SECURITY ASSOCIATES INTERNATIONAL INC, 10-K405, 1998-02-23

SECURITY ASSOCIATES INTERNATIONAL INC
10-K405, 1998-02-23
DETECTIVE, GUARD & ARMORED CAR SERVICES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

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 0-20870

SECURITY ASSOCIATES INTERNATIONAL, INC.
(Exact name of registrant as specified in the charter)

DELAWARE 87-0467198
(State or other Jurisdiction (IRS Employer
of incorporation) Identification No.)

2101 SOUTH ARLINGTON HEIGHTS ROAD, 60005-4142
SUITE 100 (Zip Code)
ARLINGTON HEIGHTS, ILLINOIS
(Address of Principal Executive Offices)

Registrant's telephone number including area code: (847) 956-8650

Securities registered pursuant to Section 12(b) of the Act: None

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

Common Stock, par value $0.001 per share

Warrants to purchase Common Stock, par value $0.001 per share

(Title of Class)

- - --------------------------------------------------------------------------------

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 X No
----- -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
-----
The aggregate market value of voting stock held by non-affiliates of the
registrant based upon the closing sale price of the stock as reported on the
OTC Bulletin Board on February 12, 1998 was $21,846,778.

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DOCUMENTS INCORPORATED BY REFERENCE

The registrant's definitive proxy statement is expected to be filed with
the Commission not later than March 15, 1998, for the annual meeting of
stockholders, expected to be held on or about April 28, 1998, is incorporated by
reference into Part III of this Form 10-K.

PART I

ITEM 1. BUSINESS

OVERVIEW

Security Associates International, Inc. ("Security Associates" or the
"Company") provides security alarm monitoring services for both residences and
businesses. These services are provided either directly to "Accounts" (which
are contracts to provide monitoring services) owned by the Company or to
Accounts owned by third parties, who are largely independent alarm system sales
and installation organizations ("Dealers"). The Company's ability to capture
monitoring business is enhanced and supported by a network of approximately
2,000 Dealers to which the Company provides industry-related education relating
to technology, finance, management and marketing (the "Dealer Network").

The Company was incorporated in 1990 as an Illinois corporation and,
through a merger in 1992, became a Delaware corporation. The Company's
original stockholders were thirty independent alarm Dealers, in addition to its
four founding stockholders. Three of the Company's four founders are still
active in the management of the Company: Ronald I. Davis, Chairman of the Board
of Directors, James S. Brannen, President, and Stephen Rubin, Senior Vice
President. The Company conducts its operations through six wholly-owned
operating subsidiaries. Monitor Service Group, L.L.C. acquires and owns the
Company's Accounts. Monitoring is conducted through four entities which operate
central monitoring stations: Security Associates Command Center II, L.L.C.
which owns and operates a central station located in Grand Rapids, Michigan
("Grand Rapids Station"), All-Security Monitoring Services, L.L.C. which owns
and operates a central monitoring station located in Des Plaines, Illinois
("Des Plaines Station"); AMJ Central Station Corporation, Inc., which owns and
operates a central monitoring station located in Pompano Beach, Florida
("Pompano Beach Station"); and Telecommunications Associates Group, Inc.
("TAG") which owns and operates central monitoring stations located in Euclid,
Ohio ("Cleveland Station") and Austin, Texas ("Austin Station"). On June 9,
1997, the Company formed Alarm Funding Corporation, as the entity through which
it offers its loan program for Dealers. See "Dealer Financing Programs-Dealer
Loan Program."

The Company also owns three wholly-owned non-operating subsidiaries, MCAP
Investors, Inc., Winnetka Investors, Inc. and RMR Management Corporation.
These subsidiaries were the entities through which prior to September 1996,
outside investors owned a controlling interest in the Company's operating
subsidiaries. In September 1996, concurrent with a $5 million debt and equity
investment by a new investor, the Company redeemed all of the interests of the
outside investors with the result that all of the Company's subsidiaries are
now wholly-owned (in some cases through other wholly-owned subsidiaries) by the
Company. In the first quarter of 1998, all of these companies will be merged
into the Company as part of the Company's efforts to reduce costs. Also in the
first quarter of 1998, all of the Accounts monitored at the Grand Rapids
Station will be transferred to TAG, and Security Associates Command Center II,
L.L.C. ("SACC") will be dissolved or merged into another of the Company's
subsidiaries. See "Certain Relationships and Related Transactions."

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Security Associates' revenues generally consist of recurring monthly
revenue ("RMR") payments under written contracts to provide Account monitoring
services. For the year ended December 31, 1997, the Company derived
approximately 45% of its monitoring revenues from monitoring Company owned
Accounts and approximately 55% of its revenues from monitoring Dealer owned
Accounts. Total revenues increased from $699,154 for the fiscal year ended
December 31, 1993 to $10,814,087 for the fiscal year ended December 31, 1997.
Operating income decreased from a loss of $944,311 for the fiscal year ended
December 31, 1993 to a loss of $2,662,040 for the fiscal year ended December
31, 1997. The Company's loss per share of Common Stock for the fiscal year
ended December 31, 1997, was $1.16 per share. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

As of December 31, 1997, Security Associates owned a total of 24,311
Accounts, of which 2,178 Accounts are monitored by other central stations.
From January 1, 1993 through December 31, 1997, the Company acquired 22,987
Accounts (net of attrition). During the year ended December 31, 1997, the
Company acquired 12,018 Accounts. As a result, the RMR that the Company is
entitled to receive from owned Accounts has increased from $28,388 ($340,656
annualized) as of December 31, 1992 to $552,853 ($6,634,236 annualized) as of
December 31, 1997.

As of December 31, 1997, the Company monitors a total of 227,983 Accounts
from its five central monitoring stations: 205,850 of the Accounts are owned by
1,346 Dealers and 22,133 of the Accounts are owned by the Company. From
January 1, 1993 through December 31, 1997, the number of owned and/or monitored
Accounts increased from 12,301 to 230,161. During the year ended December 31,
1997, the Company provided monitoring services to 117,217 additional Accounts
as compared to 1996. The Company's RMR from monitoring Dealer owned Accounts
has increased from $59,253 ($711,036 annualized) as of December 31, 1992 to
$739,953 ($8,879,436 annualized) as of December 31, 1997. The Company
estimates that its central monitoring stations are capable of monitoring
350,000 Accounts without requiring substantial additional capital outlays. The
Company's current plan envisions increasing the total capacity of the Company's
central stations to 500,000 Accounts by the end of 1998, although there can be
no assurance that this goal can be achieved.

Security Associates' Dealer Network consists of approximately 2,000
Dealers nationwide that are estimated to own 600,000 Accounts, approximately
400,000 of which are presently monitored at central stations owned by other
companies. The Company hosts an annual meeting for its affiliates at which
developments in the security industry are discussed and where numerous
presentations are made by industry experts to keep Dealers abreast of new
developments in technology, marketing and management as well as new business
opportunities for Dealers. In addition, the Company distributes an "audio
magazine" to the affiliates of its Dealer Network on a quarterly basis and
conducts numerous smaller meetings throughout the year. The Company believes
that its relationships with independent Dealers are an important component of
its entire operation, as Dealers are the source of the portfolios of Accounts
acquired and monitored by the Company. The Company also believes that the
relationships with Dealers established through its various programs and
services are a potential source for future sales of monitoring services and
loans to Dealers under the Company's Dealer Loan Program (described below).
See "Dealer Financing Programs-Dealer Loan Program."

The Company intends to continue to acquire portfolios of Accounts and to
increase the number of Accounts it monitors. In pursuing these goals, the
Company anticipates acquiring additional central monitoring stations. It also
intends to continue making loans to Dealers secured by Dealer owned Accounts.
In addition, the Company plans to further develop its Dealer Network by
enhancing its educational programs and by offering selected Dealers the
opportunity to own equity in the Company as part of their ongoing relationship
with Security Associates. See "The Dealer Program."

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INDUSTRY OVERVIEW

General

The electronic security market is characterized by a large number of small
companies involved in security alarm system installation and monitoring. A
survey by a nationally recognized management consulting firm indicated that the
top 100 companies account for an approximately 23% market share, with an
estimated 13,000 smaller independent dealers sharing the remainder of the
market. Other studies have estimated the number of companies involved in the
installation and servicing of burglar and fire alarm systems to be in the
12,000 to 14,000 range, including 2,000 to 4,000 participants that are active
on a limited basis. While the largest industry participants have revenues in
the hundreds of million dollars, approximately 42% of all Dealers earned less
than $250,000 in gross revenues in 1997, with approximately 68% earning less
than $500,000 during the same period. It is the needs of this market of small
independent Dealers that the Company seeks to address.

The Company's management believes that another characteristic of the
security alarm industry is its potential growth. Industry statistics published
in the January 1998 edition of Security Sales, an industry publication,
indicate that revenues for the electronic security alarm segment of the
security industry grew from $9.7 billion in 1991 to $13.9 billion in 1997. A
national brokerage firm estimated that by the year 2000, there will be 28.1
million households in the United States with security systems, 17.5 million of
which are expected to be monitored systems. This represents a projected
increase during this period in households with monitored security systems to
16.9% of all households compared to an estimated 12.2% in 1996.

The Company believes that the growth in the security alarm industry has
been fueled by several factors. The aging of the population and the increase
in two career families have both contributed to an increased focus on the
security of the home. Security Sales reported in January 1998 that commercial
sites without alarm systems are 4.5 times more likely to be burglarized than
those with such systems (7.59% vs. 1.66%) and that residences without alarm
systems are more than twice as likely to be burglarized as homes with such
systems (14.8% vs. 6.6%). These factors are reinforced by the practices of
many insurance companies that offer discounts to home and business owners that
install alarm systems.

Several large well-capitalized companies have recently entered the
security alarm industry directly or through acquisitions, including Western
Resources, Inc., Tyco International, Inc. and Ameritech. Security Associates'
management believes that these new entrants have been attracted by the
fragmented nature of the industry, its growth potential and, in the case of the
utility and telephone companies, the similarity between the services provided
in the security alarm industry and the services they already perform, which
also involve providing services via wire connections in return for monthly
fees. These characteristics are also shared by cable television companies
which represent another group of large well-capitalized potential entrants.

As larger participants have entered the security alarm industry, they have
introduced mass marketing techniques which have included heavy advertising and
"free" or low cost system installations tied to long-term monitoring contracts,
in effect subsidizing the cost of installations with the profits generated from
the long-term monitoring contracts. These long-term contracts typically have
one to five year initial terms and one year automatic renewals thereafter, if
not canceled. The result has been a decline in the average price of installed
systems from $1,250 to $1,100 between 1993 and 1995, with an increasing number
of basic systems being offered for $200 or less and, sometimes, such systems
are offered "free." This trend of offering low cost systems has been
accompanied by an increase in the average monthly monitoring fee from $20.00 a
month to $22.00 per month, and in many cases $25.00 to $30.00 per month,
over the same period. As competition has driven the price of installed alarm
systems

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down, and as the competition for providing installations has increased,
independent Dealers have been pressed to find an appropriate competitive
response.

The Needs of the Independent Dealer Community

Retaining Customer Accounts

The independent Dealer sells and installs the alarm system in the home or
business and at the same time enters into a long-term contract with the
subscriber to provide monitoring services. The Dealer then generally
subcontracts with a third party monitoring entity, to provide the actual
monitoring, retaining as profit the "spread" between what is charged to the
subscriber as a monitoring fee and the cost to the Dealer of buying monitoring
services from a contract or third party central station. This recurring
monthly monitoring income is an important component of a Dealer's total revenue
stream. According to a study cited in the 1997 Security Sales Dealer Survey,
approximately 26% of a Dealer's revenues consist of monitoring and service
fees. As the industry has been driven towards lower priced system
installations, independent Dealers are increasingly being forced to subsidize
system installations with the profits generated by monitoring fees. However,
Dealers cannot expect to maintain this stream of income if their customers do
not receive high quality monitoring services. This trend has placed greater
importance on retaining the Accounts beyond the end of the initial contract
term.

Financing

For many independent Dealers, their customer Accounts represent their most
substantial assets. Banks and other commercial lenders, which are a very
important source of financing for small businesses, have historically been
unwilling to lend against customer Accounts as collateral. This represents a
competitive disadvantage for the independent Dealer trying to compete with the
larger market entrants with superior access to capital. It also limits the
ability of the independent Dealer to finance the growth and expansion of its
business. This competitive disadvantage has become more pronounced as Dealers
have been forced to finance the cost of system installations. The inability to
turn customer Accounts into the cash needed to support other aspects of their
businesses is a very important concern of independent Dealers.

Training and Support

New entrants into the industry with large marketing budgets place
significant pressure on smaller participants which market their services with
limited resources. Dealers must not only be more financially sophisticated,
they must also be able to run their businesses economically and with limited
resources. In addition, Dealers must be able to choose effectively between
competing new technologies in an environment where they have limited financial
resources with which to absorb potentially expensive mistakes. Further,
Dealers need the tools that will allow them to identify and exploit new
opportunities both within the alarm industry and in related fields. Finally,
Dealers must also be aware of regulatory changes affecting the industry. There
are limited resources generally available to help the independent Dealer meet
these needs.

New Business Opportunities

The skills needed to install security alarm systems are very similar to
those required for the installation of closed circuit televisions systems, home
automation systems, audio systems and home entertainment centers and satellite
dishes. While the entry of large new participants into the industry has
created competitive threats to independent Dealers, the Company believes that
this same phenomenon will also generate new business opportunities. Many of
these opportunities may exist in the form of

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strategic partnerships or alliances with some of the new entrants, who may wish
to offer their customer base (e.g., electric utility or telephone company
customers) with a broad range of related services without incurring the expense
or experiencing the uncertainties of entering unfamiliar product markets. The
Company believes that independent Dealers must be aware of and learn how to
respond to these new market opportunities if they are to survive and prosper in
the future. To this end, the Company provides ongoing training and management
development programs, as well as, what the Company believes is the industry's
premier educational event, the Security Associates International, Inc. Annual
Conference, now in its sixteenth year.

BUSINESS

Alarm Monitoring

Independent Dealer Relationships

Security Associates' response to the challenges and opportunities
presented by the security alarm industry have been significantly influenced by
the personal and business experience of its founders. Both Ron Davis, the
Chairman of the Company's Board of Directors and Stephen Rubin, its Senior Vice
President, were principals of the Davis Marketing Group, an organization formed
in the mid-1970s to provide consulting services to alarm companies, that
evolved into a franchiser of alarm installation franchises, which later became
a network of Dealers, initially made up of the former franchisees. The network
provided its affiliates with group buying, training and education services. In
1990, Security Associates, Inc., the corporate predecessor to Security
Associates International, Inc. was formed to acquire Accounts for its own
portfolio and to acquire an interest in the Grand Rapids Station. The initial
stockholders (other than the founders) were almost all independent Dealers.
The relationship with the Dealer Network remains a key part of the Company's
strategy. It is this history that has made Security Associates keenly aware of
the needs of independent alarm Dealers and of the opportunities that those
needs represent.

Monitoring Services to Independent Dealers

A Dealer-owned Account represents a stream of income that may continue for
many years if the monitoring contracts are extended for additional renewal
terms. An enterprising Dealer can even increase the value of an Account by
selling add-on services such as: system maintenance and servicing; two-way
voice communications between the subscriber and the central monitoring station;
and cellular telephone or private radio backup to the normal land line
telephone links to the central monitoring station. There is relatively little
cost to the Dealer for providing monitoring services other than the Dealer's
cost for obtaining the monitoring services. Accounts are subject to attrition
for many reasons that are beyond the Dealer's control, such as nonpayment by
the subscriber, the sale of a home or business or, to some extent, lower cost
service offerings by competitors. One element that the Dealer can control,
however, is attrition due to poor monitoring services provided by the central
station from which it purchases monitoring services. Dealers address this
problem by contracting with companies that have a demonstrated record of
providing high quality services.

The Company's strategy is to own and operate superior central monitoring
stations with highly efficient equipment and a well trained staff to deliver
high quality monitoring services. All of the Company's central stations are
Underwriters Laboratory ("UL") listed. To obtain and maintain a UL listing, a
central station must be located in a building meeting UL's structural
requirements, have a backup and uninterruptible power supply and have secured
telephone lines and redundant computer systems that meet UL criteria. Access
to the facility must also be strictly controlled. Security Associates' central
stations are also capable of supporting a full range of add-on services such as
two way voice communications, cellular transmission and private radio access.

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The Company's goal is to increase the number of Accounts to which it
provides monitoring services by up to 35% over the next 12 months, and to
increase the profitability of the services it provides, although no assurances
can be given that these goals will be achieved. In order to achieve these
goals, Security Associates will need to add additional monitoring capacity,
integrate its monitoring operations to be able to benefit from economies of
scale, maintain and enhance the quality of the services it renders and
successfully market its services to the Dealer community. To assist the
Company in this regard, the Company recently appointed Ronald Carr as a Vice
President. Mr. Carr was formerly a Director of Ameritech's SecurityLink where
he was responsible for telecommunications and central station operations.

Increase Monitoring Capacity

Historically, the Company's monitoring capacity has grown principally
through the acquisition of central monitoring stations. In October 1990, the
Company obtained a 50% interest in the Grand Rapids Station and in July 1995,
the Company purchased a minority interest in the Des Plaines Station through a
wholly-owned subsidiary. All of the interests in the Des Plaines Station and
Grand Rapids Station which were owned by outside investors were purchased by
the Company in September 1996. In December 1996, the Company purchased the
Pompano Beach Station. In November 1997, the Company purchased TAG which owns
and operates central monitoring stations located in Austin, Texas and Euclid,
Ohio. Accounts monitored at the Grand Rapids Station will be moved to TAG in
the first quarter of 1998, as part of the Company's effort to consolidate
operations and reduce costs. Subject to the availability of suitable
candidates and financing, Security Associates may acquire additional central
monitoring stations in the future. A principal advantage of purchasing an
entire central monitoring station is that future cash flows generated from
Accounts currently being monitored may be utilized to finance a significant
portion of the purchase price.

The Company has reviewed its current operations and determined that it can
economically expand the capacity of its existing central monitoring stations to
accommodate 500,000 monitored alarm systems by the end of 1998. The Company
intends to embark on this program of expansion. This expansion would
principally involve hiring additional personnel, purchasing additional
computers and monitoring equipment and leasing additional phone lines. The
Company will then have the opportunity and challenge of bringing in additional
Accounts to absorb the increased monitoring capacity.

Integrate Operations and Realize Economies of Scale

Historically, the Company's central monitoring stations were separately
owned and operated as independent business units. The Company's acquisition of
the formerly independent entities has presented the Company with several
opportunities to increase the profitability of each of these operations by
eliminating duplicative efforts through the creation of a single centralized
accounting system and a single billing and collections department to service
all of the Company's central monitoring stations.

The availability of additional monitoring capacity in the presently owned
central stations means that the incremental cost of servicing additional
Accounts is substantially reduced. This can be illustrated by the acquisition
in February 1997 of Northern Central Station, Inc. ("NC"), a central monitoring
station located in New Jersey. In the NC transaction, the New Jersey facility
was not purchased. Instead, all of the 8,860 Accounts monitored by NC were
transferred in bulk, along with certain equipment and software, to the Des
Plaines Station. Only two new personnel were necessary to accommodate the
additional 8,860 Accounts. By contrast, the old NC operation required eight
full-time employees plus a leased facility.

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In the first quarter of 1998, the Company will consolidate the Grand
Rapids Station into the newly acquired TAG station located in Euclid, Ohio.
The consolidation is expected to reduce costs by reducing management and
supervisory expense and by eliminating the rent and computer hardware and
software support costs of the Grand Rapids Station.

Maintain and Enhance the Quality of Monitoring Services

One of the initiatives undertaken by the Company is a review of the
operations of each of its central monitoring stations combined with the
development of a strategic plan to improve the functionality and profitability
of the Company's monitoring services. The Company's five central monitoring
stations currently use slightly different event monitoring software and
hardware. All of the Company's existing systems are being evaluated against
other systems that are available in the industry to determine the optimum
configuration for the Company's needs. The Company also plans to restructure
and enhance its central monitoring stations' operational systems to provide a
platform from which to offer a wider selection of value-added services to
Dealers, including providing Dealers with after-hours answering services,
internet or direct access to end-user information for a Dealer's Accounts and
automated interactive alarm system testing services.

The Company is also planning to implement a user group program in order to
gain insight into both the quality of the services it is providing on an
ongoing basis, as well as to obtain Dealer input into potential new service
offerings. As presently envisioned, each of the Company's central stations
would form a user group of leading Dealers in its service area. These user
groups would meet periodically and serve as a regular source of feedback for
both the central station and for Security Associates as a whole. The Company
also plans to use the user groups as forums at which it can test the
attractiveness and demand for proposed new services before making major
commitments of time and money to new programs.

The Company believes that these initiatives will greatly enhance the
quality of monitoring services, and, therefore, their attractiveness to
Dealers.

Implement Relationship Based Marketing Program for Monitoring

The Company's goal is to increase the number of Accounts it monitors by up
to 35% in the next twelve months. While there can be no assurances that this
goal can be reached, the Company is undertaking several initiatives toward its
accomplishment.

The Company has reorganized and changed the focus of its sales force. In
the past, the Company relied on the existing Account base of the acquired
central monitoring stations and the "natural increase" in Accounts that occurs
as Dealers who are already customers install additional alarm systems.
Additionally, the Company's sales force has traditionally focused its efforts
on purchasing Accounts from Dealers who are seeking financing rather than
selling monitoring services or offering financing alternatives. The Company
has directed its sales force to engage in "relationship marketing" whereby
Dealers are presented with the entire range of services provided by the
Company, including monitoring services and the Dealer Loan Program (described
below). Specifically, as part of its relationship marketing program, Security
Associates attempts to take greater advantage of its existing relationships
with the Dealer community through a cross-selling program. The relationship
oriented salespeople are supported by technical support staff who supply
potential purchasers of monitoring services with a detailed explanation of the
capabilities of the Company's central stations.

As part of its relationship oriented strategy the Company is implementing
a program (the "Dealer Program") that allows selected Dealers to become equity
owners of Security Associates with no cash outlay or capital investment. Under
this program, the Dealers will enter into a formal contractual

<PAGE> 9

relationship with the Company pursuant to which the Dealer transfers and
retains its Accounts at one of the Company's central stations and agrees that
for a five year period after entering the Dealer Program the Dealer will not
transfer its Accounts monitored by the Company's central monitoring stations
(which will generally consist of all Accounts then owned by the Dealer) to a
central monitoring station not owned by the Company or a subsidiary of the
Company. In return, the Company will issue to the Dealer a negotiated amount
of Common Stock or Warrants to purchase Common Stock. These securities will be
issued without the requirement of any cash outlay by the Dealers, however, the
exercise of the Warrants will require a cash outlay of $6.00 per share.
Additionally, Dealers will be required to grant the Company rights of first
refusal with respect to sales of Accounts and borrowings secured by Accounts.
The Company believes that this program will be attractive to many Dealers,
especially in light of the fact that the Company will also be providing them
with high quality monitoring services at competitive rates. The Dealer Program
is a central component of its monitoring marketing efforts to Dealers. See
"Business-Dealer Program."

Provide Continuing Service to Company Owned Accounts

The Company maintains a staff of ten customer service personnel who handle
customer inquiries and perform billing and collection tasks. In addition, the
Company generally enters into an agreement with the selling Dealer to provide
continuing maintenance services for the system hardware, which the Dealer
originally installed. In those cases where the installing Dealer is unwilling
or unable to provide maintenance services, the Company will enter into a
maintenance agreement with a third party for such services.

Reduce Attrition Rates

In the normal course of its business, the Company sometimes experiences
cancellation of its owned Accounts due to subscribers relocating, cancellation
for nonpayment, problems with service and miscellaneous other reasons. This
attrition is somewhat compensated for by the ability of the Company to offset
against the Holdback Amounts and by Dealers meeting their obligation to replace
Accounts that go into default during the guarantee period. Historically,
through December 31, 1997, the Company experienced gross attrition of 12.3% and
net attrition (i.e., after taking into account replacements for canceled
Accounts) of 9.3%. The Company experienced significantly higher gross and net
attrition in 1997 primarily as a result of losses attributable to two
acquisitions aggregating 2,001 Accounts. The Company believes that it will
improve its attrition experience by improving its acquisition quality control
and customer service programs. The Company's goal is to reduce its gross
attrition rate to 11% and its net attrition rate to 8.5% by year end 1998,
although there can be no assurance that this goal can be achieved.

Dealer Financing Programs

General

Dealers, like many other small businesses, from time to time need
financing in order to operate their businesses. The reasons a Dealer might
need access to cash are extremely varied and include the need to manage
seasonal cash shortfalls, to finance expansion or inventory, and to subsidize
the costs of system installation. As is common with small businesses, access
to the capital markets is limited. Sales of equity may be impossible or
undesirable. Access to the credit markets is also limited. For many Dealers,
the most significant assets they own are the contract rights in the monitoring
Accounts they retain. Unfortunately, such contract rights are generally not
treated as "assets" against which banks will lend on a secured basis. This
situation creates a dilemma for Dealers, and a market opportunity for the
Company which, because of the depth of its knowledge of the security alarm
industry, is able to accurately assess the value of these assets.

<PAGE> 10

The Company's Dealer financing programs are headed by Stephen Rubin and
Scott MacDougal. Stephen Rubin has over twenty-five years of experience
counseling Dealers as to their financing options and assisting them with their
financing needs. Scott MacDougal joined the Company in September 1997. Scott
MacDougal's prior experience includes both the venture capital industry and
commercial banking. The Company presently operates an active "Account
Acquisition Program" and a "Dealer Loan Program" (under which the Company makes
loans secured by Accounts as collateral). See "Dealer Financing
Programs-Dealer Loan Program."

Account Acquisition Program

One important method of financing that has developed in the security alarm
industry is the sale of Accounts to third parties such as Security Associates.
All of the Company's owned Accounts are purchased as portfolios of subscriber
Accounts from Dealers. In a typical transaction, the Dealer will sell its
Accounts for a purchase price that is a multiple of the RMR generated by that
Account. For example, if a single contract provided for monthly payments of
$25.00 per month it might sell for $750.00, or thirty times RMR. The multiple
paid in any actual transaction is impacted by several factors including the
market price of Accounts, the Company's prior experience with Accounts
purchased from the Dealer, the geographic location of the Accounts, number of
Accounts purchased, the RMR of the Accounts, and the subscriber's monitoring
equipment. Because Accounts typically have original contract terms ranging
from two to five years (with annual renewals thereafter) the purchaser of the
Account is generally undertaking a significant risk related to how long the
Account remains active and current on its monthly payments. In the foregoing
example, it will take thirty months for the purchaser of the Account to receive
payments equal to the purchase price.

In order for an Account acquisition to be profitable, not only must the
cash flow from the Account be sufficient to recoup the purchaser's investment,
such cash flow must also be sufficient to satisfy the cost associated with the
maintenance of Accounts such as providing monitoring service on a monthly
basis, billing, collection, customer service, financing and other costs as well
as provide a return on the purchaser's investment. The "quality" of the
Accounts purchased, which is generally measured in terms of the consistency
with which the monthly monitoring fees will be paid and the expected longevity
of the Accounts, is the crucial element in determining whether an Account
acquisition is a profitable undertaking. The Company's plan to continue the
growth of its Account Acquisition Program is dependent on several factors
including the availability of suitable Account acquisition opportunities, the
market price of Accounts and the amount and cost of financing available to the
Company.

The Company's relationship based marketing strategy is the foundation of
its Account Acquisition Program. One of the unique aspects of Security
Associates' position in the security alarm industry is what it does not do - it
does not sell and install security systems. As a result, the Company is not
viewed as a competitor in the Dealer community. Several of the Company's
competitors in the Account acquisition business sell and install security
systems, and some are even leading mass-marketers of low cost system
installations. In a typical Account purchase, Security Associates will
contract with the selling Dealer to service the underlying alarm system.
Security Associates will also refer all inquiries relating to system
enhancements to the selling Dealer. This process serves two purposes: first,
it allows the Company to capitalize on the relationship between the subscriber
and the Dealer, and second, it encourages the Dealer to sell additional
Accounts to Security Associates as new installations are made. In a market
where the demand for Accounts is high, the Company believes that the depth of
its relationships with Dealers gives it a competitive edge.

As noted above, the Company intends to place greater emphasis on
cross-selling its services. In this regard, it intends to encourage the
Dealers to whom it provides monitoring services to use the Company as the
purchaser when they wish to sell Accounts, and as a lender when they wish to
borrow.
10

<PAGE> 11

Just as the Company values its relationships with Dealers and understands that
such relationships are a source of future business and referrals, Dealers value
their relationships with their installation customers. Because Security
Associates monitors its owned Accounts at the same stations that the Dealers
use for monitoring services, Dealers' Accounts receive the same attention and
high quality monitoring services as the Company provides to its owned Accounts.

Maintain Quality Controls for Acquired Accounts

The key to the profitability of an Account acquisition is the "quality" of
the Accounts purchased. Before closing on any Account acquisition, the
Company generally reviews the underlying contract of each Account to be
purchased and the payment history and credit rating of the underlying
subscribers. As part of each closing, the Company will directly pay any third
parties with liens relating to the purchased Accounts in return for a release
of such liens.

Obtain Dealer Guarantees

The Company's Account acquisition contracts contain provisions designed to
protect the Company's investment in the Accounts purchased. Generally, the
Company will pay 80-90% of the purchase price in cash (including the amount
needed to pay any lien holders) and retain the balance of the purchase price
(the "Holdback Amount") in the form of a promissory note as collateral for a
guarantee period of up to two years. In the event that any Account is canceled
or stops regular payments during the guarantee period, replacement Accounts
must be delivered by the selling Dealer or otherwise a portion of the Holdback
Amount is retained by the Company to offset the lost RMR and the purchase price
of the defaulted Accounts. The Company will also obtain a lien on some or all
of the other Accounts owned by the selling Dealer in order to secure the
Dealer's obligations. The guarantee period becomes, in effect, a quality
control testing period for the purchased Accounts. The guarantee periods and
the Holdback Amounts vary from transaction to transaction.

Dealer Loan Program

Because high quality Accounts represent a reliable future stream of
revenue with little incremental costs, some Dealers prefer to borrow using
their Accounts as collateral. Historically, banks have been reluctant to lend
against Accounts as collateral. The Company believes that only two sizable
finance companies exist with active lending programs in the industry and both
are relatively small compared to what the Company believes is the potential
demand for loans secured by Accounts. Because of its familiarity with the
security industry and its experience in providing monitoring services, customer
service, billing and collections, the Company believes it is well prepared to
both determine the value of Accounts as collateral and to realize the value of
those Accounts in case of default. On June 9, 1997 the Company formed Alarm
Funding Corporation the entity through which it is implementing its Dealer Loan
Program. The Company, through Alarm Funding Corporation, made its first loan
in December 1997. As of February 16, 1998, the Company has made loans totaling
$550,000 to two Dealers. The initial funding for this subsidiary consisted of
a $1,500,000 subordinated credit facility from TJS Partners, L.P. (of which
$500,000 has been drawn down as of February 16, 1998) and an equity investment
of $500,000 made by the Company in January 1998. The Company also expects that
in the first quarter of 1998 that it will reach an agreement for the allocation
to Alarm Funding Corporation of $4 million from the Company's $30 million
credit facility with FINOVA Capital Corporation ("FINOVA"). The growth and
profitability of the Dealer Loan Program is subject to many contingencies
including the availability of low-cost financing, the aggressiveness of the
competition and controlling the costs of servicing the loan portfolio.

<PAGE> 12

Dealer Program

The Company also plans to offer to a select group Dealers the opportunity
to become equity owners of Security Associates through the Company's Dealer
Program. Under the Dealer Program, the Dealers will enter into a formal
contractual relationship with the Company pursuant to which the Dealer
transfers and retains its Accounts at one of the Company's central stations and
agrees that for a five year period after entering the Dealer Program it will
not transfer Accounts monitored by the Company's central monitoring stations
(which will generally consist of all Accounts then owned by the Dealer) to a
central monitoring station not owned by the Company or a subsidiary of the
Company. In return, the Company will issue to the Dealer a negotiated amount
of Common Stock or Warrants to purchase Common Stock. The terms of each
contractual relationship will be separately negotiated.

The securities issued under the Dealer Program will be subject to
restrictions on the rights to transfer or pledge (as well as the right to
exercise the Warrants). The restrictions will be removed annually (on each
anniversary of the closing date), at the rate of 20% a year, over the five year
period which corresponds to the term of the contractual relationship. However,
if the Dealer defaults on its obligations under the Dealer Program, the Dealer
will forfeit all of the securities as to which the restrictions on the rights
to transfer or pledge the securities (or exercise the Warrants) have not yet
been removed, but will retain all securities that have not been forfeited
(including the right to exercise all Warrants that have not been forfeited). A
Dealer will be deemed to be in default on its obligations under the Dealer
Program, if, among other things, the Dealer, for a five year period after
entering the Dealer Program, transfers Accounts monitored by the Company's
central monitoring stations or the Dealer fails to comply with the rights of
first refusal granted to the Company. The certificates issued to the Dealers
under the Dealer Program will contain restrictive legends on the securities to
which the restrictions apply.

Pursuant to the Dealer Program, the Company will provide the monitoring
services required by each Dealer at rates based on each central monitoring
station's standard monitoring fees (which are competitive to rates charged by
other central monitoring stations for similar services) and issue Common Stock
or Warrants to such Dealer. The number of shares of Common Stock or Warrants
issued to any Dealer will be negotiated individually with each Dealer, but all
shares of Common Stock (including Common Stock issuable upon exercise of
Warrants) will be issued at a stated value of $6.00 per share. Dealers will
not be required to make a cash outlay or other capital investment in the
Company for the securities. Rather, the Company will issue Common Stock or
Warrants to induce such Dealers to enter into the Dealer Program. The exercise
of the Warrants will require a cash outlay of $6.00 per share.

The Company's implementation of the Dealer Program is a central component
of the Company's business plan. Efforts to implement this program are expected
to continue for at least a year.

Training and Support Strategy

Offer High Quality Training Programs

The marketplace in which the independent alarm Dealer competes is
undergoing rapid change. The entry of large well capitalized companies is
creating uncertainty among Dealers. It is in this context that the Company
believes that its ongoing training, and educational and management development
programs are not only valuable to Dealers, but also can add depth and
permanence to all of the Company's business relationships with independent
Dealers. The Company's efforts in this respect are headed by Ron Davis,
Chairman of the Board, with more than twenty five years of experience as a
speaker and author on a broad range of subjects concerning the security alarm
industry, independent Dealers and the changes in the marketplace that have and
will continue to impact them.

<PAGE> 13

The Company conducts numerous seminars a year at locations around the
country at which issues and opportunities facing the industry are presented.
Security Associates also hosts an annual three day educational conference
attended by several hundred Dealers, where presentations are made by both
Company personnel and other professionals from within the industry, as well as
specialists in such fields as finance and marketing.

These activities are supplemented by the Company's "Audio Insight"
program. Audio Insight is an audio magazine that is distributed four times a
year. Each edition of Audio Insight is a 1 1/2-2 hour cassette which contains
ideas, interviews and insights relating to the alarm industry, hosted by Ron
Davis. Also distributed quarterly is camera ready art for use in consumer
newsletters that can be customized by Dealers for mailing to their own customer
base as a marketing tool. The Audio Insight cassette and the consumer
newsletter program are only available to affiliates of the Company's Dealer
Network.

Assist Dealers in Identifying and Exploiting New Business Opportunities

The installation of security alarm systems requires the same array of
skills necessary for the installation of a broad range of other low-voltage
electronic systems that can be marketed to the independent alarm Dealers'
existing customer base, i.e., homeowners and businesses. These include
products such as closed circuit television systems, home automation systems,
intercoms, home entertainment centers, and satellite dishes. The Company's
training programs have for many years exposed the Dealer community to these
opportunities including how to market and install these products.

The Company has entered into a joint venture agreement with EchoStar
Satellite Corporation on July 19, 1997 pursuant to which Security Associates
has agreed to provide Dealers with training on the marketing and installation
of the EchoStar satellite dish program for direct broadcast television. The
Company also has agreements with two companies that market home entertainment
products and systems. Pursuant to these agreements, participating Dealers are
expected to have access to a full range of home entertainment products. Based
upon its experience to date, the Company does not expect to derive meaningful
revenues from these programs, but will continue to operate them as a service to
its Dealer Network. The EchoStar joint venture and the home entertainment
products are examples of the types of business relationships that the Company
hopes to continue to develop in the future so as to enhance its relationships
with Dealers.

Security Associates also anticipates that new business opportunities for
Dealers will develop as a result of "bundling" which is a new phenomenon
impacting the alarm industry. Bundling involves a single entity providing a
range of similar services with billing for all those services on a consolidated
basis. A single company could very well supply a home with local and long
distance telephone services, cable television programming and alarm monitoring,
all billed monthly on a single bill. The Company anticipates that at least
some bundlers may wish to "outsource" significant portions of the installation
and maintenance functions. Because of the breadth of its Dealer network, the
Company intends to present itself to the bundlers as an ideal way of
approaching independent installers in an efficient manner.

Expand the Dealer Network

The Company views its overall marketing strategy as an attempt to build a
broad range of relationships with independent Dealers through which it can
develop and market a range of services designed to address Dealer needs. At
the same time, the Company believes its access to, and knowledge of, the alarm
industry and independent Dealers is of value to outsiders who may wish to use
the services of, or sell products to, Dealers. The Company recognizes that
increasing the depth and breadth of its relationship with the Dealer community
is an important component of its overall strategy. This need to

<PAGE> 14

extend and strengthen its relationship with Dealers has led the Company to
place greater emphasis on its affiliation program. The goal of the affiliation
program is to provide the Company with the broadest possible base of
affiliates, with increased benefits available to those affiliates with
closer and more permanent relationships with the Company.

The Company views the entire population of independent Dealers as
potential affiliates of its Dealer Network. As of February 16, 1998,
approximately 2,000 of the estimated 13,000 independent alarm Dealers are
Security Associates affiliates. The Company intends to introduce the benefits
of association with Security Associates to a broader segment of the Dealer
community with a view to expanding its Dealer Network.

Recent Central Station Acquisitions

Acquisition of Telecommunications Associates Group, Inc.

On November 24, 1997, the Company purchased all of the outstanding capital
stock of Telecommunications Associates Group, Inc., an Ohio corporation ("TAG")
from an unaffiliated third party. TAG is a third-party alarm monitoring
company which provides monitoring services to approximately 100,000 Accounts
from central monitoring stations located in Euclid, Ohio and Austin, Texas.
The purchase price was $5,000,000 (which was paid in cash at the closing), plus
the assumption of TAG's liabilities (of approximately $1,500,000). $4,800,000
of the purchase price was financed from the Company's general corporate funds
and the balance was either liabilities assumed by the Company or financed by
drawing on the Company's existing credit facility with FINOVA. The acquisition
was accounted for under the "purchase method" for financial accounting
purposes. The acquisition allows the Company to offer central monitoring
services from a broader geographical base.

Risk Management

The nature of the services provided by the Company potentially exposes it
to greater risks of liability for employee acts or omissions or system failures
than may be inherent in other businesses. Generally, the Company's monitoring
agreements contain provisions limiting the Company's liability to subscribers
in an attempt to reduce this risk.

The Company carries insurance of various types, including general
liability and errors and omissions insurance providing coverage of $1 million
and $2 million, respectively. The loss experience of the Company and other
companies in the security industry may affect the cost and availability of such
insurance. Certain of the Company's insurance policies and the laws of some
states may limit or prohibit insurance coverage for punitive or other types of
damages, or for liability arising from gross negligence or wanton behavior.

Competition

The security alarm industry is highly competitive and highly fragmented.
While the Company does not compete directly with many of the large new entrants
into the industry because it does not sell and install security systems, it is
nonetheless impacted by the competitive challenge these entrants present to
independent Dealers. To some extent, new alarm systems installations made by
large integrated industry participants are systems that may not be installed by
the Dealers on whom the Company's business depends. As a result, there may be
less Dealer owned Accounts for which monitoring services can be provided and
fewer Dealer owned Accounts available for the Company to purchase or lend
against as collateral. The Company estimates that there are between 1,500 to
2,000 firms which offer monitoring services. Of those firms, the Company
competes with an estimated 200 firms which, along with the Company, offer
monitoring services from UL listed facilities. While many

<PAGE> 15

of the companies providing monitoring services are small local operations,
several of the UL listed competitors are companies that are larger and better
financed than the Company. The Company also competes with several companies
that have Account acquisition and loan programs for independent Dealers and
some of those competitors are larger and better capitalized than Security
Associates. There is also the potential for other entities such as banks or
finance companies to gain a better understanding of the industry and become
more active as a source of competition for the Dealer financing portions of the
Company's business.

The Company's competitive strategy has three basic components: provide the
Dealer community with high quality monitoring and financial services at
competitive prices; provide Dealers with the training and access to new
business opportunities that will allow them to compete effectively and conduct
their businesses profitably; and constantly enhance and reinforce Security
Associates' relationships with independent alarm Dealers with a view to
becoming the provider of choice for each of the services the Company provides.

Regulatory Matters

A number of local governmental authorities have adopted or are considering
various measures aimed at reducing the number of false alarms. Such measures
include: (i) subjecting alarm monitoring companies to fines or penalties for
transmitting false alarms, (ii) licensing individual alarm systems and the
revocation of such licenses following a specified number of false alarms, (iii)
imposing fines on alarm subscribers for false alarms, (iv) imposing limitations
on the number of times the police will respond to alarms at a particular
location after a specified number of false alarms, and (v) requiring further
verification of an alarm signal before the police will respond.

The Company's operations are subject to a variety of other laws,
regulations and licensing requirements of federal, state and local authorities.
In certain jurisdictions, the Company is required to obtain licenses or
permits, to comply with standards governing employee selection and training,
and to meet certain standards in the conduct of its business. Many
jurisdictions also require certain of the Company's employees to obtain
licenses or permits.

The alarm industry is also subject to requirements imposed by various
insurance, approval, listing and standards organizations. Depending upon the
type of subscriber served, the type of service provided and the requirements of
the relevant local governmental jurisdiction, adherence to the requirements and
standards of such organizations is mandatory in some instances and voluntary in
others.

The Company's alarm monitoring business utilizes telephone lines and radio
frequencies to transmit alarm signals. The cost of telephone lines and the
type of equipment which may be utilized in telephone line transmissions are
currently regulated by both federal and state governments. The operation and
utilization of radio frequencies are regulated by the Federal Communications
Commission and state public utilities commissions.

Employees

At December 31,1997, the Company employed 251 individuals on a full-time
basis and 6 individuals on a part-time basis. Currently, none of the Company's
employees is represented by a labor union or covered by a collective bargaining
agreement. The Company believes that its relationships with its employees are
good.

<PAGE> 16

ITEM 2. PROPERTIES

The Company's executive offices are located at 2101 South Arlington
Heights Road, Arlington Heights, Illinois and its central monitoring stations
are located at: 2116 South Wolf Road, Des Plaines, Illinois; 1471 S.W. 12th
Avenue, Pompano Beach, Florida; 1514 East 191 Street, Euclid, Ohio; and 6448
Highway 290 East, Suite 110, Austin, Texas. All of the Company's facilities
are leased. The Arlington Heights lease expires December 31, 2002, but can be
renewed by the Company at its option for one additional five year term. The
Des Plaines lease expires June 30, 2000, but can be renewed by the Company at
its option for one additional five year term. The Pompano Beach lease expires
December 31, 2001, but can be renewed by the Company at its option for one
additional five year term. The Euclid lease expires December 31, 2004, but can
be renewed by the Company at its option for one additional five year term. The
Austin lease expires July 31, 1999.

ITEM 3. LEGAL PROCEEDINGS

The Company from time to time experiences routine litigation in the normal
course of its business. The Company does not believe that any pending
litigation will have a material adverse effect on the financial condition or
results of operations of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to the Company's security holders during the
fourth quarter of fiscal 1997.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

STOCK INFORMATION

PRICE RANGE OF COMMON STOCK

The Company's Common Stock has been traded on the OTC Bulletin Board under
the symbol "LRMD" since August 1992. The following table sets forth, for the
periods indicated, the range of high and low bid quotations prices for the
Common Stock as reported on the OTC Bulletin Board. The following quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions.

<PAGE> 17

HIGH BID LOW BID
---------- ----------
1996
First Quarter $ .53125 $ .52
Second Quarter $ .60 $ .375
Third Quarter $ 1.125 $ .46875
Fourth Quarter $ 2.75 $ 1.50

1997
First Quarter $ 3.5625 $ 3.125
Second Quarter $ 3.125 $ 2.75
Third Quarter $ 4.00 $ 3.50
Fourth Quarter $ 4.875 $ 3.90

1998
First Quarter (through February 12, 1998) $ 5.25 $ 4.50

On February 12, 1998, the last reported bid price of the Common Stock was
$5.125 per share. At February 12, 1998, the Company had approximately 197
stockholders of record.

Dividend Policy

The Company currently anticipates that it will retain all of its earnings
for development of its business, and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. Future cash dividends,
if any, on its Common Stock will be at the discretion of the Company's Board of
Directors and will depend upon, among other things, the Company's future
operations and earnings, capital requirements and surplus, general financial
condition, contractual restrictions, loan covenants and such other factors as
the Board of Directors may deem relevant. The Company currently accrues
dividends on its 12% Redeemable Preferred Stock at the rate of 12% annually.
Payment of those dividends are not required until such time as the Company
raises $20 million in new equity (as defined in the Certificate of Designation
of Rights, Preferences and Limitations). Payment of such dividends is also
subject to satisfaction of covenants contained in the Amended and Restated Loan
Agreement with FINOVA.

RECENT SALES OF UNREGISTERED SECURITIES

Since June 30, 1994, the Company has issued the following securities that
were not registered under the Securities Act of 1933, as amended (the
"Securities Act"):

Sale of Convertible Notes and Options

On August 9, 1994, Metro Suburban Pediatrics Pension Plan was issued a 14%
Convertible Secured Note due July 31, 1997, plus options to purchase 12,500
shares of Common Stock at $0.57 per share, expiring December 31, 1998, for
total consideration of $25,000.

On August 9, 1994, Bernard and Samuel Sered were issued a 14% Convertible
Secured Note due July 31, 1997, plus options to purchase 12,500 shares of
Common Stock at $0.57 per share, expiring December 31, 1998, for total
consideration of $25,000.

On August 9, 1994, Fred Figge was issued a 14% Convertible Secured Note
due July 31, 1997, plus options to purchase 12,500 shares of Common Stock at
$0.57 per share, expiring December 31, 1998, for total consideration of
$25,000.

<PAGE> 18

On May 22, 1995, Infinity Partnership II was issued a 14% Convertible
Secured Note due July 31, 1997, plus options to purchase 10,000 shares of
Common Stock at $0.57 per share, expiring December 31, 1998, for total
consideration of $20,000.

On June 7, 1995, Brady E. Turner was issued a 14% Convertible Secured Note
due July 31, 1997, plus options to purchase 12,500 shares of Common Stock at
$0.57 per share, expiring December 31, 1998, for total consideration of
$25,000.

On October 19, 1995, the Sidney Dechter IRA was issued a 14% Convertible
Secured Note due July 31, 1997, plus options to purchase 25,000 shares of
Common Stock at $0.57 per share, expiring December 31, 1998, for total
consideration of $50,000.

Issuance for Services

In August 1995, Star Security Systems, Inc. was issued options to purchase
25,000 shares of Common Stock at $1.00 per share expiring October 1, 2000 in
return for services.

In August 1995, Metronet Installations, Inc. was issued options to
purchase 25,000 shares of Common Stock at $1.00 per share expiring October 1,
2000 in return for services.

In August 1995, Jack and Gillian Schultz were issued options to purchase
25,000 shares of Common Stock at $1.00 per share expiring October 1, 2000 in
return for services.

On October 1, 1995, Fred Figge was issued options to purchase 50,000
shares of Common Stock at $0.53 per share expiring April 1, 2000 in return for
services.

On January 21, 1996, Fred Figge was issued options to purchase 19,000
shares of Common Stock at $0.53 per share expiring April 1, 2000 in return for
services.

On August 1, 1996, Fred Figge was issued options to purchase 17,000 shares
of Common Stock at $0.53 per share expiring April 1, 2000 in return for
services.

On October 10, 1996, Buttonwood Advisory Group was issued options to
purchase 25,000 shares of Common Stock at $1.25 per share expiring October 10,
1999 in return for services.

On October 10, 1996, Buttonwood Advisory Group was issued options to
purchase 25,000 shares of Common Stock at $2.00 per share expiring October 10,
1999 in return for services.

On October 10, 1996, Buttonwood Advisory Group was issued options to
purchase 25,000 shares of Common Stock at $3.00 per share expiring October 10,
1999 in return for services.

On November 25, 1997, James W. Osborne was issued an option to purchase
50,000 shares of Common Stock at a price of $6.00 per share, expiring November
25, 2003, in consideration of his Employment Agreement with the Corporation,
said option to vest at a rate of 20% (10,000 shares) per annum, and to
terminate upon any material breach of the Employment Agreement.

<PAGE> 19

On January 1, 1998, Michael B. Jones was issued an option to purchase
10,000 shares of Common Stock at a price of $6.00 per share, expiring December
31, 2002, in consideration of his agreement to become a Director of the
Company.

On January 1, 1998, ProFinance Associates, Inc. was issued an option to
purchase 25,000 shares of Common Stock at a price of $6.00 per share, expiring
December 31, 2002, in consideration of brokerage services rendered to the
Company. Michael B. Jones, currently a director of the Company, is a principal
of ProFinance Associates, Inc.

On January 15, 1998, Timothy Newman was awarded (but not yet issued) 800
shares of Common Stock at an imputed price of $5.00 per share, in payment of a
$4,000.00 bonus for superior performance as an employee of the Company's
subsidiary All-Security Monitoring Services, L.L.C.

TJS Partners' Investments

On September 5, 1996, TJS Partners, Ltd. purchased 3,525,682 shares of
Common Stock for $1,558,351 and was granted certain contingent options pursuant
to a Standby Option and Warrant Agreement and lent the Company $3,441,649
pursuant to a Convertible Subordinate Promissory Note.

TJS Partners' investment in the Company was restructured effective
December 31, 1996 (the "TJS Amendment"). Pursuant to the TJS Amendment the
shares of Common Stock issued on September 5, 1996, and the Convertible
Subordinated Note were canceled. In lieu thereof, the Company issued to TJS
Partners 35,257 shares of Convertible Preferred Stock (each share convertible
into 100 shares of Common Stock), 344,165 shares of 12% Redeemable Preferred
Stock and a Warrant to purchase 15,000 shares of Convertible Preferred Stock.
The Standby Option and Warrant Agreement was amended so that upon exercise of
any standby option or warrant TJS would receive shares of Convertible Preferred
Stock rather than Common Stock at a purchase price per share equal to 100 times
the purchase price per share of Common Stock prior to the amendment.

During 1997, TJS exercised options to purchase 14,106.55 shares of
Convertible Preferred Stock for an aggregate purchase price of $821,290, and a
warrant to purchase 15,000 shares of Convertible Preferred Stock for an
aggregate purchase price of $3,750,000. Each option and warrant exercise is
detailed below under "Exercise of Options."

ProFinance Associates, Inc.

On January 6, 1998, options to purchase 25,000 shares of the Company's
Common Stock were issued to ProFinance Associates, Inc., as a part of the total
consideration, for investment banking services rendered to the Company. These
options have an exercise price of $6.00 per share and expire on December 31,
2002. Michael Jones, a director of the Company as of January 1, 1998, is a
principal of ProFinance Associates, Inc. Such sale was made in reliance upon
the exemption from registration set forth in Section 4(2) of the Securities Act
and was made to only one purchaser.

Buyout of Winnetka Investors, Inc. and MCAP Investors, Inc.

On September 5, 1996 the Company purchased all of the outstanding capital
stock of two Delaware corporations, Winnetka Investors, Inc. ("Winnetka") and
MCAP Investors, Inc. ("MCAP"). Both Winnetka and MCAP were companies involved
in joint ventures with the Company in the account acquisition

<PAGE> 20

business and in the provision of monitoring services through joint ownership of
the subsidiaries that purchased the accounts and owned the Company's central
monitoring station. The total cash consideration for the Winnetka purchase was
$159,980 or $210.50 per share. The total cash consideration for the MCAP
purchase was $261,020 or $210.50 per share. In addition, the Company assumed
or paid off the liabilities of both Winnetka and MCAP and those of the two
joint venture companies through which the Company pursued its arrangements with
Winnetka and MCAP.

The parties agreed that the Winnetka and MCAP investors would also retain
options, exercisable for a period of one year to purchase shares of the
Company's Common Stock at $0.442 per share, the same price at which TJS
purchased Common Stock in a contemporaneous transaction. At the time of the
transaction the parties ascribed a "zero" or de minimis value to the options.
The name of the parties receiving the options and the number of shares of
Winnetka and MCAP stock previously owned is set forth below.

Options Name Winnetka/MCAP Shares
------- ---- --------------------

1. 20,000 Bonnie Conrad 80 Shares of Winnetka

2. 20,000 Anita M. Dalmar 80 Shares of Winnetka

3. 50,000 Robert H. Dilworth 200 Shares of Winnetka

4. 25,000 Dianne Freeman 100 Shares of Winnetka

5. 75,000 Phyllis V. Greinwald 300 Shares of Winnetka

6. 25,000 Robert Brown 100 Shares of MCAP

7. 2,000 Phyllis V. Greinwald 8 Shares of MCAP

8. 250 Cheryl Grolle 1 Share of MCAP

9. 250 Lorraine Small 1 Share of MCAP

10. 120,000 Inversiones Aparacio, C.A. 480 Shares of MCAP

11. 62,500 Inversiones Alanje, C.A. 250 Shares of MCAP

12. 100,000 Inversiones Erlanger, C.A. 400 Shares of MCAP

No underwriters were engaged in connection with the foregoing sales of
securities. Such sales were made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act. Sales were made
to a very limited number of purchasers. All of the parties had previous
business relationships with the Company through the joint ventures with the
Company through which their respective companies had engaged in for several
years. MCAP and Winnetka owned 24.8% and 15.2% interests, respectively, in
Monitor Service Group, L.L.C., with the remaining 60% interest held by RMR
Management Corp., a wholly-owned subsidiary of the Company.

Exercise of Options and Warrants

On December 31, 1996, Lee Jones exercised options to purchase 22,088
shares of Common Stock for a total consideration of $12,590.

<PAGE> 21

On March 18, 1997, Robert Brown exercised options to purchase 25,000
shares of Common Stock for a total consideration of $11,050.

On March 18, 1997, Bobbie Conrad exercised options to purchase 20,000
shares of Common Stock for a total consideration of $8,840.

On March 18, 1997, Anita M. Delmar exercised options to purchase 20,000
shares of Common Stock for a total consideration of $8,840.

On March 18, 1997, Robert H. Dilworth exercised options to purchase 50,000
shares of Common Stock for a total consideration of $22,100.

On March 18, 1997, Dianne G. Freeman exercised options to purchase 25,000
shares of Common Stock for a total consideration of $11,050.

On March 31, 1997, Phyllis Greinwald exercised options to purchase 77,000
shares of Common Stock for a total consideration of $34,034.

On March 31, 1997, Inversiones Alanje, C.A. exercised options to purchase
62,500 shares of Common Stock for a total consideration of $27,625.

On March 31, 1997, Inversiones Aparicio, C.A. exercised options to
purchase 120,000 shares of Common Stock for a total consideration of $53,040.

On March 31, 1997, Inversiones Erlanger, C.A. exercised options to
purchase 100,000 shares of Common Stock for a total consideration of $44,200.

On April 22, 1997, TJS Partners, L.P. exercised options to purchase
5,215.88 shares of Convertible Preferred Stock for a total consideration of
$233,369.

On August 21, 1997, Cheryl L. Grolle exercised options to purchase 250
shares of Common Stock for a total consideration of $110.

On August 25, 1997, Lorraine Small exercised options to purchase 250
shares of Common Stock for a total consideration of $110.

On October 22, 1997, the Sidney Dechter I.R.A. exercised options to
purchase 25,000 shares of Common Stock for a total consideration of $50,000.

On October 27, 1997, Fred Figge exercised options to purchase 86,000
shares of Common Stock for a total consideration of $45,580.

On October 27, 1997, Brady E. Turner exercised options to purchase 12,500
shares of Common Stock for a total consideration of $25,000.

On October 30, 1997, Infinity Partnership II, by its General Partner James
Greco, exercised options to purchase 10,000 shares of Common Stock for a total
consideration of $20,000.

On October 30, 1997, Ronald I. Davis exercised options to purchase 278,308
shares of Common Stock for a total consideration of $158,635.

<PAGE> 22

On October 30, 1997, James S. Brannen exercised options to purchase
278,308 shares of Common Stock for a total consideration of $158,635.

On October 30, 1997, Stephen Rubin exercised options to purchase 185,539
shares of Common Stock for a total consideration of $105,757.

On November 5, 1997, TJS Partners, L.P. exercised a Warrant to purchase
15,000 shares of Convertible Preferred Stock convertible to Common Stock, at a
ratio of 1 to 100, for a total consideration of $3,750,000.

On November 6, 1997, Irwin Jacobson exercised options to purchase 12,500
shares of Common Stock for a total consideration of $7,125.

On November 6, 1997, Mark Scharmann exercised options to purchase 12,500
shares of Common Stock for a total consideration of $7,125.

On November 12, 1997, TJS Partners, L.P. exercised Standby Options to
purchase 8,761.55 shares of Convertible Preferred Stock convertible to Common
Stock, at a ratio of 1 to 100, for a total consideration of $563,671.

On December 6, 1997, TJS Partners, L.P. exercised Standby Options to
purchase 250 shares of Convertible Preferred Stock convertible to Common Stock,
at a ratio of 1 to 100, for a total consideration of $14,250.

On December 7, 1997, Mark Scharmann exercised options to purchase 10,000
shares of Common Stock for a total consideration of $10,000.

On December 23, 1997, TJS Partners, L.P. exercised Standby Options to
purchase 100 shares of Convertible Preferred Stock convertible to Common Stock,
at a ratio of 1 to 100 for a total consideration of $10,000.

No underwriters or placement agents were engaged in connection with the
foregoing sales of securities, except as disclosed under the section entitled
"TJS Partners' Investments." Such sales were made in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act.
Sales were made to a very limited number of purchasers. Mr. Jones' options
were issued in 1991 in return for services.

Private Placement

On December 31, 1997, the Company completed the sale of one million shares
of its Common Stock. The shares were privately placed with a group of
accredited investors consisting of individuals, corporations and privately held
investment companies. No underwriter or placement agent was used. The Company
received $5,000,000 in consideration in exchange for the shares and realized
approximately $4,980,000 after estimated offering expenses of $20,000. The
Company has agreed to file a registration statement to register the shares for
resale by no later than September 30, 1998.

Use of Proceeds of Securities Sold Pursuant to Registration Statement

On October 20, 1997 the Company's first Registration Statement on Form S-1
under the Securities Act (the "Registration Statement") was declared effective.
The Registration Statement covers 2,000,000 shares of the Company's Common
Stock and Warrants to Purchase up to 2,000,000 shares of such Common Stock, to
be issued by the Company: (i) in connection with offerings to Dealers under the

<PAGE> 23

Dealer Program under Rule 415(a)(1)(ix) of Regulation C promulgated under the
Securities Act; (ii) in connection with the acquisition of other business, real
or personal properties, or securities in business combination transactions in
accordance with Rule 415(a)(1)(viii); and otherwise under Rule 415. The
Registration Statement also covers 778,088 shares of Common Stock which may be
offered for sale by certain selling stockholders ("Selling Stockholders") under
Rule 415(a)(1)(i) and 415(a)(iii). The offering commenced on October 20, 1997
and is expected to continue for at least a year. The Company will not receive
any proceeds from the securities issued by it pursuant to the Dealer Program,
however, the exercise of the Warrants will require the exercising Warrantholder
to pay the Company $6.00 per share of Common Stock purchased upon exercise.

No underwriter has been engaged in connection with the offering. The
aggregate offering price of the Common Stock and Warrants registered on behalf
of the Company was $12,000,000 and the aggregate offering price of the Common
Stock registered on behalf of the Selling Stockholders was $4,666,248. No
separate offering price was assigned to the Warrants. From the effective date
of the Registration Statement through December 31, 1997, no securities were
issued for the account of the Company and no proceeds were realized by the
Company. Further, since the shares sold by the Selling Stockholders were sold
in independent transactions arranged by those Stockholders individually, and
because many of the shares sold were held in "street name," the Company is
unable to determine the number of shares sold or the amounts realized in those
sales.

The Company estimates that from the effective date of the Registration
Statement through December 31, 1997, it incurred a total of $180,885 in
expenses in connection with the offering. Those expenses are estimated to be
as follows: legal $93,734; accounting $52,500; printing $29,225 and
registration fees $5,426. All of these expenses represent payments to
unrelated third parties and there were no direct or indirect payments to
directors or officers of the Company or their associates, or to any party
owning ten percent or more of any class of equity securities of the Company or
any affiliates of the Company.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data for the fiscal years ended 1995
through 1997 is derived from the Company's consolidated financial statements
which have been audited by Arthur Andersen LLP, independent public accountants.
The following selected financial data for the fiscal years ended 1993 and 1994
is derived from audited financial statements. The selected financial data set
forth below should be read in conjunction with the Company's consolidated
financial statements and related notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere.
(in thousands, except per share data)

<PAGE> 24

<TABLE>
<CAPTION>
Years Ended December 31,
Pro Forma
1993 1994 1995 1996 1997 1997(1)
------------------------------------------------------------------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $699 $1,397 $2,733 $3,782 $10,814 $14,245
Operating income (loss)..... $(944) $(354) $(389) $(591) $(2,662) $(2,942)
Net (loss) available to
common stockholders......... $(846) $(457) $(947) $(1,718) $(4,938) $(5,307)
Net loss per share.......... $(.25) $(.13) $(.26) $(.47) $(1.16) $(1.24)
Shares used in computing net
income per share............ 3,407,502 3,662,187 3,665,642 3,669,343 4,266,151 4,266,151
</TABLE>

- - ----------------------
(1) The pro forma data for the year ended December 31, 1997 gives effect to
the acquisition of TAG as if it had occurred on January 1, 1997.

<TABLE>
<CAPTION>
Years Ended December 31,
1993 1994 1995 1996 1997
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.. $555 $86 $54 $632 $5,522
Working capital (deficit).. $2 $(787) $(2,699) $(4,518) $1,625
Total assets............... $1,984 $2,690 $6,030 $16,533 $36,009
Total debt................. $1,792 $3,099 $6,862 $12,790 $22,919
Total stockholders' equity
(deficit).................. $(675) $(1,132) $(2,043) $1,269 $7,231

</TABLE>

PRO FORMA COMBINED STATEMENT OF INCOME

The following unaudited Pro Forma Combined Statement of Income for the
year ended December 31, 1997 was prepared to illustrate the estimated effects
of the acquisition of TAG as if it had occurred on January 1, 1997. The Pro
Forma Combined Statement of Income does not purport to represent what the
Company's results of operations would actually have been if the acquisition had
occurred on the dates indicated or to predict the Company's results of
operations for any future period. (in thousands, except per share data)

<PAGE> 25

<TABLE>
<CAPTION>
THE PRO FORMA PRO FORMA
COMPANY(1) TAG(2) ADJUSTMENT COMBINED
------------ --------- ------------- ------------
<S> <C> <C> <C> <C>
Monitoring fees and other revenues... $10,814 $3,431 $ 14,245
General, selling and administrative
expenses............................ 9,772 3,086 12,858
Write-off of contract rights......... 1,278 98 1,376
Amortization and depreciation........ 2,426 131 396(3) 2,953
------- ----- --------
Income (loss) from operations........ (2,662) 116 (396) (2,942)
Interest expenses.................... 1,863 49 40(4) 1,952
------- ----- --------
Income (loss) before income taxes.... (4,525) 67 (436) (4,894)
Income tax expense................... -- -- --(5) --
------- ----- --------
Net income (loss).................... (4,525) 67 (436) (4,894)
Dividends accrued on Preferred Stock. 413 -- -- 413
------- ----- --------
Net income (loss) available to common
stockholders........................ $(4,938) $ 67 $(436) $ (5,307)
======= ========
Net loss per share................... $ (1.24)
========
Weighted average shares outstanding.. 4,266,151

</TABLE>

(1) Data for the Company is for the year ended December 31, 1997.

(2) Data for TAG is for the period January 1, 1997 to November 24, 1997.

(3) Provides for the Pro Forma change in depreciation expense,
amortization expense related to contract rights and goodwill
amortization for the period January 1, 1997 to November 24, 1997.

(4) Provides for the pro forma increase in interest expense for the year
ended December 31, 1997 related to the Company's increase in debt of
$800 less $383 used to retire TAG debt at 10.5%.

(5) The pro forma adjustment for income tax expense of TAG as if it were
treated on a separate return basis would be approximately $27 using
an effective tax rate of approximately 40%. However, no Pro Forma
income tax expense adjustment is presented due to the cumulative
net operating losses of the Company.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Certain statements in this Annual Report that are not historical facts
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Discussions containing such forward-looking statements may be found
of in the material set forth in the sections entitled , "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business", as well in the Annual Report generally. In addition, when used in
the Annual Report the words "anticipates," "intends," "seeks," "believes,"
"estimates," and "expects" and similar expressions as they relate to the
Company or its management are intended to identify such forward-looking
statements. Such statements are subject to a number of risks and
uncertainties. The Company's actual results, performance or achievements could
differ materially from the results expressed in, or implied by,
these forward-looking statements. The Company undertakes no obligation to
revise these forward-looking statements to reflect any future events or
circumstances.

<PAGE> 26

OVERVIEW

The Company's revenues are derived from recurring payments for monitoring
services provided to subscribers and Dealers pursuant to agreements.
Monitoring contracts have initial terms ranging from two to five years usually
with provisions for automatic renewal for periods of one year. Monitoring
contracts entered into with Dealers generally permit cancellation with notice
of 60 days.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected
statements of operations data:

YEARS ENDING DECEMBER 31,
1995 1996 1997
---------------------------------------
(In thousands)
<S> <C> <C> <C>
Revenue $ 2,733 $ 3,782 $ 10,814
Operating Expenses:

General, selling & administrative 1,591 1,394 4,257

Payroll and related expense 891 1,710 4,653

Amortization & depreciation 540 1,020 2,426

Write off of contract rights 101 249 1,278

Deferred compensation expense -- -- 862

Loss from Operations (389) (591) (2,662)

Interest Expense 743 1,384 1,863

Net Loss (947) (1,718) (4,525)

Dividends accrued on Preferred Stock - - 413

Net loss available to common stockholders $ (947) $ (1,718) $ (4,937)

Net loss per share $ (.26) $ (.47) $ (1.16)

Total weighted average number of common shares
outstanding 3,665,642 3,669,343 4,266,151

</TABLE>

The following table sets forth, for the periods indicated, selected
statements of operations data as a percentage of revenues:

26
<PAGE> 27

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
1995 1996 1997
---------------------------------------
<S> <C> <C> <C>
Revenues:
Total Revenue 100% 100% 100%

Operating Expenses:
General, selling & administrative 58% 37% 39%
Payroll and related expense 33% 45% 43%
Amortization & depreciation 20% 27% 22%
Write off of contract rights 3% 7% 12%
Deferred compensation expense -- -- 8%
Loss from Operations (14%) (16%) (24%)
Interest Expense (27%) (37%) (17%)

Net Loss (35%) (45%) (41%)

</TABLE>

1997 COMPARED TO 1996

Revenues. Revenues for fiscal 1997 increased by $7,031,996, or 185.9%, to
$10,814,087 from $3,782,091 for fiscal 1996. The increase in revenues is
primarily related to acquisitions completed at the end of 1996 which resulted
in a full year's revenue generated in 1997 as opposed to a partial year in
1996, and to a lesser extent, to acquisitions completed during 1997. The
increase in revenues related to acquisitions are as follows: increase related
to the acquisitions of Securities Associates Command Center II, L.L.C. ("SACC")
and All-Security Monitoring Services, L.L.C. ("AllSec") was approximately
$2,294,000, this acquisition was completed on September 5, 1996; increase
related to the acquisition of AMJ Central Station Corporation, Inc. ("AMJ") was
approximately $2,144,000, this acquisition was completed in December 31, 1996;
and the acquisitions of Northern Central Station, Inc. ("NC"), completed
February 1997, and Telecommunications Associates Group, Inc. ("TAG"), completed
November 24, 1997, increased revenues by approximately $627,000. The balance
of the increase in revenue between the years of 1997 and 1996 of approximately
$1,967,000 is as a result of a net increase in the number of Accounts owned
(12,018) during the year.

Operating Expenses. Operating expenses increased $9,102,569 or 208.1% in
1997 from $4,373,558 to $13,476,127. General, selling and administrative
expenses increased from $1,394,244 to $4,257,360, an increase of $2,863,116 or
205.4%. This increase is related to the following: increase related to the
acquisitions of SACC and AllSec of approximately $910,000; increase related to
the acquisition of AMJ of approximately $693,000; increase related to the
acquisitions of NC and TAG of approximately $130,000; increase related to the
existing business of $1,130,000 (primarily due to an increase in professional
fees of $284,000 related to acquisitions), an increase in bad debt expense of
$504,000 related to an increase in reserves of $189,000 (net of acquisitions)
and the write off of receivables associated with canceled Accounts. The
remaining increase of $342,000 is related to the overall growth in the existing
business of the Company.

Payroll and related expenses increased by $2,942,938, or 172.1%, from
$1,710,252 to $4,653,190. This increase is related to the following: increase
related to the acquisitions of SACC and AllSec of approximately $887,000;
increase related to the acquisition of AMJ of approximately $996,000; increase
related to the acquisitions of NC and TAG of approximately $418,000. The
remaining increase in payroll and related expenses of $642,000 is primarily due
to the Company hiring

<PAGE> 28

four additional management personnel and an increase in staff of five personnel
during the year as a result of the Company's growth.

Amortization and depreciation increased by $1,405,492, or 137.7%, from
$1,020,427 to $2,425,919 due to an increase in the amortization of goodwill
related to the acquisitions of SACC, AllSec, NC and TAG, and the amortization
of deferred financing costs of $598,968, an increase in amortization of
contract rights of $703,895 due to the net increase in contract rights of
$7,302,352 and an increase in depreciation expense of $102,630.

Expense related to the write off of canceled Accounts increased by
$1,028,989, or 413.9%, from $248,635 to $1,277,624. This increase is related
to an increase in the number of Accounts purchased (over 12,000 net in 1997)
and an increase in the net attrition rate from 7% to 9% primarily related to
greater than expected losses on two Account purchase transactions.

The deferred compensation expense of $862,034 in 1997 is related to a
stock based deferred compensation plan instituted during 1997. Awards under
this plan are approved annually by the Board of Directors.

Interest Expense. Interest expense increased $478,367 from $1,384,239 in
1996 to $1,862,606, an increase of 34.6%. This increase was caused primarily
by an increase in borrowings under the Company's credit facility with FINOVA
from $7,304,000 at the end of fiscal 1996 to $16,521,813 at the end of 1997.
In addition, the Company incurred interest expense of $585,000 in 1997 compared
to $9,370 in 1996 related to outstanding debt on subordinated borrowings from
its principal stockholder. The Company had $5,500,000 of debt outstanding
under subordinated notes at the end of 1997, compared to $500,000 outstanding
at the end of 1996.

1996 Compared to 1995

Revenues. Revenues for fiscal 1996 increased by $1,048,838 or 38.4%, to
$3,782,091 from $2,733,253 for fiscal 1995. Monitoring fees increased by
$1,262,379 from $2,390,513 to $3,652,892, an increase of 52.8%. $704,028 of
the increase came from consolidation of the operations of SACC and AllSec
beginning September 5, 1996, on which date those entities became wholly owned
subsidiaries. Prior to that date, results of operations of the two entities
were accounted for on the equity method. Revenue from monitoring Company owned
Accounts increased $558,351, or 23.4%, due to the addition of approximately
3,495 subscribers from the acquisition of portfolios of Accounts during fiscal
1996. Revenues from memberships fees and other dealer services decreased
$213,541 to $129,199 from $342,740, a decrease of 62.3%. This decrease
resulted from decreased emphasis on these activities as a revenue source.

Operating Expenses. Operating expenses for fiscal 1996 increased by
$1,251,044 an increase of 40% from $3,122,514 to $4,373,558. General, selling
and administrative expenses decreased from $1,590,860 to $1,394,244, a decrease
of $196,616, or 12.4%, due to an effort to control costs. Payroll and related
expenses increased by $818,882 from $891,320 to $1,710,252, or 91.9%, due to
additional management personnel added as a result of the overall growth of the
Company. Amortization and depreciation increased $480,793 or 89.1% from
$539,634 to $1,020,427. Loss from disposition of contract rights increased
$147,935 or 146.9% from $100,700 in 1995 to $248,635 in 1996. The increase in
amortization and depreciation is primarily attributable to a net increase in
contract rights to monitor security systems of $1,181,476 and a net increase in
goodwill of $6,666,373 between year end 1995 and 1996. $3,762,724 of the
goodwill increase was attributable to the acquisition of AMJ and $2,903,649
resulted from the consolidation of the results of AllSec following the
acquisition in September 1996, of the 1% interest in that company held by
Intec, Inc. and the 50% interest in SACC not previously owned

<PAGE> 29

by the Company. Payroll and related expenses increased from 33% of revenues in
1995 to 45% of revenues in 1996. This increase is attributable to additional
personnel added as a result of the Company's growth. The decrease in general,
selling and administrative expenses is attributable to a concerted effort to
reduce these costs. General, selling and administrative expenses decreased from
58% of revenues in 1995 to 37% in 1996. This is attributable to a decrease in
central station monitoring expenses. This was caused by the consolidation of
central station revenues and expenses in September 1996, and elimination of the
expenses for monitoring owned Accounts in the consolidation of results from
September through December and inclusion of monitoring revenues from non-owned
Accounts for the same period. Loss from the disposition of contract rights
increased from $100,700 in 1995 to $248,635 in 1996. This resulted from the
fact that 6,815 Accounts were acquired in 1995 and recognition of losses
increased from 3% of revenue in 1995 to 7% in 1996 primarily as a result of
greater than expected losses on two Account purchase transactions.

Interest Expense. Interest expense increased $641,580 from $742,659 in
1995 to $1,384,239 in 1996, an increase of 86.4%. This increase was caused
primarily by an increase in debt outstanding of $3,484,065 under the Company's
credit facility with FINOVA from $3,819,935 at the end of fiscal 1995 to
$7,304,000 at the end of 1996. In addition, the Company incurred interest
expense of $9,370 in 1996 in connection with borrowings under a $5,000,000
subordinated loan agreement with its principal stockholder. $500,000 was
outstanding under this agreement at year-end 1996.

CAPITAL EXPENDITURES

The Company made capital expenditures during 1997 totaling $311,612 to
upgrade phone systems in the central stations and purchase computer equipment.

LIQUIDITY AND CAPITAL RESOURCES

General. Since January 1994, the Company has financed its operations and
growth from a combination of borrowings under the Company's credit facilities
and sales of stock. The Company's principal uses of cash are the acquisition
of subscriber Account portfolios, loans to Dealers secured by Accounts and
acquisition of central monitoring stations. A substantial portion of the
Company's future cash flow will be used to acquire subscriber Account
portfolios, to make loans to Dealers (secured by Accounts), to acquire
additional central monitoring stations and to pay down debt.

1997 COMPARED TO 1996

During the year ended December 31, 1997, contract rights to monitor
security systems, net of accumulated amortization increased $7,302,352 to
$13,908,478 due to the acquisition of over 12,000 Accounts. During the same
period goodwill, net of accumulated amortization, increased from $6,666,373 to
$11,919,949 due to the acquisitions of NC and TAG.

Current liabilities increased during the year ended December 31, 1997
compared to 1996 from $6,744,911 to $6,756,199. This change was caused
primarily by the payment of a note related to the acquisition of AMJ in January
1997 of $3,721,131 and a note paid to a related party of $136,000, offset by
increases in accrued liabilities, unearned revenue and current maturities of
debt. The major increases in accrued liabilities are related to accrued
dividends on Preferred Stock of $412,998, an increase in accrued interest of
$691,925 and an accrual for losses on contracts of $229,812. Unearned revenue
increased due to the acquisition of TAG and overall growth of the Company. The
increase in current maturities is related to holdback notes maturing in 1998,
senior debt borrowings increased by $8,502,465 and subordinated borrowing
increased by $5,000,000. The proceeds of the Company's borrowings were

<PAGE> 30

used primarily to fund the TAG acquisition ($800,000) and the acquisition of
contract rights from Dealers ($8,056,738).

Net capital of $9,987,836 was raised during the year through warrant and
option exercises for the purchase of common and preferred stock ($5,030,836)
and the sale of Common Stock through a private placement ($4,980,000 net of
expenses). This capital was used to fund the purchase of TAG $4,800,000, for
the purchase of fixed assets and for general corporate purposes. The Company
had $5,521,633 in cash on hand at year end 1997, which will be used to fund
future acquisitions of central stations and contract rights to monitor security
systems and loans to Dealers (secured by Accounts).

1996 COMPARED TO 1995

For the year ended December 31, 1996, the Company's net cash used in
operating activities was $421,628, compared to $164,655 in 1995. The increase
was largely attributable to an increase in the net loss from $947,278 in 1995
to $1,718,259 in 1996, an increase of $770,981, or 81.4%. The increase in the
loss was largely the result of an increase in interest expense from $742,659 in
1995 to $1,384,239 in 1996.

The Company's net cash used in investing activities in 1996 was $3,704,026
compared to $3,667,827 in 1995, an increase of $36,199 or 1.0%. Purchases of
Accounts decreased from $3,639,934 in 1995 to $1,855,953 in 1996, while cash
used for central monitoring station acquisitions increased $1,794,021.

Current assets at December 31, 1996, were $2,227,397 compared to $467,905.
The increase results primarily from an increase of $1,002,852 in accounts
receivable and an increase in cash of $578,537. The increases are attributable
to consolidation of the central station operations for the first time on
December 31, 1996, and the acquisition of AMJ in December of that year.

Contract rights to monitor security systems net of amortization increased
$1,181,476 to $6,606,126. Goodwill at year-end 1996 was $6,666,373. This
resulted primarily from the acquisitions of joint venture interests in SACC and
AllSec in September 1996, and AMJ in December 1996.

Current liabilities increased from $3,166,544 at December 31, 1995, to
$6,744,911 at December 31, 1996. A $3,721,131 note payable for the acquisition
of AMJ was outstanding on December 31, 1996, and was paid in January 1997.
Current maturities of long term debt decreased from $1,858,992 on December 31,
1995 to $413,227 on December 31, 1996, as a result of refinancing existing debt
with a new long term loan agreement. For the same period unearned revenue
increased from $543,927 in 1995 to $1,409,796 in 1996 when central station
operations was consolidated. Long term debt increased from $4,768,573 at year
end 1995 to $8,019,348 on December 31, 1996, due to the closing of a new term
loan agreement.

As of December 31, 1996, total stockholders' equity was $1,268,464
compared to a deficit $2,043,057 the prior year. This increase resulted from
additional capital of $5,000,000 invested by TJS Partners, L.P. combined with a
net loss of $1,718,259 for the year ended December 31, 1996.

TJS Partners L.P.'s Investment. On September 5, 1996, TJS Partners, L.P.
("TJS") purchased a 49% interest in the Company by receiving 3,525,682 shares
of Common Stock and $3,441,649 of debt with an interest rate of 6% for a total
contribution of $5 million. This stock and debt was converted to 12%
Redeemable Preferred Stock and Convertible Preferred Stock on December 31,
1996, and a new credit facility of $5 million was provided to the Company. The
proceeds from this transaction were used by the Company, either directly or
through its subsidiaries, to purchase the equity interests in five

<PAGE> 31

companies. During 1997, TJS exercised a warrant pursuant to which it purchased
15,000 shares of Convertible Preferred Stock for the total consideration of
$3,750,000, and exercised options to purchase an additional 14,107 shares of
Convertible Preferred Stock for a purchase price of $821,290. In November
1997, TJS agreed to establish a $1.5 million five year subordinated credit
facility for Alarm Funding Corporation, the Company's Dealer loan subsidiary
("AFC"). In connection with this facility, AFC issued to TJS a one year option
to purchase a twenty percent interest in AFC for $1,000. As of December 31,
1997, a total of $5.5 million was outstanding under the Company's subordinated
loan facilities with TJS. See "Certain Relationships and Related
Transactions."

Loan Agreement with FINOVA Capital Corporation. On December 31, 1996, the
Company and FINOVA entered into a loan agreement (the "FINOVA Loan Agreement").
The maximum amount available under the FINOVA Loan Agreement was originally
$15 million. On December 2, 1997, the Company's Loan Agreement with FINOVA
was amended and restated (the "Amended and Restated FINOVA Loan Agreement).
Pursuant to the Amended and Restated Loan Agreement, the Company's credit
facility with FINOVA was increased to $30 million from $15 million. The
Amended and Restated FINOVA Loan Agreement matures on December 31, 2002,
subject to earlier termination.

Availability under the Amended and Restated FINOVA Loan Agreement is restricted
in two ways:

(1) the total debt may not exceed 22 times RMR for Retail Monitoring
plus 12 times RMR for Wholesale Monitoring; and

(2) the ratio of total debt to operating cash flow may not exceed 4.00.

The interest rates on borrowings under the Amended and Restated FINOVA
Loan Agreement are the base rate in effect from time to time plus the
applicable margin. At February 9, 1998, the applicable margin was 2% and the
interest rate was 10.5%. This margin can decrease as the ratio of total debt
to operating cash flow decreases below 3.5. The Company paid a loan fee of
$262,500 on the original closing in December 1996, and an additional $222,000
on the effective date of the increase in December 1997, and is obligated to pay
a commitment fee of .5% on the unused portion of the facility.

The Amended and Restated FINOVA Loan Agreement contains customary
covenants. The most important covenants can be summarized as follows: until
all obligations under the FINOVA Loan Agreement are paid or performed in full,
neither the Company nor its covered subsidiaries may, except as specifically
permitted: (i) incur indebtedness; (ii) encumber their properties; (iii) merge
with or acquire other companies; (iv) incur contingent liabilities; (v) make
distributions on or redeem equity securities; (vi) prepay debt; (vii) enter
into operating leases (in excess of scheduled amounts); (viii) make investments
in or loans to other companies; (ix) make fundamental changes in their
businesses; (x) change the locations of their facilities; (xi) dispose of
assets; (xii) amend their organizational documents; (xiii) issue additional
membership interests in certain subsidiaries; (xiv) enter into contracts with
affiliates; (xv) permit the occurrence of any violations of ERISA; or (xvi) pay
management compensation in excess of permitted amounts. Financial covenants
include the maintenance of (i) a minimum ratio of operating cash flow to total
debt, (ii) minimum RMR for Retail Monitoring and Wholesale Monitoring, and
(iii) mandatory prepayments from excess cash flow as defined in the Amended and
Restated FINOVA Loan Agreement.

FINOVA has agreed (subject to completion of definitive documentation) to
allocate up to $4 million of the Company's credit facility to Alarm Funding
Corporation to fund loans to Dealers (the "AFC Sub-Facility"). The AFC
Sub-Facility will be subject to a separate set of covenants.

YEAR 2000 ISSUE

The Company has reviewed all of its current computer applications with
respect to the year 2000 issue. The Company believes all of its applications
are substantially year 2000 compliant and that any additional costs with
respect to year 2000 compliance will not be material to the Company. The
Company is currently unable to determine the effects of year 2000 compliance
on its Dealers or vendors.

<PAGE> 32

The Company intends to continue to pursue growth through the acquisition
of subscriber Accounts and central monitoring stations and through loans to
Dealers. As a result, the Company will be required to seek additional funding
under its existing loan agreements and from the possible sale of additional
securities in the future, which may lead to higher leverage or the dilution of
the existing holders' investment in Common Stock. Any inability of the Company
to obtain funding through external financing is likely to adversely affect its
ability to increase its investing activities. There can be no assurance that
external funding will be available to the Company on attractive terms or at
all.

Private Placement. On December 31, 1997 the Company completed the sale of
one million shares of its Common Stock. The shares were privately placed with
a group of accredited investors consisting of individuals, corporations and
privately held investment companies. No underwriter or placement agent was
used. The Company received $5,000,000 in consideration in exchange for the
shares and realized approximately $4,980,000 after estimated offering expenses
of $20,000. The Company has agreed to file a registration statement to
register the shares for resale no later than September 30, 1998.

RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income, which
establishes standards for reporting and display of comprehensive income. The
objective of this standard is to report a measure of changes in equity of an
enterprise that result from transactions other than with owners. Comprehensive
income is the total of net income and all other non-owner changes in equity.
Adoption of this statement is required no later than with fiscal year 1998.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company currently does not invest excess funds in derivative financial
instruments or other market rate sensitive instruments for the purpose of
managing its foreign currency exchange rate risk or for any other purpose.

32
<PAGE> 33

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
Security Associates International, Inc.:

We have audited the accompanying consolidated balance sheets of SECURITY
ASSOCIATES INTERNATIONAL, INC. (a Delaware corporation) AND SUBSIDIARIES as of
December 31, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1995, 1996 and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Associates
International, Inc. and Subsidiaries as of December 31, 1996 and 1997, and the
results of its operations and its cash flows for the years ended December 31,
1995, 1996 and 1997, in conformity with generally accepted accounting
principles.

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in
Item 14(a) (2) of this Form 10-K is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Chicago, Illinois
January 23, 1998

33
<PAGE> 34

SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
ASSETS 1996 1997
- - ----------------------------------------------------- ----------- -----------

CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 632,355 $ 5,521,633
Accounts receivable, net 1,332,990 2,626,717
Receivable from stockholders 25,180 50,000
Other current assets 236,872 182,671
----------- -----------
Total current assets 2,227,397 8,381,021
----------- -----------
FURNITURE AND EQUIPMENT, net 417,899 855,631
----------- -----------
OTHER ASSETS:
Contract rights to monitor security systems, net 6,606,126 13,908,478
Goodwill, net 6,666,373 11,919,949
Other assets, net 614,928 943,624
----------- -----------
Total other assets 13,887,427 26,772,051
----------- -----------
Total assets $16,532,723 $36,008,703
=========== ===========
</TABLE>

34
<PAGE> 35

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1997
- - ------------------------------------------------------------------------------- ------------ ------------

<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 615,775 $ 676,162
Note payable for acquisition 3,721,131 --
Current maturities of long-term notes payable 413,227 897,453
Notes payable--related parties 136,000 --
Accrued expenses 439,660 2,135,658
Unearned revenues 1,409,796 3,046,926
Other 9,322 --
------------ ------------
Total current liabilities 6,744,911 6,756,199

NOTES PAYABLE, net of current maturities 8,019,348 16,521,813

NOTES PAYABLE, related party 500,000 5,500,000
------------ ------------
Total liabilities 15,264,259 28,778,012
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):

Convertible preferred stock, $10.00 par value; 35,478 and 64,585
shares outstanding on December 31, 1996 and 1997, respectively
(liquidation value of $8,869,500 and $16,146,138 at December 1996
and 1997, respectively) 354,780 645,846

12% redeemable/convertible preferred stock, $10.00 par value; 344,165 shares
outstanding on December 31, 1996 and 1997 3,441,650 3,441,650

Common stock, $.001 par value; 50,000,000 shares authorized; 3,699,375 and
6,272,295 shares outstanding on December 31, 1996 and 1997,
respectively 3,699 6,272
Additional paid-in capital 3,958,080 14,564,311
Retained deficit (6,489,745) (11,427,388)
------------ ------------
Total stockholders' equity 1,268,464 7,230,691
------------ ------------
Total liabilities and stockholders' equity $ 16,532,723 $ 36,008,703
============ ============

</TABLE>

The accompanying notes to the consolidated financial statements
are an integral part of these balance sheets.

35
<PAGE> 36

SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997
------------ ------------ ------------
REVENUES:
<S> <C> <C> <C>
Monitoring fees $ 2,390,513 $ 3,652,892 $ 10,711,935
Membership fees and other 342,740 129,199 102,152
------------ ------------ ------------
Total revenues 2,733,253 3,782,091 10,814,087
------------ ------------ ------------

OPERATING EXPENSES:
General, selling and administrative 1,590,860 1,394,244 4,257,360
Payroll and related expense 891,320 1,710,252 4,653,190
Amortization and depreciation 539,634 1,020,427 2,425,919
Write off of contract rights 100,700 248,635 1,277,624
Deferred compensation expense -- -- 862,034
------------ ------------ ------------
Total operating expenses 3,122,514 4,373,558 13,476,127
------------ ------------ ------------
Loss from operations (389,261) (591,467) (2,662,040)

INTEREST EXPENSE 742,659 1,384,239 1,862,606
------------ ------------ ------------
Loss before income in equity of joint
venture and income taxes (1,131,920) (1,975,706) (4,524,646)

INCOME IN EQUITY OF JOINT VENTURE 184,642 257,447 --
------------ ------------ ------------
Loss before income taxes (947,278) (1,718,259) (4,524,646)

PROVISION FOR INCOME TAXES -- -- --
------------ ------------ ------------
Net loss (947,278) (1,718,259) (4,524,646)

DIVIDENDS ACCRUED ON PREFERRED STOCK -- -- 412,997
------------ ------------ ------------
Net loss available to common stockholders $ (947,278) $ (1,718,259) $ (4,937,643)
============ ============ ============

NET LOSS PER SHARE $ (.26) $ (.47) $ (1.16)
============ ============ ============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 3,665,642 3,669,343 4,266,151
============ ============ ============
</TABLE>

The accompanying notes to the consolidated financial statements
are an integral part of these statements.

<PAGE> 37
SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

CONVERTIBLE 12% REDEEMABLE
COMMON STOCK PREFERRED STOCK PREFERRED STOCK ADDITIONAL TOTAL
- - -------------------- ------------------- --------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
- - ------ ------ ------ ------ ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3,662,187 $3,662 - $ - - $ $2,688,042 $(3,824,208) $(1,132,504)

5,900 6 - - - - 1,469 - 1,475
- - - - - - 35,250 - 35,250
- - - - - - - (947,278) (947,278)
- - --------- ------- ------ -------- ------- ---------- ----------- ------------ -----------
3,668,087 3,668 - - - - 2,724,761 (4,771,486) (2,043,057)
- - 35,478 354,780 344,165 3,441,650 1,216,160 - 5,012,590
9,200 9 - - - - 4,591 - 4,600
22,088 22 - - - - 12,568 - 12,590
- - - - - - - (1,718,259) (1,718,259)
- - --------- ------- ------ -------- ------- ---------- ----------- ------------ -----------
3,699,375 3,699 35,478 354,780 344,165 3,441,650 3,958,080 (6,489,745) 1,268,464
- - 29,107 291,066 - - 4,267,793 - 4,558,859

162,265 162 - - - - 861,872 - 862,034
2,410,655 2,411 - - - - 5,476,566 - 5,478,977
- - - - - - - (412,997) (412,997)
- - - - - - - (4,524,646) (4,524,646)
- - --------- ------- ------ -------- ------- ---------- ----------- ------------ -----------
6,272,295 $6,272 64,585 $645,846 344,165 $3,441,650 $14,564,311 $(11,427,388) $ 7,230,691
========= ======= ====== ======== ======= ========== =========== ============ ===========
</TABLE>

The accompanying notes to the consolidated financial statements are an integral
part of these statements.

37
<PAGE> 38

SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (947,278) $ (1,718,259) $ (4,524,646)
Adjustments to reconcile net loss to net cash (used for) provided
by operating activities-
Income in equity of joint venture (184,642) (257,447) --
Issuance of common stock for services -- 4,600 --
Amortization and depreciation 539,634 1,020,427 2,425,919
Contract rights written off -- 248,635 1,277,624
Deferred compensation expense -- -- 862,034
Changes in assets and liabilities-
Accounts Receivable, net (195,531) 136,036 (1,047,691)
Note receivables 125,000 -- --
Other current assets (73,504) (126,992) 46,147
Other long-term assets (15,160) -- (63,598)
Accounts payable 77,776 41,334 (36,503)
Bank overdraft (35,568) -- --
Accrued expenses 252,430 (172,208) 1,490,408
Unearned revenue 408,948 425,148 279,937
Other current liabilities (116,760) (22,902) (9,322)
------------ ------------ ------------
Net cash (used for) provided by operating
activities (164,655) (421,628) 700,309
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of contract rights to monitor security systems, net (3,639,934) (1,855,953) (8,056,738)
Purchase of fixed assets (37,893) (54,052) (311,612)
Cash paid for acquisition, net -- (1,794,021) (5,818,484)
------------ ------------ ------------
Net cash used for investing activities (3,677,827) (3,704,026) (14,186,834)
------------ ------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital 36,725 5,000,000 9,987,836
Dividends accrued on preferred stock -- -- (412,997)
Deferred financing costs -- (596,879) (385,400)
Proceeds from stockholders receivable 10,358 -- 25,180
Repayment of notes payable to related parties (54,349) (98,742) (136,000)
Proceeds from notes payable to related parties -- 500,000 5,000,000
Repayment of notes payable (774,720) (7,404,188) (4,358,280)
Proceeds from notes payable 4,592,090 7,304,000 8,655,464
------------ ------------ ------------
Net cash provided by financing activities 3,810,104 4,704,191 18,375,803
------------ ------------ ------------

INCREASE (DECREASE) IN CASH (32,378) 578,537 4,889,278
CASH AND CASH EQUIVALENTS, beginning of year 86,196 53,818 632,355
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 53,818 $ 632,355 $ 5,521,633
============ ============ ============

</TABLE>

The accompanying notes to the consolidated financial statements
are an integral part of these statements.

<PAGE> 39

SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1996 AND 1997

1. DESCRIPTION OF THE BUSINESS

COMPANY BACKGROUND

Security Associates International, Inc. and Subsidiaries (the "Company")
is composed of Security Associates International, Inc. ("SAI") and its
subsidiaries, RMR Management Corp., a Delaware corporation ("RMR"), MCAP
Investors, Inc., a Delaware corporation ("MCAP"), Winnetka Investors,
Inc., a Delaware corporation ("Winnetka"), Security Associates Command
Center II, LLC, a Michigan limited liability company ("SACC"), Monitor
Service Group, LLC, an Illinois limited liability company ("MSG"),
All-Security Monitoring Services, LLC, an Illinois limited liability
company ("All-Security"), AMJ Central Station Corporation, a Delaware
corporation ("AMJ"), Alarm Funding Corporation, a Delaware corporation
("AFC") and Telecommunications Associates Group, Inc., an Ohio corporation
("TAG"). Subsequent to year-end, RMR, MCAP and Winnetka were merged into
the Company. Additionally, the Company plans to move the operations of
SACC to TAG in March, 1998. SACC will be liquidated after that move
occurs. A provision for shutdown expenses of approximately $77,000 has
been included in the accompanying financial statements.

The Company was organized for the primary purpose of acquiring service
contracts for remote electronic monitoring of security systems in
businesses and homes throughout the United States and providing monitoring
services to independent alarm dealers on a subcontract basis. Revenues are
composed primarily of fees for monitoring services.

Alarm Funding Corporation was formed in September, 1997. The purpose of
AFC is to provide loans to independent alarm dealers. As of December 31,
1997, AFC had made one loan for $250,000. AFC has an agreement with the
Company's major stockholder which will provide up to $1,500,000 in
subordinated debt. As of December 31, 1997, AFC has borrowed $500,000 of
subordinated debt. A company and a partnership, each controlled by a
director of the Company, have received options to purchase 20% of AFC's
stock from the Company.

2. SUMMARY OF MAJOR ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The financial statements consolidate the accounts of Security Associates
International, Inc., and its wholly owned subsidiaries. All intercompany
items and transactions have been eliminated.

<PAGE> 40

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.

REVENUE RECOGNITION

Monitoring fee revenue is recognized as earned over the related contract
period. Services may be billed in advance on a monthly, quarterly or
annual basis and amounts not earned are included as unearned revenues.

ACCOUNTS RECEIVABLE

The Company grants unsecured trade credit to customers in the normal
course of business. Receivables in the accompanying consolidated balance
sheets are net of reserves for doubtful accounts of approximately $206,000
and $495,000 as of December 31, 1996 and 1997, respectively.

CONTRACT RIGHTS TO MONITOR SECURITY SYSTEMS

The Company actively pursues the acquisition of contract rights to monitor
security systems. These contract rights are recorded at the Company's
purchase price. Amortization is calculated on a straight-line basis over
an estimated useful life of ten years. When accounts are canceled and not
replaced under a guarantee, the net book value of the canceled account is
written off. The Company regularly reviews the attrition rates of account
purchases to evaluate the realizability of the unamortized contract
rights. If any one account purchase experiences extraordinary
cancellations, the amortization period is reduced and losses, if any, are
accrued. Contract rights to monitor security systems in the accompanying
consolidated balance sheets are net of accumulated amortization of
approximately $1,350,000 and $2,329,000 as of December 31, 1996 and 1997,
respectively.

GOODWILL

Goodwill is recorded as the cost of purchased businesses in excess of the
fair value of the net assets acquired and is amortized on a straight-line
basis over a period of three to fifteen years. The Company regularly
reviews the performance of acquired businesses to evaluate the
realizability of the underlying goodwill. Goodwill in the accompanying
consolidated balance sheets is net of accumulated amortization of
approximately $201,000 and $954,000 as of December 31, 1996 and 1997,
respectively.

OTHER LONG-TERM ASSETS

Other long-term assets consist primarily of deferred financing costs. The
deferred financing costs are being amortized over the life of the related
loan. Other long-term assets in the accompanying consolidated balance
sheets are net of accumulated amortization of approximately $7,000 and
$124,000 as of December 31, 1996 and 1997, respectively.

40
<PAGE> 41

FURNITURE AND EQUIPMENT

Furniture and equipment are stated at cost. Depreciation is calculated
using straight-line methods for both financial statement and income tax
purposes over an estimated useful life of three to seven years.

The following is a summary of furniture and equipment by major class of
assets:

<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Equipment $ 744,277 $1,148,964
Office furniture and fixtures 54,496 107,812
Automobiles/trucks 20,188 20,188
Leasehold improvements 53,834 57,861
---------- ----------
872,795 1,334,825
Less- Accumulated depreciation 454,896 479,194
---------- ----------
$ 417,899 $ 855,631
========== ==========
</TABLE>

RENT EXPENSE

The Company leases its office building and the facilities from which
their central stations operate for various periods and amounts through the
year 2002. Rent expense was approximately $36,000, $206,000 and $511,000
for the years ended December 31, 1995, 1996 and 1997, respectively.

Future minimum lease payments are as follows:

<TABLE>
<CAPTION> <S> <C>
As of December 31-
1998 $509,000
1999 449,000
2000 365,000
2001 314,000
2002 and thereafter 349,000
========
</TABLE>

ACCRUED EXPENSES

Accrued expenses are composed of the following:

<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1997
--------- ----------
<S> <C> <C>
Accrued interest $114,833 $ 806,758
Accrued dividends - 412,997
Accrued payroll and vacation 181,244 324,526
Accrual for loss contracts - 229,812
Other 143,583 361,565
-------- -----------
$439,660 $2,135,658
======== ===========
</TABLE>

<PAGE> 42

PREFERRED STOCK

On September 5, 1996, an outside investor purchased a 49% interest in the
Company by receiving 3,525,682 shares of common stock and $3,441,649 of
debt with an interest rate of 6% for a total contribution of $5 million.
This stock and debt was converted to 379,422 shares of redeemable and
convertible preferred stock on December 31, 1996, and a subordinated
credit facility of $5 million was provided to the Company. Additionally,
on December 31, 1996, this stockholder exercised options for the purchase
of 221 shares of preferred stock at $57 per share, in the form of a
stockholder note receivable which was paid after year-end. This
shareholder exercised options and warrants during 1997 totaling 29,107
shares of Convertible Preferred Stock.

Of the total shares of preferred stock issued and outstanding as of
December 31, 1997, 344,165 shares are 12% Redeemable Preferred Stock, $10
par and liquidation value with dividends deferred. In the event that the
Company raises $20,000,000 in new equity, all dividends that have not been
paid must be paid. If the Company raises $30,000,000 in new equity, the
Company will have the right to redeem the 12% Redeemable Preferred Stock
for its liquidation value plus unpaid dividends. If the Company does not
redeem the 12% Redeemable Preferred Stock at that time, the dividend rate
will increase to 18% and the stockholder will have the right to convert
this preferred stock into common stock at a conversion price equal to 80%
of the market price of the common stock at the date of conversion. The
remaining 64,585 shares of preferred stock issued and outstanding are
Convertible Preferred Stock with a $250 liquidation preference. Each share
of Convertible Preferred Stock is convertible into 100 shares of common
stock of the Company.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109"). As of December 31, 1996 and 1997, the Company had net
operating loss carryforwards of approximately $6.1 million and
$11.1 million, respectively. The tax net operating losses begin to expire
in 2005. As of December 31, 1996 and 1997, no tax benefit has been
recognized for these loss carryforwards.

NET LOSS PER SHARE

Net loss per share is computed based upon the weighted number of common
shares outstanding during the periods presented. Stock options and
Convertible Preferred Stock have not been included in the calculation of
net loss per share as their effect would be antidilutive.

<PAGE> 43

STATEMENT OF CASH FLOWS

The Company considers investments purchased with an original maturity of
three months or less to be cash equivalents. Supplemental cash flow
information includes the following:

<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Supplemental schedule of cash flow information-
Cash paid during the year for interest $ 618,119 $1,493,761 $1,141,493
Supplemental schedule of noncash activities-
Issuance of stock for services -- 4,600 --
Issuance of stock for subscription
receivable paid in January, 1997 and 1998 -- 25,180 50,000
Issuance of note payable for acquisition -- 3,721,131 --
Purchase of contract rights reduced by unearned
revenue acquired -- -- 580,616
Holdback notes reduced due to account attrition
182,348 245,000 476,492
Purchase of contract rights with notes 909,581 636,900 1,021,813
========== ========== ==========

</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Company's long-term debt, which approximates the
carrying value, is estimated based on the current rates offered to the
Company for debt of the same remaining maturities.

3. ACQUISITIONS

The Company entered into the following transactions during 1996 and 1997:

MCAP--SAI purchased 100% of the equity of MCAP for $261,020 in cash,
the assumption of liabilities of $2,600 and options to purchase
310,000 shares of SAI's common stock at $0.442 per share (which
approximated fair value). SAI received assets with a fair market
value of $1,309 and recorded goodwill of $262,311. As a result of
this transaction, SAI obtained indirect ownership of the 25.2% of
MSG owned by MCAP.

WINNETKA--SAI purchased 100% of the equity of Winnetka for $159,980
in cash, the assumption of liabilities of $2,600 and options to
purchase 190,000 shares of SAI's common stock at $0.442 per share
(which approximated fair value). SAI received assets with a fair
market value of $1,344 and recorded goodwill of $161,236. As a
result of this transaction, SAI obtained indirect ownership of the
14.8% of MSG owned by Winnetka.

Pursuant to the MCAP and Winnetka transactions, SAI obtained
indirect ownership of 40% of MSG. It directly owned the remaining
60% of MSG prior to the acquisitions of MCAP and Winnetka.

<PAGE> 44

SACC AND ALL-SECURITY--On September 5, 1996, SAI purchased 50% of
the membership interests in SACC. The consideration for the
purchase was $1,500,000 in cash and the assumption of $732,874 in
SACC bank debt. SAI received assets with a fair market value
of $1,075,877 and recorded additional goodwill of $1,156,997.

As a result of this transaction, SAI now directly owns 50% of SACC
and indirectly owns the remaining 50% through its direct and
indirect ownership of MSG (see MCAP and Winnetka above). SAI also
now owns 100% of All-Security either directly or indirectly through
its ownership of SACC.

AMJ--On December 19, 1996, SAI purchased the assets of AMJ Central
Station Corporation, a Florida corporation, which were transferred
to a newly formed and wholly owned subsidiary, AMJ Central Station
Corporation, Inc. The purchase price was $3,745,684 in cash and the
assumption of certain liabilities totaling $465,461. SAI received
assets with a fair market value of $448,421 and recorded goodwill of
$3,762,724.

TAG--On November 24, 1997, SAI purchased the stock of
Telecommunications Associates, Inc., an Ohio corporation. The
purchase price was $5,000,000 in cash. Goodwill of approximately
$5,088,000 was recorded as a result of this transaction.

The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of TAG had occurred at the beginning
of 1996 and 1997, after giving effect to certain adjustments, including
amortization of intangible assets and increased interest expense on the
acquisition debt.

1996 1997
---- ----
<S> <C> <C>
Monitoring fees and other revenues $ 10,956 $ 14,245
General, selling and administrative expenses 9,154 12,858
Write off of contract rights 287 1,376
Amortization and depreciation 2,012 2,953
------------ -----------
Income (loss) from operations (497) (2,942)

Interest expense 1,485 1,952
------------ -----------
Income (loss) before income taxes (1,982) (4,894)

Income tax expense -- --
------------ -----------
Net income (loss) (1,982) (4,894)

Dividends accrued on preferred stock 413 413
------------ -----------
Net income (loss) available to common stockholders $ (2,395) $ (5,307)
============ ===========
Net loss per share $ (.65) $ (1.24)

Weighted average shares outstanding 3,669,343 4,266,151
=========== ===========

</TABLE>

The Pro Forma Statement of Income does not purport to represent what the
Company's results of operations would actually have been had the
acquisition been in effect for the periods presented, or to predict the
Company's results of operations for any future period.

<PAGE> 45
4. LONG-TERM NOTES PAYABLE

On September 5, 1996, subsequently amended on December 31, 1996, the
Company entered into a Subordinated Loan Agreement with its major
stockholder allowing for borrowings of up to $5,000,000. As of December
31, 1996 and 1997, the Company had borrowings of $500,000 and $5,000,000,
respectively, outstanding under this loan agreement. Interest is charged
on outstanding balances at 12% per year. Accrued interest thereon is
payable semiannually, subordinate to the senior debt, and all outstanding
borrowings are payable at the earlier of January 2, 2003, or when the
Company raises $15,000,000 in new equity.

In the normal course of purchasing contract rights to monitor security
systems, the Company pays cash and issues notes payable to Alarm Dealers.
These notes generally represent 10%-20% of the purchase price and serve
as a guarantee against account attrition during the term of the note.
Notes Payable to Alarm Dealers bear interest at rates ranging from 0% to
12% per year.

In November, 1997, the Company's major stockholder entered into a
subordinated debt agreement whereby AFC may borrow up to $1,500,000. As
of December 31, 1997, the Company had borrowings of $500,000 outstanding
under this subordinated debt agreement. The loan bears interest at 12%
per year and is payable on January 2, 2003.

On December 2, 1997, the Company amended its Loan Agreement with Finova
Capital Corporation ("Finova") to increase the borrowing limit of the debt
facility to $30,000,000. Under the agreement, proceeds are to be used for
account acquisitions, acquisition of third-party monitoring stations and
transaction costs. The loan is secured by virtually all the assets of the
Company. Interest is charged on outstanding advances at Citicorp's Base
rate plus 2% per year (10.25% at December 31, 1997) and is payable
monthly. A fee of 1/2% per year is payable on the unused balance of the
facility. The principal balance is repayable as follows:

2.5% per quarter, beginning January, 1999
4.0% per quarter, beginning January, 2000
5.0% per quarter, beginning January, 2001
5.5% per quarter, beginning January, 2002,
balance due December 31, 2002

<PAGE> 46

Long-term debt consists of the following notes payable:

DECEMBER 31
----------------------
1996 1997
---- ----
<S> <C> <C>
Note payable to Finova $ 7,304,000 $ 16,359,731
Notes payable to Alarm Dealers 1,098,819 1,006,992
Other 29,756 52,543
------------ ------------
Total long-term debt 8,432,575 17,419,266

Current maturities (413,227) (897,453)
------------ ------------
$ 8,019,348 $ 16,521,813
============ ============
Notes payable to stockholder $ 500,000 $ 5,500,000
============ ============

</TABLE>

Future maturities of long-term debt are as follows:

<TABLE>
<S> <C>
As of December 31-
1998 $ 897,453
1999 1,798,056
2000 2,617,557
2001 3,271,946
2002 and thereafter 14,334,254
-------------
$22,919,266
=============
</TABLE>

5. DEFERRED COMPENSATION PLAN

In April, 1997, the Company adopted an executive deferred compensation
plan. Under this plan, common stock is credited to each participant's
account and is earned based on performance as determined by the Board of
Directors against criteria set by the Board over a five-year period. The
total number of shares credited to the participants' accounts were
1,081,768. The Board of Directors awarded 162,265 shares, 75% of the
current year's eligible shares, on December 31, 1997. The Board approved a
new award whereby the 1997 unearned shares from the deferred compensation
plan, 54,088.5 shares, plus an additional 54,088.5 shares were credited to
the participants' accounts and are eligible to be earned over a five-year
period beginning January 1, 1998. During 1997, the Company recorded
deferred compensation expense of $862,034 for shares awarded under these
plans.

6. EMPLOYEE BENEFIT PLAN

In April, 1997, the Company adopted a 401(k) plan. Effective June 1,
1997, employees were enrolled subject to the eligibility requirements of
the plan. The Company matches participant contributions up to 25% of the
first 4% of each participant's compensation that is contributed to the
plan. Company contributions to the plan in 1997 were approximately
$6,000.

<PAGE> 47

7. STOCK OPTIONS AND WARRANTS

At the discretion of management and approval by the Board of Directors,
the Company may grant options and warrants to purchase shares of the
Company's common stock and convertible preferred stock to certain
individuals. The exercise price may not be less than fair market value of
the common stock at the date of grant. Vesting and expiration periods are
determined by management and the Board of Directors at the time of grant.

The Company applies APB Opinion No. 25 in accounting for options and
warrants. Accordingly, no compensation cost has been recognized for the
stock options and warrants granted.

Had compensation costs for the stock options and warrants issued been
determined based on the fair value at their grant date consistent with the
method of FASB Statement No. 123 ("SFAS 123"), the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1997
---- ----
<S> <C> <C>
Net income-
As reported $ (1,718,259) $ (4,524,646)
Pro forma (1,796,189) (4,670,146)

Earnings per share-
As reported (.47) (1.16)
Pro forma (.48) (1.19)
============= =============
</TABLE>

Because the method of accounting prescribed in SFAS 123 has not been
applied to options granted prior to January 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be expected
in future years.

The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions; risk-free interest rates between 5.17% and 6.30%; zero
dividend yield; expected lives through the expiration dates; and
volatility between 39.11% and 144.19%.

<PAGE> 48

The following summarizes the stock options and warrants for common stock
as of December 31, 1995, 1996 and 1997, and the changes during the years then
ending:

<TABLE>
<CAPTION>
1995 1996 1997
---------------------- ---------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 1,291,173 $ .69 1,463,673 $.75 1,833,155 $ .74

Granted 172,500 1.14 611,000 .65 50,000 6.00
Exercised - 22,088 .57 1,410,655 .57
Canceled - 219,430 .57 -
--------- --------- ---------
End of year 1,463,673 $ .75 1,833,155 $.74 472,500 $ 1.76
========= ========= =========
Exercisable as of end
of year 1,388,673 1,758,155 397,500
========= ========= =========

</TABLE>

The future expiration of the common stock options are as follows:

<TABLE>
<S> <C>
As of December 31-
1998 37,500
1999 310,000
2000 75,000
2003 50,000
=======

</TABLE>

Subsequent to year-end, 25,000 options were granted to a company
controlled by a director and 10,000 options were granted to a director to
purchase common stock with an exercise price of $6.00 per share, expiring
in 2001, were granted to a director.

The Company has granted stock options and warrants to purchase shares of
convertible preferred stock which mirror the Common Stock options and
warrants listed above and are only exercisable upon exercise of the
respective Common Stock options and warrants. Additionally in 1996, the
Company granted warrants for 15,000 shares of convertible preferred stock
which were exercised during 1997.

The following summarizes the stock options and warrants for convertible
preferred stock as of December 31, 1996 and 1997, and the changes during
the years then ended:

<TABLE>
<CAPTION>
1996 1997
--------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ --------- ------ -----------
<S> <C> <C> <C> <C>
Beginning of year - $ - 33,332 $153.65

Granted 33,553 153.01 - -
Exercised 221 57.00 29,107 156.62
Canceled - - - -
------ ------- ------ --------
End of year/period 33,332 $153.65 4,225 $130.46
====== ======= ====== ========

</TABLE>

<PAGE> 49

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH THE ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

NAME AGE POSITION WITH THE COMPANY

Ronald I. Davis 59 Chairman of the Board and Director

James S. Brannen 59 President, Chief Executive Officer and Director

Daniel S. Zittnan 43 Vice President, Treasurer, Chief Financial
Officer

Stephen Rubin 51 Senior Vice President

Michael B. Jones 46 Director

Thomas J. Salvatore 30 Director

<PAGE> 50

Douglas Oberlander 47 Director

Ronald J. Carr 46 Vice President

Timothy M. McAuliff 38 Vice President

Karen Daniels 43 Vice President

Scott J. MacDougal 39 Vice President

Ronald I. Davis was a founder of the Company and has been Chairman of the
Board since October 1990. Prior to formation of the Company, he had many years
of experience in the security alarm industry. He was the founder, and from
1987 to 1990, Mr. Davis was chairman and principal shareholder of SAI Partners,
Inc., an alarm dealer buying group which also provided Dealers with other
support services such as training and educational programs, consulting, group
insurance programs and certain proprietary alarm products manufactured by
others. From 1982 to 1987, Mr. Davis was President of Security Alliance
Corporation, a franchise company in the alarm industry and a joint venture with
Pittway Corporation. Prior to 1982, Mr. Davis was a full time consultant to
many of the alarm companies that now make up the affiliates of the Company's
Dealer Network. Mr. Davis attended Roosevelt University where he received a
B.A.

James S. Brannen was a founder of the Company and has been a Director and
President of the Company since October 1990 and Chief Executive Officer since
1992. He was a self-employed consultant in the alarm industry from February
1988 to October 1990. From 1962 until 1987, Mr. Brannen was employed by the
First National Bank of Chicago where he served as a senior vice president in
both the commercial and international banking departments. In those capacities
he managed the commercial areas of the bank responsible for lending to the
cable television and paging industries. In addition, he managed the secured
lending activity and was responsible for organizing and managing the bank's
first work-out lending activity. Mr. Brannen has an A.B. degree from Dartmouth
College and received an MBA degree from Northwestern University.

Daniel S. Zittnan has served as Vice President, Chief Financial Officer
and Treasurer of the Company since October 7, 1997. Mr. Zittnan spent over
thirteen years with Arthur Andersen, LLP most recently as a Senior Manager.
Mr. Zittnan holds a BA in accounting from DePaul University and is a member of
the AICPA and ICPA Society.

Stephen Rubin was a founder of the Company and has been Senior Vice
President since October 1990. From 1987 to 1990, he was a Senior Vice
President of SAI Partners, Inc. From 1978 to 1986, Mr. Rubin was an officer of
Davis Marketing Group and Security Alliance Corporation. Mr. Rubin has a B.S.
degree from Northern Michigan University and MBA degree from Loyola University.
Mr. Rubin has the principal responsibility for the day-to-day relationships
with the dealers in the Company's Dealer Network and for negotiating account
acquisitions.

Thomas J. Salvatore was elected as a Director of the Company in December
1996. Since 1991, Mr. Salvatore has been the Managing General Partner of TJS
Management, L.P. which is the General Partner of TJS Partners, L.P. ("TJS"), a
principal stockholder of the Company. TJS has a contractual right to designate
two directors to the Company's Board of Directors and Mr. Salvatore is one of
the designees. Mr. Salvatore holds a Bachelors Degree in Business
Administration from Fordham University.

Douglas Oberlander has been a Director since January 1994. Since 1989,
Mr. Oberlander has been President of Lease I, Inc. a commercial lease and
finance company. From 1965 to 1988, Mr.

<PAGE> 51

Oberlander was employed by Oberlander Security, a security alarm dealer. Since
1991, Mr. Oberlander has served as a director of Oberlander Alarms, a security
alarm dealer.

Michael B. Jones was appointed a Director of the Company in January 1998.
He has been President of ProFinance Associates, Inc. since he co-founded it in
1985. ProFinance has been a Broker-Dealer firm since 1990. Mr. Jones was with
Marine Midland Bank from 1977 until 1985. He was responsible for starting a
Communications/Electronics lending group in 1991 and, in his last position as
Group Executive, for leading that group. That group was one of the first
institutional lenders to the alarm industry. Mr. Jones has a Bachelors Degree
in Liberal Arts from the University of Arizona and a Masters Degree in
International Relations from the Johns Hopkins University School of Advanced
International Studies.

Ronald J. Carr has been a Vice President of the Company since March 1997.
Mr. Carr is also the President of TAG and is a member of the Board of Directors
of the Central Station Alarm Association. From March 1996 to March 1997, Mr.
Carr was Director of Telecommunications and Central Station Operations for
Ameritech's SecurityLink subsidiary. From 1991 to 1996 he was Director of
Telecommunications for ADT, Inc. Mr. Carr holds a Bachelors Degree in Business
Administration from Brookdale College.

Timothy M. McAuliff has served as Vice President and Chief Credit Officer
since January 1998. Prior to becoming Chief Credit Officer, Mr. McAuliff was
Vice President of Operations starting in September 1996. Mr. McAuliff served
as a Vice President responsible for acquisition and credit for Old Kent
Leasing, a subsidiary of Old Kent Financial Corporation from December 1995 to
September 1996. From October 1994 to December 1995, Mr. McAuliff was
Accounting Manager for Advo, Inc., a direct mail marketing firm. From December
1992 to October 1994, he was Division Controller for a publishing firm, Thomson
Corporation. From 1986 through 1992, Mr. McAuliff was a manager for the
Tribune Company, a publishing and broadcasting company. Mr. McAuliff holds a
bachelors degree in Business Administration from Elmhurst College.

Karen B. Daniels has served as Vice President since October 7, 1997.
Prior to becoming a Vice President, Ms. Daniels acted as a consultant for the
Company starting in March 1997, and prior to that for Ameritech AIIS, since
1995. From March, 1990, to June, 1995, Ms. Daniels was Vice
President/Controller for Editel-Chicago, a division of Unitel Video, Inc., a
video post-production company. Ms. Daniels has a bachelors degree in
Industrial Administration-Finance from Iowa State University. Ms. Daniels is
also a Certified Public Accountant.

Scott J. MacDougal has been a Vice President with the Company and
President of Alarm Funding Corporation since October 7, 1997. Previously, he
was Principal of Cornerstone Funding Inc., a financial advisory company serving
small businesses. Mr. MacDougal spent five years in the venture capital
industry, as Vice President of Business Development for Kentco Capital Corp. of
Northfield, Illinois. Prior to that, he spent eight years in the banking
industry, most recently as Vice President in the Communications Companies
Division at The First National Bank of Chicago. Mr. MacDougal holds a BA in
journalism from the University of Wisconsin, and an MBA in Finance from The
Wharton School.

The Company's executive officers are appointed annually by, and serve at
the discretion of, the Board of Directors. Each executive officer is a
full-time employee of the Company. All directors hold office until the next
annual meeting of stockholders or until their successors are duly elected and
qualified. The Board of Directors currently consists of five members. Ronald
I. Davis and Stephen Rubin are brothers-in-law. There are no other family
relationships between any director or executive officer of the Company.

<PAGE> 52

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from
the Company's definitive proxy statement, expected to be filed with the
Commission prior to March 15, 1998.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference from
the Company's definitive proxy statement, expected to be filed with the
Commission prior to March 15, 1998.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference from
the Company's definitive proxy statement, expected to be filed with the
Commission prior to March 15, 1998.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Exhibits and Financial Statements and Schedules

(1) Financial Statements. The Registrant's financial statements,
together with the Report of Independent Accountants, are set forth in
Part II, Item 8 on pages 33 - 48 of this report.

(2) Financial Statement Schedules. The Schedule II - Valuation and
Qualifying Accounts is set forth on page A-1 of this report.
All other schedules are not submitted because they are not applicable or
because the required information is included in the financial statements
or notes thereto.

(3) Exhibits.

(b) Reports on Form 8-K filed during the quarter ended December 31, 1997

The Company filed a Current Report on Form 8-K on December 2, 1997 dated
November 12, 1997, which reported the exercise of a warrant by TJS Partners,
L.P., an affiliate of the Company, for the purchase of 15,000 shares of the
Company's Convertible Preferred Stock for a total purchase price of $3,750,000
and the exercise of options by TJS Partners, L.P. for the purchase of 8,761.55
shares of the Company's Convertible Preferred Stock for a total purchase price
of $563,829.

The Company filed a Current Report on Form 8-K on December 10, 1997 dated
November 25, 1997, which reported the acquisition of all of the outstanding
capital stock of Telecommunications Associates Group, Inc. ("TAG"). The
purchase price was $5 million plus the assumption of TAG's liabilities. The
report did not include the financial statements on the date of filing (the
financial statements were included in an Amendment to a Current Report on Form
8-KA filed on February 4, 1998), but did include the Stock Purchase Agreement
between the Company and Robert Ambros, TAG's sole stockholder.

<PAGE> 53

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company*
3.2 By-Laws of the Company*
3.3 Certificate of Designations, Rights, Preferences and Limitations of 12% Redeemable Preferred Stock,
$10.00 par value per share, of Security Associates International, Inc.*
3.4 Certificate of Designations, Rights, Preferences and Limitations of Convertible Preferred Stock, $10.00
par value per share, of Security Associates International, Inc.*
4.1 Specimen Common Stock certificate*
10.1 Employment Agreement between Registrant and James S. Brannen dated August 29, 1996*
10.2 Employment Agreement between Registrant and Ronald I. Davis dated August 29, 1996*
10.3 Employment Agreement between Registrant and Stephen Rubin dated August 30, 1996*
10.4 Adoption Agreement for the Datair Mass-Submitter Prototype Standardized Cash or Deferred Profit
Sharing Plan & Trust*
10.5 Supplemental Employees' Retirement Plan*
10.6 [Intentionally deleted]
10.7 Purchase of Stock of Winnetka Investors, Inc. by Registrant dated September 5, 1996*
10.8 Purchase of Stock of MCAP Investors, Inc. by Registrant dated September 5, 1996*
10.9 Common Stock Subscription and Purchase Agreement between Registrant and TJS Partners,
L.P., dated September 5, 1996*
10.10 Amendment to Common Stock Subscription and Purchase Agreement between Registrant and TJS
Partners, L.P., dated December 31, 1996*
10.11 Purchase of Membership Interests of Limited Liability Agreements between Registrant and Intec
Company, Inc. dated September 5, 1996*
10.12 Asset Purchase Agreement between Registrant and AMJ Central Station Corporation dated December
19, 1996*
10.13 Asset Purchase Agreement between All-Security Monitoring Services, L.L.C. and Northern Central
Station, Inc. dated February 25, 1997*
10.14 Loan Agreement among Registrant, Security Associates Command Center II, L.L.C., Monitor Service
Group, L.L.C., All-Security Monitoring Services, L.L.C. and FINOVA Capital Corporation
dated December 31, 1996*
10.15 Amendment to Loan Instruments among Registrant, Security Associates Command Center II, L.L.C.,
Monitor Service Group, L.L.C., All-Security Monitoring Services, L.L.C. and FINOVA Capital
Corporation dated February 28, 1997*
10.16 Lease Agreement between American National Bank and Trust Company of Chicago as Trustee under
Trust No. 59948 and Registrant dated November 21, 1995*
10.17 Amendment to Lease Agreement between American National Bank and Trust Company of Chicago as
Trustee under Trust No. 59948 and Registrant dated December 9, 1996*
10.18 Lease between Intec Company, Inc. and Security Associates Command Center II, L.L.C. dated
September 4, 1996*
10.19 Sublease Agreement between William Jackson and Elizabeth Jackson and Registrant dated December
29, 1996*
10.20 First Amendment to Lease between William Jackson and Elizabeth Jackson and Registrant dated
February 7, 1997*
10.21 Subordinated Loan Agreement between Registrant and TJS Partners, L.P.*
10.22 Standby Option and Warrant Agreement between Registrant and TJS Partners, Ltd. dated September 5,
1996*
10.23 Amended Standby Option and Warrant Agreement between Registrant and TJS Partners, Ltd. dated
December 31, 1996*
</TABLE>
53

<PAGE> 54
<TABLE>
<S> <C>
10.24 Warrant dated December 31, 1996 issued to TJS Partners, Ltd.*
10.25 Form of Warrant*
10.26 Echo Star Joint Venture Agreement**
10.27 Amended and Restated Loan Agreement among Security Associates International, Inc., Security
Associates Command Center II, L.L.C., Monitor Service Group, L.L.C., All-Security Monitoring
Services, L.L.C., AMJ Central Station Corporation, Inc., Telecommunications Associates Group, Inc.
and FINOVA Capital Corporation dated December 2, 1997.
10.28 Second Amendment to Lease between American National Bank and Trust Company of Chicago as
Trustee under Trust No. 59948 and Registrant dated December 10, 1997.
10.29 Koll Business Center Lease dated May 16, 1996 between Telecommunications Associates Group, Inc.
and TR Brell Austin Corp.
10.30 Lease between Indian Hill Properties, Inc. and Telecommunications Associates Group, Inc.
dated November 24, 1997.
10.31 Stock Purchase Agreement between Security Associates International, Inc. as purchaser and Robert
Ambros as seller dated November 21, 1997***
10.32 $500,000 Promissory Note dated December 8, 1997 from Alarm Funding Corporation to TJS Partners,
L.P.
10.33 Subordinated Loan Agreement dated November 14, 1997 between Alarm Funding Corporation and TJS
Partners, L.P.
10.34 Amended Subordinated Loan Agreement dated January 30, 1998 between Security Associates
International, Inc. and TJS Partners, L.P.
10.35 $5,000,000 Promissory Note dated December 31, 1996 from Security Associates International, Inc. to
TJS Partners, L.P.
21.1 Subsidiaries of Registrant*
21.2 Supplemental List of Subsidiaries of Registrant
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
</TABLE>
* Previously filed with the Registrant's Registration Statement on Form S-1
filed July 22, 1997.
** Previously filed September 8, 1997 in pre-effective Amendment No. 1 to the
Registrant's Registration Statement on Form S-1.
*** Previously filed with the Registrant's Current Report on Form 8-K filed
December 10, 1997 and dated November 25, 1997.

<PAGE> 55

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

SECURITY ASSOCIATES INTERNATIONAL, INC.

By: /s/ James S. Brannen
-------------------------------------
February 17, 1998 James S. Brannen, President

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE

/s/ James S. Brannen President (Principal
- - -------------------- Executive Officer) February 17, 1998
James S. Brannen and Director

/s/ Ronald I. Davis
- - ------------------- Director February 17, 1998
Ronald I. Davis

/s/ Thomas J. Salvatore
- - ----------------------- Director February 17, 1998
Thomas J. Salvatore

/s/ Douglas Oberlander
- - ---------------------- Director February 17, 1998
Douglas Oberlander

/s/ Michael B. Jones
- - -------------------- Director February 17, 1998
Michael B. Jones

/s/ Daniel S. Zittnan Vice President, Treasurer
- - --------------------- and Chief Financial February 17, 1998
Daniel S. Zittnan Officer (Principal
Financial and Accounting
Officer)

<PAGE> 56
SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS
(FOR EACH INCOME STATEMENT PRESENTED)

Additions
------------------------------------------------------------------
Balance at Charged to
Beginning of Charged to Other Balance at
Description Period Expense Accounts Deductions End of Period
- - --------------------------------- ---------------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Allowances deducted from related
accounts receivable balance sheet
accounts of Security Associates
International, Inc.
Year ended December 31, 1995 15,000 14,000 -- -- 29,000
Year ended December 31, 1996 29,000 177,000 -- -- 206,000
Year ended December 31, 1997 206,000 687,000 100,000 (498,000) 495,000
- - --------------------------------- ---------------- -------------- ------------- ------------ --------------
</TABLE>

A-1

<PAGE> 1
EXHIBIT

AMENDED AND RESTATED LOAN AGREEMENT

THIS AMENDED AND RESTATED LOAN AGREEMENT, dated as of December 2, 1997, is
among SECURITY ASSOCIATES INTERNATIONAL, INC., a Delaware corporation ("SAI"),
SECURITY ASSOCIATES COMMAND CENTER II, L.L.C., a Michigan limited liability
company ("SACC"), MONITOR SERVICE GROUP, L.L.C., a Delaware limited liability
company ("MSG"), ALL-SECURITY MONITORING SERVICES, L.L.C., an Illinois limited
liability company ("ASMS"), AMJ CENTRAL STATION CORPORATION, INC., a Delaware
corporation ("AMJ"), TELECOMMUNICATIONS ASSOCIATES GROUP, INC., an Ohio
corporation ("ERC"),and FINOVA CAPITAL CORPORATION, a Delaware corporation
("FINOVA"), in its individual capacity and as agent for all Lenders (this and
all other capitalized terms used herein are defined in Section 1.1 below).

R E C I T A L S:

A. Borrowers and FINOVA are parties to a Loan Agreement dated December 31,
1996, as amended through the date hereof (the "Existing Loan Agreement")
pursuant to which FINOVA has made loans to Borrowers upon which there is a
principal balance owing of $14,934,730 (the "Existing Debt").

B. Borrowers have requested that FINOVA make additional loans to Borrowers
in the aggregate amount not to exceed $15,065,270 (the "Additional Loans").

C. FINOVA has agreed to make the Additional Loans upon the terms and
subject to the conditions set forth herein.

NOW, THEREFORE, it is agreed that the Existing Loan Agreement is Amended
and Restated as follows:

ARTICLE
1.
DEFINITIONS AND DETERMINATIONS

1.1. DEFINITIONS. As used in this Loan Agreement and in the other Loan
Instruments, unless otherwise expressly indicated herein or therein, the
following terms shall have the following meanings (such meanings to be
applicable equally to both the singular and plural forms of the terms defined):

Account Debtor: any Person who is obligated on or under an Account
Receivable.

Accountants: Arthur Andersen, L.L.P. or any other independent certified
public accounting firm selected by Borrowers and reasonably satisfactory to
Lenders.

Accounting Changes: has the meaning assigned to that term in Section 1.3.

<PAGE> 2

Accounts Receivable: all presently existing and hereafter arising
accounts receivable and other rights to payment owing to any Borrower under
Security Monitoring Contracts and/or Central Station Contracts.

Accounts Receivable Decrease: for any period, the excess of the Eligible
Accounts at the beginning of such period over the Eligible Accounts at the end
of such period.

Accounts Receivable Increase: for any period, the excess of Eligible
Accounts at the end of such period over the Eligible Accounts at the beginning
of such period.

Acquisition: the acquisition by (i) MSG of Security Monitoring Contracts
or (ii) by any Permitted Subsidiary of a Central Station Business or (iii) by
SAI of all of the Equity Interests of a Person which owns and operates a
Central Station Business.

Acquisition Adjustment to Cash Flow: for any six-month period, the
product of (i)(A) if an Acquisition has been consummated during such period
an amount equal to the RMR of the Property that is the subject of such
Acquisition from the beginning of such period until the date such Acquisition
was consummated, and (B) in determining whether a proposed Acquisition
satisfies the conditions of subsection 4.3.2, an amount equal to the RMR of the
Property that is the subject of such Acquisition for such six-month period,
minus the aggregate of the pro forma expenses directly and indirectly related
to such RMR for the applicable period set forth in clause (A) or the six month
period set forth in clause (B), as determined to the satisfaction of Agent
based on financial and other information submitted to Agent by Borrowers and
subject to such adjustments for such period as Agent deems appropriate,
multiplied by (ii) two.

Acquisition Closing: the consummation of a Funded Acquisition.

Acquisition Closing Date: the date of an Acquisition Closing.

Acquisition Instruments: the purchase agreement and all other documents
executed in connection with an Acquisition.

Acquisition Loan Instruments: collectively, the following documents, as
applicable, to be executed and delivered in connection with each Acquisition:

(i) any amendments to the Loan Instruments and any mortgages,
security agreements, UCC Financing Statements and other
agreements reasonably required by Agent to (A) reflect the effect
of such Acquisition, (B)grant to Agent a perfected first Lien,
subject only to Permitted Prior Liens, upon all (x) Equity
Interests of any Subsidiary which is the subject of or is formed
to consummate such Acquisition, (y) existing and after-acquired
Property of such Subsidiary and (z) other Property acquired by any
Borrower pursuant to such Acquisition and (C) make any such

<PAGE> 3

Subsidiary a "Borrower" under this Loan Agreement and a party to
the Contribution Agreement.

(ii) a Landlord Consent and Waiver executed by each Landlord under
each Lease assumed or executed by any Borrower in connection with
such Acquisition; and

(iii) such other instruments and documents as Agent may reasonably
require in connection with such Acquisition.

ADA: the Americans with Disabilities Act of 1990, as amended, any
successor statute thereto, and the rules and regulations issued thereunder, as
in effect from time to time.

Additional Loans: as defined in the Recitals.

Adjusted Annualized Operating Cash Flow: the Annualized Operating Cash
Flow for the applicable period, plus the Acquisition Adjustment to Cash
Flow for such period.

Adjusted Leverage Ratio: the ratio of the Adjusted Total Debt as of any
Funding Date to Adjusted Annualized Operating Cash Flow for the period ending
on the most recent date for which Borrowers have delivered to Lenders financial
statements pursuant to subsection 6.3.1.

Adjusted Total Debt: as of any Funding Date, the Total Debt as of such
date plus the requested Advance.

Advance: a disbursement of any portion of the Additional Loans.

Affiliate: any Person that directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with
another Person. The term "control" means possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities or equity interests,
by contract or otherwise. For the purposes hereof, any Person which owns or
controls, directly or indirectly, 10% or more of the securities or equity
interests, as applicable, whether voting or non-voting, of any other Person
shall be deemed to "control" such Person.

Agent: FINOVA, as agent for all Lenders.

Alarm Licenses: a license or licenses issued by a state licensing
authority that authorize a Person to provide remote security monitoring
services to consumers and/or businesses within such state.

Amended and Restated Assignment of Leases: the Amended and Restated
Assignment of Leases of even date herewith executed by Borrowers in favor
of Agent with respect to each Lease under which any Borrower is the lessee, as
hereafter amended.

<PAGE> 4

AMJ: as defined in the Preamble.

Annualized Operating Cash Flow: as of any applicable date, the product of
(i) the consolidated Operating Cash Flow of Borrowers for the six month period
ending on such date, multiplied by (ii) two.

Applicable Margin: as defined in subsection 2.4.1.

Applicable Margin Ratio: the ratio of Total Debt as of the last day of
any quarter to the Adjusted Annualized Operating Cash Flow of Borrowers for
the period ending on such day.

Applicable Ratio: on any day during a period set forth below, the ratio
set forth opposite such period:

Each Day During the Period Ratio
-------------------------- -----
<S> <C>
Closing Date through 12/31/98 4.00
1/1/99 through 3/31/99 3.75
4/1/99 through 6/30/99 3.50
7/1/99 through 9/30/99 3.25
10/1/99 through 3/31/00 3.00
4/1/00 through 9/30/00 2.75
10/1/00 through 3/31/01 2.50
4/01/01 through 9/30/01 2.25
10/1/01 and thereafter 2.00

</TABLE>

ASMS: has the meaning assigned to that term in the Preamble to this Loan
Agreement.

Assignee: any Person to which a Loan Assignment is made in compliance
with the provisions of subsection 9.1.1.

Assignment of Leases: the Amended and Restated Assignment of Leases
executed by Borrowers in favor of Agent of even date herewith.

Assignments of Acquisition Instruments: the assignments of Acquisition
Instruments executed by the applicable Borrower in connection with each
Acquisition made by such Borrower on or after the Closing Date, each such
assignment to be consented to by the applicable sellerDecember 1, 1997 if such
consent is required by the terms of the Acquisition Instruments, and each such
assignment and consent to be in form acceptable to Agent.

Assignments of Key Man Life Insurance: the assignments of each policy of
Key Man Life Insurance, each executed by SAI and in form and substance
acceptable to Agent.

<PAGE> 5

Bankruptcy Code: the United States Bankruptcy Code and any successor
statute thereto, and the rules and regulations issued thereunder, as in effect
from time to time.

Base Rate: the per annum rate of interest announced or published publicly
from time to time by Citibank, N.A. in New York, New York as its
corporate base (or equivalent) rate of interest, which rate shall change
automatically without notice and simultaneously with each change in such
corporate base rate. The Base Rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged to any customer
by Citibank, N.A. in New York, New York.

Basic Financial Statements: as defined in subsection 6.3.3.

Borrower: any of the Borrowers.

Borrowers: SAI, SACC, MSG, ASMS, AMJ, ERC and each Permitted Subsidiary.

Borrowers' Obligations: (i) any and all Indebtedness due or to become due,
now existing or hereafter arising, of Borrowers to Lenders and/or Agent
pursuant to the terms of this Loan Agreement or any other Loan Instrument and
(ii) the performance of the covenants of Borrowers contained in the Loan
Instruments.

Brannen: James S. Brannen.

Business Day: any day other than a Saturday, Sunday or other day on which
banks in Phoenix, Arizona are required to close.

Business Insurance: such property, casualty, business interruption and
other insurance, other than the Key Man Life Insurance, as Agent from time to
time reasonably requires Borrowers to maintain.

Capital Expenditures: payments that are made or liabilities that are
incurred by any Borrower for the lease, purchase, improvement, construction or
use of any Property, the value or cost of which under GAAP is required to be
capitalized and appears on such Borrower's balance sheet in the category of
property, plant or equipment, without regard to the manner in which such
payments or the instruments pursuant to which they are made are characterized
by any Borrower or any other Person, but excluding payments made or liabilities
incurred in connection with an Acquisition. Except for the purpose of
determining Excess Cash Flow, a Capital Expenditure shall be deemed to be made
as of the time the Property which is the subject thereof is put into service by
the applicable Borrower.

Capitalized Lease: any lease of Property, the obligations for the rental
of which are required to be capitalized in accordance with GAAP.

<PAGE> 6

Cash Equivalents: the aggregate of each Borrower's (i) cash on hand or in
any bank or trust company, and checks on hand and in transit, (ii) monies
on deposit in any money market account, and (iii) treasury bills, certificates
of deposit, commercial paper and readily marketable securities at current
market value having, in each instance, a maturity of not more than 180 days.

Cash Instruments: all cash, checks, drafts and other similar writings for
the payment of money.

Central Station Business: the business of owning and operating a central
monitoring station and businesses related thereto and providing service
pursuant to Central Station Contracts.

Central Station Contracts: contracts with Dealers to provide monitoring
services to the customers of the Dealers.

Chief Financial Officer: the chief financial officer of each Borrower, who
shall be a duly elected officer, member or manager of such Borrower.

Closing: the disbursement of the Initial Portion.

Closing Certificate: a closing certificate executed by Borrowers in form
and substance satisfactory to Agent.

Closing Date: the date of the Closing.

Code: the Internal Revenue Code of 1986, as amended, and any successor
statute thereto, and the rules and regulations issued thereunder, as in effect
from time to time.

Collateral: (i) all existing and after-acquired Property of each
Borrower, including without limitation all existing and after-acquired
Accounts Receivable, equipment, inventory and general intangibles, (ii) the
Membership Interests, (iii) the Pledged Capital Stock, (iv) the Key Man Life
Insurance, and (v) all proceeds of the foregoing.

Collected Funds: defined in subsection 2.11.1(b).

Compliance Certificate: a Compliance Certificate executed by Borrowers
in the form of EXHIBIT 1.1(A) attached hereto.

Contribution Agreement: the Amended and Restated Contribution Agreement
among Borrowers with respect to Borrowers' Obligations of even date herewith.

Covenant Leverage Ratio: the ratio of Total Debt as of the last day of
any period to Adjusted Annualized Operating Cash Flow for the period ending
on such day.

<PAGE> 7

Davis: Ronald Davis.

Dealer: any Person whose primary business is the installation of
servicing alarm equipment and the sale of monitoring services.

Dealer Holdback Debt: any Indebtedness for Borrowed Money owed by MSG to
Dealers in connection with the purchase of Security Monitoring Contracts.

Dealer Holdback Report: the monthly report produced by Borrowers which
provides due dates and amounts owed to each Dealer to whom a portion of the
Dealer Holdback Debt is owed.

Debt Service: during any period, all payments of principal, interest,
premium, fees and other charges with respect to Indebtedness for Borrowed
Money, which payments are required or permitted to be made pursuant to this
Loan Agreement and are due and payable during such period, but excluding the
Loan Fee and any Prepayment Premium.

Debt Service Coverage Ratio: as of the last day of any quarter, the ratio
of the Adjusted Annualized Operating Cash Flow for the period ending on such
day to the Debt Service for the four quarter period ending on such day.

Default Rate: a per annum rate equal to the applicable Base Rate in effect
plus 4.0% per annum.

Default Rate Period: a period of time commencing on the date that an
Event of Default has occurred and ending on the date that such Event of Default
is cured or waived.

Eligible Accounts: at any given time, the aggregate of the face amount of
the accounts receivable of each Borrower not over 75 days past due.

Employee Benefit Plan: any employee benefit plan within the meaning of
Section 3(3) of ERISA which (i) is maintained for employees of any
Borrower or any ERISA Affiliate or (ii) has at any time within the preceding
six years been maintained for the employees of any Borrower or any current or
former ERISA Affiliate.

Environmental Audit: (i) a Phase I audit report with respect to a parcel
of real estate and such other studies and reports as Agent deems
necessary after review of the results of such Phase I audit report, including,
if reasonably required by Agent, soil and ground water tests, each such report
and study to be in form and content and issued by Persons reasonably acceptable
to Agent and (ii) a letter from each Person issuing each such report or study
entitling Lenders to rely thereon.

Environmental Certificate: an environmental certificate executed by
Borrowers in form and substance reasonably satisfactory to Agent.

<PAGE> 8

Environmental Compliance Certificate: an Environmental Compliance
Certificate in the form of EXHIBIT 1.1(B).

Environmental Laws: any and all federal, state and local laws that relate
to or impose liability or standards of conduct concerning public or
occupational health and safety or protection of the environment, as now or
hereafter in effect and as have been or hereafter may be amended or
reauthorized, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), the
Hazardous Materials Transportation Act (42 U.S.C. Section 1802 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the
Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Toxic
Substances Control Act (15 U.S.C. Section 2601 et seq.), the Clean Air Act (42
U.S.C. Section 7901 et seq.), the National Environmental Policy Act (42 U.S.C.
Section 4231, et seq.), the Refuse Act (33 U.S.C. Section 407, et seq.), the
Safe Drinking Water Act (42 U.S.C. Section 300(f) et seq.), the Occupational
Safety and Health Act (29 U.S.C. Section 651 et seq.), and all rules,
regulations, codes, ordinances and guidance documents promulgated or published
thereunder, and the provisions of any licenses, permits, orders and decrees
issued pursuant to any of the foregoing.

Equity Interests: all of the outstanding capital stock of a corporation
and all of the membership interests of a limited liablity company.

ERC: as defined in the Preamble.

ERISA: the Employee Retirement Income Security Act of 1974, as amended,
any successor statute thereto, and the rules and regulations issued thereunder,
as in effect from time to time.

ERISA Affiliate: any Person who is a member of a group which is under
common control with any Borrower, who together with any Borrower is treated
as a single employer within the meaning of Section 414(b), (c) and (m) of the
Code.

Event of Default: any of the Events of Default set forth in Section 8.1.

Excess Cash Flow: for any period, (i) the consolidated Operating Cash
Flow of Borrowers for such period, (ii) plus, the Accounts Receivable
Decrease, if any, for such period and (iii) minus, the sum of the following for
such period: (A) Debt Service actually paid during such period, (B) all cash
payments made by Borrowers during such period with respect to Capital
Expenditures permitted pursuant to subsection 7.6, (C) all expenditures made by
Borrowers during such period for Non-Funded Acquisitions and (D) the Accounts
Receivable Increase, if any, for such period.

Excess Interest: as defined in subsection 2.4.3.

Existing Debt: as defined in the Recitals.

<PAGE> 9

Existing Loan Agreement: as defined in the Recitals.

Funded Acquisition: an Acquisition that is funded with an Advance.

Funding Date: the date of the disbursement of an Advance.

Future Portion: the portion of the Additional Loans in excess of the
Initial Portion.

GAAP: generally accepted accounting principles as in effect from time to
time, which shall include but shall not be limited to the official
interpretations thereof by the Financial Accounting Standards Board or any
successor thereto.

Good Funds: United States Dollars available in Federal funds to (i)
FINOVA at or before 2:00 p.m., Phoenix time, on a Business Day and (ii) any
other Lender at the place and at or before the time designated in the written
direction delivered by such Lender to Borrowers pursuant to clause (ii) of
Section 2.11.2.

Governmental Body: any foreign, federal, state, municipal or other
government or any department, commission, board, bureau, agency, public
authority or instrumentality thereof or any court or arbitrator.

Hazardous Materials: any hazardous, toxic, dangerous or other waste,
substance or material defined as such in, regulated by or for purposes of any
Environmental Law.

Holding Companies: collectively, RMR Management Corp., Winnetka Investors,
Inc. and MCAP Investors, Inc., each a Delaware corporation.

Hurdle Amount: the monthly estimate of Borrowers' accrued interest on
the Principal Balance, as determined by Agent in its sole and absolute
discretion.

Incipient Default: any event or condition which, with the giving of notice
or the lapse of time, or both, would become an Event of Default.

Indebtedness: all liabilities, obligations and reserves, contingent or
otherwise, which, in accordance with GAAP, would be reflected as a
liability on a balance sheet or would be required to be disclosed in a
financial statement, including, without duplication: (i) Indebtedness for
Borrowed Money, (ii) obligations secured by any Lien upon Property, (iii)
guaranties, letters of credit and other contingent obligations and (iv)
liabilities in respect of unfunded vested benefits under any Pension Plan or in
respect of withdrawal liabilities incurred under ERISA by any Borrower or any
ERISA Affiliate to any Multiemployer Plan.

<PAGE> 10

Permitted Senior Indebtedness), (iii) in respect of rent or hire of
Property under Capitalized Leases or for the deferred purchase price of
Property, (iv) in respect of obligations under conditional sales or other title
retention agreements and (v) all guaranties of any or all of the foregoing.

Initial Portion: a portion of the Additional Loans in the amount of
$____________ to be disbursed on the Closing Date.

Instruments: collectively, the (i) Loan Instruments, (ii) Contribution
Agreement and (iii) Subordinated Debt Instruments.

Key Man Life Insurance: the life insurance on the lives of Brannen and
Davis required pursuant to subsection 6.6.1.

Landlord: a lessor under a lease of real property.

Landlord Consent and waiver: a landlord consent and waiver in the form of
EXHIBIT 1.1(D).

Leases: the leases of real property described in EXHIBIT 5.5.5.

Leasehold Property: any real estate which is the subject of a Lease under
which any Borrower is the lessee.

Lender Addition Agreement: an agreement executed by a Lender and an
Assignee pursuant to Section 9.1.

Lenders: FINOVA and each Assignee.

Lenders' Decisions: all determinations to be made by Lenders pursuant to
the terms of the Loan Instruments, including, without limitation, any
amendment or modification of any of the Loan Instruments, determinations with
respect to the declaration of Events of Default and acceleration of Borrowers'
Obligations or any other obligation of any Obligor, waivers of affirmative or
negative covenants or other provisions of the Loan Instruments, advancement of
funds pursuant to any of the Loan Instruments or the exercise of any rights or
remedies granted to Lenders or Agent pursuant to the terms of any of the Loan
Instruments.

Lien: any mortgage, pledge, assignment, lien, charge, encumbrance or
security interest of any kind, or the interest of a vendor or lessor under any
conditional sale agreement, Capitalized Lease or other title retention
agreement.

Loan: the Existing Debt and the Additional Loans.

Loan Agreement: this Amended and Restated Loan Agreement.

<PAGE> 11

Loan Assignment: the assignment by a Lender of (i) any portion of such
Lender's interest in Borrowers' Obligations and (ii) any of such Lender's
other rights under any of the Loan Instruments.

Loan Fee: the fee to be paid by Borrowers to FINOVA in accordance with
Section 2.7.

Loan Instruments:

(i) Loan Agreement;

(ii) Note;

(iii) Security Instruments;

(iv) Subordination Agreement;

(v) Closing Certificate;

(vi) Solvency Certificate;

(vii) Environmental Certificate;

(viii) Uniform Commercial Code financing statements delivered to Agent
prior to the Closing and any such statements required by Agent on or
after the Closing Date;

(ix) Acquisition Loan Instruments when delivered pursuant to this Loan
Agreement; and

(x) such other instruments and documents as Agent reasonably may
require in connection with the transactions contemplated by this Loan
Agreement.

Loan Year: a period of time from the Closing Date or any anniversary of
the Closing Date to the immediately succeeding anniversary of the Closing Date.

Lockboxes: the lockboxes identified in the Lockbox Account Agreement into
which all Cash Instruments received by any Borrower from an Account Debtor
shall be deposited.

Lockbox Accounts: the accounts identified in the Lockbox Account
Agreement which shall be credited for all Cash Instruments deposited in the
Lockboxes.

Lockbox Account Agreement: the Amended and Restated Restricted Lockbox
and Cash Collateral Accounts Agreement among Lenders, Borrowers and Lockbox
Bank of even date herewith, as hereafter amended.

<PAGE> 12

Lockbox Bank: shall mean American National Bank and Trust Company of
Chicago or any other financial institution acceptable to Lenders and Borrowers.

Manager: Brannen.

Material Adverse Effect: (i) a material adverse effect upon the business,
operations, Property or financial condition of any Borrower or (ii) a material
impairment of the ability of any Obligor to perform its obligations under any
Loan Instrument to which it is a party.

Maximum Rate: as defined in subsection 2.4.3.

Membership Interests: all of the outstanding membership interests,
warrants, options and other equity interests of SACC, MSG, ASMS and any
Permitted Subsidiary.

MSG: as defined in the Preamble.

Multiemployer Plan: any multiemployer plan as defined pursuant to
Section 3(37) of ERISA to which any Borrower or any ERISA Affiliate makes,
or accrues an obligation to make, contributions, or has made, or been obligated
to make, contributions within the preceding six years.

Non-Funded Acquisition: an Acquisition which is not funded with an
Advance, provided that immediately after such Acquisition, Borrowers have Cash
Equivalents of not less than $150,000.

Note: a promissory note in form and substance satisfactory to FINOVA in
the principal amount of $30,000,000 executed and delivered by Borrowers to
FINOVA to evidence the Loan, and any notes issued in substitution therefor
pursuant to subsection 9.1.3.

Obligor: any of the Obligors.

Obligors: collectively, Borrowers and the Holding Companies.

Operating Cash Flow: for any period for each Borrower, the net income of
such Borrower for such period:

(i) plus the sum of the following (without duplication), to the
extent deducted in determining such net income for such period:

(A) losses from sales, exchanges and other dispositions of
Property or other extraordinary losses not in the ordinary course of
business;

<PAGE> 13

(B) interest paid or accrued on Indebtedness, including,
without limitation, interest on Capitalized Leases that is imputed
in accordance with GAAP and any other Debt Service, except interest
paid during such period on the Subordinated Debt;

(D) income taxes which are accrued but not paid during such
period; and

(E) any non-cash compensation to employees of any Borrower
and any non-cash compensation to dealers of Borrowers in connection
with incentive programs; and

(ii) minus the sum of the following (without duplication), to the
extent included in determining net income for such period:

(A) gains from sales, transactions, exchanges and other
dispositions of Property or other extraordinary gains not in the
ordinary course of business; and

(B) proceeds of any insurance other than business
interruption insurance.

Operating Lease: any lease which, under GAAP, is not required to be
capitalized.

Original Loan Year: a Loan Year as defined in the Existing Loan
Agreement.

Participant: any Person to which a Lender sells or assigns a
Participation.

Participation: a sale or an assignment by a Lender of a participating
interest in (i) any portion of such Lender's interest in Borrowers'
Obligations and (ii) any of such Lender's rights under any of the Loan
Instruments.

PBGC: the Pension Benefit Guaranty Corporation or any Governmental Body
succeeding to the functions thereof.

Pension Plan: any Employee Benefit Plan, other than a Multiemployer
Plan, which is subject to the provisions of Part 3 of Title I of ERISA, Title
IV of ERISA, or Section 412 of the Code and which (i) is maintained for
employees of any Borrower or any ERISA Affiliate, or (ii) has at any time
within the preceding six years been maintained for the employees of any
Borrower or any of their current or former ERISA Affiliates.

Permitted Liens: any of the following Liens:

<PAGE> 14

(i) the Security Interests;

(ii) the Permitted Senior Indebtedness Liens;

(iii) Liens for taxes or assessments and similar charges, which
either are (A) not delinquent or (B) being contested diligently and
in good faith by appropriate proceedings, and as to which the applicable
Borrower has set aside reserves on its books which are satisfactory to
Agent;

(iv) statutory Liens, such as mechanic's, materialman's,
warehouseman's, carrier's or other like Liens, incurred in good faith
in the ordinary course of business, provided that the underlying
obligations relating to such Liens are paid in the ordinary course of
business, or are being contested diligently and in good faith by
appropriate proceedings and as to which the applicable Borrower has set
aside reserves on its books satisfactory to Agent, or the payment of which
obligations are otherwise secured in a manner reasonably satisfactory to
Agent;

(v) zoning ordinances, easements, licenses, reservations,
provisions, covenants, conditions, waivers or restrictions on the use of
Property and other title exceptions, in each case, that are reasonably
acceptable to Agent;

(vi) Liens in respect of judgments or awards with respect to which
no Event of Default would exist pursuant to subsection 8.1.6; and

(vii) Liens to secure payment of insurance premiums (A) to be paid
in accordance with applicable laws in the ordinary course of business
relating to payment of worker's compensation, or (B) that are required for
the participation in any fund in connection with worker's compensation,
unemployment insurance, old-age pensions or other social security
programs.

Permitted Prior Liens: any of the following Liens:

(i) the Permitted Senior Indebtedness Liens;

(ii) the Permitted Liens described in clauses (iii) and (iv) of the
definition of Permitted Liens that are accorded priority to the
Security Interests by law; and

(iii) the Permitted Liens described in clauses (v) and (vii) of the
definition of Permitted Liens, subject to the limitations set forth
therein.

Permitted Senior Indebtedness: Indebtedness, other than Borrowers'
Obligations, incurred by any Borrower to purchase tangible personal
property or Indebtedness incurred to lease tangible personal property pursuant
to Capitalized Leases, provided that (i) the aggregate amount

<PAGE> 15

of such Indebtedness of all Borrowers at any one time outstanding shall not
exceed $200,000, and (ii) no Event of Default exists at the time or will be
caused as a result of the incurrence of any Indebtedness described in clause
(i).

Permitted Senior Indebtedness Liens: Liens that secure Permitted Senior
Indebtedness, provided that (i) each such Lien attaches only to the
Property purchased or leased with the proceeds of the Permitted Senior
Indebtedness incurred with respect to such Property and (ii) Agent is granted a
Lien upon such Property, subject only to the Lien granted to the holder of the
applicable Permitted Senior Indebtedness.

Permitted Subsidiary: any Subsidiary (i) the Equity Interests of which
are the subject of a proposed Acquisition or which is formed to consummate such
Acquisition and (ii) the Equity Interests of which will be wholly owned by SAI
upon the consummation of such Acquisition, provided that Borrowers and such
Subsidiary (A) execute and deliver to Agent all applicable Acquisition Loan
Instruments in connection with such Acquisition and (B) satisfy the applicable
requirements of Section 4.2.

Person: any individual, firm, corporation, limited liability company,
business enterprise, trust, association, joint venture, partnership,
Governmental Body or other entity, whether acting in an individual, fiduciary
or other capacity.

Pledge Agreement: the Amended and Restated Pledge Agreement of even date
herewith executed by the Obligors pursuant to which Agent is granted a Lien
upon the Membership Interests and the Pledged Capital Stock, as hereafter
amended.

Pledged Capital Stock: all of the issued and outstanding capital stock,
warrants, options and other equity interests of AMJ, ERC and any Permitted
Subsidiary which is a corporation.

Prepayment Premium: defined in subsection 2.9.1(a).

Principal Balance: the unpaid principal balance of the Loan or any
specified portion thereof outstanding from time to time.

Property: all types of real, personal or mixed property and all types of
tangible or intangible property.

Qualified Depository: a member bank of the Federal Reserve System having
a combined capital and surplus of at least $100,000,000.

Remainder Funds: defined in subsection 2.11.1(b).

RMR: the amount payable on Security Monitoring Contracts or Central
Station Contracts per month by an Account Debtor.

<PAGE> 16

Rubin: Steven Rubin.

SAI: as defined in the Preamble.

Securities Act: the Securities Act of 1933, as amended, or any similar
Federal statute, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder, as in effect from time to time.

Security Agreement: the Amended and Restated Security Agreement executed
by Borrowers in favor of Agent of even date herewith, as hereafter amended.

Security Interests: the Liens in the Collateral granted to Agent pursuant
to the Security Instruments and any other document now or hereafter
executed by any Obligor which purports to grant a Lien on the Property of such
Obligor in favor of Agent.

Security Instruments: collectively, the Assignment of Leases, the
Assignments of Key Man Life Insurance, the Assignments of Acquisition
Instruments, the Security Agreement, the Pledge Agreement and the Lockbox
Account Agreement.

Security Monitoring Business: the business of providing remote
security monitoring services and operating Central Station Businesses.

Security Monitoring Contracts: any contract between MSG and a retail
customer involving the provision of remote security monitoring services to
such customer.

Solvency Certificate: a solvency certificate executed by Borrowers in
form and substance reasonably satisfactory to Agent.

Stated Rate: as defined in subsection 2.4.3.

Subordinated Debt: the Indebtedness in the principal amount of $5,000,000
owed by SAI to TJS Partners, as evidenced by the Subordinated Debt Instruments.

Subordinated Debt Instruments: all instruments and documents executed
and/or delivered in connection with the Subordinated Debt.

Subordination Agreement: the Amended and Restated Subordination Agreement
among Agent, TJS Partners and SAI of even date herewith.

Subsidiary: a corporation or a limited liability company which is not a
Borrower.

Termination Event: (i) a "Reportable Event" described in Section 4043 of
ERISA and the regulations issued thereunder; or (ii) the withdrawal of
any Borrower or any ERISA Affiliate from a Pension Plan during a plan year in
which it was a "substantial employer" as defined in

<PAGE> 17

Section 4001(a)(2); or (iii) the termination of a Pension Plan, the filing of
a notice of intent to terminate a Pension Plan or the treatment of a Pension
Plan amendment as a termination under Section 4041 of ERISA; or (iv) the
institution of proceedings to terminate, or the appointment of a trustee with
respect to, any Pension Plan by the PBGC; or (v) any other event or condition
which would constitute grounds under Section 4042(a) of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension
Plan; or (vi) the partial or complete withdrawal of any Borrower or any ERISA
Affiliate from a Multiemployer Plan; or (vii) the imposition of a lien pursuant
to Section 412 of the Code or Section 302 of ERISA; or (viii) any event or
condition which results in the reorganization or insolvency of a Multiemployer
Plan under Sections 4241 or 4245 of ERISA; or (ix) any event or condition which
results in the termination of a Multiemployer Plan under Section 4041A of ERISA
or the institution by the PBGC of proceedings to terminate a Multiemployer Plan
under Section 4042 of ERISA.

TJS Partners: TJS Partners, L.P., a New York limited partnership.

Total Debt: as of any date, the sum of Borrowers' Obligations and Dealer
Holdback Debt as of such date.

UL Certification: underwriters laboratories approval of a Central Station
Business.

Unused Commitment Fee: the fee to be paid by Borrowers to FINOVA in
accordance with Section 2.8.

1.2. TIME PERIODS. In this Loan Agreement and the other Loan Instruments,
in the computation of periods of time from a specified date to a later
specified date, (i) the word "from" means "from and including," (ii) the words
"to" and "until" each mean "to, but excluding" and (iii) the words "through,"
"end of" and "expiration" each mean "through and including." Unless otherwise
specified, all references in this Loan Agreement and the other Loan Instruments
to (i) a "month" shall be deemed to refer to a calendar month, (ii) a "quarter"
shall be deemed to refer to a calendar quarter and (iii) a "year" shall be
deemed to refer to a calendar year.

1.3. ACCOUNTING TERMS AND DETERMINATIONS. All accounting terms not
specifically defined herein shall be construed, all accounting determinations
hereunder shall be made and all financial statements required to be delivered
pursuant hereto shall be prepared in accordance with GAAP as in effect at the
time of such interpretation, determination or preparation, as applicable. In
the event that any "Accounting Changes" (as hereinafter defined) occur and such
changes result in a change in the method of calculation of financial covenants,
standards or terms contained in this Loan Agreement, then Borrowers and Lenders
agree to enter into negotiations to amend such provisions of this Loan
Agreement so as to reflect such Accounting Changes with the desired result that
the criteria for evaluating the financial condition of Borrowers shall be the
same after such Accounting Changes as if such Accounting Changes had not been
made. For purposes hereof, "Accounting Changes" shall mean (i) changes in
generally accepted accounting principles required by the promulgation of any
rule, regulation, pronouncement or opinion by the Financial Accounting
Standards Board of the American Institute of Certified Public Accountants

<PAGE> 18

(or any successor thereto) or other appropriate authoritative body and (ii)
changes in accounting principles as approved by the Accountants.

1.4. REFERENCES. All references contained in (i) this Loan Agreement to
"Article," "Section," "subsection," "subparagraph," "clause" or "Exhibit,"
unless otherwise indicated, shall be deemed to refer to an Article, Section,
subsection, subparagraph, clause or Exhibit, as applicable, of this Loan
Agreement, and (ii) any Loan Instrument to any Loan Instrument at any given
time shall be to such Loan Instrument as the same shall have been amended,
supplemented, restated or otherwise modified as of such time.

1.5. LENDER'S OR AGENT'S DISCRETION. Whenever the terms "satisfactory to
Lenders or Agent," "determined by Lenders or Agent," "acceptable to Lenders or
Agent," "Lenders or Agent shall elect," "Lenders or Agent shall request," "at
the option or election of Lenders or Agent," or similar terms are used in the
Loan Instruments, except as otherwise specifically provided therein, such terms
shall mean satisfactory to, at the election or option of, determined by,
acceptable to or requested by Lenders or Agent, as applicable, in their or its
sole and unlimited discretion.

1.6. BORROWERS' KNOWLEDGE. Any statements, representations or warranties
that are based upon the best knowledge of Borrowers or an officer or manager
thereof shall be deemed to have been made after due inquiry by Borrowers or an
officer or manager, as applicable, with respect to the matter in question.

ARTICLE
2.
LOAN AND TERMS OF PAYMENT

2.1. INITIAL PORTION.

2.1.1. AMOUNT AND DISBURSEMENT. The Initial Portion shall consist
of a disbursement to be made by Agent to Borrowers in the amount of
$__________ on the Closing Date, provided that all of the terms and conditions
set forth in Section 4.1 have been satisfied.

2.1.2. USE OF PROCEEDS. The proceeds of the Initial Portion shall
be used (i) to consummate a Funded Acquisition, (ii) to pay transaction costs
and (iii) for working capital.

2.2. FUTURE PORTION.

2.2.1. AMOUNT AND DISBURSEMENT. The Future Portion shall consist of
Advances to be made by Lenders to Borrowers up to the maximum amount of
$____________ from time to time after the Closing Date until the end of the
first Loan Year, provided that all of the terms and conditions set forth in
subsection 2.2.3 have been satisfied.

<PAGE> 19

2.2.2. USE OF PROCEEDS. The proceeds of the Future Portion shall
be used to (i) consummate Funded Acquisitions, (ii) pay SAI all or a portion
of the amount which SAI has advanced in connection with a Non-Funded
Acquisition and (iii) pay transaction costs.

2.2.3. CONDITIONS PRECEDENT TO ADVANCES. The obligation of each
Lender to make any Advance shall be subject to the satisfaction of the
following conditions:

(A) no Incipient Default or Event of Default exists or would be
created by the disbursement of such Advance;

(B) each such Advance shall be in a minimum amount of $250,000 and
integral multiples of $50,000 in excess of that amount;

(C) Agent shall have received a Request for Advance from Borrowers
in the form of EXHIBIT 2.2.3 with respect to each such Advance no later
than 12:00 p.m., Chicago time, at least five (5) Business Days prior to
the proposed Funding Date with respect to such Advance, which Funding
Date shall be on a Business Day;

(D) the terms and conditions of Sections 4.2 and 4.3 shall have
been satisfied;

(E) the Property which has been or is being acquired and the terms
and conditions of the Acquisition to be consummated with such Advance
must be approved by Agent; and

(F) on the applicable Funding Date the representations and
warranties of each Obligor set forth in the Loan Instruments to which
such Obligor is a party shall be true and correct in all material respects
when made and at and as of the time of the Funding Date, except to the
extent that such representations and warranties expressly relate to an
earlier date.

2.3. NOTE AND REBORROWING.

2.3.1. NOTE. The Loan shall be evidenced by the Note.

2.3.2. REBORROWING. Borrowers shall not be entitled to reborrow any
portion of the Loan which is repaid or prepaid.

2.4. INTEREST.

2.4.1. INTEREST RATE. Except during a Default Rate Period as
provided in Section 2.10, Borrowers' Obligations shall bear
interest at the Base Rate in effect from time to time plus the Applicable
Margin. The "Applicable Margin" for any quarter shall be the percentage
set forth below opposite the Applicable Margin Ratio, determined as of the
last day of the second quarter immediately preceding such quarter:

<PAGE> 20

Applicable Applicable
Margin Ratio Margin
------------ ----------
<S> <C>
greater than 2.00%
or equal to 3.5

greater than 1.75%
or equal to 2.5
but less than 3.5

less than 2.5 1.50%
</TABLE>

The Applicable Margin shall be 2.00% per annum until Lenders receive (i)
written notice from Borrowers requesting an adjustment in the Applicable Margin
accompanied by (ii) the financial statements indicating that the requested
adjustment is appropriate.

2.4.2. INTEREST COMPUTATION. Interest shall be computed on the
basis of a year consisting of 360 days and charged for the actual number
of days during the period for which interest is being charged. In computing
interest, the date of funding of an advance of the Loan shall be included and
the date of payment shall be excluded.

2.4.3. MAXIMUM INTEREST. Notwithstanding any provision to the
contrary contained herein or in any other Loan Instrument, Lenders shall
not collect a rate of interest on any obligation or liability due and owing by
Borrowers to Lenders in excess of the maximum contract rate of interest
permitted by applicable law ("Excess Interest"). Lenders and Borrowers agree
that the interest laws of the State of Arizona govern the relationship among
them, but in the event of a final adjudication to the contrary, Borrowers shall
be obligated to pay, nunc pro tunc, to Lenders only such interest as then shall
be permitted by the laws of the state found to govern the contract relationship
among Lenders and Borrower. If any Excess Interest is provided for or
determined by a court of competent jurisdiction to have been provided for in
this Loan Agreement or any other Loan Instrument, then in such event (i) no
Obligor shall be obligated to pay such Excess Interest, (ii) any Excess
Interest collected by Lenders shall be, at Lenders' option, (A) applied to the
Principal Balance or to accrued and unpaid interest not in excess of the
maximum rate permitted by applicable law or (B) refunded to the payor thereof,
(iii) the interest rates provided for herein (collectively, the "Stated Rate")
shall be automatically reduced to the maximum rate allowed from time to time
under applicable law (the "Maximum Rate") and this Loan Agreement and the other
Loan Instruments, as applicable, shall be deemed to have been, and shall be,
modified to reflect such reduction, and (iv) neither any Borrower nor any other
Obligor shall have any action against Lenders for any damages arising out of
the payment or collection of such Excess Interest; provided, however, that if
at any time thereafter the Stated Rate is less than the Maximum Rate, Borrowers
shall, to the extent permitted by law, continue to pay interest at the Maximum
Rate until such time as the total interest received by Lenders is

<PAGE> 21

equal to the total interest which Lenders would have received had the Stated
Rate been (but for the operation of this provision) the interest rate payable.
Thereafter, the interest rate payable shall be the Stated Rate unless and until
the Stated Rate again exceeds the Maximum Rate, in which event the provisions
contained in this subsection 2.4.3 shall again apply.

2.5. PRINCIPAL AND INTEREST PAYMENTS.

2.5.1. INTEREST. Except as otherwise provided in subsections
2.9.1(c) and 2.9.2(c), interest on the Principal Balance shall be payable
monthly in arrears on the first Business Day of each month beginning with the
month following the month in which the Closing Date occurs. PRINCIPAL. The
Principal balance shall be payable in consecutive quarterly installments on the
first Business Day of each quarter set forth below in an amount equal to the
product of (i) the percentage set forth below opposite such quarter, multiplied
by (ii) the outstanding Principal Balance as of the end of the first Loan Year
as follows:

<TABLE>
<CAPTION>
Percentage of Outstanding
Principal Balance as of end
of first Loan Year Due as
Quarter Beginning an Installment
----------------- --------------
<S> <C>
April, 1999 2.5%
July, 1999 2.5%
October, 1999 2.5%
January, 2000 2.5%
April, 2000 4.0%
July, 2000 4.0%
October, 2000 4.0%
January, 2001 4.0%
April, 2001 5.0%
July, 2001 5.0%
October, 2001 5.0%
January, 2002 5.0%
April, 2002 5.5%
July, 2002 5.5%
October, 2002 5.5%

</TABLE>

The remaining Principal Balance, together with any other sums which then
are due and payable pursuant to the terms of the Loan Instruments, shall
be due and payable in full on the last Business Day of the quarter
commencing October, 2002.

2.6. LATE CHARGES. If a payment of principal or interest to be made
pursuant to this Loan Agreement becomes past due for a period in excess of
five days, Borrowers shall pay on demand to Lenders a late charge of 2% of the
amount of such overdue payment.

<PAGE> 22

2.7. LOAN FEE. Borrowers shall pay a loan fee to FINOVA in the amount of
$222,000, which shall be deemed to be fully earned and payable on the Closing
Date.

2.8. UNUSED COMMITMENT FEE. For the first Loan Year, Borrowers shall pay
to Agent a fee (the "Unused Commitment Fee") monthly in arrears on the first
Business Day of each month beginning with the month following the month in
which the Closing Date occurs in an amount equal to the product of (i) (A)
$30,000,000 minus (B) the average daily balance of the outstanding Principal
Balance during such preceding month, multiplied by (ii) one-half of one percent
(.50%) on a per annum basis. The Unused Commitment Fee expires at the end of
the first Loan Year.

2.9. PREPAYMENTS.

2.9.1. VOLUNTARY PREPAYMENT OF LOAN. Borrowers may at any time
voluntarily prepay in whole or in part the Principal Balance, subject to
the following conditions:

(A) PREPAYMENT PREMIUM. Except as provided in subsection
2.9.3, concurrently with any voluntary prepayment of all or any part
of the Principal Balance, Borrowers shall pay to Lenders a prepayment
premium (the "Prepayment Premium") equal to a percentage of the amount of
the Principal Balance prepaid, determined in accordance with the following
schedule:

<TABLE>
<CAPTION>
Percentage of Principal
Period of Prepayment Balance Prepaid
-------------------- ---------------
<S> <C>
First Original Loan Year 4.0%
Second Original Loan Year 3.0%
Third Original Loan Year 2.0%
Fourth Original Loan Year 1.0%
Thereafter 0.0%

</TABLE>

(B) NOTICE OF PREPAYMENT; NUMBER AND AMOUNT OF PREPAYMENTS.
Not less than 20 days prior to the date upon which Borrowers desire
to make any voluntary prepayment of the Principal Balance, Borrowers
shall deliver to Lenders notice of their intention to prepay, which
notice shall state the prepayment date and the amount of the
Principal Balance to be prepaid. The amount of any partial prepayment
of the Principal Balance shall be not less than $100,000 or integral
multiples thereof. A prepayment of the Principal Balance shall not be
made more frequently than once a month. If Borrowers deliver to
Lenders a notice of prepayment and fail to make such prepayment,
Borrowers shall reimburse Lenders on demand in the amount of any
loss, cost and/or expense reasonably incurred by Lenders as a result
of Lenders' reliance on such notice, including without limitation,
any loss, cost or expense resulting from Lenders'

<PAGE> 23

contractual obligations in connection with the reinvestment of the
amount indicated in such notice of prepayment.

(C) ADDITIONAL PAYMENTS. Concurrently with any prepayment
of the Principal Balance pursuant to this subsection 2.9.1,
Borrowers shall pay to Lenders accrued and unpaid interest on the
PORTION of the Principal Balance which is being prepaid to the date
on which Lenders are in receipt of Good Funds, and any other sums
which are due and payable pursuant to the terms of any of the Loan
Instruments.

(D) APPLICATION OF PARTIAL PREPAYMENTS. Any partial
prepayment of the Principal Balance pursuant to this subsection 2.9.1
shall be applied to the installments of the Principal Balance in the
inverse order of maturity.

2.9.2. MANDATORY PREPAYMENTS OF THE LOAN.

(A) EXCESS CASH FLOW PAYMENTS. Until the Loan is paid in
full, for each year commencing with the year 1998 Borrowers shall
pay to Lenders not later than the earlier of (x) 30 days after
receipt by Lenders OF THE BASIC FINANCIAL STATEMENTS FOR SUCH YEAR
AND (Y) 120 DAYS AFTER THE END OF such year, an amount equal to the
lesser of (i) 75% of the Excess Cash Flow for such year and (ii) the
amount by which the Cash Equivalents as of the date such payment is
to be made exceeds $300,000.

(B) PROCEED OF KEY MAN LIFE INSURANCE. All proceeds of Key
Man Life Insurance received by Agent shall be applied as a
PREPAYMENT of Borrowers' Obligations in accordance with subparagraph
(c) below.

(C) APPLICATION OF MANDATORY PREPAYMENTS. Prepayments
received by Lenders pursuant to this subsection 2.9.2 shall be
applied in the following order of priority to the payment of: (i)
any and all sums which are due and payable pursuant to the terms of
the Loan Instruments, EXCEPT the Principal Balance and accrued
interest thereon, (ii) accrued and unpaid interest on the portion of
the Principal Balance being prepaid and (iii) the installments of the
Principal Balance in the inverse order of maturity.

2.9.3. NO PREPAYMENT PREMIUM. No Prepayment Premium shall be
payable with respect to prepayments pursuant to subsection 2.9.2.

2.9.4. INVOLUNTARY PREPAYMENT. Concurrently with any payment of the
Principal Balance received by Lenders resulting from the exercise by
Agent and/or Lenders of any remedy available to Agent and/or Lenders
subsequent to the occurrence of an Event of Default and the
acceleration of Borrowers' Obligations, Borrowers shall pay to
Lenders a Prepayment Premium in an amount

<PAGE> 24

equal to the Prepayment Premium which would be payable if such
payment was made pursuant to subsection 2.9.1.

2.10. DEFAULT RATE PERIOD. During a Default rate period, (i) Borrowers'
Obligations shall bear interest at the Default Rate and (ii) all payments
received by Lenders shall be applied in accordance with Section 8.4.

2.11. METHOD OF PAYMENT.

2.11.1. LOCKBOXES AND LOCKBOX ACCOUNTS; PAYMENTS; APPLICATION OF
FUNDS.

(A) MAINTENANCE OF LOCKBOXES AND LOCKBOX ACCOUNTS. Borrowers
shall maintain at Lockbox Bank the Lockboxes and Lockbox
Accounts. The Lockboxes and Lockbox Accounts shall be under the
sole dominion and control of Agent and no Borrower shall have any
right of withdrawal therefrom. Promptly after the Closing Date, each
Borrower which has not previously done so shall notify such
Borrower's Account Debtors under Security Monitoring Contracts that
all payments shall be made directly to the applicable Lockbox or, if
by wire transfer, to the applicable Lockbox Account. All items
deposited in the applicable Lockbox shall be credited to the Lockbox
Account.

(B) HURDLE AMOUNT. On the first Business Day of each month,
Agent shall notify Lockbox Bank of the Hurdle Amount for such
month. Upon the opening of business on each Business Day of each
month, Lockbox Bank shall calculate the amount of collected funds on
deposit in the Lockbox Accounts for such month (the "Collected
Funds"). For each month, beginning with the second Business Day
following the Business Day on which the Lockbox Bank has determined
that the Collected Funds exceed the Hurdle Amount for such month
(the amount of such excess hereinafter is referred to as the
"Remainder Funds"), Lockbox Bank shall remit the Remainder Funds to
Borrowers until the end of such month.

(C) MONTHLY PAYMENTS FROM THE LOCKBOX. Beginning WITH the first
Business Day of the month following the month in which the Closing
occurs, Lockbox Bank shall remit the Hurdle Amount to Agent in Good
Funds prior to 1:00 P.M. Chicago time for application to Borrowers'
Obligations in the following order of priority: (i) first, to the
payment of all Borrowers' Obligations then due and payable other
than the Principal Balance and accrued and unpaid interest thereon,
and (ii) second, to the payment of accrued and unpaid interest then
due and payable on the Principal Balance. If no Event of Default
or Incipient Default then exists, the remainder, if any, shall be
remitted to Borrowers. If an Event of Default exists such
remainder may, at the option of Agent, be applied in accordance
with Section 8.4.

<PAGE> 25

(D) CASH INSTRUMENTS RECEIVED BY BORROWERS. At the CLOSE of each
Business Day following the Closing Date, each Borrower shall
transmit, in the form received, all Cash Instruments received by
such Borrower since the close of business on the preceding Business
Day to the applicable Lockbox or directly to the Lockbox Bank for
deposit in the applicable Lockbox Account. All Cash Instruments
received by each Borrower shall be held in express trust for
Lenders until delivery thereof is made to the applicable Lockbox or
the Lockbox Bank for deposit in the applicable Lockbox Account and
shall not be commingled with any other Property of such Borrower.

2.11.2. OTHER PAYMENTS. All payments other than those specified in
subsection 2.11.1 to be made pursuant to the Loan Instruments by
Borrowers to (i) FINOVA shall be made by wire transfer of Good Funds to
the account of FINOVA at Citibank, N.A., 399 Park Avenue, New York, New
York, ABA 021000089, Credit: FINOVA Capital Corporation, Credit Account
No. 40680477, or to such other account as FINOVA shall have given five
Business Days prior written notice to Borrowers, and (ii) any other
Lender shall be made by wire transfer of Good Funds to such account as
such Lender shall notify Borrowers.

ARTICLE
3.
SECURITY

Borrowers' Obligations shall be secured by a Lien upon all of the
Collateral, which at all times shall be superior and prior to all other Liens,
except Permitted Prior Liens.

ARTICLE
4.
CONDITIONS OF CLOSING AND ACQUISITIONS

4.1. INITIAL PORTION. The obligation of FINOVA to disburse the Initial
Portion shall be subject to the satisfaction of all of the following conditions
on or before the Closing Date in a manner, form and substance reasonably
satisfactory to FINOVA:

4.1.1. REPRESENTATIONS AND WARRANTIES. On the Closing Date the
representations and warranties of each Obligor set forth in the
Instruments to which such Obligor is a party shall be true and correct in
all material respects.

4.1.2. DELIVERY OF DOCUMENTS. The following shall have been
delivered to FINOVA, except to the extent previously delivered to FINOVA,
each duly authorized and executed, where applicable:

(A) the Loan Instruments;

<PAGE> 26

(B) a good standing or similar certificate, dated a recent date
prior to the Closing Date, for each Borrower from the Secretary of State
in each state in which such Borrower organized or is qualified to transact
business;

(C) copies of (i) the articles of ORGANIZATION and any amendments
thereto of ASMS, SACC and MSG, certified by the Secretary of State of
their respective states of organization, as of a recent date prior to the
Closing Date, (ii) the articles of incorporation and all amendments
thereto of SAI, AMJ and ERC and each of the Holding Companies, certified
by the Secretary of State of their respective states of incorporation as
of a recent date prior to the Closing Date, and (iii) the following, each
certified by the Manager or President of the applicable Borrower, as
applicable: (A) the operating agreements of each of ASMS, SACC and MSG,
(B) all other agreements among the holders of any Membership Interests,
(C) the by-laws of SAI, AMJ, ERC and each of the Holding Companies and (D)
all agreements among the shareholders of SAI, AMG and ERC;

(D) certified copies of resolutions ADOPTED by the board of
directors of each of SAI, AMJ and ERC authorizing the execution and
delivery of the Instruments to which each such Person is a party;

(E) certified copies of a CONSENT of the Manager and the members
of each of ASMS, SACC and MSG authorizing the execution and delivery of
each Instrument to which each such Person is a party.

(F) signature and incumbency CERTIFICATES of the members or
Manager of ASMS, SACC and MSG and the President of SAI executing any of
the Loan Instruments on behalf of such Persons;

(G) certified or executed original copies of each of the
following, the terms ad conditions of all of which shall be satisfactory
to FINOVA:

(i) the Contribution Agreement;

(ii) the Leases not previously delivered to FINOVA;

(iii) the Subordinated Debt Instruments; and

(iv) all instruments and documents evidencing Permitted
Senior Indebtedness existing as of the Closing Date; and

(H) such other instruments, documents, certificates, consents,
waivers and opinions as FINOVA may reasonably request; and

<PAGE> 27

4.1.3. PERFORMANCE; NO DEFAULT. Each Obligor shall have, in all
material respects, performed and complied with all agreements and
conditions contained in the Instruments to be performed by or complied
with by such Person prior to or at the Closing, and no Event of Default or
Incipient Default then shall exist.

4.1.4. OPINIONS OF COUNSEL; DIRECTION FOR DELIVERY. FINOVA shall have
received an opinion dated the Closing Date from Howard Schickler,
in-house counsel to the Obligors, addressed to FINOVA, as a Lender and as
Agent, in such form and covering such matters as FINOVA may require.

4.1.5. APPROVAL OF INSTRUMENTS AND SECURITY INTERESTS. FINOVA shall
have received evidence that the approval or consent shall have been
obtained from all Governmental Bodies and all other Persons whose approval
or consent is required to enable (i) each Obligor to enter into and
perform their respective obligations under the Instruments to which each
such Person is a party and (ii) each Obligor to grant to Agent the
Security Interests contemplated in the Instruments to which such Obligor
is a party.

4.1.6. SECURITY INTERESTS. All filings of Uniform Commercial Code
financing statements and all other filings and actions necessary to
perfect and maintain the Security Interests as first, valid and perfected
Liens in the Property covered thereby, subject only to Permitted Prior
Liens, shall have been filed or taken and FINOVA shall have received such
UCC, state and federal tax Lien, pending suit, judgment and other Lien
searches as it deems necessary to confirm the foregoing.

4.1.7. MATERIAL ADVERSE CHANGE. No event shall have occurred which
has had or reasonably could be expected to have a Material Adverse
Effect since the end of the most recent period for which Borrowers have
delivered to FINOVA financial statements pursuant to Section 6.3.1 of the
Existing Loan Agreement.

4.1.8. PROCEEDINGS AND DOCUMENTS. All corporate, limited liability
company and other proceedings in connection with the transactions
contemplated by the Instruments and all documents and instruments incident
to such transactions shall be reasonably satisfactory to FINOVA, and
FINOVA shall have received all such counterpart originals or certified or
other copies as FINOVA may reasonably request.

4.1.9. USE OF ASSETS. FINOVA shall be reasonably satisfied that
Borrowers at all times shall be entitled to the use and quiet enjoyment
of all Property necessary for the continued ownership and operation of the
Security Monitoring Business conducted by Borrowers, including, without
limitation, the use of equipment, fixtures, licenses, offices and means of
ingress and egress thereto, and any easements or rights-of-way necessary
to reach any equipment or other items necessary for the operation of such
Security Monitoring Business.

<PAGE> 28

4.1.10. BROKER FEES. If the services of a broker or other agent
have been used in connection with the Loan, all fees owed to such broker
or agent shall have been paid by Borrowers and FINOVA shall have received
evidence of such payment.

4.1.11. LANDLORD CONSENT AND WAIVER. FINOVA shall have received a
Landlord Consent and Waiver from each Landlord under each Lease
designated by Agent.

4.1.12. INSURANCE. At least three Business Days prior to the
Closing Date Borrowers shall have delivered to FINOVA evidence
satisfactory to FINOVA that all insurance coverage required pursuant to
Section 6.6 is in full force and effect and all premiums then due thereon
have been paid in full.

4.1.13. ENVIRONMENTAL AUDIT. At the request of Agent, Agent shall
have received an Environmental Audit with respect to any real estate
which is the subject of a Lease.

4.1.14. PAYMENT OF FEES AND EXPENSES. Borrowers shall have paid
the Loan Fee and all fees and expenses described in subsection 11.1.1
incurred in connection with the Loan.

4.1.15. SECURITY MONITORING CONTRACTS. FINOVA shall have received a
certified copy of the assignment assigning all the Security Monitoring
Contracts owned by SAI to MSG prior to or on the Closing Date.

4.1.16 UL CERTIFICATIONS. Agent shall have received (i) certified
copies of the UL Certifications which are necessary for the operation
of Borrowers' Security Monitoring Business and (ii) evidence that (A) such
UL Certifications are in full force and effect as of the Closing Date and
(B) no event has occurred which could result in the termination,
revocation or non-renewal of any such UL Certification.

4.1.17. ALARM LICENSES. Agent shall have received (i) certified
copies of the Alarm Licenses which are necessary for the operation of
Borrowers' Security Monitoring Business and (ii) evidence that (A) such
Alarm Licenses are in full force and effect as of the Closing Date and (B)
no event has occurred which could result in the termination, revocation or
non-renewal of any such Alarm License.

4.1.18. ADJUSTED COVENANT LEVERAGE RATIO. Agent shall have
received evidence that the Adjusted Covenant Leverage Ratio shall not
exceed 4.00:1 as calculated as of the Funding Date.

4.1.19. RMR. Agent shall have received evidence that the Adjusted
Total Debt as of the Closing Date does not exceed the sum of (i) 22
times the RMR for Security Monitoring Contracts which are owned by
Borrowers on the Closing Date and (ii) 12

<PAGE> 29

times the RMR for Central Station Contracts which are owned by Borrowers
on the Closing Date.

4.2. ALL ACQUISITIONS. The right of any Borrower to make an Acquisition
shall be subject to the satisfaction of all of the following conditions in a
manner reasonably satisfactory to Agent:

4.2.1. CONSUMMATION OF ACQUISITIONS. Prior to or concurrently with
each Acquisition Closing, Agent shall have received evidence that
(i) such Acquisition is in accordance with the terms of the applicable
Acquisition Instruments with such modifications as are reasonably
satisfactory to Agent and (ii) (A) the Borrower consummating such
Acquisition will acquire concurrently with the Acquisition Closing, good
and marketable title to the Property which is the subject to such
Acquisition and (B) if the subject of such Acquisition is a Subsidiary,
such Subsidiary will on the Acquisition Closing Date own good and
marketable title to all of its Property, in each case free and clear of
all Liens and Indebtedness, except the Dealer Holdback Debt.

4.2.2. DELIVERY OF DOCUMENTS. The following shall have been
delivered to FINOVA, each duly authorized and executed where applicable:

(A) the Acquisition Loan Instruments;

(B) all documents required to make any Subsidiary which is the
subject of an Acquisition a Permitted Subsidiary, and if such
Subsidiary is a corporation, the certificates representing all of the
capital stock of such Subsidiary and stock powers for each
certificate in form acceptable to FINOVA;

(C) such certificates of incumbency, good-standing and
corporate and limited liability company resolutions as Agent may
reasonably require in connection with such Acquisition;

(D) certified or executed original copies of each of the
following, the terms and conditions of all of which shall be
reasonably satisfactory to Agent:

(i) the applicable Acquisition Instruments; and

(ii) the Leases assumed or entered into by any Borrower in
connection with such Acquisition; and

(E) such other instruments, documents, certificates, consents,
waivers and opinions as Agent may reasonably require.

<PAGE> 30

4.2.3. OPINIONS OF COUNSEL. Agent shall have received such
opinions of counsel as Agent reasonably may require in connection
with such Acquisition and the Liens to be granted to Agent upon the
Property acquired in connection therewith.

4.2.4. UL CERTIFICATIONS. With respect to any Central Station
Business which is the subject of such Acquisition, Agent shall have
received evidence that the Borrower which will operate such Business has
acquired, or will ACQUIRE concurrently with the Acquisition Closing, the
UL Certification necessary for the operation of such Central Station
Business.

4.2.5. ALARM LICENSES. Agent shall have received (i) certified
copies of the Alarm Licenses which are necessary to own or operate the
Property which is the subject of such Acquisition and (ii) evidence that
(A) any transfer or assignment of such Alarm Licenses to the applicable
Borrower is final, (B) such Alarm LICENSES are in full force and effect as
of the Acquisition Closing Date and (C) no event has occurred which could
reasonably be expected to result in the termination, revocation or
non-renewal of any such Alarm License.

4.2.6. SECURITY INTEREST. Agent shall have received evidence that
it has or will acquire upon the Acquisition Closing Date a
perfected FIRST lien on all of the Property, and all the Property of any
Subsidiary, which is the subject of such Acquisition, in each case subject
only to Permitted Prior Liens.

4.2.7. ENVIRONMENTAL AUDIT. Agent shall have received an
Environmental Audit with respect to any real estate which is the
subject of an Acquisition and, at the request of Agent, any real estate
which is the subject of a Lease which is being assumed or entered into by
such Borrower in connection with such Acquisition.

4.2.8. INSURANCE; SURVEY. Borrower SHALL deliver to Agent such title
insurance and surveys with respect to each parcel of real estate being
acquired in connection with such Acquisition.

4.2.9. PAYMENT OF FEES. Borrowers SHALL have paid all fees and
expenses described in subsection 11.1.1 incurred in connection with such
Acquisition and any Advance made in connection therewith.

4.2.10. ACQUISITION OF A CENTRAL STATION BUSINESS. If the SUBJECT of
the Acquisition is a Central Station Business, SAI or a Permitted
Subsidiary are the only Persons permitted to consummate such Acquisition.

4.2.11. ACQUISITION OF SECURITY MONITORING CONTRACTS. If the SUBJECT
OF THE ACQUISITION IS SECURITY MONITORING CONTRACTS, MSG SHALL BE THE
BORROWER making such Acquisition.

<PAGE> 31

4.3 FUNDED ACQUISITIONS. In addition to the satisfaction of the
conditions set forth in Section 4.2, the right of any Borrower to make a Funded
Acquisition or to receive an Advance pursuant to Section 2.2 shall be subject
to the satisfaction of all of the following conditions in a manner reasonably
satisfactory to Agent:

4.3.1. FINANCIAL STATEMENTS, REPORTS AND PROJECTIONS. Agent shall
have received such financial statements, reports and projections with
respect to the operation of the business which is the subject of the
Funded Acquisition as Agent may reasonably require.

4.3.2. COMPLIANCE WITH APPLICABLE RATIO. As of the Funding Date,
after giving effect to such Funded Acquisition, the Adjusted Leverage
Ratio shall not exceed the Applicable RATIO as calculated as of such
date.

4.3.3. MAXIMUM TIMES RMR. The Adjusted Total Debt as of the
requested Funding Date shall not exceed the sum of (i) 22 times the RMR
for Security Monitoring Contracts which are (A) the subject of the Funded
Acquisition and (B) owned by Borrowers prior to the consummation of such
Funded Acquisition, and (ii) 12 times the RMR for Central Station
Contracts which are (A) the subject of the Funded Acquisition and (B)
owned by Borrowers prior to the consummation of such Funded Acquisition.

ARTICLE
5.
REPRESENTATIONS AND WARRANTIES

Each Borrower represents and warrants to Agent and Lenders as follows:

5.1. EXISTENCE AND POWER. Each Obligor is a corporation or limited
liability company duly formed and validly existing under the laws of the
state of its organization or incorporation. Each Obligor is in good standing
and qualified to transact business in each jurisdiction in which the failure so
to qualify could have a Material Adverse Effect. Each Obligor has all
requisite power and authority to own its Property and to carry on its business
as now conducted and as proposed to be conducted following the Closing Date.

5.2. AUTHORITY. Each Obligor has full power and authority to enter into,
execute, deliver and carry out the terms of the Instruments to which it is a
party and to incur the obligations provided for therein, all of which have been
duly authorized by all proper and necessary action and are not prohibited by
the organizational instruments of such Obligor.

5.3. CAPITAL STOCK, MEMBERSHIP INTERESTS AND RELATED MATTERS.

5.3.1. CAPITALIZATION. There is set forth in EXHIBIT 5.3.1 a complete
description of the Equity Interests of each Obligor other than SAI. All of the
Equity Interests of the

<PAGE> 32

Obligors are validly issued, fully paid and non-assessable, and
have been issued and sold in compliance with all applicable federal and
state laws, rules and regulations, including, without limitation, all
so-called "Blue-Sky" laws, excepting only possible instances of
noncompliance which in the aggregate are not material. The Equity
Interests of the Obligors other than SAI are owned beneficially and of
record by the Persons and in the respective percentages set forth on
EXHIBIT 5.3.1, and are free and clear of all Liens except the Security
Interests.

5.3.2. RESTRICTIONS. Except as set forth on EXHIBIT 5.3.2, no Obligor
other than SAI (i) is a party to, or has knowledge of any agreements
restricting the transfer of the Equity Interests of any Obligor, except
the Loan Instruments, (ii) has issued any rights which can be convertible
into or exchangeable or exercisable for any of such Obligor's Equity
Interests, or any rights to subscribe for or to purchase, or any options
for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, any of such Obligor's Equity Interests or any
securities convertible into or exchangeable or exercisable for any of
such Obligor's Equity Interests and (iii) is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire
any of such Obligor's Equity Interests or any convertible rights or
options. No Obligor, except SAI is required to file or has filed,
pursuant to the Securities Act of 1933 or Section 12 of the Securities
Exchange Act of 1934, as amended, a registration statement relating to
any class of debt or equity securities and SAI has duly and timely made
all necessary filings.

5.4. BINDING AGREEMENTS. This Loan Agreement and the other Instruments,
when executed and delivered, will constitute the valid and legally binding
obligations of each Obligor to the extent such Obligor is a party thereto,
enforceable against such Obligor in accordance with their respective terms,
except as such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect affecting the enforcement of creditors' rights generally, and (ii)
equitable principles whether or not any action to enforce such document is
brought at law or in equity).

5.5. BUSINESS AND PROPERTY OF BORROWERS.

5.5.1. BUSINESS AND PROPERTY. Each Borrower is the owner of all
Property and the holder of all UL Certifications, Alarm Licenses,
Central Station Contracts and Security Monitoring Contracts necessary to
conduct such Borrower's Security Monitoring Business in the places where
it is now conducted. All of such UL Certifications, Alarm Licenses,
Central Station Contracts and Security Monitoring Contracts are in full
force and effect and no invalidity, default or breach exists thereunder.
There is set forth in EXHIBIT 5.5.1 a description of all UL Certifications
and Alarm Licenses which have been issued to any Borrower. Borrowers do
not engage or propose to engage in any business or activity other than the
Security Monitoring Business.

<PAGE> 33

5.5.2. FACILITY SITES. There is set forth in EXHIBIT 5.5.2 the
location of the chief executive office of each Borrower and the
locations all central station monitoring operations, offices and other
Property used in the operation of each Borrower's Security Monitoring
Business.

5.5.3. LEASES. There is set forth in EXHIBIT 5.5.3 a list of all
leases of real property under which any Borrower is the lessee, together
with a complete and accurate address and legal description of each such
parcel of Leasehold Property and the current Landlord under each Lease.
Each Lease is in full force and effect, there has been no material default
in the performance of any of its terms or conditions by any party thereto,
and no claims of default have been asserted with respect thereto. To the
best knowledge of Borrowers, the present and contemplated use of the
Leasehold Property is in material compliance with all applicable zoning
ordinances and regulations and other laws and regulations.

5.5.4. REAL ESTATE. No Borrower owns any real property.

5.5.5. OPERATION AND MAINTENANCE OF EQUIPMENT. To the best
knowledge of each Borrower, no Person owning or operating any
equipment necessary for the operation of Borrowers' Security Monitoring
Business has used, operated or maintained the same in a manner which now
or hereafter could result in the cancellation or termination of the right
of any Borrower to use or make use of the same or which could result in
any material liability of any Borrower for damages in connection
therewith. All of the equipment and other tangible personal property
owned by each Borrower on the Closing Date is, in all material respects,
in good operating condition and repair (subject to normal wear and tear)
and has to the best knowledge of each Borrower, been used, operated and
maintained in substantial compliance with all applicable laws, rules and
regulations.

5.6. TITLE TO PROPERTY; LIENS. Upon the Closing each Borrower shall have
(i) good and marketable title to all of its Property, except (A) any UL
Certification which cannot be transferred without the consent of a Governmental
Body and (B) the portion thereof consisting of a leasehold estate and (ii) a
valid leasehold estate in each portion of its Property which consists of a
leasehold estate. Upon the Closing, all of such Property shall be free and
clear of all Liens, except Permitted Liens. Upon the proper filing with the
appropriate Governmental Bodies of appropriate Uniform Commercial Code
financing statements, the applicable Loan Instruments will create valid and
perfected Liens in the Property described therein, subject only to Permitted
Prior Liens.

5.7. PROJECTIONS AND FINANCIAL STATEMENTS.

5.7.1. FINANCIAL STATEMENTS. Borrowers have delivered to FINOVA the
financial statements described in EXHIBIT 5.7.1 pertaining to Borrowers'
Security Monitoring Business. Such financial statements present fairly in
all material respects the results of operations of Borrowers' Security
Monitoring Business for the periods covered

<PAGE> 34

thereby and the financial condition of Borrowers' Security Monitoring
Business as of the dates indicated therein. All of such financial
statements have been prepared in conformity with GAAP. Since October 31,
1997 there has been no change which has had a Material Adverse Effect.
Borrowers also have delivered to FINOVA pro-forma consolidated and
consolidating balance sheets as of the Closing Date. Such pro-forma
balance sheets, which assume the consummation of the transactions
contemplated by the Loan Instruments, presents fairly in all material
respects the anticipated financial condition of Borrowers as of the
Closing Date.

5.7.2. PROJECTIONS. Borrowers have delivered to FINOVA the
projections described in EXHIBIT 5.7.2 of the future operations of
Borrowers. Such projections represent the best estimates of Borrowers as
of the Closing Date of Borrowers' future financial performance.

5.8. LITIGATION. There is set forth in EXHIBIT 5.8 a description of all
actions and suits, arbitration proceedings and claims pending or, to the best
knowledge of Borrowers, threatened against any Obligor or maintained by any
Obligor at law or in equity or before any Governmental Body. None of the
matters set forth in such EXHIBIT 5.8, if adversely determined, could have a
Material Adverse Effect.

5.9. DEFAULTS IN OTHER AGREEMENTS; CONSENTS; CONFLICTING AGREEMENTS. No
Borrower is in default under any agreement to which such Borrower is a party or
by which such Borrower or any of the Property of such Borrower is bound, the
effect of which default could have a Material Adverse Effect. No authorization,
consent, approval or other action by, and no notice to or filing with, any
Governmental Body or any other Person which has not already been obtained,
taken or filed, as applicable, is required (i) for the due execution, delivery
or performance by any Borrower of any of the Loan Instruments to which such
Borrower is a party or (ii) as a condition to the validity or enforceability of
any of the Loan Instruments to which any Borrower is a party or any of the
transactions contemplated thereby or the priority of the Security Interests,
except for certain filings to establish and perfect the Security Interests. No
provision of any material mortgage, indenture, contract, agreement, statute,
rule, regulation, judgment, decree or order binding on any Borrower or
affecting the Property of any Borrower conflicts with, or requires any consent
which has not already been obtained under, or would in any way prevent the
execution, delivery or performance of the terms of any of the Loan Instruments
or affect the validity or priority of the Security Interests. The execution,
delivery or performance of the terms of the Loan Instruments will not
constitute a default under, or result in the creation or imposition of, or
obligation to create, any Lien upon the Property of Borrowers pursuant to the
terms of any such material mortgage, indenture, contract or agreement, other
than the Loan Instruments.

5.10. TAXES. Each Borrower has filed all tax returns required to be filed,
and has paid, or made adequate provision for the payment of, all taxes
shown to be due and payable on such returns or in any assessments made against
any such Person, and no tax Liens have been filed and no claims are being
asserted in respect of such taxes which are required by GAAP to be reflected in
the financial statements of any Borrower and are not so reflected therein. The

<PAGE> 35

charges, accruals and reserves on the books of each Borrower with respect to
all federal, state, local and other taxes are considered by the management of
such Borrower to be adequate, and there is no unpaid assessment which is or
might be due and payable by any Borrower or create a Lien against any
Borrower's Property, except such assessments as are being contested in good
faith and by appropriate proceedings diligently conducted, and for which
adequate reserves have been set aside in accordance with GAAP. None of the tax
returns of any Borrower are under audit.

5.11. COMPLIANCE WITH APPLICABLE LAWS. No Borrower is in default in
respect of any judgment, order, writ, injunction, decree or decision of
any Governmental Body, which default would have a Material Adverse Effect.
Except as otherwise provided herein, each Borrower is in compliance in all
material respects with all applicable statutes and regulations, including,
without limitation, all laws, statutes and regulations relating to UL
Certification, all Environmental Laws, ERISA, ADA and all laws and regulations
relating to unfair labor practices, equal employment opportunity and employee
safety, of all Governmental Bodies, a violation of which could have a Material
Adverse Effect. No material condemnation, eminent domain or expropriation has
been commenced or, to the best knowledge of Borrowers, threatened against the
Property which Borrowers will own upon the Closing.

5.12. PATENTS, TRADEMARKS, FRANCHISES, AGREEMENTS. Upon the Closing,
Borrowers will own, possess or have the right to use all patents,
trademarks, service marks, tradenames, copyrights, franchises and rights with
respect thereto, necessary for the conduct of Borrowers' Security Monitoring
Business as proposed to be conducted by Borrowers after the Closing Date,
without any known conflict with the rights of others and, in each case, free of
any Liens.

5.13. ENVIRONMENTAL MATTERS. Each Borrower is in compliance with all
applicable Environmental Laws and no portion of the Leasehold Property has
been used as a land fill. There currently are not any known Hazardous
Materials generated, manufactured, released, stored, buried or deposited over,
beneath, in or on (or used in the construction and/or renovation of) the
Leasehold Property in violation of applicable Environmental Laws which could
have a Material Adverse Effect.

5.14. APPLICATION OF CERTAIN LAWS AND REGULATIONS. No Borrower or
Affiliate of any Borrower is:

5.14.1. INVESTMENT COMPANY ACT. An "investment company," or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.

5.14.2. HOLDING COMPANY ACT. A "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," as such
terms are defined in the Public Utility Holding Company Act of 1935, as
amended.

<PAGE> 36

5.14.3. FOREIGN OR ENEMY STATUS. (i) An "enemy" or an "ally of an
enemy" within the meaning of Section 2 of the Trading with the Enemy
Act, (ii) a "national" of a foreign country designated in Executive Order
No. 8389, as amended, or of any "designated enemy country" as defined in
Executive Order No. 9095, as amended, of the President of the United
States of America, in each case within the meaning of such Executive
Orders, as amended, or of any regulation issued thereunder, (iii) a
"national of any designated foreign country" within the meaning of the
Foreign Assets Control Regulations or of the Cuban Assets Control
Regulations of the United States of America (Code of Federal Regulations,
Title 31, Chapter V, Part 515, Subpart B, as amended), or (iv) an alien or
a representative of any alien or foreign government within the meaning of
Section 310 of Title 47 of the United States Code.

5.14.4. REGULATIONS AS TO BORROWING. Subject to any statute or
regulation which regulates the incurrence of any Indebtedness for Borrowed
Money, including, without limitation, statutes or regulations relative to
common or interstate carriers or to the sale of electricity, gas, steam,
water, telephone, telegraph or other public utility services.

5.15. MARGIN REGULATIONS. None of the transactions contemplated by this
Loan Agreement or any of the other Loan Instruments, including the use of the
proceeds of the Loan, will violate or result in a violation of Section 7 of the
Securities Exchange Act of 1934, as amended, or any regulations issued pursuant
thereto, including, without limitation, Regulations G, T, U and X, and no
Borrower owns or intends to carry or purchase any "margin security" within the
meaning of such Regulation U or G.

5.16. OTHER INDEBTEDNESS. Upon the Closing, no Borrower will have any
Indebtedness for Borrowed Money, except (i) Borrowers' Obligations, (ii)
Permitted Senior Indebtedness permitted to exist as of the Closing Date
pursuant to this Loan Agreement, (iii) the Subordinated Debt and (iv) the
Dealer Holdback Debt. There is set forth in EXHIBIT 5.16 a true, correct and
complete copy of the Dealer Holdback Report dated as of _____________, 1997.

5.17. NO MISREPRESENTATION. Neither this Loan Agreement nor any other Loan
Instrument, certificate, information or report furnished or to be furnished by
or on behalf of any Borrower to Agent or any Lender in connection with any of
the transactions contemplated hereby or thereby, contains or will contain a
misstatement of material fact, or omits or will omit to state a material fact
required to be stated in order to make the statements contained herein or
therein, taken as a whole, not misleading in the light of the circumstances
under which such statements were made. There is no fact, other than
information known to the public generally, known to or reasonably foreseen by
Borrowers after diligent inquiry, that would be expected to have a Material
Adverse Effect that has not expressly been disclosed to FINOVA in writing.

<PAGE> 37

5.18. EMPLOYEE BENEFIT PLANS.

5.18.1. NO OTHER PLANS. Neither any Borrower nor any ERISA Affiliate
maintains or contributes to, or has any obligation under, any Employee
Benefit Plan other than those identified on EXHIBIT 5.18.1. Borrowers
have provided Agent accurate and complete copies of all Contracts,
agreements and documents described on EXHIBIT 5.18.1.

5.18.2. ERISA AND CODE COMPLIANCE AND LIABILITY. Each Borrower and
each ERISA Affiliate is in compliance with all applicable provisions of
ERISA with respect to all Employee Benefit Plans except where failure to
comply would not result in a material liability to any Borrower and except
for any required amendments for which the remedial amendment period as
defined in Section 401(b) of the Code has not yet expired. Each Employee
Benefit Plan that is intended to be qualified under Section 401(a) of the
Code has been determined by the Internal Revenue Service to be so
qualified, and each trust related to such plan has been determined to be
exempt under Section 501(a) of the Code, except for any amendments for
which the remedial amendment period as defined in Section 401(b) of the
Code has not yet expired. No material liability has been incurred by any
Borrower or ERISA Affiliate which remains unsatisfied for any taxes or
penalties with respect to any Employee Benefit Plan or any Multiemployer
Plan.

5.18.3 FUNDING. No Pension Plan has been terminated, nor has any
accumulated funding deficiency (as defined in Section 412 of the Code)
been insured (without regard to any waiver granted under Section 412 of
the Code), nor has any funding waiver from the Internal Revenue Service
been received or requested with respect to any Pension Plan, nor has any
Borrower or any ERISA Affiliate failed to make any contributions or to
pay any amounts due and owing as required by Section 412 of the Code,
Section 302 of ERISA or the terms of any Pension Plan prior to the due
dates of such contributions under Section 412 of the Code or Section 302
of ERISA, nor has there been any event requiring any disclosure under
Section 4041(c)(3)(C), 4063(a) or 4068 of ERISA with respect to any
Pension Plan.

5.18.4. PROHIBITED TRANSACTIONS AND PAYMENTS. Neither any Borrower
nor any ERISA Affiliate has: (i) engaged in a nonexempt "prohibited
transaction" as such term is defined in Section 406 of ERISA or Section
4975 of the Code; (ii) incurred any liability to the PBGC which remains
outstanding other than the payment of premiums and there are no premium
payments which are due and unpaid; (iii) failed to make a required
contribution or payment to a Multiemployer Plan; or (iv) failed to make a
required installment or other required payment under Section 412 of the
Code.

5.18.5. NO TERMINATION EVENT. No Termination Event has occurred or
is reasonably expected to occur.

5.18.6. ERISA LITIGATION. No material proceeding, claim, lawsuit
and/or investigation is existing or, to the best knowledge of Borrowers,
threatened concerning or

<PAGE> 38

involving any (i) employee welfare benefit plan (as defined in Section
3(1) of ERISA) currently maintained or contributed to by any Borrower, or
any ERISA Affiliate, (ii) Pension Plan or (iii) Multiemployer Plan.

5.19. EMPLOYEE MATTERS.

5.19.1. COLLECTIVE BARGAINING AGREEMENTS; GRIEVANCES. (i) None of the
employees of any Borrower is subject to any collective bargaining
agreement, (ii) no petition for certification or union election is
pending with respect to the employees of any Borrower and no union or
collective bargaining unit has sought such certification or recognition
with respect to the employees of any Borrower and (iii) there are no
strikes, slowdowns, work stoppages, unfair labor practice complaints,
grievances, arbitration proceedings or controversies pending or, to the
best knowledge of Borrowers, threatened against any Borrower by any
Borrower's employees, other than employee grievances or controversies
arising in the ordinary course of business that could not in the
aggregate be expected to have a Material Adverse Effect.

5.19.2. CLAIMS RELATING TO EMPLOYMENT. Neither any Borrower nor, to
Borrower's best knowledge, any partner, shareholder or employee of any
Borrower, is subject to any employment agreement or non-competition
agreement with any former employer or any other Person which agreement
would have a Material Adverse Effect due to (i) any information which
such Borrower would be prohibited from using under the terms of such
agreement or (ii) any legal considerations relating to unfair
competition, trade secrets or proprietary information.

5.20. BURDENSOME OBLIGATIONS. After giving effect to the transactions
contemplated by the Loan Instruments, (i) neither Borrower (A) will be a party
to or be bound by any franchise, agreement, deed, lease or other instrument, or
be subject to any restriction, which is so unusual or burdensome so as to
cause, in the foreseeable future, a Material Adverse Effect and (B) intends to
incur, or believes that it will incur, debts beyond its ability to pay such
debts as they become due, and (ii) each Borrower (A) owns and will own
Property, the fair saleable value of which is (I) greater than the total amount
of its liabilities (including contingent liabilities) and (II) greater than the
amount that will be required to pay the probable liabilities of its then
existing debts as they become absolute and matured, and (B) has and will have
capital that is not unreasonably small in relation to its business as presently
conducted and as proposed to be conducted. No Borrower presently anticipates
that future expenditures needed to meet the provisions of federal or state
statutes, orders, rules or regulations will be so burdensome so as to have a
Material Adverse Effect.

5.21. HOLDING COMPANIES. The Holding Companies do not engage or propose to
engage in any business other than the ownership of the Membership Interests of
MSG.

<PAGE> 39

ARTICLE
6.
AFFIRMATIVE COVENANTS

Until all of Borrowers' Obligations are paid and performed in full each
Borrower agrees that it will:

6.1. LEGAL EXISTENCE; GOOD STANDING. Maintain its existence and its good
standing in the jurisdiction of its formation and its qualification in each
jurisdiction in which the failure so to qualify would have a Material Adverse
Effect, and in any event in each jurisdiction in which any portion of the
System owned or operated by such Borrower is located.

6.2. INSPECTION. Permit representatives of Agent and Lenders, upon two
Business Days prior notice if no Event of Default exists, or at any time if any
Event of Default exists, to (i) visit its offices, (ii) examine its books and
records and Accountants' reports relating thereto, (iii) make copies or
extracts therefrom, (iv) discuss its affairs with its employees, (v) examine
and inspect its Property and (vi) meet and discuss its affairs with the
Accountants, and such Accountants, as a condition to their retention by such
Borrower, are hereby irrevocably authorized by such Borrower to fully discuss
and disclose all such affairs with Agent and Lenders (the foregoing items (i)
through (vi) hereinafter are referred to collectively as an "Inspection").
Notwithstanding the foregoing, if no Event of Default exists, Agent shall not
(A) conduct an Inspection more than once a quarter and (B) charge the Borrowers
more than $2,000 on account of such Inspection. For purposes of this Section
6.2, Agent agrees to comply with the rules and regulations with respect to UL
Certifications.

6.3. FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain a standard
system of accounting in accordance with GAAP and furnish to each Lender:

6.3.1. MONTHLY STATEMENTS. As soon as available and in any event
within 30 days after the close of each month:

(A) the consolidated balance sheet of Obligors and the
consolidating balance sheet for each Borrower as of the end of such
month,

(B) the consolidated statements of operations and Operating
Cash Flow of Obligors and the consolidating statements of operations
and Operating Cash Flow of each Borrower for such month and for the
period from the beginning of the then current year to the end of such
month, setting forth in each case in comparative form the
corresponding figures for the corresponding period in the preceding
year, and

(C) a report providing the following information as of the
end of such month: (i) the number of Security Monitoring
Contracts owned by each Borrower;

<PAGE> 40

(ii) the number of Central Station Contracts monitored by each
Borrower; and (iii) the RMR for the Security Monitoring Contracts and
Central Station Contracts,

all in reasonable detail, containing such information as Lenders
reasonably may require, and certified by the Chief Financial Officer of
such Borrower as complete and correct, subject to normal year-end
adjustments.

6.3.2. QUARTERLY AGINGS. As soon as available and in any event
within 45 days after the close of each quarter of each year, an aging of
each Borrower's outstanding accounts payable and accounts receivable as of
the end of such quarter, all in reasonable detail, containing such
information as Lenders reasonably may require, and certified by the Chief
Financial Officer of such Borrower as complete and correct, subject to
normal year-end adjustments.

6.3.3. ANNUAL STATEMENTS. As soon as available and in any event
within 120 days after the close of each year:

(A) the consolidated balance sheet of Obligors as of the end
of such year and the consolidated statements of operations, cash
flows, shareholders' equity or members' equity of Obligors for such
year (collectively, the "Basic Financial Statements"), the
consolidating balance sheet of each Borrower as of the end of such
year, the consolidated statements of operations, cash flows and
shareholders' equity or members' equity, as applicable, of Obligors
for such year and the consolidated and consolidating statements of
Operating Cash Flow and Excess Cash Flow of Obligors for such year,
setting forth in each case in comparative form the corresponding
figures for the preceding year,

(B) an opinion of the Accountants which shall accompany the
Basic Financial Statements, which opinion shall be unqualified as
to going concern and scope of audit, stating that (i) the
examination by the Accountants in connection with such Basic
Financial Statements has been made in accordance with generally
accepted auditing standards, (ii) such Basic Financial Statements
have been prepared in conformity with GAAP and in a manner
consistent with prior periods, and (iii) such Basic Financial
Statements fairy present in all material respects the financial
position and results of operations of Borrowers, and

(C) a letter from the Accountants stating that the statements
of Operating Cash Flow and Excess Cash Flow were computed in
accordance with the requirements of this Loan Agreement.

6.3.4. COMPLIANCE CERTIFICATES. The financial statements described
in subsections 6.3.1, 6.3.2 and 6.3.3 shall be accompanied by a Compliance
Certificate.

<PAGE> 41

6.3.5. ACCOUNTANTS' CERTIFICATE. Simultaneously with the delivery
of the certified Basic Financial Statements required by subsection
6.3.3, copies of a certificate of the Accountants stating that (i) they
have checked the computations delivered by Borrowers in compliance with
subsection 6.3.3, and (ii) in making the examination necessary for their
audit of the Basic Financial Statements of Borrowers for such year,
nothing came to their attention of a financial or accounting nature that
caused them to believe that (A) Borrowers were not in compliance with the
terms, covenants, provisions or conditions of any of the Loan Instruments,
or (B) there shall have occurred any condition or event which would
constitute an Event of Default, or, if so, specifying in such certificate
all such instances of non-compliance and the nature and status thereof.

6.3.6. AUDIT REPORTS. Promptly upon receipt thereof, a copy of each
report, other than the reports referred to in subsection 6.3.3, including
any so-called "Management Letter" or similar report, submitted to
Borrowers by the Accountants in connection with any annual, interim or
special audit made by the Accountants of the books of Borrowers.

6.3.7. BUSINESS PLANS. Before the end of each year, a business
plan for the following year setting forth in reasonable detail the
projected operations budget of the Borrower's business for such year and
such other information as Lenders reasonably may request, for such
following year.

6.3.8. NOTICE OF DEFAULTS; LOSS. Prompt notice if: (i) any
Indebtedness of any Borrower is declared or shall become due and
payable prior to its declared or stated maturity, or called and not paid
when due, (ii) an event has occurred that enables the holder of any note,
or other evidence of such Indebtedness, certificate or security evidencing
any such Indebtedness of any Borrower to declare such Indebtedness due and
payable prior to its stated maturity, (iii) there shall occur and be
continuing an Incipient Default or Event of Default, accompanied by a
statement setting forth what action Borrowers propose to take in respect
thereof, or (iv) any event shall occur which has a Material Adverse
Effect, including the amount or the estimated amount of any loss or
depreciation or adverse effect.

6.3.9. NOTICE OF SUITS, ADVERSE EVENTS. Prompt notice of: (i) any
citation, summons, subpoena, order to show cause or other order naming
any Borrower a party to any proceeding before any Governmental Body which
might reasonably be expected to have a Material Adverse Effect and
include with such notice a copy of such citation, summons, subpoena,
order to show cause or other order, (ii) any lapse or other termination
of any UL Certification, Alarm License, license, permit, franchise,
AGREEMENT or other authorization issued to any Borrower by any
Governmental Body or any other Person that is material to the operation
of Borrowers' Security Monitoring Business, (iii) any refusal by any
Governmental Body or any other Person to renew or extend any such UL
Certification, Alarm License, license, permit, franchise, agreement or
other authorization and (iv) any dispute between Borrowers and any
Governmental Body

<PAGE> 42

or any other Person, which lapse, termination, refusal or dispute
referred to in clauses (ii) and (iii) above or in this clause (iv) could
reasonably be expected to have a Material Adverse Effect.

6.3.10. REPORTS TO SHAREHOLDERS, MEMBERS, CREDITORS AND
GOVERNMENTAL BODIES.

(A) Promptly upon becoming available, copies of all financial
statements, reports, notices and other statements sent or made
available generally by any Borrower to such Borrower's shareholders
or members to the extent the same contain any information not
included in any financial statements previously furnished to
Lenders pursuant to subsections 6.3.1, 6.3.2 or 6.3.3, of all
regular and periodic reports and all registration statements and
prospectuses filed by any Borrower with any securities exchange or
with the Securities and Exchange Commission or any Governmental
Body succeeding to any of its functions, and of all statements
generally made available by each Borrower or others concerning
material developments in the business of any Borrower.

(B) Promptly upon becoming available, copies of any
periodic or special reports filed by any Borrower with any
Governmental Body or Person, if such reports indicate any material
change in the business, operations, affairs or condition of such
Borrower, or if copies thereof are requested by Lender, and copies
of any material notices and other communications from any
Governmental Body or Person which specifically relate to any
Borrower.

6.3.11. ERISA NOTICES AND REQUESTS.

(A) With reasonable promptness, and in any event within 25
Business Days after occurrence of any of the following, Borrowers
will give notice of and/or deliver to Agent copies of: (i) the
establishment of any new Pension Plan or Multiemployer Plan; (ii)
the commencement of contributions to any Pension Plan or
Multiemployer Plan to which any Borrower or any of its ERISA
Affiliates was not previously contributing or any increase in the
benefits of any existing Pension Plan or Multiemployer Plan; (iii)
each funding waiver request filed with respect to any Pension Plan
and all communications received or sent by any Borrower or any
ERISA Affiliate with respect to such request; and (iv) the failure
of any Borrower or ERISA Affiliate to make a required installment
or payment to a Pension Plan under Section 302 of ERISA or Section
412 of the Code by the due date.

(B) Promptly and in any event within 10 BUSINESS Days of
becoming aware of the occurrence of or forthcoming occurrence of
any (i) Termination Event or (ii) non-exempt "prohibited
transaction", as such term is defined in Section 406 of ERISA or
Section 4975 of the Code, in connection with any

<PAGE> 43

Pension Plan or any trust created thereunder, Borrowers will
deliver to Agent a notice specifying the nature thereof, what
action the applicable Borrower has taken, is taking or proposes to
take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, the Department of
Labor or the PBGC with respect thereto.

(C) With reasonable promptness but in any event within 10
Business Days after the occurrence of, or receipt of, any
of the FOLLOWING, Borrowers will deliver to Agent copies of: (i)
any favorable or unfavorable determination letter from the
Internal Revenue Service regarding the qualification of an
Employee Benefit Plan under Section 401(a) of the Code; (ii) all
notices received by any Borrower or any ERISA Affiliate of the
PBGC's intent to terminate any Pension Plan or to have a trustee
appointed to administer any Pension Plan; (iii) each Schedule B
(Actuarial Information) to the annual report (Form 5500 Series)
filed by any Borrower or any ERISA Affiliate with the Internal
Revenue Service with respect to each Pension Plan; and (iv) all
notices received by any Borrower or any ERISA Affiliate from a
Multiemployer Plan sponsor concerning the imposition or amount of
withdrawal liability pursuant to Section 4202 of ERISA. Borrowers
will notify Agent in writing within two Business Days of any
Borrower or any ERISA Affiliate that has filed a notice of intent
to terminate any Pension Plan under a distress termination within
the meaning of Section 4041(c) of ERISA.

6.3.12. OTHER INFORMATION.

(A) Immediate notice of any change in the location of any
Property of any Borrower, which is material to or necessary for
the continued operation of such Borrower's Security Monitoring
Business, any change in the name of any Borrower, any sale or
purchase of Property outside the regular course of business of any
Borrower, and any change in the business or financial affairs of
any Borrower, which change would have a Material Adverse Effect.

(B) Promptly upon request therefor, such other information
and reports relating to the past, present or future
financial condition, operations, plans and projections of
Borrowers as Lenders reasonably may request from time to time.

6.4 REPORTS TO GOVERNMENTAL BODIES AND OTHER PERSONS. Timely file all
material reports, applications, documents, instruments and information
required to be filed pursuant to all rules, regulations or requests of any
Governmental Body or other Person having jurisdiction over the operation of
Borrowers' Security Monitoring Business, including, but not limited to, such of
the Loan Instruments as are required to be filed with any such Governmental
Body or other Person pursuant to applicable rules and regulations promulgated
by such Governmental Body or other Person.

<PAGE> 44

6.5. MAINTENANCE OF UL CERTIFICATIONS, ALARM LICENSES, LICENSES,
FRANCHISES AND OTHER AGREEMENTS.

6.5.1. MAINTENANCE OF UL CERTIFICATIONS AND ALARM LICENSES.

Maintain in full force and effect at all times, and apply in a
timely manner for renewal of, all UL Certifications and Alarm Licenses
necessary for the operation of Borrowers' Security Monitoring Business,
the loss of any of which would have a Material Adverse Effect, and deliver
to Agent (i) at least 30 days prior notice of the proposed amendment of
any of such UL Certifications and Alarm Licenses and (ii) (A) evidence of
the filing of any application for renewal of such UL Certifications and
Alarm Licenses not less than the earlier of (x) 60 days prior to the
expiration of such UL Certifications and Alarm Licenses or (y) the last
day such application may be filed in accordance with applicable law and
(B) copies of any petition or other document filed to deny or object to
any such renewal application promptly after receipt thereof by Borrowers.

6.5.2. MAINTENANCE OF LICENSES, FRANCHISES AND AGREEMENTS. Maintain
in full force and effect at all times, and apply in a timely manner for
renewal of licenses, franchises, trademarks, tradenames and agreements
necessary for the operation of Borrowers' Security Monitoring Business,
the loss of any of which would have a Material Adverse Effect, and deliver
to Agent (i) at least 30 days prior notice of the proposed amendment of
any of such licenses, franchises, trademarks, tradenames and agreements
and (ii) (A) evidence of the filing of any application for renewal of such
licenses, franchises, trademarks, tradenames and agreements not less than
the earlier of (x) 60 days prior to the expiration of such licenses,
license or franchise or (y) the last day such application may be filed in
accordance with applicable law and (B) copies of any petition or other
document filed to deny or object to any such renewal application promptly
after receipt thereof by Borrowers.

6.6. INSURANCE.

6.6.1. KEY MAN LIFE INSURANCE. Maintain in full force and effect
at all times policies of insurance in such form and issued by such
insurers as shall be reasonably acceptable to Agent, insuring the life of
(i) Brannen in the amount of $1,250,000 and (ii) Davis in the amount of
$500,000, and deliver to Agent, from time to time as Agent reasonably may
request, evidence of compliance with this subsection 6.6.1.

6.6.2. BUSINESS INSURANCE. Maintain in full force and effect at
all times Business Insurance as required by the insurance letter
agreement between Borrowers and FINOVA, a copy of which is attached hereto
as EXHIBIT 6.6.2, all of which shall be written by insurers and in amounts
and forms reasonably satisfactory to Agent and otherwise comply with the
terms of such insurance letter agreement, and deliver to Agent, from time
to time as Agent reasonably may request, evidence of compliance with this
subsection 6.6.2.

<PAGE> 45

6.6.3. CLAIMS AND PROCEEDS. Each Borrower hereby directs all
insurers under all policies of Business Insurance to pay all proceeds
payable thereunder directly to Agent and each Borrower hereby authorizes
Agent to collect all such proceeds. Each Borrower irrevocably appoints
Agent (and all officers, employees or agents designated by Agent) as such
Borrower's true and lawful attorney and agent in fact for the purpose of
and with power to make, settle and adjust claims under such policies of
insurance, endorse the name of such Borrower on any check, draft,
instrument or other item of payment for the proceeds of such policies of
insurance, and to make all determinations and decisions with respect to
such policies of insurance. Each Borrower acknowledges that such
appointment of Agent as its attorney and agent in fact is a power coupled
with an interest and therefore is irrevocable. Each Borrower shall
promptly notify Agent of any loss, damage, destruction or other casualty
to the Collateral. The insurance proceeds received on account of any
loss, damage, destruction or other casualty shall, at the option of
Lenders, be (i) applied in reduction of Borrowers' Obligations in the
following order of priority: (A) first, to the payment of any and all sums
which are then due and payable pursuant to the terms of the Loan
Instruments, other than the Principal Balance and accrued and unpaid
interest thereon, (B) next, to accrued and unpaid interest on the
Principal Balance and (C) then to the Principal Balance in the inverse
order of the maturity of the installments thereof, or (ii) held by Agent
and applied to pay for the cost of repair or replacement of the Collateral
subject to such loss, damage, destruction or other casualty, in which
event such proceeds shall be made available in the manner and under such
conditions as Agent reasonably may require. Notwithstanding anything to
the contrary contained in this subsection 6.6.3, if the amount of the
proceeds from any loss, damage, destruction or other casualty to the
Collateral reasonably is expected to be less than $100,000 and neither an
Event of Default nor an Incipient Default then shall exist, Borrowers
shall have the right to make, settle and adjust any claim regarding such
proceeds and Agent shall collect such proceeds and make such proceeds
available to Borrowers to pay for the repair or replacement of the
Collateral which was the subject of such loss, damage, destruction or
other casualty in the manner and under such terms and conditions as Agent
reasonably may require. In the event the proceeds are to be applied to
the repair or replacement of Collateral, the Collateral shall be repaired
or replaced so as to be of at least equal value and substantially the same
character as prior to such loss, damage, destruction or other casualty.

6.7. FUTURE LEASES. Deliver to Agent, concurrently with the execution by
any Borrower, as lessee, of any lease pertaining to real property, (i) an
executed copy thereof, (ii) at the option of Agent, either a leasehold mortgage
upon or a collateral assignment of such lease in favor of Agent, in either
case in a form reasonably acceptable to Agent, and (iii) a Landlord Consent and
Waiver from the lessor under such lease.

6.8. FUTURE ACQUISITIONS OF REAL PROPERTY. Deliver to Agent concurrently
with the (i) execution by any Borrower of any contract relating to the
purchase by such Borrower of real property, an executed copy of such contract
and (ii) closing of the purchase of such real property,

<PAGE> 46

(A) a first mortgage or deed of trust in favor of Agent on such real property,
in form and content satisfactory to Agent, (B) a lender's policy of title
insurance, in such form and amount and containing such endorsements as shall be
reasonably satisfactory to Agent, (C) an ALTA/ACSM survey of such real property
and (D) such other documents and assurances with respect to such real property
as Agent may require.

6.9. ENVIRONMENTAL MATTERS.

6.9.1. COMPLIANCE. At all times comply with, and be responsible for,
its obligations under all Environmental Laws applicable to the
Leasehold Property, any parcel of real estate acquired in connection with
an Acquisition and any other Property owned by such Borrower or used by
such Borrower in the operation of its business. At its sole cost and
expense, each Borrower shall (i) comply in all respects with (A) any
notice of any violation or administrative or judicial complaint or order
having been filed against such Borrower, any portion of the Leasehold
Property, any parcel of real estate acquired in connection with an
Acquisition or any other Property owned by such Borrower or used by such
Borrower in the operation of its business alleging violations of any law,
ordinance and/or regulation requiring such Borrower to take any action in
connection with the release, transportation and/or clean-up of any
Hazardous Materials, and (B) any notice from any Governmental Body or any
other Person alleging that such Borrower is or may be liable for costs
associated with a response or clean-up of any Hazardous Materials or any
damages resulting from such release or transportation, or (ii) diligently
contest in good faith by appropriate proceedings any demands set forth in
such notices, provided (A) reserves in an amount satisfactory to Agent to
pay the costs associated with complying with any such notice are
established by such Borrower and (B) no Lien would or will attach to the
Property which is the subject of any such notice as a result of any
compliance by such Borrower which is delayed during any such contest.
Promptly upon receipt of any notice described in the foregoing clause (i),
Borrowers shall deliver to Agent a copy thereof.

6.9.2. CERTIFICATION. Deliver to Agent, not later than January 1 of
each year, an Environmental Compliance Certificate.

6.10. COMPLIANCE WITH LAWS. Comply with all laws, statutes and regulations
relating to UL Certification and all other federal, state and local laws,
ordinances, requirements and regulations and all judgments, orders, injunctions
and decrees applicable to such Borrower and its operations, the failure to
comply with which would have a Material Adverse Effect.

6.11. TAXES AND CLAIMS. Pay and discharge all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits,
or upon any Property belonging to it, prior to the date on which penalties
attach thereto, and all lawful claims which, if unpaid, might become a Lien
(other than a Permitted Lien) upon the Property of such Borrower, provided that
so long as no Lien has attached to the Property of any Borrower as a result of
any of the foregoing, no Borrower shall be required by this Section 6.11 to pay
any such amount if the same

<PAGE> 47

is being contested diligently and in good faith by appropriate proceedings
and as to which the applicable Borrower has set aside reserves on its books
satisfactory to Agent.

6.12. MAINTENANCE OF PROPERTIES. Maintain all of its Property necessary
in the operation of such Borrower's Security Monitoring Business in GOOD
working order and condition.

6.13. GOVERNMENTAL APPROVALS. Upon the exercise by Agent and/or Lenders
of any power, right or privilege pursuant to the provisions of any of the Loan
Instruments requiring any consent, approval or authorization of any
Governmental Body (including, without limitation, transfers of UL
Certifications), promptly execute and cause the execution of all applications,
certificates, instruments and other documents that Agent and/or Lenders may
reasonably be required to obtain for such consent, approval or authorization.

6.14. NON-FUNDED ACQUISITION. Promptly after the consummation of each
Non-Funded Acquisition, Borrowers shall notify Agent of the terms and
CONDITIONS of such acquisition and provide Agent with any other information
with respect thereto as Agent may reasonably request.

ARTICLE
7.
NEGATIVE COVENANTS

Until all of Borrowers' Obligations are paid and performed in full, no
Borrower, except SAI as to Section 7.15, shall:

7.1. BORROWING. Create, incur, assume or suffer to exist any liability for
Indebtedness for Borrowed Money except (i) Borrowers' Obligations, (ii)
Permitted Senior Indebtedness, (iii) the Subordinated Debt and (iv) the Dealer
Holdback Debt.

7.2. LIENS. Create, incur, assume or suffer TO exist any Lien upon any of
its Property, whether now owned or hereafter acquired, except Permitted Liens.

7.3. MERGER AND ACQUISITION. Consolidate with or merge with or into any
Person, or acquire directly or indirectly all or substantially all of the
capital stock, equity interests, membership interests or Property of any
Person, except Acquisitions made in compliance with this Loan Agreement.

7.4. CONTINGENT LIABILITIES. Assume, guarantee, endorse, contingently
agree to purchase, become liable in respect of any letter of credit, or
otherwise become liable upon the obligation of any Person, except (i) Dealer
Holdback DEBT, (ii) liabilities arising from the endorsement of negotiable
instruments for deposit or collection (iii) the posting of bonds to secure
performance to the extent necessary in connection with Borrowers' Security
Monitoring Business and similar transactions in the ordinary course of business
and (iv) guaranties by SAI of the obligations of any other Borrower under any
Lease.

<PAGE> 48

7.5. DISTRIBUTIONS. Pay any dividends or make any distributions with
respect to, or purchase or redeem all or any portion of its Equity Interests,
except that any Borrower other than SAI, may pay dividends or make
distributions to SAI.

7.6. CAPITAL EXPENDITURES. Make or incur any Capital Expenditures in
any year set forth in EXHIBIT 7.6 if the aggregate amount of all Capital
Expenditures made by Borrowers with respect to such year would exceed the
amount set forth opposite such year.

7.7. PAYMENTS OF INDEBTEDNESS FOR BORROWED MONEY. Make any (i)
voluntary or optional prepayment of any Indebtedness for Borrowed Money
other than Borrowers' Obligations and payments made in the ordinary course of
business with respect TO the Dealer Holdback Debt or (ii) any payments with
respect to the Subordinated Debt, except as permitted pursuant to the
Subordination Agreement.

7.8. OBLIGATIONS AS LESSEE UNDER OPERATING LEASES. Enter into any
arrangement as lessee of Property under any Operating Lease if the
aggregate rentals for Borrowers for all such Operating Leases during any year
would exceed $750,000.

7.9. INVESTMENTS, LOANS. At any time PURCHASE or otherwise acquire, hold
or invest in the capital stock of, or any other interest in, any Person, or make
any loan or advance to, or enter into any arrangement for the purpose of
providing funds or credit to, or make any other investment, whether by way of
capital contribution or otherwise, in or with any Person, including, without
limitation, any Affiliate, except (i) investments in direct obligations of, or
instruments unconditionally guaranteed by, the United States of America or in
certificates of deposit issued by a Qualified Depository, (ii) investments in
commercial or finance paper which, at the time of investment, is rated either
"A" or better by Moody's Investors Service, Inc., or Standard & Poor's
Corporation, respectively, or at the equivalent rate by any of their respective
successors, (iii) any interests in any money market account maintained, at the
time of investment, with a Qualified Depository, the investments of which, at
the time of investment, are restricted to the types specified in clause (i)
above, (iv) in connection with an Acquisition, (v) the formation and
capitalization of Permitted Subsidiaries and (vi) an investment by SAI in an
amount not to exceed $500,000 in the capital stock of Alarm Funding
Corporation, 60% of the Equity Interests of which will at all times be owned by
SAI. All investments permitted pursuant to clauses (i), (ii) and (iii) of this
Section 7.9 shall have a maturity not exceeding one year.

7.10. FUNDAMENTAL BUSINESS CHANGES. MATERIALLY change the nature of its
business or engage in any business other than the Security Monitoring Business.

7.11. FACILITY SITES. Change the locations of its chief executive office,
Central Station Businesses, studios, offices or other Property used in the
operation of such Borrower's Security Monitoring Business unless (i) Agent
shall have received at least 30 days' prior notice thereof, (ii) Borrowers
shall have complied with all applicable laws, rules and regulations and shall
have received all required consents and approvals from any Governmental Body,
(iii) Agent shall have

<PAGE> 49

received satisfactory evidence that such change could not reasonably be
expected to affect adversely the operations or business prospects of Borrowers
and (iv) Borrowers shall have executed and delivered to Agent any documents
Agent may reasonably require in order to maintain the validity and priority of
the Security Interests.

7.12. SALE OR TRANSFER OF ASSETS. Sell, lease, assign, transfer or
otherwise dispose of any Property (other than in the ordinary course of
business) except for the sale or disposition of (i) Property which is not
material to or necessary for the continued operation of its business and (ii)
obsolete or unusable items of equipment which promptly are replaced with new
items of equipment of like function and comparable value to the unusable items
of equipment when the same were new or not obsolete or unusable, provided such
replacement items of equipment shall become subject to the Security Interests.

7.13. AMENDMENT OF CERTAIN DOCUMENTS. Amend, modify or waive any term or
provision of the (i) the articles of organization or operating agreements of
SACC, MSG or ASMS or any Permitted Subsidiary which is a limited liability
company, (ii) the articles of incorporation or by-laws of SAI, AMJ, ERC, the
Holding Companies or any Permitted Subsidiary which is a corporation (iii) the
Contribution Agreement or (iv) the Subordinated Debt Instruments except to make
any covenant contained therein less restrictive.

7.14. ACQUISITION OF ADDITIONAL PROPERTIES. Acquire any additional
Property except (i) such Property as is necessary to or useful in the
operation of such Borrower's Security Monitoring Business, provided such
acquisitions shall be subject to the conditions and limitations set forth in
this Loan Agreement, (ii) Funded Acquisitions and (iii) Non-Funded
Acquisitions.

7.15. ISSUANCE OF EQUITY INTERESTS. Issue or sell, permit to be issued or
sold, or otherwise consent to the transfer of, any additional Equity
Interests or any interests convertible into or exercisable for any such
additional Equity Interests, other than Equity Interests issued by a Permitted
Subsidiary upon its formation.

7.16. TRANSACTIONS WITH AFFILIATES. Sell, lease, assign, transfer or
otherwise dispose of any Property to any Obligor or any Affiliate of any
Obligor, lease Property, render or receive services or purchase assets from any
Obligor or any such Affiliate, or otherwise enter into any contractual
relationship with any Obligor or any Affiliate of any Obligor, except that (i)
subject to the restrictions contained in Section 7.21, Borrowers may pay annual
salaries to Brannen, Davis and Rubin and (ii) Borrowers may engage in the
transactions described on EXHIBIT 7.16.

7.17. COMPLIANCE WITH ERISA.

(A) Permit the occurrence of any Termination Event which would
result in a liability to any Borrower or ERISA Affiliate in excess
of $50,000;

<PAGE> 50

(B) Permit the present value of all benefit liabilities under
all Pension Plans to exceed the current value of the assets of such
Pension Plans allocable to such benefit liabilities by more than
$50,000;

(C) Permit any accumulated funding deficiency in excess of
$50,000 (as defined in Section 302 of ERISA and Section 412 of the
Code) with respect to any Pension Plan, whether or not waived;

(D) Fail to make any contribution or payment to any
Multiemployer Plan which any Borrower or ERISA Affiliate may be
required to make under any agreement relating to such Multiemployer
Plan, or any law pertaining thereto which results in or is likely to
result in a liability in excess of $50,000;

(E) Engage, or permit any Borrower or ERISA Affiliate to
engage, in any "prohibited transaction" as such term is
defined in Section 406 of ERISA or Section 4975 of the Code for
which a civil penalty pursuant to Section 502(i) of ERISA or a tax
pursuant to Section 4975 Of the Code in excess of $50,000 is
imposed;

(F) Permit the establishment of any Employee Benefit Plan
providing post-retirement welfare benefits or establish or amend
any Employee Benefit Plan which establishment or amendment could
result in liability to any Borrower or ERISA Affiliate or increase
the obligation of any Borrower or ERISA Affiliate to a Multiemployer
Plan which liability or increase, individually or together with all
similar liabilities and increases, is material to any Borrower or
ERISA Affiliate; or

(G) Fail, or permit any Borrower or ERISA Affiliate to fail, to
establish, maintain and operate each Employee Benefit Plan in
compliance in all material respects with ERISA, the Code and all
other applicable laws and regulations and interpretations thereof.

7.18. COVENANT LEVERAGE RATIO. Permit the Covenant Leverage Ratio as of
the last day of any quarter to be greater than the Applicable Ratio for such
day.

7.19. DEBT SERVICE COVERAGE RATIO. Permit the Debt Service Coverage Ratio
for each four quarter period ending as of each quarter to be less than the
ratio of 1.35:1. For the purpose of determining compliance with this Section
7.19 there shall be deducted from the Operating Cash Flow for any six-month
period used in making such determination the interest paid during such period
on the Subordinated Debt.

7.20. MINIMUM RMR.

<PAGE> 51

7.20.1. MINIMUM RMR FOR SECURITY MONITORING CONTRACTS. Permit the
RMR with respect to Security Monitoring Contracts for any quarter set
forth in EXHIBIT 7.20.1 to be less than the amount set forth opposite such
quarter.

7.20.2. MINIMUM RMR FOR CENTRAL STATION CONTRACTS. Permit the RMR
with respect to Central Station Contracts for any quarter set forth
in EXHIBIT 7.20.2 to be less than the amount set forth opposite such
quarter.

7.21. COMPENSATION. Pay any salary, bonuses, fees or other forms of
compensation in cash to Brannen, Davis or Rubin if the aggregate amount
thereof paid by all Borrowers to (i) Brannen would exceed $250,000 per year,
(ii) Davis would exceed $250,000 per year and (iii) Rubin would exceed $200,000
per year.

7.22. HOLDING COMPANIES. Permit any Holding Company to engage in any
business other than the ownership of the MSG Membership Interests.

7.23. NON-FUNDED ACQUISITION. Consummate a Non-Funded Acquisition if Cash
Equivalents after such consummation are less than $150,000.

ARTICLE
8.
DEFAULT AND REMEDIES

8.1. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default under the Loan Instruments:

8.1.1. DEFAULT IN PAYMENT. If any Borrower shall fail to pay all or
any portion of Borrowers' Obligations when the same become due and payable.

8.1.2. BREACH OF COVENANTS.

(A) If any Borrower shall fail to observe or perform any
covenant or agreement made by such Borrower contained in Section
6.1, 6.2, 6.5.1, 6.6, 6.9 or in Article VII;

(B) If any Obligor shall fail to observe or perform any
covenant or agreement (other than those referred to in
subparagraph (a) above or specifically addressed elsewhere in this
Section 8.1) made by such Person in any of the Loan Instruments to
which such Person is a party, and such failure shall continue for a
period of 30 days after notice of such failure is given by Lenders,
provided that, if such failure is in connection with subsection
6.5.2, such Obligor shall have an additional 30 days to cure such
failure, if such Obligor (i) is diligently pursuing a

<PAGE> 52

cure for such failure and (ii) provides Agent with evidence to that
effect in form and substance reasonably satisfactory to Agent.

8.1.3. BREACH OF WARRANTY. If any representation or warranty made
by or on behalf of any Obligor in or pursuant to any of the Loan
Instruments or in any instrument or document furnished in compliance with
the Loan Instruments shall prove to be false or misleading in any material
respect on the date as of which made.

8.1.4. DEFAULT UNDER OTHER INDEBTEDNESS FOR BORROWED MONEY. If (i) any
Borrower at any time shall be in default (as principal or guarantor or
other surety) in the payment of any principal of or premium or interest
on any Indebtedness for Borrowed Money (other than Borrowers'
Obligations) beyond the grace period, if any, applicable thereto and the
aggregate amount of such payments then in default beyond such grace
period shall exceed $25,000 or (ii) any default shall occur in respect of
any issue of Indebtedness for Borrowed Money of any Borrower (other than
Borrowers' Obligations) outstanding in a principal amount of at least
$50,000, or in respect of any agreement or instrument relating to any
such issue of Indebtedness for Borrowed Money, and such default shall
continue beyond the grace period, if any, applicable thereto.

8.1.5. BANKRUPTCY.

(A) If any Obligor shall (i) generally not be paying its, his
or her debts as they become due, (ii) file, or consent, by
answer or otherwise, to the filing against it, him or her of a
petition for relief or reorganization or arrangement or any other
petition in bankruptcy or insolvency under the laws of any
jurisdiction, (iii) make an assignment for the benefit of creditors,
(iv) consent to the appointment of a custodian, receiver, trustee or
other officer with similar powers for such Obligor, or for any
substantial part of the Property of such Obligor or (v) be
adjudicated insolvent.

(B) If any Governmental Body of competent jurisdiction shall
enter an order appointing, without consent of such Obligor, a
custodian, receiver, trustee or other officer with similar powers
with respect to such Obligor, or with respect to any substantial part
of the Property belonging to any such Person, or if an order for
relief shall be entered in any case or proceeding for liquidation or
reorganization or otherwise to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of any Obligor or if any petition for any
such relief shall be filed against any Obligor and such petition
shall not be dismissed or stayed within 60 days.

8.1.6. JUDGMENTS. If there shall exist a final judgment or award
against any Borrower which shall have been outstanding for a period of
30 days or more from the date of the entry thereof and shall not have been
discharged or paid in full or stayed

<PAGE> 53

pending appeal, if the aggregate amount of all such judgments and awards
exceeds $50,000.

8.1.7. IMPAIRMENT OF LICENSES; OTHER AGREEMENTS. If (i) any
Governmental Body shall revoke, terminate, suspend or adversely modify
any UL Certification or Alarm License of any Borrower, the
non-continuation of which could reasonably be expected to have a Material
Adverse Effect, or (ii) there shall exist any violation or default in the
performance of, or a material failure to comply with any agreement, or
condition or term of any UL Certification or Alarm License, which
violation, default or failure has a Material Adverse Effect, or any such
UL Certification or Alarm Licenses shall cease to be in full force and
effect, or (iii) any agreement which is necessary to the operation of any
Borrower's Security Monitoring Business shall be revoked or terminated and
not replaced by a substitute acceptable to Lenders within 30 days after
the date of such revocation or termination, and such revocation or
termination and non-replacement could reasonably be expected to have a
Material Adverse Effect.

8.1.8. COLLATERAL. If any material portion of the Collateral shall
be seized or taken by a Governmental Body or Person, or Borrowers shall
fail to maintain or cause to be maintained the Security Interests and
priority of the Loan Instruments as against any Person, or the title
and rights of any Obligor to any material portion of the Collateral shall
have become the subject matter of litigation which could reasonably be
expected to result in impairment or loss of the security provided by the
Loan Instruments.

8.1.9. INTERRUPTION OF OPERATIONS. If the operations of any portion
of Borrowers' Security Monitoring Business is interrupted at any time for
more than 48 hours during any period of 10 consecutive days, unless
Borrowers shall be entitled to receive during such period of interruption
proceeds of business interruption insurance sufficient to assure that the
per diem Operating Cash Flow of such portion of Borrowers' Security
Monitoring Business during such period is at least equal to its per diem
Operating Cash Flow for the month preceding the initial date of
interruption.

8.1.10 PLANS. If an event or condition specified in subsection 6.3.11
hereof shall occur or exist with respect to any Pension Plan or
Multiemployer Plan and, as a result of such event or condition, together
with all other such events or conditions, Borrowers or any member of a
Controlled Group shall incur, or in the opinion of Lender be reasonably
likely to incur, a liability to a Pension Plan or Multiemployer Plan or
the PBGC (or any of them) which, in the reasonable judgment of Lender,
would have a Material Adverse Effect.

8.1.11. CHANGE IN CONTROL. If at any time (i) SAI ceases to be the
sole shareholder of each of the Holding Companies, AMJ, ERC and each
Permitted Subsidiary which is a corporation, (ii) SAI and SACC cease to be
the only members in ASMS, (iii) SAI and MSG cease to be the only members
in SACC (iv) the Holding

<PAGE> 54

Companies cease to be the only members in MSG or (v) SAI ceases to be
the only member of a Permitted Subsidiary which is a limited liability
company.

8.1.12. CHANGE IN MANAGEMENT. If at any time (i) Brannen, or any
successor to Brannen reasonably acceptable to Agent, ceases to (A) be the
President and Chief Executive Officer of SAI, (B) be the Manager of any
Borrower which is a limited liability company, or (C) manage the
day-to-day operation of Borrowers' Security Monitoring Business or (ii)
Davis, or any successor to Davis reasonably acceptable to Agent, ceases to
be the Chairman of SAI.

8.2. ACCELERATION OF BORROWERS' OBLIGATIONS. Upon the occurrence of:

(a) any Event of Default described in clauses (ii), (iii),
(iv) and (v) of subsection 8.1.5(a) or in 8.1.5(b), all of
Borrowers' Obligations at that time outstanding automatically shall
mature and become due, and

(b) any other Event of Default, Lenders, at any time
(unless such Event of Default shall have been waived in writing or
remedied), at their option, without further notice or demand, may
declare all of Borrowers' Obligations due and payable, whereupon
Borrowers' Obligations immediately shall mature and become due and
payable,

all without presentment, demand, protest or notice (other than the declaration
referred to in clause (b) above), all of which hereby are waived.

8.3. REMEDIES ON DEFAULT. If Borrowers' Obligations have been accelerated
pursuant to Section 8.2, Lenders, at their option, may:

8.3.1. ENFORCEMENT OF SECURITY INTERESTS. Enforce their rights and
remedies under the Loan Instruments in accordance with their respective
terms.

8.3.2. OTHER REMEDIES. Enforce any of the rights or remedies
accorded to Lenders and/or Agent at equity or law, by virtue of statute
or otherwise.

8.4. APPLICATION OF FUNDS. Any funds received by Lenders or Agent
pursuant to the exercise of any rights accorded to Lenders and/or Agent
pursuant to, or by the operation of any of the terms of, any of the Loan
Instruments, including, without limitation, insurance proceeds, condemnation
proceeds or proceeds from the sale of Collateral, shall be applied to
Borrowers' Obligations in the following order of priority:

8.4.1. EXPENSES. First, to the payment of (i) all reasonable fees and
expenses actually incurred, including, without limitation, court costs,
fees of appraisers, title charges, costs of maintaining and preserving
the Collateral, costs of sale, and all other costs incurred by Lenders
and Agent in exercising any rights accorded to such Persons

<PAGE> 55

pursuant to the Loan Instruments or by applicable law, including,
without limitation, reasonable attorneys' fees, and (ii) all Liens
(excluding Permitted Liens other than the Security Interests) superior to
the Liens of Agent except such superior Liens subject to which any sale of
the Collateral may have been made.

8.4.2. BORROWERS' OBLIGATIONS. Next, to the payment of the remaining
portion of Borrowers' Obligations in such order as Lenders may determine.

8.5. SURPLUS. Any surplus, to the Person or Persons entitled thereto.

8.6. PERFORMANCE OF BORROWERS' OBLIGATIONS. If any Borrower fails to (i)
maintain in force and pay for any insurance policy or bond which such Borrower
is required to provide pursuant to any of the Loan Instruments, (ii) keep the
Collateral free from all Liens except for Permitted Liens, (iii) pay when due
all taxes, levies and assessments on or in respect of the Collateral, except as
otherwise permitted pursuant to the terms hereof, (iv) make all payments and
perform all acts on the part of such Borrower to be paid or performed in the
manner required by the terms hereof and by the terms of the other Loan
Instruments with respect to any of the Collateral, including, without
limitation, all expenses of protecting, storing, warehousing, insuring,
handling and maintaining the Collateral, (v) keep fully and perform promptly
any other of the obligations of such Borrower hereunder or under any of the
other Loan Instruments, and (vi) keep fully and perform promptly the
obligations of such Borrower with respect to any issue of Indebtedness for
Borrowed Money secured by a Permitted Prior Lien, then Agent or Lenders may
(but shall not be required to) procure and pay for such insurance policy or
bond, place such Collateral in good repair and operating condition, pay,
contest or settle such Liens or taxes or any judgments based thereon or
otherwise make good any other aforesaid failure of such Borrower. Borrowers
shall reimburse Agent and Lenders immediately upon demand for all reasonable
sums paid or advanced on behalf of any Borrower for any such purpose, together
with reasonable and/or necessary costs and expenses (including reasonable
attorneys' fees) paid or incurred by Agent and Lenders in connection therewith
and interest on all sums advanced from the date of advancement until repaid to
Agent and Lenders at the Default Rate. All such sums advanced by Agent and
Lenders, with interest thereon, immediately upon advancement thereof, shall be
deemed to be part of Borrowers' Obligations.

ARTICLE
9.
ADDITIONAL LENDERS AND PARTICIPANTS

9.1. ASSIGNMENT TO OTHER LENDERS.

9.1.1. ASSIGNMENT. FINOVA may make one or more Loan Assignments, and
each Assignee, with the prior written consent of FINOVA (which may
be given or denied in the sole discretion of FINOVA), may make a Loan
Assignment of the rights and obligations which were assigned to such
Assignee. Each Person making a Loan

<PAGE> 56

Assignment shall give notice thereof to Borrowers within 10 Business
Days thereafter. Notwithstanding the foregoing, FINOVA shall not assign
at any one time or collectively during the term of the Loan more than
49.9% of FINOVA's interest in Borrowers' Obligations.

9.1.2. EFFECT OF LOAN ASSIGNMENT. Each Assignee to which FINOVA
makes a Loan Assignment, and each subsequent Assignee, to the extent of
such Loan Assignment, shall have the same rights, benefits and obligations
under the Loan Instruments as such Assignee would have had if such
Assignee were an original party to the Loan Instruments. Borrowers shall
not incur any costs or expenses in connection with any Loan Assignment.

9.1.3. SUBSTITUTION OF NOTE. Simultaneously with the delivery by any
Lender to Borrowers of any Note which is the subject of a Loan
Assignment and which is marked "canceled," Borrowers shall execute and
deliver to such Lender for delivery to (i) the Assignee to which such Loan
Assignment is made, a promissory note payable to the order of such
Assignee in an amount equal to the amount assigned to such Assignee, and
(ii) such Lender making such Loan Assignment, a promissory note payable to
the order of such assigning Lender in an amount equal to the amount
retained by such Lender, each such Note to be substantially in the form of
the canceled Note.

9.1.4. INSPECTIONS. Any action which any Assignee shall desire to
undertake pursuant to Section 6.2 of the Loan Agreement shall be
coordinated by such Assignee through Agent, and Agent shall accompany each
such Assignee which desires to undertake any such action pursuant to such
Section 6.2.

9.2. PARTICIPATIONS. Each Lender shall have the right to sell
Participations. In the event of the sale of a Participation, the obligations of
the Lender selling such a Participation shall remain unchanged, such Lender
shall remain solely responsible for the performance thereof, such Lender shall
remain the holder of any Note which previously has been delivered to Lender
pursuant to the terms of this Loan Agreement, and Borrowers shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Loan Agreement. Notwithstanding the sale of
any Participation, all amounts payable by Borrowers pursuant to the terms of
the Loan Instruments shall be determined as if no such Participation had been
sold. No Participant shall be entitled to require a Lender to take or omit to
take any action pursuant to the Loan Instruments except as provided in the
Participation Agreement executed by and between the Participant and such
Lender.

9.3. APPOINTMENT AND FUNCTION OF AGENT. FINOVA is hereby appointed as
Agent hereunder to act in such capacity on behalf of all Lenders under this
Loan Agreement and the other Loan Instruments. FINOVA agrees that it shall
continue to act as Agent throughout the term of the Loan. In performing its
functions and duties under this Agreement, Agent shall act solely as an agent
of Lenders and does not assume and shall not be deemed to have assumed any
obligation towards or relationship of agency or trust with or for any other
Person.

<PAGE> 57

Notwithstanding the appointment of FINOVA as Agent hereunder, Agent shall have
the same rights hereunder as any other Lender, and may exercise such rights as
though FINOVA had not been appointed as Agent hereunder.

9.4. SET OFF AND SHARING OF PAYMENTS. Upon the occurrence of any Event of
Default and the acceleration of Borrowers' Obligations, each Lender is
authorized by Borrowers, at any time or from time to time thereafter, without
notice to Borrowers or to any other Person, to set off and to appropriate and
apply any and all balances held by such Lender for the account of Borrowers,
and any other Property at any time held or owing by such Lender to or for the
credit or for the account of Borrowers, against and on account of any of
Borrowers' Obligations which are not paid when due. Borrowers agree that (i)
each Lender may exercise its right to set off with respect to amounts in excess
of such Lender's share of Borrowers' Obligations and may sell Participations in
such excess to other Lenders and (ii) any Lender so purchasing a Participation
in the Loan made or other of Borrowers' Obligations held by other Lenders may
exercise all rights of set-off, bankers' lien, counterclaim or similar rights
with respect to such Participation as fully as if such Lender were a direct
holder of the Loan and other of Borrowers' Obligations in the amount of such
Participation.

9.5. LENDERS' DECISIONS. Until a Loan Assignment is made, all Lenders'
Decisions shall be made solely by FINOVA. After a Loan Assignment is made, any
Lenders' Decisions which may be made pursuant to the Loan Instruments by
Lenders or as to which the Lenders shall have the right to consent shall be
made as set forth in the applicable Lender Addition Agreements.

ARTICLE
10.
CLOSING

The Closing Date shall be such date as the parties shall determine, and
the Closing shall take place on such date, provided all conditions for the
Closing as set forth in this Loan Agreement have been satisfied or otherwise
waived by FINOVA. The Closing shall take place at the office of Altheimer &
Gray, 10 South Wacker Drive, Chicago, Illinois, or such other place as the
parties hereto shall agree. Unless the Closing occurs on or before December
31, 1997, this Loan Agreement shall terminate and be of no further force or
effect and, except for any obligation of Borrowers to FINOVA pursuant to
Article XI, none of the parties hereto shall have any further obligation to any
other party.

<PAGE> 58

ARTICLE
11.
EXPENSES AND INDEMNITY

11.1. ATTORNEYS' FEES AND OTHER FEES AND EXPENSES. Whether or not any of
the transactions contemplated by this Loan Agreement shall be consummated,
Borrowers agree to pay to Lenders on demand all reasonable expenses incurred by
Lenders in connection with the transactions contemplated hereby (including,
without limitation, any appraisal fees, environmental audit fees and title and
recording charges) and in connection with any amendments, modifications or
waivers (whether or not the same become effective) under or in respect of any
of the Loan Instruments, including, without limitation:

11.1.1. FEES AND EXPENSES FOR PREPARATION OF LOAN INSTRUMENTS. All
reasonable expenses, disbursements and reasonable attorneys' fees,
actually incurred (including, without limitation, charges for required
mortgagee's title insurance, lien searches, reproduction of documents,
long distance telephone calls and overnight express carriers) of special
counsel and other counsel retained by Lenders in connection with the
preparation and negotiation of the Loan Instruments or any amendments,
modifications or waivers hereto or thereto.

11.1.2. FEES AND EXPENSES IN ENFORCEMENT OF RIGHTS OR DEFENSE OF LOAN
INSTRUMENTS. Any reasonable expenses or other costs, including reasonable
attorneys' fees and expert witness fees, actually incurred by Agent or
Lenders in connection with the enforcement or collection against any
Obligor of any provision of any of the Loan Instruments, and in
connection with or arising out of any litigation, investigation or
proceeding instituted by any Governmental Body or any other Person with
respect to any of the Loan Instruments, whether or not suit is
instituted, including, but not limited to, such costs or expenses arising
from the enforcement or collection against any Obligor of any provision
of any of the Loan Instruments in any state or federal bankruptcy or
reorganization proceeding.

11.2. INDEMNITY. Borrowers agree to indemnify and save Agent and Lenders
harmless of and from the following:

11.2.1. BROKERAGE FEES. The fees, if any, of brokers and finders
engaged by Borrowers.

11.2.2. GENERAL. Any loss, cost, liability, damage or expense
(including reasonable attorneys' fees and expenses) incurred by Agent or
Lenders in investigating, preparing for, defending against, providing
evidence, producing documents or taking other action in respect of any
commenced or threatened litigation, administrative proceeding, suit
instituted by any Person or investigation under any law, including any
federal securities law, the Bankruptcy Code, any relevant state corporate
statute or any other securities law, bankruptcy law or law affecting
creditors generally of any

<PAGE> 59

jurisdiction, or any regulation pertaining to any of the foregoing,
or at common law or otherwise, relating to the transactions contemplated
by or referred to in, or any other matter related to, the Loan
Instruments, whether or not Agent or any Lender is a party to such
litigation, proceeding or suit, or is subject to such investigation.

11.2.3. OPERATION OF COLLATERAL; JOINT VENTURERS. Any loss, cost,
liability, damage or expense (including reasonable attorneys' fees and
expenses) incurred in connection with the ownership, operation or
maintenance of the Collateral, the construction of Agent or any Lender and
Borrowers as having the relationship of joint venturers or partners or the
determination that Agent or any Lender has acted as agent for Borrowers.

11.2.4. ENVIRONMENTAL INDEMNITY. Any and all claims, losses, damages,
out of pocket response costs, clean-up costs and expenses suffered
and/or incurred at any time by Agent or any Lender arising out of or in
any way relating to the existence at any time of any Hazardous Materials
in, on, under, at, transported to or from, or used in the construction
and/or renovation of, any of the Leasehold Property, any parcel of real
estate acquired in connection with an Acquisition, or otherwise with
respect to any Environmental Law, and/or the failure of Borrowers to
perform its obligations and covenants hereunder with respect to
environmental matters, including, but not limited to: (i) claims of any
Persons for damages, penalties, response costs, clean-up costs, injunctive
or other relief, (ii) costs of removal and restoration, including fees of
attorneys and experts, and costs of reporting the existence of Hazardous
Materials to any Governmental Body, and (iii) any expenses or obligations,
including reasonable attorneys' fees and expert witness fees, incurred at,
before and after any trial or other proceeding before any Governmental
Body or appeal therefrom whether or not taxable as costs, including,
without limitation, witness fees, deposition costs, copying and telephone
charges and other expenses, all of which shall be paid by Borrowers to
Agent or such Lender when incurred by Agent or such Lender, except where
such costs were directly caused by the gross negligence or willful
misconduct of FINOVA, any Lender, or by any agent, or third party acting
on behalf of and at the direction of FINOVA or any Lender.

ARTICLE
12.
MISCELLANEOUS

12.1 NOTICES. All notices and communications under this Loan Agreement
shall be in writing and shall be (i) delivered in person, (ii) sent by
facsimile, or (iii) mailed, postage prepaid, either by registered or certified
mail, return receipt requested, or by overnight express carrier, addressed in
each case as follows:

<TABLE>
<S> <C>
To Borrowers: Security Associates International, Inc.
2101 Arlington Heights Road

</TABLE>

<PAGE> 60

<TABLE>
<S> <C>
Arlington Heights, Illinois 60005-4142
Attention: James S. Brannen, President
Facsimile No.: 847/956-9360

Copy to: Sachnoff & Weaver, Ltd.
30 South Wacker Drive
Suite 2900
Chicago, Illinois 60606-7480
Attention: Jerold N. Siegan, Esq.
Facsimile No.: 312/207-6400

To Lender: FINOVA Capital Corporation
311 South Wacker Drive, Suite 4400
Chicago, Illinois 60606
Attention: David J. Alexander
Facsimile No.: 312/322-3530

Copy to: FINOVA Capital Corporation
1850 N. Central Avenue
Phoenix, Arizona 85004
Attention: Vice President, Law
Facsimile No.: 602/207-5036

Copy to: Altheimer & Gray
10 South Wacker Drive
Chicago, Illinois 60606
Attention: Maurice Jacobs, Esq.
Facsimile No.: 312/715-4000
</TABLE>

or to any other address or facsimile number, as to any of the parties hereto,
as such party shall designate in a notice to the other parties hereto. All
notices sent pursuant to the terms of this Section 12.1 shall be deemed
received (i) if personally delivered, then on the Business Day of delivery,
(ii) if sent by facsimile before 2:00 p.m. Phoenix time, on the day sent if a
Business Day or if such day is not a Business Day or if sent after 2:00 p.m.
Phoenix time, then on the next Business Day, (iii) if sent by overnight,
express carrier, on the next Business Day immediately following the day sent,
or (iv) if sent by registered or certified mail, on the earlier of the fifth
Business Day following the day sent or when actually received. Any notice by
facsimile shall be followed by delivery on the next Business Day by overnight,
express carrier or by hand.

12.2 SURVIVAL OF LOAN AGREEMENT; INDEMNITIES. All covenants, agreements,
representations and warranties made in this Loan Agreement and in the
certificates delivered pursuant hereto shall survive the making by Lender of
the Loan and the execution and delivery to Lenders of the Note and of all other
Loan Instruments, and shall continue in full force and effect so long as any of
Borrowers' Obligations remain outstanding, unperformed or unpaid.

<PAGE> 61

Notwithstanding the repayment of all amounts due under the Loan Instruments,
the cancellation of the Note and the release and/or cancellation of any and all
of the Loan Instruments or the foreclosure of any Liens on the Collateral, the
obligations of Borrowers to indemnify Agent and Lenders with respect to the
expenses, damages, losses, costs and liabilities described in Section 11.2
shall survive until all applicable statute of limitations periods with respect
to actions which may be brought against Agent or any Lender have run.

12.3. FURTHER ASSURANCE. From time to time, Borrowers shall execute and
deliver to Agent and Lenders such additional documents as Lenders reasonably may
require to carry out the purposes of the Loan Instruments and to protect
Lenders' rights thereunder, including, without limitation, using its best
efforts in the event any Collateral is to be sold to secure the approval by any
Governmental Body of any application required by such Governmental Body in
connection with such sale, and not take any action inconsistent with such sale
or the purposes of the Loan Instruments.

12.4. TAXES AND FEES. Should any tax (other than taxes based upon the net
income of any Lender), recording or filing fees become payable in respect of
any of the Loan Instruments, or any amendment, modification or supplement
thereof, Borrowers agree to pay the same on demand, together with any interest
or penalties thereon attributable to any delay by Borrowers in meeting any
Lender's demand, and agree to hold Lenders harmless with respect thereto.

12.5. SEVERABILITY. In the event that any provision of this Loan Agreement
is deemed to be invalid by reason of the operation of any law, this Loan
Agreement shall be construed as not containing such provision and the
invalidity of such provision shall not affect the validity of any other
provisions hereof, and any and all other provisions hereof which otherwise are
lawful and valid shall remain in full force and effect.

12.6. WAIVER. No delay on the part of Agent or any Lender in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, and no
single or partial exercise of any right, power or privilege hereunder shall
preclude other or further exercise thereof, or be deemed to establish a custom
or course of dealing or performance between the parties hereto, or preclude the
exercise of any other right, power or privilege.

12.7. MODIFICATION OF LOAN INSTRUMENTS. No modification or waiver of any
provision of any of the Loan Instruments shall be effective unless the same
shall be in writing, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand on Borrowers in any case shall entitle Borrowers to any other or further
notice or demand in the same, similar or other circumstances.

12.8. CAPTIONS. The headings in this Loan Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof.

12.9. SUCCESSORS AND ASSIGNS. This Loan Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.

<PAGE> 62

12.10. REMEDIES CUMULATIVE. All rights and remedies of Agent and Lenders
pursuant to this Loan Agreement, any other Loan Instruments or
otherwise, shall be cumulative and non-exclusive, and may be exercised
singularly or concurrently. Neither Agent nor any Lender shall be required to
prosecute collection, enforcement or other remedies against any Obligor before
proceeding against any other Obligor or to enforce or resort to any security,
liens, collateral or other rights of Agent or Lenders. One or more
successive actions may be brought against Borrowers and/or any other Obligor,
either in the same action or in separate actions, as often as Lenders deem
advisable, until all of Borrowers' Obligations are paid and performed in full.

12.11. ENTIRE AGREEMENT; CONFLICT. This Loan Agreement and the other Loan
Instruments executed pursuant hereto constitute the entire agreement among the
parties hereto with respect to the transactions contemplated hereby or thereby
and supersede any prior agreements, whether written or oral, relating to the
subject matter hereof. In the event of a conflict between the terms and
conditions set forth herein and the terms and conditions set forth in any other
Loan Instrument, the terms and conditions set forth herein shall govern.

12.12. APPLICABLE LAW. THE LOAN INSTRUMENTS SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS AND DECISIONS OF THE STATE OF
ARIZONA. FOR PURPOSES OF THIS SECTION 12.12, THE LOAN INSTRUMENTS SHALL BE
DEEMED TO BE PERFORMED AND MADE IN THE STATE OF ARIZONA.

12.13. JURISDICTION AND VENUE. EACH BORROWER HEREBY AGREES THAT ALL
ACTIONS OR PROCEEDINGS INITIATED BY SUCH BORROWER AND ARISING DIRECTLY OR
INDIRECTLY OUT OF THE LOAN INSTRUMENTS SHALL BE LITIGATED IN THE SUPERIOR COURT
OF MARICOPA COUNTY, OR THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
ARIZONA OR, IF AGENT OR ANY LENDER INITIATES SUCH ACTION, IN ADDITION TO THE
FOREGOING COURTS, ANY COURT IN WHICH AGENT OR SUCH LENDER SHALL INITIATE OR TO
WHICH AGENT OR SUCH LENDER SHALL REMOVE SUCH ACTION, TO THE EXTENT SUCH COURT
HAS JURISDICTION. EACH BORROWER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY AGENT OR
ANY LENDER IN OR REMOVED BY AGENT OR ANY LENDER TO ANY OF SUCH COURTS, AND
HEREBY AGREES THAT PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER
PROCESS OR PAPERS ISSUED THEREIN MAY BE SERVED IN THE MANNER PROVIDED FOR
NOTICES HEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER
PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
SUCH BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT TO
SECTION 12.1. EACH BORROWER WAIVES ANY CLAIM THAT MARICOPA COUNTY, ARIZONA OR
THE DISTRICT OF ARIZONA IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON
LACK OF

<PAGE> 63

VENUE. TO THE EXTENT PROVIDED BY LAW, SHOULD ANY BORROWER, AFTER BEING
SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR
PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING
THEREOF, SUCH BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT
MAY BE ENTERED BY THE COURT AGAINST SUCH BORROWER AS DEMANDED OR PRAYED FOR IN
SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR
BORROWERS SET FORTH IN THIS SECTION 12.13 SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT BY AGENT OR ANY LENDER OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM
OR THE TAKING BY AGENT OR ANY LENDER OF ANY ACTION TO ENFORCE THE SAME IN ANY
OTHER APPROPRIATE JURISDICTION, AND EACH BORROWER HEREBY WAIVES THE RIGHT TO
COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.

12.14. WAIVER OF RIGHT TO JURY TRIAL. AGENT, LENDERS AND BORROWERS
ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER ANY OF THE
LOAN INSTRUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED THEREBY WOULD
BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND, THEREFORE, THE PARTIES AGREE
THAT ANY LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT
OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

12.15. TIME OF ESSENCE. TIME IS OF THE ESSENCE FOR THE PERFORMANCE BY
BORROWERS OF THE OBLIGATIONS SET FORTH IN THIS LOAN AGREEMENT AND THE OTHER LOAN
INSTRUMENTS.

12.16. ESTOPPEL CERTIFICATE. Within 15 days after Agent or any Lender
reasonably requests any Borrower to do so, such Borrower will execute and
deliver to Agent or such Lender a statement certifying (i) that this Loan
Agreement is in full force and effect and has not been modified except as
described in such statement, (ii) the date to which interest on the Note has
been paid, (iii) the Principal Balance, (iv) whether or not to its knowledge an
Incipient Default or Event of Default has occurred and is continuing, and, if
so, specifying in reasonable detail each such Incipient Default or Event of
Default of which it has knowledge, (v) whether to its knowledge it has any
defense, setoff or counterclaim to the payment of the Note in accordance with
its terms, and, if so, specifying each defense, setoff or counterclaim of which
it has knowledge in reasonable detail (including where applicable the amount
thereof), and (vi) as to any other matter reasonably requested by Agent or such
Lender.

12.17. CONSEQUENTIAL DAMAGES. Neither Agent nor any Lender nor any agent or
attorney of Agent or such Lender shall be liable to any Borrower for
consequential damages arising from any breach of contract, tort or other wrong
relating to the establishment,

<PAGE> 64

administration or collection of the Borrowers' Obligations, except in the case
of such Person's gross negligence or willful misconduct.

12.18. COUNTERPARTS. This Loan Agreement may be executed by the parties
hereto in several counterparts and each such counterpart shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same agreement.

12.19. NO FIDUCIARY RELATIONSHIP. No provision in this Loan Agreement or
in any other Loan Instrument, and no course of dealing among the parties
hereto, shall be deemed to create any fiduciary duty by Agent or any Lender to
any Borrower.

12.20. NO STRICT CONSTRUCTION. The language used in this Loan Agreement
shall be deemed to be the language chosen by the parties hereto to express
their mutual intent, and no rule of strict construction shall be applied
against any party hereto.

[remainder of this page intentionally left blank]
IN WITNESS WHEREOF, this Amended and Restated Loan Agreement has been
executed and delivered by each of the parties hereto by a duly authorized
officer of each such party on the date first set forth above.

SECURITY ASSOCIATES INTERNATIONAL, INC. and, AMJ
CENTRAL STATION CORPORATION, INC., each a
Delaware corporation

By:
----------------------------------------------
James S. Brannen, President of each of
the foregoing corporations President

SECURITY ASSOCIATES COMMAND CENTER II, L.L.C., a
Michigan limited liability company, ALL-SECURITY
MONITORING SERVICES, L.L.C., an Illinois limited
liability company, and MONITOR SERVICE GROUP,
L.L.C., a Delaware limited liability company

By:
----------------------------------------------
James S. Brannen, Manager of each of
the foregoing limited liability companies

<PAGE> 65

TELECOMMUNICATIONS ASSOCIATES GROUP, INC., an
Ohio corporation d/b/a ERC

By:
----------------------------------------------
Ronald J. Carr
President

FINOVA CAPITAL CORPORATION, a Delaware
corporation, in its individual capacity and as
agent for all Lenders

By:
----------------------------------------------
David J. Alexander
Vice President

<PAGE> 1

SECOND AMENDMENT TO LEASE

This Second Amendment to Lease (hereinafter referred to as "Amendment-1") is
entered into by and between AMERICAN NATIONAL BANK and TRUST COMPANY OF CHICAGO,
not personally but solely as Trustee under Trust No. 59948 (hereinafter referred
to as "Landlord") and Security Associates International, Inc., (hereinafter
referred to as "Tenant").

A. Whereas, Landlord and Tenant entered into a lease dated November 21, 1995,
(hereinafter referred to as the "Lease"), covering certain premises known as
Suite 100 occupying approximately 4,520 rentable square feet located at 2101
South Arlington Heights Road, Arlington Heights, Illinois 60005 (the
"Building"), and First Amendment to Lease dated December 9, 1996 (hereinafter
referred to as the "Amendment"), covering certain premises known as Suite 110
occupying approximately 2,561 rentable square feet located at the Building, as
more fully described in said Lease.

B. Whereas, Landlord and Tenant now desire to amend the Lease and the Amendment
and also to lease an additional 2,242 rentable square feet located at the
Building and known as Suite 111 at a rental and upon all the other terms,
covenants and conditions as hereinafter set forth, but not otherwise.

Now therefore, in consideration of the mutual covenants and conditions herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

1. Length of Term. The new lease term for Suite 111 shall commence on January 1,
1998 for five (5) years and shall terminate on December 31, 2002. The new lease
term for Suite 100 shall commence on January 1, 1998 for five (5) years and
shall terminate on December 31, 2002. The new lease term for Suite 110 shall
commence on January 1, 1998 for five (5) years and shall terminate on December
31, 2002. The new term shall remain in full force and effect without
interruption for five (5) years except if an event of default occurs.

2. Net Base Rent. The Net Base Rent is listed out on the attached Exhibit "G"
broken down by month. The annual Net Base Rent payments for Suite 100, Suite 110
and Suite 111 are as follows:

Year 1 $108,240.12
Year 2 $108,240.12
Year 3 $108,240.12
Year 4 $111,487.32
Year 5 $114,831.94

3. Security Deposit. When Tenant signs this Amendment-1, then Tenant shall pay
to Landlord the sum of $2,169.14 as security for the performance of it's
obligations under this Amendment-1.

4. Operating Expenses. The Building's Annual Operating Expenses shall be paid in
addition to and apart from the Net Base Rent. These expenses shall be billed as
additional rent in the form of monthly progress payments based upon an occupancy
percentage of 15.102%.

5. Real Estate Taxes. The Building's Real Estate Taxes shall be paid in addition
to and apart from the Net Base Rent. These expenses shall be billed as
additional rent in the form of monthly progress payments based upon an occupancy
percentage of 15.102%.

6. Tenant Improvements. All construction costs to remodel Suite 111 shall be
borne by the Landlord. The scope of work for these tenant improvements are
listed out on the attached Exhibit "H."

<PAGE> 2

7. Payment of Rent. All rent due under the Lease and this Amendment-1, shall be
paid to: Arlington Associates, c/o Liz-Green, Inc. as the Managing Agent, (the
"Manager"). Checks or other form of payment shall be mailed or delivered to the
following address:

Liz-Green, Inc.
Suite 115
2101 South Arlington Heights Road
Arlington Heights, Illinois 60005-4142

8. Broker. Tenant and Landlord represent and warrant to each other that they
have not dealt with any broker or finder in connection with this Second
Amendment to Lease other than Liz-Green, Inc., "Broker". Landlord hereby agrees
to be responsible for and pay any and all brokerage commissions, fees or claims
of any kind owing to Broker in connection with this Amendment-1, and shall
indemnify and hold Tenant harmless from any and all claims, costs, expenses
(including court costs and reasonable legal fees) incurred by Tenant in
connection therewith. Tenant agrees to indemnify and hold Landlord harmless from
and against any claims, costs, expenses (including court costs and reasonable
legal fees) and other liabilities incurred by Landlord by reason of any claim or
action for a commission or other compensation by any other broker or finder, if
any, with which Tenant has dealt with respect to this Amendment-1. Landlord
shall have no liability for any brokerage commissions arising from a sublease or
assignment by Tenant. The provisions of this paragraph shall survive the
expiration or sooner termination of this Second Amendment to Lease.

9. No Other Changes. Except as and to the extent expressly provided for in this
Second Amendment to Lease, the Lease shall remain in full force and effect and
shall be applicable according to all of its terms to Suite 100, Suite 110 and
Suite 111.

10. Entire Agreement. This Amendment-1 constitutes the entire understanding of
the parties regarding this Second Amendment to Lease. There are no promises,
representations or understandings, other than as set forth in these documents.

IN WITNESS WHEREOF, this Amendment to Lease is executed as of December 10,
1997.

TENANT: Security Associates International, Inc.

By: /s/ James S. Brannen
---------------------------------
James S. Brannen, President

Date: 12/11/97
-------------------------------

LANDLORD: AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, not
personally but solely as Trustee under its Trust No. 59948

By: /s/ David Rosenfield
---------------------------------
Title: AVP
------------------------------

<PAGE> 1

Exhibit A

KOLL BUSINESS CENTER LEASE

1. BASIC LEASE TERMS

a. DATE OF LEASE EXECUTION: May 16, 1996

b. TENANT: Telecommunications Associates Group, Inc., An Ohio
Corporation
Trade Name: Emergency Response Center
Address (Leased Premises): 6448 Hwy. 290 East Building/Unit:
E-100 Austin, Texas 78723

c. LANDLORD: TR BRELL AUSTIN CORP., An Illinois Corporation,
d.b.a.: La Costa Corporation
Address (For Notices): Park, by
Koll Management Services, Owner's Authorized Representative
located at 6448 Highway 290 East, Suite B-110, Austin, Texas
78723
with a copy to Asset Management Division. The Koll
Company, P.O. Box 1980, Newport Beach, CA 92660, or to such
other place as Landlord may from time to time designate by
notice to tenant.

d. TENANT'S ONLY PERMITTED USE OF PREMISES: Administration &
Security Alarm Monitoring Offices

e. PREMISES AREA: 2,838 Rentable Square Feet

f. PROJECT AREA: 100,111 Square Feet

Unless otherwise indicated herein, any statement of square
footage, rentable or otherwise, set forth in this Lease, or
which may have been used in calculating rental or any other
amount due under the lease, is an approximation which Landlord
and Tenant agree is reasonable, and the rental or any other
calculation based upon square footage is not subject to
revision whether or not the actual square footage is more or
less.

g. PREMISES PERCENT OF PROJECT:

h. TERM OF LEASE: Commencement June 10, 1996
Expiration July 31, 1999

Number of Months 37 months, 22 days

i. BASED MONTHLY RENT: $ -0-

j. RENT ADJUSTMENT (Initial One):

(2) Step Increase. If this provision is initialed, the step
adjustment provisions of Section 4.b(2) apply as
follows:

<TABLE>
<CAPTION>
Effective Date of New Base
Rent Increase Monthly Rent

k. EXPENSE BASE:
Expense Stop N/A
or
Base Year - TAXES & INSURANCE 1996

l. PREPAID RENT: $ N/A

m. TOTAL SECURITY DEPOSIT: $ 2,500.000, including a $ -0- non-
refundable cleaning fee.

n. BROKER(S): Diana Barbour of Oxford Commercial, Inc.

o. GUARANTORS:
N/A

p. ADDITIONAL SECTIONS
Additional sections of this lease numbered 33 through 34 are attached
hereto and made a part hereof. If none, so state in the following
space ______________.

q. ADDITIONAL EXHIBITS
Additional exhibits lettered A through D are attached hereto
and made a part hereof. If none, so state in the following
space ______________.

<PAGE> 2

2. PREMISES: Landlord lease to Tenant the premises described in Section 1
and in Exhibit A (the "Premises"), located in this project described on
Exhibit B (the "Project"). Landlord reserves the right to modify
Tenant's percentage of the Project as set forth in Section 1 if the
Project size is increased through the development of additional
property. By entry on the Premises, Tenant acknowledges that it has
examined the Premises and accepts the Premises in their present
condition, subject to any additional work Landlord has agreed to do.

3. TERM: The term of this Lease is for the period set forth in
Section 1 commencing on the date in Section 1. If
Landlord, for any reason, cannot deliver possession of the
Premises to Tenant upon commencement of the term, this Lease
shall not be void or voidable, nor shall Landlord be liable to
Tenant for any loss or damage resulting from such delay. In
that event, however, there shall be a rent abatement covering
the period between the commencement of the term and the time
when Landlord delivers possession to Tenant, and all other
terms and conditions of this Lease shall remain in full force
and effect provided, however, that if Landlord cannot deliver
possession of the Premises to Tenant. ON OR BEFORE JULY 15,
1996, THIS LEASE SHALL BE VOIDABLE. THIS LEASE SHALL BE VOID
ONLY WITH PAYMENT OF $800 FROM TENANT FOR LIQUIDATED DAMAGES.
If a delay in possession is caused by Tenant's failure to
perform any obligation in accordance with this Lease, the term
shall commence as set forth in Section 1 and there shall be no
reduction of rent between the commencement of the term and the
time Tenant takes possession.

4. RENT:

A. BASE RENT. Tenant shall pay Landlord monthly base rent in the
initial amount of Section 1 which shall be payable monthly in
advance on the first day of each and every calendar month
("Base Monthly Rent") provided, however, the first month's
rent is due and payable upon execution of this Lease. If the
term of this Lease contains any rental abatement period,
Tenant hereby agrees that if Tenant breaches the Lease and/or
abandons the Premises before the end of the Lease term, or if
Tenant's right to possession is terminated by Landlord because
of Tenant's breach of the Lease, Landlord shall, at its
option, (1) void the rental abatement period; and (2) recover
from Tenant, in addition to any damages due Landlord under the
terms and conditions of the Lease, rent prorated for the
duration of the rental abatement period at a rental rate
equivalent to two (2) times the Base Monthly Rent.

For purposes of Section 467 of the Internal Revenue Code, the
parties to this Lease hereby agree to allocate the stated
rents, provided herein, to the periods which correspond to the
actual rent payments as provided under the terms and
conditions of this agreement.

B. RENT ADJUSTMENT.

C. STEP INCREASE. If Section 1.j(2) is initialed, Base Monthly
Rent shall be increased periodically to the amounts and at the
times set forth in Section 1.j(2).

D. EXPENSES. The purpose of this Section 4.c is to ensure that
Tenant bears a share of all Expenses related to the use,
maintenance, ownership, repair or replacement, and insurance
of the Project. Accordingly, beginning on the date Tenant
takes possession of the Premises, Tenant shall pay to Landlord
that portion of Tenant's share of Expenses related to the
Project which is in excess of the Annual Expense Base shown in
Section 1.

1) EXPENSES DEFINED. The term "Expenses" shall mean all
costs and expenses of the ownership, opera, and
insurance of the Project, including without limitation,
the following costs:

2
<PAGE> 3

(e) Real Property Taxes including all taxes, assessments (general
and special) and other impositions or charges which may be
taxed, charged, levied, assessed or imposed upon all or any
portion of or in relation to the Project or any portion
thereof, any leasehold estate in tie Premises or measured by
rent from the Premises, including any increase caused by the
transfer, sale or encumbrance of the Project or any portion
thereof. "Real Property Taxes" shall also include any form of
assessment, levy penalty, charge or tax (other than estate,
inheritance, net income or franchise taxes) imposed by any
authority having a direct or indirect power to tax or charge,
including, without limitation, any city, county, state,
federal or any improvement or other district, whether such tax
is (1) determined by the area of the Project or the rent or
other sums payable under this Lease; (2) upon or with respect
to any legal or equitable interest of Landlord in the Project
or any part thereof; (3) upon this transaction or any document
to which Tenant is a party creating a transfer in any interest
in the Project; (4) in lieu of or as a direct substitute in
whole or in part of or in addition to any real property taxes
on the Project; (5) based on any parking spaces or parking
facilities provided in the Project; or (6) in consideration
for services, such as police protection, fire protection,
street, side walk and roadway maintenance, refuse removal or
other services that may be provided by any governmental or
quasi-governmental agency from time to time which were
formerly provided without charge or with less charge to
property owners or occupants.

2) ANNUAL ESTIMATE OF EXPENSES. When Tenant takes possession of the
Premises, Landlord shall estimate Tenant's portion of Expenses for the
remainder of the calendar year based on the Tenant's portion of the
Project Area set forth in Section 1. At the commencement of each
calendar year thereafter, Landlord shall estimate Tenant's portion of
Expenses for the coming year based on the Tenant's portion of the
Project Area set forth in Section 1.

3) MONTHLY PAYMENT OF EXPENSES. If Tenant's portion of said estimate of
Expenses shows an increase for the remainder of the calendar year over
the Annual Expense Base, as set forth in Section 1, Tenant shall pay to
Landlord, as additional rent, such estimated increase in monthly
installments of one-twelfth (1/12) beginning on the date Tenant takes
possession of the Premises. If Tenant's portion of said estimate of
Expenses shows an increase for subsequent calendar years over the
Annual Expense Base, as set forth in Section 1 ,Tenant shall pay to
Landlord as additional rent, such estimated increase in monthly
installments o, one-twelfth f1/12) beginning on January 1 of the
forthcoming calendar year, and one-twelfth 11/12) on the first day of
each succeeding calendar month. As soon as practical following each
calendar year, Landlord shall prepare an accounting of actual Expenses
incurred during the prior calendar year and such accounting shall
reflect Tenant's share of Expenses. If the additional rent paid by
Tenant under this Section 4.c.3 during the preceding calendar year was
less than the actual amount of Tenant's share of Expenses, Landlord
shall so notify Tenant and Tenant shall pay such amount to Landlord
within 30 days of receipt of such notice. Such amount shall be deemed
to have accrued during the prior calendar year and shall be due and
payable from Tenant even though, the term of this Lease has expired or
this Lease has been terminated prior to Tenant's receipt of this
notice. Tenant shall have thirty (30) days from receipt of such notice
to contest the amount due BUT TENANT SHALL PAY ITS SHARE OF THE
EXPENSES DURING SUCH PROTEST; failure to so notify Landlord shall
represent final determination of Tenant's share of expenses.
If Tenant's payments were greater than the actual amount, then such
overpayment shall be credited by Landlord to all present rent due under
this Section 4.c.3. TENANT SHALL HAVE THE RIGHT TO A REASONABLE
INSPECTION OR AUDIT OF THE BOOKS AND RECORDS OF LANDLORD UPON NOTICE
AND DURING REGULAR BUSINESS HOURS AT TENANT'S SOLE COST.

3
<PAGE> 4

4) RENT WITHOUT OFFSET AND LATE CHARGE. All rent shall be paid by Tenant
to Landlord monthly in advance on the first day of every calendar
month, at the address shown in Section 1, or such other place as
Landlord may designate in writing from time to time. All rent shall be
paid without prior demand or notice and without any deduction or offset
whatsoever. All rent shall be paid in lawful currency of the United
States of America All rent due for any partial month shall be prorated
at the rate of 1/30th of the total monthly rent per day. Tenant
acknowledges that late payment by Tenant to Landlord of any rent or
other sums due under this Lease will cause Landlord to incur costs not
contemplated by this Lease the exact amount of such costs being
extremely difficult and impracticable to ascertain. Such costs include,
without limitation processing and accounting charges and late charges
that may be imposed on Landlord by the terms of any encumbrance or note
secured by the Premises. Therefore, if any rent or other sum due from
Tenant is not received when clue, Tenant shall pay to Landlord an
additional sum equal to 10% of such overdue payment. Landlord and
Tenant hereby agree that such late charge represents fair and
reasonable estimate of the costs that Landlord will incur by reason of
any such late payment and that the late charge is in addition to any
and all remedies available to the Landlord and that the assessment
and/or collection of the late charge shall not be deemed a waiver of
any other default. Additionally, all such delinquent rent or other
sums, plus this late charge, shall bear interest at the then maximum
lawful rate permitted to be charged by Landlord. Any payments of any
kind returned for insufficient funds will be subject to an additional
handling charge of $25.00, and thereafter, Landlord may require Tenant
to pay all future payments of rent or other sums due by money order or
cashier's check.

5. PREPAID RENT. Upon the execution of this Lease Tenant shall pay to Landlord
the prepaid rent set forth in Section 1, and if Tenant is not in default of
any provisions of this Lease, such prepaid rent shall be applied toward the
rent due for the last month of the term. Landlord's obligations with
respect to the prepaid rent are those of a debtor and not of a trustee, and
Landlord can commingle the prepaid rent with Landlord's general funds.
Landlord shall not be required to pay Tenant interest on the prepaid rent.
Landlord shall be entitled to immediately endorse and cash Tenant's prepaid
rent; however, such endorsement and cashing shall not constitute Landlord's
acceptance of this lease. In the event Landlord does not accept this Lease,
Landlord shall return said prepaid rent.

6. DEPOSIT. Upon execution this Lease, Tenant shall deposit the security
deposit set forth in Section 1 with Landlord, in part as security for the
Performance by Tenant of the provisions of this Lease and in part as a
cleaning fee. If Tenant is in default, Landlord can use the security
deposit or any portion of it to cure the default or to compensate Landlord
for any damages sustained by Landlord resulting from Tenant's default. Upon
demand, Tenant shall immediately pay to Landlord a sum equal to the portion
of the security deposit expanded or applied by Landlord to maintain the
security deposit in the amount initially deposited with Landlord. In no
event will Tenant have the right to apply any part of the security deposit
to any rent or other sums due under this Lease. If Tenant is not in default
at the expiration or termination of this Lease, Landlord shall return the
entire security deposit to Tenant, except for 10% of first month's rent or
$125, whichever is greater, which Landlord shall retain as a non-refundable
cleaning fee. Landlord's obligations with respect to the deposit are those
of a debtor and not of a trustee, and Landlord can commingle the security
deposit with landlord's general funds. Landlord shall not be required to
pay Tenant interest on the deposit. Landlord shall be entitled to
immediately endorse and cash Tenant's prepaid deposit; however, such
endorsement and cashing shall not constitute Landlord's acceptance of this
Lease. In the event Landlord does not accept this Lease, landlord shall
return said prepaid deposit.

7. USE OF PREMISES AND PROJECT FACILITIES. Tenant shall use the Premises
solely for the purposes set forth in Section 1 and for no other purpose
without obtaining the prior written consent of Landlord. Tenant
acknowledges that neither Landlord nor any agent of Landlord has made any
representation of warranty with respect to the Premises or with respect to
the suitability of the Premises or the Project for the conduct of Tenant's
business, nor has Landlord agreed to undertake any modification alteration
or improvement to the Premises or the Project, except as provided in
writing in this Lease. Tenant acknowledges that Landlord may from time to
time, at its sole discretion, make such modifications, alterations,
deletions or improvements to the Project as Landlord may deem necessary or
desirable, without compensation or notice to Tenant but Landlord will use
its best effort to prevent interruption to Tenant's business.. Tenant shall
promptly comply with all laws, ordinances, orders and regulations affecting
the Premises and the Project, including, without limitation, any rules and
regulations that may be attached to this Lease and to any reasonable
modifications to these rules and regulations as Landlord may adopt from
time to time. Tenant shall not do or permit anything to be done in or about
the Premises or bring or keep anything in the Premises that will in any way
increase the premiums paid by Landlord on its insurance related to the
Project or which will in any way increase the premiums for fire or casualty
insurance carried by other tenants in the Project Tenant will not perform
any act or carry on any practices that may injure the Premises or the
Project; that may be a nuisance or menace to other tenants in the Project;
or that shall in anyway interfere with the quiet enjoyment of such other
tenants. Tenant shall not use the Premises for sleeping, washing clothes,
cooking or the preparation, manufacture or mixing of anything that might
emit any objectionable odor, noise, vibrations or lights onto such other
tenants. If sound insulation is required to muffle noise produced by Tenant
on the Premises, Tenant at its own cost shall provide all necessary
insulation. Tenant shall not do any thing on the Premises which will
overload any existing parking or service to the Premises. Pets and/or
animals of any type shall not be kept on the Premises with the exception of
seeing-eye dogs.

On trash generated in the normal course of the business of Tenant's
Permitted Use, and only such trash actually generated by work on site in
the Leased Premises, may be disposed of in trash containers at the
designated

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locations. Only the materials permitted by law to be disposed of in the
containers may be so disposed of, and under no circumstances may "hazardous
waste" materials be disposed of in Project trash containers. No trash or
scrap materials may be brought into the Premises, Project or Property at
any time for disposal, storage, or any other purpose. No "trade" trash,
including but not limited to, industrial scrap, carpet scrap, or wallboard
may be disposed of in the containers. No storing of trash or scrap is
permitted in or about the Premises, Project or Property. In the event
Tenant generates more trash by work on site in the Leased Premises in the
normal course of Tenant's permitted use than can be handled with the
current pickup, Tenant shall be assessed the costs, and Tenant shall be
exclusively responsible immediately to pay for upon demand, any additional
service.

8. SIGNANGE. All signing shall comply with rules and regulations set forth by
Landlord as may be modified from time to time. Current rules and
regulations relating to signs are described on Exhibit C. Tenant shall
place no window covering (e.g., shades, blinds, curtains, drapes, screens,
or tinting materials), stickers, signs, lettering, banners or advertising
or display material on or near exterior windows or doors if such materials
are visible from the exterior of the Premises, without Landlord's prior
written consent. Similarly, Tenant may not install any alarm boxes, foil
protection tape or other security equipment on the Premises without
Landlord's prior written consent. Any material violating this provision may
be destr4oyed by Landlord without compensation to Tenant.

9. PERSONAL PROPERTY TAXES. Tenant shall pay before delinquency all taxes,
assessments, license fees and public charges levied, assessed or imposed
upon its business operations as well as upon all trade fixtures, leasehold
improvements, merchandise and other personal property in or about the
Premises.

10. PARKING. Landlord grants to Tenant and Tenant's customers, suppliers,
employees and invitees, a non-exclusive license to use the designated
parking areas in the Project for the use of motor vehicles during the term
of this Lease. Landlord reserves the right at any time to grant similar
non-exclusive use to other tenants, to promulgate rules and regulations
relating to the use of such parking areas, including reasonable
restrictions on parking by tenants and employees, to designate specific
spaces for the use of any tenant, to make changes in the parking layout
from time to time, and to establish reasonable time limits on parking.
Overnight parking is prohibited and any vehicle violating this or any other
vehicle regulation adopted by Landlord is subject to removal at the owner's
expense.

11. UTILITIES. (Strike and initial clause which does not apply).

A. OFFICE SPACE. Landlord shall provide, in the area shown on Exhibit A
hereto as office space, all heat, electricity, air conditioning and
gas, if any, during the hours of 8:00 a.m. to 6:00 p.m., Monday
through Friday, except legal holidays and water for restroom
facilities, if any. If Tenant uses water, electricity, heat or air
conditioning in excess of normal office use, Landlord may separate
meter the increased use and Tenant shall pay the increased cost
directly to the appropriate utility; or Landlord may, in its sole
judgment, measure or estimate the increase use and Tenant shall pay
Landlord, on demand, any increased costs so measured or estimated. In
any event, Tenant shall pay all telephone, waste removal and any
other services for which Tenant shall contract.

B. INDUSTRIAL SPACE. Tenant shall pay for all heat,
light, power, electricity, telephone or other service
metered, chargeable or provided to the Premises. Landlord
reserves the right to install separate meters for any such
utility and to charge Tenant for the costs of such
installation.

12. MAINTENANCE. Landlord shall maintain, in good condition, the structural
parts of the Premises, which shall include only the foundation, bearing and
exterior walls (excluding glass), subflooring and roof (excluding
skylights), the unexposed electrical, plumbing and sewerage systems,
including without limitation, those portions of the systems lying outside
the Premises, exterior doors (excluding glass), window frames, gutters and
downspouts on the Building and the heating, ventilating and air
conditioning system servicing the Premises; Except as provided above,
Tenant shall maintain and repair the Premises in good condition,
including, without limitation, maintaining and repairing all walls,
floors, ceiling, interior doors, exterior and interior windows and
fixtures as well as damage caused by Tenant, its agents, employees or
invitees. Upon expiration or termination of this Lease, Tenant shall
surrender the Premises to Landlord in the same condition as existed at the
commencement of the term, except for reasonable wear and tear or damage
caused by fire or other casualty for which Landlord has received all funds
necessary for restoration of the Premises from insurance proceeds.

13. ALTERATIONS. Except Tenant's requirements for telephone lines, cabling and
equipment, provided in Paragraph 33 and Paragraph 34, Tenant shall not make
any alterations to the Premises, or to the Project, including any changes
to the existing landscaping, without Landlord's prior w2riten consent. If
Landlord gives its consent to such alternations, Landlord may post notices
in accordance with the laws of the state in which the premises are located.
Any permanent, non-removable alterations made shall remain on and be
surrendered with the Premises upon expiration or termination of this Lease,
except that Landlord may, within 30 days before the 30n days after
expiration of the term, elect to require Tenant to remove any alterations
which Tenant may have made to the Premises. If Landlord so elects, at its
own cost Tenant shall restore the Premises to the condition designated by
Landlord in its election, before the last day of the term or within 30 days
after notice of its election is given, whichever is later.

Should Landlord consent in writing to Tenant's alteration of the Premises,
Tenant shall contract with a contractor approved by Landlord for the
construction of such alterations, shall secure all appropriate governmental
approvals and permits, and shall complete such alterations with due
diligence in compliance with plans and specifications approved by Landlord.
All such construction shall be performed in a manner which will not

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interfere with the quiet enjoyment of other tenants of the Project. Tenant
shall pay all costs for such construction and shall keep the Premises and
the Project free and clear of all mechanics' liens which may result from
construction by Tenant. If Landlord gives its consent, no such alterations
will proceed without Landlord's prior written approval of Tenant's
contractor, which shall be conditioned on proof of insurance by Tenant's
contractor for public liability and automobile liability and property
damage insurance with limits not less than $1,000,000/$250,000/$500,000
respectively endorsed to show Landlord as an additional insured and for
worker's compensation as required and detailed plans and specifications for
such work.

Tenant will keep the Premises and Property free from any liens arising out
of any work performed, materials furnished or obligations incurred by
Tenant, its agents or contractors. Tenant agrees that should any lien be
posted on the property due to work performed, materials furnished, or
obligations incurred by it, that it will immediately notify and proceed to
remove such lien. Tenant further acknowledges that it will remain liable to
landlord and indemnify it for any costs or damages to Landlord or the
property as a result of such liens. Landlord has the right to post and keep
posted in the Premises and/or Property, any notices that may be provided by
law or which Landlord may deem to be proper for the protection of Landlord,
the Premises and/or Property from such liens.

14. RELEASE AND INDEMNITY. As material consideration to Landlord, Tenant agrees
that Landlord shall not be liable to Tenant for any damage to Tenant or
Tenant's property from any cause, and Tenant waives all claims against
Landlord for damage to persons or property arising from any reason, except
for damage resulting directly from landlord's breach of its express
obligations under this Lease which landlord has not cured within a
reasonable time after receipt of written notice of such breach from Tenant
or Landlord's, its employees';, representatives', or agents' willful
misconduct. Tenant shall indemnify and hold Landlord harmless from all
damages arising out of any damage to any person or property occurring in,
on or about the Premises or Tenant's use of the Premises or Tenant's breach
of any term of this Lease.

15. INSURANCE. Tenant, at its cost, shall maintain public liability and
property damage insurance and products liability insurance with a single
combined liability limit of $1,000,000 insuring against all liability of
Tenant and its authorized representatives arising out of or in connection
with Tenant's use or occupancy of the Premises. Public liability insurance,
products liability insurance and property damage insurance shall insure
performance by Tenant of the indemnity provisions of Section 143. Landlord
shall be named as additional insured and the policy shall contain
cross-liability endorsements. On all its personal property, at its cost,
Tenant shall maintain a policy of standard fire and extended coverage
insurance with vandalism and malicious mischief endorsements and all risk"
coverage on ______ Tenant's improvements and alterations in or about the
Premises, to the extent of at least 90% of their full replacement value.
The proceeds from any such policy shall be used by Tenant for the
replacement of personal property and the restoration of Tenant's
improvements or alterations. This policy will contain an express waiver, in
favor of Landlord, of any right or subrogation by the insurer. All
insurance required to be provided by Tenant under this Lease shall release
Landlord from any claims for damage to any person or the Premises and the
Project, and to Tenant's fixtures, personal property, improvements and
alterations in or on the Premises or the Project, caused by or resulting
from risks insured against under any insurance policy carried by Tenant and
in force at the time of such damage. All insurance required to be provided
by Tenant under this Lease: (a) shall be issued by Insurance companies
authorized to do business in the state in which the premises are located
with a financial rating of at least an A XII status as related in the most
recent edition of Best's Insurance Reports; (b) shall be issued as a
primary policy; and (c) shall contain an endorsement requiring at least 30
days written notice of cancellation to Landlord and Landlord's lender,
before cancellation or change in coverage, scope or amount of any policy.
Tenant shall deliver a certificate or copy of such policy together with
evidence of payment of all current premiums to Landlord within 30 days of
execution of this Lease. Tenant's failure to provide evidence of such
coverage to landlord may, in Landlord's sole discretion, constitute a
default under this Lease.

16. DESTRUCTION. If during the term, the Premises or Project are more than 10%
destroyed from any cause, or rendered inaccessible or unusable from any
cause, Landlord may, in its sole discretion terminate this Lease by
delivery of notice to Tenant within 30 days of such event without
compensation to Tenant. If in Landlord's estimation the Premises cannot be
restored within 90 days following such desecration, the landlord shall
immediately notify Tenant and Tenant may terminate this Lease by delivery
of notice to Landlord within 30 days of receipt of Landlord's notice. If
landlord does not terminate this lease and if in landlord's estimation the
Premises can be restored within 90 days, then Landlord shall commence to
restore the Premises in compliance with then existing laws and shall
complete such restoration with due diligence. In such event, this Lease
shall remain in full force and effect, but there shall be an abatement of
rent between the date of destruction and the date of completion of
restoration, based on the extent to which destruction interferes with
Tenant's use of the Premises.

17. CONDEMNATION.

a. OBLIGATIONS TO BE GOVERNED BY LEASE. If during the-term of the Lease
there is any taking of all or any part of the Premises or the Project,
the rights and obligations of the parties shall be determined pursuant
to this Lease.

b. TOTAL OR PARTIAL TAKING. If the Premises are totally taken by
condemnation, this Lease shall terminate on the date of taking. If any
portion of the Premises is taken by condemnation, this Lease shall
remain in effect, except that Tenant can elect to terminate this Lease
if the remaining portion of the Premises is rendered unsuitable for
Tenant's continued use of the Premises. If Tenant elects to terminate
this Lease,

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Tenant must exercise its right to terminate by giving notice to
Landlord within 30 days after the nature and extent of the taking have
been finally determined. If Tenant elects to terminate this Lease,
Tenant shall also notify Landlord of the date of termination, which
date shall not be earlier than 30 days nor later than 90 days after
Tenant has notified Landlord of its election to terminate; except that
this Lease shall terminate on the date of taking if the date of taking
falls on a date before the date of termination as designated by Tenant.
If any portion f the Premises is taken by condemnation and this Lease
remains in full force and effect, on the date of taking the rent shall
be reduced by an amount in the same ratio as the total number of square
feet in the Premises taken bears to the total number of square feet in
the Premises immediately before the date of taking. Tenant will not
because of such taking assert any claim against the Landlord or the
taking authority for any compensation because of such taking, and
Landlord will be entitled to receive the entire amount of any
compensation or award without deduction for any estate of interest of
Tenant, unless Landlord would not be entitled to such award and such
award or part thereof does not diminish Landlord's award.

18. ASSIGNMENT OR SUBLEASE. Tenant shall not assign or encumber its interest in
this Lease or the Premises or sublease all or any part of the Premises or
allow any other person or entity (except Tenant's authorized
representatives, employees, invitees, or guests) to occupy or use all or
any part of the Premises without first obtaining Landlord's consent which
Landlord may withhold in its sole discretion. Any assignment, encumbrance
or sublease without Landlord's written consent shall be voidable and at
Landlord's election, shall constitute a default. If Tenant is a partnership
a withdrawal or change, voluntary, involuntary or by operation of law of
any partner; or the dissolution of the partnership, shall be deemed a
voluntary assignment. If Tenant consists of more than one person, a
purported assignment, voluntary or involuntary or by operation of law from
one person or the other shall be deemed a voluntary assignment. If Tenant
is a corporation, any dissolution, merger; consolidation or other
reorganization of Tenant, or sale or other transfer of a controlling
percentage of the capital stock of Tenant, or the sale of at least 25% of
the value of the assets of Tenant shall be deemed a voluntary assignment.
The phrase "controlling percentage" means ownership of and right to vote
stock possessing at least 25% of the total combined voting power of all
classes of Tenant's capital stock issued, outstanding and entitled to vote
for election of directors. This Section 18 shall not apply to corporations
the stock of which is traded through an exchange or over the counter. All
rent received by Tenant from its subtenants in excess of the rent payable
by Tenant to Landlord under this Lease shall be paid to Landlord, or any
sums to be paid by an assignee to Tenant in consideration of the assignment
of this Lease shall be paid to Landlord. If Tenant requests Landlord to
consent to a proposed assignment or subletting, Tenant shall pay to
Landlord, whether or not consent is ultimately given, $100 or Landlord's
reasonable attorneys' fees incurred in connection with such request,
whichever is greater. Any transfer of a controlling percentage of capital
stock to merger, consolidation or reorganization with any affiliated
entity, family member or person having interest in Tenant shall not be
deemed an assignment or subletting hereunder.

No interest of Tenant in this Lease shall be assignable by involuntary
assignment through operation of law (including without limitation the
transfer of this Lease by testacy or intestacy). Each of the following acts
shall be considered an involuntary assignment: (a) If Tenant is or becomes
bankruptcy or insolvent, makes an assignment for the benefit of creditors,
or institutes proceedings under the Bankruptcy Act in which Tenant is the
bankrupt; or if Tenant is a partnership or consists of more than one person
or entity, if any partner or the partnership or other person or entity is
or becomes bankrupt or insolvent or makes an assignment for the benefit of
creditors; or (b) ____ a writ of attachment or execution ________ on this
Lease; or (c) If in any proceeding or action ____ which Tenant is a party,
a receiver is appointed with authority to take possession of the Premises.
An involuntary assignment shall constitute a default by Tenant and Landlord
shall have the right to elect to terminate this Lease, in which case the
Lease shall not be treated as an asset of Tenant.

19. DEFAULT. The occurrence of any of the following shall constitute a default
by Tenant. (a) A failure to pay rent or other charge when due and such
default continues for a period of 5 (five) days after such written notice
of default occurs: (b) Abandonment and vacation of the Premises (failure to
occupy and operate the Premises for ten consecutive days shall be deemed an
abandonment and vacation); or (c) Failure to perform any other provision of
this Lease and such default continues for 15 (fifteen) days after such
written notice of default occurs.

20. LANDLORD'S REMEDIES. Landlord shall have the following remedies if Tenant
is in default. (These remedies are not exclusive; they are cumulative and
in addition to any remedies now or later allowed by law): Landlord may
terminate Tenant's right to possession of the Premises at any time. Tenant
hereby grants Landlord full and free right, whether by changing or picking
of locks in necessary, to enter and repossess the Premises, with or without
process of law. Tenant releases Landlord of any liability for any damage
resulting therefrom and waives any right to claim damage for such re-entry.
Tenant also agrees that Landlord has not waived or relinquished any other
right given to it hereunder or by operation of law. No act by Landlord
other than giving notice to Tenant shall terminate this Lease. Acts of
maintenance, efforts to relet the Premises, or the appointment of a
receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession.
Upon termination of Tenant's right to possession, Landlord has the right to
recover from Tenant: (1) The worth of the unpaid rent that had been earned
at the time of termination of Tenant's right to possession; (2) The worth
of the amount of the unpaid rent that would have been earned after the date
of termination of Tenant's right to possession; (3) Any other amount,
including court, attorney and collection costs necessary to compensate
Landlord for all detriment proximately caused by Tenant's default. "The
Worth," as used for Item 20(1) in this Paragraph 20 is to be computed by
allowing interest at the maximum rate an individual is permitted to charge
by law or 12%, whichever is greater. "The worth at the time of the

<PAGE> 8

award" as used for Item 20(2) in this Paragraph 20 is to be computed by
discounting the amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of termination of Tenant's right of possession.

21. ENTRY ON PREMISES. Landlord and its authorized representatives shall have
the right to enter the Premises at all reasonable times for any of the
following purposes: (a) To determine whether the Premises are in good
condition and whether Tenant is complying with its obligations under this
Lease; (b) To do any necessary maintenance and to make any restoration to
the Premises or the Project that Landlord has the right or obligation to
perform; (c) To post "for sale" signs at any time during the term, to post
"for rent" or "for lease" signs during the last 90 days of the term, or
during any period while Tenant is in default; (d) To show the Premises to
prospective brokers, agents, buyers, tenants or persons interested in
leasing or purchasing the Premises, at any time during the term; or (e) To
repair, maintain or improve the Project and to erect scaffolding and
protective barricades around and about the Premises but not so as to
prevent entry to the Premises and to do any other act or thing necessary
for the safety or preservation of the Premises or the Project. Landlord
shall not be liable in any manner for any inconvenience, disturbance, loss
of business, nuisance or other damage arising out of Landlord's entry onto
the Premises as provided in this Section 21. Tenant shall not be entitled
to an abatement or reduction of rent if Landlord exercises any rights
reserved in this Section 21. Landlord shall conduct his activities on the
Premises as provided herein in a manner that will cause the least
inconvenience, annoyance or disturbance to Tenant. For each of these
purposes, Landlord shall at all times have and retain a key with which to
unlock all the doors in, upon and about the Premises, excluding Tenant's
vaults and sales. Tenant shall not alter any lock or install a new or
additional lock or bolt on any door of the Premises without prior written
consent of Landlord. If Landlord gives its consent, Tenant shall furnish
Landlord with a key for any such lock.

22. SUBORDINATION. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any mortgagee or any beneficiary of a Deed of Trust
with a lien on the Project or any ground lessor with respect to the
Project, this Lease shall be subject and subordinate at all times to (a)
all ground leases or underlying leases which may now exist or hereafter be
executed affecting the "Project, and (b) the lien of any mortgage or deed
of trust which may now exist or hereafter be executed in any amount for
which the Project, ground leases or underlying leases, or Landlord's
interest or estate in any of said items is specified as security. In the
event that any ground lease or underlying lease terminates for any reason
or any mortgage or Deed of Trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to the become the Tenant of the successor in interest
to Landlord, at the option of such successor in interest. Tenant covenants
and agrees to execute and deliver; upon demand by Landlord and in the form
requested by Landlord any additional documents evidencing the priority or
subordination of this Lease with respect to any such ground lease or
underlying leases or the lien of any such mortgage or Deed of Trust. Tenant
hereby irrevocably appoints Landlord as attorney-in-fact of Tenant to
execute, deliver and record any such document in the name and on behalf of
Tenant.

Tenant, within ten days from notice from Landlord, shall execute and
deliver to Landlord, in recordable form, certificates stating that this
Lease is not in default, is unmodified and in full force and effect, or in
full force and effect as modified, and stating the modification. This
certificate should also state the amount of current monthly rent, the dates
to which rent has been paid in advance, and the amount of any security
deposit and prepaid rent. Failure to deliver this certificate to Landlord
within ten days shall be conclusive upon Tenant that this Lease is in full
force and effect and has not been modified except as may be represented by
Landlord.

23. NOTICE. Any notice, demand, request, consent, approval or communication
desired by either party or required to be given, shall be in writing and
served either personally or sent by prepaid certified first class mail,
addressed as set forth in Section 1. Either party may change its address by
notification to the other party. Notice shall be deemed to be communicated
48 hours from the time of mailing, or from the time of service as provided
in this Section 23.

24. WAIVER. No delay or omission or remedy by Landlord shall impair such right
or remedy by Landlord shall impair such right or remedy or be construed as
a waiver. No act or conduct of Landlord, including without limitation,
acceptance of the keys to the Premises, shall constitute an acceptance of
the surrender of the Premises by Tenant before the expiration of the term.
Only written notice from Landlord to Tenant shall constitute acceptance of
the surrender of the Premises and accomplish termination of the Lease.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approved shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant. Any
waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of
the Leases.

25. SURRENDER OF PREMISES: Upon expiration of the term, Tenant shall surrender
to Landlord the Premises and all Tenant improvements and alterations in
good condition, except for ordinary wear and tear and alterations Tenant
has the right or is obligated to remove under the provisions of Section 13
herein. Tenant shall remove all personal property including, without
limitation, all wallpaper; paneling and other decorative improvements or
fixtures and shall perform all restoration made necessary by the removal of
any alterations or Tenant's personal property before the expiration of the
term, including for example, restoring all wall surfaces to their condition
prior to the commencement of this Lease. Landlord can elect to retain or
dispose of in any manner Tenant's personal property not removed from the
Premises by Tenant prior to the expiration of the term. Tenant waives all
claims against Landlord for any damage to Tenant resulting from Landlord's
retention or disposition of Tenant's

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personal property. Tenant shall be liable to Landlord's costs for storage,
removal or disposal of Tenant's personal property.

If Tenant, with Landlord's consent, remains in possession of the Premises
after expiration or termination of the term, or after the date in any
notice given by Landlord to Tenant terminating this Lease, such possession
by Tenant shall be deemed to be a month-to-month tenancy terminable on
written 30-day notice at any time, by either party. All provisions of this
Lease, except those pertaining to term and rent, shall apply to the
month-to-month tenancy. Tenant shall pay monthly rent in an amount equal to
125% of Rent for the last full calendar month during the regular term plus
100% of said last month's estimate of Tenant's share of Expenses pursuant
to Section 4.c43.

26. LANDLORD'S LIEN/STORAGE. As security for payment of rent, damages and all
other payments required to be made by this Lease, Tenant hereby grants to
Landlord a lien upon all property of Tenant now or subsequently located
upon the leased Premises. If Tenant abandons or vacates any substantial
portion of the Lease Premises or is in default in the payment of any rent
or additional rent, damages or other payments required to be made by this
Lease or is in default of any other provision of this Lease, Landlord may
enter upon the leased premises, whether by changing or picking locks, and
take possession pursuant to this Lease of all or any part of the personal
property, and may sell all or any part of the personal property at a public
or private sale, in one or successive sales to the highest bidder all of
Tenant's title and interest in the personal property sold to him.

Any and all property which may be removed from the Premises by Landlord
pursuant to the authority of this Lease or of law, to which Tenant is or
may be entitled, may be handled, removed and stored, as the case may be, by
or at the direction of Landlord at the risk, cost and expanse of Tenant,
and Landlord shall in no event be responsible for the value, preservations
or safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and
all expenses incurred in such removal and all storage charges against such
property so long as the same shall be in Landlord's possession or under
Landlord's control. Any such property of Tenant not retaken by Tenant from
storage within 30 days after removal from the Premises shall, at Landlord's
option, be deemed conveyed by Tenant to Landlord under this Lease as by a
bill of sale without further payment or credit by Landlord to Tenant.

27. RULES AND REGULATIONS. Tenant will faithfully observe and comply with the
Rules and Regulations printed on or attached to this Lease and Landlord
reserves the right to modify and amend them as it deems necessary. Landlord
will not be responsible to Tenant for the nonperformance by any other
lessee or occupant of the Project of any of said Rules and Regulations.

Violation of any such Rules and Regulations shall be deemed a material
breach of this Lease by Tenant.

28. PROJECT PLAN. In the event Labor requires the Premises for use in
conjunction with another suite or for other reasons connected with the
Project planning program, Landlord, upon notifying Tenant in writing, shall
have the right to move Tenant to space in the Project of which the Premises
forms a part, at Landlord's sole cost and expense , and the terms and
conditions of the original Lease will remain in full force and effect
excepting that the Premises will now be in a new location. However, i the
new space does not meet with Tenant's approval, Tenant will have the right
to cancel this Lease upon giving Landlord thirty (30) days' notice within
ten (10) days of receipt of Landlord's notification. Should Tenant elect
to cancel the Lease as provided in this paragraph, the effective
expiration date will equal the projected move-in date of the suit3
Landlord wishes Tenant to move to as indicated in Landlord's written
notification to Tenant.

29. FORCE MAJEURE. Landlord will have no liability to Tenant, nor will Tenant
have any right to terminate this Lease or abate Monthly Rent or Additional
Rent or assert a claim of partial or total actual or constructive eviction,
because of Landlord's failure to perform any of its obligations in the
Lease if the failure is due in part or in full to reasons beyond Landlord's
reasonable control, including without limitation, strikes, or other labor
difficulties, inability to obtain necessary governmental permits and
approvals, war, riot, mandatory or prohibitive injunction issued in
connection with the civil insurrection, accidents, acts of God, and
governmental preemption in connection with a national emergency
(collectively referred to as "Force Majeure"). If Landlord fails to perform
its obligations because of any reasons beyond Landlord's reasonable control
(including those enumerated above), the period for Tenant's performance
will be extended day for day for the duration of the cause of Landlord's
failure, except for Tenant's obligation to pay Rent as required under the
Lease.

30. SECURITY MEASURES. Tenant hereby acknowledges that the rental payable to
Landlord hereunder does not include the cost of guard service or other
security measures, and that Landlord shall have no obligation whatsoever to
provide same. Tenant assumes all responsibility for the protection of the
Premises, and all real and personal property that it, its agents,
and/or its invitees may use, from the acts of third parties.

31. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one part to the other under the
provisions hereof, the party against whom the obligation to pay the money
is asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and shall survive the
right on the part of said party to initiate suit or other action for
recovery of such sum. If it shall be adjudged that there was no legal
obligation on the part of said party to pay such sum or any part thereof,
said party shall be entitled to recover such sum or so much thereof as it
was not legally required to pay under the provisions of this Lease.

9
<PAGE> 10

32. LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder, Tenant agrees that, in the event of any actual or alleged
failure, breach or default of this Lease by Landlord, if Landlord is a
partnership:

a. The sole and exclusive remedy shall be against the partnership and
its partnership assets;

b. No partner of Landlord shall be sued or named as a party in any suit
or action (except as may be necessary to secure jurisdiction of the
partnership;

c. No service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the
partnership);

d. No partner of Landlord shall be required to answer or otherwise plead
to any service or process;

e. No judgment may be taken against any partner of Landlord;

f. Any judgment taken against any partner of Landlord may be vacated and
set aside at any time without hearing;

g. No writ of execution will ever be levied against the assets of any
partner of Landlord; and

h. These covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.

Tenant agrees that each of the foregoing provisions shall be
applicable to any covenant or agreement either expressly contained in
this Lease or imposed by statute or at common law.

33. MISCELLANEOUS PROVISIONS.

a. TIME OF ESSENCE. Time is of the essence of each provision of this
Lease.

b. SUCCESSOR. This Lease shall be binding on and inure to the benefit of
the parties and their successors, except as provided in Section 18
herein.

c. LANDLORD'S CONSENT. Any consent required by Landlord under this Lease
must be granted in writing and may be withheld by Landlord in its
sole and absolute discretion.

d. COMMISSIONS. Each party represents that it has not had dealings with
any real estate broker, finder or other person with respect to this
Lease in any manner, except for the broker identified in Section 1,
who shall be compensated by Landlord.

e. OTHER CHARGES. If Landlord becomes a party to any litigation
concerning this Lease, the Premises or the Project, by reason of any
act or omission of Tenant or Tenant's authorized representatives,
Tenant shall be liable to Landlord for reasonable attorneys' fees and
court costs incurred by Landlord in the litigation whether or not
such litigation leads to actual court action. Should the court render
a decision which is thereafter appealed by any party thereto, Tenant
shall be liable to Landlord for reasonable attorneys' fees and court
costs incurred by Landlord in connection with such appeal.

If either party commences any litigation against the other party or
files an appeal of a decision arising out of or in connection with
the Lease, the prevailing party shall be entitled to recover from the
other party reasonable attorneys' fees and costs of suit. If Landlord
employs a collection agency to recover delinquent charges, Tenant
agrees to pay all collection agency and attorneys' fees charges to
Landlord in addition to rent, late charges, interest and other sums
payable under this Lease. Tenant shall pay a charge of $75 to
Landlord for preparation of a demand for delinquent rent.

f. AUTHORITY. If either party hereto is a corporation, trust or general
or limited partnership, each individual executing this Lease on
behalf of such entity represents and warrants that he or she is duly
authorized to execute and deliver this Lease on its behalf. If Tenant
is a corporation, trust or partnership, Tenant shall, within thirty
(30) days after request by Landlord, deliver to Landlord evidence
satisfactory to Landlord of such authority.

g. OFFER. Any preparation of this document by Landlord or Landlord's
agent and submission of same to Tenant shall not be deemed to be a
proposal, offer or contract to lease to Tenant. This document cannot
be unilaterally accepted by Tenant and thereby made binding upon
Landlord. This document is not binding on any party and has no force
or effect until executed by all parties hereto.

h. LANDLORD'S SUCCESSORS. In the event of a sale or conveyance by
Landlord of the Project, the same shall operate to release Landlord
from any liability under this Lease, and in such event Landlord's
successor in interest shall be solely responsible for all obligations
of Landlord under this Lease.

i. INTERPRETATION. This Lease shall be construed and interpreted in
accordance with the laws of the state in which the premises are
located. This lease constitute the entire agreement between the
parties with respect to the Premises and the Project, except for such
guarantees or modifications as may be executed in writing by the
parties from time to time. When required by the context of this
Lease, the singular shall include the plural, and the masculine shall
include the feminine and/or neuter. "Party" shall mean Landlord or
Tenant. If more than one person or entity constitutes Landlord or
Tenant, the obligations

10
<PAGE> 11

imposed upon that party shalal be joint and several. The
enforceability, invalidity or illegality of any provision shall not
render the other provisions unenforceable, invalid or illegal.

<TABLE>
<CAPTION>
LANDLORD: TENANT:

<S> <C>
TR BRELL AUSTIN CORP., c/o Telecommunications Associates Group, Inc., an Ohio
Koll Management Services, Owner's Authorized corporation, d/b/a Emergency Response Center
representatives, Koll Management Services, on
behalf of Owner, d/b/a La Costa Corporate Park

By:_____________________________________ By:________________________________________
Title:__________________________________ Title:_____________________________________

Date:______________________ Date:______________________

</TABLE>

<PAGE> 12

ADDITIONAL SECTIONS:

33.0 EMERGENCY GENERATOR. Landlord herein grants to Tenant, subject to the terms
and conditions below, permission to install at the rear of suites E-101 and
E-102 an emergency generator. Tenant agrees that said emergency generator will:

(1) Take up no more than 48 square feet;

(2) Weigh, including supports, stands and attachments, no more than 500
pounds;

(3) Be mounted on sleepers or sleds so as to be moveable; and

(4) Neither the generator nor other apparatus can be visible from the
street.

Tenant agrees that its liability insurance policy will be amended to cover any
and all damage whether by acts of God, negligence or otherwise, caused directly
or indirectly by the emergency generator, its stands, supports, etc. Failure of
Tenant to provide proof of such amended coverage shall give Landlord the
unqualified right to remove the generator with no liability on Landlord's part
regardless of any damage thereof.

Tenant agrees that it will indemnify and hold harmless Landlord from any damage
caused by the generator or its use.

Upon removal of the generator, whether by termination of the Lease or by demand
of Landlord, Tenant agrees that it will be responsible for returning the
Premises and all penetrations to the building by virtue of such use or
installation of the generator to its original condition at it sole cost to
Landlord's sole satisfaction.

34.0 TELEPHONE LINES. Landlord herein grants to Tenant the right to use 20
existing telephone lines during the term of this Lease. If it becomes necessary
for Tenant to expand beyond the 20 lines granted, Landlord grants Tenant the
right to bring additional lines to its Premises, up to a maximum of 400
additional lines subject to the following terms and conditions:

(1) Any additional lines must be in addition to the lines currently
connected to the Property and be connected at the areas indicated by
Attachment "A".

(2) Tenant agrees that it will be responsible for returning the Premises
and all penetrations to the building by virtue of such use or
installation of the phone lines at its sole cost to its original
conditions to Landlord's sole satisfaction.

12
<PAGE> 13

ATTACHMENT "A"

LA COSTA CORPORATE PARK

<PAGE> 14

EXHIBIT A

THE "PREMISES"

<PAGE> 15

EXHIBIT B

THE "PROJECT"

<PAGE> 16

EXHIBIT C

SIGN CRITERIA

<PAGE> 17

EXHIBIT D

A. AGREEMENT

A.1 Landlord and Tenant agree to the construction of improvements in the
Premises according to the terms and conditions of the Lease, and this
Exhibit "D."

A.2 Landlord will provide Tenant with final detailed plans and
specification of all Sole Discretion, subject to the provisions of
paragraph ____________ Exhibit "D."

A.5 Landlord will complete all final proposed improvements to the best of
its ability on or before June 10, 1996 subject to the provisions of
paragraph D.2 Delays of this Exhibit "D."

B. TENANT PAID IMPROVEMENTS

Non-Applicable

C. METHOD OF PAYMENT

C.1 $N/A is to be paid by Tenant to Landlord subject to the provisions of
E.3 of this Exhibit "D" in the manner stated below:

Non-Applicable

D. DELAYS

D.1 Should Tenant not submit approved final plans and specifications to
Landlord by the date indicated in paragraph A.3 of this Exhibit "D".
Landlord will not be subject to any liability and the validity of this
Lease will not be affected in any way. However, Landlord also reserves
the right, at its sole discretion, to terminate this Lease.

D.2 The commencement of rent on the date specified in paragraph 1.i. of the
Lease will not be postponed or waived and Landlord will not be subject
to any liability if:
(i) Tenant is the cause of any delay in construction. By way of example,
including but not limited to: Tenant's request for a delay; the
installation of Tenant's trade fixture and/or equipment; Tenant's
request for additional improvements after plans and specifications have
been approved as described in paragraph A.3,
(ii)Landlord is unable to complete all improvements by the date indicated
in A.5 of this Exhibit "D" due to circumstances beyond Landlord's
reasonable control including but not limited to: requirements by any
governing authority; shortages; strikes; material delivery delays; or
acts of God.

E. ADDITIONAL COSTS

E.1 Any changes required by any governing authority to Tenant approved
final plans and specifications to conform to local, state or federal
laws will be at the sole cost of Tenant, in addition to any other
previously agreed upon improvements costs, if such changes are
determined to be for the Tenant's special use and not part of the
general requirements of Landlord to Lease space at the Project, in
accordance with the provisions of paragraph E.3 of this Exhibit "D".

E.2 Should any changes to previously approved plans and specifications be
required by Tenant:

(i) the cost of such revised final plans and specification shall be at the
sole cost of Tenant.
(ii)the cost of any changes resulting from such revised plans and
specifications shall be at the sole cost and expense of Tenant; and
such charges shall be subject to the provisions of paragraph D and E.3
of this Exhibit "D".

E.3 Any additional costs including costs of revised construction drawings,
incurred as a result of the changes described in paragraphs E.1 and E.2
above, estimated improvement costs, (a) such costs or expenses shall be
paid by Tenant to Landlord immediately upon receipt by Tenant of
Landlord's itemized notice, or (b) such costs or expenses shall be
amortized and included in the Base Monthly Rent for the duration of the
Lease Term.

F. LANDLORD'S PAID IMPROVEMENTS

17
<PAGE> 18

F.1 Landlord at its sole cost will provide in good and workmanlike
condition the following improvements as indicated on Exhibit "A":

1. Construct wall & add door.
2. Construct wall.
3. Add door.
4. VCT tile areas noted, carpet remainder of office area.
5. Landlord will provide the lettering for the initial signage.

Tenant improvements provided by Landlord shall not exceed $2.50 per
square foot.

18
<PAGE> 19

ATTACHMENT "1"
LA COSTA CORPORATE PARK
KOLL MANAGEMENT SERVICES
RULES & REGULATIONS

1. SIGNS/WINDOWS. All tenant (Lessee) identification signs shall be provided at
the expense of Lessee. No sign, placard, picture advertisement, name or notice
shall be attached to any part of the outside of any building and if so placed
Lessor shall have the right to remove any such sign, placard, picture,
advertisement, name or notice at Lessee's expense. Lessee shall not place or
allow anything to be placed near the glass of any window, door, partition or
wall which may appear unsightly from outside the leased premises, nor conflict
with the above. Lessor will provide a standard drape, blind or window covering
that shall not be altered or removed by Lessee. Lessee is responsible to keep
windows washed, inside and/or out. No awning or shade shall be affixed or
installed over or in the windows or the exterior of the premises.

2. COMMON AREA/ROOF. The sidewalks, entrances and exits, hall passages and
stairways, if any, shall not be obstructed or used by Lessee for any purpose
other than for ingress and egress. The hall passages, exits, entrances,
stairways and roofs are not for the use of the general public and Lessor shall
in all cases retain the right to control and prevent access thereto by all
persons whose presence in the judgment of the Lessor shall be prejudicial to the
safely, character, reputation and interests of the premises and tenants,
provided that nothing herein contained shall be construed to prevent such access
to persons with whom Lessee normally deals in the ordinary course of Lessee's
business unless such persons are engaged in illegal activities. Neither Lessee
nor employees or invitees of Lessee shall go upon the roof of any building.

3. ADVERTISING. Lessee shall not use the name of the building in connection with
or in promoting or advertising the business of Lessee except as to Lessee's
address. Lessor shall have the right to prohibit the use of the name of the
project or other publicity by Lessee which in Lessor's opinion tends to impair
the reputation of the project or its desirability for the Lessees.
Lessees will refrain from or discontinue a such publicity upon notification by
Lessor.

4. LOCKS. No additional locks or bolts shall be placed upon any of the doors or
windows by Lessee, nor shall any changes be made to existing locks or the
mechanisms thereof. Lessee must, upon the termination of Lessee's tenancy,
return to Lessor all keys wither furnished to or otherwise procured by Lessee.
In the event of the loss of any keys so furnished, Lessee shall pay to Lessor
the cost thereof.

5. SOLICITATIONS. Lessee shall not disturb, solicit or canvass any occupant of
the project and shall cooperate to prevent the same.

6. USE OF PREMISES. The leased premises shall not be used for lodging, sleeping
or cooking or for any immoral or illegal purpose or for any purpose that will
damage the premises or the reputation thereof or for any purpose other than that
specified in the lease covering the premises.

7. PARKING. The parking areas within the office park complex shall be used
solely for the parking of passenger vehicles during normal office hours. The
parking of trucks, trailers, recreational vehicles and campers is specifically
prohibited. No vehicle of any type shall be stored in the parking areas at any
time. In the event that a vehicle is disabled, it shall be removed within 48
hours. There shall be no "For Sale" or other advertising signs on or about any
parked vehicle. All vehicles shall be parked in the designated parking areas in
conformation with all signs and other markings. No parking is permitted on
public streets adjacent to the complex.

8. NUISANCES. Lessee shall not use, keep or permit to be used or kept, any foul
or noxious gas or substance in the premises, or permit or suffer the premises to
be occupied or used in a manner offensive or objectionable to Lessor or other
occupants of the building by reason of noise, odors and/or vibrations, or
interfere in any way with other Lessees or those having business therein nor
shall any animals or birds be brought in or kept in or about the premises of the
project. Lessee shall maintain the leased premises free from mice, bugs, and
ants attracted by food, water or storage materials. Lessor is responsible for
maintaining the outside area.

9. DANGEROUS ARTICLES. Lessee shall not use or keep on the premises of the
complex any kerosene, gasoline or inflammable or combustible fluid or material,
or any article deemed extra hazardous on account of fire or other dangerous
properties or u se any other method of heating or air conditioning other than
supplied by Lessor.

10. IMPROPER CONDUCT. Lessor reserves the right to exclude or expel from the
complex any person who in the judgment of the Lessor, is intoxicated or under
the influence of liquor or drugs or who shall in any manner do any act or
violation of the Rules & Regulations of the said project.

19
<PAGE> 20

11. WIRING. No electric wires, or any other electrical apparatus, or additional
electrical outlets, shall be installed except with written request to and
written approval from Lessor. Any installation of above wiring shall be removed
by Lessor at Lessee's expense. Lessor reserves the right to enter upon the
leased premises for the purpose of installing additional electrical wiring and
other utilities for the benefit of the Lessee or adjoining tenants. Lessor will
direct electricians as to where and how telephone and telegraph wires are to be
introduced. The location of telephones, call boxes and other equipment affixed
to the premises shall be subject to the approval of Lessor.

12. AUCTION. No auction, public or private, will be permitted.

13. EXTERIOR. Lessee shall not place any improvements or moveable objects
including antennas, outside furniture, etc. in the parking areas, landscaped
area or other areas outside of the leased premises, or on the roof of any
building.

14. SECURITY PRECAUTIONS. All entrance doors in the complex shall be closed and
securely locked when the premises are not in use, and all doors opening to
public corridors shall be kept closed except for normal ingress and egress.
Lessee must observe strict care and caution that all water faucets or any other
apparatus is shut off before Lessee or Lessee's employees leave the premises and
that all electricity, gas, etc. shall likewise be carefully shut off so as to
prevent waste or damage.

15. RESTROOM FACILITIES. The washrooms and restrooms and appurtenances thereto
shall not be used for any other use than those for which they were constructed.
No sweepings, rubbish, rags or other foreign substances shall be thrown or
placed therein. No person shall waste water by interfering or tampering with the
faucets. Any damage resulting in soiled washrooms or restrooms or appurtenances
shall be paid for by the Lessee who, or whose agent, guests, or employees, shall
cause such damage.

16. DAMAGE: Walls, floors and ceilings shall not be defaced in any way and no
one shall be permitted to mark, nail, screw or drill into surfaces, paint or in
any way mar the building surface. Pictures, certificates, licenses and similar
times normally used in Lessee's premises may be carefully attached to the walls
by Lessee in a manner to be proscribed by the Lessor. Upon removal of such items
by Lessee, any damage to the walls or other surfaces shall be repaired by
Lessee.

17. FURNITURE SAFES/MOVING: furniture, freight, equipment, safes or other bulky
articles shall be moved into or out of the complex only in the manner and at
such times as Lessor may direct. Lessee shall not overload the floor of the
premises or in any way deface the premises or any part thereof. Lessor shall in
all cases have the right to determine or limit the weight, size and position of
all safes and other heavy equipment. Lessor will not be responsible for loss or
damage to any safe or other properly shall be repaired at the expense of Lessee.

18. JANITORIAL SERVICE. Lessee shall not cause any unnecessary labor by reason
of Lessee's carelessness or indifference in the preservation of good order and
cleanliness. Lessor shall not be responsible to Lessee for any loss of property
on the premises, however occurring or for any damage done to the effect of
Lessee by the janitor or any other employee or any other person.

19. REQUIREMENTS OF LESSEE. Employees of Lessor shall not perform any work or do
anything outside of their regular duties unless under special instruction from
Lessor. Lessee shall give Lessor prompt notice of any defects in the water,
sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any
other service equipment.

20. RULES AND REGULATIONS: Rules may be modified, amended or supplemented at any
time by Lessor upon notice to Lessee.

<PAGE> 1

LEASE

Between

INDIAN HILL PROPERTIES, INC., LESSOR

and

TELECOMMUNICATIONS ASSOCIATES GROUP, INC.,

<PAGE> 2

LEASE

THIS LEASE, executed this 24th day of November, 1997, by and between
Indian Hills Properties, Inc., an Ohio corporation (hereinafter "Lessor"), and
Telecommunications Associates Group, Inc. an Ohio corporation (hereinafter
"Lessee").

WTTNESSETH:

SECTION 1
EXHIBITS AND DEFINITIONS

A. The following listed exhibits are attached to and made a part of
this Lease:

Exhibit "A" -- The plot plan showing the Building of which the Demised
Premises, hereinafter defined, are a part.

Exhibit "B" -- Statement of Lessee re: Lease.

B. The term "Common Areas" means the parking areas, access roads and
facilities which may be furnished by Lessor and which are located adjacent to
the Demised Premises, the employee parking areas, the truckways, driveways,
loading docks and areas, pedestrian sidewalks and walkways, ramps, landscaped
and planting areas, retaining walls, stairways, and all other areas and
improvements which may be provided and/or changed from time to time by the
Lessor for the general use in common of the tenants, their officers, agents,
employees, and customers and all lighting facilities incident thereto, as such
areas and facilities may be changed from time to time by Lessor.

C. The term "Demised Premises" shall mean the area of the Building
leased to the Lessee by the Lessor on a parcel of land located at the northwest
comer of Euclid Avenue and East 191st Street in the City of Euclid, County of
Cuyahoga and State of Ohio, and consisting of approximately Eight Thousand Four
Hundred (8400) square feet, more or less, of a one-floor store suite which is
part of a multi-tenant shopping center designated as part of the property
outlined in red on Exhibit "A" attached hereto and made apart hereof, together
with the building and improvements and use of the Common Areas all constructed
thereon on Lessor's property in Euclid, Ohio.

D. The term "Building" means the building of which the Demised Premises
are a part

----------------
J.C. Vilanueva

----------------
Ronald J. Carr

<PAGE> 3

E. The term "Building Site" means the location of the Building of which
the Demised Premises are a part and Common Areas.

F. The term "pro-rata share" shall be determined by comparing the
square footage of the Demised Premises to the then current square footage of all
other buildings located on the property of which the Demised Premises are a
part.

SECTION 2
DEMISED PREMISES

The Lessor, for and in consideration of the payment of the rent and the
performance by Lessee of the covenants and agreements as hereinafter set forth,
does hereby demise, let and lease unto the Lessee, and Lessee does hereby accept
from Lessor the following property described and outlined in red on Exhibit "A"
attached hereto and made a part hereof, together with the building and
improvements and use of the Common Areas as further provided herein, all as
constructed thereon on Lessor's property in Euclid, Ohio, all of which is
hereinafter sometimes referred to as the "Demised Premises."

SECTION 3
TERM OF LEASE

To have and to hold the Demised Premises unto Lessee for a term of
Seven (7) years (with one (1) additional Five (5) year option term as provided
in section 31.) commencing the first day of January, 1998.

SECTION 4
RENT

Base Rent. Lessee covenants and agrees to pay Lessor at Lessor's office
or such other place as Lessor may from time to time designate, as rent for the
Demised Premises without abatement, deduction or set-off and without demand,
unless otherwise provided herein, the sum of Seventy Nine Thousand Eight Hundred
Dollars ($79,800) per year, said sum to be payable in equal monthly installments
of Six Thousand Six Hundred Fifty Dollars ($6,650.00), on the first day of each
and every month in advance, during each of the Seven (7) years of the term, and
thereafter in the event Lessee shall extend its term by exercise of the option
provided in section 31, Lessee covenants and agrees to pay Lessor as rent for
the Demised Premises the sum of Ninety Two Thousand Four Hundred Dollars
($92,400.00) per year, said sum to be payable in equal monthly installments of
Seven Thousand Seven Hundred Dollars ($7,700.00), on the first day of each and
every month in advance, during each of the Five (5) years of such option.

2 ----------------
J.C. Vilanueva

----------------
Ronald J. Carr

<PAGE> 4
SECTION 5
USE OF PREMISES

A. Lessee covenants and agrees that the Demised Premises during the
term hereof shall be occupied and used for the sole purpose of a Security and
Emergency Response Enterprise.

B. Lessee covenants and agrees to use, maintain and occupy the Demised
Premises in a careful, safe and proper manner and will not permit waste therein.
Lessee will keep the Demised Premises and appurtenances and the adjoining areas
and sidewalks in a clean, safe and healthy condition and further agrees to clean
the snow and ice from the sidewalks contiguous to the Demised Premises. Lessee
will not permit the Demised Premises to be used in any way which will injure the
reputation of the same.

C. Lessee covenants and agrees not to use or occupy or suffer or permit
the Demised Premises or any part thereof to be used or occupied for any purpose
contrary to law or to the rules or regulations of any public authority. If
Lessee shall install any electrical equipment that overloads the lines in the
Demised Premises, Lessee shall, at its own expense, make whatever changes are
necessary to comply with the requirements of the insurance underwriters and
governmental authorities, having jurisdiction thereover.

SECTION 6
ALTERATIONS

A. Lessee covenants and agrees not to make or permit to be made any
alterations, improvements and additions to the Demised Premises or any part
thereof except by and with the written consent of Lessor first had.

B. All alterations, improvements and additions to the Demised Premises
permitted to be made by Lessee shall be made in accordance with all applicable
laws and, except for removable trade fixtures, shall at once when made or
installed be deemed to have attached to the freehold and to have become the
property of Lessor and shall remain for the benefit of Lessor at the end of the
term or other expiration of this Lease in as good order and condition as they
were when installed, reasonable wear and tear excepted: provided, however, if
prior to the termination of this Lease, or within fifteen (15) days thereafter
Lessor so directs by written notice to Lessee, the Lessee shall promptly remove
the additions, improvements, fixtures and installations which were placed in the
Demised Premises by Lessee and which are designated in said notice and repair
any damage occasioned by such removal and in default thereof Lessor may effect
said removals and repairs at Lessee's expense.

3 ----------------
J.C. Villanueva

----------------
Ronald J. Carr

<PAGE> 5

C. In the event of the making of such alterations, improvements and
additions as herein provided Lessee further agrees to indemnify and save
harmless the Lessor from all costs, expenses, liens, claims or damages arising
out of, or resulting from the undertaking or making of said alterations,
additions or improvements.

SECTION 7
MAINTENANCE OF DEMISED PREMISES

A. Lessor shall maintain, at its expense, the roof, exterior walls,
excepting any doors or windows therein, and any structural portions of the
Demised Premises, making repairs thereto becoming necessary during the term
unless occasioned by any act or negligence of Lessee, its agents, contractors,
invitees or employees, in which event such damage shall be promptly repaired by
Lessee at Lessee's sole cost and expense.

B. Lessee covenants and agrees to keep and maintain the Demised
Premises in good order, condition and repair, and to promptly make all repairs
or replacements becoming necessary during the term including, but without
limitation, repairs or replacements of windows, doors, glass (which shall be
replaced with glass of the same size and quality), electrical, plumbing and
sewage lines and fixtures within the Demised Premises, and all heating, air
conditioning and ventilating equipment and ducts and vents attached thereto,
including any of such equipment which may, with Lessor's consent, be mounted on
the roof of the Demised Premises, interior walls, floor covering and ceilings
and all docks, fire extinguishers and building appliances of every kind. During
the term of this Lease, Lessee shall, if available, maintain at its sole
expense, service contracts covering the items to be maintained by Lessee.

C. On default of Lessee in making any repairs or replacements required
to be made by Lessee hereunder or in maintaining the Demised Premises, Lessor
may, but shall not be required to make such repairs or replacements or to
maintain the Demised Premises for the Lessee's account, and the expense thereof
shall constitute and be collectible as additional rent, payable by Lessee on
demand, or, at Lessor's election, together with the next installment of rent due
hereunder.

SECTION 8
ADDITIONAL RENT

Lessee shall pay Lessor as additional rent, upon demand, for Lessee's
pro-rata share as defined in Section I hereof, Lessor's actual and direct costs
for operating expenses incurred during the term of this Lease and any extension
hereof in respect of the operation and maintenance of the Building, in
accordance with generally accepted principles of sound management and accounting
practices, as applied to the operation and maintenance of shopping centers,
including without limitation thereof, cost of cleaning, any and all liability
and casualty

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insurance, materials and supplies, labor, utilities, heat, air conditioning,
repairs and maintenance, window washing, snow and ice removal, security,
landscaping, rubbish removal, and other services and expenses of Lessor relating
to the building and Common Areas including property management and Lessor's
administrative costs in charging the operating expenses to Lessee.

SECTION 9
COMMON AREAS

Lessor hereby grants to Lessee and Lessee's employees, agents,
customers and invitees the right, during the term hereof, to use, in common with
other tenants, employees and invitees entitled to the use thereof, the Common
Areas within the limits of the Building Site, provided Lessee is not in default
of any of the terms and conditions of this Lease. Lessor shall operate, manage
and maintain, in good condition and repair, during the term of this Lease, all
Common Areas within the Building Site. The manner in which areas and facilities
shall be maintained and the expenditures therefor shall be at the sole
discretion of the Lessor and use of such areas and facilities shall be subject
to such reasonable regulations as Lessor shall make from time to time. Lessor
shall have the right, from time to time and at any time to change the location
and/or number of the parking spaces available for such use and/or to erect
future buildings, stores or other facilities or to expand, extend or enlarge
existing facilities on the Building Site or in the Common Areas, provided in any
such event that a minimum parking ratio of four (4) parking spaces per 1,000
square feet of gross leaseable area shall at all times be maintained unless
otherwise consented to by Lessee, which consent shall not be unreasonably
withheld. Lessee agrees to cause its employees to park in such areas as may be
designated by Lessor for employee parking.

SECTION 10
UTILITIES

A. Lessee covenants and agrees to pay for all public utility services
rendered or furnished to the Demised Premises during the term hereof, including
heat, water, gas, electricity, rubbish removal, sewer rental and the like,
together with all taxes levied or other charges on such utilities. Lessee shall
not permit any accumulation of rubbish or debris in the Demised Premises or
permit any loose rubbish or debris to be placed or remain outside the Demised
Premises, but shall cause such rubbish and debris to be placed in a closed
container and removed from the Building Premises at Lessee's sole cost and
expense.

B. Lessee covenants and agrees that at all times its use of any such
services shall never exceed the capacity of the mains, feeders, ducts and
conduits bringing same to the Demised Premises or of the outlets, risers,
wiring, piping, duct work or other means of distribution of such service within
the Demised Premises.

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SECTION 11
LESSEE'S TAXES

Lessee further covenants and agrees to pay promptly when due all taxes
assessed against Lessee's fixtures, furnishings, equipment and stock-in-trade
placed in or on the Demised Premises during the term of this Lease.

SECTION 12
MECHANIC'S LIEN

Any mechanic's lien filed against the Demised Premises or Lessor's
other property for work claimed to have been done or for materials claimed to
have been furnished to Lessee shall be discharged by Lessee within twenty (20)
days after receipt of notice of its filing by bonding or as provided or required
by law or in any other lawful manner.

SECTION 13
DESTRUCTION OF DEMISED PREMISES

A. If the Demised Premises shall be destroyed or so injured by any
cause as to be unfit, in whole or in part, for occupancy and such destruction or
injury could be substantially repaired within two (2) months from the happening
of such destruction or injury, then Lessee shall not be entitled to surrender
possession of the Demised Premises nor shall Lessee's liability to pay rent
under this Lease cease without the mutual consent of the parties hereto; but in
case of any such destruction or injury Lessor shall repair the same with all
reasonable speed and shall substantially complete such repairs within two (2)
months from the happening of such destruction or injury, and if during such
period Lessee shall be unable to use all or any portion of the Demised Premises,
a proportionate allowance shall be made to Lessee from the rent corresponding to
the time during which and to the portion of the Demised Premises of which Lessee
shall be so deprived of the use on account thereof.

B. If such destruction or injury cannot be substantially repaired
within two (2) months from the happening thereof, Lessor shall notify Lessee
within thirty (30) days after receiving notice of the happening of such
destruction or injury whether or not Lessor will repair or rebuild. If Lessor
elects not to repair or rebuild, this Lease shall terminate. If Lessor shall
elect to repair or rebuild, Lessor shall specify the time within which such
repairs or reconstruction will be completed, and Lessee shall have the option,
within thirty (30) days after the receipt of such notice, to elect either to
terminate this Lease, and subject to Paragraph C hereof, to be released from
further liability hereunder or to extend the term of the Lease by a period of
time equivalent to the time from the happening of such destruction or injury
until the Demised Premises are, to the extent reasonably possible, restored to
their former condition. In the event Lessee elects to extend the term of this
Lease, Lessor shall restore the Demised

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Premises to their former condition, to the extent reasonably possible, within
the time specified in the notice, and Lessee shall not be liable to pay rent for
the period from the time of such destruction or injury until the Demised
Premises are so restored to their former condition, or until Lessee opens for
business, whichever shall first occur.

C. Notwithstanding anything herein stated to the contrary, if such
damage or destruction is caused by or the result of any act or negligence of
Lessee or its employees, agents or invitees, Lessee shall not be relieved of its
obligation to payment hereunder and unless Lessor elects to terminate this
Lease, this Lease shall not be terminated; but Lessor shall in no event be
obligated to repair or rebuild the same unless Lessor receives payment from
Lessee for such rebuilding costs through insurance proceeds or otherwise in an
amount sufficient and adequate to complete such repairs or rebuilding.

SECTION 14
TRADE FIXTURES IN DEMISED PREMISES

A. Removable trade fixtures paid for and supplied by Lessee shall not
be deemed to become a part of the Demised Premises unless so affixed to the
realty as to damage the same in removal. Lessee shall, at the expiration of the
term hereof, remove all of its trade fixtures which can be moved without costly
injury to, or undue defacement of the Demised Premises, provided all rents
stipulated herein are paid in full and Lessee is not otherwise in default
hereunder, and provided further than any and all damage to the Demised Premises
resulting from or caused by such removal shall be promptly repaired at Lessee's
expense.

B. Lessee covenants and agrees that all personal property of every kind
or description which may at any time be in the Demised Premises shall be at
Lessee's sole risk, or at the risk of those claiming under Lessee, and Lessor
shall not be liable for any damage to said property or loss suffered by the
business or occupation of Lessee arising from the bursting, overflowing or
leaking of water, sewer or steam pipes, from the heating or plumbing fixtures,
from electric wires, from gas or odors caused in any manner whatsoever.

SECTION 15
ACCESS TO DEMISED PREMISES

A. Lessee covenants and agrees to permit Lessor and Lessor's agents to
inspect and examine the Demised Premises at any reasonable time to permit Lessor
to make such repairs, decorations, alterations, improvements or additions in and
to the Demised Premises, that Lessor may deem desirable or necessary for its
preservation or which Lessee has failed so to do, and for other reasonable
purpose without the same being construed as an eviction of Lessee in whole or in
part, and the rent shall in no way abate while such decorations, repairs,
alterations,

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improvements or additions are being made by reason of loss or interruption of
the business of Lessee because of the prosecution of such work..

B. Lessor and its agents shall also have the right to enter upon the
Demised Premises for a period commencing one hundred eighty (180) days prior to
the termination of this Lease for the purpose of exhibiting the same to
prospective tenants or purchasers. During said period Lessor may place signs in
or upon the Demised Premises to indicate the same are for rent or sale, which
signs shall not be removed, obliterated or hidden by Lessee.

C. If, during the last month of the term of this Lease, Lessee shall
have removed all or substantially all of Lessee's property therefrom, Lessor may
immediately enter and alter, renovate or redecorate the Demised Premises without
elimination or abatement of rent or other compensation and such action shall
have no effect on this Lease. Nothing herein contained, however, shall be deemed
or construed to impose upon Lessor any obligation, responsibility or liability
whatsoever for the care, supervision or repair of the Demised Premises except in
this Lease otherwise provided.

SECTION 16
SURRENDER OF DEMISED PREMISES

A. Lessee covenants and agrees to deliver up and surrender to Lessor
possession of the Demised Premises upon expiration of this Lease, or its earlier
termination as herein provided, broom clean and in as good condition and repair
as the same shall be at the commencement of the term of this Lease, or may have
been put by the Lessor during the continuance thereof, ordinary wear and tear
and damage by fire or the elements not caused by the negligence or act of the
Lessee or its agents, employees or invitees excepted, it being understood and
agreed that acceptance of delivery of the Demised Premises shall be deemed
conclusive evidence that the Demised Premises were in good order and condition
at the commencement of the term of this Lease.

B. Prior to Lessee's vacating or delivering up the Demised Premises to
Lessor, Lessee shall, at Lessee's cost and expense, remove all property of
Lessee and all alterations, additions and improvements as to which Lessor shall
have made pursuant to the election provided for in Section 6 hereof, and shall
repair any damage to the Demised Premises caused by such removal and restore the
Demised Premises to the condition in which they were prior to the installation
of the articles so removed. Any property not so removed and as to which Lessor
shall have not made said election, shall be deemed to have been abandoned by
Lessee and may be retained or disposed of by Lessor, as Lessor shall desire.
Lessee's obligation to observe or perform this covenant shall survive the
expiration or termination of the term of this Lease.

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SECTION 17
INDEMNITY AND INSURANCE BY LESSEE

A. Lessee covenants and agrees that it will protect and save harmless
and keep the Lessor forever harmless and indemnified against and from any
penalty, damages, charges or cost imposed or resulting from any violation of any
law, order of governmental agency or ordinance, whether occasioned by the
neglect of Lessee or those holding under Lessee, and that Lessee will at all
times protect, indemnify and save and keep harmless the Lessor against and from
all claims, losses, costs, damages or expenses arising out of or from any
accident or other occurrence on or about the Demised Premises causing injury to
any person or property whomsoever or whatsoever, and will protect, indemnify,
save and keep harmless the Lessor against and from any and all claims and
against and from any and all losses, costs, damages or expenses arising out of
any failure of Lessee in any respect to comply with or perform all the
requirements and provisions of this Lease.

B. Lessee agrees that, at its own cost and expense, it will procure and
continue in force, in the names of the Lessor, Lessor's mortgagee(s) and Lessee
as their interests may appear, general liability and casualty insurance against
any and all claims for injuries to persons occurring in, upon or about the
Demised Premises and Common Areas, including all damage from signs, glass
awnings, fixtures or other appurtenances now or hereafter erected on the Demised
Premises during the term of this Lease, such insurance at all times to be in an
amount of not less than Two Hundred Thousand Dollars ($200,000.00) for injury to
any one person and not less than One Million Dollars ($1,000,000.00) for
injuries to more than one person in one accident, and One Hundred Thousand
Dollars ($100,000.00) for injury to property. Such insurance shall be written
with a company or companies authorized to engage in the business of general
liability insurance in the State of Ohio, and there shall be delivered to Lessor
customary insurance certification evidencing such paid-up insurance and copies
of the policies. Such insurance shall further provide that the same may not be
cancelled, terminated or modified unless the insurer gives Lessor and Lessor's
mortgagee(s) at least fifteen (15) days prior written notice thereof.

C. The above-mentioned insurance certifications are to be provided by
Lessee, and shall be for a period of not less than one (1) year, it being
understood and agreed that fifteen (15) days prior to the expiration of any
policy of insurance Lessee will deliver to Lessor a renewal or new policy to
take the place of the policy expiring, with the further agreement that, should
Lessee fail to furnish policies as is provided in this Lease, and at the times
herein provided, Lessor may obtain such insurance and the premiums on such
insurance shall be deemed additional rent to be paid by Lessee unto Lessor upon
demand

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SECTION 18
ASSIGNMENT AND SUBLETTING

A. Lessee covenants and agrees not to assign this Lease or to sublet
the whole or any part of the Demised Premises, or to permit any other persons to
occupy same without the written consent of the Lessor first had, which shall not
be unreasonably withheld, references elsewhere herein to as signees not
withstanding. No consent of Lessor to a particular assignment or subletting
shall be deemed a consent to further assignments or subletting. Any assignment
or subletting, even with the consent of the Lessor, shall not relieve Lessee
from liability for payment of rent or other sums herein provided or from the
obligation to keep and be bound by the terms, conditions and covenants of this
Lease. The acceptance of rent from any other person shall not be deemed to be a
waiver of any of the provisions of this Lease and shall not constitute consent
to the assignment of this Lease or subletting of the Demised Premises.

B. Since Lessee is a corporation, then any transfer of this Lease from
Lessee by merger, consolidation or liquidation, or any change in ownership or
power to vote of a fifty percent or greater majority of Lessee's outstanding
voting stock shall constitute an assignment for the purpose of this Lease and
shall require the written consent of Lessor first having been obtained.

C. An assignment for the benefit of creditors or by operation of law
shall not be effective to transfer any rights to any assignee, without the
written consent of the Lessor first having been obtained.

SECTION 19
EMINENT DOMAIN

A. In the event the Demised Premises or any part thereof or the
Building Site shall be taken or condemned either permanently or temporarily for
any public or quasi public use or purpose by any competent authority in
appropriation proceedings or by any right of eminent domain, the entire
compensation award therefor, both leasehold and reversion, shall belong to the
Lessor without any deduction therefrom for any present or future estate of
Lessee and Lessee hereby assigns to Lessor all its right, title and interest to
any such award. Lessee shall, however, be entitled to claim, prove and receive
in such condemnation proceedings such award as may be allowed for fixtures and
other equipment installed by it, but only if such award shall be in addition to
the award for the land and the building (or portion thereof) containing the
Demised Premises.

B. If the entire Demised Premises shall be taken as aforesaid, then
this Lease shall terminate and shall become null and void from the time
possession thereof is required for public use and from that date on the parties
hereto shall be released from further obligation hereunder:

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but in the event a portion only of the Demised Premises shall be so taken or
condemned, then Lessor, at its own expense, shall repair and restore, to the
extent reasonably possible, the portion not affected by the taking and
thereafter the rental to be paid by Lessee shall be equitably and
proportionately adjusted.

C. Any such appropriation or condemnation proceedings shall not operate
as or be deemed an eviction of Lessee or a breach of Lessor's covenant for quiet
enjoyment.

SECTION 20
DEFAULT BY LESSEE

All rights and remedies of Lessor herein enumerated shall be
cumulative, and none shall exclude any other rights or remedies allowed by law.
Lessee covenants and agrees that if:

A. Lessee shall fail, neglect or refuse to pay any installment of rent
at the time and in the amount as herein provided, or to pay any other monies
agreed by it to be paid promptly when and as the same shall become due and
payable under the terms hereof, and if any such default should continue for a
period of more than ten (10) days; or

B. Any voluntary or involuntary petition or similar pleading under any
section or sections of any bankruptcy act shall be filed by or against Lessee,
or any voluntary or involuntary proceeding in any court or tribunal shall be
instituted to declare Lessee insolvent or unable to pay Lessee's debts, and the
same shall not be dismissed or discharged within thirty (30) days thereafter; or

C. Lessee makes any assignment of its property for the benefit of
creditors or should the Demised Premises be taken under a levy of execution or
attachment in any action against Lessee and such levy, attachment or assignment
is not dismissed or discharged within thirty (30) days: or

D. Lessee shall cease business operations, abandon or vacate the
Demised Premises or shall fail, neglect or refuse to keep and perform any of the
other covenants, conditions, stipulations or agreements herein contained,
covenanted and agreed to be kept and performed by it, and in the event any such
default shall continue for a period of more than fifteen (15) days after notice
thereof given in writing to Lessee by Lessor; provided, however, that if the
cause for giving such notice involves the making of repairs or other matters
reasonably requiring a longer period of time than the period of such notice,
Lessee shall be deemed to have complied with such notice so long as it has
commenced to comply with said notice or has taken and continues to diligently
pursue all proper steps or proceedings under the circumstances to prevent the
seizure, destruction, alteration or other interference with the Demised Premises
by reason of

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noncompliance with the requirements of any law or ordinance or with the rules,
regulations, or directions of any governmental authority as the case may be:

then Lessee does hereby authorize and fully empower Lessor or Lessor's agent to
cancel or annul this Lease at once and to re-enter and take possession of the
Demised Premises immediately, and by force if necessary, without any previous
notice of intention to re-enter, and to remove all persons and their property
therefrom, and to use such force and assists in effecting and perfecting such
removal of Lessee as may be necessary and advisable to recover at once first and
exclusive possession of the Demised Premises whether in possession of Lessee or
of third persons or otherwise, without being deemed guilty in any manner of
trespass and without prejudice to any remedies which might otherwise be used by
Lessor, in which event this Lease shall terminate and Lessee shall indemnify the
Lessor against all loss of rent which Lessor may incur by reason of such
termination during the residue of the term therein specified.

Lessor may, however, at its option, at any time after such default or
violation of condition or covenant, re-enter and take possession of the Demised
Premises without such re-entry working a forfeiture of the rents to be paid and
the covenants, agreements and conditions to be kept and performed by Lessee for
the full term of this Lease. In such event, Lessor shall have the right, but not
the obligation, to divide or subdivide the Demised Premises in any manner Lessor
may determine and to lease or let the same or portions thereof for such periods
of time and at such rentals and for such use and upon such covenants and
conditions as Lessor may elect, applying the net rentals from such letting first
to the payment of Lessor's expenses (including attorney's fees) incurred in
dispossessing Lessee and reletting the Demised Premises and the cost and expense
of making such improvements in the Demised Premises as may be necessary in order
to enable Lessor to relet the same, and to the payment of any brokerage
commissions or other necessary expenses of Lessor in connection with such
reletting. The balance, if any, shall be applied by Lessor from time to time on
account of the payments due or payable by Lessee hereunder, with the right
reserved to Lessor to bring such action or proceedings for the recovery of any
deficits remaining unpaid as Lessor may deem favorable from time to time,
without being obligated to await the end of the term hereof for the final
determination of Lessee's account. Any balance remaining, however, after full
payment and liquidation of Lessor's account as aforesaid shall be paid to Lessee
with the right reserved to Lessor at any time to give notice in writing to
Lessee of Lessor's election to cancel and terminate this Lease and the giving of
such notice and the simultaneous payment by Lessor to Lessee of any credit
balance in Lessee's favor that may at the time be owing to Lessee shall
constitute a final and effective cancellation and termination of this Lease and
the obligations hereunder on the part of either party to the other.

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SECTION 21
WAIVER OF LESSEE'S DEFAULT

No waiver of any covenant or condition or of the breach of any covenant
or condition of this Lease shall be taken to constitute a waiver of any
subsequent breach of such covenant or condition nor to justify or authorize the
nonobservance of any other occasion of the same or of any other covenant or
condition hereof, nor shall the acceptance of rent by Lessor at any time when
Lessee is in default under any covenant or condition hereof be construed as a
waiver of such default or of Lessor's right to terminate this Lease on account
of such default, nor shall any waiver or indulgence granted by Lessor to Lessee
be taken as an estoppel against Lessor, it being expressly understood that if at
any time Lessee shall be in default in any of its covenants or conditions
hereunder an acceptance by Lessor of rental during the continuance of such
default or the failure on the part of Lessor promptly to avail itself of such
rights or remedies as Lessor may have, shall not be construed as a waiver of
such default, but Lessor may at any time thereafter, if such default continues,
terminate this Lease or assert any other rights or remedies available to it on
account of such default in the manner hereinbefore provided.

SECTION 22
DEFAULT BY LESSOR

Lessor shall in no event be charged with default in the performance of
any of its obligations hereunder unless and until Lessor shall have failed to
perform such obligations within thirty (30) days (or such additional time as is
reasonably required to correct any such default) after notice to Lessor by
Lessee properly specifying wherein Lessor has failed to perform any such
obligations.

Further, if the holder of record of the first mortgage covering the
Demised Premises shall have given prior written notice to Lessee that it is the
holder of said first mortgage and that such notice includes the address at which
notices to such mortgagee are to be sent, the Lessee agrees to give to the
holder of record of such first mortgage notice simultaneously with any notice
given to Lessor to correct any default of Lessor as hereinabove provided and
agrees that the holder of record of such first mortgage shall have the right,
within sixty (60) days after receipt of said notice, to correct or remedy such
default before Lessee may take any action under this Lease by reason of such
default. Lessor shall also give to the holder of such first mortgage copies of
any notices of default which is may give or send to Lessee.

Notwithstanding anything herein stated to the contrary, if Lessor shall
fail to perform any covenant, term or condition of this Lease upon Lessor's part
to be performed and as a consequence of such default Lessee or any person
claiming through Lessee suffers any loss, injury or damage, it is specifically
understood and agreed that Lessor (its principals, successors, assigns and
partners, if any) shall not have any personal liability therefor, Lessee hereby
agreeing

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to look solely to the equity of Lessor (its successors, assigns and partners, if
any in the Demised Premises for the satisfaction of each and every remedy of
Lessee or any person claiming through Lessee in the event of such failure by
Lessor.

SECTION 23
SUBORDINATION

The Lessor reserves the right an privilege to subject and subordinate
this Lease to all ground or underlying leases and all mortgages, which may now
or hereafter affect the Demised Premises, and to any and all advances to be made
thereunder and all renewals, modifications, consolidations, replacements and
extensions thereof. Lessee covenants and agrees to execute promptly any
certificate that lessor may request in confirmation of such subordination and
Lessee hereby constitutes and appoints Lessor as Lessee's attorney-in-fact to
execute any such certificate for or on behalf of the Lessee.

SECTION 24
ESTOPPEL CERTIFICATE BY LESSEE

Lessee agrees at any time and from time to time, upon not less than ten
(10) days' prior written request by the Lessor, to execute and acknowledge and
deliver to Lessor a written statement similar to Exhibit "B" certifying that
this Lease is unmodified and in full force and effect (or, if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), and the dates to which the rent and other charges have been
paid in advance, if any, it being intended that any such statement delivered
pursuant to this Section may be relied upon by any prospective purchaser of the
fee or mortgagee or assignee of any mortgage upon the fee of the Demised
Premises.

SECTION 25
TERM "LESSOR"

The term "Lessor" as used in this Lease, so far as covenants or
obligations on the part of Lessor are concerned, shall be limited to mean and
include only the owner for the time being of the Demised Premises. If the
Demised Premises or underlying lease, if any, be sold or transferred, the Seller
shall be automatically and entirely released of all covenants and obligations
under this lease from and after the date of such conveyance or transfer,
provided the purchaser on such sale has assumed and agreed to carry out all
covenants and obligations contained in this Lease to be performed on the part of
Lessor hereunder, it being hereby agreed that the covenants and obligations
contained in this Lease shall be binding upon Lessor, its successors and
assigns, only during their respective successive periods of ownership.

SECTION 26

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HOLDING OVER

If Lessee shall remain in possession of all or any part of the Demised
Premises after the expiration of the term of this Lease or any renewal thereof,
with the consent of Lessor, then Lessee shall be deemed a Lessee of the Premises
from month-to-month at two times the most recent rental payable by Lessee
hereunder and subject to all of the terms and provisions hereof, except only as
to the term of this Lease.

SECTION 27
QUIET ENJOYMENT

Lessor covenants and agrees that if Lessee pays the rental and other
charges herein provided and shall perform all of the covenants an :1 agreements
herein stipulated to be performed on the Lessee's part, Lessee shall, at all
times during said term, have the peaceable and quiet enjoyment and possession of
the Demised Premises without any manner of hindrance from Lessor or any persons
lawfully claiming through Lessor, except as to such portion of the Demised
Premises as shall be taken under the power of eminent domain or condemnation.

SECTION 28
WAIVER OF SUBROGATION

Neither the Lessor nor the Lessee shall be liable to the other for any
business interruption or any loss or damage to property or injury to or death of
persons occurring on the Demised Premises, or the condition thereof, or of the
adjoining property, whether or not caused by the negligence or other fault of
the Lessor or the Lessee or of their respective agents, employees, subtenants,
licensees, or assignees; provided, however, that this release shall apply only
to the extent that such business interruption, loss or damage to property, or
injury to or death of persons is covered by insurance, regardless of whether
such insurance is payable to or protects the Lessor or the Lessee or both.
Nothing in this Section shall be construed to impose any other or greater
liability upon either the Lessor or the Lessee than would have existed in the
absence hereof. This release shall be in effect only so long as the applicable
insurance policies contain a clause to the effect that this release shall not
affect the right of the insured to recover under such policies. Such clauses
shall be obtained by the parties whenever possible.

SECTION 29
REAL ESTATE TAXES

As part of the consideration for this Lease and in addition to the rent
hereinbefore provided, Lessee shall pay its pro-rata share as defined in Section
1, Paragraph F, of all taxes and assessments, both general and special, levies
and governmental impositions and charges of every kind and nature whatsoever,
extraordinary as well as ordinary ("Taxes"), assessed, imposed or

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levied upon the Building Site during the term of this Lease and any extension or
renewal thereof, prorated on a daily basis for any partial year. Such payment
shall be made by Lessee by delivering to Lessor, contemporaneously with the
monthly installments of rent payable by Lessee, an amount equal to one-twelfth
of the Taxes. If the Taxes for the then current year have been fixed. Lessee
shall pay Lessor monthly installments equal to one-twelfth of the amount thereof
contemporaneously with the monthly installment of rent payable hereunder, and if
such Taxes have not been fixed, then Lessee shall pay to Lessor an estimated tax
amount determined by Lessor in monthly installments equal to one-twelfth of the
estimated tax amount. If, upon the determination of the amount of the Taxes, the
total amount of funds deposited by Lessee hereunder are not sufficient to pay
the Taxes then due, then Lessee agrees to remit to Lessor an amount equal to the
shortage promptly upon receipt of a statement therefor from the Lessor. In the
event Lessee has deposited funds with Lessor for the payment of the Taxes for
such year in excess of the amount required to pay the Taxes for such year, then
the overage shall be credited to the next month's deposit to be made by Lessee
for Taxes hereunder.

SECTION 30
LESSOR'S INSURANCE

During the term of this Lease and any renewal or extension there of,
Lessee shall reimburse Lessor for its pro rata share as defined in section 1,
Paragraph F, of the cost of all general liability and casualty insurance carried
by Lessor covering the Building Site, including, but not by way of limitation,
property insurance on the building and Lessor's contents to the full insurable
value thereof, if any, rental value insurance, and war risk insurance, if
available all of same insuring against the perils of fire, extended coverage,
and special extended coverage or their equivalent.

SECTION 31
OPTION

Lessee shall have an option to renew this lease for one (1) additional
lease term for a period of Five (5) years upon the same terms and conditions
except as to rent and the further right of renewal. To exercise said option
Lessee shall give Lessor notice in writing if its election to exercise the
option at least ninety (90) and not more than one hundred eighty (180) days
prior to the expiration of the original term. The rent for the additional term
shall be at the rates set forth in section 4, without right to appraisal.

SECTION 32
SIGNS

Lessee may, at its sole cost and expense, erect a sign, with or without
illumination, at the Demised Premises identifying its place of business;
provided, however, the location, type,

16 ----------------
J.C. Villanueva

----------------
Ronald J. Carr

<PAGE> 18

content, design and size of such sign shall conform with all local sign
ordinances and permit requirements and further provided Lessee shall have
obtained Lessor's prior written consent thereof.

SECTION 33
FORCE MAJEURE

In the event that Lessor or Lessee shall be delayed, hindered in or
prevented from the performance of any act required hereunder (other than the
payment of rent and other charges payable by Lessee) by reason of strikes,
lockouts, labor troubles, inability to procure materials, failure of power,
riots, insurrection, the act, failure to act or default of the other party, war
or any other reason beyond the reasonable control of the party who is seeking
additional time for the performance of such act, then performance of such act
shall be excused for the period of the delay and the period for the performance
of any such act shall be extended for a reasonable period, in no event to exceed
a period equivalent to the period of such delay.

SECTION 34
TITLES OF SECTIONS

The titles of the sections throughout this Lease are for convenience
and reference only, and the words contained therein shall in no way be held to
explain, modify, amplify, or aid in the interpretation, construction or meaning
of the provisions of this instrument.

SECTION 35
NOTICES

Any bill, statement, notice, communication or payment which Lessor or
Lessee may desire, or be required to give to the other party shall be in writing
and shall be sent to the other party by registered or certified mail to the
following addresses or to such other address as either party shall have
designated to the other by like notice, and the time of the rendition of such
shall be when same is deposited in an official United States Post Office,
postage prepaid:

Lessor:

1541 East 191st Street
Euclid, Ohio 44117

Attn: Mr. Juan C. Villanueva, President

Lessee

17 ---------------
J.C. Villanueva

--------------
Ronald J. Carr

<PAGE> 19

1541 East 191st Street
Euclid, Ohio 44117

Attn: Mr. Ronald J. Carr, President

SECTION 36
DEFINITION OF TERMS

As used in this lease and when required by the context, each number
(singular or plural) shall include all numbers, and each gender shall include
all genders: and unless the context otherwise requires, the word "person" shall
include individuals, corporations, firms, associations, partnerships and any
other type of entity.

SECTION 37
INVALIDITY OF PARTICULAR PROVISIONS

If any term or provision of this lease or the application thereof to
any person or circumstance shall to nay extent be invalid or unenforceable, the
other terms of this Lease, or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Leases shall be valid and be enforced to the fullest extent permitted by
law.

SECTION 38
PROVISIONS BINDING

Except as herein otherwise expressly provided, the terms and provisions
hereof shall be binding upon and shall inure to the benefit of the heirs,
executors, administrators, successors, and permitted assigns, respectively, of
the Lessor and the Lessee. Each term and provision of this Lease to be performed
by the Lessee shall be construed to be both a covenant and a condition. The
reference contained to successors and assigns of Lessee is not intended to
constitute a consent to assignment by Lessee, but has reference only to those
instances in which Lessor may have given written consent to a particular
assignment as required by Section 18 hereof.

SECTION 39
RELATIONSHIP OF PARTIES

Nothing contained in this Lease shall be deemed or construed by the
parties hereto or by any third party to create the relationship of principal and
agent or of partnership or of joint venture or of any association whatsoever
between Lessor and Lessee, it being expressly understand and agreed that neither
the computation of rent and other charges nor any other provisions contained in
this Lease nor any act or acts of the parties hereto shall be deemed to

18 ----------------
J.C. Villanueva

----------------
Ronald J. Carr

<PAGE> 20

create any relationship between Lessor and Lessee other than the relationship of
landlord and tenant.

SECTION 40
NET LEASE PROVISION

It is the intention of Lessor and Lessee that the rent herein specified
shall be net to Lessor in each year during the term of this Lease or any
extension thereof, and that all costs, expenses, and obligations of every kind
relating to the Demised Premises and Lessee's pro rata share of Common Area
charges (except as otherwise specifically provided in this Lease) which may
arise or become due during the term of this Lease, shall be paid by the Lessee,
and that the Lessor shall be indemnified by the Lessee against such costs,
expenses and obligations.

SECTION 41
SHORT-FORM LEASE

The parties will, at any time, at the request of either one, promptly
execute duplicate originals of an instrument, in recordable form, which will
constitute a short form of lease, setting forth a description of the Demised
Premises, the term of the Lease and any other portions thereof, excepting the
rental provisions, as either party may request. This Lease shall not be
recorded.

SECTION 42
COMPLETE AGREEMENT

This writing contains the entire agreement between the parties hereto,
and no agent, representative, salesman or officer of Lessor hereto has authority
to make or has made any statement, agreement or representation, oral or written
in connection herewith, modifying, adding or changing the terms and conditions
herein set forth. No dealings between the parties or custom shall be permitted
to contradict various additions to or modify the terms hereof. No modification
of this Lease shall be binding unless such modification shall be in writing and
signed by the parties hereto.

IN TESTIMONY WHEREOF, the Lessor and Lessee have caused this Lease to be signed,
in triplicate, upon the day and year first above written.

SIGNED IN THE PRESENCE OF: INDIAN HILLS PROPERTIES, INC.,
an Ohio corporation "Lessor"

- - ---------------------------------------
WITNESS

19 ----------------
J.C. Villanueva

----------------
Ronald J. Carr

<PAGE> 21

- - --------------------------------
WITNESS
By:
----------------------------
Juan Villanueva
its President

Telecommunications Associates
Group, Inc. an Ohio Corporation
"Lessee"

- - --------------------------------
WITNESS

- - --------------------------------
WITNESS
By:
----------------------------
Ronald J. Carr
its President

20 ----------------
J.C. Villanueva

----------------
Ronald J. Carr

<PAGE> 22

EXHIBIT "A"

<PAGE> 23

EXHIBIT "B"

STATEMENT OF LESSEE IN RE: LEASE

Gentlemen

The undersigned as Lessee under a certain Lease date the day of November, 1997,
made with Indian Hills Properties, Inc., as Lessor, hereby certifies that the
undersigned entered into occupancy of the Premises described in Said Lease on
the first day of January, 1998; that said lease is in full force and effect and
has not been modified, supplemented or amended in any way; that the same
represents the entire agreement between the parties to such Lease Agreement;
that all conditions under said Lease to be performed by Lessor have been
satisfied, and that on this date there are no existing defenses or offset which
the undersigned has against the enforcement of said Lease by the Lessor; that no
rental has been paid in advance; that any rental due to this date has been paid.

Very Truly yours,

Telecommunications Associates
Group, Inc.

By:
-------------------------------
Its President

Dated:
---------------------------------

<PAGE> 24

LEGAL DESCRIPTION
for Shopping Center

Permanent Parcel No. 646-20-3

And known as being part of Original Euclid Township Lot No. 9, Gore Tract and
Part of Original Euclid Township Lot No. 50, Tract 10 and bounded and described
as follows:

Beginning on the Old centerline of Euclid Avenue at its intersection with the
centerline of East 191st Street, 50 feet wide, as dedicated by plat recorded in
Volume 198 of Maps, page 69 of Cuyahoga County Records.

Course I. Thence North 44 degrees 50'45" West along the centerline of said East
191st Street 52.36 feet to the northwesterly line of said Euclid Avenue, 86 feet
wide.

Course II. Thence South 45 degrees 09' 14" West along the northwesterly line of
said Euclid Avenue 45.00 feet to the southerly end of a curved turnout between
the northwesterly line of said Euclid Avenue and the southwesterly line of said
East 191st Street.

Course III. Thence northerly along said turnout on a curved line deflecting to
the left and arc distance of 31.42 feet to the southwesterly line of said East
191st Street, said curved line having a radius of 20.00 feet and a chord which
bears North 00 degrees 09' 14" East 28.28 feet.

Course IV. Thence North 44 degrees 50'46" West along the southwesterly line of
said East 191st Street 501.35 feet to an angle therein.

Course V. Thence North 45 degrees 31' 21" West continuing along the
southwesterly line of said East 191st Street 249.79 feet to a point.

Course VI. Thence South 44 degrees 28' 39" West parallel to the southeasterly
line of land conveyed to the Board of Commissioners of Cuyahoga County by deed
dated December 5, 1978 and recorded in Volume 15202, Page 881 of Cuyahoga County
Records, 400.95 feet to the southwesterly line of land conveyed to Clevite
Corporation by deed dated May 16, 1967 and recorded in Volume 12118, Page 949 of
Cuyahoga County Records.

Course VII. Thence North 45 degrees 31' 21 " East along the southwesterly line
of land conveyed to Clevite Corporation as aforesaid 812.29 feet to its
intersection with said Old centerline of Euclid Avenue.

Course VIII. Thence North 46 degrees 58' 05" East along said centerline of
Euclid Avenue 129.96 feet to an angle therein.

Course IX. Thence North 45 degrees 37' 40" East along said Old centerline of
Euclid Avenue 289.42 feet to the place of beginning be the same more of less but
subject to all legal highways.

<PAGE> 25

ADDENDUM TO LEASE

Reference is made to that certain Lease by and between Indian Hills
Properties Inc., as Lessor, and Telecommunications Associates Group, Inc., a
wholly owned subsidiary of Security Associates International, Inc., as Lessee,
dated November __ 1997 but effective January 1, 1998 (the "Lease"). Section 4 of
the Lease is hereby amended to include the following:

SECURITY DEPOSIT. Lessee shall pay Lessor a non-interest bearing
security deposit equal to twelve (12) months rent totalling
Seventy-Nine Thousand Eight Hundred Dollars and 00/100 ($79,800.00)
upon execution of the Lease. Lessee will be refunded three-fourths
(3/4) of the security deposit as a rent rebate and applied to rent
payments then due in accordance with the following schedule: (a)
twenty-five percent (25%) of the deposit for the months of January,
February and March, 2000; (b) twenty-five percent (25%) of the deposit
for the months of January, February and March 2002; and, (c)
twenty-five percent (25%) of the deposit for the months of January,
February and March 2004. The remaining twenty-five percent (25%) of the
security deposit ($19,950.00) shall remain with Lessor through the term
of the Lease, its termination, or any extension or renewal thereof.

Except to the extent modified herein, all other terms and conditions of
the Lease shall remain in full force and effect.

IN WITNESS WHEREOF, the parties have executed this Addendum as of the
__ day of November, 1997.

"LESSEE"

TELECOMMUNICATIONS
ASSOCIATES GROUP., a wholly
owned subsidiary of
Security Associates
International, Inc.

By:
------------------------
Its:
-----------------------

<PAGE> 26

"LESSOR"

INDIAN HILLS PROPERTIES,
INC., an Ohio Corporation

By:
------------------------
Its:
-----------------------

<PAGE> 1
THIS PROMISSORY NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY
ARE SUBORDINATED IN THE MANNER SET FORTH IN THAT CERTAIN
AMENDED AND RESTATED SUBORDINATION AGREEMENT DATED AS OF
DECEMBER 2, 1997 AMONG TJS PARTNERS, L.P., A NEW YORK LIMITED
PARTNERSHIP ("SUBORDINATED LENDER"), SECURITY ASSOCIATES
INTERNATIONAL, INC. ("SAI"), A DELAWARE CORPORATION, AND
FINOVA CAPITAL CORPORATION, A DELAWARE CORPORATION, IN ITS
INDIVIDUAL CAPACITY AND AS AGENT FOR ALL LENDERS ("FINOVA"),
TO CERTAIN OTHER INDEBTEDNESS OWED BY SAI AND CERTAIN
AFFILIATES OF SAI; AND EACH OTHER HOLDER OF THIS NOTE BY
THEIR ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS OF
THE SUBORDINATION AGREEMENT.

PROMISSORY NOTE

$500,000 December 8, 1997
Arlington Heights, Illinois

FOR VALUE RECEIVED, ALARM FUNDING CORPORATION, a Delaware corporation
("BORROWER"), located at 2101 South Arlington Heights Road, Arlington Heights,
Illinois, promises to pay to the order of TJS Partners, L.P., a New York
limited partnership, its successors, designees or assigns ("LENDER"), at its
offices at 115 East Putnam Avenue, Greenwich, CT, or at such other place or
places as Lender may from time to time designate in writing, the principal sum
of Five Hundred Thousand No/100 Dollars ($500,000.00). Principal and interest
on this Promissory Note shall be payable on December 31, 1998. This Promissory
Note shall bear interest at the rate of 12% per annum.

Borrower promises to pay to Lender interest on the outstanding unpaid
principal amount hereof, as provided in the Loan Agreement, from the date
hereof until payment in full Interest shall be computed on the basis of a
360-day year for the actual number of days elapsed.

Borrower waives presentment, demand and protest, notice of protest,
notice of presentment and all other notices and demands in connection with the
enforcement of Lender's rights hereunder. Any failure of Lender to exercise any
right available hereunder or otherwise shall not be construed as a waiver of
the right to exercise the same or as a waiver of any other right at any other
time.

1
<PAGE> 2

Whenever in this Promissory Note reference is made to Lender or
Borrower, such reference shall be deemed to include, as applicable, a reference
to their respective successors and assigns. The provisions of this Promissory
Note shall be binding upon and shall inure to the benefit of such successors
and assigns. Borrower's successors and assigns shall include without
limitation, a receiver, trustee or debtor in possession of or for Borrower.
Lender shall have the unrestricted right to assign its interest in this
Promissory Note.

The loan evidenced hereby has been made, and this Promissory Note has
been delivered, at Arlington Heights, Illinois and shall be governed by and
construed in accordance with the internal laws (as opposed to the conflicts of
laws provisions) of the State of Illinois

BORROWER HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS INITIATED BY BORROWER
AND ARISING DIRECTLY OR INDIRECTLY OUT OF THE LOAN INSTRUMENTS SHALL BE
LITIGATED IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS, OR THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS. BORROWER HEREBY EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH COURTS, AND HEREBY AGREES THAT
PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS
ISSUED THEREIN MAY BE SERVED IN THE MANNER PROVIDED FOR NOTICES HEREIN, AND
AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH BORROWER AT THE
ADDRESS SET FORTH ABOVE . BORROWER WAIVES ANY CLAIM THAT COOK COUNTY, ILLINOIS
OR THE NORTHERN DISTRICT OF ILLINOIS IS AN INCONVENIENT FORUM OR AN IMPROPER
FORUM BASED ON LACK OF VENUE. TO THE EXTENT PROVIDED BY LAW, SHOULD BORROWER,
AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT,
PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER
THE MAILING THEREOF, SUCH BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER
AND/OR JUDGMENT MAY BE ENTERED BY THE COURT AGAINST BORROWER AS DEMANDED OR
PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE
OF FORUM FOR BORROWERS SET FORTH HEREIN SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT BY LENDER OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING
BY LENDER OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE
JURISDICTION, AND BORROWER HEREBY WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY
SUCH JUDGMENT OR ACTION.

LENDER AND BORROWER ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS PROMISSORY NOTE WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES
AND, THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT ARISING OUT OF

<PAGE> 3

ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY
A JUDGE SITTING WITHOUT A JURY.

Wherever possible each provision of this Promissory Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Note shall be prohibited by or invalid under such
law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Promissory Note.

ALARM FUNDING CORPORATION

BY:____/S/ SCOTT MACDOUGAL___________

ITS: ____PRESIDENT___________________

<PAGE> 1

SUBORDINATED LOAN AGREEMENT

THIS SUBORDINATED LOAN AGREEMENT, effective as of November 14, 1997, is
between ALARM FUNDING CORPORATION, a Delaware corporation ( "BORROWER" OR "AFC")
and TJS PARTNERS, L.P., a New York limited partnership ("TJS" OR "LENDER") (all
other capitalized terms used herein are defined in Section 1.1 below).

R E C I T A L S:

A. On or about November 14, 1997, Lender and Borrower agreed to
the terms under which Lender would provide the initial funding
of Borrower.

B. Borrower and Lender agreed that Lender would provide up to
$1,500,000 in subordinated debt to Borrower on the terms and
conditions set forth in a definitive loan agreement.

C. Borrower and Lender also agreed that as an inducement to
Lender to supply up to $1,500,000 in subordinated debt to
Borrower, Borrower would issue to Lender an option to purchase
twenty percent (20%) of the equity of Borrower for a purchase
price of $1,000.00.

D. On December 9, 1997, Lender advanced $500,000 to Borrower
pursuant to a promissory note which was to serve as interim
documentation pending the execution of definitive
documentation.

E. Borrower and Lender have agreed to enter into this Loan
Agreement as the definitive documentation of their respective
rights and obligations in connection with the $1,500,000
subordinated debt facility.

NOW, THEREFORE, it is agreed as follows:

ARTICLE I

DEFINITIONS AND DETERMINATIONS

1.1 Definitions. As used in this Loan Agreement, unless otherwise expressly
indicated herein or therein, the following terms shall have the following
meanings:

Bankruptcy Code: the United States Bankruptcy Code and any
successor statute thereto, and the rules and regulations issued thereunder,
as in effect from time to time.

<PAGE> 2
Borrower: Alarm Funding Corporation, a Delaware corporation.

Borrower's Obligations: any and all Indebtedness due or to become the,
now existing or hereafter arising under this Loan Agreement and the Note, of
Borrower to TJS.

Business Day: any day other than a Saturday, Sunday or other day on
which banks in Chicago, Illinois or New York, New York are required to close

Capital Stock: collectively, all of the issued and outstanding capital
stock, warrants, options and other equity interests of Borrower.

Code: the Internal Revenue Code of 1986, as amended, and any successor
statute thereto, and the rules and regulations issued thereunder, as in effect
from time to time.

Dealer: any Person whose primary business is the installation or
servicing of alarm equipment and the sale of monitoring services.

Debt Service: during any period all payments of principal, interest,
premium, fees and other charges with respect to Indebtedness for Borrowed Money,
which payments are required or permitted to be made pursuant to this Loan
Agreement and are due and payable during such period.

Default Rate: a per annum rate equal to 18% per annum.

Default Rate Period: a period of time commencing on the date that an
Event of Default has occurred and ending on the date that such Event of Default
is cured or waived.

Effective Date: November 14, 1997.

Event of Default: any of the Events of Default set forth in Section
7.1.

Funding Date: the date of the disbursement of an Advance.

Future Portion: a portion of the Loan in a principal amount not to
exceed $1,500,000 less the then Principal Balance.

Future Portion Closing: the disbursement of any portion of the Future
Portion.

Future Portion Closing Date: the date of any Future Portion Closing.

GAAP: generally accepted accounting principles as in effect from time
to time, which shall include but shall not be limited to the official
interpretations thereof by the Financial Accounting Standards Board or any
successor thereto.

Good Funds: United States Dollars available in Federal funds to TJS at
or before 2:00 p.m., New York time, on a Business Day.

<PAGE> 3

Incipient Default: any event or condition which, with the giving of
notice or the lapse of time, or both, would become an Event of Default.

Indebtedness for Borrowed Money: without duplication, all Indebtedness
(i) in respect of money borrowed, (ii) evidenced by a note, debenture or other
like written obligation to pay money (including, without limitation, all of
Borrowers' Obligations and Senior Indebtedness), (iii) in respect of rent or
hire of Property under capitalized leases or for the deferred purchase price of
Property, (iv) in respect of obligations under conditional sales or other title
retention agreements and (v) all guaranties of any or all of the foregoing.

Initial Portion: a portion of the Loan in the amounts of $500,000.00
disbursed on December 9, 1997.

Lender: TJS.

Loan: the loan to be made by Lender to Borrowers in the maximum
principal amount of $1,500,000, subject to the terms and conditions of this Loan
Agreement.

Loan Agreement: this Subordinated Loan Agreement.

Material Adverse Effect: (i) a material adverse effect upon the
business, operations, Property or financial condition of Borrower or (ii) a
material impairment of the ability of any Obligor to perform its obligations
under the Loan Agreement or the Note.

Note: a promissory note in form and substance satisfactory to TJS in
the principal amount of $1,500,000 executed and delivered by Borrower to TJS to
evidence the Loan.

<PAGE> 4

Options: The options issued by Borrower to TJS entitling TJS to
purchase twenty percent (20%) of the equity interests of Borrower for $1,000.00.
which expire on December 31, 1998.

Parties: collectively, TJS and the Borrower.

Principal Balance: the unpaid principal balance of the Loan or any
specified portion thereof outstanding from time to time.

Property: all types of real, personal or mixed property and all types
of tangible or intangible property.

Senior Indebtedness: all of Borrower's Indebtedness for Borrowed Money
from financial institutions such as banks, finance companies, insurance
companies, pension funds or similar institutions.

TJS Partners: TJS Partners, L.P., a New York limited partnership.

ARTICLE II

LOAN AND TERMS OF PAYMENT

2.1 Initial Portion.

2.1.1 Amount and Disbursement. The Parties acknowledge that the Initial
Portion was disbursed in the amounts of $500,000.00 on December 9, 1997. The
initial portion shall henceforth be subject to this Loan Agreement. Any notes
previously issued in connection with the initial portion shall be returned to
Borrower for cancellation and the Initial Portion shall upon such cancellation
be reflected in and subject to the Note.

2.2 Future Portion.

2.2.1 Amount and Disbursement. The Future Portion shall consist of
Advances to be made by Lender to Borrower up to the maximum principal amount of
$1,500,000.00 minus the Principal Balance outstanding from time to time during
the term of this Loan Agreement, provided that all of the terms and conditions
set forth in subsection 2.2.2 have been satisfied.

2.2.2 Conditions Precedent to Advances. The obligation of Lender to
make any Advance shall be subject to the satisfaction of the following
conditions:

<PAGE> 5

(a) no Incipient Default or Event of Default exists
or would be created by the disbursement of such Advance;

(b) Lender shall have received a written request for
an advance from Borrower with respect to each such Advance no
later than 12:00 p.m., Chicago time, at least one (1) Business
Day prior to the proposed Funding Date with respect to such
Advance, which Funding Date shall be on a Business Day;

(c) on the applicable Funding Date the
representations and warranties set forth in the Loan Agreement
shall be true and correct in all material respects when made
and at and as of the time of the Funding Date, except to the
extent that such representations and warranties expressly
relate to an earlier date.

2.3 Note and Reborrowing.

2.3.1 Note. The Loan shall be evidenced by the Note.

2.3.2 Reborrowing. Borrowers shall be entitled to reborrow any portion
of the Loan which is repaid or prepaid.

2.4 Interest.

2.4.1 Interest Rate. Except during a Default Rate Period as provided
in Section 2.7, the Principal Balance outstanding from time to time shall bear
interest at the rate of twelve percent (12%) per annum, simple interest.
Interest on the Initial Portion shall accrue from December 9, 1997.

2.4.2 Interest Computation. Interest shall be computed on the basis of
a year consisting of 360 days and charged for the actual number of days during
the period for which interest is being charged. In computing interest, the
Principal Balance on the date of funding of an Advance shall include the amount
of the Advance and the Principal Balance on the date of payment of any amount
due hereunder shall exclude the amount paid.

2.5 Principal and Interest Payments.

2.5.1 Interest. Interest on the Principal Balance shall be payable
semiannually in arrears on the first Business Day of each six month period
beginning with July 1, 1998. Notwithstanding the foregoing, interest payments
due hereunder shall be deferred until such time as Borrower shall be able to
make such payments without incurring thereby a deficit in earnings before
interest taxes depreciation and interest (after payment of interest due on
Senior Indebtedness) ("EBITDA") as a result of such payment.

2.5.2 Principal. The Principal Balance shall be payable on January 2,
2003.

5
<PAGE> 6

2.6 Prepayments.

2.6.1 Voluntary Prepayment of Loan. Borrowers may at any time
voluntarily prepay in whole or in part the Principal Balance, without premium
or penalty. Concurrently with any prepayment of the Principal Balance pursuant
to this subsection 2.6.1, Borrowers shall pay to Lenders accrued and unpaid
interest on the portion of the Principal Balance which is being prepaid to the
date on which Lender is in receipt of Good Funds.

2.7 Default Rate Period. During a Default Rate Period, (i) Borrowers'
Obligations shall bear interest at the Default Rate and (ii) all payments
received by Lender shall be applied in accordance with Section 7.4.

2.8 Method of Payment. Borrower shall remit all amounts due hereunder to
Lender in Good Funds, on the due date of such payment, for application to
Borrower's Obligations in the following order of priority: (i) first, to the
payment of allBorrower's Obligations then due and payable other than the
Principal Balance and accrued and unpaid interest thereon, and (ii) second, to
the payment of accrued and unpaid interest then due and payable on the Principal
Balance and (iii) if applicable, towards payment of the Principal Balance. All
payments to be made pursuant to the Loan Agreement and the Note by Borrower to
Lender shall be made by wire transfer of Good Funds to the account of TJS at
Chase Manhattan Bank, ABA # 021-000-021, credit the account of Ernst & Company,
Account No. 140-080-524, further credit the account of TJS Partners, L.P.,
Account No. 560-02626 or to such other account as Lender shall have given five
Business Days prior written notice to Borrower.

2.9 Issuance of Options. Borrower shall issue the Options to Lender as
soon as practicable after the execution of this Agreement.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to Lender as follows:

3.1 Existence and Power. SAI, AMJBorrower is a corporation duly formed and
validly existing under the laws of the State of Delaware. Borrower is in good
standing and qualified to transact business in each jurisdiction in which the
failure so to qualify could have a Material Adverse Effect. Borrower has all
requisite power and authority to own its Property and to carry on its business
as now conducted and as proposed to be conducted following the Effective Date.

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3.2 Authority. Borrower has full power and authority to enter into, execute,
deliver and carry out the terms of this Loan Agreement and the Note and to incur
the obligations provided for therein, all of which have been duly authorized by
all proper and necessary action and are not prohibited by the organizational
instruments of Borrower.

3.3 Binding Agreements. This Loan Agreement and the Note, when executed and
delivered, will constitute the valid and legally binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms, except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect affecting the enforcement of creditors' rights generally,
and (ii) equitable principles (whether or not any action to enforce such
document is brought at law or in equity).

3.4 Litigation. There are no actions, suits, arbitration proceedings and
claims pending or, to the best knowledge of Borrower, threatened against
Borrower or maintained by Borrower at law or in equity or before any
Governmental Body

3.5 Defaults in Other Agreements; Consents; Conflicting Agreements.
Borrower is not in default under any agreement to which Borrower is a
party or by which Borrower or any of the Property of Borrower is bound, the
effect of which default could have a Material Adverse Effect. No authorization,
consent, approval or other action by, and no notice to or filing with, any
Governmental Body or any other Person which has not already been obtained,
taken or filed, as applicable, is required (i) for the due execution, delivery
or performance by Borrower of the Loan Agreement and the Note or (ii) as a
condition to the validity or enforceability of any of the foregoing or any of
the transactions contemplated thereby. No provision of any material mortgage,
indenture, contract, agreement, statute, rule, regulation, judgment, decree or
order binding on Borrower or affecting the Property of Borrower conflicts with,
or requires any consent which has not already been obtained under, or would in
any way prevent the execution, delivery or performance of the terms of any of
the Loan Agreement and the Note. The execution, delivery or performance of the
terms of the Loan Agreement and the Note will not constitute a default under,
or result in the creation or imposition of, or obligation to create, any Lien
upon the Property of the Borrower pursuant to the terms of any such material
mortgage, indenture, contract or agreement.

3.6 Compliance with Applicable Laws. Borrower is not in default in respect
of any judgment, order, writ, injunction, decree or decision of any Governmental
Body, which default would have a Material Adverse Effect. Except as otherwise
provided herein, Borrower is in compliance in all material respects with all
applicable statutes and regulations, a violation of which could have a Material
Adverse Effect.

3.7 Patents, Trademarks, Franchises, Agreements. Upon the Effective Date,
Borrower will own, possess or have the right to use all patents, trademarks,
service marks, tradenames, copyrights, franchises and rights with respect
thereto, necessary for the conduct of Borrower's business as proposed to be
conducted after the Effective Date, without any known conflict with the rights
of others and, in each case, free of any Liens.

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3.8 Other Indebtedness. On the Effective Date, Borrower had no Indebtedness
for Borrowed Money, except Borrower's Obligations.

3.9 No Misrepresentation. Neither this Loan Agreement nor any other
certificate, information or report furnished or to be furnished by or on behalf
of Borrower to Lender in connection with any of the transactions contemplated
hereby or thereby, contains or will contain a misstatement of material fact, or
omits or will omit to state a material fact required to be stated in order to
make the statements contained herein or therein, taken as a whole, not
misleading in the light of the circumstances under which such statements were
made. There is no fact, other than information known to the public generally,
known to or reasonably foreseen by Borrower after diligent inquiry, that would
be expected to have a Material Adverse Effect that has not expressly been
disclosed to Lender in writing.

ARTICLE IV

AFFIRMATIVE COVENANTS

Until all of Borrower's Obligations are paid and performed in full,
Borrower agrees that it and each Obligor will:

4.1 Legal Existence; Good Standing. Maintain its existence and its good
standing in the jurisdiction of its formation and its qualification in each
jurisdiction in which the failure so to qualify would have a Material Adverse
Effect, and in any event in each jurisdiction in which any portion of the
business owned or operated by Borrower is located.

4.2 Inspection. Permit representatives of Lender at Lender's expense, upon
two Business Days prior notice if no Event of Default exists, or at any
time if any Event of Default exists, to (i) visit its offices, (ii) examine its
books and records and Accountants' reports relating thereto, (iii) make copies
or extracts therefrom, (iv) discuss its affairs with its employees, (v) examine
and inspect its Property and (vi) meet and discuss its affairs with its
certified public accountants, and such accountants, as a condition to their
retention by such Borrower, are hereby irrevocably authorized by Borrower to
fully discuss and disclose all such affairs with Lender (the foregoing items
(i) through (vi) hereinafter are referred to collectively as an "Inspection") .
Notwithstanding the foregoing, if no Event of Default exists, Lender shall not
conduct an Inspection more than once a quarter.

4.3 Financial Statements and Other Information. Maintain a standard system
of accounting in accordance with GAAP and furnish to Lender, but only
upon Lender's request, those of the following items requested:

4.3.1 Monthly Statements. After the close of any month:

(a) the balance sheet of Borrower of such month,

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(b) the statements of operations and Operating Cash Flow of
Borrower for such month and for the period from the beginning of the then
current year to the end of such month, setting forth in each case in
comparative form the corresponding figures for the corresponding period in the
preceding year, and

(c) a report providing the following information as of the end
of such month: (i) the number of loans made by Borrower; (ii) the payment
history of for all loans made by Borrower; and (iii) the collateral coverage
for the loans made by Borrower.

all in reasonable detail, containing such information as Lender reasonably may
require, and certified by the President of Borrower as complete and correct,
subject to normal year-end adjustments.

4.3.2 Annual Statements. As soon as available after the close of each
year: the balance sheet of Borrower as of the end of such year and the
statements of operations, cash flows and shareholders' equity of Borrower for
such year (collectively, the "Basic Financial Statements"), and the statements
of Operating Cash Flow of Borrower for such year, setting forth in each case in
comparative form the corresponding figures for the preceding year.

4.4 Notice of Defaults: Loss. Provide Lender with prompt notice if: (i) any
Indebtedness of Borrower is declared or shall become due and payable prior to
its declared or stated maturity, or called and not paid when due, (ii) an event
has occurred that enables the holder of any note, or other evidence of such
Indebtedness, certificate or security evidencing any such Indebtedness of
Borrower to declare such Indebtedness due and payable prior to its stated
maturity, (iii) there shall occur and be continuing an Incipient Default or
Event of Default, accompanied by a statement setting forth what action Borrower
proposes to take in respect thereof, or (iv) any event shall occur which has a
Material Adverse Effect, including the amount or the estimated amount of any
loss or depreciation or adverse effect.

4.5 Notice of Suits, Adverse Events. Provide Lender with prompt notice of:
(i) any citation, summons, subpoena, order to show cause or other order naming
Borrower a party to any proceeding before any Governmental Body which might
reasonably be expected to have a Material Adverse Effect and include with such
notice a copy of such citation, summons, subpoena, order to show cause or other
order and (ii) any dispute between Borrower and any Governmental Body or any
other Person, which lapse, termination, refusal or dispute could reasonably be
expected to have a Material Adverse Effect.

4.6 Other Information.

(a) Provide Lender with prompt notice of any change in the
location of any Property of Borrower which is material to or necessary
for the continued operation of Borrower's business, any change in the
name of Borrower, any sale or purchase of Property outside the regular
course of business of Borrower, and any change in the business or
financial affairs of Borrower, which change would have a Material
Adverse Effect.

<PAGE> 10

(b) Promptly upon request therefor, such other information and
reports relating to the past, present or future financial condition,
operations, plans and projections of Borrower as Lender reasonably may
request from time to time.

4.7 Maintain in full force and effect at all times, and apply in a timely
manner for renewal of licenses, franchises, trademarks, tradenames and
agreements necessary for the operation of Borrower's business, the loss of any
of which would have a Material Adverse Effect.

4.8 Compliance with Laws. Comply with federal, state and local laws,
ordinances, requirements and regulations and all judgments, orders, injunctions
and decrees applicable to Borrower and its operations, the failure to comply
with which would have a Material Adverse Effect.

ARTICLE V

NEGATIVE COVENANTS

Until all of Borrower's Obligations are paid and performed in full,
Borrower shall not:

5.1 Borrowing. Create, incur, assume or suffer to exist any liability for
Indebtedness for Borrowed Money except (i) Borrower's Obligations and (ii)
Senior Indebtedness.

5.2 Liens. Create, incur, assume or suffer to exist any Lien upon any of
its Property, whether now owned or hereafter acquired, except for Liens in
connection with Senior Indebtedness.

5.3 Distributions. Pay any dividends or make any distributions with
respect to, or purchase or redeem all or any portion of its capital stock.

5.4 Payments of Indebtedness for Borrowed Money. Make any voluntary or
optional prepayment of any Indebtedness for Borrowed Money other than Senior
Indebtedness and Borrower's Obligations.

5.5 Investments. Loans. At any time purchase or otherwise acquire, hold or
invest in the capital stock of, or any other interest in, any Person, or make
any loan or advance to, or enter into any arrangement for the purpose of
providing funds or credit to, or make any other investment, whether by way of
capital contribution or otherwise, in or with any Person, except (i) investments
in direct obligations of, or instruments unconditionally guaranteed by, the
United States of America or in certificates of deposit issued by a member bank
of the Federal Reserve System, (ii) investments in commercial or finance paper
which, at the time of investment, is rated either "A" or "P" by Moody's
Investors Service, Inc., or Standard & Poor's Corporation, respectively, or at
the equivalent rate by any of their respective successors, and (iii) any
interests in any money market account maintained, at the time of investment,
with a member bank of the Federal Reserve System, the investments of which, at
the time of investment, are restricted to the types specified in clause (i)
above, and (iv) loans to Dealers secured by Accounts. All investments permitted
pursuant to clauses (i), (ii) and (iii) of this Section 5.5 shall have a
maturity not exceeding one year.

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5.6 Fundamental Business Changes. Materially change the nature of its business
or engage in any business other than making loans to Dealers secured by
Accounts.

6.10 Sale or Transfer of Assets. Sell, lease, assign, transfer or otherwise
dispose of any Property (other than in the ordinary course of business) except
for the sale or disposition of (i) Property which is not material to or
necessary for the continued operation of its business and (ii) obsolete or
unusable items of equipment which promptly are replaced with new items of
equipment of like function and comparable value to the unusable items of
equipment when the same were new or not obsolete.

6.13 Issuance of Capital Stock. Issue or sell, permit to be issued or sold, or
otherwise consent to the transfer of, any additional Capital Stocks or any
interests convertible into or exercisable for Capital Stock which would have the
effect of reducing Lender's equity interest in Borrower to less than twenty
percent (20%) on a fully diluted basis after exercise of the Options.

ARTICLE VI

SUBORDINATION

6.1 Subordination. The payment of any and all of Borrower's Obligations and the
exercise of any right or remedy pursuant to the Loan Agreement and the Note are
expressly subject to any Senior Indebtedness now outstanding or hereafter
incurred.

ARTICLE VII

DEFAULT AND REMEDIES

7.1 Events of Default. The occurrence of any of the following shall constitute
an Event of Default under the Loan Agreement:

7.1.1 Default in Payment. If Borrower shall fail to pay all or any portion
of Borrower's Obligations when the same become due and payable.

7.1.2 Breach of Covenants.

(a) If Borrower shall fail to observe or perform any covenant or
agreement governing Borrower contained in Section 4.1, 4.2 or Article V;

(b) If Borrower shall fail to observe or perform any covenant or
agreement (other than those referred to in subparagraph (a) above or
specifically addressed elsewhere in this Section 7.1) made by such Person
in this Loan Agreement, and such failure shall continue for a period of 30
days after notice of such failure is given by Lender.

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7.1.3 Breach of Warranty. If any representation or warranty made by or on
behalf of Borrower in or pursuant to this Loan Agreement or in any instrument or
document furnished in compliance herewith shall prove to be false or misleading
in any material respect on the date as of which made.

7.1.4 Default Under Other Indebtedness for Borrowed Money. If (i) Borrower
at any time shall be in default (as principal or guarantor or other surety) in
the payment of any principal of or premium or interest on any Indebtedness for
Borrowed Money (other than Borrower's Obligations) beyond the grace period, if
any, applicable thereto and the aggregate amount of such payments then in
default beyond such grace period shall exceed $25,000 or (ii) any default shall
occur in respect of any issue of Indebtedness for Borrowed Money of Borrower
(other than Borrower's Obligations) outstanding in a principal amount of at
least $50,000, or in respect of any agreement or instrument relating to any such
issue of Indebtedness for Borrowed Money, and such default shall continue beyond
the grace period, if any, applicable thereto.

7.1.5 Bankruptcy.

(a) If Borrower shall (i) generally not be paying its debts as
they become due, (ii) file, or consent, by answer or otherwise, to the
filing against it of a petition for relief or reorganization or
arrangement or any other petition in bankruptcy or insolvency under the
laws of any jurisdiction, (iii) make an assignment for the benefit of
creditors, (iv) consent to the appointment of a custodian, receiver,
trustee or other officer with similar powers for Borrower, or for any
substantial part of the property of Borrower or (v) be adjudicated
insolvent.

(b) If any Governmental Body of competent jurisdiction shall
enter an order appointing, without consent of Borrower, a custodian,
receiver, trustee or other officer with similar powers with respect to
Borrower, or with respect to any substantial part of the Property
belonging to Borrower, or if an order for relief shall be entered in any
case or proceeding for liquidation or reorganization or otherwise to take
advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of Borrower or if any
petition for any such relief shall be filed against Borrower and such
petition shall not be dismissed or stayed within 60 days.

7.1.6 Judgments. If there shall exist a final judgment or award against
Borrower which shall have been outstanding for a period of 30 days or more from
the date of the entry thereof and shall not have been discharged or paid in full
or stayed pending appeal, if the aggregate amount of all such judgments and
awards exceeds $50,000.

7.2 Acceleration of Borrowers Obligations. Upon the occurrence of:

(a) any Event of Default described in clauses (ii), (iii), (iv) and (v)
of subsection 7.1.5(a) or in 7.1.5(b), all of Borrower's Obligations at that
time outstanding automatically shall mature and become due subject to the
provisions of the Subordination Agreement, and

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(b) any other Event of Default, Lender, at any time (unless such Event
of Default shall have been waived in writing or remedied), at its option,
without further notice or demand, may declare all of Borrower's Obligations due
and payable,

whereupon Borrower's Obligations immediately shall mature and become due and
payable, all without presentment, demand, protest or notice other than the
declaration referred to in clause (b) above.

7.3 Remedies on Default. If Borrower's Obligations have been accelerated
pursuant to Section 7.2, Lender, at its option, may:

7.3.1 Enforcement of Rights and Remedies. Enforce its rights and
remedies under the Loan Agreement and the Note in accordance with their
respective terms.

7.3.2 Other Remedies. Enforce any of the rights or remedies accorded to
Lender at equity or law, by virtue of statute or otherwise.

7.4 Application of Funds. Any funds received by Lender pursuant to the exercise
of any rights accorded to Lender pursuant to, or by the operation of any of the
terms of, this Loan Agreement or the Note shall be applied to Borrower's
Obligations in the following order of priority:

7.4.1 Expenses. First, to the payment of all reasonable fees and
expenses actually incurred, including, without limitation court costs and all
other costs incurred by Lender in exercising any rights accorded to Lender
pursuant to this Loan Agreement or the Note or by applicable law, including,
without limitation, reasonable attorneys' fees.

7.4.2 Borrower's Obligations. Next, to the payment of the remaining
portion of Borrower's Obligations in such order as Lender may determine.

7.4.3 Surplus. Any surplus, to the Person or Persons entitled thereto.

ARTICLE VIII

EXPENSES AND INDEMNITY

8.1 Attorneys' Fees and Other Fees and Expenses. Each of the parties shall bear
its own expenses in connection with the preparation of this Loan Agreement and
the Note and the transactions contemplated hereby and in connection with any
amendments, modifications or waivers under or in respect of any of the
foregoing.

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8.2 Indemnity. Borrower agrees to indemnify and save Lender harmless of and
from the following:

8.2.1 Fees and Expenses in Enforcement of Rights or Defense of Loan
Agreement and Note. Any reasonable expenses or other costs, including reasonable
attorneys' fees and expert witness fees, actually incurred by Lender in
connection with the enforcement or collection against Borrower of any provision
of the Loan Agreement or the Note, and in connection with or arising out of any
litigation, investigation or proceeding instituted by any Governmental Body or
any other Person with respect to any of the foregoing, whether or not suit is
instituted, including, but not limited to, such costs or expenses arising from
the enforcement or collection against Borrower of any provision of the Loan
Agreement or the Note in any state or federal bankruptcy or reorganization
proceeding.

8.2.2 General. Any loss, cost, liability, damage or expense (including
reasonable attorneys' fees and expenses) incurred by Lender in investigating,
preparing for, defending against, providing evidence, producing documents or
taking other action in respect of any commenced or threatened litigation,
administrative proceeding, suit instituted by any Person or investigation under
any law, including any federal securities law, the Bankruptcy Code, any relevant
state corporate statute or any other securities law, bankruptcy law or law
affecting creditors generally of any jurisdiction, or any regulation pertaining
to any of the foregoing, or at common law or otherwise, relating to the
transactions contemplated by or referred to in, or any other matter related to,
the Loan Agreement or the Note, whether or not Lender is a party to such
litigation, proceeding or suit, or is subject to such investigation.

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ARTICLE IX

MISCELLANEOUS

9.1 Notices. All notices and communications under this Loan Agreement shall be
in writing and shall be (i) delivered in person, (ii) sent by facsimile, or
(iii) mailed, postage prepaid, either by registered or certified mail, return
receipt requested, or by overnight express carrier, addressed in each case as
follows:

To Borrowers: Alarm Funding Corporation
C/O Security Associates International, Inc.
2101 Arlington Heights Road
Arlington Heights, Illinois 60005-4142
Attention: Scott MacDougal, President
Facsimile No.: 847/956-9360

To Lender: TJS Partners, L.P.
115 East Putnam Avenue
Greenwich, Connecticut 06830
Attention: Thomas J. Salvatore

or to any other address or facsimile number, as to any of the parties hereto, as
such party shall designate in a notice to the other parties hereto. All notices
sent pursuant to the terms of this Section 9.1 shall be deemed received (i) if
personally delivered, then on the Business Day of delivery, (ii) if sent by
facsimile before 2:00 p.m. New York time, on the day sent if a Business Day or
if such day is not a Business Day or if sent after 2:00 p.m. New York time, then
on the next Business Day, (iii) if sent by overnight, express carrier, on the
next Business Day immediately following the day sent, or (iv) if sent by
registered or certified mail, on the earlier of the fifth Business Day following
the day sent or when actually received. Any notice by facsimile shall be
followed by delivery on the next Business Day by overnight, express carrier or
by hand.

9.2 Survival of Loan Agreement: Indemnities. All covenants, agreements,
representations and warranties made in this Loan Agreement shall survive the
making by Lender of the Loan and the execution and delivery to Lender of the
Note, and shall continue in full force and effect so long as any of Borrower's
Obligations remain outstanding, unperformed or unpaid. Notwithstanding the
repayment of all amounts due under the Loan Agreement, the cancellation of the
Note and the release and/or cancellation of any and all of the foregoing, the
obligations of Borrower to indemnify Lender with respect to the expenses,
damages, losses, costs and liabilities described in Section 8.2 shall survive
until all applicable statute of limitations periods with respect to actions
which may be brought against Lender have run.

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9.3 Further Assurance. From time to time, Borrower shall execute and deliver to
Lender such additional documents as Lender reasonably may require to carry out
the purposes of the Loan Agreement and the Note and to protect Lender's rights
thereunder, and not take any action inconsistent with the purposes of the Loan
Agreement and the Note.

9.4 Taxes and Fees. Should any tax (other than taxes based upon the net income
of any Lender), recording or filing fees become payable in respect of the Loan
Agreement or the Note, or any amendment, modification or supplement thereof,
Borrower agrees to pay the same on demand, together with any interest or
penalties thereon attributable to any delay by Borrower in meeting any Lender's
demand, and agree to hold Lender harmless with respect thereto.

9.5 Severability. In the event that any provision of this Loan Agreement is
deemed to be invalid by reason of the operation of any law, this Loan Agreement
shall be construed as not containing such provision and the invalidity of such
provision shall not affect the validity of any other provisions hereof, and any
and all other provisions hereof which otherwise are lawful and valid shall
remain in full force and effect.

9.6 Waiver. No delay on the part of Lender in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, and no single or partial
exercise of any right, power or privilege hereunder shall preclude other or
further exercise thereof, or be deemed to establish a custom or course of
dealing or performance between the parties hereto, or preclude the exercise of
any other right, power or privilege.

9.7 Modification of Loan Instruments. No modification or waiver of any provision
of the Loan Agreement or the Note shall be effective unless the same shall be in
writing, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or demand on Borrower
in any case shall entitle Borrower to any other or further notice or demand in
the same, similar or other circumstances.

9.8 Captions. The headings in this Loan Agreement are for purposes of reference
only and shall not limit or otherwise affect the meaning hereof.

9.9 Successors and Assigns. This Loan Agreement shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto.

9.10 Remedies Cumulative. All rights and remedies of Lender pursuant to this
Loan Agreement, the Note or otherwise, shall be cumulative and non-exclusive,
and may be exercised singularly or concurrently.

9.11 Entire Agreement; Conflict. This Loan Agreement and the Note executed
pursuant hereto constitute the entire agreement among the parties hereto with
respect to the transactions contemplated hereby or thereby and supersede any
prior agreements, whether written or oral, relating to the subject matter
hereof.

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9.12 APPLICABLE LAW. THE LOAN AGREEMENT AND THE NOTE SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS AND DECISIONS OF THE STATE OF ILLINOIS.
FOR PURPOSES OF THIS SECTION 9.12, THE LOAN AGREEMENT AND THE NOTE SHALL BE
DEEMED TO BE PERFORMED AND MADE IN THE STATE OF ILLINOIS.

9.13 JURISDICTION AND VENUE. BORROWER HEREBY AGREES THAT ALL ACTIONS OR
PROCEEDINGS INITIATED BY SUCH BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT OF
THE LOAN AGREEMENT AND THE NOTE SHALL BE LITIGATED IN THE CIRCUIT COURT OF COOK
COUNTY, OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
ILLINOIS. BORROWER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH
COURTS, AND HEREBY AGREES THAT PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR
OTHER PROCESS OR PAPERS ISSUED THEREIN MAY BE SERVED IN THE MANNER PROVIDED FOR
NOTICES HEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER
PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT TO SECTION 9.1.
EACH BORROWER WAIVES ANY CLAIM THAT COOK COUNTY, ILLINOIS OR THE NORTHERN
DISTRICT OF ILLINOIS IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK
OF VENUE. TO THE EXTENT PROVIDED BY LAW, SHOULD BORROWER, AFTER BEING SO SERVED,
FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED
WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF, SUCH
BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED
BY THE COURT AGAINST BORROWER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS,
COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR BORROWER SET
FORTH IN THIS SECTION 9.13 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT BY
LENDER OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING BY LENDER OF
ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION, AND
BORROWER HEREBY WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR
ACTION.

9.14 WAIVER OF RIGHT TO JURY TRIAL. LENDER AND BORROWER ACKNOWLEDGE AND AGREE
THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THE LOAN AGREEMENT OR THE NOTE OR
WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED THEREBY WOULD BE BASED UPON
DIFFICULT AND COMPLEX ISSUES AND, THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT
ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

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9.15 Counterparts. This Loan Agreement may be executed by the parties hereto in
several counterparts and each such counterpart shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
agreement.

9.16 No Fiduciary Relationship. No provision in this Loan Agreement or in the
Note, and no course of dealing among the parties hereto, shall be deemed to
create any fiduciary duty by Lender to Borrower.

9.17 No Strict Construction. The language used in this Loan Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party
hereto.

IN WITNESS WHEREOF, this Loan Agreement has been executed and
delivered by each of the parties hereto by a duly authorized officer of each
such party on this __ day of January, 1998 effective as of the date first
written above.

ALARM FUNDING CORPORATION
By: /s/ Scott MacDougal
------------------------
Scott MacDougal
President

TJS PARTNERS, L.P.

By: TJS Management, L.P.
Its: General Partner

By: /s/ Thomas J. Salvatore
------------------------
Thomas J. Salvatore
Managing General Partner

<PAGE> 1

AMENDED SUBORDINATED LOAN AGREEMENT

This SUBORDINATED LOAN AGREEMENT, dated as of December 31, 1996,
amended as of January 30, 1998, is between SECURITY ASSOCIATES INTERNATIONAL,
INC., a Delaware corporation ("SAI") and TJS PARTNERS, L.P., a New York limited
partnership ("TJS" OR "LENDER") (all other capitalized terms used herein are
defined in Section 1.1 below).

R E C I T A L S:

A. Borrower desires to borrow up to a maximum of $5,000,000 in
principal from TJS for the purpose of consummating Funded Acquisitions.

B. TJS has agreed to make the Loan upon the terms and subject to the
conditions set forth herein; and had agreed to amend Section 2.6.2. hereof to
increase the threshold for Mandatory Prepayment of all of the Corporation's
Obligations, as defined herein.

NOW, THEREFORE, it is agreed as follows:

ARTICLE I

DEFINITIONS AND DETERMINATIONS

1.1 Definitions. As used in this Loan Agreement, unless otherwise
expressly indicated herein or therein, the following terms shall have the
following meanings (such meanings to be applicable equally to both the singular
and plural forms of the terms defined):

Accountants: Arthur Andersen, L.L.P. or any other independent
certified public accounting firm selected by Borrower and reasonably
satisfactory to Lender.

Acquisition: the acquisition by Borrower or any Permitted Subsidiary of
(i) Security Monitoring Contracts or (ii) a Central Station Business by Borrower
or any Permitted Subsidiary, or a loan by Borrower to a Dealer secured by
Security Monitoring Contracts.

Acquisition Closing: the consummation of a Funded Acquisition.

Acquisition Instruments: the purchase agreement or loan agreement, as
appropriate, and all other documents executed in connection with a Funded
Acquisition.

ADA: the Americans with Disabilities Act of 1990, as amended, any
successor statute thereto, and the rules and regulations issued thereunder, as
in effect from time to time.
<PAGE> 2

Advance: a disbursement of the Future Portion.

Affiliate: any Person that directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with
another Person. The term "control" means possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities or equity interests,
by contract or otherwise. For the purposes hereof, any Person which owns or
controls, directly or indirectly, 10% or more of the securities or equity
interests, as applicable, whether voting or non-voting, of any other Person
shall be deemed to "control" such Person.

Alarm Licenses: a license or licenses issued by a state licensing
authority that authorize a Person to provide remote security monitoring services
to consumers and/or businesses within such state.

ASMS: All-Security Monitoring Services, L.L.C., an Illinois limited
liability company.

AMJ: AMJ Central Station Corporation, Inc., a Delaware corporation.

Bankruptcy Code: the United States Bankruptcy Code and any successor
statute thereto, and the rules and regulations issued thereunder, as in effect
from time to time.

Borrower: SAI.

Borrower's Obligations: any and all Indebtedness due or to become the,
now existing or hereafter arising under this Loan Agreement and the Note, of
Borrower to TJS.

Borrower's Security Monitoring Business: Collectively, the Security
Monitoring Business of the Obligors.

Brannen: James S. Brannen.

Business Day: any day other than a Saturday, Sunday or other day on
which banks in Chicago, Illinois or New York, New York are required to close.

Business Insurance: such property, casualty, business interruption and
other insurance, other than Key Man Life Insurance as is required pursuant to
the Senior Indebtedness due to FINOVA.

Capital Stock: collectively, all of the issued and outstanding capital
stock, warrants, options and other equity interests of the Obligors..

Capitalized Lease: any lease of Property, the obligations for the
rental of which are required to be capitalized in accordance with GAAP.

Central Station Business: the business of owning and operating a
central monitoring station, including but not limited to, contracts between
Dealers and SACC, ASMS, AMJ or a

<PAGE> 3
Permitted Subsidiary.

Central Station Contracts: contracts with Dealers to provide monitoring
services to the customers of the Dealers.

Chief Financial Officer: the chief financial officer of Borrower, who
shall be a duly elected officer of Borrower.

Code: the Internal Revenue Code of 1986, as amended, and any successor
statute thereto, and the rules and regulations issued thereunder, as in effect
from time to time.

Davis: Ronald Davis.

Dealer: any Person whose primary business is the installation or
servicing of alarm equipment and the sale of monitoring services.

Dealer Holdback Debt: any Indebtedness for Borrowed Money owed by any
Obligor to Dealers in connection with the purchase of Security Monitoring
Contracts.

Debt Service: during any period, all payments of principal, interest,
premium, fees and other charges with respect to Indebtedness for Borrowed Money,
which payments are required or permitted to be made pursuant to this Loan
Agreement and are due and payable during such period.

Default Rate: a per annum rate equal to 18% per annum.

Default Rate Period: a period of time commencing on the date that an
Event of Default has occurred and ending on the date that such Event of Default
is cured or waived.

Effective Date: December 31, 1996.

Employee Benefit Plan: any employee benefit plan within the meaning of
Section 3(3) of ERISA which (i) is maintained for employees of Borrower or any
ERISA Affiliate or (ii) has at any time within the preceding six years been
maintained for the employees of Borrower or any current or former ERISA
Affiliate.

Environmental Laws: any and all federal, state and local laws that
relate to or impose liability or standards of conduct concerning public or
occupational health and safety or protection of the environment, as now or
hereafter in effect and as have been or hereafter may be amended or
reauthorized, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C ss.9601 et seq.), the
Hazardous Materials Transportation Act (42 U.S.C. ss.1802 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss.6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss.1251 et seq.), the Toxic Substances Control
Act (15 U.S.C. ss.2601 et seq.), the Clean Air Act (42 U.S.C. ss.7901 et seq.),
the National Environmental Policy Act (42 U.S.C. ss.4231, et seq.), the Refuse
Act (33 U.S.C. ss.407, et seq.), the Safe Drinking Water Act (42 U.S.C.
ss.300(f) et seq.), the Occupational Safety and Health Act (29 U.S.C. ss.651 et
seq.), and all rules, regulations, codes, ordinances and guidance documents

<PAGE> 4

promulgated or published thereunder, and the provisions of any licenses,
permits, orders and decrees issued pursuant to any of the foregoing.

ERISA: the Employee Retirement Income Security Act of 1974, as amended,
any successor statute thereto, and the rules and regulations issued thereunder,
as in effect from time to time.

ERISA Affiliate: any Person who is a member of a group which is under
common control with any Borrower, who together with any Borrower is treated as a
single employer within the meaning of Section 414(b), (c) and (m) of the Code.

Event of Default: any of the Events of Default set forth in Section
8.1.

FINOVA: FINOVA Capital Corporation, a Delaware corporation, in its
individual capacity and as agent for all lenders.

FINOVA LOAN AGREEMENT: The loan agreement dated as of December 31, 1996
among SAI, SACC, MSG, ASMS, AMJ and FINOVA , as the same may be amended,
restated, supplemented or otherwise modified from time to time.

Funded Acquisition: an Acquisition that is funded, in whole or in part,
with an Advance.

Funding Date: the date of the disbursement of an Advance.

Future Portion: a portion of the Loan in a principal amount not to
exceed $5,000,000 less the then Principal Balance.

Future Portion Closing: the disbursement of any portion of the Future
Portion.

Future Portion Closing Date: the date of any Future Portion Closing.

GAAP: generally accepted accounting principles as in effect from time
to time, which shall include but shall not be limited to the official
interpretations thereof by the Financial Accounting Standards Board or any
successor thereto.

Good Funds: United States Dollars available in Federal funds to TJS at
or before 2:00 p.m., New York time, on a Business Day.

Hazardous Materials: any hazardous, toxic, dangerous or other waste,
substance or material defined as such in, regulated by or for purposes of any
Environmental Law.

Holding Companies: collectively, RMR Management Corp., Winnetka
Investors, Inc. and MCAP Investors, Inc., each a Delaware corporation.

<PAGE> 5

Incipient Default: any event or condition which, with the giving of
notice or the lapse of time, or both, would become an Event of Default.

Indebtedness: all liabilities, obligations and reserves, contingent or
otherwise, which, in accordance with GAAP, would be reflected as a liability on
a balance sheet or would be required to be disclosed in a financial statement,
including, without duplication: (i) Indebtedness for Borrowed Money, (ii)
obligations secured by any Lien upon Property, (iii) guaranties, letters of
credit and other contingent obligations and (iv) liabilities in respect of
unfunded vested benefits under any Pension Plan or in respect of withdrawal
liabilities incurred under ERISA by Borrower or any ERISA Affiliate to any
Multiemployer Plan.

Indebtedness for Borrowed Money: without duplication, all Indebtedness
(i) in respect of money borrowed, (ii) evidenced by a note, debenture or other
like written obligation to pay money (including, without limitation, all of
Borrowers' Obligations and Permitted Senior Indebtedness), (iii) in respect of
rent or hire of Property under Capitalized Leases or for the deferred purchase
price of Property, (iv) in respect of obligations under conditional sales or
other title retention agreements and (v) all guaranties of any or all of the
foregoing.

Initial Portion: a portion of the Loan in the amounts of $500,000.00
and $4,200,000 previously disbursed on November 1, 1996 and to be disbursed on
January 2, 1997, respectively.

Key Man Life Insurance: the life insurance on the lives of Brannen and
Davis required pursuant to subsection 5.11.1.

Leases: the leases of real property described in Exhibit 4.4.2.

Leasehold Property: any real estate which is the subject of a Lease
under which any Obligor is the lessee.

Lender: TJS.

Loan: the loan to be made by Lender to Borrowers in the maximum
principal amount of $5,000,000, subject to the terms and conditions of this Loan
Agreement.

Loan Agreement: this Subordinated Loan Agreement.

Loan Assignment: the assignment by a Lender of (i) any portion of
Lender's interest in Borrowers Obligations and (ii) any of Lender's other rights
under any of the Loan Instruments.

Loan Instruments:

(i) Loan Agreement;

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<PAGE> 6

(ii) Note; and

(iii) other instruments and documents as Lender reasonably may
require in connection with the transactions contemplated by
this Loan Agreement.

Loan Year: a period of time ending on December 31 of each year
commencing with December 31, 1997.

MSG: means Monitor Service Group, L.L.C. a Delaware limited liability
company.

Multiemployer Plan: any multiemployer plan as defined pursuant to
Section 3(37) of ERISA to which Borrower or any ERISA Affiliate makes, or
accrues an obligation to make contributions, or has made, or been obligated to
make, contributions within the preceding six years.

Non-Funded Acquisition: an Acquisition which is not funded with an
Advance.

Note: a promissory note in form and substance satisfactory to TJS in
the principal amount of $5,000,000 executed and delivered by Borrower to TJS to
evidence the Loan, subordinated to the Permitted Senior Indebtedness pursuant to
the Subordination Agreement.

Obligor: any of the Obligors.

Obligors: collectively, Borrower, the Permitted Subsidiaries and the
Holding Companies.

Operating Lease: any lease which, under GAAP, is not required to be
capitalized.

Parties: collectively, TJS and the Borrower.

PBGC: the Pension Benefit Guaranty Corporation or any Governmental Body
succeeding to the functions thereof.

Pension Plan: any Employee Benefit Plan, other than a Multiemployer
Plan, which is subject to the provisions of Part 3 of Title I of ERISA, Title IV
of ERISA, or Section 412 of the Code and which (i) is maintained for employees
of Borrower or any ERISA Affiliate, or (ii) has at any time within the preceding
six years been maintained for the employees of Borrower or any of its current or
former ERISA Affiliates.

Permitted Liens: any of the following Liens:

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<PAGE> 7

(i) the Permitted Senior Indebtedness Liens;

(ii) Liens for taxes or assessments and similar charges, which either
are (A) not delinquent or (B) being contested diligently and in
good faith by appropriate proceedings, and as to which the
applicable Obligor has set aside reserves on its books which are
satisfactory to Lender;

(iii) statutory Liens, such as mechanic's, materialman's,
warehouseman's, carrier's or other like Liens, incurred in good
faith in the ordinary course of business, provided that the
underlying obligations relating to such Liens are paid in the
ordinary course of business, or are being contested diligently
and in good faith by appropriate proceedings and as to which the
applicable Obligor has set aside reserves on its books
satisfactory to Lender, or the payment of which obligations are
otherwise secured in a manner reasonably satisfactory to Lender;

(iv) zoning ordinances, easements, licenses, reservations, provisions,
covenants, conditions, waivers or restrictions on the use of
Property and other title exceptions, in each case, that are
reasonably acceptable to Lender;

(v) Liens in respect of judgments or awards with respect to which no
Event of Default would exist pursuant to subsection 8.1.6; and

(vi) Liens to secure payment of insurance premiums (A) to be paid in
accordance with applicable laws in the ordinary course of
business relating to payment of worker's compensation, or (B)
that are required for the participation in any fund in connection
with worker's compensation, unemployment insurance, old-age
pensions or other social security programs.

Permitted Prior Liens: any of the following Liens:

(i) the Permitted Senior Indebtedness Liens;

(ii) the Permitted Liens described in clauses (ii) and (iii) of the
definition of Permitted Liens; and

(iii) the Permitted Liens described in clauses (iv) and (vi) of the
definition of Permitted Liens, subject to the limitations set
forth therein.

Permitted Senior Indebtedness: Indebtedness, other than Borrower's
Obligations, incurred by any Obligor (A) from FINOVA pursuant to the FINOVA Loan
Agreement, and any amendments, extensions or substitutions therefor, or (B) to
purchase tangible personal property or Indebtedness incurred to lease tangible
personal property pursuant to Capitalized Leases, the purchase price of which
shall not exceed the fair market value of such property.

Permitted Senior Indebtedness Liens: Liens that secure Permitted Senior
Indebtedness.

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<PAGE> 8

Permitted Subsidiaries: any wholly owned subsidiary of any of SAI, ASMS, AMJ
or SACC.

Principal Balance: the unpaid principal balance of the Loan or any specified
portion thereof outstanding from time to time.

Property: all types of real, personal or mixed property and all types of
tangible or intangible property.

Qualified Depository: a member bank of the Federal Reserve System having a
combined capital and surplus of at least $100,000,000.

RMR: the amount payable on Security Monitoring Contracts or Central Station
Contracts per month by an account debtor.

Rubin: Steven Rubin.

SAI: has the meaning assigned to that term in the Preamble to this Loan
Agreement.

Securities Act: the Securities Act of 1933, as amended, and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, as
in effect from time to time.

Security Monitoring Business: the business of providing remote security
monitoring services and operating Central Station Businesses

Security Monitoring Contracts: any contract between a Borrower and a retail
customer involving the provision of remote security monitoring services to such
customer.

Senior Indebtedness Due FINOVA: all of Borrowers' Obligations as defined in
the FINOVA Loan Agreement.

Subordination Agreement: that certain TJS Subordination Agreement No. 1
among Borrower, Lender and FINOVA dated as of December 31, 1996, attached hereto
as Exhibit 7.1, as the same may be amended, restated, supplemented or otherwise
modified pursuant to the terms thereof.

Termination Event: (i) a "Reportable Event" described in Section 4043 of
ERISA and the regulations issued thereunder; or (ii) the withdrawal of Borrower
or any ERISA Affiliate from a Pension Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001 (a) (2); or (iii) the
termination of a Pension Plan, the filing of a notice of intent to terminate a
Pension Plan or the treatment of a Pension Plan amendment as a termination under
Section 4041 of

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<PAGE> 9

ERISA; or (iv) the institution of proceedings to terminate, or the appointment
of a trustee with respect to, any Pension Plan by the PBGC; or (v) any other
event or condition which would constitute grounds under Section 4042 (a) of
ERISA for the termination of, or the appointment of a trustee to administer, any
Pension Plan; or (vi) the partial or complete withdrawal of Borrower or any
ERISA Affiliate from a Multiemployer Plan; or (vii) the imposition of a lien
pursuant to Section 412 of the Code or Section 302 of ERISA; or (viii) any event
or condition which results in the reorganization or insolvency of a
Multiemployer Plan under Sections 4241 or 4245 of ERISA; or (ix) any event or
condition which results in the termination of a Multiemployer Plan under Section
4041A of ERISA or the institution by the PBGC of proceedings to terminate a
Multiemployer Plan under Section 4042 of ERISA.

TJS Partners: TJS Partners, L.P., a New York limited partnership.

Total Debt: as of any applicable date, the sum of Borrowers Obligations and
Dealer Holdback Debt as of such date.

UL Certification: underwriters laboratories approval of a Central Station
Business.

1.2 Time Periods. In this Loan Agreement and the other Loan Instruments, in the
computation of periods of time from a specified date to a later specified date,
(i) the word "from" means "from and including," (ii) the words "to" and "until"
each mean "to, but excluding" and (iii) the words "through," "end of" and
"expiration" each mean "through and including." Unless otherwise specified, all
references in this Loan Agreement and the other Loan Instruments to (i) a
"month" shall be deemed to refer to a calendar month, (ii) a "quarter" shall be
deemed to refer to a calendar quarter and (iii) a "year" shall be deemed to
refer to a calendar year.

1.3 Accounting Terms and Determinations. All accounting terms not specifically
defined herein shall be construed, all accounting determinations hereunder shall
be made and all financial statements required to be delivered pursuant hereto
shall be prepared in accordance with GAAP as in effect at the time of such
interpretation, determination or preparation, as applicable. In the event that
any "Accounting Changes" (as hereinafter defined) occur and such changes result
in a change in the method of calculation of financial covenants, standards or
terms contained in this Loan Agreement then Borrower and Lender agree to enter
into negotiations to amend such provisions of this Loan Agreement so as to
reflect such Accounting Changes with the desired result that the criteria for
evaluating the financial condition of Borrowers shall be the same after such
Accounting Changes as if such Accounting Changes had not been made. For purposes
hereof, "Accounting Changes" shall mean (i) changes in generally accepted
accounting principles required by the promulgation of any rule, regulation,
pronouncement or opinion by the Financial Accounting Standards Board of the
American Institute of Certified Public Accountants (or any successor thereto) or
other appropriate authoritative body and (ii) changes in accounting principles
as approved by the Accountants.

1.4 References. All references contained in (i) this Loan Agreement to
"Article," "Section," "subsection," "subparagraph," "clause" or "Exhibit,"
unless otherwise indicated, shall be deemed to refer to an Article, Section,
subsection, subparagraph, clause or Exhibit, as applicable, of this Loan

<PAGE> 10

Agreement, and (ii) to any Loan Instrument at any given time shall be to such
Loan Instrument as the same shall have been amended, supplemented, restated or
otherwise modified as of such time.

1.5 Lender's or Lender's Discretion. Whenever the terms "satisfactory to
Lender," "determined by Lender," "acceptable to Lender," "Lender shall elect,"
"Lender shall request," "at the option or election of Lender," or similar terms
are used in the Loan Instruments, except as otherwise specifically provided
therein, such terms shall mean satisfactory to, at the election or option of,
determined by, acceptable to or requested by Lender, as applicable, in its sole
and unlimited discretion.

1.6 Borrowers' Knowledge. Any statements, representations or warranties that are
based upon the best knowledge of Borrower or an officer or manager thereof shall
be deemed to have been made after due inquiry by Borrower or an officer or
manager, as applicable, with respect to the matter in question.

ARTICLE II

LOAN AND TERMS OF PAYMENT

2.1 Initial Portion.

2.1.1 Amount and Disbursement. The Parties acknowledge that the Initial
Portion was disbursed in the amounts of $500,000.00 on November 1, 1996 and
$4,200,000 to be disbursed on January 2, 1997, respectively. The initial portion
shall henceforth be subject to this Loan Agreement. Any notes previously issued
in connection with the initial portion shall be returned to Borrower for
cancellation and the Initial Portion shall upon such cancellation be reflected
in and subject to the Note.

2.2 Future Portion.

2.2.1 Amount and Disbursement. The Future Portion shall consist of
Advances to be made by Lender to Borrower up to the maximum principal amount of
$5,000,000.00 minus the Principal Balance outstanding from time to time during
the term of this Loan Agreement, provided that all of the terms and conditions
set forth in subsection 2.2.3 have been satisfied.

2.2.2 Use of Proceeds. The proceeds of the Future Portion shall be used
to (i) consummate Funded Acquisitions, in whole or in part, and (ii) pay related
transaction costs.

2.2.3 Conditions Precedent to Advances. The obligation of Lender to
make any Advance shall be subject to the satisfaction of the following
conditions:

(a) no Incipient Default or Event of Default exists or would be
created by the disbursement of such Advance;

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<PAGE> 11

(b) Lender shall have received a written request for an
advance from Borrower with respect to each such Advance no later
than 12:00 p.m., Chicago time, at least three (3) Business Days
prior to the proposed Funding Date with respect to such Advance,
which Funding Date shall be on a Business Day;

(c) the Property being acquired and the terms and conditions
of the Acquisition to be consummated with such Advance must be
approved by Lender; and

(d) on the applicable Funding Date the representations and
warranties set forth in the Loan Instruments shall be true and
correct in all material respects when made and at and as of the
time of the Funding Date, except to the extent that such
representations and warranties expressly relate to an earlier
date.

2.3 Note and Reborrowing.

2.3.1 Note. The Loan shall be evidenced by the Note.

2.3.2 Reborrowing. Borrowers shall be entitled to reborrow any portion
of the Loan which is repaid or prepaid.

2.4 Interest.

2.5 Principal and Interest Payments.

2.5.1 Interest. Interest on the Principal Balance shall be payable
semiannually in arrears on the first Business Day of each six month period
beginning with July 1, 1997, subject to the provisions of the Subordination
Agreement.

2.5.2 Principal. The Principal Balance shall be payable on December 31,
2002, subject to the provisions of the Subordination Agreement.

2.6 Prepayments.

2.6.1 Voluntary Prepayment of Loan. Borrowers may at any time
voluntarily prepay in

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whole or in part the Principal Balance, without premium or penalty, subject to
the provisions of the Subordination Agreement Concurrently with any prepayment
of the Principal Balance pursuant to this subsection 2.6.1, Borrowers shall pay
to Lenders accrued and unpaid interest on the portion of the Principal Balance
which is being prepaid to the date on which Lender is in receipt of Good Funds.

2.6.2 Mandatory Prepayment. In the event that Borrowers (and their
subsidiaries) collectively raise new equity through the sale of shares and/or
membership interests following the Effective Date, other than investments of any
of the Borrowers in any subsidiary of any Borrower, in a cumulative amount in
excess of Fifteen Million Dollars ($15,000,000.00), then, subject to the
provisions of the Subordination Agreement, all of Borrower's Obligations shall
become immediately due and payable.

2.8 Method of Payment. Borrower shall remit all amounts due hereunder to Lender
in Good Funds, on the due date of such payment, for application to Borrowers
Obligations in the following order of priority: (i) first, to the payment of all
Borrowers Obligations then due and payable other than the Principal Balance and
accrued and unpaid interest thereon, and (ii) second, to the payment of accrued
and unpaid interest then due and payable on the Principal Balance and (iii) if
applicable, towards payment of the Principal Balance. All payments to be made
pursuant to the Loan Instruments by Borrower to Lender shall be made by wire
transfer of Good Funds to the account of TJS at Chase Manhattan Bank, ABA #
021-000-021, credit the account of Ernst & Company, Account No. 140-080-524,
further credit the account of TJS Partners, L.P., Account No. 560-02626 or to
such other account as Lender shall have given five Business Days prior written
notice to.

ARTICLE III

CONDITIONS OF FUNDING

3.1 Acquisitions. The right of any Borrower to receive an Advance for the
purpose of making a Funded Acquisition shall be subject to the satisfaction of
all of the following conditions in a manner reasonably satisfactory to Lender:

3.1.1 Consummation of Acquisitions. Prior to or concurrently with each
Acquisition Closing, Lender shall have received evidence that (i) such
Acquisition is in accordance with the terms of such Funded Acquisition as set
forth in the applicable request for advance with such modifications as are
reasonably satisfactory to Lender, (ii) the Obligor consummating such
Acquisition shall have acquired, or will acquire concurrently with the
Acquisition Closing, good and marketable title or a first priority Lien, as
appropriate to all of the Property which is being purchased pursuant to such
Acquisition Instruments, free and clear of all Liens and Indebtedness, except
for the Dealer Holdback Debt and Permitted Senior Liens. In connection with any
such Funded Acquisition,

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<PAGE> 13

Borrower shall deliver to Lender such instruments, documents, certificates,
consents, waivers and opinions as Lender may reasonably require.

3.1.2 Financial Statements, Reports and Projections. Lender shall have
received such financial statements, reports and projections with respect to the
operation of the business which is the subject of the Acquisition as Lender may
reasonably require.

3.1.3 Acquisition of a Central Station Business. If the subject of the
Acquisition is a Central Station Business, SACC, ASMS, AMJ or a Permitted
Subsidiary are the only Persons permitted to consummate such Acquisition.

3.1.4 Acquisition of Security Monitoring Contracts. If the subject of the
Acquisition is Security Monitoring Contracts, SAI or MSG shall be the Borrower
making such Acquisition.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to Lender as follows:

4.1 Existence and Power. SAI, AMJ and each of the Holding Companies is a
corporation duly formed and validly existing under the laws of the State of
Delaware. SACC is a limited liability company duly formed and validly existing
under the laws of the State of Michigan. MSG is a limited liability company duly
formed and validly existing under the laws of the State of Delaware. ASMS is a
limited liability company duly formed and validly existing under the laws of the
State of Illinois. Each Obligor is in good standing and qualified to transact
business in each jurisdiction in which the failure so to qualify could have a
Material Adverse Effect. Each Obligor has all requisite power and authority to
own its Property and to carry on its business as now conducted and as proposed
to be conducted following the Effective Date.

4.2 Authority. Each Obligor has full power and authority to enter into, execute,
deliver and carry out the terms of the Instruments to which it is a party and to
incur the obligations provided for therein, all of which have been duly
authorized by all proper and necessary action and are not prohibited by the
organizational instruments of any such Obligor.

4.3 Binding Agreements. This Loan Agreement and the other Instruments, when
executed and delivered, will constitute the valid and legally binding
obligations of each Obligor to the extent such Obligor is a party thereto,
enforceable against such Obligor in accordance with their respective terms,
except as such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect affecting the enforcement of creditors' rights generally, and (ii)
equitable principles (whether or not any action to enforce such document is
brought at law or in equity).

4.4 Business and Property of Borrowers.

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4.4.1 Business and Property. Each Obligor is the owner of all Property and
the holder of all UL Certifications, Alarm Licenses, Central Station Contracts
and Security Monitoring Contracts necessary to conduct Borrower's Security
Monitoring Business in the places where it is now conducted. All of such UL
Certifications, Alarm Licenses, Central Station Contracts and Security
Monitoring Contracts are in full force and effect and no invalidity, default or
breach exists thereunder.

4.4.2 Leases. There is set forth in Exhibit 4.4.2 a list of all leases of
real property under which any Obligor is the lessee, together with a complete
and accurate address and legal description of each such parcel of Leasehold
Property and the current landlord under each Lease. Each Lease is in full force
and effect, there has been no material default in the performance of any of its
terms or conditions by any party thereto, and no claim of default have been
asserted with respect thereto. To the best knowledge of Borrower, the present
and contemplated use of the Leasehold Property is in material compliance with
all applicable zoning ordinances and regulations and other laws and regulations.

4.4.3 Real Estate. There is set forth in Exhibit 4.4.3 a complete and
accurate address and legal description of each parcel of real property owned by
any Obligor, together with the tax identification numbers applicable thereto. To
the best knowledge of Borrower, the present and contemplated use of the real
estate is in material compliance with all applicable zoning ordinances and
regulations and other laws and regulations.

4.4.4 Operation and Maintenance of Equipment. To the best knowledge of
Borrower, no Person owning or operating any equipment necessary for the
operation of Borrower's Security Monitoring Business has used, operated or
maintained the same in a manner which now or hereafter could result in the
cancellation or termination of the right of any Obligor to use or make use of
the same or which could result in any material liability of any Obligor for
damages in connection therewith. All of the equipment and other tangible
personal property owned by each Obligor on the Effective Date is, in all
material respects, good operating condition and repair (subject to normal wear
and tear) and has to the best knowledge of Borrower, been used, operated and
maintained in substantial compliance with all applicable laws, rules and
regulations.

4.4.5 Title to Property; Liens. On the Effective date each Obligor shall
have (i) good and marketable title to all of its Property, except (A) any UL
Certification which cannot be transferred without the consent of a Governmental
Body and (B) the portion thereof consisting of a leasehold estate and (ii) a
valid leasehold estate in each portion of its Property which consists of a
leasehold estate. Upon the Effective Date, all of such Property was free and
clear of all Liens, except Permitted Liens.

4.5 Litigation. There is set forth in Exhibit 4.5 a description of all actions
and suits, arbitration proceedings and claims pending or, to the best knowledge
of Borrower, threatened against any Obligor or maintained by any Obligor at law
or in equity or before any Governmental Body. None of the matters set forth in
such Exhibit 4.5, if adversely determined, could have a Material Adverse Effect.

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<PAGE> 15

4.6 Defaults in Other Agreements; Consents; Conflicting Agreements. No Obligor
is in default under any agreement to which such Obligor is a party or by which
such Borrower or any of the Property of such Obligor is bound, the effect of
which default could have a Material Adverse Effect. No authorization, consent,
approval or other action by, and no notice to or filing with, any Governmental
Body or any other Person which has not already been obtained, taken or filed, as
applicable, is required (i) for the due execution, delivery or performance by
Borrower of the Loan Instruments or (ii) as a condition to the validity or
enforceability of any of the Loan Instruments or any of the transactions
contemplated thereby. No provision of any material mortgage, indenture,
contract, agreement, statute, rule, regulation, judgment, decree or order
binding on any Obligor or affecting the Property of any Obligor conflicts with,
or requires any consent which has not already been obtained under, or would in
any way prevent the execution, delivery or performance of the terms of any of
the Loan Instruments. The execution, delivery or performance of the terms of the
Loan Instruments will not constitute a default under, or result in the creation
or imposition of, or obligation to create, any Lien upon the Property of the
Obligors pursuant to the terms of any such material mortgage, indenture,
contract or agreement.

4.7 Taxes. Each Obligor has filed all tax returns required to be filed, and has
paid, or made adequate provision for the payment of, all taxes shown to be due
and payable on such returns or in any assessments made against any such Person,
and no tax Liens have been filed and no claims are being asserted in respect of
such taxes which are required by GAAP to be reflected in the financial
statements of Borrower and are not so reflected therein. The charges, accruals
and reserves on the books of Borrower with respect to all federal, state, local
and other taxes are considered by the management of Obligor to be adequate, and
there is no unpaid assessment which is or might be due and payable by any
Obligor or create a Lien against any Obligor's Property, except such assessments
as are being contested in good faith and by appropriate proceedings diligently
conducted, and for which adequate reserves have been set aside in accordance
with GAAP. None of the tax returns of any Obligor are under audit.

4.8 Compliance with Applicable Laws. No Obligor is in default in respect of any
judgment, order, writ, injunction, decree or decision of any Governmental Body,
which default would have a Material Adverse Effect. Except as otherwise provided
herein, each Obligor is in compliance in all material respects with all
applicable statutes and regulations, including, without limitation, all laws,
statutes and regulations relating to UL Certification, all Environmental Laws,
ERISA, ADA and all laws and regulations relating to unfair labor practices,
equal employment opportunity and employee safety, of all Governmental Bodies, a
violation of which could have a Material Adverse Effect. No material
condemnation, eminent domain or expropriation has been commenced or, to the best
knowledge of Borrower, threatened against the Property which the Obligors own on
the Effective Date.

4.9 Patents, Trademarks, Franchises, Agreements. Upon the Effective Date, the
Obligors will own, possess or have the right to use all patents, trademarks,
service marks, tradenames, copyrights, franchises and rights with respect
thereto, necessary for the conduct of Borrower's Security Monitoring Business as
proposed to be conducted after the Effective Date, without any known conflict
with the rights of others and, in each case, free of any Liens.

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<PAGE> 16

4.10 Environmental Matters. Each Obligor is in compliance with all applicable
Environmental Laws and no portion of the Leasehold Property has been used as a
land fill. There currently are not any known Hazardous Materials generated,
manufactured, released, stored, buried or deposited over, beneath, in or on (or
used in the construction and/or renovation of) the Leasehold Property in
violation of applicable Environmental Laws which could have a Material Adverse
Effect.

4.11 Other Indebtedness. On the Effective Date, no Obligor had any Indebtedness
for Borrowed Money, except (i) Borrower's Obligations, (ii) Permitted Senior
Indebtedness permitted to exist as of the Effective Date pursuant to this Loan
Agreement and (iii) the Dealer Holdback Debt.

4.12 No Misrepresentation. Neither this Loan Agreement nor any other Loan
Instrument, certificate, information or report furnished or to be furnished by
or on behalf of Borrower to Lender in connection with any of the transactions
contemplated hereby or thereby, contains or will contain a misstatement of
material fact, or omits or will omit to state a material fact required to be
stated in order to make the statements contained herein or therein, taken as a
whole, not misleading in the light of the circumstances under which such
statements were made. There is no fact, other than information known to the
public generally, known to or reasonably foreseen by Borrower after diligent
inquiry, that would be expected to have a Material Adverse Effect that has not
expressly been disclosed to Lender in writing.

4.13 Employee Benefit Plans.

4.13.1 No Other Plans. Neither any Borrower nor any ERISA Affiliate
maintains or contributes to, or has any obligation under, any Employee Benefit
Plan other than those identified on Exhibit 4.13.6.

4.13.2 ERISA and Code Compliance and Liability. Borrower and each ERISA
Affiliate is in compliance with all applicable provisions of ERISA with respect
to all Employee Benefit Plans except where failure to comply would not result in
a material liability to Borrower and except for any required amendments for
which the remedial amendment period as defined in Section 401(b) of the Code has
not yet expired. Each Employee Benefit Plan that is intended to be qualified
under Section 401(a) of the Code has been determined by the Internal Revenue
Service to be so qualified, and each trust related to such plan has been
determined to be exempt under Section 501(a) of the Code, except for any
amendments for which the remedial amendment period as defined in Section 401(b)
of the Code has not yet expired. No material liability has been incurred by
Borrower or any ERISA Affiliate which remains unsatisfied for any taxes or
penalties with respect to any Employee Benefit Plan or any Multiemployer Plan.

4.13.3 Funding. No Pension Plan has been terminated, nor has any
accumulated funding deficiency (as defined in Section 412 of the Code) been
insured (without regard to any waiver granted under Section 412 of the Code),
nor has any funding waiver from the Internal Revenue Service been received or
requested with respect to any Pension Plan, nor has Borrower or any ERISA
Affiliate failed to make any contributions or to pay any amounts due and owing
as required by Section 412 of the Code, Section 302 of ERISA or the terms of any
Pension Plan prior to the due dates of such contributions under Section 412 of
the Code or Section 302 of ERISA,

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<PAGE> 17

nor has there been any event requiring any disclosure under Section 4041 (c) (3)
(C), 4063 (a) or 4068 of ERISA with respect to any Pension Plan.

4.13.4 Prohibited Transactions and Payments. Neither any Borrower nor
any ERISA Affiliate has: (i) engaged in a nonexempt "prohibited transaction" as
such term is defined in Section 406 of ERISA or Section 4975 of the Code; (ii)
incurred any liability to the PBGC which remains outstanding other than the
payment of premiums and there are no premium payments which are due and unpaid;
(iii) failed to make a required contribution or payment to a Multiemployer Plan;
or (iv) failed to make a required installment or other required payment under
Section 412 of the Code.

4.13.5 No Termination Event. No Termination Event has occurred or is
reasonably expected to occur.

4.13.6 ERISA Litigation. No material proceeding, claim, lawsuit and/or
investigation is existing or, to the best knowledge of Borrower, threatened
concerning or involving any (i) employee welfare benefit plan (as defined in
Section 3(1) of ERISA) currently maintained or contributed to by Borrower, or
any ERISA Affiliate, (ii) Pension Plan or (iii) Multiemployer Plan.

4.14 Employee Matters.

4.14.1 Collective Bargaining Agreements; Grievances. (i) None of the
employees of any Obligor is subject to any collective bargaining agreement, (ii)
no petition for certification or union election is pending with respect to the
employees of any Obligor and no union or collective bargaining unit has sought
such certification or recognition with respect to the employees of any Obligor
and (iii) there are no strikes, slowdowns, work stoppages, unfair labor practice
complaints, grievances, arbitration proceedings or controversies pending or, to
the best knowledge of Borrower, threatened against any Obligor by any Obligor's
employees, other than employee grievances or controversies arising in the
ordinary course of business that could not in the aggregate be expected to have
a Material Adverse Effect.

4.14.2 Claims Relating to Employment. Neither any Obligor nor, to
Borrower's best knowledge, any partner, shareholder or employee of any Obligor,
is subject to any employment agreement or non-competition agreement with any
former employer or any other Person which agreement would have a Material
Adverse Effect due to (i) any information which such Obligor would be prohibited
from using under the terms of such agreement or (ii) any legal considerations
relating to unfair competition, trade secrets or proprietary information.

4.15 Burdensome Obligations. After giving effect to the transactions
contemplated by the Loan Instruments, (i) no Obligor (A) will be a party to or
be bound by any franchise, agreement, deed, lease or other instrument, or be
subject to any restriction, which is so unusual or burdensome so as to cause, in
the foreseeable future, a Material Adverse Effect and (B) intends to incur, or
believes that it will incur, debts beyond its ability to pay such debts as they
become due, and (ii) each Obligor (A) owns and will own Property, the fair
salable value of which is (I) greater than the total amount of its liabilities
(including contingent liabilities) and (II) greater than the amount that will be
required to pay the probable liabilities of its then existing debts as they
become absolute and matured, and (B) has and will have capital that is not
unreasonably small in relation to its business

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<PAGE> 18
as presently conducted and as proposed to be conducted. No Obligor presently
anticipates that future expenditures needed to meet the provisions of federal or
state statutes, orders, rules or regulations will be so burdensome so as to have
a Material Adverse Effect.

4.16 Security Monitoring Contracts as of Effective Date. As of the Effective
Date, Obligors in the aggregate own not less than 13,500 Security Monitoring
Contracts.

4.17 Central Station Contracts as of Effective Date. As of the Effective Date,
Obligors in the aggregate monitor not less than 54,500 Central Station
Contracts.

4.18 Holding Companies. The Holding Companies do not engage in any business
other than the ownership of the MSG Membership Interests.

ARTICLE V

AFFIRMATIVE COVENANTS

Until all of Borrower's Obligations are paid and performed in full, Borrower
agrees that it and each Obligor will:

5.1 Legal Existence; Good Standing. Maintain its existence and its good standing
in the jurisdiction of its formation and its qualification in each jurisdiction
in which the failure so to qualify would have a Material Adverse Effect, and in
any event in each jurisdiction in which any portion of the business owned or
operated by such Obligor is located.

5.2 Inspection. Permit representatives of Lender at Lender's expense, upon two
Business Days prior notice if no Event of Default exists, or at any time if any
Event of Default exists, to (i) visit its offices, (ii) examine its books and
records and Accountants' reports relating thereto, (iii) make copies or extracts
therefrom, (iv) discuss its affairs with its employees, (v) examine and inspect
its Property and (vi) meet and discuss its affairs with the Accountants, and
such Accountants, as a condition to their retention by such Borrower, are hereby
irrevocably authorized by Borrower to fully discuss and disclose all such
affairs with Lender (the foregoing items (i) through (vi) hereinafter are
referred to collectively as an "Inspection") . Notwithstanding the foregoing, if
no Event of Default exists, Lender shall not conduct an Inspection more than
once a quarter.

5.3 Financial Statements and Other Information. Maintain a standard system of
accounting in accordance with GAAP and furnish to Lender, but only upon Lender's
request, those of the following items requested:

5.3.1 Monthly Statements. After the close of any month:

(a) the consolidated balance sheet of Borrower of such month,

(b) the consolidated statements of operations and Operating Cash Flow
of Borrower for such month and for the period from the beginning of the then
current year to the end of

<PAGE> 19

such month, setting forth in each case in comparative form the
corresponding figures for the corresponding period in the preceding year,
and

(c) a report providing the following information as of the end of
such month: (i) the number of Security Monitoring Contracts owned by each
Obligor; (ii) the number of Central Station Contracts monitored by each
Obligor; and (iii) the RMR for the Security Monitoring Contracts and Central
Station Contracts.

all in reasonable detail, containing such information as Lender reasonably may
require, and certified by the Chief Financial Officer of Borrower as complete
and correct, subject to normal year-end adjustments.

5.3.2 Quarterly Agings. As soon as available and in any event within 45 days
after the close of each quarter of each year, an aging of each Obligor's
outstanding accounts payable and accounts receivable as of the end of such
quarter, all in reasonable detail, containing such information as Lender
reasonably may require, and certified by the Chief Financial Officer of Borrower
as complete and correct, subject to normal year-end adjustments.

5.3.3 Annual Statements. As soon as available after the close of each year:
the consolidated balance sheet of Borrower as of the end of such year and the
consolidated statements of operations, cash flows and shareholders' equity of
Borrower for such year (collectively, the "Basic Financial Statements"), and the
consolidated statements of Operating Cash Flow of Borrower for such year,
setting forth in each case in comparative form the corresponding figures for the
preceding year;

5.3.4 Audit Reports. A copy of each report, other than the reports referred
to in subsection 5.3.3, including any so-called "Management Letter" or similar
report, submitted to Borrower by the Accountants in connection with any annual,
interim or special audit made by the Accountants of the books of Borrowers.

5.4 Notice of Defaults: Loss. Provide Lender with prompt notice if: (i) any
Indebtedness of any Obligor is declared or shall become due and payable prior to
its declared or stated maturity, or called and not paid when due, (ii) an event
has occurred that enables the holder of any note, or other evidence of such
Indebtedness, certificate or security evidencing any such Indebtedness of any
Obligor to declare such Indebtedness due and payable prior to its stated
maturity, (iii) there shall occur and be continuing an Incipient Default or
Event of Default, accompanied by a statement setting forth what action Borrower
proposes to take in respect thereof, or (iv) any event shall occur which has a
Material Adverse Effect, including the amount or the estimated amount of any
loss or depreciation or adverse effect.

5.5 Notice of Suits, Adverse Events. Provide Lender with prompt notice of:
(i) any citation, summons, subpoena, order to show cause or other order naming
any Obligor a party to any proceeding before any Governmental Body which might
reasonably be expected to have a Material Adverse Effect and include with such
notice a copy of such citation, summons, subpoena, order to show cause or other
order, (ii) any lapse or other termination of any UL Certification, Alarm

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<PAGE> 20

License, license, permit, franchise, agreement or other authorization issued to
any Obligor by any Governmental Body or any other Person that is material to the
operation of Borrower's Security Monitoring Business, (iii) any refusal by any
Governmental Body or any other Person to renew or extend any such UL
Certification, Alarm License, license, permit, franchise, agreement or other
authorization and (iv) any dispute between any Obligor and any Governmental Body
or any other Person, which lapse, termination, refusal or dispute could
reasonably be expected to have a Material Adverse Effect.

5.6 Reports to Shareholders, Members, Creditors and Governmental Bodies.

Upon request of the Lender, promptly provide Lender:

(a) copies of all financial statements, reports, notices and other
statements sent or made available generally by Borrower to Borrower's
shareholders to the extent the same contain any information not
included in any financial statements previously furnished to Lender
pursuant to Section 5.3, and copies of all regular and periodic reports
and all registration statements and prospectuses filed by Borrower with
any securities exchange or with the Securities and Exchange Commission
or any Governmental Body succeeding to any of its functions, and of all
statements generally made available by Borrower or others concerning
material developments in the business of any Obligor.

(b) copies of any periodic or special reports filed by any Obligor
with any Governmental Body or Person and copies of any material notices
and other communications from any Governmental Body or Person which
specifically relate to any Obligor.

5.7 ERISA Notices and Requests.

(a) With reasonable promptness, and in any event within 25
Business Days after occurrence of any of the following, Borrower will
give notice of and/or deliver to Lender copies of: (i) the
establishment of any new Pension Plan or Multiemployer Plan by any
Obligor; (ii) the commencement of contributions to any Pension Plan or
Multiemployer Plan to which any Obligor or any of its ERISA Affiliates
was not previously contributing or any increase in the benefits of any
existing Pension Plan or Multiemployer Plan; (iii) each funding waiver
request filed with respect to any Pension Plan and all communications
received or sent by any Obligor or any ERISA Affiliate with respect to
such request; and (iv) the failure of any Obligor or ERISA Affiliate to
make a required installment or payment to a Pension Plan under Section
302 of ERISA or Section 412 of the Code by the due date.

(b) Promptly and in any event within 10 Business Days of becoming
aware of the occurrence of or forthcoming occurrence of any (i)
Termination Event or (ii) non-exempt "prohibited transaction", as such
term is defined in Section 406 of ERISA or Section 4975 of

<PAGE> 21

the Code, in connection with any Pension Plan or any trust created
thereunder, Borrower will deliver to Lender a notice specifying the
nature thereof, what action the applicable Obligor has taken, is taking
or proposes to take with respect thereto and, when known, any action
taken or threatened by the Internal Revenue Service, the Department of
Labor or the PBGC with respect thereto.

(c) With reasonable promptness but in any event within 10 Business
Days after the occurrence of, or receipt of, any of the following,
Borrower will deliver to Lender copies of: (i) any favorable or
unfavorable determination letter from the Internal Revenue Service
regarding the qualification of an Employee Benefit Plan under Section
401(a) of the Code; (ii) all notices received by any Obligor or any
ERISA Affiliate of the PBGC's intent to terminate any Pension Plan or
to have a trustee appointed to administer any Pension Plan; (iii) each
Schedule B (Actuarial Information) to the annual report (Form 5500
Series) filed by any Obligor or any ERISA Affiliate with the Internal
Revenue Service with respect to each Pension Plan; and (iv) all notices
received by any Obligor or any ERISA Affiliate from a Multiemployer
Plan sponsor concerning the imposition or amount of withdrawal
liability pursuant to Section 42D2 of ERISA. Borrower will notify
Lender in writing within two Business Days of any Obligor or any ERISA
Affiliate that has filed a notice of intent to terminate any Pension
Plan under a distress termination within the meaning of Section 4041(c)
of ERISA.

5.8 Other Information.

(a) Provide Lender with prompt notice of any change in the
location of any Property of any Obligor which is material to or
necessary for the continued operation of Borrower's Security Monitoring
Business, any change in the name of any Obligor, any sale or purchase
of Property outside the regular course of business of any Obligor, and
any change in the business or financial affairs of any Obligor, which
change would have a Material Adverse Effect.

5.9 Reports to Governmental Bodies and Other Persons. Timely file all
material reports, applications, documents, instruments and information required
to be filed pursuant to all rules, regulations or requests of any Governmental
Body or other Person having jurisdiction over the operation of Borrower's
Security Monitoring Business, including, but not limited to, such of the Loan
Instruments as are required to be filed with any such Governmental Body or other
Person pursuant to applicable rules and regulations promulgated by such
Governmental Body or other Person.

5.10 Maintenance of UL Certifications, Alarm Licenses, Licenses, Franchises
and Other Agreements.

5.10.1 Maintenance of UL Certifications and Alarm Licenses.

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<PAGE> 22

Maintain in full force and effect at all times, and apply in a timely manner for
renewal of, all UL Certifications and Alarm Licenses necessary for the operation
of Borrower's Security Monitoring Business, the loss of any of which would have
a Material Adverse Effect.

5.10.2 Maintenance of Licenses, Franchises and Agreements.

Maintain in full force and effect at all times, and apply in a timely
manner for renewal of licenses, franchises, trademarks, tradenames and
agreements necessary for the operation of Borrower's Security Monitoring
Business, the loss of any of which would have a Material Adverse Effect.

5.11 Insurance.

5.11.1 Key Man Life Insurance. Maintain in full force and effect at all
times policies of insurance in such form and issued by such insurers as shall be
reasonably acceptable to Lender, insuring the life of (i) Brannen in the amount
of $250,000 and (ii) Davis in the amount of $500,000, and deliver to Lender,
from time to time as Lender reasonably may request, evidence of compliance with
this subsection 5.11.1.

5.11.2 Business Insurance. Maintain in full force and effect at all
times Business Insurance as required by the insurance letter agreement between
Borrower and FINOVA.

5.12 Future Leases. Deliver to Lender an executed copy of any lease pertaining
to real property entered into by any Obligor and such other documents as Lender
may reasonably request.

5.13 Future Acquisitions of Real Property. Deliver to Lender executed
copies of any contract relating to the purchase by any Obligor of real property,
an executed copy of such contract and such other documents as Lender may
reasonably request.

5.14 Environmental Matters.

5.14.1 Compliance. At all times comply with, and be responsible for, its
obligations under all Environmental Laws applicable to the Leasehold Property,
any parcel of real estate acquired in connection with an Acquisition and any
other Property owned by any Obligor or used by each Obligor in the operation of
its business. At its sole cost and expense, each Obligor shall (i) comply in all
respects with (A) any notice of any violation or administrative or judicial
complaint or order having been filed against such Obligor, any portion of the
Leasehold Property, any parcel of real estate acquired in connection with an
Acquisition or any Property owned by such Obligor or used by such Obligor in the
operation of its business alleging violations of any law, ordinance and/or
regulation requiring such Obligor to take any action in connection with the
release, transportation and/or clean-up of any Hazardous Materials, and (B) any
notice from any Governmental Body or any other Person alleging that such Obligor
is or may be liable for costs associated with a response or clean-up of any
Hazardous Materials or any damages resulting from such release or

<PAGE> 23

transportation, or (ii) diligently contest in good faith by appropriate
proceedings any demands set forth in such notices.

5.15 Compliance with Laws. Comply with all laws, statutes and regulations
relating to UL Certification and all other federal, state and local laws,
ordinances, requirements and regulations and all judgments, orders, injunctions
and decrees applicable to such Obligor and its operations, the failure to comply
with which would have a Material Adverse Effect.

5.16 Taxes and Claims. Pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits, or upon any
Property belonging to it, prior to the date on which penalties attach thereto,
and all lawful claims which, if unpaid, might become a Lien (other than a
Permitted Lien) upon the property of such Obligor, provided that so long as no
Lien has attached to the Property of any Obligor as a result of any of the
foregoing, no Obligor shall be required by this Section 5.16 to pay any such
amount if the same is being contested diligently and in good faith by
appropriate proceedings and as to which the applicable Obligor has set aside
reserves on its books satisfactory to Lender.

5.17 Maintenance of Properties. Maintain all of its Property necessary in the
operation of Borrower's Security Monitoring Business in good working order and
condition.

5.18 Non-Funded Acquisition. Promptly after the consummation of each Non-Funded
Acquisition, Borrower shall notify Lender of the terms and conditions of such
acquisition and provide Lender with any other information with respect thereto
as Lender may reasonably request.

ARTICLE VI

NEGATIVE COVENANTS

Until all of Borrower's Obligations are paid and performed in full, no
Obligor shall:

6.1 Borrowing. Create, incur, assume or suffer to exist any liability for
Indebtedness for Borrowed Money except (i) Borrower's Obligations, (ii)
Permitted Senior Indebtedness and (iii) the Dealer Holdback Debt.

6.2 Liens. Create, incur, assume or suffer to exist any Lien upon any of
its Property, whether now owned or hereafter acquired, except Permitted Liens.

6.3 Merger and Acquisition. Consolidate with or merge with or into any Person,
or acquire directly or indirectly all or substantially all of the capital stock,
equity interests membership interests or Property of any Person, except Funded
Acquisitions and Non-Funded Acquisitions.

6.4 Contingent Liabilities. Assume, guarantee, endorse, contingently agree to
purchase, become liable in respect of any letter of credit, or otherwise become
liable upon the obligation of any Person, except (i) Dealer Holdback Debt, (ii)
liabilities arising from the endorsement of negotiable instruments for deposit
or collection or (iii) the posting of bonds to secure performance

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<PAGE> 24

to the extent necessary in connection with Borrower's Security Monitoring
Business and similar transactions in the ordinary course of business.

6.5 Distributions. Pay any dividends or make any distributions with respect to,
or purchase or redeem all or any portion of, the Capital Stock or the membership
interests of any Obligor other than distributions to TJS or its successor's in
interest with respect to Capital Stock of SAI.

6.6 Payments of Indebtedness for Borrowed Money. Make any voluntary or optional
prepayment of any Indebtedness for Borrowed Money other than Permitted Senior
Indebtedness and Borrower's Obligations and payments made in the ordinary course
of business with respect to the Dealer Holdback Debt.

6.7 Investments. Loans. At any time purchase or otherwise acquire, hold or
invest in the capital stock of, or any other interest in, any Person, or make
any loan or advance to, or enter into any arrangement for the purpose of
providing funds or credit to, or make any other investment, whether by way of
capital contribution or otherwise, in or with any Person (other than in an
Affiliate or in connection with a Funded Acquisition), except (i) investments in
direct obligations of, or instruments unconditionally guaranteed by, the United
States of America or in certificates of deposit issued by a Qualified
Depository, (ii) investments in commercial or finance paper which, at the time
of investment, is rated either "A" or "P" by Moody's Investors Service, Inc., or
Standard & Poor's Corporation, respectively, or at the equivalent rate by any of
their respective successors, (iii) any interests in any money market account
maintained, at the time of investment, with a Qualified Depository, the
investments of which, at the time of investment, are restricted to the types
specified in clause (i) above, and (iv) the formation and capitalization of
Permitted Subsidiaries. All investments permitted pursuant to clauses (i), (ii)
and (iii) of this Section 6.7 shall have a maturity not exceeding one year.

6.8 Fundamental Business Changes. Materially change the nature of its business
or engage in any business other than the Security Monitoring Business.

6.9 Facility Sites. Change the locations of its chief executive office, Central
Station Businesses, studios, offices or other Property used in the operation of
Borrower's Security Monitoring Business unless such Obligor shall have complied
with all applicable laws, rules and regulations and shall have received all
required consents and approvals from any Governmental Body.

6.11 Amendment of Certain Documents. Amend, modify or waive any term or
provision of the (i) the articles of organization or operating agreements of
SACC, MSG, ASMS or AMJ or (ii) the articles of incorporation or by-laws of SAI
or the Holding Companies.

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<PAGE> 25

6.12 Acquisition of Additional Properties. Acquire any additional Property
except (i) such Property as is necessary to or useful in the operation of such
Borrower's Security Monitoring Business, provided such acquisitions shall be
subject to the conditions and limitations set forth in this Loan Agreement, (ii)
Funded Acquisitions and (iii) Non-Funded Acquisitions.

6.13 Issuance of Membership Interests. Issue or sell, permit to be issued or
sold, or otherwise consent to the transfer of, any additional membership
interests or any interests convertible into or exercisable for any such
additional membership interests, other than membership interests issued by a
Permitted Subsidiary upon its formation.

6.14 Compliance with ERISA.

(a) Permit the occurrence of any Termination Event which would
result in a liability to any Obligor or ERISA Affiliate in excess of
$50,000;

(b) Permit the present value of all benefit liabilities under
all Pension Plans to exceed the current value of the assets of such
Pension Plans allocable to such benefit liabilities by more than
$50,000;

(c) Permit any accumulated funding deficiency in excess of
$50,000 (as defined in Section 302 of ERISA and Section 412 of the
Code) with respect to any Pension Plan, whether or not waived;

(d) Fail to make any contribution or payment to any
Multiemployer Plan which any Obligor or ERISA Affiliate may be required
to make under any agreement relating to such Multiemployer Plan, or any
law pertaining thereto which results in or is likely to result in a
liability in excess of $50,000;

(e) Engage, or permit any Obligor or ERISA Affiliate to
engage, in any "prohibited transaction" as such term is defined in
Section 406 of ERISA or Section 4975 of the Code for which a civil
penalty pursuant to Section 502(i) of ERISA or a tax pursuant to
Section 4975 of the Code in excess of $50,000 is imposed;

(f) Permit the establishment of any Employee Benefit Plan
providing post-retirement welfare benefits or establish or amend any
Employee Benefit Plan which establishment or amendment could result in
liability to any Obligor or ERISA Affiliate or increase the obligation
of any Obligor or ERISA Affiliate to a Multiemployer Plan which
liability or increase, individually or together with all similar
liabilities and increases, is material to any Obligor or ERISA
Affiliate; or

(g) Fail, or permit any Obligor or ERISA Affiliate to fail, to
establish, maintain and operate each Employee Benefit Plan in
compliance in all material respects with ERISA, the Code and all other
applicable laws and regulations and interpretations thereof.

6.15 Minimum RMR.

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<PAGE> 26

6.15.1 Minimum RMR for Security Monitoring Contracts. Permit the RMR with
respect to Security Monitoring Contracts to be less than $ 275,000.00.

6.15.2 Minimum RMR for Central Station Contracts. Permit the RMR with
respect to Central Station Contracts to be less than $ 300,000.00.

6.16 Compensation. Pay any salary, bonuses, fees or other forms of compensation
to Brannen, Davis or Rubin if the aggregate amount thereof paid by all Obligors
to (i) Brannen would exceed $250,000 per year, (ii) Davis would exceed $250,000
per year and (iii) Rubin would exceed $200,000 per year.

6.17 Holding Companies. Permit any Holding Company to engage in any business
other than the ownership of the MSG Membership Interests.

ARTICLE VII

SUBORDINATION

7.1 Subordination. The payment of any and all of Borrower's Obligations and the
exercise of any right or remedy pursuant to any Loan Instrument are expressly
subject to the provisions of the Subordination Agreement.

ARTICLE VIII

DEFAULT AND REMEDIES

8.1 Events of Default. The occurrence of any of the following shall constitute
an Event of Default under the Loan Instruments:

8.1.1 Default in Payment. If any Borrower shall fail to pay all or any
portion of Borrower's Obligations when the same become due and payable.

8.1.2 Breach of Covenants.

(a) If any Obligor shall fail to observe or perform any covenant
or agreement governing such Obligor contained in Section 5.1, 5.2, 5.10.1,
5.11 or 5.14 or Article VI;

(b) If any Obligor shall fail to observe or perform any covenant
or agreement (other than those referred to in subparagraph (a) above or
specifically addressed elsewhere in this Section 8.1) made by such Person
in any of the Loan Instruments to which such Person is a party, and such
failure shall continue for a period of 30 days after notice of such
failure is given by Lenders, provided that, if such failure is in
connection with subsection 5.10.2, such Obligor shall have an additional
30 days to cure such failure, if such Obligor (i) is diligently pursuing a
cure for such failure and (ii) provides Lender with evidence to that
effect in form and substance reasonably satisfactory to Lender.

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<PAGE> 27

8.1.3 Breach of Warranty. If any representation or warranty made by or on
behalf of any Obligor in or pursuant to any of the Loan Instruments or in any
instrument or document furnished in compliance with the Loan Instruments shall
prove to be false or misleading in any material respect on the date as of which
made.

8.1.4 Default Under Other Indebtedness for Borrowed Money. If (i) any
Obligor at any time shall be in default (as principal or guarantor or other
surety) in the payment of any principal of or premium or interest on any
Indebtedness for Borrowed Money (other than Borrower's Obligations) beyond the
grace period, if any, applicable thereto and the aggregate amount of such
payments then in default beyond such grace period shall exceed $25,000 or (ii)
any default shall occur in respect of any issue of Indebtedness for Borrowed
Money of any Obligor (other than Borrower's Obligations) outstanding in a
principal amount of at least $50,000, or in respect of any agreement or
instrument relating to any such issue of Indebtedness for Borrowed Money, and
such default shall continue beyond the grace period, if any, applicable thereto.

8.1.5 Bankruptcy.

(a) If any Obligor shall (i) generally not be paying its debts as
they become due, (ii) file, or consent, by answer or otherwise, to the
filing against it of a petition for relief or reorganization or
arrangement or any other petition in bankruptcy or insolvency under the
laws of any jurisdiction, (iii) make an assignment for the benefit of
creditors, (iv) consent to the appointment of a custodian, receiver,
trustee or other officer with similar powers for such Obligor, or for any
substantial part of the property of such Obligor or (v) be adjudicated
insolvent.

(b) If any Governmental Body of competent jurisdiction shall
enter an order appointing, without consent of such Obligor, a custodian,
receiver, trustee or other officer with similar powers with respect to
such Obligor, or with respect to any substantial part of the Property
belonging to any such Person, or if an order for relief shall be entered
in any case or proceeding for liquidation or reorganization or otherwise
to take advantage of any bankruptcy or insolvency law of any jurisdiction,
or ordering the dissolution, winding-up or liquidation of any Obligor or
if any petition for any such relief shall be filed against any Obligor and
such petition shall not be dismissed or stayed within 60 days.

8.1.6 Judgments. If there shall exist a final judgment or award against
any Borrower which shall have been outstanding for a period of 30 days or more
from the date of the entry thereof and shall not have been discharged or paid in
full or stayed pending appeal, if the aggregate amount of all such judgments and
awards exceeds $50,000.

8.1.7 Impairment of Licenses; Other Agreements. If (i) any Governmental
Body shall revoke, terminate, suspend or adversely modify any UL Certification
or Alarm License of any Obligor, the non-continuation of which could reasonably
be expected to have a Material Adverse Effect, or (ii) there shall exist any
violation or default in the performance of, or a material failure to comply with
any agreement, or condition or term of any UL Certification or Alarm License,
which violation, default or failure has a Material Adverse Effect, or any such
UL Certification or Alarm Licenses

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<PAGE> 28

shall cease to be in full force and effect, or (iii) any agreement which is
necessary to the operation of any Borrower's Security Monitoring Business shall
be revoked or terminated and not replaced by a substitute acceptable to Lender
within 30 days after the date of such revocation or termination, and such
revocation or termination and non-replacement could reasonably be expected to
have a Material Adverse Effect.

8.1.8 Interruption of Operations. If the operations of any material
portion of Borrower's Security Monitoring Business is interrupted at any time
for more than 48 hours during any period of 10 consecutive days, unless Borrower
or the appropriate Obligor shall be entitled to receive during such period of
interruption proceeds of business interruption insurance sufficient to assure
that the per diem Operating Cash Flow of such portion of Borrower's Security
Monitoring Business during such period is at least equal to its per diem
Operating Cash Flow for the month preceding the initial date of interruption.

8.1.9 Plans. If an event or condition specified in subsection 5.7
hereof shall occur or exist with respect to any Pension Plan or Multiemployer
Plan and, as a result of such event or condition, together with all other such
events or conditions, Borrower or any member of a Controlled Group shall incur,
or in the opinion of Lender be reasonably likely to incur, a liability to a
Pension Plan or Multiemployer Plan or the PBGC (or any of them) which, in the
reasonable judgment of Lender, would have a Material Adverse Effect.

8.1.10 Change in Control. If at any time (i) SAI ceases to be the sole
shareholder of each of the Holding Companies and AMJ, (ii) SAI and SACC cease to
be the only members in ASMS, (iii) SAI and MSG cease to be the only members in
SACC or (v) the Holding Companies cease to be the only members in MSG.

8.1.11 Change in Management. If at any time (i) Brannen, or any
successor to Brannen reasonably acceptable to Lender, ceases to (A) be the
President and Chief Executive Officer of SAI and AMJ, (B) be the Manager of each
of SACC, MSG and ASMS, or (C) manage the day to day operation of Borrower's
Security Monitoring Business or (ii) Davis, or any successor to Davis reasonably
acceptable to Lender, ceases to be the Chairman of SAI.

8.2 Acceleration of Borrowers Obligations. Upon the occurrence of:

(a) any Event of Default described in clauses (ii), (iii), (iv) and (v)
of subsection 8.1.5(a) or in 8.1.5(b), all of Borrower's Obligations at that
time outstanding automatically shall mature and become due subject to the
provisions of the Subordination Agreement, and

whereupon Borrowers Obligations immediately shall mature and become due and
payable, all without presentment, demand, protest or notice other than the
declaration referred to in clause (b) above, all of which hereby are waived
subject to the provisions of the Subordination Agreement.

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<PAGE> 29

8.3 Remedies on Default. If Borrowers Obligations have been accelerated pursuant
to Section 8.2, Lender, at its option, may, subject in all events to the
subordination provisions contained in the Subordination Agreement:

8.3.1 Enforcement of Rights and Remedies. Enforce its rights and
remedies under the Loan Instruments in accordance with their respective terms.

8.3.2 Other Remedies. Enforce any of the rights or remedies accorded to
Lender at equity or law, by virtue of statute or otherwise.

8.4 Application of Funds. Any funds received by Lender pursuant to the exercise
of any rights accorded to Lender pursuant to, or by the operation of any of the
terms of, any of the Loan Instruments shall be applied, subject to the
subordination provisions contained in the Subordination Agreement, to Borrower's
Obligations in the following order of priority:

8.4.1 Expenses. First, to the payment of all reasonable fees and
expenses actually incurred, including, without limitation court costs and all
other costs incurred by Lender in exercising any rights accorded to Lender
pursuant to the Loan Instruments or by applicable law, including, without
limitation, reasonable attorneys' fees.

8.4.2 Borrower's Obligations. Next, to the payment of the remaining
portion of Borrower's Obligations in such order as Lenders may determine.

8.4.3 Surplus. Any surplus, to the Person or Persons entitled thereto.

8.5 Performance of Borrower's Obligations. If any Obligor fails to (i) maintain
in force and pay for any insurance policy or bond which such Obligor is required
to provide pursuant to any of the Loan Instruments, (ii) keep fully and perform
promptly any other of the obligations of such Obligor hereunder or under any of
the other Loan Instruments, and (iii) keep fully and perform promptly the
obligations of such Obligor with respect to any issue of Indebtedness for
Borrowed Money secured by a Permitted Prior Lien, then Lender may (but shall not
be required to) make good any aforesaid failure of such Obligor. Borrower shall
reimburse Lender immediately upon demand for all reasonable sums paid or
advanced on behalf of any Obligor for any such purpose, together with reasonable
and/or necessary costs and expenses (including reasonable attorneys' fees) paid
or incurred by Lender in connection therewith and interest on all sums advanced
from the date of advancement until repaid to Lender at the Default Rate subject
to the provisions of the Subordination Agreement. All such sums advanced by
Lender, with interest thereon, immediately upon advancement thereof, shall be
deemed to be part of Borrower's Obligations.

ARTICLE IX

EXPENSES AND INDEMNITY

9.1 Attorneys' Fees and Other Fees and Expenses. Each of the parties shall bear
its own expenses in connection with the preparation of this Loan Agreement and
the Note and transactions

<PAGE> 30
contemplated hereby and in connection with any amendments, modifications or
waivers under or in respect of any of the Loan Instruments.

9.2 Indemnity. Borrower agrees to indemnify and save Lender harmless of and
from, subject to the provisions of the Subordination Agreement, the following:

9.2.1 Fees and Expenses in Enforcement of Rights or Defense of Loan
Instruments. Any reasonable expenses or other costs, including reasonable
attorneys' fees and expert witness fees, actually incurred by Lender in
connection with the enforcement or collection against any Obligor of any
provision of any of the Loan Instruments, and in connection with or arising out
of any litigation, investigation or proceeding instituted by any Governmental
Body or any other Person with respect to any of the Loan Instruments, whether or
not suit is instituted, including, but not limited to, such costs or expenses
arising from the enforcement or collection against any Obligor of any provision
of any of the Loan Instruments in any state or federal bankruptcy or
reorganization proceeding.

9.2.2 General. Any loss, cost, liability, damage or expense (including
reasonable attorneys' fees and expenses) incurred by Lender in investigating,
preparing for, defending against, providing evidence, producing documents or
taking other action in respect of any commenced or threatened litigation,
administrative proceeding, suit instituted by any Person or investigation under
any law, including any federal securities law, the Bankruptcy Code, any relevant
state corporate statute or any other securities law, bankruptcy law or law
affecting creditors generally of any jurisdiction, or any regulation pertaining
to any of the foregoing, or at common law or otherwise, relating to the
transactions contemplated by or referred to in, or any other matter related to,
the Loan Instruments, whether or not Lender is a party to such litigation,
proceeding or suit, or is subject to such investigation.

9.2.3 Environmental Indemnity. Any and all claims, losses, damages, out
of pocket response costs, clean-up costs and expenses suffered and/or incurred
at any time by Lender arising out of or in any way relating to the existence at
any time of any Hazardous Materials in, on, under, at, transported to or from,
or used in the construction and/or renovation of, any of the Leasehold Property,
any parcel of real estate acquired in connection with an Acquisition, or
otherwise with respect to any Environmental Law, and/or the failure of any
obligor to perform its obligations and covenants hereunder with respect to
environmental matters, including, but not limited to: (i) claims of any Persons
for damages, penalties, response costs, clean-up costs, injunctive or other
relief, (ii) costs of removal and restoration, including fees of attorneys and
experts, and costs of reporting the existence of Hazardous Materials to any
Governmental Body, and (iii) any expenses or obligations, including reasonable
attorneys' fees and expert witness fees, incurred at, before and after any trial
or other proceeding before any Governmental Body or appeal therefrom whether or
not taxable as costs, including, without limitation, witness fees, deposition
costs, copying and telephone charges and other expenses, all of which shall be
paid by Borrower to Lender when incurred by Lender, except where such costs were
directly caused by the gross negligence or willful misconduct of Lender, or by
or third party acting on behalf of and at the direction of Lender.

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<PAGE> 31

ARTICLE X
MISCELLANEOUS

10.1 Notices. All notices and communications under this Loan Agreement shall be
in writing and shall be (i) delivered in person, (ii) sent by facsimile, or
(iii) mailed, postage prepaid, either by registered or certified mail, return
receipt requested, or by overnight express carrier, addressed in each case as
follows:

To Borrowers: Security Associates International, Inc.
2101 Arlington Heights Road
Arlington Heights, Illinois 60005-4142
Attention: James S. Brannen, President
Facsimile No.: 847/956-9360

To Lender: TJS Partners, L.P.
52 Vanderbilt Avenue
5th Floor
New York, NY 10017
Attention: Thomas J. Salvatore

or to any other address or facsimile number, as to any of the parties hereto, as
such party shall designate in a notice to the other parties hereto. All notices
sent pursuant to the terms of this Section 10.1 shall be deemed received (i) if
personally delivered, then on the Business Day of delivery, (ii) if sent by
facsimile before 2:00 p.m. New York time, on the day sent if a Business Day or
if such day is not a Business Day or if sent after 2:00 p.m. New York time, then
on the next Business Day, (iii) if sent by overnight, express carrier, on the
next Business Day immediately following the day sent, or (iv) if sent by
registered or certified mail, on the earlier of the fifth Business Day following
the day sent or when actually received. Any notice by facsimile shall be
followed by delivery on the next Business Day by overnight, express carrier or
by hand.

10.2 Survival of Loan Agreement: Indemnities. All covenants, agreements,
representations and warranties made in this Loan Agreement shall survive the
making by Lender of the Loan and the execution and delivery to Lender of the
Note and of all other Loan Instruments, and shall continue in full force and
effect so long as any of Borrower's Obligations remain outstanding, unperformed
or unpaid. Notwithstanding the repayment of all amounts due under the Loan
Instruments, the cancellation of the Note and the release and/or cancellation of
any and all of the Loan Instruments, the obligations of Borrower to indemnify
Lender with respect to the expenses, damages, losses, costs and liabilities
described in Section 9.2 shall survive until all applicable statute of
limitations periods with respect to actions which may be brought against Lender
have run.

10.3 Further Assurance. From time to time, Borrower shall execute and deliver to
Lender such additional documents as Lender reasonably may require to carry out
the purposes of the Loan Instruments and to protect Lender's rights thereunder,
and not take any action inconsistent with the purposes of the Loan Instruments.

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10.4 Taxes and Fees. Should any tax (other than taxes based upon the net income
of any Lender), recording or filing fees become payable in respect of any of the
Loan Instruments, or any amendment, modification or supplement thereof, Borrower
agrees to pay the same on demand, together with any interest or penalties
thereon attributable to any delay by Borrower in meeting any Lender's demand,
and agree to hold Lender harmless with respect thereto.

10.5 Severability. In the event that any provision of this Loan Agreement is
deemed to be invalid by reason of the operation of any law, this Loan Agreement
shall be construed as not containing such provision and the invalidity of such
provision shall not affect the validity of any other provisions hereof, and any
and all other provisions hereof which otherwise are lawful and valid shall
remain in full force and effect.

10.6 Waiver. No delay on the part of Lender in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, and no single or partial
exercise of any right, power or privilege hereunder shall preclude other or
further exercise thereof, or be deemed to establish a custom or course of
dealing or performance between the parties hereto, or preclude the exercise of
any other right, power or privilege.

10.7 Modification of Loan Instruments. No modification or waiver of any
provision of any of the Loan Instruments shall be effective unless the same
shall be in writing, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand on Borrower in any case shall entitle Borrower to any other or further
notice or demand in the same, similar or other circumstances.

10.8 Captions. The headings in this Loan Agreement are for purposes of reference
only and shall not limit or otherwise affect the meaning hereof.

10.9 Successors and Assigns. This Loan Agreement shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto.

10.10 Remedies Cumulative. All rights and remedies of Lender pursuant to this
Loan Agreement, any other Loan Instruments or otherwise, shall be cumulative and
non-exclusive, and may be exercised singularly or concurrently.

10.11 Entire Agreement; Conflict. This Loan Agreement and the other Loan
Instruments executed pursuant hereto constitute the entire agreement among the
parties hereto with respect to the transactions contemplated hereby or thereby
and supersede any prior agreements, whether written or oral, relating to the
subject matter hereof. In the event of a conflict between the terms and
conditions set forth herein and the terms and conditions set forth in any other
Loan Instrument, the terms and conditions set forth herein shall govern.

10.12 APPLICABLE LAW. THE LOAN INSTRUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS AND DECISIONS OF THE STATE OF ILLINOIS. FOR PURPOSES OF
THIS SECTION 10.12, THE LOAN INSTRUMENTS SHALL BE DEEMED TO BE PERFORMED AND
MADE IN THE STATE OF ILLINOIS.

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10.13 JURISDICTION AND VENUE. EACH BORROWER HEREBY AGREES THAT ALL ACTIONS OR
PROCEEDINGS INITIATED BY SUCH BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT OF
THE LOAN INSTRUMENTS SHALL BE LITIGATED IN THE CIRCUIT COURT OF COOK COUNTY, OR
THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS. EACH
BORROWER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION
IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH COURTS, AND
HEREBY AGREES THAT PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER
PROCESS OR PAPERS ISSUED THEREIN MAY BE SERVED IN THE MANNER PROVIDED FOR
NOTICES HEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER
PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH
BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT TO SECTION
10.1. EACH BORROWER WAIVES ANY CLAIM THAT COOK COUNTY, ILLINOIS OR THE NORTHERN
DISTRICT OF ILLINOIS IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK
OF VENUE. TO THE EXTENT PROVIDED BY LAW, SHOULD ANY BORROWER, AFTER BEING SO
SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO
SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF,
SUCH BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE
ENTERED BY THE COURT AGAINST SUCH BORROWER AS DEMANDED OR PRAYED FOR IN SUCH
SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR
BORROWERS SET FORTH IN THIS SECTION 10.13 SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT BY LENDER OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING
BY LENDER OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE
JURISDICTION, AND EACH BORROWER HEREBY WAIVES THE RIGHT TO COLLATERALLY ATTACK
ANY SUCH JUDGMENT OR ACTION.

10.14 WAIVER OF RIGHT TO JURY TRIAL. LENDER AND BORROWER ACKNOWLEDGE AND AGREE
THAT ANY CONTROVERSY WHICH MAY ARISE UNDER ANY OF THE LOAN INSTRUMENTS OR WITH
RESPECT TO THE TRANSACTIONS CONTEMPLATED THEREBY WOULD BE BASED UPON DIFFICULT
AND COMPLEX ISSUES AND, THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT ARISING
OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION
BY A JUDGE SITTING WITHOUT A JURY.

11.15 Estoppel Certificate. Within 15 days after Lender reasonably requests any
Borrower to do so, such Borrower will execute and deliver to Lender a statement
certifying (i) that this Loan Agreement is in full force and effect and has not
been modified except as described in such statement, (ii) the date to which
interest on the Note has been paid, (iii) the Principal Balance, (iv) whether or
not to its knowledge an Incipient Default or Event of Default has occurred and
is continuing, and, if so, specifying in reasonable detail each such Incipient
Default or Event of Default of which it has knowledge, (v) whether to its
knowledge it has any defense, setoff or counterclaim to the payment of the Note
in accordance with its terms, and, if so, specifying each

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defense, setoff or counterclaim of which it has knowledge in reasonable detail
(including where applicable the amount thereof), and (vi) as to any other matter
reasonably requested by Lender.

11.16 Counterparts. This Loan Agreement may be executed by the parties hereto in
several counterparts and each such counterpart shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
agreement.

11.17 No Fiduciary Relationship. No provision in this Loan Agreement or in any
other Loan Instrument, and no course of dealing among the parties hereto, shall
be deemed to create any fiduciary duty by Lender to Borrower.

11.18 No Strict Construction. The language used in this Loan Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party
hereto.

11.19 Conflict with Subordination Agreement. In the event of any conflict
between any term, covenant or condition of this Loan Agreement or any other Loan
Instrument and any term, covenant or condition of the Subordination Agreement,
the provisions of the Subordination Agreement shall govern.

11.20 Application of Subordination Agreement. This entire Loan Agreement is
subject to the provisions of the Subordination Agreement and the selective use
herein of the phrase "subject to the provisions of the Subordination Agreement"
or phrases similar thereto shall not limit the application of the Subordination
Agreement to any particular provision of this Loan Agreement or any other Loan
Instrument.

(remainder of this page intentionally left blank)

<PAGE> 35

IN WITNESS WHEREOF, this Loan Agreement has been executed and
delivered by each of the parties hereto by a duly authorized officer of each
such party on this 30th day of January, 1998 effective as of the date first
written above.

SECURITY ASSOCIATES INTERNATIONAL, INC.

By: /s/ James S. Brannen
----------------------------
James S. Brannen
President

TJS PARTNERS, L.P.

By: TJS Management, L.P.
Its: General Partner

By: /s/ Thomas J. Salvatore
----------------------------
Thomas J. Salvatore
Managing General Partner

<PAGE> 1

This Note and the indebtedness evidence hereby are subordinated in the
manner and to the extent set forth in that certain TJS Subordination
Agreement No.1 (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "Subordination Agreement")
effective as of December 31, 1996, among TJS Partners, L.P., a New York
limited partnership ("Lender"), Security Associates International, Inc.,
a Delaware corporation ("SAI") and FINOVA Capital Corporation, in its
individual capacity and as agent for all lenders ("Senior Lender") to the
indebtedness (including interest) owed by SAI and certain affiliates of
SAI (collectively, the "Borrowers") to the holders of all the notes issued
pursuant to that certain Loan Agreement dated as of December 31, 1996 (as the
same may be amended, supplemented, restated or otherwise modified form
time to time, the "FINOVA Loan Agreement") among Borrowers and Senior Lender;
and each holder of this Note, by its acceptance hereof, shall be bound
by the subordination provisions of the Subordination Agreement.

PROMISSORY NOTE

$5,000,000.00 December 31, 1996
Arlington Heights, Illinois

FOR VALUE RECEIVED, SECURITY ASSOCIATES INTERNATIONAL, INC., a Delaware
corporation ("BORROWER") promises to pay to the order of TJS Partners, L.P., a
New York limited partnership, its successors, designees or assigns ("LENDER"),
at its offices at 52 Vanderbilt Avenue, New York, New York, or at such other
place or places as Lender may from time to time designate in writing, the
principal sum of Five Million and No/100 Dollars ($5,000,000.00) or, if less,
the aggregate unpaid principal amount of the Loan made by Lender pursuant to
Section 2 of the Loan Agreement (as hereinafter defined) at such times as are
specified in and in accordance with the provisions of the Loan Agreement, with
interest payable semiannually on the principal balance from time to time
remaining unpaid. Notwithstanding the foregoing, all outstanding principal,
interest, costs and expenses due hereunder shall be paid to Lender upon
termination of the Loan Agreement.

This Note is referred to in and was executed and delivered pursuant to
that certain Subordinated Loan Agreement of even date herewith between Borrower
and Lender (as amended, restated supplemented or modified from time to time, the
("LOAN AGREEMENT"), to which reference is hereby made for a statement of the
terms and conditions under which the loans evidenced hereby are to be repaid and
for a statement of remedies upon the occurrence of an "EVENT OF DEFAULT" as
defined therein. The Loan Agreement is incorporated herein by reference in its
entirety. All terms which are capitalized and used herein (which are not
otherwise specifically defined herein) and which are defined in the Loan
Agreement shall be used in this Note as defined in the Loan Agreement.

<PAGE> 2

This note evidences the "LOAN" as defined in the Loan Agreement made
and to be made to the Borrower under Section 2 of the Loan Agreement, and the
Borrower promises to pay interest at the office specified above on the loan
evidenced hereby at the rates and times specified therefor in the Loan
Agreement.

Borrower further promises to pay to Lender interest on the outstanding
unpaid principal amount hereof, as provided in the Loan Agreement, from the date
hereof until payment in full hereof as determined in accordance with the Loan
Agreement; provided, however, that during any Default Rate Period, Borrower
promises to pay to Lender interest on Borrower's Obligations at the Default Rate
as determined in accordance with the Loan Agreement. Interest shall be computed
on the basis of a 360-day year for the actual number of days elapsed. In no
contingency or event whatsoever shall the rate of interest paid by Borrower
under this Note exceed the maximum amount permissible under any law which a
court of competent jurisdiction shall in a final determination, deem applicable
hereto. In the event that such a court determines that Lender has received
interest hereunder in excess of the maximum amount permitted by such law, (i)
Lender shall apply such excess to any unpaid principal owed by Borrower to
Lender or, if the amount of such excess exceeds the unpaid balance of such
principal, Lender shall promptly refund such excess interest to Borrower and
(ii) the provisions hereof shall be deemed amended to provide for such
permissible rate.

Except as otherwise provided in the Loan Agreement, Borrower waives
presentment, demand and protest, notice of protest, notice of presentment and
all other notices and demands in connection with the enforcement of Lender's
rights hereunder, except as specifically provided and called for by this Note
and in the Loan Agreement, and hereby consents to, and waives notice of the
release, addition, or substitution, with or without consideration, of any
collateral or of any person liable for payment of this Note. Any failure of
Lender to exercise any right available hereunder or otherwise shall not be
construed as a waiver of the right to exercise the same or as a waiver of any
other right at any other time.

Whenever in this Note reference is made to Lender or Borrower, such
reference shall be deemed to include, as applicable, a reference to their
respective successors and assigns. The provisions of this Note shall be binding
upon and shall inure to the benefit of such successors and assigns. Borrower's
successors and assigns shall include without limitation, a receiver, trustee or
debtor in possession of or for Borrower.

The loan evidenced hereby has been made, and this Note has been
delivered, at Arlington Heights, Illinois and shall be governed by and construed
in accordance with the internal laws (as opposed to the conflicts of laws
provisions) of the State of Illinois.

2
<PAGE> 3

ACTION OR PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH COURTS, AND HEREBY
AGREES THAT PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR
PAPERS ISSUED THEREIN MAY BE SERVED IN THE MANNER PROVIDED FOR NOTICES HEREIN,
AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH BORROWER AT THE
ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT TO THE LOAN AGREEMENT. BORROWER
WAIVES ANY CLAIM THAT COOK COUNTY, ILLINOIS OR THE NORTHERN DISTRICT OF ILLINOIS
IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. TO THE
EXTENT PROVIDED BY LAW, SHOULD BORROWER, AFTER BEING SO SERVED, FAIL TO APPEAR
OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE
NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF, SUCH BORROWER SHALL
BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY THE COURT
AGAINST BORROWER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS
OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR BORROWERS SET FORTH HEREIN SHALL
NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OBTAINED IN
ANY OTHER FORUM OR THE TAKING BY LENDER OF ANY ACTION TO ENFORCE THE SAME IN ANY
OTHER APPROPRIATE JURISDICTION, AND BORROWER HEREBY WAIVES THE RIGHT TO
COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.

LENDER AND BORROWER ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER ANY OF THE LOAN INSTRUMENTS OR WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED THEREBY WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND,
THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT ARISING OUT OF ANY SUCH
CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT A JURY.

Wherever possible each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under such law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Note.

In the event of any conflict between any term, covenant or condition of
this Note or the Loan Agreement and any term, covenant or condition of the
Subordination Agreement, the provisions of the Subordination Agreement shall
govern.

3
<PAGE> 4

This entire Note, including, without limitation, each provision,
agreement, waiver, right or remedy contained herein, is subject to the terms,
conditions and limitations set forth in the Subordination Agreement.

4
<PAGE> 5

SECURITY ASSOCIATES INTERNATIONAL, INC.

BY: /s/ JAMES S. BRANNEN
-----------------------------------------
JAMES S. BRANNEN, PRESIDENT

<PAGE> 1
EXHIBIT 21.2

SUPPLEMENTAL LIST OF
SUBSIDIARIES OF
REGISTRANT

TELECOMMUNICATIONS ASSOCIATES GROUP, INC., an Ohio corporation

ALARM FUNDING CORPORATION, a Delaware corporation

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report dated January 23, 1998 included in Security Associates International,
Inc.'s Form 10-K for the year ended December 31, 1997, and to all references to
our firm included in this Registration Statement.

ARTHUR ANDERSEN LLP

Chicago, Illinois
February 20, 1998

<ARTICLE> 5
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 5,521,633
<SECURITIES> 0
<RECEIVABLES> 3,171,717
<ALLOWANCES> (495,000)
<INVENTORY> 0
<CURRENT-ASSETS> 8,381,021
<PP&E> 1,334,825
<DEPRECIATION> (479,194)
<TOTAL-ASSETS> 36,008,703
<CURRENT-LIABILITIES> 6,756,199
<BONDS> 0
0
4,087,496
<COMMON> 6,272
<OTHER-SE> 3,136,923
<TOTAL-LIABILITY-AND-EQUITY> 36,008,703
<SALES> 0
<TOTAL-REVENUES> 10,814,087
<CGS> 0
<TOTAL-COSTS> 13,476,127
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 498,000
<INTEREST-EXPENSE> 1,862,606
<INCOME-PRETAX> (4,524,646)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,524,646)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,524,646)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> 0

</TABLE>