for transaction fees and expenses, and fund general corporate purposes. In connection with the repayment of the 2020 Term Loan and partial repayment on the 2019 Term

Loan, we incurred a loss on debt extinguishment of $9 million related to unamortized debt issuance costs, which was recorded within loss on debt extinguishment in the unaudited condensed consolidated statements of operations.

We expect to continue to be able to access the capital markets through equity and debt offerings for liquidity purposes as needed. Our principal liquidity requirements have been, and we expect will be, any accrued consideration due to selling shareholders, including tax payments in connection therewith, for working capital and general corporate purposes, including capital expenditures and debt service, as well as to identify, execute and integrate strategic acquisitions and business transformation. We expect to fund the acquisition of the Chubb fire and security business, anticipated to close around year-end 2021, through a combination of cash on hand, perpetual preferred equity financing, the issuance of the 4.750% Senior Notes as described below, and other debt financing.

In December 2020, our Board of Directors authorized a share repurchase program, authorizing the purchase of up to an aggregate of $100 million of shares of common stock. There were no stock repurchases during the nine months ended September 30, 2021 under the share repurchase program and approximately $70 million of repurchases remained authorized.

Cash Flows

The following table summarizes net cash flows with respect to our operating, investing and financing activities for the periods indicated:


	Nine Months Ended September 30,
($ in millions)	2021			2020
Net cash provided by operating activities	$	68		$	329
Net cash used in investing activities		(81	)		(17	)
Net cash provided by (used in) financing activities		629			(101	)
Effect of foreign currency exchange rate change on cash and cash equivalents		(1	)		—
Net increase in cash and cash equivalents	$	615		$	211
Cash, cash equivalents, and restricted cash at the end of the period	$	1,130		$	467

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $68 million for the nine months ended September 30, 2021 compared to $329 million for the same period in 2020. Cash flow from operations is primarily driven by changes in the mix and timing of demand for our services and working capital needs associated with the various services we provide. Working capital is primarily affected by changes in total accounts receivable, accounts payable, accrued expenses, and contract assets and contract liabilities, all of which tend to be related and are affected by changes in the timing and volume of work performed. During 2020, the decline in volume of business due to the COVID-19 pandemic drove a significant decrease in our working capital, which generated substantial operating cash flows. During the nine months ended September 30, 2021, we experienced recovery from the impacts of COVID-19 and the volume of business has expanded, driving higher working capital requirements, specifically higher accounts receivable and contract assets, and leading to lower operating cash flows.

Net Cash Used in Investing Activities

Net cash used in investing activities was $81 million for the nine months ended September 30, 2021 compared to $17 million for the same period in 2020. During the prior year, our acquisition activity was reduced due to uncertainties around the COVID-19 pandemic, the transition to being a publicly traded company and other corporate priorities. Comparatively, during the current year, our strategic focus on accretive acquisitions has resulted in increased acquisition activity, primarily within the Safety Services segment, resulting in the use of $51 million for acquisitions during the nine months ended September 30, 2021 compared to $6 million for the same period in 2020. Our capital expenditures were approximately $43 million and $24 million in the nine months ended September 30, 2021 and 2020, respectively. The increase in capital spending is due to the reduction in capital expenditures that occurred in 2020 as a result of COVID-19, and as we return to a more normalized level of spending, capital spending has increased in the current period, and is expected to be less than 2% of net revenues annually.

Net Cash Provided by (used in) Financing Activities

Net cash provided by financing activities was $629 million for the nine months ended September 30, 2021 compared to a usage of $101 million for the same period in 2020. The increase in cash provided by financing activities was primarily due to $230 million of proceeds from the issuance of common shares in connection with the warrant exercises which occurred during the first quarter of 2021, $446 million of net proceeds from the common stock issuance, which occurred during the third quarter of 2021, and net proceeds from the issuance of long-term debt of $30 million, which were partially offset by $72 million of payments made on acquisition-related consideration.

Financing Activities

During the second quarter of 2021, we completed a private offering of $350 million aggregate principal amount of 4.125% Senior Notes, issued under an indenture, dated June 22, 2021 (the “Indenture”). The 4.125% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by us and certain existing and future domestic subsidiaries. We used the net proceeds from the sale of the 4.125% Senior Notes to repay the $250 million 2020 Term Loan, prepay a portion of the 2019 Term Loan and for general corporate purposes. As of September 30, 2021, we had $350 million aggregate principal amount of 4.125% Senior Notes outstanding.

The Indenture contains customary terms and provisions (including representations, covenants, and conditions). Certain covenants, among other things, restrict our, and our restricted subsidiaries’, ability to (i) incur additional indebtedness; (ii) pay dividends or make other distributions or repurchase or redeem capital stock; (iii) prepay, redeem or repurchase certain debt; (iv) make loans and investments; (v) sell, transfer and otherwise dispose of assets; (vi) incur or permit to exist certain liens; (vii) enter into transactions with affiliates; (viii) enter into agreements restricting subsidiaries’ ability to pay dividends; and (ix) consolidate, amalgamate, merge or sell all or substantially all assets. The Indenture also contains customary events of default.

The 4.125% Senior Notes will mature on July 15, 2029, unless redeemed earlier, and bear interest at a rate of 4.125% per year until maturity. Interest will be payable in cash, semi-annually in arrears, on January 15 and July 15 of each year, beginning on January 15, 2022. The 4.125% Senior Notes are subject to redemption in whole or in part at any time on or after July 15, 2024 at the redemption prices set forth in the Indenture. In addition, before July 15, 2024, up to 35% of the aggregate principal amount of the 4.125% Senior Notes may be redeemed with the net proceeds of certain equity offerings at the redemption price set forth in the Indenture, subject to certain conditions. Further, all or a portion of the 4.125% Senior Notes may be redeemed at any time prior to July 15, 2024 at a price equal to 100% of the principal amount, plus a “make-whole” premium and accrued interest, if any, to the date of redemption.

As of September 30, 2021, we have a credit agreement (the “Credit Agreement”) which provides for: (1) a term loan facility, pursuant to which we incurred the $1,200 million 2019 Term Loan used to fund a part of the cash portion of the purchase price in the APi Acquisition, and (2) a $300 million five-year senior secured revolving credit facility (the “Revolving Credit Facility”) of which up to $150 million can be used for the issuance of letters of credit. As of September 30, 2021, we had $1,140 million of indebtedness outstanding on the 2019 Term Loan and had no amounts outstanding under the Revolving Credit Facility, under which $226 million was available after giving effect to $74 million of outstanding letters of credit, which reduce availability.

One of our Canadian subsidiaries had a $20 million unsecured line of credit agreement with a variable interest rate based upon the prime rate. This line of credit was closed during the first quarter of 2021.

The Credit Agreement contains customary representations and warranties, and affirmative and negative covenants, including covenants that, among other things, restrict our, and our restricted subsidiaries’, ability to (i) incur additional indebtedness; (ii) pay dividends or make other distributions or repurchase or redeem capital stock; (iii) prepay, redeem or repurchase certain debt; (iv) make loans and investments; (v) sell, transfer and otherwise dispose of assets; (vi) incur or permit to exist certain liens; (vii) enter into transactions with affiliates; (viii) enter into agreements restricting subsidiaries’ ability to pay dividends; and (ix) consolidate, amalgamate, merge or sell all or substantially all assets. The Credit Agreement also contains customary events of default. Furthermore, with respect to the revolving credit facility, we must maintain a first lien net leverage ratio that does not exceed (i) 4.00 to 1.00 for each fiscal quarter ending in 2021, and (ii) 3.75 to 1.00 for each fiscal quarter ending thereafter, if on the last day of any fiscal quarter the outstanding amount of all revolving loans and letter of credit obligations (excluding undrawn letters of credit up to $40 million) under the Credit Agreement is greater than 30% of the total revolving credit commitments thereunder subject to a right of cure. Our first lien net leverage ratio as of September 30, 2021 was 0.04:1.00.

We were in compliance with all covenants contained in the Indenture and Credit Agreement as of September 30, 2021 and, in the case of the Credit Agreement, as of December 31, 2020.

In October 2021, APi Escrow Corp. (the “Escrow Issuer”), one of our wholly-owned subsidiaries, completed a private offering of $300 million aggregate principal amount of Senior Notes maturing on October 15, 2029 ("4.750% Senior Notes"), unless earlier redeemed, and bear interest at a rate of 4.750% per year until maturity. Interest will be payable in cash, semi-annually in arrears, on April 15 and October 15 of each year, beginning on April 15, 2022. We intend to use the net proceeds from the sale of the 4.750% Senior Notes to finance a portion of the consideration for the Chubb Acquisition.

The Senior Notes contain customary terms and provisions (including representations, covenants, and conditions). Certain covenants, among other things, restrict our, and our restricted subsidiaries’, ability to (i) incur additional indebtedness; (ii) pay dividends or make other distributions or repurchase or redeem capital stock; (iii) prepay, redeem or repurchase certain debt; (iv) make loans and investments; (v) sell, transfer and otherwise dispose of assets; (vi) incur or permit to exist certain liens; (vii) enter into transactions with affiliates; (viii) enter into agreements restricting subsidiaries’ ability to pay dividends; and (ix) consolidate, amalgamate, merge or sell all or substantially all assets. The Indenture also contains customary events of default.

The gross proceeds from the offering (plus an additional amount in cash sufficient to fund a Special Mandatory Redemption on the last day of the third full calendar month following the closing of the offering) were deposited into an escrow account. If and when the Chubb Acquisition occurs, the Special Mandatory Redemption provisions will terminate and the Escrow Issuer will merge with and into APi Group DE, Inc. (“APi DE”), one of our wholly-owned subsidiaries, with APi DE continuing as the surviving entity. Upon the merger, APi DE will assume all of the obligations of the Escrow Issuer, and at that time the 4.750% Senior Notes will be fully and unconditionally guaranteed on a senior unsecured basis by us and certain existing and future subsidiaries.

If escrow conditions, including the closing of the Chubb Acquisition, do not occur on or prior to October 27, 2022, the Escrow Issuer must redeem all of the 4.750% Senior Notes at a price equal to the principal amount of the 4.750% Senior Notes plus accrued interest (the “Special Mandatory Redemption”). If the escrow conditions do occur prior to October 27, 2022, then all amounts in the escrow account will be released to fund the Chubb Acquisition and related fees and expenses.

Equity Offering

On May 12, 2021, we filed a universal shelf registration statement on Form S-3 (the “Form S-3”) which enabled us to issue from time to time up to $500 million in shares of our common stock, preferred stock or debt securities, and on May 21, 2021, the Form S-3 was declared effective. On September 17, 2021, we completed an underwritten offering of 22,716,049 shares of our common stock at a public offering price of $20.25 per share. This number of shares includes 2,962,962 shares sold to the underwriters upon exercise in full of their option to purchase additional shares. The offering resulted in gross proceeds of approximately $460 million, before underwriting discounts and commissions and offering expenses of approximately $14 million. The offering was registered with the SEC pursuant to the Form S-3.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

As of September 30, 2021, our variable interest rate debt was primarily related to our $1,200 million 2019 Term Loan and the $300 million Revolving Credit Facility. As of September 30, 2021, excluding letters of credit outstanding of $74 million, we had no amounts of outstanding revolving loans and $1,140 million outstanding on the 2019 Term Loan. As of September 30, 2021, we had a 5-year interest rate swap with respect to $720 million of notional value of the 2019 Term Loan, exchanging one-month LIBOR for a fixed rate of 1.62% per annum. Accordingly, our fixed interest rate per annum on the swapped $720 million notional value of the 2019 Term Loan is 4.12% through its maturity. The remaining $420 million of our 2019 Term Loan balance is bearing interest at 2.58% per annum based on one-month LIBOR plus 250 basis points.

Additionally, during the third quarter of 2021, we amended and redesignated our net investment hedge with a notional value of $230 million. The net investment hedge reduces our interest expense by approximately $3 million annually and reduces our overall effective interest rate by approximately 24 basis points. A 100-basis point increase in the applicable interest rates under our credit facilities (including the unhedged portion of our 2019 Term Loan debt) would have increased our interest expense by approximately $5 million for the nine months ended September 30, 2021.

While we cannot predict our ability to refinance existing debt or the impact interest rate movements will have on our existing debt, we continue to evaluate our financial position on an ongoing basis. In addition, there is currently uncertainty about whether LIBOR will continue to exist after 2021. The ICE Benchmark Administration intends to cease the publication of U.S. dollar LIBOR as follows: the 1 week and 2 month tenors on December 31, 2021 and all other tenors on June 30, 2023. The discontinuation of LIBOR after 2021 and the replacement with an alternative reference rate may adversely impact interest rates and our interest expense could increase.

Foreign Currency Risk

Our foreign operations are primarily in Canada and Europe. Revenues generated from foreign operations represented approximately 10% of our consolidated net revenues for the nine months ended September 30, 2021. Net revenues and expenses related to our foreign operations are, for the most part, denominated in the functional currency of the foreign operation, which minimizes the impact fluctuations in exchange rates would have on net income or loss. We are subject to fluctuations in foreign currency exchange rates when transactions are denominated in currencies other than the functional currencies. Such transactions were not material to our operations during the nine months ended September 30, 2021. Translation gains or losses, which are recorded in accumulated other comprehensive loss in the unaudited condensed consolidated balance sheets, result from translation of the assets and liabilities of our foreign subsidiaries into U.S. dollars. Foreign currency translation losses (gains) totaled approximately $(9) million and $1 million for the three months ended September 30, 2021 and 2020, respectively, and $(9) million and $1 million for the nine months ended September 30, 2021, and 2020, respectively.

Our exposure to fluctuations in foreign currency exchange rates has increased as a result of the SKG Acquisition and will continue to increase in the future if we continue to expand our operations outside of the United States. We seek to manage foreign currency exposure by minimizing our consolidated net asset and liability positions in currencies other than the functional currency. Our foreign currency exposure was not significant to our consolidated financial position as of September 30, 2021.

Other Market Risk

We are also exposed to market risks impacting our customer base due to the potential related impact on accounts receivable or contract assets on uncompleted contracts. The amounts recorded may be at risk if our customers’ ability to pay these obligations is negatively impacted by economic conditions. We continually monitor the creditworthiness of our customers and maintain ongoing discussions with customers regarding contract status with respect to change orders and billing terms. Therefore, management believes it takes appropriate action to manage market and other risks, but there is no assurance management will be able to reasonably identify all risks with respect to the collectability of these assets. See also “Revenue Recognition from Contracts with Customers” under the Critical Accounting Policies section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

In addition, we are exposed to various supply chain risks, including market risk of price fluctuations or availability of copper, steel, cable optic fiber and other materials used as components of supplies or materials utilized in our operations. We are also exposed to increases in energy prices, particularly as they relate to gasoline prices for our vehicle fleet. Disruptions in our supply chain can occur due to market inefficiencies but can also be driven by other events, like cybersecurity breaches, pandemics or similar disruptive

events. While we believe we can increase our contract prices to adjust for some price increases in commodities, there can be no assurance that such price increases, if they were to occur, would be recoverable. Additionally, our fixed price contracts do not allow us to adjust prices and, as a result, increases in material costs could reduce profitability with respect to projects in progress.

Significant declines in market prices for oil and gas and other fuel sources may also impact our operations. Prolonged periods of low oil and gas prices may result in projects being delayed or cancelled and in a low oil and gas price environment, certain of our businesses could become less profitable or incur losses.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating such controls and procedures, we recognize any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

As required by Rule 13a-15(b) of the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded our disclosure controls and procedures are not effective at September 30, 2021 due to the material weakness in internal control over financial reporting described below, which was previously disclosed in Item 9A. “Controls and Procedures” of our Form 10-K for the year ended December 31, 2020.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility a material misstatement of annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

As indicated above, control deficiencies in our internal control over financial reporting have been identified which constitute material weaknesses relating to inadequate design and implementation of:



information technology general controls that prevent the information systems from providing complete and accurate information consistent with financial reporting objectives and current needs;



internal controls over the preparation of the financial statements, including the insufficient review and oversight over financial reporting, journal entries and related file documentation;



internal controls to identify and manage segregation of certain accounting duties;



internal controls over estimated costs of completion on contracts where net revenues are recognized over time; and



management review controls over projected financial information used in fair value financial models used for purchase accounting and intangible asset valuations.

Management has undertaken various steps to begin remediating such control deficiencies. The material weaknesses will not be considered remediated until management designs and implements effective controls that operate for a sufficient period of time and management has concluded through testing that these controls are effective. We will monitor the effectiveness of our remediation plans and will make changes management determines to be appropriate. Steps taken by management include the following:



development of an Internal Audit team responsible for a detailed work plan to assess and document the adequacy of internal control over financial reporting, continued steps to improve control processes as appropriate, validation through testing that controls are functioning as documented, and implementation of a continuous reporting and improvement process for internal control over financial reporting;



implementation of a global consolidation and planning system;



addition of members to our accounting and finance team with the appropriate qualified experience in financial reporting, consolidations, technical accounting, and application of U.S. GAAP;



implementation of new controls over the revenue recognition process;



identification and mitigation of segregation of duties concerns within various accounting areas; and



implementation of new controls and enhanced procedures and processes in our financial consolidation and reporting processes.

We plan to continue our efforts to improve, design and implement integrated processes to enhance our internal control over financial reporting, including:



implementing changes to our accounting systems and establishing general information technology controls;



adding further qualified resources to our accounting and finance team with the appropriate qualified experience in financial reporting, consolidations, tax, technical accounting, internal audit and internal controls;



providing training and education programs for financial personnel responsible for the performance of newly implemented processes and controls; and



revising and enhancing control procedures for more robust control performance.

Changes in Internal Control Over Financial Reporting

We are executing our plan to remediate the material weaknesses relating to our internal control over financial reporting, as described above. This plan includes a detailed risk and controls assessment, key process walkthroughs, and flowchart documentation, training, and execution and validation of determined key controls. Except as otherwise described herein, there were no material changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2021 that have, or are reasonably likely to have, materially affected our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls and Procedures

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. However, our management, including our Chief Executive Officer and Chief Financial Officer, does not expect our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected.

PART II. OTHER INFORMATION

Item 1A. Risk Factors

In addition to the risk factors disclosed in the section entitled “Risk Factors” of our Form 10-K, we have identified the following risks related to the Chubb acquisition:

Our ability to complete the acquisition of Chubb is subject to various closing conditions, including the receipt of consents and approvals from governmental authorities, which may impose conditions that could adversely affect us or cause the acquisition not to be completed.

On July 26, 2021, we entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Carrier Global Corporation (“Carrier”), Carrier Investments UK Limited and Chubb Limited (“Chubb”). Pursuant to the Purchase Agreement, on the terms and subject to the conditions therein, we agreed to acquire the Chubb fire and security business through the acquisition of Chubb (the “Acquisition”). The Acquisition is subject to a number of conditions to closing as specified in the Purchase Agreement. These closing conditions include, among others, the receipt of certain regulatory approvals pursuant to any Competition and Foreign Investment Laws (as defined in the Purchase Agreement). No assurance can be given that the required governmental and regulatory consents and approvals will be obtained or that the required conditions to closing will be satisfied, and, if all required consents and approvals are obtained and the required conditions are satisfied, no assurance can be given as to the terms, conditions and timing of such consents and approvals. Any delay in completing the Acquisition could cause us not to realize, or to be delayed in realizing, some or all of the benefits that we and Chubb expect to achieve if the Acquisition is successfully completed within its expected time frame.

Additionally, either we or Carrier may terminate the Purchase Agreement under certain circumstances, including, among other reasons, if the Acquisition is not completed by July 26, 2022 (which date may be extended under certain circumstances).

We can provide no assurance that the various closing conditions will be satisfied and that the necessary approvals will be obtained, or that any required conditions will not materially adversely affect us following the Acquisition. In addition, we can provide no assurance that these conditions will not result in the abandonment or delay of the Acquisition. The occurrence of any of these events individually or in combination could have a material adverse effect on our results of operations and the trading price of our common stock.

The termination of the Purchase Agreement could negatively impact our business.

If the Acquisition is not completed for any reason, our ongoing business may be adversely affected and, without realizing any of the expected benefits of having completed the Acquisition, we would be subject to a number of risks, including the following:



we may experience negative reactions from the financial markets, including negative impacts on our stock price;



we may experience negative reactions from our customers, suppliers, distributors and employees;



we will be required to pay our costs relating to the Acquisition, such as financial advisory, legal, financing and accounting costs and associated fees and expenses, whether or not the Acquisition is completed;



we could be subject to time-consuming and costly litigation related to the Acquisition; and



matters relating to the Acquisition (including integration planning) require substantial commitments of time and resources by our management, which could otherwise have been devoted to day-to-day operations or to other opportunities that may have been beneficial to our business.

We will incur significant acquisition-related costs in connection with the Acquisition, and we could incur substantial expenses related to the integration of Chubb.

We have incurred and expect to incur a number of non-recurring costs associated with the integration of Chubb into our business, as well as transaction fees and other costs related to the Acquisition. These costs and expenses include fees paid to financial, legal and accounting advisors, facilities and systems consolidation costs, severance and other potential employment-related costs, including severance payments that may be made to certain Chubb employees, filing fees, printing expenses and other related charges. We will need to pay some of these costs regardless of whether the Acquisition is completed.

The Chubb business, we and any other relevant person is exposed to risks in connection with the funding of Chubb's pension commitments.

The Chubb business operates two defined benefit pension plans in the United Kingdom, which plans are closed to new members and future benefit accrual, as well as plans in Ireland and Australia. These plans are financed predominantly through externally invested pension plan assets via externally managed funds and insurance companies, which investments are subject to market, interest rate and inflation risks. If these investments do not perform well or are not managed properly and their values decline significantly, it could result in a substantial coverage shortfall for these pension obligations and therefore significantly increase the net pension obligations of the Chubb business, which could adversely affect our financial condition.

The Pensions Regulator in the United Kingdom has the statutory power to require additional funding or other financial support to be put in place for either Chubb defined benefit pension plan in the United Kingdom which, if exercised, could result in significant liabilities arising for the Chubb business and/or us. In addition, the Pensions Regulator in the United Kingdom has recently been given additional statutory powers which could result in the imposition of criminal sanctions on the Chubb business and/or us or any other person in relation to either Chubb defined benefit pension plan in the United Kingdom. The UK Pensions Regulator would need to satisfy a number of statutory tests in order to exercise its powers successfully.

Item 4. Mine Safety Disclosures

Information regarding mine safety violations and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this quarterly report.

Item 6. Exhibits


Exhibit No.		Description of Exhibits

10.21*		Purchase Agreement, dated October 6, 2021, by and among APi Escrow Corp., and Citigroup Global Markets Inc. and Barclays Capital Inc., as representatives of the initial purchasers, for 4.750% Senior Notes due 2029.

31.1*		Certification by Russell A. Becker, Chief Executive Officer, pursuant to Exchange Act Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification by Kevin S. Krumm, Chief Financial Officer, pursuant to Exchange Act Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certifications by Russell A. Becker, Chief Executive Officer, and Kevin S. Krumm, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

95.1*		Mine Safety Disclosures.

101.INS*		Inline XBRL Instance Document.

101.SCH*		Inline XBRL Taxonomy Extension Schema Document.

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith

** Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized.


		APi GROUP CORPORATION

November 10, 2021		/s/ Russell A. Becker
		Russell A. Becker
		Chief Executive Officer
		(Duly Authorized Officer)

November 10, 2021		/s/ Kevin S. Krumm
		Kevin S. Krumm
		Chief Financial Officer
		(Principal Financial Officer)

Exhibit 10.21

APi Escrow Corp.

(to be merged with and into APi Group DE, Inc.)

$300,000,000

4.750% Senior Notes due 2029

Purchase Agreement

October 6, 2021

Citigroup Global Markets Inc.

Barclays Capital Inc.

As Representatives of the Initial Purchasers

c/o Citigroup Global Markets Inc.

388 Greenwich Street

New York, New York 10013

c/o Barclays Capital Inc.

745 Seventh Avenue

New York, New York 10019

Ladies and Gentlemen:

APi Escrow Corp., a Delaware corporation (the “Escrow Issuer”) and wholly owned subsidiary of APi Group DE, Inc., a Delaware corporation (the “Company”), proposes, upon the terms and conditions set forth in this agreement (this “Agreement”), to issue and sell to the several parties named in Schedule I hereto (the “Initial Purchasers”), for whom you (the “Representatives”) are acting as representatives, $300,000,000 principal amount of its 4.750% Senior Notes due 2029 (the “Notes”). To the extent there are no additional parties listed on Schedule I other than you, the term Representatives as used herein shall mean you as the Initial Purchasers, and the terms Representatives and Initial Purchasers shall mean either the singular or plural as the context requires. The use of the neuter in this Agreement shall include the feminine and masculine wherever appropriate.

The Notes are being issued in connection with the proposed acquisition (the “Acquisition”) of Chubb Limited (“Chubb” and, together with its subsidiaries, “Chubb Entities”) pursuant to the Stock Purchase Agreement, dated as of July 26, 2021 (the “Stock Purchase Agreement”), by and among Carrier Global Corporation, Carrier Investments UK Limited, Chubb Limited and APi Group Corporation, the parent of the Company (“Holdings”). Pursuant to the Stock Purchase Agreement, Holdings will acquire the Chubb Entities and, following the Acquisition, (the date of the Acquisition, the “Acquisition Date”), (x) Chubb will be a direct or

|US-DOCS\126609424.6||

indirect subsidiary of Holdings and (y) subject to the satisfaction of the Escrow Release Conditions (as defined below), pursuant to the merger of the Escrow Issuer with and into the Company, with the Company continuing as the surviving entity, the Company will assume the rights and obligations of the Escrow Issuer under the Notes and the Indenture (as defined below) (the “Escrow Issuer Assumption”).

In connection with the Acquisition, on or prior to the Escrow Release Date (as defined below), it is anticipated that the Company will amend that certain credit agreement, dated as of October 1, 2019 (as amended to the date hereof, the “Existing Credit Agreement” and together with this amendment, the “Credit Agreement”), by and among the Company, Holdings, as guarantor, the subsidiary guarantors from time to time party thereto, the lenders from time to time party thereto and Citibank, N.A., as administrative agent and collateral agent, to provide for an incremental term loan B facility (the “Incremental Facility”) under the Existing Credit Agreement in an aggregate principal amount of $1,100,000,000.

For the purpose of this Agreement, the term “Transactions” refers collectively to (i) the Acquisition, (ii) the entry into the amendment to the Existing Credit Agreement and the borrowings under the Incremental Facility, (iii) the issuance and sale of the Notes and the Guarantees (as defined below) and (iv) the payment of fees, costs and expenses related thereto (the “Transaction Costs”). The Term “Transaction Documents” refers to this Agreement, the Joinder Agreement (as defined below), the Notes, the Initial Indenture (as defined below), the Supplemental Indenture (as defined below), the Guarantees and the Escrow Agreement (as defined below). References to the “Issuer” are to (x) the Escrow Issuer, before consummation of the Acquisition, and (y) the Company from and after the consummation of the Acquisition. Upon consummation of the Acquisition, the Company, by execution of a Joinder Agreement, the Supplemental Indenture and by operation of law, will assume all of the obligations of the Escrow Issuer under this Agreement, the Notes and the Initial Indenture.

If the Acquisition is not consummated on or prior to the Closing Date, concurrently with the closing of the Notes on the Closing Date, the Issuer will enter into an escrow agreement (the “Escrow Agreement”), with the Trustee (as defined below) and Citibank, N.A., as escrow agent (in such capacity, the “Escrow Agent”), pursuant to which the Issuer will deposit (or cause to be deposited) into a segregated escrow account (the “Escrow Account”) until the Escrow Release Conditions are satisfied (x) the gross proceeds of the offering of Notes (the “Escrowed Proceeds”) and (y) an additional amount in cash (the “Additional Escrow Amount” and, together with the Escrowed Proceeds, the “Escrow Property”) that, when taken together with the Escrowed Proceeds, will be sufficient to fund a Special Mandatory Redemption (as defined below) of the Notes on the date that is the last day of the third full calendar month following the Closing Date, if a Special Mandatory Redemption were to occur on such date. In addition, the Escrow Agreement will provide that, unless (i) the Escrow Issuer has then directed the Escrow Agent to release the Escrow Property pursuant to the terms of the Escrow Agreement or (ii) there has occurred a Special Mandatory Redemption, commencing with the first day of the third full calendar month following the Closing Date, at least, on the date that is two Business Days prior to such date (each such date, a “Deposit Date”), the Escrow Issuer will deposit, or cause to be deposited, cash or by wire transfer in the Escrow Account in an amount equal to the lesser of (x) the monthly interest that would accrue on the Notes during the next calendar month

and (y) the amount of interest that would accrue on the Notes from the first day of the next calendar month to, but excluding, the Escrow Outside Date (as defined below). If the Escrow Agreement is satisfied, the Issuer will grant to the Trustee, for its benefit and the benefit of the holders of the Notes, a first-priority security interest in the Escrow Account and all amounts on deposit therein to secure the obligations under the Notes pending disbursement as described below.

The release (the “Release” and the date of such release, the “Escrow Release Date”) of the Escrow Property from the Escrow Account will be subject to the satisfaction of certain conditions described in the Escrow Agreement (the “Escrow Release Conditions”). The Notes will be subject to a special mandatory redemption (the “Special Mandatory Redemption”) at a redemption price equal to 100% of the initial issue price of the Notes plus accrued and unpaid interest, if any, from the Closing Date to, but excluding, the special mandatory redemption date (the “Special Mandatory Redemption Date”) as further described in the Disclosure Package and the Final Memorandum.

The Notes will be issued pursuant to an indenture, to be dated as of the Closing Date (the “Initial Indenture”), by and between the Issuer and Computershare Trust Company, N.A., as trustee (in such capacity, the “Trustee”), and to the extent the Acquisition has been consummated on or prior to the Closing Date, the Guarantors. To the extent the Acquisition has not been consummated on or prior to the Closing Date, substantially concurrently with the consummation of the Acquisition, each of the Guarantors will enter into a supplemental indenture to the Initial Indenture (the “Supplemental Indenture”) with the Trustee, pursuant to which the Guarantors will guarantee the obligations of the Issuer under the Notes and the Initial Indenture effective as of and from the closing date of the Acquisition. As used herein, the term “Indenture” shall mean (A) to the extent the Acquisition has been consummated on or prior to the Closing Date, the Initial Indenture and (B) to the extent the Acquisition has not been consummated on or prior to the Closing Date, the Initial Indenture as supplemented by the Supplemental Indenture. Following the consummation of the Acquisition and upon the execution and delivery of the Joinder Agreement (as defined below) and the Supplemental Indenture or the Initial Indenture, as applicable, by the Guarantors, the obligations of the Issuer, including the due and punctual payment of interest on the Notes, will be fully and unconditionally guaranteed on an unsecured basis, jointly and severally (the “Guarantees”) in each case, by Holdings and each wholly-owned restricted subsidiary of the Company that guarantees or will guarantee the obligations under the Credit Agreement as of the consummation of the Acquisition, which such entities are set forth on Schedule V hereto (each, a “Guarantor” and collectively, the “Guarantors”). The Notes and the Guarantees are herein collectively referred to as the “Securities”. Notwithstanding any provision herein to the contrary, solely with respect to each Guarantor that is identified on Schedule V hereto as a foreign Guarantor (each, a “Foreign Guarantor” and collectively, the “Foreign Guarantors”), to the extent the Acquisition has not been consummated on or prior to the Closing Date, such Foreign Guarantors will execute the Supplemental Indenture concurrently with the execution of the Supplemental Indenture by the foreign Chubb Entities.

Substantially concurrently with the consummation of the Acquisition, the Company and each Guarantor will execute and deliver a joinder agreement substantially in the

form attached as Annex B hereto (the “Joinder Agreement”), whereby the Company and each Guarantor will agree to observe and fully perform all of the rights, obligations and liabilities contemplated herein as if it were an original signatory hereto; provided, however, solely with respect to each Foreign Guarantor, notwithstanding any provision herein to the contrary, such Foreign Guarantors will execute the Joinder Agreement concurrently with the execution of the Joinder Agreement by the Chubb Entities that are organized outside of the United States. The representations, warranties, authorizations, acknowledgments, covenants and agreements of the Company and the Guarantors under this Agreement will not become effective or enforceable until the execution and delivery by each of them of the Joinder Agreement, at which time such representations, warranties, authorizations, acknowledgments, covenants and agreements will become effective and enforceable as if made on the date hereof pursuant to the terms of the Joinder Agreement.

The sale of the Securities to the Initial Purchasers will be made without registration of the Securities under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”) in reliance upon exemptions from the registration requirements of the Securities Act.

In connection with the sale of the Securities, the Issuer has prepared a preliminary offering circular, dated October 6, 2021 (as amended or supplemented at the date thereof, including any and all exhibits thereto and any information incorporated by reference therein, the “Preliminary Memorandum”), and a final offering circular, dated October 6, 2021 (as amended or supplemented at the Execution Time, including any and all exhibits thereto and any information incorporated by reference therein, the “Final Memorandum”). Each of the Preliminary Memorandum and the Final Memorandum sets forth certain information concerning the Company and the Securities. The Company hereby confirms that it has authorized the use of the Disclosure Package, the Preliminary Memorandum and the Final Memorandum, and any amendment or supplement thereto, in connection with the offer and sale of the Securities by the Initial Purchasers. Unless stated to the contrary, any references herein to the terms “amend”, “amendment” or “supplement” with respect to the Disclosure Package, the Preliminary Memorandum and the Final Memorandum shall be deemed to refer to and include any information filed under the Exchange Act (as defined below) subsequent to the Execution Time that is incorporated by reference therein.

As used in this Agreement, the “Disclosure Package” shall mean (i) the Preliminary Memorandum, as amended or supplemented at the date and time that this Agreement is executed and delivered by the parties hereto (the “Execution Time”), (ii) the final term sheet prepared pursuant to Section 5(b) hereto and in the form attached as Schedule II hereto and (iii) any writings in addition to the Preliminary Memorandum that the parties expressly agree in writing to treat as part of the Disclosure Package (“Issuer Written Information”).

The Escrow Issuer hereby agrees and, upon execution and delivery of the Joinder Agreement, each of the Company, Holdings and the Guarantors, jointly and severally, hereby agrees, with the Initial Purchasers as follows:

Representations and Warranties. (x) The Escrow Issuer hereby represents and warrants to (it being understood that all representations and warranties of the Escrow Issuer

with respect to the Chubb Entities are made to the best knowledge of the Escrow Issuer), and agrees with, and (y) upon execution and delivery of the Joinder Agreement, each of the Company, Holdings and the Guarantors represents and warrants (as if made as of the Execution Time) to, and agrees with, each Initial Purchaser as set forth below in this Section 1.

(a)

The Preliminary Memorandum, at the date thereof, did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. At the Execution Time and on the Closing Date, the Final Memorandum did not and will not (and any amendment or supplement thereto, at the date thereof and at the Closing Date will not) contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representation or warranty as to the information contained in or omitted from the Preliminary Memorandum or the Final Memorandum, or any amendment or supplement thereto, in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of the Initial Purchasers through the Representatives specifically for inclusion therein, it being understood and agreed that the only such information furnished by or on behalf of any Initial Purchaser consists of the information described as such in Section 8(b) hereof.

(b)

As of the Execution Time, (i) the Disclosure Package and (ii) each electronic road show made to prospective investors of the Company, when taken together as a whole with the Disclosure Package, (c) any other General Solicitation by the Company, its affiliates (“Affiliates”), as such term is defined in Rule 501(b) of Regulation D under the Securities Act (“Regulation D”), or any person acting on its or their behalf, does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Disclosure Package based upon and in conformity with written information furnished to the Company by or on behalf of any Initial Purchaser through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by or on behalf of any Initial Purchaser consists of the information described as such in Section 8(b) hereof.

(c)

None of the Company, its Affiliates, or any person acting on its or their behalf has, directly or indirectly, made offers or sales of any security, or solicited offers to buy, any security under circumstances that would require the registration of the Securities under the Securities Act.

(d)

None of the Company, its Affiliates, or any person acting on its or their behalf has: (i) engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) (each, a “General Solicitation”) in connection with any offer or sale of the Securities, other than any General Solicitation in respect of which the Representatives have given their prior written consent; provided that the prior written consent of the Representatives shall be deemed to have been given in respect of the General Solicitation included in Schedule III hereto or (ii) engaged in any directed selling efforts (within the meaning of Regulation S

under the Securities Act (“Regulation S”)) with respect to the Securities; and each of the Company, its Affiliates and each person acting on its or their behalf has complied with the offering restrictions requirement of Regulation S.

(e)

The Securities satisfy the eligibility requirements of Rule 144A(d)(3) under the Securities Act.

(f)

The documents incorporated or deemed to be incorporated by reference in the Preliminary Memorandum and the Final Memorandum at the time they were filed with the Securities and Exchange Commission (the “Commission”) conformed (and to the extent they are incorporated by reference into the Final Memorandum will conform) in all material respects to the applicable reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Exchange Act”).

(g)

Assuming the accuracy of representations and warranties in Section 4(b), no registration under the Securities Act of the Securities is required for the offer and sale of the Securities to or by the Initial Purchasers in the manner contemplated herein, in the Disclosure Package and the Final Memorandum.

(h)

None of the Company, Holdings or any Guarantor is, and after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Disclosure Package and the Final Memorandum will be, an “investment company” as defined in the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder (the “Investment Company Act”).

(i)

None of the Company, Holdings or any Guarantor has paid or agreed to pay to any person any compensation for soliciting another to purchase any securities of the Company, Holdings or any Guarantor (except as contemplated in this Agreement).

(j)

None of the Company, Holdings or any Guarantor has taken, directly or indirectly, any action designed to or that has constituted or that would reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company, Holdings or any Guarantor in connection with the offering of the Securities.

(k)

Each of Holdings, the Company and their respective subsidiaries has been duly organized, is validly existing and in good standing as a corporation, partnership or limited liability company under the laws of their respective jurisdiction of organization and is duly qualified to do business and in good standing as a foreign corporation or other business entity in each jurisdiction in which its ownership or lease or property or the conduct of its businesses requires such qualification, except where the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the condition (financial or otherwise), results of operations, stockholders’ equity, properties, business or management of Holdings, the Company, Chubb and their respective subsidiaries taken as a whole (a “Material Adverse Effect”). Each of Holdings, the Company and their respective subsidiaries has all power and authority to hold its properties and to conduct the businesses in which it is engaged.

(l)

Each of Holdings and the Company has an authorized capitalization as set forth in each of the Disclosure Package and the Final Memorandum, and all of the issued shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable, conform to the description thereof contained or incorporated by reference in the Disclosure Package and the Final Memorandum and were issued in compliance with federal and state securities laws and not in violation of any preemptive right, resale right, right of first refusal or similar right. All the outstanding shares of capital stock or ownership interests of each subsidiary of Holdings (other than the Company) have been duly authorized and validly issued and are fully paid and nonassessable and are free and clear of all liens, encumbrances, equities or claims, except as otherwise set forth in the Disclosure Package and the Final Memorandum and except for such liens, encumbrances, equities or claims as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, all outstanding shares of capital stock or ownership interests of the subsidiaries are owned by Holdings either directly or through wholly owned subsidiaries free and clear of any security interest, claim, lien or encumbrance.

(m)

The statements in the Preliminary Memorandum and the Final Memorandum under the heading “Description of Notes” insofar as they purport to constitute a summary of the terms of the Notes and the Guarantees and “Certain Material U.S. Federal Income Tax Considerations” and “Description of Other Indebtedness” insofar as they purport to summarize the provisions of the laws and documents referred to therein, are accurate summaries in all material respects.

(n)

This Agreement has been duly authorized, executed and delivered by the Escrow Issuer and the Joinder Agreement has been duly authorized, executed and delivered by each of Holdings, the Company and the Guarantors; the Initial Indenture has been duly authorized by the Escrow Issuer and, assuming due authorization, execution and delivery thereof by the Trustee, when executed and delivered by the Escrow Issuer, will constitute a legal, valid, binding instrument enforceable against the Escrow Issuer in accordance with its terms (subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors’ rights generally from time to time in effect and to general principles of equity); the Supplemental Indenture has been duly authorized by each of Holdings, the Company and the Guarantors and, assuming due authorization, execution and delivery thereof by the Trustee, when executed and delivered by each of Holdings, the Company and the Guarantors, will constitute a legal, valid, binding instrument enforceable against each of Holdings, the Company and the Guarantors in accordance with its terms (subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors’ rights generally from time to time in effect and to general principles of equity); the Notes have been duly authorized by the Escrow Issuer and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchasers, will have been duly executed and delivered by the Escrow Issuer and will constitute the legal, valid and binding obligations of the Escrow Issuer entitled to the benefits of the Indenture (subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors’ rights generally from time to time in effect and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); the Securities have been

duly authorized by Holdings, the Company and the Guarantors, respectively, and, when executed and authenticated in accordance with the provisions of the Indenture, will have been duly executed and delivered by each of Holdings, the Company and the Guarantors and will constitute the legal, valid and binding obligations of Holdings, the Company and the Guarantors entitled to the benefits of the Indenture (subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors’ rights generally from time to time in effect and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

(o)

The Stock Purchase Agreement has been duly authorized, executed and delivered by, and assuming due authorization, execution and delivery by the other parties thereto, is a valid and binding agreement of Holdings, enforceable against it in accordance with its terms. To the knowledge of each of the Issuer and Holdings, as of the Execution Time, no party is in breach of its representations and warranties contained in the Stock Purchase Agreement (as qualified by the disclosure schedules delivered therewith and after giving effect to any materiality or material adverse effect qualifiers contained therein).

(p)

No consent, approval, authorization, filing with or order of any court or governmental agency or body having jurisdiction over the Issuer, Holdings, the Guarantors, the Chubb Entities or any of their respective subsidiaries or any of their properties or assets is required in connection with the issue and sale of the Notes and the Guarantees, the execution, delivery and performance by Holdings, the Issuer and the Guarantors of the Notes, the Guarantees, the Indenture and this Agreement, the application of the proceeds from the sale of the Notes as described under “Use of Proceeds” in each of the Disclosure Package and the Final Memorandum and the consummation of the transactions contemplated hereby, except for such consents, approvals, authorizations, filings, orders, registrations or qualifications as may be required under applicable state or foreign securities or blue sky laws in connection with the purchase and distribution of the Notes by the Initial Purchasers.

(q)

None of the execution and delivery of this Agreement or the Indenture, the issuance and sale of the Securities, or the consummation of any other of the transactions herein or therein contemplated, or the fulfillment of the terms hereof or thereof will, (i) result in the violation of the charter or by-laws or comparable constituting documents of Holdings or any of its subsidiaries; (ii) conflict with, result in a breach or violation of any of the terms or provisions of, or impose any lien, charge or encumbrance upon any property or assets of the Issuer, Holdings or any of their respective subsidiaries pursuant to the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which Holdings, the Issuer or any of their respective subsidiaries is a party or bound or to which its or their property is subject; or (iii) result in the violation of any statute, law, rule, regulation, judgment, order or decree applicable to Holdings, the Issuer on any of their respective subsidiaries of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over Holdings, the Issuer or any of their respective subsidiaries or any of its or their properties except, with respect to clauses (ii) and (iii), conflicts, violations, breaches, liens, charges or encumbrances that would not reasonably be expected to have a Material Adverse Effect, or have a material adverse effect upon the transactions contemplated herein or any Initial Purchaser subject to, in the case of the

foregoing clause (ii), the receipt of any consents, approvals, authorizations, orders, registrations, filings or qualifications which shall have been obtained or made prior to the Closing Date.

(r)

The consolidated historical financial statements and schedules of Holdings and its consolidated subsidiaries included or incorporated by reference in the Disclosure Package and the Final Memorandum present fairly in all material respects the financial condition, results of operations and cash flows of Holdings as of the dates and for the periods indicated comply as to form in all material respects with the applicable accounting requirements of Regulation S-X (as defined below) and have been prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis throughout the periods involved (except as otherwise noted therein); the selected financial data set forth under the caption “Summary Financial Data” in the Preliminary Memorandum and the Final Memorandum fairly present in all material respects, on the basis stated in the Preliminary Memorandum and the Final Memorandum, the information included or incorporated by reference therein. To the Issuer’s knowledge, (i) the consolidated historical financial statements and schedules of the Chubb Entities included in the Preliminary Memorandum and the Final Memorandum present fairly in all material respects the financial condition, results of operations and cash flows of the Chubb Entities as of the dates and for the periods indicated, comply as to form in all material respects with the applicable accounting requirements of the Securities Act and have been prepared in conformity with GAAP in the United States applied on a consistent basis throughout the periods involved (except as otherwise noted therein) and (ii) the selected financial data set forth under the caption “Summary Carve-Out Financial Data of the Chubb Business” in the Preliminary Memorandum and the Final Memorandum fairly present in all material respects, on the basis stated in the Preliminary Memorandum and the Final Memorandum, the information included therein. The pro forma financial statements included in the Preliminary Memorandum and the Final Memorandum include assumptions that provide a reasonable basis for presenting the significant effects directly attributable to the transactions and events described therein, the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma adjustments reflect the proper application of those adjustments to the historical financial statement amounts in the pro forma financial statements included in the Preliminary Memorandum and the Final Memorandum. The pro forma financial statements included in the Preliminary Memorandum and the Final Memorandum comply as to form in all material respects with the applicable accounting requirements of Regulation S-X under the Securities Act (“Regulation S-X”) and the pro forma adjustments have been properly applied to the historical amounts in the compilation of those statements.

(s)

No action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving Holdings, the Issuer or any of their respective subsidiaries or its or their property is pending or, to the knowledge of Holdings or the Issuer, threatened that (i) would reasonably be expected to have a material adverse effect on the performance of this Agreement, the Indenture or the consummation of any of the transactions contemplated hereby or thereby or (ii) would reasonably be expected to have a Material Adverse Effect.

(t)

Each of Holdings, the Issuer and their respective subsidiaries owns or leases all such properties as are necessary to the conduct of its operations as presently conducted.

(u)

Neither Holdings, the Issuer nor any of their respective subsidiaries (i) is in violation of any provision of its charter or bylaws or comparable constituting documents; (ii) is in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant, condition or other obligation contained in the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which it is a party or bound or to which its property is subject; or (iii) is in violation of any statute, law, rule, regulation, judgment, order or decree applicable to Holdings, the Issuer or any of their respective subsidiaries of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over Holdings, the Issuer or such subsidiary or any of its properties, as applicable, except in the case of clauses (ii) and (iii), to the extent any such conflict, breach, violation or default would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(v)

KPMG LLP, who have certified certain financial statements of Holdings and its consolidated subsidiaries and delivered their report with respect to the audited consolidated financial statements and schedules included or incorporated by reference in the Disclosure Package and the Final Memorandum, are independent public accountants with respect to the Company in accordance with local accounting rules and within the meaning of the Securities Act.

(w)

PricewaterhouseCoopers LLP, who have certified certain financial statements of the Chubb Entities and delivered their report with respect to the audited consolidated financial statements and schedules included in the Disclosure Package and the Final Memorandum, are independent public accountants with respect to the Chubb Entities within the meaning of the Securities Act and the applicable published rules and regulations thereunder.

(x)

There are no stamp or other issuance or transfer taxes or duties or other similar fees or charges required to be paid by any of Holdings, the Issuer or the Guarantors in connection with the execution and delivery of this Agreement by Holdings, the Issuer and the Guarantors or the issuance, sale or initial resale of the Securities.

(y)

Each of Holdings, the Issuer and the Guarantors has filed all applicable tax returns that are required to be filed required to be filed through the date hereof, subject to permitted extensions and has paid all taxes required to be paid by it, except where such failure to file or pay would not reasonably be expected to have a Material Adverse Effect, and no tax deficiency has been determined adversely to Holdings, the Issuer, the Guarantors or any of their respective subsidiaries, nor do Holdings, the Issuer or any Guarantor have any knowledge of any tax deficiencies that have been, or would reasonably be expected to be asserted against Holdings, the Issuer, the Guarantors and each of their respective subsidiaries, that would, in the aggregate, reasonably be expected to have a Material Adverse Effect.

(z)

No labor problem or dispute with the employees of Holdings or any of its subsidiaries exists or, or to the knowledge of Holdings, the Issuer or any Guarantor, is threatened or imminent, and each of Holdings, the Issuer and the Guarantors is not aware of any imminent labor disturbance by the employees of any of its or its subsidiaries’ principal suppliers,

contractors or customers, except as would not reasonably be expected to have a Material Adverse Effect.

(aa)

No subsidiary of Holdings is currently prohibited, directly or indirectly, from paying any dividends to either Holdings or the Issuer, from making any other distribution on such subsidiary’s capital stock, from repaying to either Holdings or the Issuer any loans or advances to such subsidiary from either Holdings or the Issuer or from transferring any of such subsidiary’s property or assets to Holdings or any other subsidiary of Holdings, except as described in the in the Disclosure Package and the Final Memorandum.

(bb)

Holdings, the Issuer and each of their respective subsidiaries are insured by insurers of recognized financial responsibility (except with respect to liabilities which Holdings self-insures) against such losses and risks and in such amounts as Holdings, the Issuer and each Guarantor believes, is adequate for the conduct of their respective businesses and the value of their respective properties and as, to Holdings’, the Issuer’s or any Guarantor’s knowledge, is customary for companies engaged in similar businesses in similar industries. All policies of insurance and fidelity or surety bonds insuring Holdings, the Issuer or any of their respective subsidiaries or their respective businesses, assets, employees, officers and directors are in full force and effect; Holdings, the Issuer and their respective subsidiaries are in compliance with the terms of such policies and instruments in all material respects; and neither Holdings, the Issuer or any subsidiary has received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance. There are no claims by Holdings, the Issuer or any of their respective subsidiaries under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause; none of Holdings, the Issuer nor any of their respective subsidiaries has been refused any insurance coverage sought or applied for; and none of Holdings, the Issuer nor any of their respective subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not reasonably be expected to have a Material Adverse Effect.

(cc)

Holdings, the Issuer and their respective subsidiaries possess all licenses, certificates, permits and other authorizations issued by all applicable authorities (“Permits”) required to conduct their respective businesses under applicable law in the manner described in the Disclosure Package and the Final Memorandum except for any of the foregoing which, if not obtained, would not, in the aggregate, reasonably be expected to have a Material Adverse Effect. Holdings, the Issuer and each of their respective subsidiaries have fulfilled and performed all of its obligations with respect to the Permits, and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other impairment of the rights of the holder or any such Permits, except for any of the foregoing that would not reasonably be expected to have a Material Adverse Effect. None of Holdings, the Issuer or any of their respective subsidiaries has received any notice of any revocation or modification of any material Permits or has any reason to believe that any material Permits will not be renewed in the ordinary course.

(dd)

Holdings, the Issuer and each of their respective subsidiaries maintain a system of internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) that complies with the requirements of the Exchange Act and that has been designed by, or under the supervision of, Holdings’ principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Except as otherwise set forth or incorporated by reference in the Disclosure Package and the Final Memorandum, Holdings maintains internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorization, (ii) transactions are recorded as necessary to permit preparation of Holdings’ financial statements in conformity with accounting principles generally accepted in the United States and to maintain accountability for its assets, (iii) access to Holdings’ assets is permitted only in accordance with management’s general or specific authorization, (iv) the recorded accountability for Holdings’ assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences and (v) the interactive data in eXtensible Business Reporting Language included or incorporated by reference in the Disclosure Package and the Final Memorandum fairly present the information called for in all material respects and are prepared in accordance with the Commission’s rules and guidelines applicable thereto. Except as otherwise set forth or incorporated by reference in the Disclosure Package and the Final Memorandum, as of the date of the most recent balance sheet of Holdings and its consolidated subsidiaries reviewed or audited by KPMG LLP and the audit committee of the board of directors of Holdings, Holdings and its subsidiaries are not aware of any material weakness in their internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act). To the knowledge of the Issuer, (i) the systems of internal control over financial reporting maintained by the Chubb Entities (the “Chubb Internal Controls”) were designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP; (ii) the Chubb Internal Controls were sufficient to provide reasonable assurance that (A) transactions are executed in accordance with management’s general or specific authorizations; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (C) access to assets is permitted only in accordance with management’s general or specific authorization; and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; and (iii) there are no material weaknesses or significant deficiencies in the Chubb Internal Controls.

(ee)

(i) Holdings, the Issuer and their respective subsidiaries maintain “disclosure controls and procedures” (as such term is defined in Rule 13a-15(e) under the Exchange Act), (ii) such disclosure controls and procedures are designed to ensure the information required to be disclosed by Holdings, the Issuer and their respective subsidiaries in the reports they file or submit under the Exchange Act is accumulated and communicated to management of Holdings, the Issuer and their respective subsidiaries, including their respective principal executive officers and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure to be made, and (iii) such disclosure controls and procedures are effective in all material respects to perform the functions for which they were established, except in the case of

clauses (i), (ii) or (iii), as otherwise set forth or incorporated by reference in the Disclosure Package and the Final Memorandum.

(ff)

Holdings, the Issuer and their respective subsidiaries (i) are in compliance with any and all applicable laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”) applicable to such entity; (ii) have received and are in compliance with all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) have not received notice of any actual or potential liability under any Environmental Law, except in the case of clauses (i), (ii) or (iii) where such non-compliance with Environmental Laws, failure to receive required permits, licenses or other approvals, or liability would not, individually or in the aggregate, have a Material Adverse Effect. To the knowledge of Holdings, the Issuer and the Guarantors, none of Holdings, the Issuer or any of its subsidiaries has been named as a “potentially responsible party” under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, except where such designation would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(gg)

In the ordinary course of its business, Holdings, the Issuer and the Guarantors periodically review the effect of Environmental Laws on the business, operations and properties of Holdings, the Issuer and their respective subsidiaries, in the course of which they identify and evaluate associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws, or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties); on the basis of such review, Holdings, the Issuer and the Guarantors have reasonably concluded that such associated costs and liabilities would not, singly or in the aggregate, have a Material Adverse Effect.

(hh)

The minimum funding standard under Section 302 of the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (“ERISA”), has been satisfied by each “pension plan” (as defined in Section 3(2) of ERISA) which has been established or maintained by Holdings, any of its subsidiaries and/or any entity which would be treated as a single employer with Holdings or any of its subsidiaries under Section 414 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the “Code”) or a part of a controlled group within the meaning of Section 4001(a)(14) of ERISA (a “Controlled Group Member”); and the trust forming part of each such plan which is intended to be qualified under Section 401 of the Code is so qualified; each of Holdings, its subsidiaries and each Controlled Group Member has fulfilled its obligations, if any, under Section 515 of ERISA; neither Holdings nor any of its subsidiaries maintains or is required to contribute to a “welfare plan” (as defined in Section 3(1) of ERISA) which provides retiree or other post-employment welfare benefits or insurance coverage (other than “continuation coverage” (as defined in Section 602 of ERISA)); each pension plan and welfare plan established or maintained by Holdings and/or one or more of its subsidiaries is in compliance in all material respects with the currently applicable provisions of ERISA and the Code; and neither Holdings, any of its subsidiaries or Controlled Group Members has incurred or could reasonably be expected to incur any withdrawal liability under Section 4201 of ERISA,

any liability under Section 4062, 4063, or 4064 of ERISA, or any other liability under Title IV of ERISA except for any of the foregoing that would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

(ii)

The subsidiaries listed on Annex A attached hereto are the only “significant subsidiaries” of Holdings (as defined in Rule 1-02 of Regulation S-X under the Securities Act (“Regulation S-X”)).

(jj)

To the extent that information is required to be publicly disclosed under the U.K. Financial Services Authority’s Price Stabilising Rules (the “Stabilizing Rules”) before stabilizing transactions can be undertaken in compliance with the safe harbor provided under such Stabilizing Rules, such information has been adequately publicly disclosed (within the meaning of the Stabilizing Rules).

(kk)

The operations of Holdings, the Issuer and their respective subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements and the money laundering statutes and, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving Holdings or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of Holdings, the Issuer and the Guarantors, threatened.

(ll)

None of Holdings, the Issuer or any of their respective subsidiaries nor, to the knowledge of Holdings, the Issuer and the Guarantors, any director, officer, agent, employee or affiliate of Holdings, the Issuer or any of their respective subsidiaries (i) is, or is controlled or 50% or more owned in the aggregate by or is acting on behalf of, one or more individuals or entities that are currently the subject of any sanctions administered or enforced by the United States (including any administered or enforced by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State or the Bureau of Industry and Security of the U.S. Department of Commerce), the United Nations Security Council, the European Union, a member state of the European Union (including sanctions administered or enforced by Her Majesty’s Treasury of the United Kingdom) or other relevant sanctions authority (collectively, “Sanctions” and such persons, “Sanctioned Persons” and each such person, a “Sanctioned Person”), (ii) is located, organized or resident in a country or territory that is, or whose government is, the subject of Sanctions that broadly prohibit dealings with that country or territory (collectively, “Sanctioned Countries” and each, a “Sanctioned Country”) or (iii) will, directly or indirectly, use the proceeds of this offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other individual or entity in any manner that would result in a violation of any Sanctions by, or could result in the imposition of Sanctions against, any individual or entity (including any individual or entity participating in the offering, whether as underwriter, advisor, investor or otherwise).

(mm)

None of Holdings, the Issuer, the Guarantors nor any of their respective subsidiaries has knowingly engaged in for the past five years, are not now knowingly engaged in, and will not engage in, any dealings or transactions with any individual or entity, or in any

country or territory, that at the time of the dealing or transaction is or was the subject or target of Sanctions or in violation of such Sanctions.

(nn)

There is and has been no failure on the part of Holdings, the Issuer and any of Holdings’ directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith (the “Sarbanes-Oxley Act”), including Section 402 relating to loans and Sections 302 and 906 relating to certifications.

(oo)

None of Holdings, the Issuer or any of their respective subsidiaries nor, to the knowledge of Holdings, the Issuer and the Guarantors, any director, officer, agent, employee, Affiliate or other person acting on behalf of Holdings, the Issuer or any of their respective subsidiaries is aware of or has taken any action, directly or indirectly, that could result in a violation or a sanction for violation by such persons of the Foreign Corrupt Practices Act of 1977 or the U.K. Bribery Act 2010, each as may be amended, or similar law of any other relevant jurisdiction, or the rules or regulations thereunder; and Holdings, the Issuer and their respective subsidiaries have instituted and maintain policies and procedures to reasonably ensure compliance therewith. No part of the proceeds of the offering will be used, directly or indirectly, in violation of the Foreign Corrupt Practices Act of 1977 or the U.K. Bribery Act 2010, each as may be amended, or similar law of any other relevant jurisdiction, or the rules or regulations thereunder.

(pp)

Holdings, the Issuer and their respective subsidiaries own, possess, license or have other rights to use on reasonable terms, all patents, trade and service marks, trade names, copyrights, domain names (in each case including all registrations and applications to register same), inventions, trade secrets, technology, know-how, and other intellectual property, (collectively, the “Intellectual Property”) necessary for the conduct of the business of Holdings, the Issuer and the Guarantors as now conducted or as proposed in the Preliminary Memorandum and the Final Memorandum to be conducted. (i) Each of Holdings, the Issuer and the Guarantors owns, or has rights to use under license, all such Intellectual Property free and clear in all material respects of all adverse claims, liens or other encumbrances; (ii) to the knowledge of Holdings, the Issuer and the Guarantors, there is no material infringement by third parties of any such Intellectual Property; (iii) there is no pending or, to the knowledge of Holdings, the Issuer and the Guarantors, threatened action, suit, proceeding or claim by any third party challenging Holdings’, the Issuer’s or their respective subsidiaries’ rights in or to any such Intellectual Property, and none of Holdings, the Issuer and the Guarantors is unaware of any facts which would form a reasonable basis for any such claim; (iv) there is no pending or, to the knowledge of Holdings, the Issuer and the Guarantors, threatened action, suit, proceeding or claim by any third party challenging the validity, scope or enforceability of any such Intellectual Property, and each of Holdings, the Issuer and the Guarantors is unaware of any facts that would form a reasonable basis for any such claim; (v) there is no pending or, to the knowledge of Holdings, the Issuer and the Guarantors, threatened action, suit, proceeding or claim by any third party that Holdings, the Issuer or any subsidiary infringes or otherwise violates any patent, trademark, copyright, trade secret or other proprietary rights of any third party, and each of Holdings, the Issuer and the Guarantors is unaware of any other fact which would form a reasonable basis for any such claim; and (vi) to the knowledge of Holdings, the Issuer and the Guarantors, there is no

valid and subsisting patent or published patent application that would preclude any of Holdings, the Issuer or any Guarantor, in any material respect, from practicing any such Intellectual Property, except for any of the foregoing that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(qq)

Except as would not reasonably be expected to result in a Material Adverse Effect, Holdings, the Issuer, the Guarantors and their respective subsidiaries’ computer and information technology equipment hardware, software, websites, systems and networks (collectively, “IT Systems”) are adequate for, and operate and perform in all material respects as required in connection with the operation of the business as currently conducted. Holdings, the Issuer, the Guarantors and their respective subsidiaries have implemented and maintained commercially reasonable controls, policies, procedures and safeguards to protect their material confidential information and the integrity, security, continuous operation and redundancy of the IT Systems and data used in connection with their businesses. There has been no security breach of, or other unauthorized access to or compromise of the IT Systems or such data, except for those that would not reasonably be expected to result in a Material Adverse Effect or have been remedied without material cost or liability or the duty to notify any persons or entities, nor any incidents that are currently under internal review or investigations, except for those that would not reasonably be expected to result in a Material Adverse Effect.

Any certificate signed by any officer of the Issuer and delivered to the Representatives or counsel for the Initial Purchasers in connection with the offering of the Securities shall be deemed a representation and warranty by the Issuer, as applicable, as to matters covered thereby, to each Initial Purchaser.

Purchase and Sale. (a) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Issuer agrees to sell to each Initial Purchaser, and each Initial Purchaser agrees, severally and not jointly, to purchase from Holdings, the Company and the Guarantors, at a purchase price of 99.00% of the principal amount thereof, plus accrued interest, if any, from October 21, 2021 to the Closing Date, the principal amount of Securities set forth opposite such Initial Purchaser’s name in Schedule I hereto. (b) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, if the Acquisition is not consummated on or prior to the Closing Date, the Issuer agrees to issue and sell to the Initial Purchasers all of the Notes set forth opposite such Initial Purchaser’s name in Schedule I hereto at a purchase price of 100.00% of the principal amount thereof, plus accrued interest, if any, from October 21, 2021 to the Closing Date. Upon satisfaction of the Escrow Release Conditions on the Escrow Release Date, as compensation for the services rendered by the Initial Purchasers to the Issuer in respect of the issuance and sale of the Notes, the Issuer agrees to pay the Initial Purchasers a commission in the amount of 1.00% of the principal amount of the Notes (the “Notes Commission”), with such Notes Commission to be paid directly to Citigroup Global Markets Inc. on behalf of the Initial Purchasers by the Escrow Agent on the Escrow Release Date. In the event a Special Mandatory Redemption occurs, the Initial Purchasers will not be entitled to receive the Notes Commission. Neither the Company nor the Guarantors shall be obligated to deliver any of the Securities to be delivered hereunder except upon payment for all of the Securities to be purchased as provided herein.

Delivery and Payment. Delivery of and payment for the Notes shall be made at 10:00 A.M., New York City time, on October 21, 2021, or at such time on such later date not more than three Business Days after the foregoing date as the Representatives shall designate, which date and time may be postponed by agreement between the Representatives and the Company or as provided in Section 9 hereof (such date and time of delivery and payment for the Securities being herein called the “Closing Date”). As used herein, “Business Day” shall mean any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in The City of New York. Delivery of the Notes shall be made to the Representatives for the respective accounts of the several Initial Purchasers against payment by the several Initial Purchasers through the Representatives of (a) if the Acquisition has not been consummated on or prior to the Closing Date, the amount of the gross proceeds of the Notes (including the Notes Commission) into the applicable Escrow Account or (b) if the Acquisition is consummated on or prior to the Closing Date, the purchase price thereof to or upon the order of the Company by wire transfer payable in same-day funds to the account specified by the Company. Delivery of the Notes shall be made through the facilities of The Depository Trust Company unless the Representatives shall otherwise instruct.

Offering by Initial Purchasers. (a) Each Initial Purchaser acknowledges that the Securities have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.

(a)

Each Initial Purchaser, severally and not jointly, represents and warrants to and agrees with the Issuer that:

(i)

it has not sold, and will not sell, any Securities within the United States or to, or for the account or benefit of, U.S. persons (x) as part of their distribution at any time or (y) otherwise until 40 days after the later of the commencement of the offering and the date of the closing of the offering except:

(A)

in the case of sales to those it reasonably believes to be “qualified institutional buyers” as permitted by Rule 144A under the Securities Act or

(B)

in accordance with Rule 903 of Regulation S;

(ii)

neither it nor any person acting on its behalf has made or will make offers or sales of the Securities in the United States by means of General Solicitation, other than any General Solicitation included in Schedule III hereto;

(iii)

in connection with each sale pursuant to Section 4(b)(i)(A), it has taken or will take reasonable steps to ensure that the purchaser of such Securities is aware that such sale may be made in reliance on Rule 144A;

(iv)

neither it, nor any of its Affiliates nor any person acting on its or their behalf has engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities;

(v)

it is an “accredited investor” (as defined in Rule 501(a) of Regulation D);

(vi)

it has complied and will comply with the offering restrictions requirement of Regulation S;

(vii)

at or prior to the confirmation of sale of Securities (other than a sale of Securities pursuant to Section 4(b)(i)(A) of this Agreement), it shall have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it during the distribution compliance period (within the meaning of Regulation S) a confirmation or notice to substantially the following effect:

“The Securities covered hereby have not been registered under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”) and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the date of closing of the offering, except in either case in accordance with Regulation S or Rule 144A under the Securities Act. Additional restrictions on the offer and sale of the Securities are described in the offering memorandum for the Securities. Terms used in this paragraph have the meanings given to them by Regulation S.”;

(viii)

it acknowledges that additional restrictions on the offer and sale of the Securities are described in the Disclosure Package and the Final Memorandum;

(ix)

it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the “FSMA”)) received by it in connection with the issue or sale of any Securities, in circumstances in which Section 21(1) of the FSMA does not apply to the Company;

(x)

it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom; and

(xi)

in relation to each Member State of the European Economic Area (each, a “Member State”), with effect from and including the date on which the Prospectus Directive is implemented in that Member State (the “Relevant Implementation Date”), it has not made and will not make an offer to the public of

any Securities which are the subject of the offering contemplated by this Agreement in that Member State, except that it is permitted to have made and may make an offer to the public in that Member State of any Securities at any time with effect from and including the Relevant Implementation Date under the following exemptions under the Prospectus Directive, if they have been implemented in that Member State:

(A)

to legal entities which are

(B)

qualified investors as defined in the Prospectus Directive;

(C)

to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the Representatives for any such offer;

(D)

in any other circumstances falling within Article 3(2) of the Prospectus Directive;

provided that no such offer of Securities shall require the Company or any Initial Purchaser to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive. For the purposes of this provision, the expression an “offer to the public” in relation to any Securities in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Securities to be offered so as to enable an investor to decide to purchase any Securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (as amended, including by Directive 2010/73/EU), and includes any relevant implementing measure in each Member State.

Each of the Initial Purchasers understands that the Issuer and, for purposes of the opinions to be delivered to the Initial Purchasers pursuant to Section 6(a) and 6(b) hereof, counsel to the Issuer and counsel to the Initial Purchasers and, if the Acquisition is consummated on or prior to the Closing Date, counsel to Holdings, the Company and the Guarantors, will rely upon the accuracy and truth of the foregoing representations, warranties and agreements, and the Initial Purchasers hereby consent to such reliance.

Agreements. The Escrow Issuer agrees and, upon consummation of the Acquisition and the execution and delivery of the Joinder Agreement, each of Holdings, the Company and the Guarantors, jointly and severally, agrees with each Initial Purchaser that:

(a)

The Issuer will furnish to each Initial Purchaser and to counsel for the Initial Purchasers, without charge, during the period referred to in Section 5(c) below, as many copies

of the materials contained in the Disclosure Package and the Final Memorandum and any amendments and supplements thereto as they may reasonably request.

(b)

The Issuer will prepare a final term sheet, containing solely a description of final terms of the Securities and the offering thereof, in the form approved by you and attached as Schedule II hereto.

(c)

The Issuer will not amend or supplement the Disclosure Package or the Final Memorandum other than by filing documents under the Exchange Act that are incorporated by reference therein, without the prior written consent of the Representatives; provided, however, that prior to the completion of the distribution of the Securities by the Initial Purchasers (as determined by the Initial Purchasers), the Issuer will not file any document under the Exchange Act that is incorporated by reference in the Disclosure Package or the Final Memorandum unless, prior to such proposed filing, the Issuer has furnished the Representatives with a copy of such document for their review and the Representatives have not reasonably objected to the filing of such document provided, that this clause shall not apply to any filing by Holdings of any Annual Report on Form 10-K, Quarterly Report on Form 10-Q or Current Report on Form 8-K with respect to matters unrelated to the Securities or the offering. The Issuer will promptly advise the Representatives when any document filed under the Exchange Act that is incorporated by reference in the Disclosure Package or the Final Memorandum shall have been filed with the Commission (as defined below).

(d)

If at any time prior to the completion of the sale of the Securities by the Initial Purchasers (as determined by the Representatives), any event occurs as a result of which the Disclosure Package, any General Solicitation, or the Final Memorandum, as then amended or supplemented, would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made or the circumstances then prevailing, not misleading, or if it should be necessary to amend or supplement the Disclosure Package or the Final Memorandum to comply with applicable law, Holdings, the Issuer and the Guarantors will promptly (i) notify the Representatives of any such event; (ii) subject to the requirements of Section 5(c), prepare an amendment or supplement that will correct such statement or omission or effect such compliance; and (iii) supply any supplemented or amended Disclosure Package or Final Memorandum to the several Initial Purchasers and counsel for the Initial Purchasers without charge in such quantities as they may reasonably request.

(e)

Without the prior written consent of the Representatives, the Issuer has not given and will not give to any prospective purchaser of the Securities any written information concerning the offering of the Securities other than materials contained in the Disclosure Package, the Final Memorandum or any other offering materials prepared by or with the prior written consent of the Representatives.

(f)

The Issuer will arrange, if necessary, for the qualification of the Securities for sale by the Initial Purchasers under the laws of such jurisdictions as the Representatives may designate (including Japan and certain provinces of Canada) and will maintain such qualifications in effect so long as required for the sale of the Securities; provided that in connection therewith none of Holdings, the Issuer or any of the Guarantors shall be required to

(i) qualify as foreign corporations or other business entity, as applicable, in any jurisdiction in which they would not otherwise be required to so qualify, (ii) file a general consent to service of process in any such jurisdiction, or (iii) subject themselves to taxation in any jurisdiction in which they would not otherwise be subject. The Issuer will promptly advise the Representatives of the receipt by the Issuer of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose.

(g)

The Issuer will not, and will not permit any of its Affiliates to, resell any Securities that have been acquired by any of them.

(h)

None of the Issuer, its Affiliates, or any person acting on its or their behalf (provided that the Issuer makes no representation with respect to the Securities Actions of the Initial Purchasers and any of their Affiliates) will, directly or indirectly, make offers or sales of any security, or solicit offers to buy any security, under circumstances that would require the registration of the Securities under the Securities Act.

(i)

None of the Issuer, its Affiliates, or any person acting on its or their behalf will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities; and each of them will comply with the offering restrictions requirement of Regulation S.

(j)

None of the Issuer, its Affiliates, or any person acting on its or their behalf will engage in any General Solicitation, other than any General Solicitation in respect of which the Representatives have given their prior written consent; provided that the prior written consent of the Representatives shall be deemed to have been given in respect of the General Solicitation included in Schedule III hereto.

(k)

For so long as any of the Securities are outstanding and are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, the Issuer or Holdings, as applicable, during any period in which it is not subject to and in compliance with Section 13 or 15(d) of the Exchange Act or it is not exempt from such reporting requirements pursuant to and in compliance with Rule 12g3-2(b) under the Exchange Act, will provide to each holder of such restricted securities and to each prospective purchaser (as designated by such holder) of such restricted securities, upon the request of such holder or prospective purchaser, any information required to be provided by Rule 144A(d)(4) under the Securities Act. This covenant is intended to be for the benefit of the holders, and the prospective purchasers designated by such holders, from time to time of such restricted securities.

(l)

Each of Holdings, the Issuer and the Guarantors will cooperate with the Representatives and use its commercially reasonable efforts to permit the Securities to be eligible for clearance and settlement through The Depository Trust Company.

(m)

Each of the Securities will bear, to the extent applicable, the legend contained in “Transfer Restrictions” in the Preliminary Memorandum and the Final Memorandum for the time period and upon the other terms stated therein.

(n)

The Issuer will not for a period of 60 days following the Execution Time, without the prior written consent of the Representatives offer, sell, contract to sell, pledge, otherwise dispose of, or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the Issuer or any Affiliate of the Issuer or any person in privity with the Issuer or any Affiliate of the Issuer), directly or indirectly, or announce the offering, of any debt securities issued or guaranteed by the Issuer (other than the Securities).

(o)

The Issuer will not take, directly or indirectly, any action designed to, or that has constituted or that might reasonably be expected to, cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of Holdings or the Issuer to facilitate the sale or resale of the Securities.

(p)

Holdings or the Issuer will, for a period of twelve months following the Execution Time, furnish to the Representatives (i) all reports or other communications (financial or other) generally made available to its shareholders, and deliver such reports and communications to the Representatives as soon as they are available, unless such documents are furnished to or filed with the Commission or any securities exchange on which any class of securities of Holdings or the Issuer is listed and generally made available to the public and (ii) such additional information concerning the business and financial condition of Holdings as the Representatives may from time to time reasonably request (such statements to be on a consolidated basis to the extent the accounts of Holdings and its subsidiaries are consolidated in reports furnished to its shareholders).

(q)

Each of Holdings, the Issuer and the Guarantors will comply with all applicable securities and other laws, rules and regulations, including, without limitation, the Sarbanes-Oxley Act, and use its commercially reasonable efforts to cause the directors and officers of Holdings, the Company and the Issuer, in their capacities as such, to comply with such laws, rules and regulations, including, without limitation, the provisions of the Sarbanes-Oxley Act.

(r)

Each of Holdings, the Issuer and the Guarantors, jointly and severally, agrees to pay the costs and expenses relating to the following matters: (i) the preparation of the Indenture and the issuance of the Securities and the fees of the Trustee; (ii) the preparation, printing or reproduction of the materials contained in the Disclosure Package and the Final Memorandum and each amendment or supplement to either of them; (iii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the materials contained in the Disclosure Package and the Final Memorandum, and all amendments or supplements to either of them, as may, in each case, be reasonably requested for use in connection with the offering and sale of the Securities; (iv) the issuance and delivery of the Securities; (v) any stamp or transfer taxes in connection with the original issuance, sale and initial resale of the Securities; (vi) the printing (or reproduction) and delivery of this Agreement, any blue sky memorandum and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Securities; (vii) any registration or qualification of the Securities for offer and sale under the securities or blue sky laws of the several states, Japan, the provinces of Canada and any other jurisdictions specified

pursuant to Section 5(e) (including filing fees and the reasonable fees and expenses of counsel for the Initial Purchasers relating to such registration and qualification); (vii) the transportation and other expenses incurred by or on behalf of representatives of Holdings, the Company or the Guarantors in connection with presentations to prospective purchasers of the Securities; (ix) the fees and expenses of Holdings’ accountants and the fees and expenses of counsel (including local and special counsel) for Holdings, the Company and the Guarantors; and (x) all other costs and expenses incident to the performance by Holdings, the Company and the Guarantors of their respective obligations hereunder.

(s)

To the extent the Acquisition has not been consummated on or prior to the Closing Date, none of the Issuer, Holdings, any of the Guarantors or any of their respective affiliates will seek the release of the Escrow Property from the Escrow Account unless such release is in compliance with the terms of the Indenture and the Escrow Agreement.

(t)

To the extent the Acquisition has not been consummated on or prior to the Closing Date, the Issuer will take all actions necessary (including any necessary filings) to perfect or maintain, for the benefit of the Trustee and the benefit of the holders of the Notes, a perfected first priority security interest in the Escrow Property in the Escrow Account and to perfect, for the benefit of the Trustee and the benefit of the holders of the Notes, a first priority security interest in any Escrow Property in the Escrow Account acquired after the Closing Date, in each case as and to the extent required by the Escrow Agreement and the Indenture.

(u)

The Company will pay or cause the Escrow Agent to pay to Citigroup Global Markets Inc. on behalf of the Initial Purchasers an amount equal to the Notes Commission immediately upon the Release in accordance with the terms of the Escrow Agreement and this Agreement.

(v)

To the extent the Acquisition has not been consummated on or prior to the Closing Date, upon the consummation of the Acquisition, each of the Company, Holdings and the Guarantors will become a party to (i) this Agreement by executing the Joinder Agreement and (ii) the Indenture by executing the Supplemental Indenture; provided, however, solely with respect to the Foreign Guarantors, notwithstanding any provision herein to the contrary, such Foreign Guarantors will execute the Joinder Agreement and the Supplemental Indenture concurrently with the execution of the Joinder Agreement and the Supplemental Indenture by the Chubb Entities that are organized outside of the United States. Unless the Acquisition is consummated on or prior to the Closing Date, upon the consummation of the Acquisition, the Company, Holdings and the Guarantors shall cause each of Kane Kessler, P.C., counsel for the Company, and the local counsel to the Company listed on Schedule IV hereto to furnish to the Initial Purchasers its written opinion, addressed to the Initial Purchasers and dated the Escrow Release Date, which opinions will be reasonably satisfactory in form and substance to counsel for the Initial Purchasers and will be with respect to the Company, Holdings and the Guarantors.

Conditions to the Obligations of the Initial Purchasers. The respective obligations of the Initial Purchasers to purchase the Notes on the Closing Date shall be subject to the accuracy of the representations and warranties contained in Section 1 hereof at the Execution Time and the Closing Date, to the accuracy of the statements of, as applicable, the Escrow Issuer, Holdings, the Company and the Guarantors made in any certificates pursuant to the provisions

hereof, to the performance by, as applicable, the Escrow Issuer, Holdings, the Company and the Guarantors of their respective obligations hereunder and to the following additional conditions:

(a)

(i) The Company shall have requested and caused Kane Kessler, P.C., counsel for the Escrow Issuer, to furnish to the Representatives its opinion, dated the Closing Date and addressed to the Representatives, in form and substance reasonably satisfactory to the Representatives (it being understood and agreed that the opinions required by Section 5(v) hereof will be delivered on the Escrow Release Date).

(ii) The Company shall have requested and caused K&L Gates LLP, tax counsel to the Company, to furnish to the Representatives its opinion, dated the Closing Date and addressed to the Representatives, in form and substance reasonably satisfactory to the Representative.

(b)

The Representatives shall have received from Latham & Watkins LLP, counsel for the Initial Purchasers, such opinion or opinions, dated the Closing Date and addressed to the Representatives, with respect to the issuance and sale of the Notes, the Indenture, the Disclosure Package, the Final Memorandum (as amended or supplemented at the Closing Date) and other related matters as the Representatives may reasonably require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters.

(c)

The Escrow Issuer, or to the extent the Acquisition is consummated on or prior to the Closing Date, each of Holdings, the Company and each Guarantor, shall have furnished to the Representatives a certificate signed by the Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer, Senior Vice President, Vice President, General Partner, Authorized Member or other officer reasonably satisfactory to the Initial Purchasers, of Holdings, the Company and each Guarantor, dated the Closing Date, to the effect that the signer of such certificate have carefully examined the Disclosure Package and the Final Memorandum and any supplements or amendments thereto, and this Agreement and that:

(i)

the representations and warranties in Section 1 of this Agreement are true and correct on and as of the Closing Date with the same effect as if made on the Closing Date, and each of, as applicable, the Escrow Issuer, Holdings, the Company and the Guarantors has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; and

(ii)

since the date of the most recent financial statements included or incorporated by reference in the Disclosure Package and the Final Memorandum (exclusive of any amendment or supplement thereto), there has been no material adverse change in the condition (financial or otherwise), earnings, business or properties of Holdings and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Disclosure Package and the Final Memorandum (exclusive of any amendment or supplement thereto).

(d)

At the Execution Time and at the Closing Date, the Issuer shall have requested and caused KPMG LLP to furnish to the Representatives letters, dated respectively as of the Execution Time and as of the Closing Date, in form and substance satisfactory to the Representatives and confirming that they are independent accountants within the meaning of the Exchange Act and the applicable published rules and regulations thereunder

(e)

At the Execution Time and at the Closing Date, the Issuer shall have requested and caused PricewaterhouseCoopers LLP to have furnished to the Representatives letters, dated respectively as of the Execution Time and as of the Closing Date, in form and substance satisfactory to the Representatives and confirming that they are independent accountants within the meaning of the Exchange Act and the applicable published rules and regulations thereunder.

(f)

Subsequent to the Execution Time or, if earlier, the dates as of which information is given in the Disclosure Package (exclusive of any amendment or supplement thereto) and the Final Memorandum (exclusive of any amendment or supplement thereto), there shall not have been (i) any change or decrease specified in the letter or letters referred to in paragraph (d) and (e) of this Section 6; or (ii) any change, or any development involving a prospective change, in or affecting the condition (financial or otherwise), earnings, business or properties of the Company and its subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, the effect of which, in any case referred to in clause (i) or (ii) above, is, in the sole judgment of the Representatives, so material and adverse as to make it impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated in the Disclosure Package and the Final Memorandum (exclusive of any amendment or supplement thereto).

(g)

The Securities shall be eligible for clearance and settlement through The Depository Trust Company.

(h)

Subsequent to the Execution Time, there shall not have been any decrease in the rating of the Company by any “nationally recognized statistical rating organization” (as defined for purposes of Rule 3(a)(62) under the Exchange Act) or any public announcement by such organization that it has under surveillance or review, with possible negative implications, its rating of any of the Company’s debt securities.

(i)

On or prior to the Closing Date, the Escrow Issuer and, to the extent the Acquisition has been consummated on or prior to the Closing Date, the Company, Holdings and the Guarantors, shall have executed and delivered the Initial Indenture in form and substance reasonably satisfactory to the Initial Purchasers, and the Initial Purchasers shall have received an executed copy thereof.

(j)

If the Acquisition is consummated on or prior to the Closing Date, on the Closing Date, (i) the Company, Holdings and each Guarantor shall have executed and delivered the Joinder Agreement, the form of which is attached hereto as Annex B, and the Initial Purchasers shall have received executed counterparts thereof and (ii) the opinions required by Section 5(v) hereof will be delivered on the Closing Date.

(k)

If the Acquisition has not been consummated on or prior to the Closing Date, the Escrow Issuer, the Trustee and the Escrow Agent shall have executed the Escrow Agreement and the Initial Purchasers shall have received executed copies thereof. The Escrow Agent shall have established the Escrow Account and shall have provided to the Initial Purchasers evidence thereof reasonably satisfactory to the Initial Purchasers. All other actions to be taken under the Escrow Agreement by the Escrow Issuer as of the Closing Date in order to effect the escrow arrangements contemplated by the Pricing Disclosure Package (including, without limitation, the deposit of the Escrow Property into the Escrow Account in accordance with the Escrow Agreement and the delivery of a Uniform Commercial Code financing statement in respect thereof in appropriate form for filing with respect to the Escrow Issuer) shall have been taken.

(l)

Prior to the Closing Date, the Issuer shall have furnished to the Representatives such further information, certificates and documents as the Representatives may reasonably request, including information relating to one or more intercreditor agreements.

If any of the conditions specified in this Section 6 shall not have been fulfilled when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be reasonably satisfactory in form and substance to the Representatives and counsel for the Initial Purchasers, this Agreement and all obligations of the Initial Purchasers hereunder may be cancelled at, or at any time prior to, the Closing Date by the Representatives. Notice of such cancellation shall be given to the Company in writing or by telephone or facsimile confirmed in writing.

The documents required to be delivered by this Section 6 will be delivered at the office of counsel for the Initial Purchasers, at 1271 Avenue of the Americas, New York, New York 10020, Attention: Erika Weinberg or by email to Erika.Weinberg@lw.com, on the Closing Date.

Reimbursement of Expenses. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Initial Purchasers set forth in Section 6 hereof is not satisfied, because of any termination pursuant to Section 10 hereof or because of any refusal, inability or failure on the part of the Issuer to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Initial Purchasers, the Issuer will reimburse the Initial Purchasers severally through Citigroup Global Markets Inc. on demand for all reasonable and documented out of pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities.

Indemnification and Contribution.

(a)

The Escrow Issuer agrees and, upon the consummation of the Acquisition and delivery of the Joinder Agreement, the Company, Holdings and the Guarantors, on a joint and several basis, agree to indemnify and hold harmless each Initial Purchaser, the directors, officers, employees, Affiliates and agents of each Initial Purchaser and each person who controls any Initial Purchaser within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to

which they or any of them may become subject under the Securities Act, the Exchange Act or other U.S. federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities or actions in respect thereof arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Memorandum, the Final Memorandum, any Issuer Written Information, any General Solicitation, or any other written information used by or on behalf of the Issuer in connection with the offer or sale of the Securities, or in any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal fees or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Issuer will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made in the Preliminary Memorandum, the Final Memorandum, or in any amendment thereof or supplement thereto, in reliance upon and in conformity with written information furnished to the Escrow Issuer by or on behalf of any Initial Purchaser through the Representatives specifically for inclusion therein. This indemnity agreement will be in addition to any liability that the Issuer may otherwise have.

(b)

Each Initial Purchaser severally, and not jointly, agrees to indemnify and hold harmless as of the date hereof, the Escrow Issuer, its directors and officers and each person, if any, who controls the Escrow Issuer within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and, upon the consummation of the Acquisition and delivery of the Joinder Agreement, the Company, Holdings, and each of the Guarantors, each of their respective directors, each of their respective officers, and each person who controls the Company, Holdings, and/or any Guarantor, within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity to each Initial Purchaser, but only with reference to written information relating to such Initial Purchaser furnished to the Issuer by or on behalf of such Initial Purchaser through the Representatives specifically for inclusion in the Preliminary Memorandum or the Final Memorandum (or in any amendment or supplement thereto). This indemnity agreement will be in addition to any liability that any Initial Purchaser may otherwise have. The Issuer acknowledges that the statements set forth in the ninth paragraph related to stabilization, syndicate covering transactions and penalty bids under the heading “Plan of Distribution” in the Preliminary Memorandum and the Final Memorandum constitute the only information furnished in writing by or on behalf of the Initial Purchasers for inclusion in the Preliminary Memorandum or the Final Memorandum or in any amendment or supplement thereto.

(c)

Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above except to the extent it is materially prejudiced by such failure (through the forfeiture by the indemnifying party of substantial rights and defenses) and (ii) will not, in any event, relieve the indemnifying party from any obligations

to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel (including local counsel) of the indemnifying party’s choice at the indemnifying party’s expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel, other than local counsel if not appointed by the indemnifying party, retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be reasonably satisfactory to the indemnified party. Notwithstanding the indemnifying party’s election to appoint counsel (including local counsel) to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest; (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party; (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action; or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent: (i) includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.

(d)

In the event that the indemnity provided in paragraph (a) or (b) of this Section 8 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Issuer and, upon the consummation of the Acquisition and delivery of the Joinder Agreement, the Company, Holdings and the Guarantors, and the Initial Purchasers, severally and not jointly, agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending any loss, claim, damage, liability or action) (collectively “Losses”) to which the Issuer and one or more of the Initial Purchasers may be subject in such proportion as is appropriate to reflect the relative benefits received by the Escrow Issuer on the date hereof and, upon the execution of the Joinder Agreement, the Company, Holdings and the Guarantors, on the one hand, and by the Initial Purchasers on the other from the offering of the Securities. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Issuer and, upon the consummation of the Acquisition and delivery of the Joinder Agreement, the Company, Holdings and the Guarantors, and the Initial Purchasers, severally and not jointly, shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Escrow Issuer on the date hereof and, upon the execution of the Joinder

Agreement, the Company, Holdings and the Guarantors, on the one hand and the Initial Purchasers on the other in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. Benefits received by the Escrow Issuer on the date hereof and, upon the execution of the Joinder Agreement, the Company, Holdings and the Guarantors, shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses) received by it, and benefits received by the Initial Purchasers shall be deemed to be equal to the total purchase discounts and commissions. Relative fault shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information provided by the Escrow Issuer on the date hereof and, upon the execution of the Joinder Agreement, the Company, Holdings and the Guarantors, on the one hand or the Initial Purchasers on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Escrow Issuer on the date hereof and, upon the execution of the Joinder Agreement, the Company, Holdings and the Guarantors, and the Initial Purchasers agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation that does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), the obligations of the Initial Purchasers are several and not joint and in no event shall any Initial Purchaser be required to contribute any amount in excess of the amount by which the total purchase discounts and commissions received by such Initial Purchaser with respect to the offering of the Securities exceeds the amount of any damages that such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person who controls an Initial Purchaser within the meaning of either the Securities Act or the Exchange Act and each director, officer, employee, Affiliate and agent of an Initial Purchaser shall have the same rights to contribution as such Initial Purchaser, and each person who controls the Escrow Issuer on the date hereof and, upon the execution of the Joinder Agreement, the Company, Holdings and the Guarantors, within the meaning of either the Securities Act or the Exchange Act and each officer and director of the Escrow Issuer on the date hereof and, upon the execution of the Joinder Agreement, the Company, Holdings and the Guarantors, shall have the same rights to contribution as the Escrow Issuer on the date hereof and, upon the execution of the Joinder Agreement, the Company, Holdings and the Guarantors, subject in each case to the applicable terms and conditions of this paragraph (d).

Default by an Initial Purchaser. If any one or more Initial Purchasers shall fail to purchase and pay for any of the Securities agreed to be purchased by such Initial Purchaser or Initial Purchasers hereunder and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Initial Purchasers shall be obligated severally to take up and pay for (in the respective proportions which the principal amount of Securities set forth opposite their names in Schedule I hereto bears to the aggregate principal amount of Securities set forth opposite the names of all the remaining Initial Purchasers) the Securities which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase; provided, however, that in the event that the aggregate principal amount of Securities which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to

purchase shall exceed 10% of the aggregate principal amount of Securities set forth in Schedule I hereto, the remaining Initial Purchasers shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such nondefaulting Initial Purchasers do not purchase all the Securities, this Agreement will terminate without liability to any nondefaulting Initial Purchaser or the Issuer. In the event of a default by any Initial Purchaser as set forth in this Section 9, the Closing Date shall be postponed for such period, not exceeding five Business Days, as the Representatives shall determine in order that the required changes in the Final Memorandum or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Initial Purchaser of its liability, if any, to the Issuer or any nondefaulting Initial Purchaser for damages occasioned by its default hereunder.

10.

Termination. This Agreement shall be subject to termination in the absolute discretion of the Representatives, by notice given to the Issuer prior to delivery of and payment for the Securities, if at any time prior to such time (i) trading in securities generally on the New York Stock Exchange shall have been suspended or limited or minimum prices shall have been established on such exchange; (ii) a banking moratorium shall have been declared either by U.S. federal or New York State authorities; (iii) there shall have occurred a material disruption in commercial banking or securities settlement or clearance services; or (iv) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war or other calamity or crisis the effect of which on financial markets is such as to make it, in the sole judgment of the Representatives, impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated in the Disclosure Package and the Final Memorandum (exclusive of any amendment or supplement thereto).

11.

Representations and Indemnities to Survive. The respective agreements, representations, warranties, indemnities and other statements of the Issuer, Holdings, the Guarantors or their respective officers and of the Initial Purchasers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Initial Purchasers or the Issuer, Holdings, the Guarantors or any of the indemnified persons referred to in Section 8 hereof, and will survive delivery of and payment for the Securities. The provisions of Sections 7 and 8 hereof shall survive the termination or cancellation of this Agreement.

12.

Notices. All communications hereunder will be in writing and effective only on receipt, and, if sent to the Representatives, will be mailed, delivered, telefaxed or e-mailed to Citigroup Global Markets Inc. at the Citigroup General Counsel (fax no.: 1(646) 291-1469; email: justin.s.tichauer@citi.com) and confirmed to Citigroup at 388 Greenwich Street, New York, New York 10013, Attention: General Counsel, or to Barclays Capital Inc. at 745 Seventh Avenue, New York, NY 10019, Attention: Syndicate Registration; or, if sent to the Holdings or the Company, will be mailed, delivered or e-mailed to Andrea Fike, Esq., General Counsel and Secretary, 1100 Old Highway Eight NW, New Brighton, MN 55112, (e-mail at Andrea.Fike@apigroupinc.us) (with a copy mailed or e-mailed to Kane Kessler, P.C. (600 Third Avenue, 35th Floor, New York, New York 10016. Attention Robert L. Lawrence, Esq. at rlawrence@kanekessler.com and Mitchell D. Hollander, Esq. at mhollander@kanekessler.com).

13.

Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the indemnified persons referred to in Section 8 hereof and their respective successors, and, except as expressly set forth in Section 5(k) hereof, no other person will have any right or obligation hereunder.

14.

Recognition of the U.S. Special Resolution Regimes. (a) In the event that any Initial Purchaser that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such Initial Purchaser of this Agreement, and any interest and obligation in or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Agreement, and any such interest and obligation, were governed by the laws of the United States or a state of the United States.

(b) In the event that any Initial Purchaser that is a Covered Entity or a BHC Act Affiliate of such Initial Purchaser becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against such Initial Purchaser are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws of the United States or a state of the United States.

As used in this Section 15, “BHC Act Affiliate” has the meaning assigned to the term “affiliate” in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k); “Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b), (ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b) or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b); “Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable; and “U.S. Special Resolution Regime” means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.

15.

Integration. This Agreement supersedes all prior agreements and understandings (whether written or oral) between the Issuer, Holdings and the Guarantors and the Initial Purchasers, or any of them, with respect to the subject matter hereof.

16.

Applicable Law. This Agreement and any claim, controversy or dispute arising under or related to this Agreement will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York.

17.

Waiver of Jury Trial. The Issuer, Holdings and the Guarantors hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

18.

.Jurisdiction. The Issuer, Holdings and the Guarantors hereby agree that any suit, action or proceeding against the Issuer, Holdings and the Guarantors brought by any Initial Purchaser, the directors, officers, employees, affiliates and agents of any Initial Purchaser, or by any person who controls any Initial Purchaser, arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in any State or U.S. federal court in The City of New York and County of New York, and waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the exclusive jurisdiction of such courts in any suit, action or proceeding.

19.

No Fiduciary Duty. The Issuer hereby acknowledges that (a) the purchase and sale of the Securities pursuant to this Agreement is an arm’s-length commercial transaction between the Issuer, Holdings and the Guarantors, on the one hand, and the Initial Purchasers and any Affiliate through which it may be acting, on the other, (b) the Initial Purchasers are acting as principal and not as an agent or fiduciary of the Issuer, Holdings and the Guarantors and (c) the engagement by the Issuer, Holdings and the Guarantors of the Initial Purchasers in connection with the offering and the process leading up to the offering is as independent contractors and not in any other capacity. Furthermore, the Issuer agrees that it is solely responsible for making its own judgments in connection with the offering (irrespective of whether any of the Initial Purchasers has advised or is currently advising the Issuer, Holdings or the Guarantors on related or other matters). The Issuer, Holdings and the Guarantors agree that they will not claim that the Initial Purchasers have rendered advisory services of any nature or respect, or owe an agency, fiduciary or similar duty to the Issuer, Holdings or the Guarantors, in connection with such transaction or the process leading thereto.

20.

Waiver of Tax Confidentiality. Notwithstanding anything herein to the contrary, purchasers of the Securities (and each employee, representative or other agent of a purchaser) may disclose to any and all persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of any transaction contemplated herein and all materials of any kind (including opinions or other tax analyses) that are provided to the purchasers of the Securities relating to such U.S. tax treatment and U.S. tax structure, other than any information for which nondisclosure is reasonably necessary in order to comply with applicable securities laws.

21.

Electronic Signatures. Any signature to this Agreement may be delivered by facsimile, electronic mail (including pdf) or any electronic signature complying with the U.S. federal ESIGN Act of 2000 or the New York Electronic Signature and Records Act or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes to the fullest extent permitted by applicable law. For the avoidance of doubt, the foregoing also applies to any amendment, extension or renewal of this Agreement.

22.

Counterparts. This Agreement may be signed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same agreement.

23.

Headings. The section headings used herein are for convenience only and shall not affect the construction hereof.

24.

Compliance with USA Patriot Act. In accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Initial Purchasers are required to obtain, verify and record information that identifies their respective clients, including the Company, which information may include the name and address of their respective clients, as well as other information that will allow the Initial Purchasers to properly identify their respective clients.

If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement between the Escrow Issuer and the several Initial Purchasers.

Very truly yours,

APi Escrow Corp.

By: /s/ Kevin S. Krumm
Name: Kevin S. Krumm
Title: Chief Financial Officer

The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.

For themselves and the other several
Initial Purchasers named in
Schedule I to the foregoing Agreement.

Citigroup Global Markets Inc.

By: /s/ Matt Musa
Name: Matt Musa
Title: Managing Director

Barclays Capital Inc.

By: /s/ Brad Aston
Name: Brad Aston
Title: Managing Director

Exhibit 31.1

CERTIFICATION

I, Russell A. Becker, Chief Executive Officer, certify that:

I have reviewed this quarterly report on Form 10-Q of APi Group Corporation;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

[Omitted pursuant to Exchange Act Rules 13a-14(a) and 15d-15(a).]

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 10, 2021	By:	/s/ Russell A. Becker
	Name:	Russell A. Becker
	Title:	Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Kevin S. Krumm, Chief Financial Officer, certify that:

I have reviewed this quarterly report on Form 10-Q of APi Group Corporation;

[Omitted pursuant to Exchange Act Rules 13a-14(a) and 15d-15(a).]

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 10, 2021	By:	/s/ Kevin S. Krumm
	Name:	Kevin S. Krumm
	Title:	Chief Financial Officer

Exhibit 32.1

CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of APi Group Corporation (the “Company”) for the quarterly period ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Russell Becker, as Chief Executive Officer, and Kevin Krumm, as Chief Financial Officer, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: November 10, 2021	By:	/s/ Russell A. Becker
	Name:	Russell A. Becker
	Title:	Chief Executive Officer

Date: November 10, 2021	By:	/s/ Kevin S. Krumm
	Name:	Kevin S. Krumm
	Title:	Chief Financial Officer

Exhibit 95.1

MINE SAFETY DISCLOSURES

The following disclosures are provided pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) and Item 104 of Regulation S-K, which requires certain disclosures by companies required to file periodic reports under the Securities Exchange Act of 1934, as amended, that operate mines regulated under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”).

Mine Safety Information

Whenever the Federal Mine Safety and Health Administration (“MSHA”) believes a violation of the Mine Act, any health or safety standard or any regulation has occurred, it may issue a citation which describes the alleged violation and fixes a time within which the U.S. mining operator must abate the alleged violation. In some situations, such as when MSHA believes that conditions pose a hazard to miners, MSHA may issue an order removing miners from the area of the mine affected by the condition until the alleged hazards are corrected. When MSHA issues a citation or order, it generally proposes a civil penalty, or fine, as a result of the alleged violation, that the operator is ordered to pay. Citations and orders can be contested and appealed, and as part of that process, may be reduced in severity and amount, and are sometimes dismissed. The number of citations, orders and proposed assessments vary depending on the size and type (underground or surface) of the mine as well as by the MSHA inspector(s) assigned.

The following table includes information required by the Act for the quarter ended September 30, 2021.

APi Construction


Three Months Ended September 30, 2021
Operation / MSHA Identification Number	Section 104 S&S Citations (#)	Section 104(b) Orders (#)	Section 104(d) Citations and Orders (#)	Section 110(b)(2) Violations (#)	Section 107(a) Orders (#)	Total Dollar Value of MSHA Assessments Proposed ($)	Mining-Related Fatalities (#)	Received Notice of Pattern of Violations Under Section 104(c) (Yes/No)	Received Notice of Potential to Have Pattern Under Section 104(c) (Yes/No)	Legal Actions Initiated During Period (#)	Legal Actions Resolved During Period (#)	Legal Actions Pending as of the End of the Period (#)
Tilden Mine/2000422	0	0	0	0	0	0	0	No	No	0	0	0
Solvay Soda Ash/4801295	0	0	0	0	0	0	0	No	No	0	0	0
Waste Isolation Plant / 29-01857	0	0	0	0	0	0	0	No	No	0	0	0
Specialty Granules / 4700148	0	0	0	0	0	0	0	No	No	0	0	0

Davis Ulmer Sprinkler Company


Three Months Ended September 30, 2021
Operation / MSHA Identification Number	Section 104 S&S Citations (#)	Section 104(b) Orders (#)	Section 104(d) Citations and Orders (#)	Section 110(b)(2) Violations (#)	Section 107(a) Orders (#)	Total Dollar Value of MSHA Assessments Proposed ($)	Mining-Related Fatalities (#)	Received Notice of Pattern of Violations Under Section 104(c) (Yes/No)	Received Notice of Potential to Have Pattern Under Section 104(c) (Yes/No)	Legal Actions Initiated During Period (#)	Legal Actions Resolved During Period (#)	Legal Actions Pending as of the End of the Period (#)
US Salt – Watkins Glen	0	0	0	0	0	0	0	No	No	0	0	0
Cargill – Watkins Glen	0	0	0	0	0	0	0	No	No	0	0	0
Cargill - Lansing	0	0	0	0	0	0	0	No	No	0	0	0

The Jamar Company


Three Months Ended September 30, 2021
Operation / MSHA Identification Number	Section 104 S&S Citations (#)	Section 104(b) Orders (#)	Section 104(d) Citations and Orders (#)	Section 110(b)(2) Violations (#)	Section 107(a) Orders (#)	Total Dollar Value of MSHA Assessments Proposed ($)	Mining-Related Fatalities (#)	Received Notice of Pattern of Violations Under Section 104(c) (Yes/No)	Received Notice of Potential to Have Pattern Under Section 104(c) (Yes/No)	Legal Actions Initiated During Period (#)	Legal Actions Resolved During Period (#)	Legal Actions Pending as of the End of the Period (#)
C6S	1	0	0	0	0	$633	0	No	No	0	0	0
J03	0	0	0	0	0	$375	0	No	No	0	0	0

Northland Constructors


Three Months Ended September 30, 2021
Operation / MSHA Identification Number	Section 104 S&S Citations (#)	Section 104(b) Orders (#)	Section 104(d) Citations and Orders (#)	Section 110(b)(2) Violations (#)	Section 107(a) Orders (#)	Total Dollar Value of MSHA Assessments Proposed ($)	Mining-Related Fatalities (#)	Received Notice of Pattern of Violations Under Section 104(c) (Yes/No)	Received Notice of Potential to Have Pattern Under Section 104(c) (Yes/No)	Legal Actions Initiated During Period (#)	Legal Actions Resolved During Period (#)	Legal Actions Pending as of the End of the Period (#)
HP 400/2101302	0	0	0	0	0	0	0	No	No	0	0	0
Omnicone/2102782	0	0	0	0	0	0	0	No	No	0	0	0
Sparkle Wash/2103460	0	0	0	0	0	0	0	No	No	0	0	0
Argo/2103719	0	0	0	0	0	0	0	No	No	0	0	0
Grayhawk HP400/2103843	0	0	0	0	0	0	0	No	No	0	0	0
Rental/2103893	1	0	0	0	0	$302	0	No	No	0	0	0
C2027	0	0	0	0	0	0	0	No	No	0	0	0

Viking Automatic Sprinkler


Three Months Ended September 30, 2021
Operation / MSHA Identification Number	Section 104 S&S Citations (#)	Section 104(b) Orders (#)	Section 104(d) Citations and Orders (#)	Section 110(b)(2) Violations (#)	Section 107(a) Orders (#)	Total Dollar Value of MSHA Assessments Proposed ($)	Mining-Related Fatalities (#)	Received Notice of Pattern of Violations Under Section 104(c) (Yes/No)	Received Notice of Potential to Have Pattern Under Section 104(c) (Yes/No)	Legal Actions Initiated During Period (#)	Legal Actions Resolved During Period (#)	Legal Actions Pending as of the End of the Period (#)
US Steel – MinnTac 2100282	0	0	0	0	0	0	0	No	No	0	0	0
US Steel – KeeTac 2103352	0	0	0	0	0	0	0	No	No	0	0	0
Cleveland Cliffs – Eveleth pit and Forbes Pellet Plant 2103403 & 2103404	0	0	0	0	0	0	0	No	No	0	0	0
Cleveland Cliffs – NorthShore Mining, Silver Bay Pellet Plant and Babbitt pit 2100209 & 2100831	0	0	0	0	0	0	0	No	No	0	0	0
ArcelorMittal Minorca Mine – pit/ plant	0	0	0	0	0	0	0	No	No	0	0	0
Cleveland Cliffs – Hibbing Taconite 2101600	0	0	0	0	0	0	0	No	No	0	0	0

Western States Fire Protection


Three Months Ended September 30, 2021
Operation / MSHA Identification Number	Section 104 S&S Citations (#)	Section 104(b) Orders (#)	Section 104(d) Citations and Orders (#)	Section 110(b)(2) Violations (#)	Section 107(a) Orders (#)	Total Dollar Value of MSHA Assessments Proposed ($)	Mining-Related Fatalities (#)	Received Notice of Pattern of Violations Under Section 104(c) (Yes/No)	Received Notice of Potential to Have Pattern Under Section 104(c) (Yes/No)	Legal Actions Initiated During Period (#)	Legal Actions Resolved During Period (#)	Legal Actions Pending as of the End of the Period (#)
Pend Oreille Mine/4500366	0	0	0	0	0	0	0	No	No	0	0	0
Freeport-McMoRan Morenci Inc./0200024	0	0	0	0	0	0	0	No	No	0	0	0