PERS : Contracts and Risk Allocation

1. PERS: Contracts and Risk Allocation PERS Summit 2013 Eric J. Pritchard One Liberty Place, 46th Floor 1650 Market Street Philadelphia, Pennsylvania 215-496-7241 EPritchard@Kleinbard.com

2. Disclaimer THIS IS NOT INTENDED AS LEGAL ADVICE! CONSULT AN ATTORNEY! • Any tax advice in this presentation is not intended or written to be used and cannot be used by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. • Views expressed herein solely those of presented and should not be attributed to Kleinbard, any client of Kleinbard or PERS Summit.

3. Why Obtain Customer Contracts? • Memorialize terms / assist in enforcement • Need to bind customer to service term and payment obligation • Limit liability/create legal defenses • Wholesale monitoring company has shifted risk to retail provider • Provide collateral for bank financing • Ensure best rates for insurance coverage • Position company for sale

4. What Type of PERS Customer Contract Do You Use? • Manually-signed paper contract • Shrink-wrap contract • Click-thru contract • Phone confirmation of online or paper contract • None

5. Manually-Signed Paper • PROS • Easily enforced • Most familiar method for customers • CONS • Requires action from customer (signing, mailing or emailing) • Industry experience shows that a significant portion of customer base does not return signed paper contracts

6. Shrink-Wrap Contract • PROS • Does not require customer action (a completely passive method) • Method could cover 100% of customer base • CONS • Enforceability unclear under state/federal law (no caselaw) • Additional cost of printing notices on outside of shipment boxes and inserts in equipment packaging • Method may be unfamiliar to customer base

7. Click-Thru Contract • PROS • Generally enforceable under state/federal law • Web-based contract avoids printing and call center costs • Electronic record of contracts less expensive than storing paper • Can be set up as a condition to the initial order (front-end contract) or as a condition to equipment activation (back-end contract) • Familiar method for person making purchasing decision (typically children of the end user) • CONS • Requires action from customer • Generational issue (end users less likely to use internet) • Difficult to authenticate if end user or representative is signing contract • Legal compliance issues: state versus and federal requirements

8. Phone Confirmation • PROS • Generally enforceable under state/federal law • Can be set up to be fully automated (thereby requiring fewer live operators) • Use of phone may be easier and more familiar for customer base • Can be set up as a condition to activation of the service • CONS • Does not avoid printing costs for paper contracts • Added costs for automated system and call center • Fully automated system cannot authenticate whether end-user or representative is confirming contract • 3-day rights of rescission cannot be provided verbally

9. Is Your Contract Enforceable? • FTC Door-to-Door Sales Act • State Home Solicitation Acts? • PERs Licensing? • License Required? • Is the Monitoring Facility required to be licensed? • Foreign qualification? • Applicable PERs Laws? • New York State Law • Seven Days Cancellation • Thirty Days Cancellation • Kentucky State Law • 911 Primary Responder • Acknowledgment • Other Possible State Laws?

10. Do NOT go NAKED! • Insurance is less expensive than you might think: $15 per $1,000 • Traditional Security Industry Insurance Policy Unlikely to Apply • Pay Now or Pay Later: Expertise could save you big bucks