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Contract chat: exculpatory and limitation of liability clauses

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Wednesday, July 31, 2013

A few weeks ago, in response to a Georgia appellate court decision upholding a verdict against Monitronics in a multi-million dollar case, Ken Kirschenbaum, an industry attorney, posed a simple question on his email newsletter to subscribers: "Why should an alarm contract be drafted so that judges find so much confusion?" 

It's a fair question. There was little consensus among the appellate court judges, and some of the judges who concurred with the original verdict cited different reasons for doing so. While the case is not yet settled (it may yet move to a higher court), the implication seems to be that the exculpatory and limitation of liability provisions in the contract were not established in a manner that could provide adequate protection.

This is an issue that stands to remain relevant for central station alarm monitoring companies everywhere. The case, too, is a big enough deal that Kirschenbaum himself updated some of his standard form contracts to make the protective provisions more enforceable, and account for some of the worst case scenarios which surfaced in the Veasley v. Monitronics case.

From Kirschenbaum’s newsletter:

“Why did I make the changes even though the Monitronics case is likely to be appealed and hopefully reversed? Because the same issues raised in Monitronics have been and will continue to be addressed in courts all over the country. Courts are looking for ways to impose duties on the alarm companies and avoid contract enforcement.”

Part of what makes the Monitronics case so legally murky, and even intimidating from a contractual standpoint, is that the end result, as Kirschenbaum points out, was personal injury. What’s more, the injury was caused by service rather than equipment negligence, the court determined.

Kirschenbaum’s piece is worth a read in its entirety because it discusses the sheer breadth of considerations that have to be made when designing a contract with clear and enforceable protections. You can subscribe to his newsletter here.

Life in prison for McGinn, Smith?

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Wednesday, July 31, 2013

Security industry investors Timothy McGinn and David L. Smith are set to be sentenced next week and could spend the rest of their lives in prison after being convicted of fraud, conspiracy and tax evasion earlier this year.

That’s the sentence prosecutors want a judge to impose on the pair—formerly partners at the Albany, N.Y.-based brokerage firm of McGinn, Smith & Co., which conducted dealings in the alarm industry—when they appear in court on Aug. 7, according to the Time Union, an Albany-based newspaper. Life in prison is warranted because the pair caused at least 250 victims to lose more than $30 million, prosecutors say.

However, McGinn, 64, and Smith, 68, are seeking leniency and having friends and relatives send letters testifying to their good characters, according to news reports.

Here’s more from the recent Times Union article:
 

In a sentencing memorandum filed Wednesday, assistant U.S. Attorney Elizabeth C. Coombe said the maximum term of imprisonment is warranted by factors that include more than $30 million in losses to at least 250 victims. She said the defendants' argument that their misdeeds were caused by a collapsing financial market "misses the mark."

"After persuading investors to part with their money, defendants used it as if it were their own. Not only did they secretly skim large percentages of investor funds to line their own pockets, but they did their very best to make sure that the investments would keep coming in by using new investor money to pay old investors," Coombe wrote in a 13-page memorandum addressed to U.S. District Judge David N. Hurd.

The government also filed a motion seeking $30.2 million in forfeiture penalties from McGinn and Smith, whose bank accounts and assets were frozen three years ago under court orders. It's unclear that they have the assets to pay the proposed penalty.

A federal jury on Feb. 6 convicted the pair of conspiracy to commit mail and wire fraud, mail fraud, wire fraud, securities fraud, and filing false tax returns. The two also were the target of a civil suit by the Securities and Exchange Commission claiming they bilked investors of at least $80 million in a Ponzi scheme.

However, McGinn and Smith, formerly partners at the brokerage firm of McGinn, Smith & Co., filed motions asking a federal judge to overturn their convictions, saying the government’s claims were “based on the complete failure of the government to attempt to comprehend concepts of investment banking and the inner-workings of running a broker-dealer.”

It will be interesting to see what the judge decides in this case. Stay posted.

 

PSIM providers raises $15.6 million

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Monday, July 29, 2013

PSIM provider VIDSys announced last week that it’s raised $15.65 million in one equity financing.

The investment was lead by NewSpring Capital. Previous investors Atlanta Equity, Flybridge Capital Partners, JVax Investment Group and Motorola Solutions Venture Capital also participated in the round.

I have a call into VIDSys and hope to speak to someone tomorrow about what the company plans to do with the new funds.

NewSpring Capital, is based in Radnor, Pa. It invested through its technology and business services growth equity fund, NewSpring Growth Capital. Marc R. Lederman, NewSpring general partner, has now joined the VidSys board of directors.

VIDSys' PR folks said that CEO Michael P. Jackson wasn't available for a call. They provided me with this prepared statement: “VidSys will use these funds to help grow and scale the company on a global basis beyond our existing footprint. ... We will also invest in further development of our core software ... for our public sector and enterprise clients.”

Management shake-up at AlarmForce

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Wednesday, July 24, 2013

Last year, AlarmForce Industries, a Toronto-based super-regional, announced that its board of directors was looking at selling the company. Now the board says the company won’t be sold but grown instead, and has “terminated” AlarmForce’s longtime President and CEO Joel Matlin.

Alarm Force announced in a news release Tuesday that it had “terminated the employment" of Matlin but said that he will “continue to serve as a director of the company.” Matlin holds a stake in the company of about 8 percent, according to news reports.

Company CFO Anthony Pizzonia is now interim president and CEO, the release said. A search is underway to find a permanent successor to Matlin.

Earlier this month, the company announced that its board had completed its strategic review begun last August and will now focus on growing the company.

Here’s more of what it had to say in a July 3 news release:
 

During the past eleven months, a special committee of the Board of Directors of the Company (the "Board") comprised of the independent directors of AlarmForce (the "Special Committee") explored and considered available opportunities for the Company, including a possible sale of the Company. The Special Committee has concluded that the strategic review process did not result in a transaction adequately reflecting the Company's value. As such, the Board has decided to conclude the formal process and dissolve the Special Committee. The Company will now move forward with a focus on the Company's growth.

AlarmForce provides security alarm monitoring, personal emergency response monitoring, video surveillance and related services to residential and commercial subscribers throughout Canada and in some locations in the United States. The company says it is a leading provider of two-way voice alarm systems in Canada.

 

iControl woos app developers

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Wednesday, July 24, 2013

This week, iControl Networks, the software platform used by ADT’s Pulse, and a number of cable companies, including Comcast's Xfinity Home, Time Warner Cable's IntelligentHome and Rogers Smart Home Monitoring, announced that it’s launching an Android App Partner Program, called the “FastTrack App Partner Program.”

It’s an initiative that will “allows Android apps to be easily and quickly certified compatible with touch screens that support the iControl Converge deployment solution, which powers leading home solutions,” iControl said.

In a prepared statement, Jason Domangue, iControl's VP of ecosystem development, said that program opens a new distribution channel for app developers. "FastTrack makes it easy and seamless for app developers to team with leading cable service providers for in-home distribution, and increases comfort and convenience for consumers by providing unique, innovative apps tailored for the smart home."

IControl announced the first five members of the partner program: Life360, which provides location and communication for families; MapQuest, which provides maps and traffic information; News Republic, which provides customizable global news alerts; TuneIn, which provides online radio and music streaming, and the Weather Channel, which provides detailed forecasts and future radar.

An app developers kit is available on the company’s website. “Certified applications will live in iControl's marketplace and become accessible to millions of consumers around the globe,” the company said.

Missouri city the latest to outsource false alarm services

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Wednesday, July 17, 2013

The trend of municipalities outsourcing false alarm collection services continues, and as in past instances, the most recent agreement involves Irving, Texas-based PMAM, a global IT firm with four U.S. offices and an office in Mumbai. Their slogan is “Around the World, Around the Clock,” so you can see why their false alarm tracking and billing services might appeal to cities hoping to nip the problem in the bud. 

According to an article from KSMU (Ozarks Public Radio) in Springfield, Mo., the police department in that city is the latest to do away with its in-house handling of false alarms, opting to transfer those duties to PMAM. Springfield Police Department dispatchers receive as many as 400 false alarm calls a month, the article noted.

Like any outsourcing move, the new arrangement saves resources, authorities say. In addition to being a drag on budgets, false alarms also stretch law enforcement in potentially harmful ways, sometimes preventing or delaying response to critical calls.

The advantage of outsourcing false alarm services to a company like PMAM is that, ideally, the IT giant has the capabilities to identify a false alarm, home in on the cause (an installation flaw or dated system is often the culprit), and then teach people how to avert future false dispatches, and the fines that eventually accompany them.

According to the article, the Springfield Police Department has received roughly 2,100 false alarm calls thus far in 2013. The city’s ordinance levies a civil penalty fee, between $15 and $50, for those who have at least four false alarms. The charges escalate with each additional violation, according to the article.

False alarms are both a fiscal and logistical drain on towns and cities. But some of the things that might mitigate false dispatches, including system upgrades and more regular maintenance, are not always at the forefront of many customers’ minds.

It seems that until there’s more public awareness of the problem, and more measured steps to cripple the problem at its roots, municipal bodies are going to continue seeking out IT behemoths like PMAM for false alarm damage control.     

Securadyne steps up

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Wednesday, July 17, 2013

After the May 20 F5 tornado ripped through Moore, Okla., we ran several stories about how the security industry was affected by the storm. Since, then, I've heard from others in the industry about their experiences.

Securadyne Systems, an independent integrator based in Dallas, which has a branch office in Oklahoma City, has helped out with the recovery efforts in Moore.

Following is an excerpt of a report that Securadyne's Abe Romero sent along to me.

On June 19 Securadyne Systems had 18 volunteers from branches in Oklahoma City, Tulsa, and Dallas working on the recovery effort in Moore. The photo below shows some of those volunteers.

One of Securadyne Systems’ own employees was directly affected by the storm. Tracy Simon, an enterprise account executive in the Oklahoma City branch, spearheaded the effort to work with the Help Moore Rebuild disaster relief organization. Simon’s home was damaged during the tornado and her daughter’s middle school was completely destroyed.

At the relief organization’s headquarters, the team was briefed on the types of jobs available throughout the Moore area. The Securadyne team helped clean-up a huge debris field scattered with the remains of homes destroyed in the nearby neighborhoods.

After the work was done, the group toured the areas of damage. “The most touching and challenging part of the visit was the stop at the Plaza Elementary school makeshift memorial. Plaza Elementary took the brunt of the tornado’s fury on that fateful day and a number of children and teachers lost their lives. The day of volunteering reinforced the importance of giving back to our communities, which is a central component of our company’s core values,” according a company statement.  The photo below shows the memorial.

More on activist investor Ackman and ADT

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Wednesday, July 17, 2013

There was additional speculation this week about whether activist hedge-fund manager William Ackman is intending to take a stake in The ADT Corp. An article in The New York Times said that his investing in the home security/home automation giant is more likely than his buying into FedEx, another company he is rumored to be considering.

The article said that’s basically because Ackman would have less say in FedEx, a much larger company than ADT, where he could wield greater influence.

There’s a possibility we could find out the answer later this week. Bloomberg reported July 9 that Ackman, who runs $12 billion Pershing Square Capital Management, was raising $1 billion over the next 10 days to buy a stake in a “large-capitalization, investment-grade U.S. corporation that principally operates in one business” that he didn’t name.

If he's successful, that would mean he’d have the money by this Thursday or Friday and he could reveal his pick then. However, he also could wait until later this year before announcing the choice, Nicholas Heymann, co-group head of global industrial infrastructure for New York-based William Blair & Company, told me.

"The issue is once you raise the money you have to put it to work," he said. However, Heymann said, "chances are, especially if it happens to be including some of his other 12 billion dollars of funds that he manages in addition to the $1 billion single stock fund, you and I are not going to know what his positions are until they’re reported 45 days after the close of the quarter, so we could end up hearing about this in mid-November."  The news could come earlier if Ackman chooses to voluntarily disclose it, Heymann said.

ADT has told Security Systems News the company does not comment on market rumors.

But some other important industry news is also related to ADT, and that’s the recent announcement that Monitronics plans to acquire Security Networks next month.

“We continue to look at the ramifications of the Security Networks acquisition by Monitronics as it relates to the implied value of ADT,” Heymann said.

In a July 11 William Blair & Company industry report authored by Heymann, the company explained how that pending deal sheds light on the value of ADT. Here’s some more detail from the report:
 

Our belief that ADT remains the most undervalued company in our multi-industry universe was starkly highlighted with the announcement after the close yesterday that Ascent Capital Group’s (ASCMA $84.15) primary operating subsidiary, Monitronics International, has signed a definitive agreement to acquire Security Networks for total compensation of $507.5 million, or about 60 times Security Networks’ average recurring monthly revenue. Before the announcement of this transaction, Monitronics was the third-largest North American residential security company and Security Networks was the 14th-largest. Following the completion of the proposed acquisition, the combined company will have 1.034 million customers (almost the same number as Protection One, the current second-largest North American residential security provider) and, on a pro forma basis, hold just under a 4% share of the North American residential security market.

… The valuation paid for Network Securities by Monitronics would value ADT between $67 and $74 per share. On an implied market capitalization basis, ADT would be valued in a range of $15.4 billion-$16.8 billion, well above the company’s current $9.2 billion market capitalization.

ADT stock closed at $42.68 per share today. That's down 28 cents or .65 percent from its $42.96 close yesterday and Heymann speculated later today that talk that Ackmann was NOT interested in buying into ADT may have caused the drop, the opposite of last week when ADT stock climbed based on speculation that Ackman was interested. "We think Ackman may have been at this big hedge fund meeting this afternoon and said something that implied he was NOT looking at ADT ... or an ADT type company," Heymann told me in an email this afternoon.

So which company does Ackman have his sights on? The situation is decidedly very fluid, and very interesting. I’ll be reporting more on this. Stay tuned!

 

 

Credit scores and attrition: Correlation?

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Monday, July 15, 2013

The quest to reduce the dreaded attrition rate remains a high priority for anyone in the monitoring space, and companies continue to explore new ways to predict and prevent cancellations. Companies don’t just track attrition rates; they look for clues, like usage patterns, that could yield information about whether certain customers may be more prone to stay or go. 

While usage patterns remain a valuable tool for evaluating customers and forming effective business strategies (conventional wisdom says upsell to active users, and reduce prices to the less engaged), it’s not the only predictor companies use. There is also a significant correlation between credit scores, or Beacon scores, and attrition rates, according to Michael Barnes, a partner in the consulting and advisory firm Barnes Associates, who in a response on the CSAA’s Accent forum, said his firm reviewed data on over 2 million accounts. Here’s a bit of what he had to say:

“Generally speaking, the correlation changes over four ranges of scoring. Below 600, the statistical experience is very bad. That is, the accounts have a very high cancellation rate. Between 600 and 650 the results improve dramatically, with a general inflection point around 620+/-, which is why so many dealer programs (and, in some cases credit facilities) have restrictions around this area of scoring.”

Barnes added that scores above 700, in terms of attrition and retention, tend to behave the same as scores around 800. Scores in the ballpark of 650 tend to have poor cumulative performance, with the rates of cancellation almost twice as high over the first four years, Barnes notes. Unsurprisingly, rates of “infant mortality’—cancellations within the first year of existence—were exceedingly high among those with sub-650 Beacon scores, according to Barnes’ data.

While the data sample is large enough to provide a thorough understanding of the relationship between credit scores and attrition, Barnes points out that some qualifications are needed, since a slew of factors can create exceptions. Some of these key variables include installation fees, services provided, pricing and payment method, and even geographic location.

The above graph, made for SSN in 2009 by the Edmonds Group, also charts the correlation between attrition rates and Beacon credit scores. 

More news about IR spinoff; new president named

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Wednesday, July 10, 2013

IR announced in December that it would spin off its security division, and earlier this month announced that the spin off would be called Allegion, On Monday announced that David Petratis will serve as CEO, president and chairman of it security spinoff, Allegion.

Petratis, who will start his new job on Aug. 5, will join Allegion from Quanex Building Products, where he is currently CEO, president and chairman. Quanex, based in Houston, is a manufacturer of building products.

IR CEO Michael Lamach called Petratis an “accomplished leader in the manufacturing and marketing of code-compliant, high-value products that are specified by architects and engineers, and used by commercial and residential builders,” in a prepared statement.

Previously, Petratis was COO and CEO of Schneider Electric North America from 2003-2008, where he “grew its North American operations by more than $2 billion, doubled its revenue and completed several successful acquisitions.”  From 1994 to 2003, he was president of MGE UPS Systems Americas.

On Monday, Allegion also revealed its new logo.

Allegion will share IR’s headquarters in Swords, Ireland, but its operations will be based in Carmel, Ind.

Allegion, a $2 billion company, will have 7,600 employees in 35 countries including 20 production and distribution facilities.

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