Document:

EX-4.3

    
      

      

    

    

      SECURITY
        AGREEMENT

       

      

       

      THIS
        SECURITY AGREEMENT (this “Agreement”), dated November 10, 2004, is by and among
INTEGRATED
        ALARM SERVICES GROUP, INC.,
        a
        Delaware corporation, CRITICOM
        INTERNATIONAL CORPORATION,
        a
        New Jersey corporation, MONITAL
        SIGNAL CORPORATION,
        a
        New Jersey corporation, INTEGRATED
        ALARM SERVICES, INC.,
        a
        Delaware corporation, PAYNE
        SECURITY GROUP L.L.C.,
        a
        New Jersey limited liability company, and AMERICAN
        HOME SECURITY, INC.,
        a
        Nevada corporation (each, individually, and collectively, known as the
“Borrower”; and, collectively, Borrower and any other persons or entities which
        from time to time become parties hereto as debtors, known as the “Debtors” and
        each, individually, a “Debtor”), and LASALLE
        BANK N.A.,
        a
        national banking association (the “Bank”).

       

      WITNESSETH:

      

      WHEREAS,
        Debtor is (or will be with respect to after-acquired property) the legal
        and
        beneficial owner and holder of the Collateral (as that term is defined herein);
        and

       

      WHEREAS,
        the Borrower has entered into that certain Credit Agreement, dated as of
        even
        date herewith (as amended or otherwise modified from time to time, the
“Credit
        Agreement”),
        with
        the Bank and the other parties listed therein, pursuant to which the Bank
        has
        agreed to make certain revolving credit loans to the Borrower; and

       

      WHEREAS,
        the obligation of the Bank to make loans under the terms and conditions of
        the
        Credit Agreement is subject to the condition, among others, that the Debtors
        secure their obligations to the Bank under the terms and conditions of the
        Credit Agreement in the manner set forth herein.

       

      NOW,
        THEREFORE, for and in consideration of any loan, advance or other financial
        accommodation heretofore or hereafter made to the Debtors under or in connection
        with the Credit Agreement, and for other good and valuable consideration,
        the
        receipt and sufficiency of which are hereby acknowledged, the parties hereto
        agree as follows:

       

      1.  Definitions.
        When
        used herein: (a) the terms Account,
        Account
        Debtor,
        Certificated
        Security,
        Chattel
        Paper,
        Commercial
        Tort Claim,
        Deposit
        Account,
        Document,
        Electronic
        Chattel Paper,
        Equipment,
        Financial
        Asset,
        Fixtures,
        Goods,
        Inventory,
        Instrument,
        Investment
        Property,
        Letter
        of Credit Rights,
        Payment
        Intangibles,
        Proceeds,
        Security,
        Security
        Entitlement,
        Supporting
        Obligations
        and
Uncertificated
        Security
        have the
        respective meanings assigned thereto in the UCC (as defined below);
        (b) capitalized terms which are not otherwise defined have the respective
        meanings assigned thereto in the Credit Agreement; and (c) the following
        terms have the following meanings (such definitions to be applicable to both
        the
        singular and plural forms of such terms):

       

      Alarm
        Contract
        shall
        have the meaning set forth in the Credit Agreement.

       

      Assignee
        Deposit Account
        - see
Section
        5.

       

      
        
          
          

        

        
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      Collateral
        shall
        have the meaning assigned to such term in Section 2.

       

      Computer
        Hardware
        means,
        with respect to any Debtor, all of such Debtor’s rights (including rights as
        licensee and lessee) with respect to computer and other electronic data
        processing hardware, including all integrated computer systems, central
        processing units, memory units, display terminals, printers, computer elements,
        card readers, tape drives, hard and soft disk drives, cables, electrical
        supply
        hardware, generators, power equalizers, accessories, peripheral devices and
        other related computer hardware.

       

      Computer
        Software
        means:
        (i) all software programs designed for use on Computer Hardware, including
        all
        operating system software, utilities and application programs in whatsoever
        form
        (source code and object code in magnetic tape, disk or hard copy format or
        any
        other listings whatsoever); (ii) any firmware associated with any of the
        foregoing; and (iii) any documentation for Computer Hardware, and for software
        and firmware described in clauses (i) and (ii) above, including flow charts,
        logic diagrams, manuals, specifications, training materials, charts and pseudo
        codes.

       

      Event
        of Default
        means
        the occurrence of any Event of Default under Section 8.1 of the Credit
        Agreement.

       

      General
        Intangibles
        means,
        with respect to any Debtor, all of such Debtor’s “general intangibles” as
        defined in the UCC and, in any event, includes (without limitation) all of
        such
        Debtor’s trademarks, trade names, patents, copyrights, trade secrets, customer
        lists, inventions, designs, Computer Software, goodwill, registrations,
        licenses, franchises, tax refund claims, guarantee claims, Payment Intangibles,
        security interests, books and records related to the Collateral and the Pledged
        Collateral (as defined in the Pledge Agreement) and rights to
        indemnification.

       

      Intellectual
        Property
        means
        all past, present and future: (i) trade secrets and other proprietary
        information; (ii) trademarks, service marks, business names, Internet domain
        names, designs, logos, trade dress, slogans, indicia and other source and/or
        business identifiers, and the goodwill of the business relating thereto and
        all
        registrations or applications for registrations which have heretofore been
        or
        may hereafter be issued thereon throughout the world; copyrights (including
        copyrights for computer programs and software) and (iii) copyright registrations
        or applications for registrations which have heretofore been or may hereafter
        be
        issued throughout the world and all tangible property embodying the copyrights;
        (iv) unpatented inventions (whether or not patentable); (v) patent applications
        and patents; (vi) industrial designs, industrial design applications and
        registered industrial designs; (vii) license agreements related to any of
        the
        foregoing and income therefrom; (viii) books, records, writings, computer
        tapes
        or disks, flow diagrams, specification sheets, source codes, object codes
        and
        other physical manifestations, embodiments or incorporations of any of the
        foregoing; (ix) the right to sue for all past, present and future infringements
        of any of the foregoing; and (x) all common law and other rights throughout
        the
        world in and to all of the foregoing.

       

      
        
          
          

        

        
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      Lender
        Party
        means
        the Bank under and as defined in the Credit Agreement and any Affiliate of
        the
        Bank which is a party to an Interest Rate Agreement (as that term is defined
        in
        the Credit Agreement) or other agreement with the Debtor and any Additional
        Banks as defined in the Credit Agreement.

       

      Liabilities
        means,
        as to each Debtor, all Obligations (as that term is defined in the Credit
        Agreement).

       

      Organizational
        I.D. Number
        means,
        if applicable with respect to any Debtor, the organizational identification
        number assigned to such Debtor by the applicable governmental unit or agency
        of
        the jurisdiction of organization for such Debtor.

       

      Type
        of Organization
        means,
        with respect to any Debtor, the legal nature (i.e., kind or type of entity)
        of
        such Debtor (e.g., such as a corporation or limited liability
        company).

       

      UCC
        means
        the Uniform Commercial Code as in effect in the State of Illinois on the
        date of
        this Agreement, as may be amended or modified from time to time; provided
        that, as
        used in Section
        7
        hereof,
“UCC”
        shall
        mean the Uniform Commercial Code as in effect from time to time in any
        applicable jurisdiction. 

       

      2.  Grant
        of Security Interest.
        As
        security for the payment of all Liabilities and for so long as this Security
        Agreement shall remain in full force and effect as provided in Section 12(d)
        below, each Debtor hereby grants to the Bank for the benefit of the Lender
        Parties a lien on and security interest in, and right of set-off against,
        and
        acknowledges and agrees that the Bank has and shall continue to have for
        the
        benefit of the Lender Parties, a continuing lien on and security interest
        in,
        and right of set-off against, all right, title, and interest, whether now
        owned
        or existing or hereafter created, acquired or arising, in and to all of the
        following property of such Debtor (all being collectively referred to herein
        as
        the “Collateral”):

       

      (a)  Accounts,
        including, but not limited to, periodic and non-periodic payments under or
        in
        connection with Alarm Contracts;

       

      (b)  Certificated
        Securities;

       

      (c)  Chattel
        Paper, including Electronic Chattel Paper;

       

      (d)  Computer
        Hardware and Computer Software and all rights with respect thereto, including
        any and all licenses, options, warranties, service contracts, program services,
        test rights, maintenance rights, support rights, improvement rights, renewal
        rights and indemnifications, and any substitutions, replacements, additions
        or
        model conversions of any of the foregoing;

       

      (e)  Commercial
        Tort Claims, as listed in Schedule 2(e) or in the notice to the Bank in the
        form
        of Attachment 1 to Schedule 2(e);

       

      (f)  Deposit
        Accounts;

       

      
        
          
          

        

        
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      (g)  Documents;

       

      (h)  Financial
        Assets;

       

      (i)  General
        Intangibles;

       

      (j)  Goods
        (including all of its Equipment, Fixtures and Inventory), and all embedded
        software, accessions, additions, attachments, improvements, substitutions
        and
        replacements thereto and therefor;

       

      (k)  Instruments;

       

      (l)  Intellectual
        Property;

       

      (m)  Investment
        Property;

       

      (n)  Letter
        of
        Credit Rights;

       

      (o)  Letters
        of Credit;

       

      (p)  money
        (of
        every jurisdiction whatsoever);

       

      (q)  Security
        Entitlements;

       

      (r)  Supporting
        Obligations;

       

      (s)  Uncertificated
        Securities; and

       

      (t)  Any
        of
        the above property of such Debtor and any interest therein, of any kind or
        description now held by any Lender Party or at any time hereafter transferred
        or
        delivered to, or coming into the possession, custody or control of, any Lender
        Party, or any agent or affiliate of any Lender Party, whether expressly as
        collateral security or for any other purpose (whether for safekeeping, custody,
        collection or otherwise), and all dividends and distributions on or other
        rights
        in connection with any such property;

       

      together
        with all books, records, writings, data bases, information and other property
        relating to, used or useful in connection with, or evidencing, embodying,
        incorporating or referring to any of the foregoing, and all Proceeds, products,
        offspring, rents, issues, profits and returns of and from any of the foregoing.
        The Collateral shall not include any governmental license or permit that,
        by its
        terms, prohibits a grant of a security interest therein, unless all required
        consents are obtained or such prohibition shall be determined to be ineffective
        by reason of law, any proceeding or otherwise. The foregoing shall not, however,
        exclude the Proceeds thereof from the security interest granted
        herein.

       

      
        
          
          

        

        
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      3.  Lockbox
        Agreement.
        The
        Debtors shall direct all of their Account Debtors to make all payments on
        the
        Accounts directly to a post office box (the “Lockbox”) designated by and under
        the exclusive control of the Bank pursuant to a form of Lockbox Mail Collection
        Service
        Agreement between the Debtor and the Bank in form and substance satisfactory
        to
        the Bank, to be executed, dated and delivered to the Bank within 120 days
        of the Closing under the Credit Agreement (the “Lockbox Agreement”). Within such
        120-day period, the Debtor shall establish the Lockbox and an account (the
        “Lockbox Account”) in the Debtor’s name with the Bank into which all payments
        received in the Lockbox shall be deposited, and into which the Debtor will
        promptly, but no later than within one (1) Business Day, deposit all payments
        made for Inventory or services and received by the Debtor in the identical
        form
        in which such payments were made, whether by cash or check. If a Debtor,
        a
        Subsidiary or any director, officer, employee or agent of a Debtor or any
        Subsidiary, or any other Person acting for or in concert with a Debtor shall
        receive any monies, checks, notes, drafts or other payments relating to or
        as
        proceeds of Accounts or other Collateral, the Debtor and each such Person
        shall
        receive all such items in trust for, and as the sole and exclusive property
        of,
        the Bank and, immediately upon receipt thereof, shall remit the same (or
        cause
        the same to be remitted) in kind to the Lockbox Account. For the purpose
        of this
        paragraph, each Debtor irrevocably hereby makes, constitutes and appoints
        the
        Bank (and all Persons designated by the Bank for that purpose) as the Debtor’s
        true and lawful attorney and agent in-fact: (i) to endorse the Debtor’s name
        upon any such checks, notes, drafts, instruments, and other items of payment
        and/or proceeds of Collateral and upon any Chattel Paper, document, instrument,
        invoice or similar document or agreement relating to any Account of the Debtor
        or goods pertaining thereto; (ii) to take control in any manner of any item
        of
        payment or proceeds thereof; and (iii) to have access to any lock box or
        postal
        box into which any of the Debtor’s mail is deposited, and open and process all
        mail addressed to the Debtor and deposited therein.

       

      4.  Warranties.
        Each
        Debtor warrants that: (a) no financing statement other than any which may
        have
        been filed on behalf of the Bank or in connection with Permitted Liens, or
        other
        instrument similar in effect, covering all or any part of the Collateral
        is on
        file in any public office; (b) such Debtor is and will be the lawful owner
        of
        all Collateral, free of all Liens whatsoever, other than the security interest
        hereunder and Permitted Liens, with full power and authority to execute this
        Agreement and perform such Debtor’s obligations hereunder, and to subject the
        Collateral to the security interest hereunder; (c) such Debtor’s chief executive
        office and principal place of business are as set forth on Schedule
        I
        hereto
        and, except as set forth on Schedule I, such Debtor has not maintained its
        chief
        executive office and principal place of business at any other location at
        any
        time after five (5) years prior to the date of this Agreement, and each other
        location where such Debtor maintains a place of business is also set forth
        on
Schedule
        I
        hereto;
        (d) such Debtor is the Type of Organization stated and is duly organized,
        validly existing and in good standing under the laws of the state set forth
        on
Schedule
        II
        hereto;
        (e) except as set forth on Schedule
        III
        hereto,
        such Debtor is not now known and during the five (5) years preceding the
        date
        hereof has not previously been known by any trade name; (f) Debtor’s exact legal
        name is as set forth on the signature pages of this Agreement and, except
        as set
        forth on Schedule
        III
        hereto,
        during the five (5) years preceding the date hereof, such Debtor has not
        been
        known by any different legal name; (g) Schedule
        IV
        hereto
        contains a complete listing of all of such Debtor’s Intellectual Property which
        is subject to registration statutes; (h) Schedule
        V
        hereto
        contains a complete listing of all of each Debtor’s Instruments, Deposit
        Accounts, Investment Property, Letter-of-Credit Rights, Chattel Paper, Documents
        and Commercial Tort Claims; (i) except as set forth on Schedule
        VI
        hereto,
        Debtor has no tangible Collateral located outside of the United States; (j)
        Schedule
        VII
        hereto
        contains a complete listing of each Debtor’s 

       

      
        
          
          

        

        
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      tangible
        Collateral located with any bailee, warehousemen or other third parties;
        (k)
Schedule
        VIII
        hereto
        contains a complete listing of all of each Debtor’s Collateral which is subject
        to certificate of title statutes; and (l) Schedule
        IX
        hereto
        contains a complete listing of all of each Debtor’s Deposit Accounts and other
        bank accounts, including locations and applicable account numbers.

       

      In
        addition to the above, each Debtor warrants and covenants that: (i) Debtor
        has
        used, and will continue to use for the duration of this Agreement, proper
        statutory notice in connection with its use of the Patents, Trademarks and
        Copyrights; and (ii) Debtor shall have the duty to the extent commercially
        reasonable, through counsel acceptable to Bank, to prosecute diligently any
        patent, trademark or copyright applications related to the Patents, Trademarks
        and Copyrights pending as of the date of this Agreement or thereafter until
        the
        termination of this Security Agreement, to make application on unpatented
        but
        patenable inventions and unregistered but registrable trademarks or service
        marks and copyrights (whenever it is commercially reasonable in the reasonable
        judgment of Debtor to do so) and to preserve and maintain all rights in patent,
        trademark, service mark and copyright applications and registrations of the
        Patents, Trademarks and Copyrights, including, without limitation, the payment
        of all registration, maintenance and renewal fees. Any expenses incurred
        in
        connection with such an application or registration shall be borne by
        Debtor.

       

      5.  Collections,
        etc.
        Until
        such time as the Bank shall notify such Debtor of the revocation of such
        power
        and authority, each Debtor may grant, in the ordinary course of business,
        to any
        party obligated on any of the Collateral, any rebate, refund or allowance
        to
        which such party may be lawfully entitled, and may accept, in connection
        therewith, the return of Goods, the sale or lease of which shall have given
        rise
        to such Collateral. Until such time during the existence of an Event of Default
        as the Bank shall notify Debtor of the revocation of such power and authority,
        each Debtor: (a) may, in the ordinary course of its business, at its own
        expense, sell, lease or furnish under contracts of service any of the Inventory
        normally held by such Debtor for such purpose, use and consume in the ordinary
        course of its business, any raw materials, work in process or materials normally
        held by such Debtor for such purpose, and use in the ordinary course of its
        business (but subject to the terms of the Credit Agreement), the cash proceeds
        of Collateral and other money which constitutes Collateral; and (b) will,
        at its
        own expense, use its best efforts to collect, as and when due, all amounts
        due
        under any of the Collateral, including the taking of such action with respect
        to
        such collection as the Bank may request or, in the absence of such request,
        as
        such Debtor may deem advisable in accordance with good business
        practices. 
        The
        Bank, however, may, at any time that an Event of Default exists, whether
        before
        or after any revocation of such power and authority or the maturity of any
        of
        the Liabilities, notify an Account Debtor or other Person obligated on
        Collateral to make payment or otherwise render performance to or for the
        benefit
        of the Bank and enforce, by suit or otherwise, the obligations of an Account
        Debtor or other Person obligated on Collateral and exercise the rights of
        such
        Debtor with respect to the obligation of the Account Debtor or other Person
        obligated on Collateral to make payment or otherwise render performance to
        the
        Debtor, and with respect to any property that secures the obligations of
        the
        Account Debtor or other Person obligated on the Collateral. In connection
        with
        the exercise of such rights and remedies, the Bank may surrender, release
        or
        exchange all or any part thereof, or compromise or extend or renew for any
        period (whether or not longer than the original period) any indebtedness
        thereunder or evidenced thereby. Upon the request of the Bank during the
        existence of an Event of Default, each Debtor will, at its own expense,
        immediately notify any or all parties obligated on
        any of
        the Collateral to make payment to the Bank of any amounts due or to become
        due
        thereunder.

       

      
        
          
          

        

        
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      Upon
        request by the Bank during the existence of an Event of Default, each Debtor
        will forthwith upon receipt, transmit and deliver to the Bank, in the form
        received, all cash, checks, drafts and other instruments or writings for
        the
        payment of money (properly endorsed, where required, so that such items may
        be
        collected by the Bank) which may be received by such Debtor at any time in
        full
        or partial payment or otherwise as proceeds of any of the Collateral. Except
        as
        the Bank may otherwise consent in writing, any such items which may be so
        received by any Debtor will not be commingled with any other of its funds
        or
        property, but will be held separate and apart from its own funds or property
        and
        upon express trust for the Bank until delivery is made to the Bank. Each
        Debtor
        will comply with the terms and conditions of any consent given by the Bank
        pursuant to the foregoing sentence.

       

      During
        the existence of an Event of Default, all items or amounts which are delivered
        by any Debtor to the Bank on account of partial or full payment or otherwise
        as
        proceeds of any of the Collateral shall be deposited to the credit of a deposit
        account (each an “Assignee Deposit Account”) of such Debtor with Bank (or
        another financial institution selected by the Bank) over which the Bank has
        sole
        dominion and control as security for payment of the Liabilities. No Debtor
        shall
        have any right to withdraw any funds deposited in the applicable Assignee
        Deposit Account. The Bank may, from time to time, in its discretion, apply
        all
        or any of the then balance, representing collected funds, in the Assignee
        Deposit Account toward payment of the Liabilities, whether or not then due,
        in
        such order of application as the Bank may determine in its discretion, and
        the
        Bank may, from time to time, in its discretion, release all or any of such
        balance to the applicable Debtor.

       

      The
        Bank
        (or any designee of the Bank) is authorized to endorse, in the name of the
        applicable Debtor, any item, howsoever received by the Bank, representing
        any
        payment on or other Proceeds of any of the Collateral.

       

      6.  Certificates,
        Schedules and Reports.
        Each
        Debtor will from time to time, as the Bank may request, deliver to the Bank
        such
        schedules, certificates and reports respecting all or any of the Collateral
        at
        the time subject to the security interest hereunder, and the items or amounts
        received by such Debtor in full or partial payment of any of the Collateral,
        as
        the Bank may reasonably request. Any such schedule, certificate or report
        shall
        be executed by an Authorized Officer of such Debtor and shall be in such
        form
        and detail as the Bank may specify. Each Debtor shall immediately notify
        the
        Bank of the occurrence of any event causing any loss or depreciation in the
        value of its Inventory or other Goods, and such notice shall specify the
        amount
        of such loss or depreciation. 

       

      7.  Agreements
        of the Debtors.
        Each
        Debtor: (a) hereby irrevocably authorizes the Bank at any time, and from
        time to
        time, to file in any jurisdiction, any initial financing statements and
        amendments thereto that: (i) indicate the Collateral as all assets of such
        Debtor or words of similar effect, regardless of whether any particular asset
        comprised in the Collateral falls within the scope of Article 9 of the UCC
        of
        the jurisdiction wherein such financing statement or amendment is filed and
        (ii)
        contain any other information required by 

       

      
        
          
          

        

        
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      Article
        9
        of the UCC of the jurisdiction wherein such financing statement or amendment
        is
        filed regarding the sufficiency or filing office acceptance of any financing
        statement or amendment, including (x) whether such Debtor is an organization,
        the Type of Organization, the Organization ID Number or Federal Employer
        Identification Number issued to such Debtor and (y) in the case of a financing
        statement filed as a fixture filing or indicating Collateral to be extracted
        collateral, a sufficient description of real property to which the Collateral
        relates; (b) will keep all its Inventory at, and will not maintain any place
        of
        business at, any location other than its address(es) shown on Schedule
        I
        hereto
        (or any amendment thereto); (c) will keep its records concerning the Collateral
        in such a manner as will enable the Bank or its designees to readily determine
        at any time the status of the Collateral; (d) will furnish the Bank such
        information concerning such Debtor, the Collateral and the Account Debtors
        as
        the Bank may from time to time reasonably request; (e) will permit the Bank
        and
        its designees, in accordance with the provisions of the Credit Agreement,
        to
        inspect such Debtor’s Inventory and other Goods, and to inspect, audit and make
        copies of and extracts from all records and other papers in the possession
        of
        such Debtor pertaining to the Collateral and the Account Debtors, and will,
        upon
        request of the Bank during the existence of an Event of Default, immediately
        deliver to the Bank all of such records and papers; (f) will, upon request
        of
        the Bank, stamp on its records concerning the Collateral, and add on all
        Chattel
        Paper and Instruments constituting a portion of the Collateral, a notation,
        in
        form satisfactory to the Bank, of the security interest of the Bank hereunder;
        (g) except for the sale or lease of Inventory in the ordinary course
        of its
        business, sales of Equipment which is no longer used or useful in its business
        or which is being replaced by similar Equipment or any other sale of Collateral
        permitted under Section 7.2.7 of the Credit Agreement, will not sell,
        lease, assign, create or permit to exist any Lien on any Collateral, other
        than
        Permitted Liens; (h) without limiting the provisions of Section 7.1.3
        of
        the Credit Agreement, will at all times keep all of its Inventory and other
        Goods insured against loss, damage, theft and other risks in accordance with
        the
        insurance requirements set forth in the Credit Agreement; (i) will
        take
        such actions as are reasonably necessary to keep its Goods in good repair
        and
        condition (ordinary wear and tear excepted); (j) will take all such actions
        as
        are reasonably necessary to keep its Equipment in good repair and condition
        and
        in good working order, ordinary wear and tear excepted; (k) will, except
        to the
        extent otherwise permitted under the Credit Agreement, promptly pay when
        due all
        license fees, registration fees, taxes, assessments and other charges which
        may
        be levied upon or assessed against the ownership, operation, possession,
        maintenance or use of its Equipment and other Goods; (l) will (i) cause to
        be
        noted on the applicable certificate, in the event any of its Equipment is
        covered by a certificate of title, the security interest of the Bank in the
        Equipment covered thereby, and (ii) deliver all such certificates to the
        Bank or
        its designees; (m) will take all steps necessary to protect, preserve and
        maintain all of its rights in the Collateral; (n) except as listed on
Schedule
        VI,
        will
        keep all of the tangible Collateral in the United States of America; (o)
        will
        promptly notify the Bank in writing upon acquiring or otherwise obtaining
        any
        Collateral after the date hereof consisting of Deposit Accounts, Investment
        Property, Letter-of-Credit Rights or Electronic Chattel Paper not listed
        on the
        Schedules hereto and, upon the request of the Bank, will promptly execute
        such
        other documents, and do such other acts or things deemed appropriate by the
        Bank
        to deliver to the Bank control with respect to such Collateral; (p) will
        promptly notify the Bank in writing upon acquiring or otherwise obtaining
        any
        Collateral after the date hereof consisting of Documents or Instruments and,
        upon the reasonable request of the Bank, will promptly execute such other
        documents, and do such other acts or things necessary to deliver to the Bank
        possession of such Documents which are 

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      negotiable
        and Instruments, and, with respect to nonnegotiable Documents, to have such
        nonnegotiable Documents issued in the name of the Bank; (q) with respect
        to
        Collateral in the possession of a third party, other than Certificated
        Securities, Goods covered by a Document, or de
        minimis
        portions
        of the Collateral temporarily in the possession of another in the ordinary
        course of such third party’s business, including as described on Schedule
        VII,
        will
        obtain an acknowledgment from the third party that it is holding the Collateral
        for benefit of the Bank; (r) will promptly notify the Bank in writing upon
        incurring or otherwise obtaining a Commercial Tort Claim against any third
        party, and, upon the request of the Bank, will promptly enter into an amendment
        to this Agreement, and do such other acts or things deemed appropriate by
        the
        Bank to give the Bank a security interest in such Commercial Tort Claim;
        (s)
        further agrees to execute and deliver to the Bank such documents and take
        other
        action as requested by the Bank to insure the attachment, perfection and
        first
        priority of, and the ability of the Bank to enforce, free and clear of all
        Liens
        and claims and rights of third parties whatsoever (except Permitted Liens),
        the
        security interests in any and all of the Collateral including, without
        limitation, (i) complying with any provision of any statute, regulation or
        treaty of the United States as to any Collateral if compliance with such
        provision is a condition to attachment, perfection or priority of, or ability
        of
        the Bank to enforce, the security interests in such Collateral, (ii) obtaining
        governmental and other third party consents and approvals, including, without
        limitation, any consent of any licensor, lessor or other Person Obligated
        on
        Collateral, (iii) obtaining waivers from mortgagees and landlords in form
        and
        substance satisfactory to the Bank, and (iv) taking all actions required
        by the
        UCC in effect from time to time or by other law, as applicable in any relevant
        UCC jurisdiction, or by other law as applicable in any foreign jurisdiction;
        and
        (t) will not change its state of incorporation or organization or Type of
        Organization and will not change its legal name without providing the Bank
        with
        at least 30 days’ prior written notice.

       

      Any
        expenses incurred in protecting, preserving or maintaining any Collateral
        shall
        be borne by Debtors. Whenever an Event of Default shall be existing, the
        Bank
        shall have the right to bring suit to enforce any or all of the Intellectual
        Property or licenses thereunder, in which event the applicable Debtor shall,
        at
        the request of the Bank, do any and all lawful acts and execute any and all
        proper documents required by the Bank in aid of such enforcement, and such
        Debtor shall promptly, upon demand, reimburse and indemnify the Bank for
        all
        expenses incurred by the Bank in the exercise of its rights under this
Section
        7.
        Notwithstanding the foregoing, subject to Section
        11
        hereof,
        the Bank shall have no obligation or liability regarding the Collateral by
        reason of, or arising out of, this Agreement.

       

      To
        the
        extent Debtors use any proceeds from the Loans to purchase Collateral, Debtors’
        repayment of the Loans may, at the discretion of the Bank, apply on a
“first-in-first-out” basis so that the portion of the Loans used to purchase a
        particular item of Collateral shall be paid in the chronological order the
        Debtors purchased the Collateral.

       

      8.  Default
        and Remedies upon an Event of Default.

       

      (a)  If
        an
        Event of Default shall have occurred and be continuing, the Bank may exercise
        (or cause its sub-agents to exercise) any or all of the remedies available
        to it
        under this Agreement.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      

       

      (b)  Without
        limiting the generality of the foregoing, if an Event of Default shall have
        occurred and be continuing, the Bank may exercise, on behalf of the Lender
        Parties, all the rights of a secured party under the UCC (whether or not
        in
        effect in the jurisdiction where such rights are exercised) with respect
        to any
        Collateral and, in addition, the Bank may, without being required to give
        any
        notice, withdraw all cash held in the Assignee Deposit Account and apply
        such
        cash as provided in Section
        9
        hereof
        and, if there shall be no such cash or if such cash shall be insufficient
        to pay
        all the Liabilities in full, sell, lease, license or otherwise dispose of
        the
        Collateral or any part thereof. Notice of any such sale or other disposition
        shall be given to the relevant Debtors as required in Section
        10
        hereof.

       

      9.  Application
        of Proceeds.

       

      (a)  If
        an
        Event of Default shall have occurred and be continuing, the Bank may apply
        the
        proceeds of any sale or other disposition of all or any part of the Collateral,
        in the Bank’s discretion, in cash or in kind or, on a ratable basis, in any
        combination thereof.

       

      (b)  All
        distributions made by the Bank pursuant to this Section shall be final (except
        in the event of manifest error), and the Bank shall have no duty to inquire
        as
        to the application by any of the Lender Parties of any amount distributed
        to
        it.

       

      10.  Authority
        to Administer Collateral.
        Each
        Debtor irrevocably appoints the Bank its true and lawful attorney with full
        power of substitution, in the name of such Debtor, any Lender Party or
        otherwise, for the sole use and benefit of the Lender Parties, but at Debtors’
        expense, to the extent permitted by law, to exercise, at any time and from
        time
        to time while an Event of Default shall have occurred and be continuing,
        all or
        any of the following powers with respect to all or any of such Debtors’
        Collateral:

       

      (a)  to
        demand, sue for, collect, receive and give acquittance for any and all monies
        due or to become due upon or by virtue thereof;

       

      (b)  to
        settle, compromise, compound, prosecute or defend any action or proceeding
        with
        respect thereto;

       

      (c)  to
        sell,
        lease, license or otherwise dispose of the same or the Proceeds thereof,
        as
        fully and effectually as if the Bank were the absolute owner thereof,
        and

       

      (d)  to
        extend
        the time of payment of any or all thereof and to make any allowance or other
        adjustment with reference thereto;

       

      provided
        that, except in the case of Collateral that is perishable or threatens to
        decline speedily in value or is of a type customarily sold on a recognized
        market, the Bank will give the relevant Debtor ten (10) days’ prior written
        notice of the time and place of any public sale thereof or the time after
        which
        any private sale or other intended disposition thereof will be made, and
        Debtor
        hereby agrees that such notice shall be deemed reasonable.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      

       

      11.  Limitation
        on Duty in Respect of Collateral.
        Beyond
        the exercise of reasonable care in the custody and preservation thereof,
        the
        Bank will have no duty as to any Collateral in its possession or control
        or in
        the possession or control of any sub-agent or bailee or any income therefrom
        or
        as to the preservation of rights against prior parties or any other rights
        pertaining thereto. The Bank will be deemed to have exercised reasonable
        care in
        the custody and preservation of the Collateral in its possession or control
        if
        such Collateral is accorded treatment substantially equal to that which it
        accords its own property, and will not be liable or responsible for any loss
        or
        damage to any Collateral, or for any diminution in the value thereof, by
        reason
        of any act or omission of any sub-agent or bailee selected by the Bank in
        good
        faith or by reason of any act or omission by the Bank, except to the extent
        that
        such liability arises from the Bank’s gross negligence or willful
        misconduct.

       

      To
        the
        extent that applicable law imposes duties on the Bank to exercise remedies
        in a
        commercially reasonable manner, each Debtor acknowledges and agrees that
        it is
        not commercially unreasonable for the Bank: (a) to fail to incur expenses
        deemed
        significant by the Bank to prepare Collateral for disposition or otherwise
        to
        complete raw material or work-in-process into finished goods or other finished
        products for disposition, (b) to fail to obtain third party consents for
        access
        to Collateral to be disposed of, or to obtain or, if not required by other
        law,
        to fail to obtain governmental or third party consents for the collection
        or
        disposition of Collateral to be collected or disposed of, (c) to fail to
        exercise collection remedies against Account Debtors or other Persons obligated
        on Collateral or to remove Liens on or any adverse claims against Collateral,
        (d) to exercise collection remedies against Account Debtors and other Persons
        obligated on Collateral directly or through the use of collection agencies
        and
        other collection specialists, (e) to advertise dispositions of Collateral
        through publications or media of general circulation, whether or not the
        Collateral is of a specialized nature, (f) to contact other Persons, whether
        or
        not in the same business as such Debtor, for expressions of interest in
        acquiring all or any portion of the Collateral, (g) to hire one or more
        professional auctioneers to assist in the disposition of Collateral, whether
        or
        not the collateral is of a specialized nature, (h) to dispose of Collateral
        by
        utilizing Internet sites that provide for the auction of assets of the types
        included in the Collateral or that have the reasonable capability of doing
        so,
        or that match buyers and sellers of assets, (i) to dispose of assets in
        wholesale rather than retail markets, (j) to disclaim disposition warranties,
        including, without limitation, any warranties of title, (k) to purchase
        insurance or credit enhancements to insure the Bank against risks of loss,
        collection or disposition of Collateral, or to provide to the Bank a guaranteed
        return from the collection or disposition of Collateral, or (l) to the extent
        deemed appropriate by the Bank, to obtain the services of other brokers,
        investment bankers, consultants and other professionals to assist the Bank
        in
        the collection or disposition of any of the Collateral. Each Debtor acknowledges
        that the purpose of this Section is to provide non-exhaustive indications
        of
        what actions or omissions by the Bank would not be commercially unreasonable
        in
        the Bank’s exercise of remedies against the Collateral and that other actions or
        omissions by the Bank shall not be deemed commercially unreasonable solely
        on
        account of not being indicated in this Section. Without limitation upon the
        foregoing, nothing contained in this Section shall be construed to grant
        any
        right to a Debtor or to impose any duties on the Bank that would not have
        been
        granted or imposed by this Agreement or by applicable law in the absence
        of this
        Section.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      

       

      12.  General.

       

      (a)  All
        notices, requests, demands, directions and other communications (as used
        in this
Section
        12,
        collectively referred to as “notices”) given to or made upon any party hereto
        under the provisions of this Agreement shall be in writing (including facsimile
        communication) unless otherwise expressly permitted hereunder and shall be
        delivered or sent by facsimile or via nationally-recognized overnight courier,
        by hand or U.S. mail to the respective parties at the addresses and numbers
        set
        forth under their respective names on Schedule
        I
        hereof
        (for the Debtors), at the address set forth in the Credit Agreement (for
        the
        Bank) or in accordance with any subsequent unrevoked written direction from
        any
        party to the others delivered pursuant to the requirements of this Section
        12(a). All notices shall, except as otherwise expressly herein provided,
        be
        effective: (a) in the case of facsimile, when received, (b) in the case of
        hand-delivered notice, when hand-delivered, (c) in the case of telephonic
        notice, when telephoned, provided
        however,
        that in order to be effective, telephonic notices must be confirmed in writing
        no later than the next Business Day by letter or facsimile, (d) if given
        by
        mail, four (4) days after such communication is deposited in the mail with
        first-class postage prepaid, return receipt requested, and (d) if given by
        any
        other means (including by air courier), when delivered; provided,
        that
        any notices to the Bank shall not be effective until received. 

       

      (b)  Each
        of
        the Debtors agrees to pay all expenses, including reasonable attorney’s fees and
        charges (including time charges of attorneys who are employees of the Bank)
        paid
        or incurred by the Bank or any Lender Party in endeavoring to collect the
        Liabilities of such Debtor, or any part thereof, and in enforcing this Agreement
        against such Debtor, and such obligations will themselves be
        Liabilities.

       

      (c)  No
        delay
        on the part of the Bank in the exercise of any right or remedy shall operate
        as
        a waiver thereof, and no single or partial exercise by the Bank of any right
        or
        remedy shall preclude other or further exercise thereof or the exercise of
        any
        other right or remedy.

       

      (d)  This
        Agreement shall remain in full force and effect until all Liabilities have
        been
        paid in full and all Commitments have terminated. If at any time all or any
        part
        of any payment theretofore applied by the Bank or any Lender Party to any
        of the
        Liabilities is or must be rescinded or returned by the Bank or such Lender
        Party
        for any reason whatsoever (including the insolvency, bankruptcy or
        reorganization of any Debtor), such Liabilities shall, for the purposes of
        this
        Agreement, to the extent that such payment is or must be rescinded or returned,
        be deemed to have continued in existence, notwithstanding such application
        by
        the Bank or such Lender Party, and this Agreement shall continue to be effective
        or be reinstated, as the case may be, as to such Liabilities, all as though
        such
        application by the Bank or such Lender Party had not been made.

       

      (e)  This
        Agreement shall be construed in accordance with and governed by the laws
        of the
        State of Illinois applicable to contracts made and to be performed entirely
        within such State, without regard to conflict of laws principles. Whenever
        possible, each provision of this Agreement shall be interpreted in such manner
        as to be effective and valid under applicable law, but if any provision of
        this
        Agreement shall be prohibited by or invalid under applicable law, 

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      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 Agreement.

       

      (f)  The
        rights and privileges of the Bank hereunder shall inure to the benefit of
        its
        successors and assigns.

       

      (g)  This
        Agreement may be executed in any number of counterparts and by the different
        parties hereto on separate counterparts, and each such counterpart shall
        be
        deemed to be an original, but all such counterparts shall together constitute
        one and the same Agreement. At any time after the date of this Agreement,
        one or
        more additional Persons may become parties hereto by executing and delivering
        to
        the Bank a counterpart of this Agreement together with supplements to the
        Schedules hereto setting forth all relevant information with respect to such
        party as of the date of such delivery. Immediately upon such execution and
        delivery (and without any further action), each such additional Person will
        become a party to, and will be bound by all the terms of, this
        Agreement.

       

      (h)  EACH
        LOAN
        PARTY HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE
        CIRCUIT COURT OF COOK COUNTY, ILLINOIS AND THE UNITED STATES DISTRICT COURT
        FOR
        THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION, AND WAIVES PERSONAL
        SERVICE
        OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS
        BE
        MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH LOAN PARTY AT THE
        ADDRESSES PROVIDED FOR IN SCHEDULE
        I
        AND
        SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
        EACH LOAN PARTY WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION
        INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE
        BASED ON LACK OF JURISDICTION OR VENUE. EACH DEBTOR AND THE BANK HEREBY WAIVE
        TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND
        ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE
        COLLATERAL TO THE FULL EXTENT PERMITTED BY LAW. 

       

      

       

      [SIGNATURE
        PAGES FOLLOW]

      
 

      
      

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      [SIGNATURE
        PAGE - SECURITY AGREEMENT]

      

       

      IN
        WITNESS WHEREOF, this Agreement has been duly executed as of the day and
        year
        first above written.

       

      

      DEBTORS:

      

      INTEGRATED
        ALARM SERVICES GROUP, 

      INC.,
        a
        Delaware corporation

      

      

      By:
        /s/
        Timothy M. McGinn     

                
Name:
        Timothy
        M. McGinn   

                        Title:
        Chairman
        & CEO    

       

      

      

      CRITICOM
        INTERNATIONAL CORPORATION,

      a
        New
        Jersey corporation

      

      

      By:
        /s/
        Timothy M. McGinn      

      Name:
        Timothy
        M. McGinn   

      Title:
        Authorized
        Person   

      

      

      

      MONITAL
        SIGNAL CORPORATION,

      a
        New
        Jersey corporation

      

      

      By:
        /s/
        Timothy M. McGinn     

      Name:
        Timothy
        M. McGinn   

      Title:
        Authorized
        Person   

      

      

      

      

      INTEGRATED
        ALARM SERVICES, INC.,

      a
        Delaware corporation

      

      

      By:
        /s/
        Timothy M. McGinn     

      Name:
        Timothy
        M. McGinn   

      Title:
        Chairman
        & CEO   

      
        
          
          

        

        
          S-1

          
            

          

        

        
          
          

        

      

      

      

      

      

      

      PAYNE
        SECURITY GROUP L.L.C.,

      a
        New
        Jersey limited liability company

      

      

      By:
        /s/
        Timothy M. McGinn     

      Name:
        Timothy
        M. McGinn   

      Title:
        Manager    

      

      

      

      AMERICAN
        HOME SECURITY, INC.,

      a
        Nevada
        corporation

      

      

      By:
        /s/
        Timothy M. McGinn      

      Name:
        Timothy
        M. McGinn   

      Title:
        Authorized
        Person   

      

      

      

      BANK:

      

      LASALLE
        BANK N.A., 

       a
        national banking association

      

      

      By:
               

      Name:
              

      Title:
              

      

      

      

      
        
          
          

        

        
          S-2

          
            

          

        

        
          
          

        

      

      

      
      

      SCHEDULE
        I

      

      (To
        Be Completed by Borrower)

      

      

      

      

      CHIEF
        EXECUTIVE OFFICES AND ADDRESSES OF DEBTORS

       

      

      

      
        	1.  	
                [Name
                  of Borrower]

              

      

      

      

      Chief
        Executive Office:

      

      

      

      Other
        Business Locations:

      

      

      

      

      

       

      
      

      
        
          
            

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      SCHEDULE
        II

       

      (To
        Be Completed by Borrower)

      

      

      

      

      STATE
        OF INCORPORATION OR ORGANIZATION FOR EACH DEBTOR

       

      

      

      Information
        Required:

       

      

      Exact
        Legal Name:     [Name
        of Borrower]

      

      State
        or
        Organization:     [_____________]

      

      Type
        of
        Organization:     [_____________________________]

      

      Organizational
        I.D. Number:         [________]

      

      Federal
        Employer Identification Number:      [_________]

      

      Place
        of
        Business (or, if more 

      than
        one,
        the Chief Executive Office):    [______________________________]

                        [______________________________]
                          [______________________________]

      

       

      
      

      
        
          
            

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

       

      SCHEDULE
        III

       

      (To
        Be Completed by Borrower)

      

      

      

      

      

      DBAs:

      

      

      

      
      

      
        
          
            

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

      SCHEDULE
        IV

       

      (To
        Be Completed by Borrower)

      

      

      

      

      INTELLECTUAL
        PROPERTY

       

      

      

      

      TRADEMARKS:

       

      

      Trademarks
        and service mark owned by or licensed to [_______________________]:

       

      

      

      

      

      PATENTS:

       

      

      (a) Copyrights:

      

      

      

      

      

      

      (b) Internet
        Web-Site Addresses:

      

      

      

      
      

      
        
          
            

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

      SCHEDULE
        V

       

      (To
        Be Completed by Borrower)

      

      

      

      

      

      Instruments:

      
 

      Deposit
        Accounts:

      

       

      

       

      Bank
        Account Information for Borrower

       

      

      Bank   Account
        Description   ABA
        No. Account
        No.

      

      

      

      

      

      

      Investment
        Property:

      

      

      Letter-of-Credit
        Rights:

      

      

      

      Chattel
        Paper:

      

      

      

      Documents:

      

      

      

      Commercial
        Tort Claims:

      

      

      

      
      

      
        
          
            

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

      SCHEDULE
        VI

       

      (To
        Be Completed by Borrower)

      

      

      

      

      COLLATERAL
        NOT LOCATED IN THE UNITED STATES

       

      

      

      

      
      

      
        
          
            

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

      SCHEDULE
        VII

       

      (To
        Be Completed by Borrower)

      

      

      

      

      

      COLLATERAL
        LOCATED WITH THIRD PARTIES

       

      

      Alarm
        panels, devices and other alarm related equipment that is currently installed
        at
        customer locations pursuant to numerous service agreements. As of [____________],
        the
        depreciated value of such Collateral totaled approximately [$___________].

      

      

      

      

      

      
      

      
        
          
            

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

      SCHEDULE
        VIII

       

      (To
        Be Completed by Borrower)

      

      

      

      

      COLLATERAL
        SUBJECT TO CERTIFICATE OF TITLE STATUTE

       

      

      

      

      
        	
                 

                 

                 

                 

                Title
                  Owner

                 

              	
                 

                 

                 

                 

                VEH
                  #

                 

              	
                 

                 

                 

                 

                Garage
                  Location

                 

              	
                 

                 

                 

                 

                Year

                 

              	
                 

                 

                 

                 

                Make

                 

              	
                 

                 

                 

                 

                Model

                 

              	
                 

                 

                 

                 

                VIN
                  #

                 

              	
                 

                 

                 

                 

                Lic.
                  #

                 

              	
                 

                 

                 

                O
                  = Own

                NP
                  = FMCC

                 

              
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 

      

      

      

      

      
      

      
        
          
            

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

      SCHEDULE
        IX

       

      (To
        Be Completed by Borrower)

      

      

      

      

      LIST
        OF DEPOSIT ACCOUNTS

       

      

      

      

      
        	
                 

                 

                 

                 

                Owner

                 

              	
                 

                 

                 

                 

                Bank

                 

              	
                 

                 

                 

                 

                Account
                  Description

                 

              	
                 

                 

                 

                 

                ABA
                  No.

                 

              	
                 

                 

                 

                 

                Account
                  No.

                 

              
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

      

      

      

      

      
      

      
        
          
            

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

      SCHEDULE
        2(E)

       

      (To
        Be Completed by Borrower)

      

      

      

      

      COMMERCIAL
        TORT CLAIMS

      

      

      (Provide
        a specific description of commercial tort claims currently in
        existence

      by
        referring, for example, to a specific incident giving rise to the
        claim.)

      

      

      
      

      
        
          
            

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      ATTACHMENT
        1 TO SCHEDULE 2(E)

      

      

      GRANT
        OF SECURITY INTEREST

      IN
        COMMERCIAL TORT CLAIM

      

      

      

      To: LaSalle
        Bank N.A. with respect to the

      Security
        Agreement described below.

      

      Pursuant
        to the terms of the Security Agreement dated as of October __, 2004,
        among us (the “Security Agreement”), we submit this Grant of Security Interest
        in Commercial Tort Claim to you and certify that the information set forth
        below
        is true, correct and complete as of the date hereof. Capitalized terms used
        herein and not otherwise defined shall have the meanings set forth in the
        Security Agreement.

       

      We
        hereby
        notify you of and grant to the Bank, as collateral security for the Liabilities,
        a lien on and security interest in, and right of set-off against, and
        acknowledge and agree that the Bank has and shall continue to have for the
        benefit of the Lender Parties a continuing lien on and security interest
        in, and
        right of set-off against, all right, title, and interest, whether now owned
        or
        existing or hereafter created, acquired or arising, in and to the following
        Commercial Tort Claim:

       

      [Insert
        a specific description for the commercial tort claim, followed by the words
        “together with any and all proceeds and products thereof and all insurance
        relating thereto and the proceeds thereof”.]

       

      The
        Commercial Tort Claim, proceeds and products and insurance described herein
        shall henceforth be included as part of the Collateral as described in the
        Security Agreement and the other Loan Documents.

       

      

       

      DATED:

       

      Very
        truly yours,

      INTEGRATED
        ALARM SERVICES GROUP, INC.

       [or
        Applicable Debtor]

      

      

      By:
        /s/
        Timothy M. McGinn  

      Name:
        Timothy
        M. McGinn   

      Title:
        Chairman
        & CEOEX-4.4

    
      

      

    

    

      NOTES
        SECURITY AGREEMENT

       

      

       

      THIS
        NOTES SECURITY AGREEMENT (this "Agreement"),
        dated
        as of November 16, 2004, made by each of the signatories hereto as Debtors
        (together with any other entity that may become a party hereto as provided
        herein, the "Debtors"),
        in
        favor of Wells Fargo Bank, N.A., as collateral trustee (in such capacity,
        the
        "Collateral
        Trustee")
        for
        the benefit of the Secured Parties (as defined below). 

       

      WITNESSETH:

      

      WHEREAS,
        the Debtors have entered into an Indenture dated as of November 16, 2004
        (as it
        may be amended, amended and restated, supplemented or otherwise modified
        from
        time to time, the "Indenture")
        with
        Wells Fargo Bank, N.A., as trustee (in such capacity, the "Trustee"),
        pursuant to which Integrated Alarm Services Group, Inc., a Delaware corporation
        (the "Company"),
        has
        authorized the issuance of its 12% Senior Secured Notes due 2011 (as such
        notes
        may hereafter be amended, amended and restated, supplemented or otherwise
        modified from time to time, the "Notes");

       

      WHEREAS,
        pursuant to the Indenture, each Debtor (other than the Company) has
        unconditionally and irrevocably guaranteed, jointly and severally, to each
        holder of the Notes (the "Holders")
        and to
        the Trustee and its successors and assigns the full and punctual payment
        and
        performance of the Guaranteed Obligations (as defined in the Indenture);
        

       

      WHEREAS,
        pursuant to the Indenture, each Debtor is entering into this Agreement in
        order
        to grant to the Collateral Trustee for the ratable benefit of the Holders,
        the
        Collateral Trustee and the Trustee (collectively, the "Secured
        Parties")
        a
        security interest in the Collateral (as defined below); and 

       

      WHEREAS,
        the Notes will be issued in reliance on each Debtor's execution and delivery
        of
        this Agreement to the Collateral Trustee; 

       

      NOW,
        THEREFORE, in consideration of premises and mutual covenants contained in
        the
        Indenture and for other good valuable consideration, the receipt and sufficiency
        of which are hereby acknowledged, each Debtor hereby agrees with the Collateral
        Trustee, for the benefit of the Secured Parties, as follows:

       

      1.  Definitions.
        When
        used herein: (a) the terms Account,
        Account
        Debtor,
        Certificated
        Security,
        Chattel
        Paper,
        Commercial
        Tort Claim,
        Deposit
        Account,
        Document,
        Electronic
        Chattel Paper,
        Equipment,
        Financial
        Asset,
        Fixtures,
        Goods,
        Inventory,
        Instrument,
        Investment
        Property,
        Letter-of-Credit
        Rights,
        Payment
        Intangibles,
        Proceeds,
        Security,
        Security
        Entitlement,
        Supporting
        Obligations
        and
Uncertificated
        Security
        have the
        respective meanings assigned thereto in the UCC (as defined below);
        (b) capitalized terms which are not otherwise defined have the respective
        meanings assigned thereto in the Indenture; and (c) the following
        terms
        have the following meanings (such definitions to be applicable to both the
        singular and plural forms of such terms):

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Agent
        means
        LaSalle Bank National Association in its capacity as the "Agent" under the
        Credit Agreement, together with any successors and permitted assigns.

       

      Alarm
        Contract
        shall
        have the meaning set forth in the Indenture

       

      Collateral
        shall
        have the meaning assigned to such term in Section 2.

       

      Collateral
        Assignment of Life Insurance
        shall
        mean, collectively, those forms of collateral assignment of life insurance
        policies provided by the applicable insurance companies in respect of the
        key
        man life insurance policies issued on the lives of McGinn and Few. 

       

      Computer
        Hardware
        means,
        with respect to any Debtor, all of such Debtor's rights (including rights
        as
        licensee and lessee) with respect to computer and other electronic data
        processing hardware, including all integrated computer systems, central
        processing units, memory units, display terminals, printers, computer elements,
        card readers, tape drives, hard and soft disk drives, cables, electrical
        supply
        hardware, generators, power equalizers, accessories, peripheral devices and
        other related computer hardware.

       

      Computer
        Software
        means:
        (i) all software programs designed for use on Computer Hardware, including
        all
        operating system software, utilities and application programs in whatsoever
        form
        (source code and object code in magnetic tape, disk or hard copy format or
        any
        other listings whatsoever); (ii) any firmware associated with any of the
        foregoing; and (iii) any documentation for Computer Hardware, and for software
        and firmware described in clauses (i) and (ii) above, including flow charts,
        logic diagrams, manuals, specifications, training materials, charts and pseudo
        codes.

       

      Copyright
        Licenses
        means
        any written agreement naming the Company or any Guarantor as licensor or
        licensee granting any right under any Copyright, including, without limitation,
        the grant of rights to manufacture, distribute, exploit and sell materials
        derived from any Copyright.

       

      Credit
        Agreement
        means
        the Credit Agreement, dated as of November 16, 2004, among the Company,
        Criticom International Corporation, Monital Signal Corporation, Integrated
        Alarm
        Services, Inc., Payne Security Group, L.L.C., American Home Security, Inc.,
        various financial institutions from time to time parties thereto and the
        Agent,
        as the same may be amended, supplemented, amended and restated or otherwise
        modified from time to time. 

       

      Event
        of Default
        means
        the occurrence of any Event of Default under Section 6.01 of the
        Indenture.

       

      Excluded
        Assets
        means
        the collective reference to: (i) any Intangible Asset, in each case only
        to the
        extent that the grant by the relevant Debtor of a security interest pursuant
        to
        this Agreement in such Debtor's right, title and interest in such Intangible
        Asset (A) is prohibited by legally enforceable provisions of any contract,
        agreement, instrument or indenture governing such Intangible Asset, (B) would
        give any other party to such contract, agreement, instrument or indenture
        a
        legally enforceable right to terminate its obligations thereunder, or (C)
        is
        permitted with the consent of another party, if the requirement to obtain
        such
        consent is legally enforceable and such consent has not been obtained;
provided
        that in
        any event any Receivable or any money or other amounts due or to become due
        under any such contract, agreement, instrument, indenture or Intangible Asset
        shall not be Excluded Assets to the extent that any of the foregoing is (or
        if
        it contained a provision limiting the transferability or pledge thereof would
        be) rendered ineffective by Section 9-406 of the UCC; and (ii) any Foreign
        Subsidiary Voting Stock excluded from the definition of "Pledged Collateral"
        (each as defined in the Pledge Agreement).

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      Few
        means
        Thomas J. Few, Sr. 

       

      General
        Intangibles
        means,
        with respect to any Debtor, all of such Debtor's "general intangibles" as
        defined in the UCC and, in any event, includes (without limitation) all of
        such
        Debtor's trademarks, trade names, patents, copyrights, trade secrets, customer
        lists, inventions, designs, Computer Software, goodwill, registrations,
        licenses, franchises, tax refund claims, guarantee claims, Payment Intangibles,
        security interests, books and records related to the Collateral and the Pledged
        Collateral (as defined in the Pledge Agreement) and rights to
        indemnification.

       

      Intangible
        Assets
        means
        any contract, General Intangible, Copyright License, Patent License or Trademark
        License.

       

      Intellectual
        Property
        means
        all past, present and future: (i) trade secrets and other proprietary
        information; (ii) trademarks, service marks, business names, Internet domain
        names, designs, logos, trade dress, slogans, indicia and other source and/or
        business identifiers, and the goodwill of the business relating thereto and
        all
        registrations or applications for registrations which have heretofore been
        or
        may hereafter be issued thereon throughout the world; (iii) copyrights
        (including copyrights for computer programs and software) and copyright
        registrations or applications for registrations which have heretofore been
        or
        may hereafter be issued throughout the world and all tangible property embodying
        the copyrights; (iv) unpatented inventions (whether or not patentable); (v)
        patent applications and patents; (vi) industrial designs, industrial design
        applications and registered industrial designs; (vii) license agreements
        related
        to any of the foregoing and income therefrom; (viii) books, records, writings,
        computer tapes or disks, flow diagrams, specification sheets, source codes,
        object codes and other physical manifestations, embodiments or incorporations
        of
        any of the foregoing; (ix) the right to sue for all past, present and future
        infringements of any of the foregoing; and (x) all common law and other rights
        throughout the world in and to all of the foregoing.

       

      Loan
        Documents
        has the
        meaning ascribed thereto in the Credit Agreement. 

       

      McGinn
        means
        Timothy M. McGinn. 

       

      Organizational
        I.D. Number
        means,
        if applicable with respect to any Debtor, the organizational identification
        number assigned to such Debtor by the applicable governmental unit or agency
        of
        the jurisdiction of organization for such Debtor.

       

      Patent
        License
        means
        all agreements, whether written or oral, providing for the grant by or to
        any
        Debtor of any right to manufacture, use or sell any invention covered in
        whole
        or in part by the Company.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      Receivable
        means
        any right to a monetary payment for goods which have been sold, leased,
        licensed, assigned or otherwise disposed of, or for services which have been
        rendered, whether or not such right is evidenced by an Instrument or Chattel
        Paper and whether or not it has been earned by performance (including, without
        limitation, any Account).

       

      Trademark
        License
        means
        any agreement, whether written or oral, providing for the grant by or to
        any
        Debtor of any right to use any Trademark.

       

      Type
        of Organization
        means,
        with respect to any Debtor, the legal nature (i.e., kind or type of entity)
        of
        such Debtor (e.g., such as a corporation or limited liability
        company).

       

      UCC
        means
        the Uniform Commercial Code as in effect in the State of New York on the
        date of
        this Agreement, as may be amended or modified from time to time; provided
        that, as
        used in Section
        6
        hereof,
        "UCC"
        shall
        mean the Uniform Commercial Code as in effect from time to time in any
        applicable jurisdiction. 

       

      2.  Grant
        of Security Interest.
        As
        security for the payment of all Note Obligations, each Debtor hereby grants
        to
        the Collateral Trustee for the benefit of the Secured Parties a lien on and
        security interest in, and right of set-off against, and acknowledges and
        agrees
        that the Collateral Trustee has and shall continue to have for the benefit
        of
        the Secured Parties, a continuing lien on and security interest in, and right
        of
        set-off against, all right, title, and interest, whether now owned or existing
        or hereafter created, acquired or arising, in and to all of the following
        property of such Debtor (all being collectively referred to herein as the
        "Collateral"):

       

      (a)  Accounts,
        including, but not limited to, periodic and non-periodic payments under or
        in
        connection with Alarm Contracts;

       

      (b)  Certificated
        Securities;

       

      (c)  Chattel
        Paper, including Electronic Chattel Paper;

       

      (d)  Computer
        Hardware and Computer Software and all rights with respect thereto, including
        any and all licenses, options, warranties, service contracts, program services,
        test rights, maintenance rights, support rights, improvement rights, renewal
        rights and indemnifications, and any substitutions, replacements, additions
        or
        model conversions of any of the foregoing;

       

      (e)  Commercial
        Tort Claims, as listed in Schedule 2(e) or in the notice to the Collateral
        Trustee in the form of Attachment 1 to Schedule 2(e);

       

      (f)  Deposit
        Accounts;

       

      (g)  Documents;

       

      (h)  Financial
        Assets;

       

      (i)  General
        Intangibles;

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      (j)  Goods
        (including all of its Equipment, Fixtures and Inventory), and all embedded
        software, accessions, additions, attachments, improvements, substitutions
        and
        replacements thereto and therefor;

       

      (k)  Instruments;

       

      (l)  Intellectual
        Property;

       

      (m)  Investment
        Property;

       

      (n)  Letter-of-Credit
        Rights;

       

      (o)  money
        (of
        every jurisdiction whatsoever);

       

      (p)  Security
        Entitlements;

       

      (q)  Supporting
        Obligations;

       

      (r)  Uncertificated
        Securities;

       

      (s)  To
        the
        extent not included in the foregoing, all other personal property of any
        kind or
        description; 

       

      (t)  Any
        of
        the above property of such Debtor and any interest therein, of any kind or
        description now held by the Collateral Trustee (or a bailee therefor) or
        at any
        time hereafter transferred or delivered to, or coming into the possession,
        custody or control of, the Collateral Trustee (or a bailee therefor), or
        any
        agent or affiliate of the Collateral Trustee (or a bailee therefor), whether
        expressly as collateral security or for any other purpose (whether for
        safekeeping, custody, collection or otherwise), and all dividends and
        distributions on or other rights in connection with any such property; and
        

       

      (v)
         All
        books, records, writings, data bases, information and other property relating
        to, used or useful in connection with, or evidencing, embodying, incorporating
        or referring to any of the foregoing, and all Proceeds, products, offspring,
        rents, issues, profits and returns of and from any of the foregoing.

      

      Notwithstanding
        any other provision of this Agreement, the Collateral shall not include,
        and
        this Section 2 shall not grant any security interest in, any property or
        asset
        to the extent that, and for so long as, it constitutes an Excluded Asset;
        provided
        that (a)
        if at any time such property or asset ceases to be an Excluded Asset, then
        the
        applicable Debtor shall at such time be deemed to have granted a security
        interest in such property or asset in accordance with this Section 2 (as
        applicable to such Debtor) and (b) the right to receive, and any interest
        in,
        all Proceeds of, or monies or other consideration received from or attributable
        to the sale, transfer, assignment or other disposition of, any other Intangible
        Asset shall not constitute Excluded Assets and shall be subject to the security
        interests granted pursuant to this Section 2. 

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      3.  Warranties.
        Each
        Debtor, jointly and severally, warrants that: (a) no financing statement
        other
        than any which may have been filed on behalf of the Collateral Trustee or
        in
        connection with Permitted Liens, or other instrument similar in effect, covering
        all or any part of the Collateral is on file in any public office; (b) such
        Debtor is and will be the lawful owner of all the Collateral, free of all
        Liens
        whatsoever, other than the security interest hereunder and Permitted Liens,
        with
        full power and authority to execute this Agreement and perform such Debtor's
        obligations hereunder, and to subject the Collateral to the security interest
        hereunder; (c) such Debtor's chief executive office and principal place of
        business are as set forth on Schedule
        I
        hereto
        and, except as set forth on Schedule
        I,
        such
        Debtor has not maintained its chief executive office and principal place
        of
        business at any other location at any time during the five years prior to
        the
        date of this Agreement, and each other location where such Debtor maintains
        a
        place of business is also set forth on Schedule
        I
        hereto;
        (d) such Debtor is the Type of Organization stated on Schedule II hereto
        and is
        duly organized, validly existing and in good standing under the laws of the
        state set forth on Schedule
        II
        hereto;
        (e) except as set forth on Schedule
        III
        hereto,
        such Debtor is not now known and during the five years preceding the date
        hereof
        has not previously been known by any trade name; (f) such Debtor's true legal
        name as registered in the jurisdiction in which such Debtor is organized
        or
        incorporated, state of organization or incorporation, organizational
        identification number as designated by the state of its incorporation or
        organization, are as set forth on Schedule
        II
        hereto
        and, except as set forth on Schedule
        III
        hereto,
        during the five years preceding the date hereof, such Debtor has not been
        known
        by any different legal name and nor has such Debtor been the subject of any
        merger or other corporate or partnership reorganization as applicable; (g)
        Schedule
        IV
        hereto
        contains a complete listing of all of such Debtor's Intellectual Property
        which
        is subject to registration statutes; (h) Schedule
        V
        hereto
        contains a complete listing of all of each Debtor's Instruments, Investment
        Property, Letter-of-Credit Rights, Chattel Paper, Documents and Commercial
        Tort
        Claims; (i) except as set forth on Schedule
        VI
        hereto,
        each Debtor has no tangible Collateral located outside of the United States;
        (j)
Schedule
        VII
        hereto
        contains a complete listing of each Debtor's tangible Collateral located
        with
        any bailee, warehousemen or other third parties; (k) Schedule
        VIII
        hereto
        contains a complete listing of all of each Debtor's Collateral which is subject
        to certificate of title statutes; (l) Schedule
        IX
        hereto
        contains a complete listing of all of each Debtor's Deposit Accounts and
        other
        bank accounts, including locations and applicable account numbers; (m) all
        information with respect to the Collateral and the Account Debtors set forth
        in
        any schedule, certificate or other writing at any time heretofore or hereafter
        furnished by such Debtor to the Collateral Trustee is and will be true and
        correct in all material respects as of the date furnished; (n) such Debtor
        is a
        corporation, limited liability company or limited partnership, as applicable,
        duly organized, validly existing and in good standing under the laws of the
        state of its incorporation or organization; (o) the execution and
        delivery
        of this Agreement and the performance by such Debtor of its obligations
        hereunder are within such Debtor's powers as a corporation, limited liability
        company or limited partnership, as applicable, have been duly authorized
        by all
        necessary corporate, limited liability company or limited partnership action,
        as
        applicable, have received all necessary governmental approval (if any shall
        be
        required), and do not and will not contravene or conflict with any provision
        of
        law or of the organizational documents of such Debtor or of any agreement,
        indenture, instrument or other document, or any material judgment, order
        or
        decree, which is binding upon such Debtor; (p) this Agreement is a
        legal,
        valid and binding obligation of such Debtor, enforceable in accordance with
        its
        terms, except that the enforceability of this Agreement may be limited by
        bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer,
        reorganization, moratorium or other similar laws now or hereafter in effect
        relating to creditors' rights generally and by general principles of equity
        (regardless of whether enforcement is sought in a proceeding in equity or
        at
        law); and (q) such Debtor is in compliance with the requirements of all
        applicable laws (including the provisions of the Fair Labor Standards Act),
        rules, regulations and orders of every governmental authority, the
        non-compliance with which would reasonably be expected to have a material
        adverse effect on such Debtor's ability to perform its obligations arising
        hereunder.

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      In
        addition to the above, each Debtor warrants, jointly and severally, and
        covenants that: (i) each Debtor has used, and will continue to use for the
        duration of this Agreement, proper statutory notice in connection with its
        use
        of its
        Intellectual Property;
        and
        (ii) each Debtor shall have the duty to the extent commercially reasonable,
        through counsel acceptable to the Collateral Trustee, to prosecute diligently
        any patent, trademark or copyright applications related to its Intellectual
        Property pending as of the date of this Agreement or thereafter until the
        termination of this Agreement, to make application on unpatented but patenable
        inventions and unregistered but registrable trademarks or service marks and
        copyrights (whenever it is commercially reasonable in the reasonable judgment
        of
        such Debtor to do so) and to preserve and maintain all rights in patent,
        trademark, service mark and copyright applications and registrations of its
        Intellectual Property, including, without limitation, the payment of all
        registration, maintenance and renewal fees. Any expenses incurred in connection
        with such an application or registration shall be borne by such
        Debtor.

       

      4.  Collections,
        etc.
        Until
        such time as the Collateral Trustee shall notify any Debtor of the revocation
        of
        such power and authority, such Debtor may grant, in the ordinary course of
        business, to any party obligated on any of the Collateral, any rebate, refund
        or
        allowance to which such party may be lawfully entitled, and may accept, in
        connection therewith, the return of Goods, the sale or lease of which shall
        have
        given rise to such Collateral. Until such time during the existence of an
        Event
        of Default as the Collateral Trustee shall notify any Debtor of the revocation
        of such power and authority, such Debtor: (a) may, in the ordinary course
        of its
        business, at its own expense, sell, lease or furnish under contracts of service
        any of the Inventory normally held by such Debtor for such purpose, use and
        consume in the ordinary course of its business, any raw materials, work in
        process or materials normally held by such Debtor for such purpose, and use
        in
        the ordinary course of its business (but subject to the terms of the Indenture),
        the cash proceeds of the Collateral and other money which constitutes the
        Collateral; and (b) will, at its own expense, use its best reasonable efforts
        to
        collect, as and when due, all amounts due under any of the Collateral, including
        the taking of such action with respect to such collection as the Collateral
        Trustee may request or, in the absence of such request, as such Debtor may
        deem
        advisable in accordance with good business practices. 
        The
        Collateral Trustee, however, may, at any time that an Event of Default exists,
        whether before or after any revocation of such power and authority or the
        maturity of any of the Note Obligations, subject to the provisions set forth
        in
        the Intercreditor Agreement, notify an Account Debtor or other Person obligated
        on the Collateral to make payment or otherwise render performance to or for
        the
        benefit of the Collateral Trustee (or a bailee therefor) and enforce, by
        suit or
        otherwise, the obligations of an Account Debtor or other Person obligated
        on the
        Collateral and exercise the rights of such Debtor with respect to the obligation
        of the Account Debtor or other Person obligated on the Collateral to make
        payment or otherwise render performance to the Debtor, and with respect to
        any
        property that secures the obligations of the Account Debtor or other Person
        obligated on the Collateral. In connection with the exercise of such rights
        and
        remedies, the Collateral Trustee may surrender, release or exchange all or
        any
        part thereof, or compromise or extend or renew for any period (whether or
        not
        longer than the original period) any indebtedness thereunder or evidenced
        thereby. Subject to the provisions of the Intercreditor Agreement, upon the
        request of the Collateral Trustee during the existence of an Event of Default,
        each Debtor will, at its own expense, immediately notify any or all parties
        obligated on any of the Collateral to make payment to the Collateral Trustee
        of
        any amounts due or to become due thereunder.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      Subject
        to the provisions of the Intercreditor Agreement, upon request by the Collateral
        Trustee during the existence of an Event of Default, each Debtor will forthwith
        upon receipt, transmit and deliver to the Collateral Trustee, in the form
        received, all cash, checks, drafts and other instruments or writings for
        the
        payment of money (properly endorsed, where required, so that such items may
        be
        collected by the Collateral Trustee) which may be received by such Debtor
        at any
        time in full or partial payment or otherwise as proceeds of any of the
        Collateral. Except as the Collateral Trustee may otherwise consent in writing,
        any such items which may be so received by any Debtor will not be commingled
        with any other of its funds or property, but will be held separate and apart
        from its own funds or property and upon express trust for the Collateral
        Trustee
        until delivery is made to the Collateral Trustee. Each Debtor will comply
        with
        the terms and conditions of any consent given by the Collateral Trustee pursuant
        to the foregoing sentence.

       

      The
        Collateral Trustee (or any designee of the Collateral Trustee or any bailee
        of
        the Collateral Trustee) is authorized to endorse, in the name of the applicable
        Debtor, any item, howsoever received by the Collateral Trustee, representing
        any
        payment on or other Proceeds of any of the Collateral.

       

      5.  Certificates,
        Schedules and Reports.
        Each
        Debtor will from time to time, as the Collateral Trustee may request, deliver
        to
        the Collateral Trustee (or a bailee therefor) such schedules, certificates
        and
        reports respecting all or any of the Collateral at the time subject to the
        security interest hereunder, and the items or amounts received by such Debtor
        in
        full or partial payment of any of the Collateral, as the Collateral Trustee
        may
        reasonably request. Any such schedule, certificate or report shall be executed
        by an authorized officer of such Debtor and shall be in such form and detail
        as
        the Collateral Trustee may specify. 

       

      6.  Agreements
        of the Debtors.
        Each
        Debtor: (a) hereby irrevocably authorizes the Collateral Trustee at any time,
        and from time to time, to file in any jurisdiction, any initial financing
        statements and amendments thereto that: (i) indicate the Collateral as all
        assets of such Debtor or words of similar effect, regardless of whether any
        particular asset comprised in the Collateral falls within the scope of Article
        9
        of the UCC of the jurisdiction wherein such financing statement or amendment
        is
        filed and (ii) contain any other information required by Article 9 of the
        UCC of
        the jurisdiction wherein such financing statement or amendment is filed
        regarding the sufficiency or filing office acceptance of any financing statement
        or amendment, including (x) whether such Debtor is an organization, the Type
        of
        Organization, the Organization ID Number or Federal Employer Identification
        Number issued to such Debtor and (y) in the case of a financing statement
        filed
        as a fixture filing or indicating the Collateral to be extracted collateral,
        a
        sufficient description of real property to which the 

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

         

        Collateral
          relates; (b) shall keep all its Inventory at, and will not maintain any
          place of
          business at, any location other than its address(es) shown on Schedule
          I
          hereto
          (or any amendment thereto); (c) shall keep its records concerning the Collateral
          in such a manner as will enable the Collateral Trustee or its designees
          to
          readily determine at any time the status of the Collateral; (d) shall furnish
          the Collateral Trustee such information concerning such Debtor, the Collateral
          and the Account Debtors as the Collateral Trustee may from time to time
          reasonably request; (e) shall permit the Collateral Trustee and its designees,
          in accordance with the provisions of the Indenture, to inspect such Debtor's
          Inventory and other Goods, and to inspect, audit and make copies of and
          extracts
          from all records and other papers in the possession of such Debtor pertaining
          to
          the Collateral and the Account Debtors, and shall, upon request of the
          Collateral Trustee during the existence of an Event of Default, subject
          to the
          provisions set forth in the Intercreditor Agreement, immediately deliver
          to the
          Collateral Trustee all of such records and papers; (f) shall, upon request
          of
          the Collateral Trustee, stamp on its records concerning the Collateral,
          and add
          on all Chattel Paper and Instruments constituting a portion of the Collateral,
          a
          notation, in form satisfactory to the Collateral Trustee, of the security
          interest of the Collateral Trustee hereunder; (g) except for the
          sale or
          lease of Inventory in the ordinary course of its business, sales of Equipment
          which is no longer used or useful in its business or which is being replaced
          by
          similar Equipment or any other sale of the Collateral permitted under
          Section 4.10 of the Indenture, shall not sell, lease, assign, create
          or
          permit to exist any Lien on any Collateral, other than Permitted Liens;
          (h)
          shall take such actions as are reasonably necessary to keep its Goods in
          good
          repair and condition (ordinary wear and tear excepted); (i) shall take
          all such
          actions as are reasonably necessary to keep its Equipment in good repair
          and
          condition and in good working order, ordinary wear and tear excepted; (j)
          shall,
          except to the extent otherwise permitted under the Indenture, promptly
          pay when
          due all license fees, registration fees, taxes, assessments and other charges
          which may be levied upon or assessed against the ownership, operation,
          possession, maintenance or use of its Equipment and other Goods; (k) shall
          (x)
          cause to be noted on the applicable certificate, in the event any of its
          Equipment is covered by a certificate of title, the security interest of
          the
          Collateral Trustee in the Equipment covered thereby, and (y) deliver all
          such
          certificates to the Collateral Trustee or its designees; (l) shall take
          all
          steps necessary to protect, preserve and maintain all of its rights in
          the
          Collateral; (m) except as listed on Schedule
          VI,
          shall
          keep all of the tangible Collateral in the United States of America; (n)
          shall
          promptly notify the Collateral Trustee in writing upon acquiring or otherwise
          obtaining any Collateral after the date hereof consisting of Deposit Accounts,
          Investment Property, Letter-of-Credit Rights or Electronic Chattel Paper
          not
          listed on the Schedules hereto and, upon the request of the Collateral
          Trustee,
          shall promptly execute such other documents, and do such other acts or
          things
          deemed appropriate by the Collateral Trustee to deliver to the Collateral
          Trustee (or a bailee therefor) control with respect to such Collateral;
          (o) shall promptly notify the Collateral Trustee in writing upon
          acquiring
          or otherwise obtaining any Collateral after the date hereof consisting
          of
          Documents or Instruments and, upon the reasonable request of the Collateral
          Trustee, shall promptly execute such other documents, and do such other
          acts or
          things necessary to deliver to the Collateral Trustee (or a bailee therefor)
          possession of such Documents which are negotiable and Instruments, and,
          with
          respect to nonnegotiable Documents, to have 

         

        
          
            
            

          

          
            9

            
              

            

          

          
            
            

          

        

         

        such
          nonnegotiable Documents issued in the name of the Collateral Trustee (or
          a
          bailee therefor); (p) with respect to the Collateral in the possession
          of a
          third party, other than Certificated Securities, Goods covered by a Document,
          or
de
          minimis
          portions
          of the Collateral temporarily in the possession of another in the ordinary
          course of such third party's business, including as described on Schedule
          VII,
          shall
          obtain an acknowledgment from the third party that it is holding the Collateral
          for benefit of the Collateral Trustee; (q) shall promptly notify the Collateral
          Trustee in writing upon incurring or otherwise obtaining a Commercial Tort
          Claim
          against any third party, and, upon the request of the Collateral Trustee,
          shall
          promptly enter into an amendment to this Agreement, and do such other acts
          or
          things deemed appropriate by the Collateral Trustee to give the Collateral
          Trustee a security interest in such Commercial Tort Claim; (r) shall execute
          and
          deliver to the Collateral Trustee (or a bailee therefor) such documents
          and take
          other action as requested by the Collateral Trustee to insure the attachment,
          perfection and second priority (or, after the Discharge of First Priority
          Claims
          (as defined in the Intercreditor Agreement), first priority) of, and the
          ability
          of the Collateral Trustee to enforce, free and clear of all Liens and claims
          and
          rights of third parties whatsoever (except Permitted Liens), the security
          interests in any and all of the Collateral including, without limitation,
          (i)
          complying with any provision of any statute, regulation or treaty of the
          United
          States as to any Collateral if compliance with such provision is a condition
          to
          attachment, perfection or priority of, or ability of the Collateral Trustee
          to
          enforce, the security interests in such Collateral, (ii) obtaining governmental
          and other third party consents and approvals, including, without limitation,
          any
          consent of any licensor, lessor or other Person obligated on the Collateral,
          (iii) obtaining waivers from mortgagees and landlords in form and substance
          satisfactory to the Collateral Trustee, (iv) taking all actions required
          by the
          UCC in effect from time to time or by other law, as applicable in any relevant
          UCC jurisdiction, or by other law as applicable in any foreign jurisdiction
          and
          (v) within 60 days after the Issue Date, (A) cause to be delivered to the
          Collateral Trustee and its counsel, certified copies of Uniform Commercial
          Code
          Requests for Information or Copies (Form UCC-11), or a similar search report
          certified by a party reasonably acceptable to the Collateral Trustee, dated
          a
          date reasonably near to the Issue Date, listing all effective financing
          statements which name each Debtor (under their present names and any previous
          names) as debtor and which are filed in the jurisdictions in which filings
          are
          to be made pursuant to the Second Priority Documents (as well as in all
          jurisdictions in which filings could have been made against any Debtor
          under any
          version of the Uniform Commercial Code in effect prior to July 1, 2001),
          together with copies of such financing statements and (B) use its best
          efforts
          to provide to the Collateral Trustee and its counsel executed copies of
          proper
          Uniform Commercial Code Form UCC-3 termination statements (or, in lieu
          thereof,
          written authorization sufficient under Section 9-509(d)(1) of the Uniform
          Commercial Code from each secured party of record authorizing the Collateral
          Trustee or the appropriate Debtor to file such termination statements),
          if any,
          necessary to release all Liens and other rights of any Person in any collateral
          previously granted by any Person, in each case other than Permitted Liens
          (determined without giving effect to clause (6) of the definition thereof
          in
          Section 1.01 of the Indenture, except (x) to the extent any such Lien relates
          to
          the Company's $5,500,000 9% Secured Convertible Promissory Notes due 2005
          outstanding on the Issue Date, (y) for Liens on the assets of Payne Security
          Group, L.L.C. ("Payne")
          securing the term loans of Payne outstanding on the Issue Date under the
          Credit
          Agreement dated as of December 28, 2001 between Payne and LaSalle Bank
          N.A. and
          (z) for Liens relating to Capital Lease Obligations or purchase money
          obligations incurred in the ordinary course of business and outstanding
          on the
          Issue Date, provided that such Liens are limited to the assets financed
          thereby
          and proceeds of such assets); (s) shall not change its state of incorporation
          or
          organization or Type of Organization and will not change its legal name
          without
          providing the Collateral Trustee with at least 30 days' prior written notice;
          and (t) shall pay and discharge or otherwise satisfy at or before maturity
          or
          before they become delinquent, as the case may be, all taxes, assessments
          and
          governmental charges or levies imposed upon the Collateral or in respect
          of
          income or profits therefrom, as well as all claims of any kind (including,
          without limitation, claims for labor, materials and supplies) against or
          with
          respect to the Collateral, except that no such charge need be paid if the
          amount
          or validity thereof is currently being contested in good faith by appropriate
          proceedings, reserves in conformity with GAAP with respect thereto have
          been
          provided on the books of such Debtor and such proceedings could not reasonably
          expected to result in the sale, forfeiture or loss of any material portion
          of
          the Collateral or any interest therein. 

      

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      In
        addition, each Debtor shall maintain, and cause each of its Subsidiaries
        to
        maintain, insurance covering its properties and assets against loss or damage
        by
        fire and against such other insurable hazards as such assets are commonly
        insured (including fire, extended coverage, property damage, workers'
        compensation, public liability and business interruption insurance) and against
        other risks (including errors and omissions) in such amounts as similar
        properties and assets are insured by prudent companies in similar circumstances
        carrying on similar businesses, and with reputable and financially sound
        insurers, including self-insurance to the extent customary. At the request
        of
        the Collateral Trustee, each Debtor shall deliver to the Collateral Trustee
        (x)
        on the Closing Date and annually thereafter an original certificate of insurance
        signed by such Debtor's independent insurance broker describing and certifying
        as to the existence of the insurance on the Collateral required to be maintained
        by this Agreement and the other Collateral Documents, together with a copy
        of
        the endorsement described in the next sentence attached to such certificate
        and
        (y) from time to time a summary schedule indicating all insurance then in
        force
        with respect to such Debtor. Each Debtor shall deliver to the Collateral
        Trustee
        such policies of insurance containing special endorsements (to the extent
        provided to the Agent in the cases of clauses (iii), (iv), (v), (vi), (viii)
        and
        (ix)), which shall (i) specify the Collateral Trustee as an additional insured,
        mortgagee and lender loss payee as its interests may appear, with the
        understanding that any obligation imposed upon the insured (including the
        liability to pay premiums) shall be the sole obligation of the applicable
        Debtor
        and not that of the Collateral Trustee, (ii) provide that the interest of
        the
        Collateral Trustee shall be insured regardless of any breach or violation
        by the
        applicable Debtor of any warranties, declarations or conditions contained
        in
        such policies or any action or inaction of such Debtor or others insured
        under
        such policies, (iii) provide a waiver of any right of the insurers to set
        off or
        counterclaim or any other deduction, whether by attachment or otherwise,
        (iv)
        provide that any and all rights of subrogation which the insurers may have
        or
        acquire shall be, at all times and in all respects, junior and subordinate
        to
        the prior payment in full of the Note Obligations and that no insurer shall
        exercise or assert any right of subrogation until such time as all Note
        Obligations have been paid in full, (v) provide, except in the case of public
        liability insurance and worker's compensation insurance, that all insurance
        proceeds for losses of less than $500,000 shall be adjusted with and payable
        to
        the applicable Debtor and that all insurance proceeds for losses of $500,000
        or
        more shall be adjusted with and payable to the Collateral Trustee, (vi) include
        effective waivers by the insurer of all claims for insurance premiums against
        the Collateral Trustee, (vii) provide that no cancellation of such policies
        for
        any reason (including non-payment of premium) nor any change therein shall
        be
        effective until at least thirty (30) days after receipt by the Collateral
        Trustee of written notice of such cancellation or change, (viii) be primary
        without right of contribution of any other insurance carried by or on behalf
        of
        any additional insureds with respect to their respective interests in the
        Collateral, and (ix) provide that inasmuch as the policy covers more than
        one
        insured, all terms, conditions, insuring agreements and endorsements (except
        limits of liability) shall operate as if there were a separate policy covering
        each insured. Each Debtor shall notify the Collateral Trustee promptly of
        any
        occurrence causing a material loss or decline in value of the Collateral
        and the
        estimated (or actual, if available) amount of such loss or decline. Without
        limiting the foregoing, the Company shall have, within 60 days after the
        Closing
        Date, $2,000,000 key-man insurance policies on each of the lives of McGinn
        and
        Few, which have been collaterally assigned to the Collateral Trustee pursuant
        to
        the Collateral Assignment of Life Insurance.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      The
        Company shall notify the Collateral Trustee of receipt of (i) any written
        notice
        from the Agent of an "Event of Default" under any of the Loan Documents or
        a
        written notice of demand for payment given to any Debtor, and (ii) any written
        notice sent by the Agent to any Debtor stating such party's intention to
        exercise any material enforcement rights or remedies against such Debtor,
        including written notice pertaining to any foreclosure on all or any material
        part of the Collateral or other judicial or non-judicial remedy in respect
        thereof, and any legal process served or filed in connection therewith.

       

      No
        later
        than 60 days after the Closing Date, the Company shall deliver to the Collateral
        Trustee (i) executed copies of waivers from mortgagees and landlords delivered
        to the Agent pursuant to Section 6.2 of the Credit Agreement and (ii)
        copies of policies of key man life insurance along with the Collateral
        Assignment of Life Insurance in respect of $2,000,000 of such coverage for
        each
        of McGinn and Few, along with evidence satisfactory to the Collateral Trustee
        that such policies are in full force and effect and that all premiums then
        due
        thereon have been paid.

       

      Each
        Debtor shall, as soon as reasonably practicable after the Issue Date but
        in any
        case not later than 60 days after the Issue Date, cause all of the Deposit
        Accounts set forth in Schedule
        IX
        hereto
        to be subject to a control agreement, which shall be in form and substance
        satisfactory to the Collateral Trustee and which shall be delivered by such
        Debtor to the Collateral Trustee (which shall enter into same). 

       

      Any
        expenses incurred in protecting, preserving or maintaining any Collateral
        shall
        be borne by the Debtors. Whenever an Event of Default shall be existing,
        subject
        to the provisions set forth in the Intercreditor Agreement, the Collateral
        Trustee shall have the right to bring suit to enforce any or all of the
        Intellectual Property or licenses thereunder, in which event the applicable
        Debtor shall, at the request of the Collateral Trustee, do any and all lawful
        acts and execute any and all proper documents required by the Collateral
        Trustee
        in aid of such enforcement, and such Debtor shall promptly, upon demand,
        reimburse and indemnify the Collateral Trustee for all expenses incurred
        by the
        Collateral Trustee in the exercise of its rights under this Section 6.
        Notwithstanding the foregoing, subject to Section 10 hereof, the Collateral
        Trustee shall have no obligation or liability regarding the Collateral by
        reason
        of, or arising out of, this Agreement.

       

      7.  Default
        and Remedies upon an Event of Default.

       

      (a)  If
        an
        Event of Default shall have occurred and be continuing, the Collateral Trustee
        may, subject to the provisions set forth in the Intercreditor Agreement,
        exercise (or cause its sub-agents to exercise) any or all of the remedies
        available to it under this Agreement.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      (b)  Without
        limiting the generality of the foregoing, if an Event of Default shall have
        occurred and be continuing, the Collateral Trustee may, subject to the
        provisions set forth in the Intercreditor Agreement, exercise, on behalf
        of the
        Secured Parties, all the rights of a secured party under the UCC (whether
        or not
        in effect in the jurisdiction where such rights are exercised) with respect
        to
        any Collateral and, in addition, the Collateral Trustee may, subject to the
        provisions set forth in the Intercreditor Agreement, sell, lease, license
        or
        otherwise dispose of the Collateral or any part thereof. Any required notice
        of
        any such sale or other disposition shall be given to the relevant Debtors
        as
        required in Section 9 hereof.

       

      8.  Application
        of Proceeds.

       

          At
        such
        intervals as may be agreed upon by the Company and the Collateral Trustee,
        or,
        if an Event of Default shall have occurred and be continuing, at any time
        at the
        Collateral Trustee's election, the Collateral Trustee shall apply all or
        any
        part of Proceeds constituting the Collateral, whether or not held in any
        Collateral Account, in payment of the Note Obligations in the order of
        application provided for in accordance with the provisions of the Indenture,
        subject to the Intercreditor Agreement.

       

      9.  Authority
        to Administer Collateral.
        Each
        Debtor irrevocably appoints the Collateral Trustee its true and lawful attorney
        with full power of substitution, in the name of such Debtor, for the sole
        use
        and benefit of the Secured Parties, but at Debtors' expense, to the extent
        permitted by law, to exercise, at any time and from time to time while an
        Event
        of Default shall have occurred and be continuing, subject to the provisions
        set
        forth in the Intercreditor Agreement, all or any of the following powers
        with
        respect to all or any of such Debtor's Collateral:

       

      (a)  to
        demand, sue for, collect, receive and give acquittance for any and all monies
        due or to become due upon or by virtue thereof;

       

      (b)  to
        settle, compromise, compound, prosecute or defend any action or proceeding
        with
        respect thereto;

       

      (c)  to
        sell,
        lease, license or otherwise dispose of the same or the Proceeds thereof,
        as
        fully and effectually as if the Collateral Trustee were the absolute owner
        thereof, and

       

      (d)  to
        extend
        the time of payment of any or all thereof and to make any allowance or other
        adjustment with reference thereto;

       

      provided
        that,
        except in the case of Collateral that is perishable or threatens to decline
        speedily in value or is of a type customarily sold on a recognized market,
        the
        Collateral Trustee will give the relevant Debtor ten days' prior written
        notice
        of the time and place of any public sale thereof or the time after which
        any
        private sale or other intended disposition thereof will be made, and such
        Debtor
        hereby agrees that such notice shall be deemed reasonable.

       

      10.  Limitation
        on Duty in Respect of Collateral.
        Beyond
        the exercise of reasonable care in the custody and preservation thereof,
        the
        Collateral Trustee will have no duty as to any Collateral in its possession
        or
        control or in the possession or control of any sub-agent or bailee or any
        income
        therefrom or as to the preservation of rights against prior parties or any
        other
        rights pertaining thereto. The Collateral Trustee will be deemed to have
        exercised reasonable care in the custody and preservation of the Collateral
        in
        its possession or control if such Collateral is accorded treatment substantially
        equal to that which it accords its own property, and will not be liable or
        responsible for any loss or damage to any Collateral, or for any diminution
        in
        the value thereof, by reason of any act or omission of any sub-agent or bailee
        selected by the Collateral Trustee in good faith or by reason of any act
        or
        omission by the Collateral Trustee, except to the extent that such liability
        arises from the Collateral Trustee's gross negligence or willful
        misconduct.

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      To
        the
        extent that applicable law imposes duties on the Collateral Trustee to exercise
        remedies in a commercially reasonable manner, each Debtor acknowledges and
        agrees that it is not commercially unreasonable for the Collateral Trustee:
        (a)
        to fail to incur expenses deemed significant by the Collateral Trustee to
        prepare Collateral for disposition or otherwise to complete raw material
        or
        work-in-process into finished goods or other finished products for disposition,
        (b) to fail to obtain third party consents for access to Collateral to be
        disposed of, or to obtain or, if not required by other law, to fail to obtain
        governmental or third party consents for the collection or disposition of
        Collateral to be collected or disposed of, (c) to fail to exercise collection
        remedies against Account Debtors or other Persons obligated on Collateral
        or to
        remove Liens on or any adverse claims against Collateral, (d) to exercise
        collection remedies against Account Debtors and other Persons obligated on
        Collateral directly or through the use of collection agencies and other
        collection specialists, (e) to advertise dispositions of Collateral through
        publications or media of general circulation, whether or not Collateral is
        of a
        specialized nature, (f) to contact other Persons, whether or not in the same
        business as such Debtor, for expressions of interest in acquiring all or
        any
        portion of Collateral, (g) to hire one or more professional auctioneers to
        assist in the disposition of Collateral, whether or not the collateral is
        of a
        specialized nature, (h) to dispose of Collateral by utilizing Internet sites
        that provide for the auction of assets of the types included in the Collateral
        or that have the reasonable capability of doing so, or that match buyers
        and
        sellers of assets, (i) to dispose of assets in wholesale rather than retail
        markets, (j) to disclaim disposition warranties, including, without limitation,
        any warranties of title, (k) to purchase insurance or credit enhancements
        to
        insure the Collateral Trustee against risks of loss, collection or disposition
        of Collateral, or to provide to the Collateral Trustee a guaranteed return
        from
        the collection or disposition of Collateral, or (l) to the extent deemed
        appropriate by the Collateral Trustee, to obtain the services of other brokers,
        investment bankers, consultants and other professionals to assist the Collateral
        Trustee in the collection or disposition of any of Collateral. Each Debtor
        acknowledges that the purpose of this Section 10 is to provide non-exhaustive
        indications of what actions or omissions by the Collateral Trustee would
        not be
        commercially unreasonable in the Collateral Trustee's exercise of remedies
        against Collateral and that other actions or omissions by the Collateral
        Trustee
        shall not be deemed commercially unreasonable solely on account of not being
        indicated in this Section 10. Without limitation upon the foregoing, nothing
        contained in this Section 10 shall be construed to grant any right to any
        Debtor
        or to impose any duties on the Collateral Trustee that would not have been
        granted or imposed by this Agreement or by applicable law in the absence
        of this
        Section 10.

       

      11.  General.

       

      (a)  All
        notices, requests, demands, directions and other communications (as used
        in this
        Section 11, collectively referred to as "notices") given to or made upon
        any
        party hereto under the provisions of this Agreement shall be in writing
        (including facsimile communication) unless otherwise expressly permitted
        hereunder and shall be delivered or sent by facsimile or via
        nationally-recognized overnight courier, by hand or U.S. mail to the respective
        parties at the addresses and numbers set forth under their respective names
        on
Schedule
        I
        hereof
        (for the Debtors), at the address set forth in the Indenture (for the Collateral
        Trustee) or in accordance with any subsequent unrevoked written direction
        from
        any party to the 

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

         

        others
          delivered pursuant to the requirements of this Section 11(a). All notices
          shall,
          except as otherwise expressly herein provided, be effective: (a) in the
          case of
          facsimile, when received, (b) in the case of hand-delivered notice, when
          hand-delivered, (c) in the case of telephonic notice, when telephoned,
          provided
          however,
          that in order to be effective, telephonic notices must be confirmed in
          writing
          no later than the next Business Day by letter or facsimile, (d) if given
          by
          mail, four days after such communication is deposited in the mail with
          first-class postage prepaid, return receipt requested, and (d) if given
          by any
          other means (including by air courier), when delivered; provided,
          that
          any notices to the Collateral Trustee shall not be effective until received.
          

      

       

      (b)  Each
        of
        the Debtors agrees to pay all expenses, including reasonable attorney's fees
        and
        charges (including time charges of attorneys who are employees of the Collateral
        Trustee) paid or incurred by the Collateral Trustee in endeavoring to collect
        the Note Obligations of such Debtor, or any part thereof, and in enforcing
        this
        Agreement against such Debtor, and such obligations will themselves be Note
        Obligations.

       

      (c)  No
        delay
        on the part of the Collateral Trustee in the exercise of any right or remedy
        shall operate as a waiver thereof, and no single or partial exercise by the
        Collateral Trustee of any right or remedy shall preclude other or further
        exercise thereof or the exercise of any other right or remedy.

       

      (d)  This
        Agreement shall remain in full force and effect until all Note Obligations
        have
        been paid in full. If at any time all or any part of any payment theretofor
        applied by the Collateral Trustee to any of the Note Obligations is or must
        be
        rescinded or returned by the Secured Parties for any reason whatsoever
        (including the insolvency, bankruptcy or reorganization of any Debtor), such
        Note Obligations shall, for the purposes of this Agreement, to the extent
        that
        such payment is or must be rescinded or returned, be deemed to have continued
        in
        existence, notwithstanding such application by the Collateral Trustee, and
        this
        Agreement shall continue to be effective or be reinstated, as the case may
        be,
        as to such Note Obligations, all as though such application by the Collateral
        Trustee had not been made.

       

      (e)  This
        Agreement shall be construed in accordance with and governed by the laws
        of the
        State of New York applicable to contracts made and to be performed entirely
        within such State. Whenever possible, each provision of this Agreement shall
        be
        interpreted in such manner as to be effective and valid under applicable
        law,
        but if any provision of this Agreement shall be prohibited by or invalid
        under
        applicable 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 Agreement.

       

      (f)  The
        rights and privileges of the Collateral Trustee hereunder shall inure to
        the
        benefit of its successors and assigns.

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      (g)  This
        Agreement may be executed in any number of counterparts and by the different
        parties hereto on separate counterparts, and each such counterpart shall
        be
        deemed to be an original, but all such counterparts shall together constitute
        one and the same Agreement. Each Subsidiary of the Company that is required
        to
        become a party to this Agreement pursuant to the Indenture shall become a
        Debtor
        for all purposes of this Agreement upon execution and delivery to the Collateral
        Trustee by such Subsidiary of a counterpart of this Agreement together with
        supplements to the Schedules hereto setting forth all relevant information
        with
        respect to such party as of the date of such delivery. Immediately upon such
        execution and delivery (and without any further action), each such Subsidiary
        will become a party to, and will be bound by all the terms of, this
        Agreement.

       

      (h)  ANY
        LEGAL
        SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT OR
        THE
        TRANSACTIONS CONTEMPLATED HEREBY ("RELATED PROCEEDINGS") MAY BE INSTITUTED
        IN
        THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE CITY OF
        NEW
        YORK, BOROUGH OF MANHATTAN, OR THE COURTS OF THE STATE OF NEW YORK IN EACH
        CASE
        LOCATED IN THE CITY OF NEW YORK (COLLECTIVELY, THE "SPECIFIED COURTS"), AND
        EACH
        PARTY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS
        IN
        ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF ANY PROCESS, SUMMONS, NOTICE
        OR
        DOCUMENT BY MAIL (TO THE EXTENT ALLOWED UNDER ANY APPLICABLE STATUTE OR RULE
        OF
        COURT) TO SUCH PARTY'S ADDRESS SET FORTH ABOVE SHALL BE EFFECTIVE SERVICE
        OF
        PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT.
        THE
        PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING
        OF
        VENUE OF ANY SUIT, ACTION OR OTHER PROCEEDING IN THE SPECIFIED COURTS AND
        IRREVOCABLY AND UNCONDITIONALLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN
        ANY
        SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

       

      (i)  Each
        Debtor hereby acknowledges that:

       

      
        	 	
                (b)

              	
                it
                  has been advised by counsel in the negotiation, execution and delivery
                  of
                  this Agreement, the other Collateral Documents, the Indenture and
                  the
                  Notes;

              

      

      

      
        	 	
                (c)

              	
                neither
                  the Collateral Trustee nor any Secured Party has any fiduciary
                  relationship with or duty to any Debtor arising out of or in connection
                  with this Agreement, the other Collateral Documents, the Indenture
                  or
                  Notes, and the relationship between the Debtors, on the one hand,
                  and the
                  Collateral Trustee and the Secured Parties, on the other hand,
                  in
                  connection herewith or therewith is solely that of debtor and
                  creditor.

              

      

      

      (j)  This
        Agreement, the other Collateral Documents, the Indenture and the Notes represent
        the agreement of the Debtors, the Collateral Trustee and the Secured Parties
        with respect to the subject matter hereof and thereof, and there are no
        promises, undertakings, representations or warranties by the Collateral Trustee
        or any Secured Party relative to subject matter hereof and thereof not expressly
        set forth or referred to herein, in the Indenture or in the Notes.

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

      (k)  None
        of
        the terms or provisions of this Agreement may be waived, amended, supplemented
        or otherwise modified except in accordance with the Indenture and the
        Intercreditor Agreement.

       

      (l)  If
        the
        Subsidiary Guarantee is released as to any Debtor pursuant to the Indenture,
        the
        Collateral of such Debtor shall be released from the Liens created hereby,
        and
        this Agreement and all obligations (other than those expressly stated to
        survive
        such termination) of such Debtor hereunder shall terminate, all without delivery
        of any instrument or performance of any act by any party (other than as set
        forth in the Indenture), and all rights to such Collateral shall revert to
        such
        Debtor, and the Collateral Trustee, at the request and sole expense of such
        Debtor, shall execute and deliver to such Debtor all releases or other documents
        reasonably necessary or desirable for the release of the Liens created hereby
        on
        such Collateral.

       

      (m)  In
        connection with its appointment and acting hereunder, the Collateral Trustee
        is
        entitled to all rights, privileges, protections, immunities, benefits and
        indemnities provided to it under the Indenture. All such indemnities shall
        survive the termination of this Agreement or the Indenture, or the resignation
        or removal of the Collateral Trustee. 

       

      (n)  Notwithstanding
        anything herein to the contrary, the lien and security interest granted to
        the
        Collateral Trustee pursuant to this Agreement and the exercise of any right
        or
        remedy by the Collateral Trustee hereunder are subject to the provisions
        of the
        Intercreditor Agreement. In the event of any conflict between the terms of
        the
        Intercreditor Agreement and this Agreement, the terms of the Intercreditor
        Agreement shall govern and control.

       

      

       

      [SIGNATURE
        PAGES FOLLOW]

       

      

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

      
      

      IN
        WITNESS WHEREOF, this Agreement has been duly executed as of the day and
        year
        first above written.

       

      

      DEBTORS:

      

      
        INTEGRATED
          ALARM SERVICES GROUP, INC.

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Chairman
          & CEO

        

        

        CRITICOM
          INTERNATIONAL CORPORATION

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Authorized
          Person

        

        

        MONITAL
          SIGNAL CORPORATION 

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Authorized
          Person

        

        

        MORLYN
          FINANCIAL GROUP, L.L.C.

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Authorized
          Person

        

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        

        PAYNE
          SECURITY GROUP, L.L.C.

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Manager

        

        

        GUARDIAN
          GROUP, LLC 

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Manager

        

        INTEGRATED
          ALARM SERVICES, INC.

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Chairman
          & CEO

        

        MADISON
          PROTECTION, INC.

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Authorized
          Person

        

        

        MONITAL
          FUNDING CORPORATION

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Authorized
          Person

        

        

        INTEGRATED
          ALARM AND SECURITY, LLC 

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Manager

        

        

        ALERT
          ALARM COMPANY, INC.

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Authorized
          Person

        

        

        

        AMERICAN
          BURGLAR & FIRE ALARM CO.

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Authorized
          Person

        

        

        

        
          
            
            

          

          
            S-1

            
              

            

          

          
            
            

          

        

        NORCO
          ALARMS, INC. 

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Authorized
          Person

        

        

        SECURITY
          GENERAL CORPORATION

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Authorized
          Person

        

        

        AMERICAN
          HOME SECURITY, INC.

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Authorized
          Person

        

        

        SHIELD
          SIGNAL CORP. 

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Authorized
          Person

        

        

        TELEGUARD
          SECURITY SYSTEMS INC.

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Authorized
          Person

        

        

        WALTER
          BREESE, INCORPORATED

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Authorized
          Person

        

        
          
            
            

          

          
            S-2

            
              

            

          

          
            
            

          

        

        EVEREST
          VIDEO SYSTEMS, L.L.C.

        

        By:
          /s/
          Timothy M. McGinn

        Name:
          Timothy
          M. McGinn

        Title:
          Authorized
          Person

        

        

        

        
          
            
            

          

          
            S-3

            
              

            

          

          
            
            

          

        

        

        WELLS
          FARGO BANK, N.A., 

        as
          Collateral Trustee

        

        

        By:
          /s/
          Joseph P. O'Donnell

        Name:
          Joseph
          P. O'Donnell

        Title:
          Assistant Vice President

        
          
            
            

          

          
            S-4

            
              

            

          

          
            
            

          

        

        
          Signature
            Page for the Notes Security Agreement dated as of November 16, 2004 (as
            amended,
            amended restated, supplemented or otherwise modified from time to time,
            the
            "Security
            Agreement"),
            among
            Integrated Alarm Services Group, Inc. (the "Company"), various subsidiaries
            of
            the Company and Wells
            Fargo Bank, N.A., as collateral trustee.

           

          The
            undersigned is executing a counterpart hereof as of ______, 200__ for
            purposes
            of becoming a party hereto (and attached to this signature page are supplements
            to the Schedules to the Security Agreement setting forth all relevant
            information with respect to the undersigned). 

           

          [NAME
            OF
            NEW DEBTOR] 

           

          By:
            ________________________________

          Name:
            ______________________________

          Title:
            _______________________________

          

        

        
        

      
        
          
             

             

             

             

          

          
          

        

        
          S-5

          
            

          

        

        
          
          

        

         

      

      SCHEDULE
        I

      

      (To
        Be Completed by Debtor)

      

      

      

      

      CHIEF
        EXECUTIVE OFFICES AND ADDRESSES OF DEBTOR

       

      

      

      
        	1.  	
                [Name
                  of Debtor]

              

      

      

      

      Chief
        Executive Office:

      

      

      

      Other
        Place of Business (or, if more than one, the Chief Executive
        Office):

      

      

      

      Notice
        Address:

      

       

      
      

      
        
          
             

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      SCHEDULE
        II

       

      (To
        Be Completed by Debtor)

      

      

      

      

      STATE
        OF INCORPORATION OR ORGANIZATION FOR EACH DEBTOR

       

      

      

      Information
        Required:

       

      

      Exact
        Legal Name:     [Name
        of Debtor]

      

      State
        or
        Organization:     [_____________]

      

      Type
        of
        Organization:     [_____________________________]

      

      Organizational
        I.D. Number:    [________]

      

      Federal
        Employer Identification Number:  [_________]

      

      

      

      

      

      

       

      
      

      
        
          
             

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

       

      SCHEDULE
        III

       

      (To
        Be Completed by Debtor)

      

      

      

      

      

      DBAs:

      

      

      

      
      

      
        
          
             

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

      SCHEDULE
        IV

       

      (To
        Be Completed by Debtor)

      

      

      

      

      INTELLECTUAL
        PROPERTY

       

      

      

      

      TRADEMARKS:

       

      

      Trademarks
        and service mark owned by or licensed to [_______________________]:

       

      

      

      

      

      PATENTS:

       

      

      (a) Copyrights:

      

      

      

      

      

      

      (b) Internet
        Web-Site Addresses:

      

      

      

      
      

      
        
          
             

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

      SCHEDULE
        V

       

      (To
        Be Completed by Debtor)

      

      

      

      

      

      Instruments: 

      

      

      

      Investment
        Property:

      

      

      Letter-of-Credit
        Rights:

      

      

      

      Chattel
        Paper:

      

      

      

      Documents:

      

      

      

       

      

      

      

      
      

      
        
          
             

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

      SCHEDULE
        VI

       

      (To
        Be Completed by Debtor)

      

      

      

      

      COLLATERAL
        NOT LOCATED IN THE UNITED STATES

       

      

      

      

      
      

      
        
          
             

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

      SCHEDULE
        VII

       

      (To
        Be Completed by Debtor)

      

      

      

      

      

      COLLATERAL
        LOCATED WITH THIRD PARTIES

       

      

      Alarm
        panels, devices and other alarm related equipment that is currently installed
        at
        customer locations pursuant to numerous service agreements. As of [____________],
        the
        depreciated value of such Collateral totaled approximately [$___________].

      

      

      

      

      

      
      

      
        
          
             

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

      SCHEDULE
        VIII

       

      (To
        Be Completed by Debtor)

      

      

      

      

      COLLATERAL
        SUBJECT TO CERTIFICATE OF TITLE STATUTE

       

      

      

      

      
        	
                 

                 

                 

                 

                Title
                  Owner

                 

              	
                 

                 

                 

                 

                VEH
                  #

                 

              	
                 

                 

                 

                 

                Garage
                  Location

                 

              	
                 

                 

                 

                 

                Year

                 

              	
                 

                 

                 

                 

                Make

                 

              	
                 

                 

                 

                 

                Model

                 

              	
                 

                 

                 

                 

                VIN
                  #

                 

              	
                 

                 

                 

                 

                Lic.
                  #

                 

              	
                 

                 

                 

                O
                  = Own

                NP
                  = FMCC

                 

              
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 

      

      

      

      

      
      

      
        
          
             

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

      SCHEDULE
        IX

       

      (To
        Be Completed by Debtor)

      

      

      

      

      LIST
        OF DEPOSIT ACCOUNTS

       

      

      

      

      
        	
                 

                 

                 

                 

                Debtor

                 

              	
                 

                 

                 

                 

                Bank

                 

              	
                 

                 

                 

                 

                Account
                  Description

                 

              	
                 

                 

                 

                 

                ABA
                  No.

                 

              	
                 

                 

                 

                 

                Account
                  No.

                 

              
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

      

      

      

      

      
      

      
        
          
             

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

      SCHEDULE
        2(e)

       

      (To
        Be Completed by Debtor)

      

      

      

      

      COMMERCIAL
        TORT CLAIMS

      

      

      (Provide
        a specific description of commercial tort claims currently in
        existence

      by
        referring, for example, to a specific incident giving rise to the
        claim.)

      

      

      
      

      
        
          
             

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      ATTACHMENT
        1 TO SCHEDULE 2(E)

      

      

      GRANT
        OF SECURITY INTEREST

      IN
        COMMERCIAL TORT CLAIM

      

      

      

      To: Wells
        Fargo Bank, N.A., as Collateral Trustee with respect to the

      Security
        Agreement described below.

      

      Pursuant
        to the terms of the Notes Security Agreement dated as of
        November 16, 2004,
        among us (the "Security
        Agreement"),
        we
        submit this Grant of Security Interest in Commercial Tort Claim to you and
        certify that the information set forth below is true, correct and complete
        as of
        the date hereof. Capitalized terms used herein and not otherwise defined
        shall
        have the meanings set forth in the Security Agreement.

       

      We
        hereby
        notify you of and grant to the Collateral Trustee, as collateral security
        for
        the Note Obligations, a lien on and security interest in, and right of set-off
        against, and acknowledge and agree that the Collateral Trustee has and shall
        continue to have for the benefit of the Secured Parties a continuing lien
        on and
        security interest in, and right of set-off against, all right, title, and
        interest, whether now owned or existing or hereafter created, acquired or
        arising, in and to the following Commercial Tort Claim:

       

      [Insert
        a specific description for the commercial tort claim, followed by the words
        "together with any and all proceeds and products thereof and all insurance
        relating thereto and the proceeds thereof".]

       

      The
        Commercial Tort Claim, proceeds and products and insurance described herein
        shall henceforth be included as part of the Collateral as described in the
        Security Agreement and the other Collateral Documents.

       

      

       

      DATED:

       

      Very
        truly yours,

      

      [NAME
        OF
        APPLICABLE DEBTOR]

       

       

          By:
        ______________________________________       

      Name: 
        __________________________________     

      Title:
        ___________________________________

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